Chapter 1: Globalization

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Global Marketing Management, 5e
Chapter 1
Globalization

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Chapter Overview
1. Why Global Marketing is Imperative
2. Globalization of Markets: Convergence
and Divergence
3. Evolution of Global Marketing
4. Appendix: Theories of International Trade
and the Multinational Enterprise

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Introduction
 Products have been traded across borders
throughout recorded civilization, extending back
beyond the Silk Road that once connected East
with West from Xian (China) to Rome (Italy).
 Total world merchandise trade volume grew from
$7.6 trillion in 2000 to $16.3 trillion in 2008.

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Introduction
 Big Emerging Markets (BEMs): In the next ten to
twenty years, BEMs such as the Chinese
Economic Area (CEA: including China, Hong Kong
Region, and Taiwan), India, South Korea, Mexico,
Brazil, Argentina, South Africa, Poland, Turkey,
and the Association of Southeast Asian Nations
(ASEAN: including Indonesia, Brunei, Malaysia,
Thailand, the Philippines, and Vietnam) will
provide many opportunities in global business.

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1. Why Global Marketing is Imperative
 Saturation of domestic markets: Domestic-
market saturation in the industrialized parts of the
world and marketing opportunities overseas are
evident in global marketing.
 Global competition: Competition around the
world and proliferation of the Internet have been
on the rise and are now intensifying.
 Need for global cooperation: Global competition
brings global cooperation.

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1. Why Global Marketing is Imperative
 Internet revolution: The Internet and electronic
commerce (e-commerce) are bringing major
structural changes to the way companies operate
worldwide.
 The term global epitomizes both the competitive
pressure and expanding market opportunities.
 Whether a company operates domestically or
across national boundaries, it can no longer avoid
competitive pressures from around the world.

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Exhibit 1-1: Change in World’s 100
Largest Companies and Their
Nationalities
Please insert Exhibit 1-1 here
“Change in World’s 100 Largest
Companies and Their Nationalities

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2. Globalization of Markets:
Convergence and Divergence
 Per capita income is an important determinant of
consumer buying behavior.
 When a country’s per capita income is less than
$10,000, much of the income is spent on food and
other necessities, and very little disposable
income remains.
 As a country’s per capita incomes reaches
$20,000, the disposable portion of income
increases dramatically.
 This increased disposable income level results in
increased convergent pressures on consumer
buying behavior.

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2. Globalization of Markets:
Convergence and Divergence
 People with higher incomes tend to enjoy similar
educational levels, desires for material positions,
ways of spending leisure time, and aspirations for
the future.
 Globalization does not suffocate local cultures, but
rather liberates them from the ideological
conformity of nationalism, with consumers
becoming more receptive to new things.
 Consumers also have a wider, more divergent
“choice set” of goods and services to choose from.
 In other words, the divergence of consumer needs
is taking place at the same time.

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2. Globalization of Markets:
Convergence and Divergence
 International trade consists of exports and imports.
 International business includes international trade
and foreign production.
 Extensive international penetration of companies
is called global reach.
 International trade and foreign production activities
are managed on a global basis.
 Growth of Multinational Corporations (MNCs) and
intra-firm trade is a major aspect of global
markets.

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2. Globalization of Markets:
Convergence and Divergence
Who manages international trade?
– Intrafirm trade: Trade between MNCs and
their foreign affiliates. Comprises 34
percent of world trade.
– An additional 33 percent of world trade was
exports between MNCs and their affiliates.
– In other words, two-thirds of world trade is
managed one way or another by MNCs.

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3. Evolution of Global Marketing
What is marketing?
 Marketing involves the planning and execution of
the conception, pricing, promotion, and distribution
of ideas, products, and services.
 Marketing involves customer satisfaction and their
current and future needs.
 Marketing is much more than selling and involves
the entire company.
 Within marketing strategies, companies are
always under competitive pressure to move
forward both reactively and proactively.

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3. Evolution of Global Marketing
 Five stages in the evolution of global
marketing (see Exhibit 1-2):
1. Domestic Marketing (domestic focus; home country
customers; ethnocentric orientation).
2. Export Marketing (indirect vs. direct exporting; country
choice, exports; ethnocentric orientation; home country
customers).
3. International Marketing (markets in many countries;
polycentric orientation; use of multidomestic marketing
when customer needs are different across national
markets).

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3. Evolution of Global Marketing
4. Multinational Marketing (many markets; consolidation on
regional basis; regiocentric orientation; standardization
within regions).
5. Global Marketing (international, multinational & geocentric
orientation; company’s willingness to adopt a global
perspective; global products with local variations).

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Exhibit 1-2: Evolution of Global
Marketing

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3. Evolution of Global Marketing
 Global Marketing refers to marketing activities
that emphasize the following:
1. Standardization efforts.
2. Coordination across markets.
3. Global integration.

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3. Evolution of Global Marketing
 Global marketing does not necessarily mean that
products can be developed anywhere on a global
scale.
 The economic geography, climate, and culture
affect how companies develop certain products.
 The Internet adds a new dimension to global
marketing.
 E-commerce retailers gain substantial savings by
selling online.

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4. Appendix: Theories of International
Trade & the Multinational Enterprise
 Comparative Advantage Theory
(see Exhibit 1-3)
– Absolute Advantage
– Comparative Advantage
– Commodity Terms of Trade
– Principles of International Trade
– Factor Endowment Theory
 International Product Cycle Theory
(see Exhibit 1-4)
– Economies of Scale

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Exhibit 1-3:
Comparative Advantage at
Work

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Exhibit 1-4:
International Product Life Cycle

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4. Appendix: Theories of International
Trade & the Multinational Enterprise
– Economies of Scope
– Technological Gap
– Preference Similarity
– Stages of International Product Cycle Theory:
 Introduction Stage
– A U.S. company innovates on a new product in its
home country.

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4. Appendix: Theories of International
Trade & the Multinational Enterprise
 Growth Stage
– Product standards emerge and mass
production becomes feasible.
 Maturity Stage
– Many U.S. and foreign companies vie for
market share in the international markets.
 Decline Stage
– Companies in the developing countries also
begin producing the product and marketing
it in the rest of the world.

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4. Appendix: Theories of International
Trade & the Multinational Enterprise
 Internalization/Transaction Cost Theory
– Appropriability Regime
– Dominant Design
– Manufacturing and Marketing Ability