Chapter 3 - The World is Flat

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  • Thriving in the marketing environment involves understanding the environmental factors. These are the factors we discussed as part of the SWOT analysis.\n
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  • The successful global business needs to set its sights on farflung markets around the world, but it needs to act locally by being willing to adapt its business practices to unique conditions in other parts of the globe—and hopefully to provide benefits to the people who live there as well.\n\n Thomas Friedman on The World Is Flat: http://www.youtube.com/watch?v=oM2BguxRSyY&NR=1\n
  • When firms consider going global, they must make a number of decisions. The first two crucial decisions are as follows:\n\n1. “Go” or “no go”—Is it in the best interest of the firm to remain in its home market or to go elsewhere where there are good opportunities?\n2. If the decision is “go,” which global markets are most attractive?\n\nKey factors in these decisions are the domestic and foreign market conditions and the unique capabilities of the firm that would provide a competitive advantage abroad. Finally, the company must consider the extent to which opportunities for success may be hampered by regulations or other constraints on trade that local governments or international bodies impose.\n\n
  • World trade refers to the flow of goods and services among different countries—the value of all the exports and imports of the world’s nations. World trade activity steadily increases year by year.\n\nIn some countries, because sufficient cash or credit is simply not available, trading firms work out elaborate deals in which they trade (or barter) their products with each other or even supply goods in return for tax breaks from the local government. This countertrade accounts for about 25 percent of all world trade.\n\nGroups of countries may also band together to promote trade among themselves and make it easier for member nations to compete elsewhere. These economic communities coordinate\ntrade policies and ease restrictions on the flow of products and capital across their borders.\n\nEconomic communities are important to marketers because they set policies in areas such as product content, package labeling, and advertising regulations that influence strategic decisions when they do business in these areas.\n
  • World trade refers to the flow of goods and services among different countries—the value of all the exports and imports of the world’s nations. World trade activity steadily increases year by year.\n\nIn some countries, because sufficient cash or credit is simply not available, trading firms work out elaborate deals in which they trade (or barter) their products with each other or even supply goods in return for tax breaks from the local government. This countertrade accounts for about 25 percent of all world trade.\n\nGroups of countries may also band together to promote trade among themselves and make it easier for member nations to compete elsewhere. These economic communities coordinate\ntrade policies and ease restrictions on the flow of products and capital across their borders.\n\nEconomic communities are important to marketers because they set policies in areas such as product content, package labeling, and advertising regulations that influence strategic decisions when they do business in these areas.\n
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  • Once a marketer makes initial decisions about whether or not to go global and about what country or countries provide attractive opportunities, he must gain a good understanding of the local conditions in the targeted country or region.\n\nMany times, a firm makes a decision to go global because domestic demand is declining while demand in foreign markets is growing.\n\nEconomic, Competitive, Technological, Political/Legal, and Sociocultural are the important factors to consider when analyzing the firm’s “external environment”.\n\nFirms hope to create competitive advantage over rivals. When firms compete in a global marketplace, this challenge is even greater because there are more players involved, and typically some of these local firms have a “home-court advantage.” Firms need to capitalize on their home country’s assets and avoid competing in areas in which they are at a disadvantage.\n
  • Once a marketer makes initial decisions about whether or not to go global and about what country or countries provide attractive opportunities, he must gain a good understanding of the local conditions in the targeted country or region.\n\nMany times, a firm makes a decision to go global because domestic demand is declining while demand in foreign markets is growing.\n\nEconomic, Competitive, Technological, Political/Legal, and Sociocultural are the important factors to consider when analyzing the firm’s “external environment”.\n\nFirms hope to create competitive advantage over rivals. When firms compete in a global marketplace, this challenge is even greater because there are more players involved, and typically some of these local firms have a “home-court advantage.” Firms need to capitalize on their home country’s assets and avoid competing in areas in which they are at a disadvantage.\n
  • Once a marketer makes initial decisions about whether or not to go global and about what country or countries provide attractive opportunities, he must gain a good understanding of the local conditions in the targeted country or region.\n\nMany times, a firm makes a decision to go global because domestic demand is declining while demand in foreign markets is growing.\n\nEconomic, Competitive, Technological, Political/Legal, and Sociocultural are the important factors to consider when analyzing the firm’s “external environment”.\n\nFirms hope to create competitive advantage over rivals. When firms compete in a global marketplace, this challenge is even greater because there are more players involved, and typically some of these local firms have a “home-court advantage.” Firms need to capitalize on their home country’s assets and avoid competing in areas in which they are at a disadvantage.\n
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  • Understanding the economy of a country in which a firm does business is vital to the success of marketing plans.\n\nThe most commonly used measure of economic health of a country is the gross domestic product (GDP): the total dollar value of goods and services a country produces within its borders in a year. A similar but less frequently used measure of economic health is the gross national product (GNP), which measures the value of all goods and services a country’s individuals or organizations produce, whether located within the country’s borders or not. In addition to total GDP, marketers may also compare countries on the basis of per capita GDP: the total GDP divided by the number of people in a country.\n\nGDP alone does not provide the information marketers need to decide if a country’s economic environment makes for an attractive market. They also need to consider whether they can conduct “business as usual” in another country. The economic infrastructure refers to the quality of a country’s distribution, financial, and communications systems.\n
  • Level of Economic Development\nLevel of economic development takes into consideration the broader economic picture of a country.\n\nA country’s standard of living is an indicator of the average quality and quantity of goods and services a country consumes.\n\nEconomists describe the following three basic levels of development:\n\n•A country at the lowest stage of economic development is a least developed country (LDC). In most cases, its economic base is agricultural. In least developed countries, the standard of living is low, as are literacy levels.\n•When an economy shifts its emphasis from agriculture to industry, standards of living, education, and the use of technology rise. These countries are developing countries. In such locales, there may be a viable middle class, often largely composed of entrepreneurs working hard to run successful small businesses. Because over three-fourths of the world’s population lives in developing countries, the number of potential customers and the presence of a skilled labor force attracts many firms to these areas.\nA developed country boasts sophisticated marketing systems, strong private enterprise, and bountiful market potential for many goods and services. Such countries are economically advanced, and they offer a wide range of opportunities for international marketers.\n
  • An increasing number of firms around the globe engage in competitive intelligence (CI) activities, the process of gathering and analyzing publicly available information about rivals. The firm uses this information to develop superior marketing strategies\n\n Competition in the Microenvironment\nCompetition in the microenvironment means the product alternatives from which members of a target market may choose. We think of these choices at three different levels. At a broad level, marketers compete for consumers’ discretionary income: the amount of money people have left after paying for necessities such as housing, utilities, food, and clothing. A second type of choice is product competition, in which competitors offering different products attempt to satisfy the same consumers’ needs and wants. The third type of choice is brand competition, in which competitors offering similar goods or services vie for consumer dollars.\n\n
  • Competition in the Macroenvironment\nWhen we talk about examining competition in the macroenvironment, we mean that marketers need to understand the big picture—the overall structure of their industry.\n\nFour structures describe differing amounts of competition.\n•A monopoly exists when one seller controls a market.\n•In an oligopoly, there are a relatively small number of sellers, each holding substantial market share, in a market with many buyers.\n•In a state of monopolistic competition, there are many sellers who compete for buyers in a market.\nFinally, perfect competition exists when there are many small sellers, each offering basically the same good or service.\n
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  • The Political and Legal Environment\nThe political and legal environment refers to the local, state, national, and global laws and regulations that affect businesses\n
  • The Political and Legal Environment\nThe political and legal environment refers to the local, state, national, and global laws and regulations that affect businesses.\n\nAmerican Laws\nLaws in the United States governing business have two purposes. Some such as the Sherman Antitrust Act and the Wheeler–Lea Act make sure that businesses compete fairly with each other. Others, such as the Food and Drug Act and the Consumer Products Safety Commission Act, make sure that businesses don’t take advantage of consumers.\n\nPolitical Constraints on Trade\nGlobal firms know that the political actions a government takes can drastically affect their business operations. Short of war, though, a country may impose economic sanctions that prohibit trade with another country (as the United States has done with several countries, including Cuba and North Korea), so access to some markets may be cut off. Nationalization is when the domestic government reimburses a foreign company (often not for the full value) for its assets after taking it over. Expropriation is when a domestic government seizes a foreign company’s assets (and that firm is just out of luck).\n\n\n
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  • The Sociocultural Environment\nAnother element of a firm’s external environment is the sociocultural environment. This term refers to the characteristics of the society, the people who live in that society, and the culture that reflects the values and beliefs of the society. Whether at home or in global markets, marketers need to understand and adapt to the customs, characteristics, and practices of its citizens.\n\nDemographics are statistics that measure observable aspects of a population, such as size, age, gender, ethnic group, income, education, occupation, and family structure.\n\nValues\nEvery society has a set of cultural values, or deeply held beliefs about right and wrong ways to live, that it imparts to its members.\n\nIn collectivist cultures, such as those found in Venezuela, Pakistan, Taiwan, Thailand, Turkey, Greece, and Portugal, people tend to subordinate their personal goals to those of a stable community. In contrast, consumers in individualist cultures, such as the United States, Australia, Great Britain, Canada, and the Netherlands, tend to attach more importance to personal goals, and people are more likely to change memberships when the demands of the group become too costly.\n\nNorms and Customs\nNorms are specific rules dictating what is right or wrong, acceptable or unacceptable. Some specific types of norms include the following:\n\nLanguage\nLanguage barriers can affect product labeling and usage instructions, advertising, and personal selling.\n\nEthnocentrism\nIn marketing, we call the tendency to prefer products or people of one’s own culture over those from other countries ethnocentrism.\n\n\n
  • Standardization versus Localization\nWhen top management makes a company-level decision to expand internationally, the firm’s marketers have to answer a crucial question: How necessary is it to develop a customized marketing mix for each country?\n\nGillette decided to offer the same products in all its markets—a standardization strategy. In contrast, Proctor & Gamble (P&G) adopted a localization strategy in Asia, where consumers like to experiment with different brands of shampoo.\n\nAdvocates of standardization argue that the world has become so small that basic needs and wants are the same everywhere. In contrast, those in favor of localization feel that the world is not that small; you need to tailor products and promotional messages to local environments. These marketers feel that each culture is unique and that each country has a national character—a distinctive set of behavioral and personality characteristics.\n\nProduct Decisions A firm seeking to sell a product in a foreign market has three choices: sell the same product in the new market, modify it for that market, or develop a brand-new product to sell there.\n•A straight extension strategy retains the same product for domestic and foreign markets.\n•A product adaptation strategy recognizes that in many cases people in different cultures do have strong and different product preferences.\n•A product invention strategy means a company develops a new product as it expands to foreign markets. In some cases, a product invention strategy takes the form of backward invention. A firm may find that it needs to offer a less complex product than it sells elsewhere.\n\nPromotion Decisions Marketers must also decide whether it’s necessary to modify their product promotions for a foreign market. Some firms endorse the idea that the same message will appeal to everyone around the world, while others feel the need to customize it.\n\n
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  • Chapter 3 - The World is Flat

    1. 1. Chapter 3The World is Flat? Ch 3: Module 1
    2. 2. Chapter Objectives•Understand the big picture of international marketing, including world trade flows and the decision criteria firms use in their decisions to go global.•Explain economic communities, and how countries protect local industries by establishing roadblocks to foreign companies.•Understand how factors in the external business environment influence marketing strategies and outcomes.•Explain the strategies that a firm can use to enter global markets.
    3. 3. How is the World Flat?
    4. 4. The World Is Flat.In a Flat World: Ideas, Information, Products, Services, Companies, and Cultures arebecoming integrated.• The internet has paved the way• Advanced product technologies and production efficiencies pave the way• Multiculturalism paves the way• Multi-national brands pave the way• Creativity becomes reality.
    5. 5. Thomas Friedman on The World is Flat
    6. 6. Global Market Decision Process Step 1: Should we? Step 2: If so, which markets? Step 3: How committed are we? Step 4: How do we adapt our marketing strategies?
    7. 7. World Trade: is the flow of goods & services between 2 or more countries, i.e.The value of all exports and imports.• Imports - Goods a country brings in from other countries.• Exports - Goods a country distributes or sells to other nations.• GDP - Total dollar value of goods/services produced by a nation within its borders in a year• GNP - Total value of all goods/services produced by a nation by its organizations & citizens across all borders, in a year
    8. 8. World Trade: is the flow of goods & services between 2 or more countries, i.e.The value of all exports and imports.• Imports - Goods a country brings in from other countries.• Exports - Goods a country distributes or sells to other nations.• GDP - Total dollar value of goods/services produced by a nation within its borders in a year• GNP - Total value of all goods/services produced by a nation by its organizations & citizens across all borders, in a year W hat is ntert rade? cou
    9. 9. World Trade: is the flow of goods & services between 2 or more countries, i.e.The value of all exports and imports.• Imports - Goods a country brings in from other countries.• Exports - Goods a country distributes or sells to other nations.• GDP - Total dollar value of goods/services produced by a nation within its borders in a year• GNP - Total value of all goods/services produced by a nation by its organizations & citizens across all borders, in a year 25% o ff all W hat is lobal trade ntert rade? g cou
    10. 10. Should we... Go Global? Consider important facts before deciding to market/sell/build your products globally. • The Good - Businesses like Wal-Mart and McDonald’s benefit from extremely high revenue from global trade. Trade can improve growing economies by providing needed technologies and infrastructures. • The Bad - We have less control over product quality, service & processes. Cultural differences can be an issue.
    11. 11. Target goes Canadian!"We will match item by item on price with Wal-Mart," where it is the topcompetitor in any given Canadian trade area, said Gregg Steinhafel, Targetschief executive."We offer a superior value proposition, as a high-quality merchant with amore unique assortment that [also] competes with specialty stores."He said the company envisions eventually opening 200 to 250 outlets acrossCanada.More significantly for Canadian retail, which has been steadilyoutperforming the U.S. sector since the recession, the deal is a boon forCanadian retail real estate,
    12. 12. End Module 1
    13. 13. Chapter 3The World is Flat? Ch 3: Module 2
    14. 14. Should the firm go Global?Analyze the Market Environment nolo gical Tech Economic Politic al/Legal Competitive Decisions Sociocultural
    15. 15. Should the firm go Global?Analyze the Market Environment nolo gical Tech Economic Politic al/Legal Competitive Decisions Sociocultural
    16. 16. Should the firm go Global?Analyze the Market Environment nolo gical Tech Economic Politic al/Legal Competitive Decisions Sociocultural ENVIRONMENTAL FORCES = S.W.O.T.
    17. 17. Should the firm go Global?Analyze the Market Environment nolo gical Tech Economic Politic al/Legal Competitive Decisions Sociocultural ENVIRONMENTAL FORCES = S.W.O.T.
    18. 18. Global Market Scanning:Finding Barriers & Openings
    19. 19. Economic Decisions Questions to Ask: China’s Regarding Economic Economy Environments. • Is it healthy? GDP & GNP Video • Is it developing consistently? • What is the standard of living? • What income are people making? Can they afford your product?
    20. 20. Economic Decisions Questions to Ask: China’s Regarding Economic Economy Environments. • Is it healthy? GDP & GNP Video • Is it developing consistently? • What is the standard of living? • What income are people making? Can they afford your product?
    21. 21. Standard of Living • Least Developed Country (LDL) • Developing (including BRIC)Economic • Developed Decisions
    22. 22. Competitive Decisions Competition in the MicroenvironmentDiscretionary - the money we have left over afterpaying for “necessities” of living: food, shelter, insurance,etc... All firms are competing for our discretionaryincome.Product - Competitors with different productscan meet our basic needs and wants.Brand - Competitors with very similar offeringsare vying for our money.
    23. 23. Competitive Decisions
    24. 24. End Module 2
    25. 25. Chapter 3Module 3
    26. 26. Technological Decisions India Peru Does technology impact Is technology creating consumer values? business opportunities?
    27. 27. Political/Regulatory Decisions Major Blocks: both the importing and exporting country may have unsurmountable roadblocks prohibiting or limiting trade and globalization. • Protectionism: gives domestic companies advantages - enforces rules on foreign firms. • Import Quotas: limits on the amount of goods entering or leaving the country. Helps keep local prices up. • Embargo: prohibition of certain goods. Cigars, bananas, animals, “blood diamonds”. • Tariffs: Taxes on imported goods. Foreign goods become more expensive. • Economic Sanctions: Domestic country prohibits trade with another country
    28. 28. Political/Regulatory DecisionsEconomic Communities: Have agreat deal of political/legal power forgoverning world trade. EC’s coordinatetrade policies and ease restrictions of theflow of products and capital acrossborders.Useful Website: http://dataweb.usitc.gov/
    29. 29. Sociocultural DecisionsQuestions to Ask: SocioculturalFactors• Are there changes in demographics?• Are there obvious or projected cultural changes?• Are values changing? E.g time valuation.• Are there distinct norms of society? E.g. Customs (norms passed down)• Are local consumers ethnocentric? (prefer local products)
    30. 30. How to market globally based onthe external environment?Standardization vs. LocalizationStraight Extension Strategy: Offerthe same product in both domestic andforeign markets.Product Adaptation Strategy: Offer asimilar but modified product in foreign markets.Product Invention Strategy: A new productis developed specifically for foreign markets.
    31. 31. Should you go Global? gical Tec hnolo Economic Politica l/Legal Competitive Decisions Sociocultural
    32. 32. Should you go Global? gical Tec hnolo Economic Politica l/Legal Competitive Decisions Sociocultural
    33. 33. Should you go Global? log ical Tec hno Economic itical/ Legal PolCompetitive Decisions S ociocultural
    34. 34. End Chapter 3

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