At the turn of the century, some major events that helped shape our world and influence international marketing include the technological bubble bust of 2001 (where dot-com companies and their effervescent models did not live up to the standards of customers and cost a lot of money for venture capitalists), the terrorism on 9/11 (which almost destroyed the airline industry; the disaster was ameliorated by the injection of funds from the government), the resulting Afghanistan and Iraq wars (which cost taxpayers a lot of money and pretty much divided the country politically, although President Bush won a second term despite the decision to go to war), the 2003 SARS outbreak in Asia (which affected tourism in Asia and send the stock market plummeting), the Indian ocean Tsunami in December 2004 (that affected the economies of India, Indonesia, and Sumatra), price of oil at $100 a barrel (that sent gas prices skyrocketing in the U. S.), and the NASA budget cuts that threatened the demise of the space shuttle program (which also threatens discovery into the frontiers of space).
Even with all the events at the turn of the century, the consumer continued to spend despite the layoffs at United Airlines and Boeing and the tough job market. This was only the beginning of the slowdown in the economy which began in the housing market, where loans were given out to people who could not afford homes and were mortgaging homes on an Adjustable Rate Mortgage (ARM). The Federal Reserve raised the interest rates, causing mortgage interest rates to go up, which raised mortgage payments, thereby ending in nationwide foreclosures. Banks stopped giving credit. The housing bubble finally burst during September and October of 2008 and the American consumer stopped buying causing a 12 percent drop, the deepest decline in world trade in 50 years! Also, international trade tensions continue to rise from new comers in the market: China, Brazil and India. All three of these countries has seen a rise in the income level and population of their middle class. Finally, the U.S. trade deficit keeps rising and it stands at $700 billion (at this writing). Now let us look at some of the trends affecting global business.
This is what you will be learning in this first chapter: Define International Marketing, learn the benefits of international marketing, the globalization of U.S. corporations, the international marketing task, the imperativeness of Environmental Adaptation, the problem of Self-reference criterion and Ethnocentrism, developing a global Mindset, the stages of international marketing involvement, and the orientation of international marketing.
Global commerce causes peace. Let us look at two companies that use their business to promote peace, at least indirectly. Boeing Company, with more than 11,000 commercial jets in service around the world and carrying about one billion travelers per year, engages in global marketing and peace when it sells its aircraft to airlines around the world. And, all the activity associated with the development, production, and marketing of commercial aircraft and space vehicles requires millions of people from around the world to work together. Building both business and personal relationships is the foundation of global peace and prosperity. Another company also making a difference, perhaps a subtler one than large multinational companies, but one just as important in the aggregate, is PeaceWorks. The company, that fosters a joint venture between Arabs and Israelis, creates gourmet food and has over 5000 stores in the U. S. Whether or not a U.S. company wants to participate directly in international business, there is one undeniable fact: international markets are ultimately unpredictable. In order to survive, organizations have to be flexible.
Of all the events and trends affecting global business today, four stand out as the most dynamic, that will influencethe shape of international business beyond today’s “bumpy roads” and far into the future. They are: the rapid growth of the World Trade Organization (WTO) and NAFTA and EU (regional free trade areas), the trendtoward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe (traditionally these countries were either socialistic or communist), the burgeoning impact of the Internet, mobile phones, and other global media on the dissolution of national borders (the internet has made it possible for small, medium-sized, and large business to access new markets), and the mandate to properly manage the resources and global environment for the generations to come (this is the “green” marketing era, or the era where consumers are wanting products that meet their needs but also benefits the environment).
There is an increasing globalization of markets. With the increasing globalization of markets, companies find they are unavoidably enmeshed with foreign customers, competitors, and suppliers, even within their own borders. Examples of such companies are Sony, Norelco, Samsung, Honda, Toyota, and Nescafe. Many U.S. companies are foreign controlled such as, 7-Eleven and Firestone – Japan, Carnation – Switzerland, Wall Street Journal – Australia,Smith & Wesson – Britain, and Zenith – South Korea (LG Electronics). The next slide shows the foreign acquisition U.S. companies.
Foreign companies are here to stay in the U.S. and compete with U.S. companies. The market is full of great worldwide acquisitions both by U.S. and foreign companies. Why are global markets a necessity? Here are the reasons: foreign earnings will contribute to a higher percentage of profits, multinationals outperform domestic firms (A four-year Conference Board study of 1,250 U.S. manufacturing companies found that multinationals of all sizes and in all industries outperformed their strictly domestic U.S. counterparts. They grew twice as fast in sales and earned significantly higher returns on equity and assets), global value increased through global diversification, and intensifying domestic competition (looking beyond borders)
International marketing is defined as “the performance of business activities designed to plan, price, promote, and direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit. The only difference between the definitions of domestic marketing and international marketing is the “environment.” That is, in international marketing, activities take place in more than one country. This difference in environment accounts for the complexity and diversity found in international marketing operations. The complexities include competition, legal restraints, government controls, weather, fickle consumers, economic conditions, technological constraints, infrastructure concerns, culture, and political situations.
To be successful in the international marketplace, marketers must be able to effectively interpret the influence and impact of each of the uncontrollable environmental elements on the marketing plan for each foreign market in which they hope to do business. The most challenging and important adaptation international marketers must make is cultural adjustments. Because judgments are derived from experience that is the result of acculturation in the home country, marketers must have two strategies: must establish frames of reference and “culture conditioning.” Once a frame of reference is established, it becomes an important factor in determining or modifying a marketer’s reaction to situations—social and even nonsocial. For example, “time” is not valued the same way in many countries. Also hand gestures vary between countries. Cultural conditioning is like an iceberg—we are not aware of nine-tenths of it. In any study of the market systems of different peoples, their political and economic structures, religions, and other elements of culture, foreign marketers must constantly guard against measuring and assessing the markets against the fixed values and assumptions of their own cultures.
The key to successful international marketing is adaptation to the environmental differences from one market to another. Adaptation is a conscious effort on the part of the international marketer to anticipate the influences of both the foreign and domestic uncontrollable factors on a marketing mix and then to adjust the marketing mix to minimize the effects. Two primary obstacles to success in international marketing are Self-Reference Criterion (SRC) and Ethnocentrism. They are explained in detail in the next few slides.
Self-Reference Criterion (SRC) is an unconscious reference to one’s own cultural values, experiences, and knowledge as a basis for decisions. The risks of SRC are great. SRC can prevent marketing managers from being aware of cultural differences or from recognizing the importance of those differences. This will result in firms failing to recognize the need to take action, discounting the cultural differences that exist among countries, and reacting to a situation in a way offensive to your hosts. A common mistake made by Americans is to refuse food or drink when offered. In the United States, a polite refusal is certainly acceptable, but in Asia or the Middle East, a host is offended if you refuse hospitality. Although you do not have to eat or drink much, you do have to accept the offering of hospitality. Also, SRC influences the evaluation of the appropriateness of a domestically designed marketing mix for a foreign market.
Closely connected to SRC is ethnocentrism – the notion that people in one’s own company, culture, or country know best how to do things. Ethnocentrism is generally a problem when managers from affluent countries work with managers and markets in less affluent countries. The risk of ethnocentrism is that it impedes the ability to assess a foreign market in its true light.
The most effective way to control the influence of SRC and ethnocentrism is to recognize their effects on our behavior. In order to avoid many of the mistakes possible in international marketing, it is important to have an awareness of the need to be sensitive to differences and to ask questions when doing business in another culture. For example, asking the appropriate question helped the Vicks Company avoid making a mistake in Germany. It discovered that in German “Vicks” sounds like the crudest slang equivalent of “intercourse,” so they changed the name to “Wicks” before introducing the product. Another way to control the influence of SRC and ethnocentrism is to recognize that there may be more similarities than differences between countries. For example, McVitie’s chocolate biscuits are sold in the same package in the U.S. as in the United Kingdom. Finally, the international marketing must conduct cross-cultural analysis.
To avoid errors in business decisions, the international marketer will conduct a cross-cultural analysis that isolates the SRC influences and will maintain a vigilance regarding ethnocentrism. The following is a suggested framework for cross-cultural analysis: Define the business problem or goal in home-country cultural traits, habits, or norms; Define the business problem or goal in foreign-country cultural traits, habits, or norms through consultation with natives of the target country; Isolate the SRC influence in the problem and examine it carefully to see how it complicates the problem; and, Redefine the problem without the SRC influence and solve for the optimum business goal situation.
Opportunities in global business abound for those who are prepared to confront myriad obstacles with optimism and a willingness to continue learning new ways. The successful businessperson in the 21st century will have global awareness and a frame of reference that goes beyond a region or even a country and encompasses the world. To be globally aware is to have tolerance of cultural differences (You do not have to accept as your own the cultural ways of another, but you must allow others to be different and equal) and knowledge of cultures, history, world market potential, and global economic, social, and political trends (the former republics of the Soviet Union, along with Russia, Eastern Europe, China, India, Africa, and Latin America are undergoing economic, political, and social changes that have already influenced their status in world business).
Global awareness can and should be built in organizations using several approaches. The first and obvious strategy is to select individual managers that express a global awareness orientation. Global awareness can also be obtained through personal relationships in other countries. Indeed, market entry is very often facilitated through previously established social ties. Foreign agents and partners can also help directly in this regard. A final, and perhaps the most effective approach, is to have a culturally diverse senior executive staff or board of directors. Unfortunately, American managers seem to see relatively less value in this last approach than managers in most other countries.
Once a company has decided to go international, it has to decide the degree of marketing involvement and commitment it is willing to make. In general, one of five (sometimes overlapping) stages can describe the international marketing involvement and commitment of a company. These include: No direct foreign marketing,Infrequent foreign marketing, Regular foreign marketing, International marketing, and Global marketing. The first two stages are “reactive” in nature and the remaining three are “proactive.” Rather than progressing from one stage to another; a firm may begin its international involvement at any one stage or be in more than one stage simultaneously. For example, because of a short product life cycle and a thin but widespread market for many technology products, many high-tech companies large and small see the entire world, including their home market, as a single market and strive to reach all possible customers as rapidly as possible.
A company in the “no direct foreign marketing” stage does not actively (thereby being “reactive”) cultivate customers outside national boundaries; however, this company’s products may reach foreign markets. Its products reach foreign markets through sales made to trading companies, to foreign customers who directly contact the firm, to domestic wholesalers or distributors who sell abroad without explicit encouragement or even knowledge of the producer, and through web sites. Often an unsolicited order from a foreign buyer is what piques the interest of a company to seek additional international sales. This is why this stage is more of a “reactive” stage as the firm does not actively seek foreign markets, but does so when a foreign order comes its way.
The infrequent foreign marketing stage is also a “reactive” stage as foreign production is caused by temporary surpluses caused by variations in production levels or demand may result in infrequent marketing overseas. Hence, sales to foreign markets are made as goods are available, with little or no intention of maintaining continuous market representation. As domestic demand increases and absorbs surpluses, foreign sales activity is reduced or even withdrawn. In this stage, little or no change is seen in company organization or product lines. However, few companies today fit this model because customers around the world increasingly seek long-term commercial relationships. Further, evidence exists that financial returns from initial international expansions are limited. Again, this stage has companies not “actively” seeking foreign markets and thereby being “reactive” in its approach to global business.
When a firm has permanent production capacity devoted to foreign markets, it has reached the “regular foreign marketing” stage. At this point, the firm may employ domestic or foreign intermediaries, or it may have its own sales force or sales subsidiaries in strategic foreign markets. While the primary focus of operations and production is to service domestic market needs, as overseas demand grows, production is allocated for foreign markets, and products may be adapted to meet their needs. Profit expectations from foreign markets move from being seen as a bonus to regular domestic profits to a position in which the company becomes dependent on foreign sales and profits to meet its goals. In this stage the company is “proactive” in its approach to global business as it wants to develop foreign sales. MeterMan, a small company of 25 employees from southern Minnesota that makes agricultural measuring devices, is a good example of this stage. It began manufacturing in 1955 and began exporting in 1989; by 1992 the company was shipping products to Europe. Today one-third of its sales are from 35 countries.
Companies in this stage are full committed to and involved in international marketing activities. They are “proactively” searching for newer global markets. They also plan on having production facilities in foreign countries to effectively reduce cost and meet the needs of their customers. Firms in this stage are usually called Multi National Corporations (MNCs). A good example of this is Fedders and its extremely proactive approach to garnering international markets: It decided that Asia, with its steamy climate and expanding middle class, offered the best opportunity for its air conditioners. After studying the Chinese market, they designed a new type of air conditioner: the split unit. It was great success and the company plan to introduce them in the U.S.!
At this stage, there is a profound change in the orientation of the company toward markets and associated planning activities. Companies treat the world, including their home market, as one market. Companies have oriented their thinking toward one market and become more “proactive” in seeing the world as one market. Market segmentation decisions are no longer focused on national borders. Instead, market segments are defined by income levels, usage patterns, or other factors that often span countries and regions. Often this transition from international marketing to global marketing is catalyzed by a company’s crossing the threshold of more than half its sales revenues coming from abroad (GE, Siemens, Apple). The best people in the company begin to seek international assignments, and the entire operation – organizational structure, sources of finance, production, marketing, and so forth – begins to take on a global perspective.
The global market orientation or philosophy entails operating as if all the country markets in a company’s scope of operations (including the domestic market) were approachable as a single global market and standardizing the marketing mix where culturally feasible and cost effective. This type of firm strives for efficiencies of scale by developing a standardized marketing mix applicable across national boundaries. Markets are still segmented, but country or region is considered side by side with a variety of other segmentation variables, such as consumer characteristics (age, income, language group), usage patterns, and legal constraints. The world as a whole is viewed as the market, and the firm develops a global marketing strategy). Coca-Cola Company, Ford Motor Company, and Intel are among the companies that can be described as global companies. But there are companies who also use a “transnational” strategy, which is a mix of both global and multidomestic strategies. For example, depending on the product and market, firms may pursue a global market strategy for one product (global market orientation – P&G diapers) but a multidomestic strategy for another product (international market orientation = P&G detergents.
The orientation of this textbook is an environmental/cultural approach to international strategic marketing. Most problems encountered by the foreign marketer result from the strangeness of the environment within which marketing programs must be implemented. Success hinges, in part, on the ability to assess and adjust properly to the impact of a strange environment. The successful international marketer possesses the best qualities of the anthropologist, sociologist, psychologist, diplomat, lawyer, prophet, and businessperson. Therefore, the orientation of this text is described as an environmental/cultural approach to international marketing. The aim of this textbook is to demonstrate the unique problems of international marketing. Finally, although marketing principles are universally applicable, the cultural environment within which the marketer must implement marketing plans can change dramatically from country to country. Therefore, the textbook attempts to relate the foreign environment to the marketing process and to illustrate the many ways in which culture can influence the marketing task.
Student international marketing_15th_edition_chapter_1
Introduction (1 of 2) 1• Major events at the turn of the century: – The technological bubble bust of 2001 – Terrorism on 9/11 – The Afghanistan and Iraq wars – The 2003 SARS outbreak in Asia – The Indian ocean Tsunami in December 2004 – Price of oil at $100 a barrel – NASA budget cuts threaten the demise of the space shuttle program Roy Philip 1-2
Introduction (2 of 2) 1• Consumer spending rose despite the layoffs at United Airlines and Boeing and the tough job market• The housing bubble burst during the end of 2008 and the American consumer stopped buying causing a 12 percent drop, the deepest decline in world trade in 50 years!• International trade tensions are rising from competitors in China, Brazil and India• The U.S. trade deficit keeps rising Roy Philip 1-3
Overview of Chapter 1 1• What is International Marketing?• Benefits of International Marketing• Globalization of U.S. corporations• International marketing task• Imperativeness of Environmental Adaptation• Self-reference criterion and Ethnocentrism• Developing a global mindset• Stages of international marketing involvement• The orientation of international marketing Roy Philip 1-4
Global Perspective 1 Global Commerce Causes Peace• The role of world trade and international marketing in producing peace• International marketing promotes peace and prosperity through the marketing of products and services that meet the needs and wants of customers in other lands• Two examples – Large Multinational – Boeing – Small Multinational - PeaceWorks Roy Philip 1-5
Events and Trends 1 Affecting Global Business• The rapid growth of the World Trade Organization (WTO) and NAFTA and EU• The trend toward the acceptance of the free market system among developing countries in Latin America, Asia, and Eastern Europe• The burgeoning impact of the Internet, mobile phones, and other global media on the dissolution of national borders• The mandate to properly manage the resources and global environment for the generations to come Roy Philip 1-6
Internationalization of 1 U.S. Business (1 of 2)• The world is one market – increasing globalization of markets – Sony, Norelco, Samsung, Honda, Toyota, Nescafe• Many U.S. companies are foreign controlled – 7-Eleven and Firestone – Japan – Carnation – Switzerland – Wall Street Journal – Australia – Smith & Wesson – Britain – Zenith – South Korea (LG Electronics) Roy Philip 1-7
Foreign Acquisitions 1 of U.S. CompaniesExhibit 1.1 Roy Philip 1-8
Internationalization of 1 U.S. Business (2 of 2)• Foreign companies are here to stay in the U.S. and compete with U. S. companies• The great worldwide acquisitions both by U. S. and foreign companies• Global markets are a necessity – Foreign earnings a higher percentage of profits – Multinationals outperform domestic firms – Global value increased through global diversification – Intensifying domestic competition Roy Philip 1-9
Selected U.S. Companies 1 and Their International SalesExhibit 1.2 Roy Philip 1-10
International Marketing 1• International marketing is defined as the performance of business activities designed to plan, price, promote, and direct the flow of a company’s goods and services to consumers or users in more than one nations for a profit.• The difference is the “environment” – Competition, legal restraints, government controls, weather, fickle consumers, economic conditions, technological constraints, infrastructure concerns, culture, and political situations. Roy Philip 1-11
1The International Marketing TaskExhibit 1.3 Roy Philip 1-12
1The International Marketing Task Marketing Decision Domestic Environment Foreign Environment• Firm • Political forces • Political forces Characteristics • Legal forces • Legal forces• Product • Economic forces • Economic forces• Price • Competition • Competition• Place • Level of• Promotion technology• Research • Geography • Culture Roy Philip 1-13
Environmental Adaptation 1• The most challenging and important adaptation international marketers must make is cultural adjustments.• Must establish a frame of reference – Time-conscious Americans vs. Time-is-not-an- asset thinking Latin Americans – Hand gestures vary between countries• “Cultural Conditioning” – be aware of home cultural references before making decisions Roy Philip 1-14
Obstacles to Adaptation 1• Adaptation is a conscious effort on the part of the international marketer to anticipate the influences of both the foreign and domestic uncontrollable factors on a marketing mix and then to adjust the marketing mix to minimize the effects.• Two primary obstacles are: – Self-Reference Criterion (SRC) – Ethnocentrism Roy Philip 1-15
Self-Reference Criterion 1 (SRC)• Self-Reference Criterion (SRC) is an unconscious reference to one’s own cultural values, experiences, and knowledge as a basis for decision.• Risk of SRC: – Prevent you from becoming aware of cultural differences – Influence the evaluation of the appropriateness of a domestically designed marketing mix for a foreign market Roy Philip 1-16
Ethnocentrism 1• The notion that people in one’s own company, culture, or country know best how to do things.• Risk of Ethnocentrism: – Impedes the ability to assess a foreign market in its true light Roy Philip 1-17
Beyond Obstacles 1 to Adaptation• The most effective way to control the influence of SRC and Ethnocentrism is: – To recognize the effects on our behavior – To recognize that there may be more similarities than differences between countries – To conduct cross-cultural analysis Roy Philip 1-18
Cross-Cultural Analysis 11. Define business problem or goal in home- country cultural traits, habits, or norms2. Define business problem or goal in foreign- country cultural traits, habits, or norms through consultation with natives of target country3. Isolate the SRC influence and examine it carefully to see how it complicates the problem4. Redefine the problem without SRC influence and solve for the optimum business goal situation Roy Philip 1-19
Developing 1 Global Awareness• Tolerance of cultural differences – You do not have to accept as your own the cultural ways of another, but you must allow others to be different and equal• Knowledge of cultures, history, world market potential, and global economic, social, and political trends Roy Philip 1-20
Approaches to 1 Global Awareness• Select individual managers that express a global awareness orientation• Develop personal relationships in foreign countries• Must have the support of a culturally diverse senior executive staff or board of directors Roy Philip 1-21
International Marketing 1 Involvement - Stages No Direct Infrequent ForeignForeign Marketing Marketing Global Marketing Regular Foreign International Marketing Marketing Roy Philip 1-22
No Direct Foreign 1 Marketing – Reactive• Products “indirectly” reach foreign markets • Trading companies • Foreign customers who contact firm • Domestic wholesalers/distributors • Web orders• Foreign orders stimulate a company’s interest to seek additional international sales Roy Philip 1-23
Infrequent Foreign 1 Marketing – Reactive• Caused by temporary surpluses – Sales to foreign markets are made as goods become available• Firm has little or no intention of maintaining continuous market representation • Foreign sales activity declines and is withdrawn when domestic demand increases Roy Philip 1-24
Regular Foreign 1 Marketing – Proactive• Dedicated production capacity for foreign markets• Strategy: – Firm employs domestic or foreign intermediaries – Uses its own sales force or sales subsidiaries• Products are adapted for foreign markets as domestic demand grows• Firms depend on profits from foreign markets Roy Philip 1-25
International Marketing – 1 Proactive• Fully committed and involved in foreign markets and international activities• Production takes place on foreign soil earning firms the MNC (Multinational Corporation) title• Fedders being “proactive:” – Looked to Asia for future growth after stymied U.S. sales – Designed new types of air conditioner unit for the Chinese market – Plan to introduce new product in the U.S! Roy Philip 1-26
Global Marketing – 1 Proactive• The firm sees the world as one market!• Market segmentation is now defined by income levels, usage patterns, or other factors that span the globe• More than half of its revenues come from abroad• The firm has a global perspective Roy Philip 1-27
Global Market Orientation 1• This orientation entails operating as if all the country markets in a company’s scope of operations (including the domestic market) were approachable as a single global market and standardizing the marketing mix where culturally feasible and cost effective.• Depending on the product and market, firms may pursue a global market strategy for one product (global market orientation – P&G diapers) but a multidomestic strategy for another product (international market orientation = P&G detergents). Roy Philip 1-28
Textbook’s Orientation 1• An environmental/cultural approach to international strategic marketing• Aim is to demonstrate the unique problems of international marketing• Attempts to relate the foreign environment to the marketing process and to illustrate the many ways in which culture can influence the marketing task Roy Philip 1-29
Foreign Policy’s Global Top 20 1Exhibit 1.4 Roy Philip 1-30
Summary (1 of 2) 1• It is imperative for firms to pay attention to the global environment in the wake of intense globalization of markets and competition.• The difference between domestic marketing and international marketing is the environment that consist of laws, customs, and cultural differences.• Key obstacles to successful international marketing are self-reference criterion (SRC) and Ethnocentrism Roy Philip 1-31
Summary (2 of 2) 1• Global awareness and sensitivity are solutions to the obstacles of SRC and ethnocentrism• Five different international marketing involvement strategies were discussed: No direct foreign marketing, infrequent foreign marketing, regular foreign marketing, international marketing, and global marketing• Firms must have global orientation – the world is seen as one market Roy Philip 1-32