The Global Marketplace

Chapter 15 The Global Marketplace

CHAPTER 15THE GLOBAL MARKETPLACE

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES

1. Discuss how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions.

2. Describe three key approaches to entering international markets.

3. Explain how companies adapt their marketing strategies and mixes for international markets.4. Identify the three major forms of international marketing organization.

JUST THE BASICS

CHAPTER OVERVIEWThis chapter examines the fundamentals of global marketing.

Advances in communication, transportation, and other technologies have made the world a much smaller place.

Today, almost every firm, large or small, faces international marketing issues.

There are several factors that draw a company into the international arena.

Global competitors might offer better products or lower prices. The company might discover foreign markets that present higher profit opportunities

than the domestic market does.

Most companies start with exporting, using either indirect or direct exporting, or they go into a joint venture, through such means as licensing, contract manufacturing, management contracting, or joint ownership.

Finally, the company could make a direct investment by developing assembly or manufacturing facilities.

Each form of entry carries its own risks and rewards; the company must weigh these carefully before making final decisions.

Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing mixes to local conditions.

At one extreme are global companies that use a standardized marketing mix, selling largely the same products and using the same marketing approaches worldwide.

Copyright © 2015 Pearson Education, Inc.15-1

Part 4 Extending Marketing

At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

However, global standardization is not an all-or-nothing proposition. Rather, it is a matter of degree.

Companies can manage their international marketing activities in at least three different ways.

1. They can organize an export department.2. They can create an international division.3. They can become a global organization.

ANNOTATED CHAPTER NOTES/OUTLINE

FIRST STOP

Coca-Cola in Africa: “Everything is Right There to Have it Happen”

Coca-Cola is one of the world’s truly iconic brands. Coke products are within “an arm’s length” of 98 percent of the world’s population.

In recent years, Coca-Cola has sought growth primarily in developing global markets such as China and India.

Coca-Cola is no stranger to Africa. It has operated there since 1929, and it’s the only multinational that offers its products in every African country.

Marketing in Africa is very different from marketing in more developed regions.

There’s little doubt that Coca-Cola’s increased commitment to Africa will be key to its achieving its global goals.

GLOBAL MARKETING TODAY

Since 1990, the number of multinational corporations in the world has grown from 30,000 to more than 63,000.

Foreign firms are expanding aggressively into new international markets, and home markets are no longer as rich in opportunity.

Few industries are now safe from foreign competition.



A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors.

Use Discussion Question 15-1 here.

The global company sees the world as one market.

It minimizes the importance of national boundaries and develops global brands.

The rapid move toward globalization means that all companies will have to answer basic questions.

What market position should we try to establish in our country, in our economic region, and globally?

Who will our global competitors be and what are their strategies and resources? Where should we produce or source our products? What strategic alliances should we form with other firms around the world?

A company faces six major decisions in international marketing. (Figure 15.1)

Use Key Term Global Firm here.Use Figure 15.1 here.

Use Critical Thinking Exercise 15-6 here.

LOOKING AT THE GLOBAL MARKETING ENVIRONMENT

Use Chapter Objective 1 here.

The International Trade System

Tariffs are taxes on certain imported products designed to raise revenue or to protect domestic firms.

Quotas are limits on the amount of foreign imports that a country will accept in certain product categories.

The purpose of a quota is to conserve on foreign exchange and to protect local industry and employment.

Exchange controls are limits on the amount of foreign exchange and the exchange rate against other currencies.


Part 4 Extending MarketingNontariff trade barriers are such things as biases against U.S. company bids, restrictive product standards, or excessive regulations.

Certain forces help trade between nations.

Use Discussion Question 15-2 here.

The World Trade Organization

The General Agreement on Tariffs and Trade (GATT), established in 1947 and modified in 1994, was designed to promote world trade by reducing tariffs and other international trade barriers.

It established the World Trade Organization (WTO), which replaced GATT in 1995 and now oversees the original GATT provisions.

WTO and GATT member nations (currently numbering 159) have met in eight rounds of negotiations to reassess trade barriers and set new rules for international trade.

The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured goods from 45 percent to just 5 percent.

The benefits of the Uruguay Round (1994) include reducing the world’s remaining merchandise tariffs by 30 percent.

A new round of GATT negotiations, the Doha Round, began in Doha, Qatar, in late 2001 and was set to conclude in 2005, but the discussions continue.

Regional Free Trade Zones

Free trade zones or economic communities are groups of nations organized to work toward common goals in the regulation of international trade.

Use Key Term Economic Community here.Use Critical Thinking Exercise 15-7 here.

One such community is the European Union (EU).

The European Union represents one of the world’s single largest markets. Currently, it has 27 member countries containing more than half a billion consumers and accounts for more than 20 percent of the world’s exports.

As a result of increased unification, European companies have grown bigger and more


Chapter 15 The Global Marketplacecompetitive.

Widespread adoption of the euro will decrease much of the currency risk associated with doing business in Europe, making member countries with previously weak currencies more attractive markets.

However, even with the adoption of the euro, it is unlikely that the EU will ever go against 2,000 years of tradition and become the “United States of Europe.”

In 1994, the North American Free Trade Agreement (NAFTA) established a free trade zone among the United States, Mexico, and Canada.

The agreement created a single market of 453 million people who produce and consume over $17.8 trillion worth of goods and services annually.

NAFTA has eliminated trade barriers and investment restrictions among the three countries.

Trade among the NAFTA nations nearly tripled from 1993 to 2011.

The Central American Free Trade Agreement (CAFTA- DR) established a free trade zone between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

In late 2004, the Union of South American Nations (UNASUR) was formed and formalized by constitutional treaty in 2008.

Economic Environment

Two economic factors reflect the country’s attractiveness as a market.

1. Industrial structure 2. Income distribution

1. The country’s industrial structure shapes its product and service needs, income levels, and employment levels.

The four types of industrial structures are as follows:

Subsistence economies: The vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities.

Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. These countries are good markets for large


Part 4 Extending Marketingequipment, tools and supplies, and trucks.

Emerging economies (industrializing economies): Fast growth in manufacturing results in rapid overall economic growth. The country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles.

Industrial economies: These are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semi-finished goods.

2. Income distribution is the second factor.

Industrialized nations may have low-, medium-, and high-income households. Countries with subsistence economies may consist mostly of households with very

low family incomes. Still other countries may have households with only either very low or very high

incomes. Even poor or developing economies may be attractive markets for all kinds of goods.

Use Marketing at Work 15.1 here.Use Online, Mobile, and Social Media Marketing here.

Use Marketing by the Numbers here.

Political-Legal Environment

Some nations are very receptive to foreign firms; others are less accommodating.

Companies must consider a country’s monetary regulations.

Most international trade involves cash transactions. Yet many nations have too little hard currency to pay for their purchases.

They may want to pay with other items instead of cash e.g., barter.

Cultural Environment

The Impact of Culture on Marketing Strategy

The seller must understand the ways that consumers in different countries think about and use certain products before planning a marketing program.

Business norms and behavior vary from country to country.


Chapter 15 The Global MarketplaceThe Impact of Marketing Strategy on Cultures

Social critics contend that large American multinationals such as McDonald’s, Coca-Cola, Starbucks, Nike, Microsoft, Disney, and Facebook are “Americanizing” the world’s cultures. Critics worry that, under such “McDomination,” countries around the globe are losing their individual cultural identities.

Such concerns have sometimes led to a backlash against American globalization.

In the most recent survey of global brands, 17 of the top 20 brands were American-owned.

Use Critical Thinking Exercise 15-8 here.

DECIDING WHETHER TO GO GLOBAL

Not all companies need to venture into international markets to survive.

Any of several factors might draw a company into the international arena.

Global competitors might attack the company’s home market by offering better products or lower prices.

The company might want to counterattack these competitors in their home markets. The company’s customers might be expanding abroad and require international servicing. International markets may present better opportunities for growth.

Before going abroad, the company must weigh several risks and answer many questions about its ability to operate globally.

Can it learn to understand the preferences and buyer behavior of consumers in other countries?

Can it offer competitively attractive products? Will it be able to adapt to other countries’ business cultures and deal effectively with

foreign nationals? Do the company’s managers have the necessary international experience? Has management considered the impact of regulations and the political environments of

other countries?

DECIDING WHICH MARKETS TO ENTER

Before going abroad, the company should:

Define its international marketing objectives and policies.


Part 4 Extending Marketing Decide what volume of foreign sales it wants. Decide how many countries it wants to market. Decide on the types of countries to enter. Evaluate each selected country.

Possible global markets should be ranked on several factors, including:

Market size Market growth Cost of doing business Competitive advantage Risk level

Use Table 15.1 here.

DECIDING HOW TO ENTER THE MARKET

Use Key Term Exporting here.Use Figure 15.2 here.

Use Chapter Objective 2 here.Use Discussion Question 15-3 here.

Exporting

Exporting is the simplest way to enter a foreign market.

Indirect exporting is working through independent international marketing intermediaries.

Indirect exporting involves less investment and less risk.

Direct exporting is where the company handles its own exports.

The investment and risk are somewhat greater in this strategy, but so is the potential return.

Joint Venturing

Joint venturing is joining with foreign companies to produce or market products or services.

There are four types of joint ventures.

1. Licensing 2. Contract manufacturing 3. Management contracting


Chapter 15 The Global Marketplace4. Joint ownership

1. Licensing

Licensing is a simple way for a manufacturer to enter international marketing.

The company enters into an agreement with a licensee in the foreign market.

For a fee or royalty, the licensee buys the right to use the company’s manufacturing process, trademark, patent, trade secret, or other item of value.

Licensing has disadvantages:

The firm has less control over the licensee than it would over its own operations. If the licensee is very successful, the firm has given up profits. When the contract ends, it may find it has created a competitor.

2. Contract Manufacturing

Contract manufacturing occurs when the company contracts with manufacturers in the foreign market to produce its product or provide its service.

The drawbacks are:

Decreased control over the manufacturing process. Loss of potential profits on manufacturing.

The benefits are:

The chance to start faster, with less risk. The later opportunity either to form a partnership with or to buy out the local

manufacturer.

3. Management Contracting

Management contracting takes place when the domestic firm supplies management know-how to a foreign company that supplies the capital.

This is a low-risk method of getting into a foreign market, and it yields income from the beginning.

The arrangement is not sensible if the company can put its management talent to better uses or if it can make greater profits by undertaking the whole venture.



4. Joint Ownership

Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control.

A company may buy an interest in a local firm, or the two parties may form a new business venture.

Joint ownership may be needed for economic or political reasons.

Joint ownership has drawbacks:

The partners may disagree over policies. Whereas U.S. firms emphasize the role of marketing, local investors may rely on selling.

Use Key Terms Joint Venturing, Licensing, Contract Manufacturing, Management Contracting, Joint Ownership, and Direct Investment here.

Direct Investment

Direct investment is the development of foreign-based assembly or manufacturing facilities.

Advantages:

Lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings

The firm may improve its image in the host country. Development of a deeper relationship with government, customers, local suppliers, and

distributors The firm keeps full control over the investment.

The main disadvantage of direct investment is that the firm faces many risks.

Use Key Terms Standardized Global Marketing and Adapted Global Marketing here.Use Chapter Objective 3 here.Use Linking the Concepts here.

DECIDING ON THE GLOBAL MARKETING PROGRAM

Standardized global marketing is using largely the same marketing strategy approaches and marketing mix worldwide.



Adapted global marketing is adjusting the marketing strategy and mix elements to each target market, bearing more costs but hoping for a larger market share and return.

Use Critical Thinking Exercise 2 here.Use Discussion Question 15-4 here.Use Marketing at Work 15.2 here.

Some global marketers believe that technology is making the world a smaller place and that consumer needs around the world are becoming more similar.

This paves the way for “global brands” and standardized global marketing. Global branding and standardization, in turn, result in greater brand power and reduced costs from economies of scale.

However, because cultural differences are hard to change, most marketers adapt their products, prices, channels, and promotions to fit consumer desires in each country.

Product

Use Figure 15.3 here.

Five strategies are used for adapting product and marketing communication strategies to a global market (Figure 15.3).

Straight product extension means marketing a product in a foreign market without any change.

Product adaptation involves changing the product to meet local conditions or wants.

Product invention consists of creating something new for a specific country market.

Use Key Terms Straight Product Extension, Product Adaptation, and Product Invention here.

Promotion

Companies can either:

1. Adopt the same communication strategy they used in the home market, or 2. Change it for each local market.

Colors are changed sometimes to avoid taboos in other countries.

Communication adaptation is fully adapting advertising messages to local markets.



Use Key Term Communication Adaptation here.

Price

Regardless of how companies go about pricing their products, their foreign prices probably will be higher than their domestic prices for comparable products.

Why? It is a price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price.

To overcome this problem when selling to less-affluent consumers in developing countries, many companies make simpler or smaller versions of their products that can be sold at lower prices.

The Internet is making global price differences more obvious.

When firms sell their wares over the Internet, customers can see how much products sell for in different countries. This is forcing companies toward more standardized international pricing.

Distribution Channels

The whole-channel view takes into account the entire global supply chain and marketing channel. It recognizes that to compete well internationally, the company must effectively design and manage an entire global value delivery network.

Figure 15.4 shows the two major links between the seller and the final buyer.

Channels between nations move company products from points of production to the borders of countries within which they are sold. Channels within nations move products from their market entry points to final consumers.

Use Discussion Question 15-5 here.Use Key Term Whole-Channel View here.

Use Figure 15.4 here.

DECIDING ON THE GLOBAL MARKETING ORGANIZATION

A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department.

Many companies get involved in several international markets and ventures. An international


Chapter 15 The Global Marketplacedivision may be created to handle all international activity.

International divisions are organized in a variety of ways.

Geographical organizations: Country managers are responsible for salespeople, sales branches, distributors, and licensees in their respective countries.

World product groups: Each unit is responsible for worldwide sales of different product groups.

International subsidiaries: Each unit is responsible for its sales and profits.

Global organizations are companies that have stopped thinking of themselves as national marketers who sell abroad and have started thinking of themselves as global marketers.

Use Chapter Objective 4 here.Use Marketing Ethics here.

END OF CHAPTER MATERIAL

Discussion and Critical Thinking

Discussion Questions

15-1. Explain what is meant by the term global firm and list the major decisions involved in international marketing. (AASCB: Written and oral communication)

Answer:

A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors. The global company sees the world as one market. It minimizes the importance of national boundaries and develops “transnational” brands. It raises capital, obtains materials and components, and manufactures and markets its goods wherever it can do the best job.

Figure 15.1 illustrates the six major decisions in international marketing: (1) understanding the global marketing environment, (2) deciding whether to go global, (3) deciding which markets to enter, (4) deciding how to enter the market, (5) deciding on the global marketing program, and (6) deciding on the global marketing organization.

15-2. Discuss the four types of country industrial structures and the opportunities each offers to international marketers. (AACSB: Written and oral communication)

Answer:



The four types of industrial structures are as follows: Subsistence economies: In a subsistence economy, the vast majority of people

engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities.

Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. Much of their revenue comes from exporting these resources. These countries are good markets for large equipment, tools and supplies, and trucks. If there are many foreign residents and a wealthy upper class, they are also a market for luxury goods.

Emerging economies (industrializing economies): In an emerging economy, fast growth in manufacturing results in rapid overall economic growth. As manufacturing increases, the country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles. Industrialization typically creates a new rich class and a small but growing middle class, both demanding new types of imported goods.

Industrial economies: Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semi-finished goods. The varied manufacturing activities of these industrial nations and their large middle class make them rich markets for all sorts of goods.

15-3. Discuss the three ways to enter foreign markets. Which is the best? (AACSB: Written and oral communication; Reflective thinking)

Answer:

Once a business decides to go global, there are three modes of entry: exporting, joint venturing, and direct investment. Each succeeding strategy involves more commitment and risk, but also more control and potential profits. The simplest way to enter a foreign market is through exporting. The company may passively export its surpluses from time to time, or it may make an active commitment to expand exports to a particular market. In either case, the company produces all its goods in its home country. It may or may not modify them for the export market. Exporting involves the least change in the company’s product lines, organization, investments, or mission.

A second method of entering a foreign market is joint venturing—joining with foreign companies to produce or market products or services. Joint venturing differs from exporting in that the company joins with a host country partner to sell or market abroad. It differs from direct investment in that an association is formed with someone in the foreign country. There are four types of joint ventures: licensing, contract manufacturing, management contracting, and joint ownership.

The biggest involvement in a foreign market comes through direct investment—the


Chapter 15 The Global Marketplacedevelopment of foreign-based assembly or manufacturing facilities. If a company has gained experience in exporting and if the foreign market is large enough, foreign production facilities offer many advantages. The firm may have lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings. The firm may improve its image in the host country because it creates jobs. Generally, a firm develops a deeper relationship with government, customers, local suppliers, and distributors, allowing it to adapt its products to the local market better. Finally, the firm keeps full control over the investment and therefore can develop manufacturing and marketing policies that serve its long-term international objectives. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes.

No single way to enter a foreign market is “best.” It depends on the situation and the business going global.

15-4. Discuss the strategies used for adapting products to a global market. Which strategy is best? (AACSB: Written and oral communication; Reflective thinking)

Answer:

Straight product extension means marketing a product in a foreign market without any change. It has been successful in some cases and disastrous in others. Straight extension is tempting because it involves no additional product development costs, manufacturing changes, or new promotion. But it can be costly in the long run if products fail to satisfy consumers in specific global markets. Product adaptation involves changing the product to meet local conditions or wants. Product invention consists of creating something new for a specific country market. This strategy can take two forms. It might mean maintaining or reintroducing earlier product forms that happen to be well adapted to the needs of a given country. Or a company might create a new product to meet a need in a given country. No one strategy is best in all cases. Companies must choose the strategy that best fits their products and situations.

15.5. Discuss how companies manage their international marketing activities. (AACSB: Written and oral communication)

Answer:

Companies manage their international marketing activities in at least three different ways: export department, international division, and global organization. A firm normally gets into international marketing simply by shipping out its goods. If its international sales expand, the company will establish an export department with a sales manager and a few assistants. As sales increase and the company moves into joint ventures or direct investment, the export department will no longer be adequate. A company may export to one country, license to


Part 4 Extending Marketinganother, have a joint ownership venture in a third, and own a subsidiary in a fourth, so sooner or later it will create international divisions or subsidiaries to handle all its international activity. Many firms have passed beyond the international division stage and are truly global organizations that don’t think of themselves as national marketers who sell abroad but as global marketers.

Critical Thinking Exercises

15-6. The United States restricts trade with several countries. Visit the U.S. Department of the Treasury at www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx to learn more about economic and trade sanctions. Click on one of the programs to learn more about the sanctions. Are these tariff, quota, or embargo restrictions? To what extent do these trade restrictions allow U.S. businesses to export their products to the country or countries included? (AACSB: Written and oral communication; Information technology; Reflective thinking)

Answer:

Students’ answers will vary, and instructors may want to assignment specific sanctions to students to get a wide variety. For example, “Cuba Sanctions” are embargo restrictions. Almost all products are restricted. See the following: “Except for publications, other informational materials (such as CDs and works of art), certain donated food, and certain goods licensed for export by the U.S. Department of Commerce (such as medicine and medical supplies, food and agricultural commodities), no product, technology, or services may be exported from the United States to Cuba, either directly or through third countries, such as Canada or Mexico.”

15-7. What is a free trade zone? Give an example of a free trade zone and research how successful it has been. (AACSB: Written and oral communication; Reflective thinking)

Answer:

Free trade zones or economic communities are groups of nations organized to work toward common goals in the regulation of international trade. The European Union is one example that has had successes (see http://diplomatie.belgium.be/en/policy/european_union/european_institutions/actions_and_realisations/). However, it is currently experiencing problems with weaker nations (e.g., Greece, Spain, and Italy) affecting stronger nations (e.g., Germany).

15-8. One way to analyze the cultural differences among countries is to conduct a Hofestede analysis. Visit www.geert-hofstede.com/ to learn what this analysis considers. Develop a presentation explaining how three countries of your choice differ from the United States.


http://diplomatie.belgium.be/en/policy/european_union/european_institutions/actions_and_realisations/

http://diplomatie.belgium.be/en/policy/european_union/european_institutions/actions_and_realisations/

http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx

Chapter 15 The Global Marketplace(AACSB: Written and oral communication; Information technology; Reflective thinking)

Answer:

Hofestede considers five dimensions in his cultural analysis: power distance, individualism, masculinity, uncertainty avoidance, and long-term orientation. An index is developed for each dimension, and students can compare each index for each country chosen with the indices for the United States.

Minicases and Applications

Online, Mobile, and Social Media Marketing: Pixels Instead of Pine

Swedish company IKEA releases a 300-plus-page catalog each year featuring its furniture in fashionably modern room settings. The 2013 catalog comes in 62 different versions for 43 countries. IKEA’s photo shoots for the catalog take place in one of Europe’s largest studios—94,000 square feet—which employs almost 300 photographers, interior designers, carpenters, and others involved in making each scene just perfect. The process is very labor-intensive and wasteful because rooms are built up and torn down and often thrown into a dumpster after the photo shoot. The catalog typically consumes 70 percent of the company’s marketing budget each year. However, all that is being reduced thanks to technology. IKEA’s catalog is going digital. Instead of a couch or bed or table or entire room, many items depicted in the catalogs are now merely pixels instead of pine. This year, 12 percent of the content online, in catalogs, and in brochures is not even real, and that proportion will increase to 25 percent next year. Using 3-D graphics to create the scenes, IKEA can cut costs and more easily manipulate imagery from one country to the next. Whereas Americans might prefer darker woods, a given living room can be shown with lighter woods for Japanese consumers. Don’t expect to find any fake people or pets, however, because 3-D figures tend to look like ghosts.

15-9. Visit www.ikea.com and compare a catalog from one country to that of another. What differences do you notice? Can you discern that some photos are 3-D mockups instead of real rooms with furniture? (AACSB: Written and oral communication; Information technology; Reflective thinking)

Answer:

The catalog can be found at the bottom left corner of a country’s online site. The 2013 catalog for the United States can be found at http://info.ikea-usa.com/Catalog/ and compared to the catalog for Japan (see www.ikea.com/ms/en_JP/virtual_catalogue/online_catalogues.html). Some of the furniture in other shots was shown in different colors. There was no way to tell if a picture was real or a 3-D rendering because it all looked real, but side-by-side comparisons revealed subtle differences in colors and design, especially for kitchen and bathroom cabinetry.


http://www.ikea.com/ms/en_JP/virtual_catalogue/online_catalogues.html

http://info.ikea-usa.com/Catalog/

http://www.ikea.com/

Part 4 Extending MarketingMarketing Ethics: India’s Bitter Pill

India’s Supreme Court delivered what might be the final nail in the coffin of pharmaceutical innovation in India by rejecting Novaritis’ attempt to win patent protection for a potentially life-saving drug. The ruling comes after more than six years of legal battles. Other multinational pharmaceutical companies have suffered setbacks related to patents as well. Bayer’s patent for its expensive cancer drug was revoked after being challenged by an Indian generic drug manufacturer, and Bayer was even ordered to issue a license to the Indian company so it could copy Bayer’s drug and sell it for one-thirtieth the price Bayer charged. Roche also had a patent revoked after challenges from local companies and health organizations. India reluctantly agreed to offer patent protection after joining the World Trade Organization in 1995, but it seems reluctant to grant or maintain patent protection to multinational pharmaceutical firms. India is a fast-growing market, with pharmaceuticals demand expected to reach almost $50 billion by 2020 from its current $11 billion. However, this market is dominated by low-cost Indian generic drug producers, and India’s government seems bent on protecting that industry. The Supreme Court ruling was praised by public-health advocacy groups, such as Medicins Sans Frontieres (MSF), who see this as a way to get low-cost drugs in India and other developing nations as India is the largest supplier of low-cost HIV and other drugs to these nations. Novaritis’ drug, Glivec, costs almost $2,000 per month compared with $200 per month for comparable generic versions in India, which didn’t help the company’s case. However, the company claims that 95 percent of 16,000 patients taking Glivec in India receive it free of charge through a company support program.

15-10. Debate both sides of this issue. Should pharmaceutical companies be granted patents in less developed countries? (AACSB: Written and oral communication; Ethical understanding and reasoning)

Answer:

Students’ responses will vary. Some may argue that patent protection is necessary for product innovation because companies will not spend resources on research and development of new drugs if there is no protection from other companies being able to copy their product and sell it a lower price in India and in other developing countries. Thus, India and the developing world will be worse off if companies don’t see a financial payoff for entering that market. Others may argue that drug prices are too high and that India is right for being so strict and setting a high bar for patent protection if it is in society’s best interest. Many drug patents in the U.S. are not for “significant clinical efficacy enhancements,” which companies are required to prove in India to be granted a patent.

15-11. Discuss another example of multinational companies having difficulty expanding into India. (AACSB: Written and oral communication; Reflective thinking)

Answer:



Students’ answers will vary. One example is Walmart. Not too long ago Walmart wanted to be India’s top retailer by 2015 and even named it Project Jai Ho, which means “let there be victory” in Hindi. The company planned to open 22 wholesale stores, but as of 2013, they only opened five. One reason is the complications multinationals experience with the Indian government, but other concerns about complying with the U.S. Foreign Corrupt Practices Act, an anti-bribery law, stalled expansion. Bribery is rampant in India, and Walmart is struggling with compliance issues among Indian partners and employees. For more information see, “A Bumpy Road in India,” Wall Street Journal (April 2, 2013) (available at http://online.wsj.com/documents/print/WSJ_-B001-20130402.pdf). This article discusses the drug companies’ struggles in India as well.

Marketing by the Numbers: Alternative Attractive Markets

Colleges and universities in the United States offering graduate degrees enjoyed double-digit growth for nearly a decade, particularly from Chinese applicants. But that is changing. Applications from Chinese students declined 5 percent for the 2013-2014 academic year, dropping the overall graduate-school application growth rate from foreign students to just 1 percent. This has schools that offer business, engineering, life sciences, and physical and earth sciences graduate degrees wondering how they will fill their classrooms. One bright spot is applications from Brazilians, which increased 24 percent because of a push by the Brazilian government to boost advanced degrees from U.S. schools. Brazil is currently the sixth largest economy in the world, but not enough of its citizens hold advanced degrees, which threatens the country’s future growth. Many U.S. schools are wondering if this market is worthy of more marketing efforts to replace the lost Chinese applicants.

15-12. Develop a relevant demographic profile of Brazil to present to a graduate school director to inform him or her about this potential market of students. (AACSB: Written and oral communication; Information technology; Reflective thinking)

Answer:

Students’ answers will vary, and there are many sources of information about Brazil (e.g., www.cia.gov/library/publications/the-world-factbook/geos/br.html or www.heritage.org/index/country/brazil). Students should focus primarily on population, education, and economic conditions in Brazil. A growing economy requires an educated workforce.

15-13. Is this an attractive market for U.S. graduate programs? Refer to Appendix 3: Marketing by the Numbers to develop a market potential estimation of this market. (AACSB: Written and oral communication; Analytic thinking; Reflective thinking)

Answer:


http://www.heritage.org/index/country/brazil

http://www.cia.gov/library/publications/the-world-factbook/geos/br.html

http://online.wsj.com/documents/print/WSJ_-B001-20130402.pdf


One general but practical method used for estimating total market demand uses three variables: (1) the number of prospective buyers, (2) the quantity purchased by an average buyer per year, and (3) the price of an average unit. Using these numbers, students can estimate total market demand as follows:

Q = n q p

where

Q = total market demand

n = number of buyers in the market

q = quantity purchased by an average buyer per year

p = price of an average unit

Instructors should stress that students should support their assumptions when calculating the elements of this estimate. Adults with college degrees are the relevant population in which graduate schools would be interested, which may not be easy to find. However, students can estimate it using the chain ratio method. This method involves multiplying a base number by a chain of adjusting percentages. Therefore, students may start with the total population and multiply it by the percentage of the population that is working age and then multiple that by the percentage of the working age population holding a college degree. For example, in 2010, the total population of Brazil was 191 million, and 25-64 year olds made up 51% of that. Ten percent of that population had a college degree, so

n (number of buyers) = 191,000,000 x 0.51 x 0.10 = 9,741,000 people

Source: www.dominionofnewyork.com/2012/05/02/brazils-supreme-court-approves-racial-quotas/#.UcSqxpyd6So

Another estimate using 2009 data from the Organization for Economic Cooperation and Development (OECD): The data are from 34 economically-advanced and non-OECD, G-20 countries and reported that Brazil made up 4.1% of the 255 million working-age, college-educated people in these countries. Therefore, based on these data, there were 9,225,000 people with college degrees in Brazil in 2009. This rate was an increase from previous years, which makes the 9,741,000 estimate based on 2010 data reasonable assuming the increase continued, which supports the government’s push for additional higher education. Source: www.wes.org/ewenr/11sept/practical.htm.

With regard to the other elements of the market potential estimation (q and P), students should give reasonable assumptions backed up by reputable sources.


http://www.wes.org/ewenr/11sept/practical.htm

http://www.dominionofnewyork.com/2012/05/02/brazils-supreme-court-approves-racial-quotas/#.UcSqxpyd6So

http://www.dominionofnewyork.com/2012/05/02/brazils-supreme-court-approves-racial-quotas/#.UcSqxpyd6So


Video Case Chapter 15 – The U.S. Film Industry

Running timeIntro: 2:00Problem: 1:54Solution: 3:18Total: 7:12

Video Summary

If you like movies, you’ve no doubt seen a foreign film at some point. But did you know that American films are some of the biggest and most anticipated foreign films in the world? In fact, foreign box office and DVD sales account for nearly 70 percent of all revenues for the U.S. film industry. With that much financial impact, foreign markets are playing a bigger and bigger role not only in the pricing, distribution, and promotion of U.S. films, but in developing the product itself.

This video illustrates the challenges faced by the U.S. film industry stemming from differences in the marketing environment in different international markets. The result is that this industry is now like any other export industry. The marketing mix must be adapted at an optimum level in order to meet the needs of global markets while still maintaining the benefits of standardization.

Questions and Answers

15-14. Which part of the marketing environment seems to be having the greatest impact on U.S. films abroad? It would seem that the cultural environment has the greatest impact. Finding a formula for a film that appeals to the tastes of filmgoers everywhere is tremendously difficult, given the major differences in cultural characteristics. The political-legal environment can also make or break a film (in some cases, U.S. films are extremely limited or even prohibited). But that barrier aside, the cultural issues are always present.

15-15. Which of the five strategies for adapting products and promotion for the global market is most relevant to the U.S. film industry? From what Gray Frederickson shares in this video, major filmmakers today adapt both the product and the communication strategy. Thus, dual adaptation is the strategy that is most relevant.

15-16. Is the U.S. film industry now dependent upon foreign markets for success? Compare this to other U.S. exports. As Gray Frederickson points out, the cost of producing films today is very high in most cases. This is because of the increases in salaries and fees paid to actors, the cost of modern technologies, and the increases in promotional expenses. In


Part 4 Extending Marketingthe old days, the industry did not need foreign box office revenue to be profitable. That was merely icing on the cake. However, today, it is clear that the industry as a whole is dependent upon foreign markets. In numerous cases, U.S. box office revenue alone is not sufficient to break even.

Teaching Ideas

This video begins with an introductory segment, followed by a problem segment, and ends with a solution segment. The intention here is to provide flexibility and multiple options for using the video. The following are some of the ways that instructors may utilize these three video segments.

1. Introduction only - Instructors may choose to use the introduction segment alone as a means of highlighting the company. As a stand-alone video, the introduction segment supplements material in many of the chapters of the text. This introduction introduces us to the idea that global marketing of Hollywood movies is a relatively recent practice.

2. Problem challenge - The instructor may show the problem segment either with or without the introduction segment, and with or without the solution segment. This may be done in the interest of time. It may also be done strategically. An ideal way to challenge students is to require them to develop possible solutions to the presented problem before they have seen the solution segment. The instructor then has the option of whether or not to show the solution segment. This segment makes clear various challenges that all global marketers face.

3. Solution only – This may be done to illustrate a specific concept in the chapter. Rather than taking the time to perform a problem/solution exercise, the solution segment may be shown to demonstrate how a company overcame a specific problem. This segment also translates to virtually all companies in all industries. Companies are concerned about the cost benefits of standardization, but also seek the ability to cater to the needs of different customers in different countries. The best approach for balancing these two approaches is to design the product for a global market from the beginning.

Company Case Teaching Notes

Cases appropriate for this chapter include: Case 15, IKEA: Making Life Better for the World’s Many People (Synopsis, Discussion

Questions, and Teaching Notes below) Case 5, Veterinary Pet Insurance: Health Insurance for Our Furry—or Feathery—Friends

(see IM Chapter 5 for instructor material)

IKEA: Making Life Better for the World’s Many People

SynopsisIKEA has achieved something big. It has become the world’s biggest furniture retailer by selling


Chapter 15 The Global Marketplacethe same furniture to the people of 41 different countries, representing vastly different cultures with vastly different needs. And it doesn’t seem to be slowing down as it lays out plans to build stores in more and more countries. But adhering to a standardized template for global commerce is only part of the story. IKEA takes great care to properly adapt its stores and offerings so that they appeal to the tastes of each market.

Teaching Objectives

The teaching objectives for this case are to:

1. Gain a solid understanding of the concepts of standardizing and adapting and the roles each play in global marketing.

2. Become familiar with the five global product and communications strategies. 3. Acquire experience in making decisions for the four elements of the marketing mix in a

global context. 4. Know the relationship between global sourcing, distribution, and price.

Discussion Questions1. Does IKEA have a truly global strategy, or just a series of regional strategies? Explain.

IKEA has a truly global strategy. It is not purely an extension of its domestic strategy. And it is clear that it does not reinvent its strategy for each and every market. Rather, IKEA is perhaps a perfect example of a company that has achieved the perfect balance between standardization and adaptation.

2. Discuss IKEA’s global strategy in terms of the five global product and communications strategies. Based on Figure 15.3, student responses will vary. Much of this depends upon the line between adapting and keeping things the same. For example, on the one hand, IKEA sells the same furniture and goods in each country. Thus, it would seem that its product strategy fits in the “don’t change” column. However, IKEA’s product is far more than the couches on its showroom floors. As a retailer, it is the complete package of goods that are sold and the manner in which they are sold. It is apparent that selection and variety change from country to country. Is this enough change to fall into the “adapt” column? Have students consider all the information in the section “Listening, Understanding, and Adapting.” This should provide them with enough evidence for “adapt”. So far as promotion is concerned, there is no information given in the case on this. But there is the example given of the changes to the mattresses in the U.S., followed by a change in the way the products were presented and promoted. It is very likely that IKEA follows its adaptation strategy when it comes to promotion. If this is the case, then IKEA uses a “Dual adaptation” strategy.

3. If IKEA can sell a sofa in China for $160, why doesn’t it sell the product at that low price in all of its markets?


Part 4 Extending MarketingEvery country has a different perception of “low price.” And, there is typically a threshold at which price is so low as to affect perceptions of quality. Thus, selling the Klippan sofa for $160 in the U.S and Europe could have a negative effect on sales (they would actually sell fewer at that ultra-low price point), not to mention on overall perceptions of quality. But there is also the issue of profitability. To sell the Klippan at $160 in China, the case does not mention whether or not there are changes to the actual product that cut costs enough to allow for a profit. Pricing is all about achieving the optimal price point at which profitability is maximized. Thus, if that optimal point is $300 or $400 in a given country, then why would IKEA sell it for $160 and make less money?

4. Can competitors easily duplicate IKEA’s strategy? Why or why not? Clearly, there are copycats in places like China. But from a global perspective, it has taken decades for IKEA to master all the aspects of what it does. And much of what it does is made possible by a global souring network. Creating thousands of products and putting together just the right assortment in a massive showroom that entertains and feeds people is a very difficult thing to copy.

5. Should IKEA expand more rapidly than 20 to 25 stores per year? Explain. This is a strategy that has worked well for IKEA for decades. It is the same strategy followed by other cult retailers like In-N-Out Burger and Trader Joe’s. All three of these companies employ a slow growth strategy for one core reason—the supply chain does not allow for more rapid expansion without negatively affecting product quality and availability. But there is also another reason that these companies grow in a limited and constant manner. The fact that these companies’ outlets are not on every corner of every state or country creates a “special” characteristic. They aren’t a place that everyone can go to every day. In this manner, they retain a bit of a counterculture feel. By growing more rapidly, that aspect of their brand image would change to something more like Starbucks, Coca-Cola, or Walmart—all massive and successful brands to be sure, but ubiquitous.

Teaching Suggestions

Typical college students are perfect potential customers for IKEA. For those who are IKEA customers as well as for those who are not, organize a discussion around what students look for in buying anything for their dorm room, apartment, or house. Keep a running list. As this list becomes complete, make comparisons to what IKEA offers. While many students are looking for “free” or “cheap” and aren’t too worried about having the most fashionable merchandise for now, some may be surprised to find that they can buy certain things at IKEA (especially during its twice-a-year clearance sale) for less than they can buy them at a garage sale or thrift store.

GREAT IDEAS



Barriers to Effective Learning

1. Many students today have traveled internationally, and perhaps even studied abroad. However, this chapter will introduce concepts that most likely will not have crossed their minds before. Free trade agreements may be known in name, but not in what they actually do. The analytics of deciding whether to go global and if so, which countries to enter, will certainly not have been encountered before. This chapter will serve as an excellent introduction to these ideas.

2. The terms involved in the international trade system (tariff, quota, embargo, etc.) are generally unfamiliar to most students. Go through these carefully and use examples from recent press. Ask the students to express their feelings about tariffs, quotas, embargoes, etc. How does government policy affect free trade? Why would these barriers be erected? How do they feel about NAFTA? Do they think that it will be good for trade? When would trade barriers be justified?

3. The economic and political-legal environments will also most likely be unfamiliar to most students. Some students might have done some mission or humanitarian work in foreign countries with economies and political systems vastly different from our own. If you are lucky enough to have them in your class, have them relate their experiences. Economics majors, or those who enjoyed an economics class, may also be able to relate what they have learned about these issues from a different point of view.

4. On deciding whether to go international, many students will believe that it is simply a matter of the company deciding to expand. The concept of being forced to go into other countries because of customers pulling you along, or having to fight a global competitor on your home turf, will surprise some of them. Challenge them to think about how small companies grow, and why they might start selling their goods overseas. Use a local company that sells unique items. How might foreign customers find them? How would they decide that there is a market in another country? You can break the class into teams to work on these types of issues.

Student Projects

1. Read about the WTO (www.wto.org). What are the advantages and disadvantages of the existence of this organization? Take a stand on its effectiveness and substantiate your position.

2. Describe the three key approaches to entering international markets. Which do you believe would be the best for a company just beginning to work internationally?

3. What are “global” brands? Give examples of three brands you believe fall into this category and why.

4. Research the history of the North American Free Trade Agreement (NAFTA). Write a position paper stating your beliefs regarding its overall effectiveness.


http://www.wto.org/

Part 4 Extending Marketing5. Talk about the “Americanization” of foreign cultures. What is it? How does it happen? Is

it even a real phenomenon?

Small Group Assignment

Form students into groups of three to five. Each group should read the opening vignette to the chapter on Coca-Cola. Each group should then answer the following questions:

1. What is the major issue facing Coca-Cola in the African market?2. Coca-Cola’s first marketing rule in Africa is to get the product “cold and close.” What

does this mean and do you agree with their strategy? Why or why not?3. How does Coca-Cola currently distribute much of their product in Africa? Can you think

of a potentially more efficient method? Explain.4. What’s next for Coca-Cola in Africa?

Each group should share its findings with the class.

Individual Assignment

Read Thomas Friedman’s great book The Lexus and the Olive Tree. Write a 5 page summary of the major points he makes.

Think-Pair-Share

Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What is the fundamental difference between a tariff and a quota?2. What is countertrade and how does it work?3. What is the purpose of the World Trade Organization (WTO)? Do you believe it is doing

a good job?4. Discuss NAFTA and the EU. In the long run, which do you believe has the greatest

probability of success?5. What is meant by the term “whole-channel view?” What do you believe to be the greatest

advantage of such an outlook?

Classroom Exercise/Homework Assignment

Review the history of Disneyland Paris. Why was it initially such a failure? How did Disney turn it around (or have they really)? What lessons can we take away from their experiences in France?

Classroom Management Strategies



This chapter contains a lot of information that will be new to all students. Each section should be reviewed carefully.

1. The introduction and first section can be covered in 10 minutes. They provide a basis for the remaining content, and the Coca-Cola example in the opening vignette is excellent.

2. The next section has key information in it that the students must understand. Take 10 minutes with this section, paying particular attention to the international trade system and the economic environment. These two subsections cover very important material and new terminology that the students should understand before moving on.

3. Deciding whether to go global and into which markets to move can be covered together in 10 minutes. Table 15.1 should figure prominently in this discussion.

4. The global marketing program introduces for the first time the marketing mix element decisions that must be made. This should also be discussed for at least 10 minutes, and again, examples are very important here.

5. The various ways to organize the company for global marketing can be covered in 5 to 10 minutes. Again, examples of various firms and how they are organized will be very helpful here.


Part 4 Extending MarketingPROFESSORS ON THE GO

The Global Marketplace

Key ConceptsThe international trade systemEconomic, political-legal, and cultural environments

Explain how the addition of the World Trade Organization as a functioning body has changed the nature of international commerce.

The United States has a trade restriction on Cuba. Is this restriction a tariff, quota, or embargo? To what extent does this trade restriction allow U.S. businesses to export their products to Cuba?

Find five examples of international products that you regularly buy. Have these products been customized for sale here in the U.S.? Is the producing company following standardization or adaptation in each case?

Define the following terms: tariff, quota, embargo, exchange controls, and nontariff trade barriers. Explain the role played by these terms in international trade.

Key ConceptsDeciding whether to go internationalDeciding which markets to enter and how to enter them

Assume your boss has asked you for your opinion on how your company should enter the Japanese, South Korean, and Vietnamese markets with a new line of women’s athletic shoes. Would you recommend entering with a standardized marketing mix or an adapted marketing mix? Explain.

Assess the joint-venture opportunities a software manufacturer would have available if it were looking to market to the European Union?

Discuss the three market entry strategies shown in Figure 15.2. Which of these strategies is the riskiest? Why?

Key ConceptsThe 4 Ps internationallyGlobal marketing organization

Write a brief position paper on why you would like to “be in” or “work for” an international firm. What would you see as advantages and disadvantages to working for an international firm? You are free to pick any firm you wish (such as BMW, Sony, Honda, BP Oil, etc.) to use as an illustration for your comments.

List and briefly discuss each of the five international product and promotion strategies shown in Figure 15.3.


The Global Marketplace

Business

Transcript of The Global Marketplace