University Notes - Senior Year, 1st Semester

Table of Contents Keith Parker’s Notes from USC

Volume 4 of 5

Senior Year, First Semester Page Content BUAD-302: Communication Strategy in Business 1 Syllabus 9 Guidelines for Planning an Effective

Presentation 10 Assignment #1 11 Assignment #2 17 Assignment #4 21 Final Project BUAD-351: Economics for Business 51 Syllabus 55 Class Notes IR-439: Political Economy of Eurasia 61 Syllabus 66 Class Notes 111 Exam Prompts 113 Study Notes for Final 166 Final Paper MRKT-465: Global Marketing Management 184 Syllabus 193 Course Documents 245 Assignments 284 Class Notes 339 Study Notes for Final OWEO Group 403 Mission Statement 405 Constitution 409 Group Application Form 410 Facebook Picture 411 Group Members, as of 11 November 2006 428 Website

BUAD-302: Syllabus

SYLLABUS BUAD 302: Communication Strategy in Business

Fall 2006 Section 14652 M/W 8:00-9:40

HOH 306 Instructor: Ken Robidoux Office: OHE-106 Office Hours: M-W 10:00-10:45 & 1:00-1:45 and by appointment E-mail: [email protected] Telephone: (213) 821-5832 Fax: (213) 821-1328 You are working in an increasingly complex world characterized by explosive growth in access to quality of information—and your professional life will likely revolve around how you generate, organize, evaluate, and manage the communication of this information. Almost without exception, today’s business professionals attribute their success largely to their ability to write well, to speak dynamically, and to cultivate business relationships through strong interpersonal communication skills. Whether making a presentation, performing a communication audit, or creating and executing an integrated persuasive appeal (e.g. successfully landing a job)—you should be able to convey ideas and feelings to your audience clearly, accurately, and persuasively. This course is designed to sharpen your existing skills as a strategic thinker, writer, and speaker and to employ those skills to realize an actionable understanding of strategic communication. The class is structured to emphasize experiential learning so that our study of managerial communication theory can be applied to exercises and activities mirroring real-world challenges you will face in your professional lives. RESOURCES Required reading includes the text cited below as well as articles and cases distributed in class or otherwise assigned for out-of-class work. Lehman/DuFrane. Business Communication. University of Southern California Edition. BUAD 302 OBJECTIVES At the end of this course, you will be a more articulate and influential business communicator. You will understand the rhetorical reasoning that supports the strategies you learn such that you can successfully meet all types of new communication challenges.

BUAD-302: Syllabus

Business Communication Strategy – Theory Demonstrate understanding of the elements of business communication theory and apply this understanding to communications in a wide range of business contexts. Business Communication Strategy – Application Apply communication theory to develop business communication strategies, including evaluation of purpose, audience, context, and channel choice. Demonstrate the ability to analyze, compare and critique these strategies, and effectively communicate this assessment. By the end of your BUAD 302 experience, you should have acquired knowledge and skills in the following areas: Business Presentations

• Analyze a communicative situation and develop a strategy to create effective persuasive business presentations.

• Demonstrate understanding of and apply the principles of effective business presentations, including managing question-and-answer sessions and employing visuals.

Interpersonal Communication

• Demonstrate understanding of the elements of nonverbal communication and apply them in interpersonal communication situations.

• Demonstrate understanding of the principles and processes of effective listening and apply them in interpersonal communication situations.

• Demonstrate understanding of the principles of effective feedback and apply them to provide effective and appropriate feedback.

Organizational Communication

• Demonstrate understanding of organizational communication practices—external and internal—and apply this knowledge in various communication contexts.

• Demonstrate awareness of intercultural factors that affect communication and apply this knowledge in intercultural communication situations.

• Demonstrate understanding of the principles of small group communication, including problem solving and decision making, and apply them to create effective teams.

After only fifteen weeks, you probably will not reach a level of professional excellence in all business communication areas; mastery sometimes takes years and always takes dedication. You will, however, clearly understand the strategic objectives toward which you are working, understand the necessary processes involved in meeting those objectives (and helping others meet them), appreciate your strengths and challenges, and feel increased confidence in your communication decisions and in the execution of those decisions.

BUAD-302: Syllabus

Attendance I anticipate that you will be present in every class, and ready to begin work at the time class is scheduled to start. Should you need to be absent, either because of an illness or because you believe that there is something you must do that is more important than attending class, I will expect to receive an email message from you prior to the start of that class. Keep in mind that an email in advance of class does not excuse your absence, it simply shows me that you are taking responsibility for choosing to do something else during class time. Multiple absences, even when accompanied by conscientious notification, may be viewed as unprofessional behavior. If you miss a class session, you still need to come to the next class fully prepared. Please contact a classmate before the next class meeting. Ask them for announcements, lecture notes, readings, assignments, etc. Please feel free to contact me if you still need further clarification or interpretation as to what you missed. (What I cannot do is recreate lectures/discussions for individual absences—telling you everything we did in class would take an hour and fifty minutes!). Of course, if a major illness or emergency arises, I will work with you to accommodate the situation. Again, remember that absence from class, a pattern of lateness, or lack of participation will adversely affect your grade (in the same way that such behavior would adversely affect your performance evaluations in a professional setting. Listening/Respect for Colleagues Please recognize that BUAD 302 is a difficult and intimidating course for many students. I expect the class to operate as a learning community. Please have respect and offer support to your colleagues as they work to develop their individual skill levels. You learn as much from observing and critiquing presentations as you do from making presentations. Be an attentive, active listener when others are making presentations. You will be asked to critically evaluate the performance of your classmates. My assessment of your level of overall professionalism in class will be influenced by the thoughtfulness with which you listen to and evaluate the work of others. Assignments In this class, as in business, you’re expected to compete your projects on time. Assignments are due at the beginning of the class period on the date assigned. Any assignment turned in late may receive half-credit as a starting point. All written assignments and graded presentations must be completed; failing to complete even a single assignment may result in an “F” in the course. Please check your USC email account regularly in case I send any assignment clarifications. You should know how to send and receive attachments. PLEASE indicate your full name and class meeting time on all submitted documents (and emails).

BUAD-302: Syllabus

Oral Assignments Reminders I am particularly interested in your developing an ability to connect with your audience. It is extremely difficult, if not impossible, to make this connection when you are reading your presentation or reciting it word-for-word. Reading verbatim—or even appearing to read—a presentation will lower your grade significantly. It is permissible to use notes (when indicated by assignment), of course, but our task is to wean you from the temptation to write out your presentation in complete sentences and memorize it. Doing this is virtually guaranteed to deal a death blow to your effectiveness as a presenter. Written Assignment Reminders Where a bibliography, reference notes, or other stylistic requirements are used, the information must conform to a standard style manual (MLA). Your written assignments should be free of spelling, punctuation, or grammar errors. Any errors in mechanics reduces the effectiveness of written communication and will dramatically lower your grade. If you are unable to attend class on the day a written assignment is due, make arrangements for it to be delivered to the classroom or to my mailbox in OHE 106 by the start of class. Please ask my permission before submitting a written assignment via email if you miss class on the day work is due. Written Assignment Preparation The Marshall School of Business computing environment supports the Microsoft Office bundle of productivity tools. All assignments must be prepared with these tools—or tools that produce compatible files—and printed on a laser or inkjet printer. All assignments should be prepared on an 8 ½” X 11” paper. I expect all your written work to be formatted with 1” margins, and using 12-point Times New Roman font. All parts of a multi-page assignment must be stapled together in the upper left corner. Please do not enclose any of your work in binders or folders. Again, please indicate your full name and the time your class meets on all documents (adding your class time to email correspondence helps as well). Additional Activities Meetings in the ELC Many oral presentations, both graded and not, will be videotaped in the Experiential Learning Centers (ELC) in the basement of Bridge Hall. Please note that we will meet in the ELC on the dates listed on the class calendar page. You will also be videotaped while participating in exercises and simulations in the Center. Because our time in the ELC is precious, punctual ELC attendance is crucial.

BUAD-302: Syllabus

Professional dress is required whenever our class meets in the ELC—unless I change the code for the occasion. What an audience sees when you speak influences what it hears and thinks. Mock Interviews Mock interviews will be scheduled for the ELC in Popovich Hall on a Saturday and Sunday, early in the semester—we’ll know the dates by the end of the first week of the semester. You must complete this exercise to receive credit for the class. Sign-ups for the half-hour time slots and further details of this assignment will be discussed in class. Career Planning and Placement Center Information Session A class session will meet in the CPPC for a discussion of strategies for approaching the interview process, landing an internship or job, networking, and using the career planning resources available to you at USC. PowerPoint Workshop A class session will be devoted to a PowerPoint workshop in one of Marshall’s computer labs. Using visuals effectively in your presentations is an important part of your grade. This session will help beginners learn PowerPoint basics, but will also present new techniques to more advanced users. GRADING The Marshall School of Business grading policy is rather explicit: In order to avoid substantial disparities across courses, instructors in the School of

Business Administration courses are required to adhere to specific target grade point averages for each course they teach. The target average GPA for an undergraduate required course is 2.85. Instructors are not permitted to have their average GPA in a single course deviate by more then 0.1 above the target.

Because of the Marshall School’s targeted mean, your ultimate grade in the course is determined by both the absolute quality of your performance and your standing in the overall class (i.e., your ranking) at the end of the course. Striving for excellence will yield maximum learning and an enhanced opportunity to achieve the final grade you desire. But the influence of the Marshall grading averages is ineluctable. Most students who work hard will achieve a final grade of either a “B-” or a “B” in the course.

• The grade on any individual assignment will be determined by its overall impact on its specific audience. Content, and expression of content, cannot be separated.

• In the interest of equality to all students, grades are determined by the work product you deliver. Effort, time invested, and improvement—although important factors in your development—do not form the basis of individual or final grades.

BUAD-302: Syllabus

A Working Definition of “A” Quality Work Outstanding or exceptional work will receive an “A”. “A” work reflects mastery of course concepts, tools, and techniques, plus a solid understanding of implications, applications, or interrelationships, as may be appropriate. “A” work also reflects your ability to apply and express that understanding with meaningful language. In business, this would mean your manager would accept the work with no revision, be willing to put his/her name on it, and send it forward. To put it another way, an “A” on a written or oral communication signifies that the communication:

• Contains a clear, early statement of purpose, main idea, and the key supporting arguments

• Demonstrates strategic development and organization based on careful audience and situational analysis

• Recognizes and addresses complexities through thoughtful analysis; incorporates and discusses necessary counter arguments

• Includes influential supportive details; makes evidence “speak” for the audience

• Employs a style and tone appropriate to the audience and context • Utilizes articulate language and memorability devices • Maximizes symbiosis between content and expression of content • Achieves the desired impact on the audience while maintaining a positive

relationship with them (i.e., employs the dialogic model of communication Review of Grades If an assignment is returned to you and you believe that some error has occurred in the grading, you can, within one week of the date the assignment is returned, request—using a memo—that I re-evaluate the assignment. If necessary, I am glad to clarify my commentary on returned assignments, but if you wish to discuss your grade, you must initiate the discussion with a memo. Any reference and discussion of grades (written or otherwise) must be initiated and conducted with diplomacy and thoughtfulness. If you are requesting a grade review, the original assignment or presentation evaluation form should be attached to your memo. The memo should fully and carefully explain why you think the assignment should be re-evaluated. Arguing that “I worked hard and put in a lot of time” or simply saying “I don’t understand why I received this grade” are neither full nor careful explanations. Remember that the re-evaluation process can result in three types of grade adjustments: positive, none, and negative. Reporting of Grades I will not post final grades, and they will not be given out by the department or by me. I cannot provide your final grades before they are available by Touchtone (213-740-9088).

BUAD-302: Syllabus

Administrative Matters Academic Integrity:

Plagiarism is the unacknowledged and inappropriate use of the ideas or wording of another writer and can result in sever penalties including an “F” in the course. The best way to avoid plagiarism is to carefully document your sources, even when you are only making use of data or ideas rather than an actual quotation.

To avoid having your writing marked by illegitimate assistance, ask yourself whether you would be able, on your own and without further assistance, to revise and improve the writing in question. If the answer is ‘No’—if you would not be able to maintain the same conceptual and stylistic quality without outside assistance—then you should not submit the writing as your own work. (Student Guide to the Freshman Writing Program)

Students with Disabilities: Any student requesting academic accommodations based on a disability is required to register with Disability Services and Programs (DSP) each semester (this includes any type of disability for which accommodation is requested). A letter of verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to me as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m. – 5:00 p.m., Monday through Friday. The phone number for DSP is (213) 740-0776. Retention of Graded Papers: Returned paperwork, unclaimed by a student, may be discarded four weeks after the grades are posted by the University and, hence, will not be available should a grade appeal be pursued by a student following receipt of his/her course grade. Class Cancellation: Only official notices written on Management Communication letterhead, dated and signed by the Chair (Professor Paul Frommer), will constitute a notice of cancellation for a class session. I will try to notify you in advance (via email) of an unexpected class cancellation. Services: Other facilities within the Marshall School of Business offer a broad range of informational, software, and hardware support and services. Schedules for and additional information about these facilities can be found on the Marshall School homepage: www.marshall.usc.edu . IMPORTANT NOTE: Please silence all electronic devices before class. Unless you have an emergency situation, please do not check your electronic messages (etc.) in class. And lastly…WELCOME!

BUAD-302: Syllabus

Class Schedule Subject to Change at Any Time to Fit Needs of the Class

Assignments & Special Activities* Date Career Center Orientation Wednesday 9/6 Presentation # 1 (ELC) Monday - 9/11 Mock Interview (takes place on Saturday/Sunday) 9/23-24; 9/30-31 ELC – Hi-Fly Wednesday 9/27 Résumé Monday - 10/2 Presentation # 2 (ELC) Monday - 10/16 PowerPoint Training (HOH 401) Monday - 10/23 Presentation # 3 (ELC) Monday - 11/06 Q&A (ELC) Wednesday - 11/08 Presentation # 4 (ELC) Monday - 11/27 Written Communications Complementary writing assignments based on presentations and other in-class activities. * Professionalism and participation is required throughout the semester. They can only negatively affect your final grade if you do not attend class on a regular basis, come to class unprepared, or fail to participate and finish on-time all in-class and scheduled assignments and activities.

BUAD-302: Planning an Effective Presentation

BUAD 302 – Fall 06 – Robidoux Guidelines for Planning an Effective Presentation (notes for Chapter 12 section 1-2 reading)

• Select a topic of interest to you and the audience • Determine the purpose (what you want the audience to gain) • Identify major points and locate supporting information • Develop a strong opening and closing • Arrange for a proper introduction

Structure of a Presentation

• Introduction “Tell them what you are going to tell them…” • Body “…then tell them…” • Conclusion “…and then tell them what you have told them.”

Elements of an Effective Introduction

• Captures attention and involves the audience • Establishes rapport with the audience • Presents the purpose statement • Previews the main points to be covered

Techniques for gaining Audience Attention and Interest

• Shocking statement or startling statistic • Quotation by an expert or well-known person • Appropriate joke or humor • Demonstration or dramatic visual • Related story or anecdote • Personal reference, compliment to the audience, or reference to the occasion

of the speech Use Transitional Sign Posts

• Forecast next idea • Readjust expectations • Emphasize relationships • Give audience time to digest material covered • Give speaker time to think about next point

Elements of an Effective Summary

• Lets audience know you are summarizing • Leaves audience with a clear, motivating, and memorable statement • Summarizes the primary points and/or makes a call for action • Is tied to the introduction to create unity • Does not end with “thank you” or “that’s the end”

BUAD-302: Assignment #1

To: BUAD 302 Students From: Professor Robidoux Date: 9/11/06 Subject: Presentation #1 Evaluations In addition to your presentation responsibilities for this assignment, you are given the opportunity to evaluate your presentation. Additionally, you have the added opportunity to evaluate the presentation of one of your peers. Evaluating yourself and your peers will greatly benefit you in your quest for becoming a strong speaker. Seeing what someone had done well and emulating it, and in contrast, seeing what someone had done poorly and avoiding it, will give you the needed context to improve your own understanding of good oral presentation work. Consider the following: All speakers use stance, body movement, gestures, facial expressions and eye contact to illustrate and enhance every message. Each should be smooth and natural. Your body language enhances and clarifies your words and helps the audience “visualize” your point and overall message. In other words, the message your audience sees should be the same one they hear. Additionally, your speech must have a clear purpose and appropriate organization. Then: Write a reaction to your interview. Include a paragraph that discusses your weaknesses, one that discusses your strengths, and perhaps a few thoughts as to what you gained from the experience. Finally: Watch and write a short evaluation of the person interviewed before or after you (found on the same tape as your interview). In this peer evaluation, discuss strengths and areas in which you think your colleague could improve and how. Be specific in these evaluations. Use memo format. Address the memos to me; no one else will read them. This is an opportunity to objectively view yourself and a peer in one of the most challenging interpersonal communication situations. The memos are due Monday, September 18. If you have any questions, please feel free to contact me at [email protected]


To: BUAD 302 Students From: Ken Robidoux Date: 9/18/06 Subject: Assignment # 2 DUE: Wednesday 10/18/06 TASK: Prepare and deliver a 5-7 minute persuasive presentation to the

university’s board of regents. Preliminary work You’ll need an outline to begin organizing your speech. Write a business letter first to focus your recommendation and then get your presentation in order. Situation This is a three-part assignment that includes an outline, a written letter, and an oral presentation. All materials are due on the day of your presentation and will be collected before you begin. Assume that you are an active member of a campus student organization or professional campus society. Each student organization or professional society has been asked to write a letter to the student government to describe what your organization considers the biggest problem students face on campus. It seems that the university’s board of regents is interested in hearing the perspective of several student groups. Provide me with a one page letter that describes the situation to student government and discusses the impact that students would derive as a result of this change. Be sure to adhere to the principles of letter writing. Congratulation on your letter! It seems that after the student government committee read your letter, they passed it on to the university’s board of regents, and now they want to hear you present your case. The board may take action to correct the problem that your organization had identified, but first you must persuade them. Instructions Aim for a 5-7 minute persuasive presentation. Six minutes is perfect but coming in at seven minutes is fine, too. Provide a good introduction that serves to give your audience some background information; elaborate on it; conclude with some recommendations. Be sure that your audience knows who you are and that you ask for questions at the end. You’ll want an appropriate attention getter at the introduction and a take-away statement at the conclusion. Protocol for this Presentation

• You’ll speak from the front of the room, standing up. • You may rely on notes but sparingly since you want good eye contact • No lectern or podium. However, there is a small table available to you • No use of visual aids like PowerPoint slides or dry-erase markers • Presentation time limit must be observed. Range: 5-7 minutes. • Dress code: Business. You want to look your best for the regents

BUAD-302: Assignment #2Keith Parker USC Student Transportation Group Los Angeles, CA 90007 October 18, 2006 USC Student Government 3601 Trousdale Parkway, STU106 Los Angeles, CA 90089-4896 Dear USC Student Government, In my fourth and final year at the University of Southern California, I have found the transportation opportunities for students to be more than helpful. Providing convenient transportation services, such as the university trams and campus cruiser, we at the USC Student Transportation Group realize that the university has clearly shown an interest in transporting the student body safely and effectively. As a student living on 28th St for over two years, every day I’ve seen the heavy student traffic moving from the area Northeast of the university to the university campus. This area to the Northeast consists largely of student housing and apartments, whose occupants’ main course of transport to the university campus includes the crosswalk from the University Walkway. This crosswalk runs from 28th St. to Jefferson Blvd., crossing Jefferson Blvd. to Gavin Herbert Plaza. These students often walk, skateboard or ride bicycles as their means of transportation along this corridor. The aforementioned crosswalk over Jefferson Blvd. onto campus is routinely overcrowded during the day. The hundreds of students crossing Jefferson daily come across many problems with the current crosswalk, among them the congestion of motor traffic, motorists hitting students at the fault of oblivious students and drivers, and long wait times on both sides of the street before the walk signal lights up. A buildup of pedestrians on either side of the crosswalk vis-à-vis long wait times causes pedestrian congestion when both of these masses meet in the middle of the street while crossing the crosswalk. As a group advocating student satisfaction, we would like to request the construction of a pedestrian underpass that allows for the continuous flow of pedestrians under both Jefferson and Hoover. Naturally, the high cost of such structures will cause resistance to such a proposal. Nonetheless, for the large number of students living in this area, the benefits of such a structure would result in a much safer and more pleasurable means of getting to and from campus. Further, the extension of the underpass to include the crossing of Hoover would bring direct benefit to the interests of the University. USC owns the University Village complex (the UV), the collection of retail, dining, and service businesses to the north of campus and across Hoover from the University Walkway. A more convenient crossing under Jefferson and Hoover would eliminate the road barrier from campus to the UV, which would further naturally integrate the UV with campus and bring more customers to the complex. After you have reviewed this proposal, please call us at 213.281.2242 to discuss this option of increasing overall student satisfaction and easing pedestrian access to the University Village.

Sincerely,

Keith Parker, Student President, USC Student Transportation Group


Outline for Presentation #2 Introduction

• Hi, my name is… I represent USC Student Transportation Group… • Attention-getter – Does anybody here live to the northeast of campus (that is,

around the row or in that area)? • The pedestrian crosswalk from University Walkway to Campus is overcrowded,

puts students in unneeded danger, is inefficient, and is a barrier to increased business to the UV

• Main Points o This crosswalk is used by a large number of students o There are few alternative route for students to go to and from campus o The crosswalk in place is inadequate o Location requires few modifications for underpass o Benefits students would gain from an underpass o Benefits university would gain from an underpass

Body

• As a student living on 28th St I use crosswalk daily o Crosswalk is used my most people living to the northeast of campus o This area is largely student housing, apartments, fraternities and sororities o University Walkway, which connects this crosswalk to the area northeast

of campus, runs all of the way from Jefferson to University • Lack of alternatives

o Students must cross this street to get from that area to campus o Other intersections are far away – Figueroa or McClintock o Jefferson is too busy of a street for a standard crosswalk

• Intersection is too crowded o Wait time causes student buildup on both sides of intersection o When light turns green, these two crowds congest in the middle of the

intersection o People run into each other, end up getting stuck in intersection after light

turns red • Moving from current problems with the crosswalk, I’ll be moving on to the

solution that the USC Student Transportation group has found to be most adequate

• An underpass would require few modifications to the area on both sides of crosswalk

o There is already a large area on both sides of current crosswalk in which to build ramp leading down to underpass

o Underpass, as opposed to overpass, would allow for the easy use of bikes, skateboards and other methods students use to get to campus

o Underpass could be made wide enough in this area to appear inviting and open, along with allowing for the heavy traffic of pedestrians

• With a solution to the problem, let’s look at the benefits that it would provide in exchange for the costs of the structure


• Benefits For Students o Convenience, no more waiting at the light for long periods of time o Safety, eliminates dangers of crossing the road o Creates a more permanent connection between campus and the area to the

northeast of campus, makes this area seem more included with campus • While these benefits to the students provide the university with good reason to

make this expansion, the benefits to the university should also be considered, as the university might argue that it is too expensive to build such a structure without any direct benefits

• Benefits For University o University has full ownership of University village, shopping center

(location) o An extension of this underpass under Hoover would provide easy access

to the UV from campus o This would build a stronger connection between campus and the UV,

providing students with a stronger sense of being part of campus, and thus becoming more inviting

o This inclusiveness with campus would increase profits for UV stores, directly benefiting the University

Conclusion

• In covering these points, we at the USC Student Transportation Group strongly advise the university to consider building an underpass connecting the campus with the University walkway as an alternative to the current crosswalk on Jefferson

• This is needed because there’re are a high number of students living in the area to the northeast of campus, and this is they have few alternatives in getting to campus other than this crosswalk

• The crosswalk becomes too crowded during the day, and creates a dangerous situation for both pedestrians and drivers

• The location allows for few modifications to the surrounding area in order for an underpass to be built

• Student Satisfaction would increase as a result of this expansion • The universities’ UV shopping complex could gain financially if the underpass

were extended to include a crossing under Hoover • Although the costs of building an underpass under the Jefferson-Hoover

intersection would be costly, the members of the USC Student Transportation Group have found that the university would be more than compensated in increased student safety and satisfaction, as well as a bolstering of profits at the University-owned UV shopping Complex

Thank you, are there any questions?


Good Example of a Persuasive Request

Opens with a complimentthat introduces anappeal to the owner’spride in the old property.

Introduces the writer’sinterest in acquiringproperty and continuesthe primary appeal(desire to preserve thepast).

Offsets reluctance to sellby acknowledging thesentimental value andsuggesting options.

Format Pointers

• Illustrates modified block format—the date and closing lines (complimentary close andsignature block) begin at the horizontal center.

• Uses mixed punctuation—a colon follows the salutation, and a comma follows thecomplimentary close.

• Uses an enclosure notation to alert the reader that something is included.

March 15, 2004

Mrs. Joyce Smith976 Thompson RoadCrossville, TN 38555-0976

Dear Mrs. Smith:

Meeting you and touring the building on your property last week was apleasure. That little building provided me with a fascinating glimpse of thepast. You must have found it convenient using the building as a big “attic,”storing all your canned goods and old farm implements over the years.

As the manager of the Down-Home Barbeque in Mena, I am constantly look-ing for items to build and display in our restaurants. Our restaurants are con-structed of weathered wood to create a genuine rustic atmosphere, which wethink complements our “down-home” menu.

As I toured your building, I couldn’t help but notice some of the unique itemsinside and the old weathered boards hanging outside. The wood from thebuilding and its contents would enable us to build and furnish a new restau-rant in Clarksville and refurbish our Jackson location. Marc Lane, owner ofDown-Home Restaurants, has asked me to extend you the offer explained inthe enclosed proposal.

Naturally, no amount of money can compensate you for a building that holdsso many memories for you. However, we would be happy to purchase theentire contents of the building, excluding any special items of sentimentalvalue that you may want to keep.

Down-HomeRestaurants89 South Pass Road Chattanooga, TN 37416-2729 (423)555-5110• •

Business Communication, 14th Edition by Lehman and DuFrene Copyright 2005 South-Western

Keith Parker, University of Southern California

Page 15


Mrs. Joyce SmithPage 2March 15, 2004

Although the thought of selling the building may sadden you, think of the“second life” that the old farm equipment, dishes, washboards, seed bags, andweathered boards would have in our restaurants. People who would other-wise never see such Americana will have the opportunity to learn a littleabout its rich past.

After you have reviewed the proposal, please call me at 555-3253 to discussour offer to display your treasures in our restaurants.

Sincerely,

Karla Ash, ManagerChattanooga Store

Enclosure

Stresses benefits of sell-ing property in terms ofthe primary appeal.

Connects the specificrequest for action withthe reward for saying“Yes.”

Good Example of a Persuasive Request, continued

Business Communication, 14th Edition by Lehman and DuFrene Copyright 2005 South-Western

Keith Parker, University of Southern California

Page 16


To: BUAD 302 students From: Ken Robidoux Date: 11/08/06 Subject: Assignment # 4: Request for Proposal

Learning Objectives:

Analyze and develop effective persuasive messages for business audiences. Improve and apply persuasive techniques in a written sales proposal and oral team

presentation. Practice and improve researching skills. Improve oral presentation skills. Develop visual aids aimed at meeting the expectations of business audiences. Learn and practice effective group communication techniques.

A Request for Proposal (RFP) is a business document sent out by organizations that are seeking proposals for the completion of a variety of jobs or needed services. In other words, an RFP requests bids from other organizations that can potentially provide these sought-for services. In this particular instance, your team will generate a proposal in response to a RFP issued by Global Entertainment Ventures, Inc. (GEV), a company that provides venture capital to start-up businesses in the entertainment industry. GEV is interested in providing capital to any start-up in the business of entertainment. This includes companies in the video game, television, film, sports, radio, publishing, and travel industries. Furthermore, these companies can specialize in a variety of aspects of each of these industries. For example, companies that propose financial support from GEV can further specialize in

Marketing programs for sports or other types of entertainment products or services Advertising for companies involved in the entertainment industry Accounting and auditing services for companies involved in the entertainment

industry Legal or other representation for companies involved in the entertainment industry

The CEO and president of GEV is Ken Robidoux. Mr. Robidoux is the person to whom your proposal will be presented and who will select the company that will receive funding based upon the quality of its proposal. Each step of this project will require specific information from your team. First, your team will need to select the type of entertainment service or product that your company will provide and for which you are seeking venture capital. You will then need to research that industry, primarily using the internet as your source of information, and create a strategy to sell your company, its products and/or services to GEV. Remember that a proposal is a competitive document; that is, you will be competing with other entertainment companies to demonstrate that your organization is the best choice for GEV’s investment. In order to demonstrate that your organization is the best choice, you will need to convince GEV’s CEO that your company provides the best product or service in its industry. Factors to consider when making this argument are price, features or services,


support (if appropriate), quality, financial potential, company or product longevity, and your competition. Analysis of this information should result in your proposal strategy. After this information is generated and analyzed, your team will use it to complete the proposal and prepare a presentation to sell your company as a potential investment to GEV. Assignments Two major assignments are associated with the RFP: a team sales presentation and a written sales proposal. Team Sales Presentation Your presentation will be graded for task fulfillment, audience focus, content, organization, persuasiveness, delivery, and visual aids (PowerPoint slides). Your teams will have 20 minutes to present with an additional 5 minutes for questions and answers. Topic Coverage To prepare for this assignment, you will need to identify an entertainment product or service that you believe would be an excellent focus for your team project. You will then simulate the creation of a company that is preparing to ask for funding from a venture capital firm (GEV) in order for you to start up your business. In your presentation, you should cover the following topics:

• Description of the company and its product or service. You should briefly describe your company—its location and number of employees—as well as your product or s service and how it will be produced, delivered, and priced. • Market for the product or service. This section of your presentation should discuss

the market for your product or service, demonstrating that there is sales potential. This information should be based upon research about similar products and/or services and/or at least clearly stated assumptions.

• Market plan for the product or service. This section should provide a marketing plan for your product or service. This information should be based upon research about similar products and/or services and should be realistic in terms of the amount of money that will be available for this purpose. Essentially, this section will describe how you plan to market your product or service and why this plan will be successful. • Your competition. This section should provide a thorough analysis of your

competition for your identified market and explain the measures you will take to gain an advantage over that competition.

• Your funding request. This section should detail the amount of funds you are asking for and how it will be spent. You should also show the kind of return on investment you plan to provide GEV. This information should be based on research about similar products or companies or at least clearly stated, realistic assumptions about financial issues. Since this is not a finance or accounting course, you will just be expected to estimate the large capital costs, such as equipment and land purchases, and rent, labor, marketing, and distribution costs. You don’t need to worry about insurance, supplies, utilities, etc.


One of the assumptions of persuasive speaking is that you pay considerable attention to building credibility through establishment of your expertise and knowledge about your topic, demonstration of the quality of your thought (logic and organization), and focus on your audience’s interests and concerns. You will be expected to demonstrate all of these aspects of credibility in order to be judged adequately persuasive in your presentation. An additional aspect of credibility that you will be expected to achieve is your ability to convey a professional image through your dress, confidence, and the correctness of your language usage. You will also need to provide relevant, high quality evidence to ensure that your presentation is the most persuasive.

Sections of Your Presentation Your presentation should consist of the following parts:

• An introduction that includes an attention-getter, an introduction of all of your team members, and an overview of the presentation.

• A body that explains each of the assigned topics clearly and persuasively. • A conclusion that states as strongly as possible why your proposed product or service

is the best choice for investment by the venture capital firm. It should focus on the benefits to the various stakeholders.

NOTE: Each team member should be assigned an equitable share of the performance. In addition to your presentation, you should turn in a paper version of your PowerPoint slides. Your PowerPoint slides will be graded for the following:

• Serving as an appropriate visual aid to the presentation, i.e., providing an overview of the structure of the presentation and presenting information best shown in visual form (using graphics, visual elements, tables, etc.).

• Providing a strong sales conclusion. • Utilizing color, fonts, and graphics in a highly professional, readable manner.

NOTE: The PowerPoint slides should not be used to deliver the text of your presentation. It is important that you remember the difference between information that is best presented in written form versus oral form. Generally, speaking detailed information should be presented in written form while “the big picture” is presented in a presentation situation. Team Proposal Assignment

In addition to your sales presentation, your team should prepare a written proposal in response to the Request for Proposal (RFP) issued by Global Entertainment Ventures, Inc. (GEV), a company that provides venture capital to start-up businesses in the entertainment industry. Remember that a proposal is a competitive document; that is, your team will be competing with other entertainment companies to demonstrate that your organization is the best choice for GEV’s investment. In order to demonstrate that your organization is the best choice, you will need to convince GEV’s CEO that your company provides the best product or service in its industry and generally shows the most promise as an investment choice.


Your written proposal should include the following sections:

• Description of the company and its product or service. You should briefly discuss your organization—its location and the number of employees—as well as your product or service and how it will be produced, delivered, and priced.

• Market for the product or service. This section should discuss the market for your product or service, demonstrating its sales potential. This information should be based upon research about similar products and/or services and/or at least clearly stated assumptions.

• Market plan for the product or service. This section should provide a marketing plan for your product or service. This information should be based upon research about similar products and/or services and should be realistic in terms of the amount of money that will be available for this purpose.

• Your competition. This section should provide a thorough analysis of your competition for your identified market and explain the measures you will take to gain an advantage over that competition.

• Your funding request. This section should detail the amount of funds you are asking for and how it will be spent. You should also address the return on investment that GEV might expect. This information should be based on research about similar products or companies or at least clearly stated, realistic assumptions about financial data. Since this is not a finance or accounting course, you will just be expected to estimate the large capital costs, such as equipment and land purchases, and rent, labor, marketing, and distribution costs. You don’t need to worry about insurance, supplies, utilities, etc.

Just like your oral presentation, you should ensure that your written proposal is well organized, which means that you should include

• An introduction that sets the tone for your proposal, states the purpose of the proposal, and provides a brief yet informative overview of the topics your proposal will cover.

• Paragraphs that are focused on a single topic and begin with an accurate topic sentence.

• Headings, if deemed appropriate. • A strong and effective sales conclusion.

You should also pay attention to providing the evidence necessary to persuade your audience that your proposed service or product is the best choice for GEV’s investment.

BUAD-302: Final Project

• Advertising for the channel, aimed at consumers o Getting venues to allow recording

Advertise for the channel at venues being recorded at, and possibly even others

Celebrity endorsements How do you convince these venues and celebrities to endorse

ConcertTV? Just like more exposure of music through online distribution

networks has increased interest in music, and how radio did the same years before and still today, increased exposure to the concert world will increase concert ticket sales and awareness

• There are fewer indifferent music listeners now than a few years go, and more music enthusiasts and casual listeners1

Concert revenue is important to recording artists, with only four of the top 35 recording artist income earners making more from recording than from live showings, and among these top 35, the ratio of touring income to record sales is 7.5 to 12

Much of our programming will be from less-popular artists, so while the big-name artists might not need these increased concert sales and promotion, less recognized artists would benefit enormously from increased exposure. In an industry where the top 5% of income earners bring in 84% of ticket sales3

o Who will advertising be done through? Clear Channel controls 41% of concert promotion, so deals with

them will be essential4 Recent studies have shown that most people in our target age

group go to the Internet or their friends to find out about new music. To this effect, we will stress advertisement online, offer content online for purchase (possibly through an iTunes-like store) (People who enjoy live showings also tend to use the internet for music downloading, meaning they are likely to be willing to download live footage online)5 in order to increase hype and knowledge of our channel online, and further through universities in the LA area, as our age group can be contacted easily in this way, and physical presence on a university campus increases word-of-mouth knowledge6

o What angle will advertising be?

1 Powerpoint 2 Rockonomics 3 Rockonomics 4 Rockonomics 5 PC Pitstop 6 PC Pitstop


HD is the new wave of Cable TV, so it will be essential to advertise this new service as an HD channel, in order to show that our company is on the leading edge of the industry

While MTV appeals to those interested in trendier music, we will promote the image of a more independent channel, for those more deicated to out-of-the-spotlight music and discovering new artists. After all, more people are becoming enthusiastic and casual music listeners rather than indifferent listeners, and are more interested than ever in discovering new music.7

• Appealing to advertisers themselves, and types of advertising o Similar channel, MTV, almost 3 times as likely as the general 12-34 year

old population to live in household with incomes over $75,0008 o MTV’s median age is exactly when many young adults begin to form

brand loyalty, this is a great age range to influence their choices, research shows that 69% of consumers make choices based on brand names9

o The 12-43 age group represents 41% of all retail shopping dollars spent10 o By appealing to an older age group during the day, with a different type of

music, the channel can advertise alcohol and stay away from the problems that MTV have with marketing alcohol because of the young age of their viewer (although this would have to be different during the night when more trendy music is on). While younger people (in the under 20 age group) are the main audience for MTV, most concert-goers are above the age of 20 (graph on source PDF)11

o Over the age of 35, fewer people are music enthusiasts or devoted music fans, so those under this age will be focused on in advertising12

o As mentioned earlier, this channel will spark people’s interest in the concert world, and thus venue operators and ticket sellers (such as Clear Channel and Ticketmaster), a deal might even be done with Clear Channel, so we could advertise the channel at their venues

o

7 Powerpoint 8 Value to 9 Value to 10 Value to 11 PC Pitstop 12 Powerpoint


As the ConcertTV channel will originally only be released in the greater Los

Angeles area, our strategy for marketing this channel will be very specific to the Los

Angeles environment. The marketing segment of this paper will be split into two

components, the first examining the way in which we will be marketing the ConcertTV

channel to our potential viewers and the second taking a look at how we will be

positioning the product as a desirable advertising venue for advertisers and venues alike.

With the advertising plan set forth in the following paragraphs, we are sure that

ConcertTV will be successful in promoting its image to viewers and appealing to

advertisers.

The audience we will be reaching towards for viewers will be slightly different

from what other channels of similar genre have targeted. For example, while MTV, the

famous Music Television network, targets a trendy audience between the ages of 14-34

(although most of their viewers are under 22), we will be targeting a slightly older, less

trendy market. ConcertTV will position itself as a channel unlike any of the others, with

music outside of the mainstream for viewers who don’t want to be seen as trendy. Our

marketing team will begin its campaign with advertisements at concert venues around the

greater Los Angeles area. In doing this we will be reaching our target audience, i.e. those

who enjoy watching concerts. More importantly, our adverts at will be placed in venues

at which we are recording or where viewer-submitted videos were taped. With this

strategy, we will reach devoted music listeners who are interested in the material we will

be airing. For those who don’t attend concerts regularly, and are less devoted to music,

we will be using endorsements by recording artists, most of whom will be known in the

music scene but probably not in the widespread media.


In order to gain these celebrity endorsements and advertising possibilities at

concert venues, our team will make it clear that this advertising strategy works in favor of

both parties. Just like radio spurred more interest in the music industry, and later music

trading online spurred an increase in committed music fans with more knowledge of less-

known artists, a television channel featuring concerts will increase awareness of the Los

Angeles area concert scene and increase ticket sales of lesser-known concerts. Research

has shown that in recent years there has been a significant increase in the number of

music enthusiasts and casual listeners, and an overall decrease in the number of people

indifferent to the music world (see Figure 1).1 This increase comes at a time when the

US has seen a significant increase in the amount of music downloaded online. This

concept alone will convince concert venue operators, who receive a cut of ticket sales, to

sponsor ConcertTV with venue advertisements in order to increase the presence of our

channel and increase ticket sales for their venue in return. Furthermore, recording artists

should be more than happy to develop the presence of ConcertTV. Increased concert

sales will boost the income of recording artists outside of the top five percent of artists in

the industry. Concert sales are very important to recording artists. In fact, only four of

the top 35 earning recording artists make more from recording than from live shows.

Among these top 35, the ratio of live earnings to earnings from recordings is 7.5 to 1.

Nonetheless, while live shows are essential to recording artists, the top five percent of

artists earn 84% of the total ticket sales for concerts (see Figure 2).2 Stratification in this

industry being so strong, lesser-known recording artists would more than welcome the

1 Fero, Richard, comp. Project Phoenix. 2006. Emap Advertising. 22 Nov. 2006 <http://www.emapadvertising.com/>. 2 Connolly, Marie, and Alan B. Krueger. Rockonomics: the Economics of Popular Music. Pinceton University. Princeton UP.


opportunity to increase awareness of a TV channel that will potentially increase

attendance at their concerts.

With this advertising strategy in mind, the venue through which artists-promoted

advertising will be pushed through will be discussed. The media giant Clear Channel

controls 41% of concert promotion, so deals through them will be essential.3 In

proposing advertising for ConcertTV to Clear Channel, our team will make clear that, as

mentioned earlier, our channel will increase general interest in music. For Clear Channel,

who owns thousands of radio stations coast-to-coast, increase in music interest holds

clear value. Further, studies have recently shown that most people in our target age

group go to the Internet or their friends for information about the music world (see Figure

3).4 Therefore, advertisement online will be stressed, as well as advertisement directly to

our target audience. Direct advertisement to our audience will likely be done on college

campuses, where much of our target audience resides. With a small group of

representatives on college campuses all over the greater Los Angeles area, we will be

able to spread the word about the offerings of ConcertTV and increase credibility be

creating a ‘buzz’ on college campuses about the listings on our channel. In addition,

similar studies have shown that those who regularly attend concerts are considerably

more likely to download music online (see Figure 4).5 As our audience seems to be more

tech-savvy than others, we will be catering to their online abilities by offering concerts

available for download on either a site dedicated to ConcertTV or an existing service

3 Connolly, Marie, and Alan B. Krueger. Rockonomics: the Economics of Popular Music. Pinceton University. Princeton UP. 4 Digital Music Survey. PC Pitstop. PC Pitstop, 2006. 5 Digital Music Survey. PC Pitstop. PC Pitstop, 2006.


such as iTunes. Using a service such as iTunes would also further increase awareness of

our offerings to existing music listeners, so this choice will be preferred.

As already mentioned, we will be targeting the more independent music listeners

from the 20 to 40 age group. Even so, our team will be marketing this channel as a state-

of-the-art service. To begin, our offerings will be presented in full-HD, which is

considered by many to be the new wave of Cable television. Our offerings, unlike

traditional music channels such as MTV, will highlight lesser-known artists in order to

increase awareness of these smaller artists and appeal to our viewers. After all, music

listeners are becoming more involved in music6 and would like to be more involved in

the music world; In order to become more involved in music, these listeners must

discover new artists, which is exactly what ConcertTV is giving them the ability to do.

In the next segment of the marketing portion of this paper, our appeal to

advertisers themselves must be analyzed. While there are few exact substitutes for our

TV offering, analysis of a similar service, MTV, will provide statistical information in

regards to our appeal to advertisers that are likely to reflect our own appeal. One of the

more striking statistics is that viewers of MTV are 3 times more likely than the general

population to have household incomes over $75,000. For advertisers, this means that

advertising on MTV, or ConcertTV for that matter, will result in knowledge of your

product or service among those more likely to have the funds for purchasing the

advertiser’s product or service. Furthermore, those who are the median age of MTV

viewers, 20 years of age, are at the age most likely to form brand loyalties. This is very

important to advertisers wishing to establish brand loyalty, as 69% of consumers make

6 Fero, Richard, comp. Project Phoenix. 2006. Emap Advertising. 22 Nov. 2006 <http://www.emapadvertising.com/>.


decisions based on brand names. Even more, the 12 to 43 age group, which is slightly

broader than ConcertTV’s target audience, represents 41% of all retail shopping dollars.7

While appealing to a slightly narrower age group may seem to be a disadvantage to our

appeal to advertisers, the older ages of our target age group is actually an advantage for

some advertisers. MTV has tried in the past to advertise alcohol products to its audience,

but has run into many problems as a result of the under-21 age group most likely to watch

MTV. ConcertTV eliminates this problem by appealing to an older, above-21 age group

that is more likely to attend concerts of the genre promoted by our channel. Without the

problem of hosting an underage audience, ConcertTV appeals to alcohol advertisers as a

venue through which they can reach this audience without dealing with the issues that

MTV has had. On the other end of the age spectrum, we have topped off our target

audience at age 40 because, although those over 35 are less likely to attend concerts, they

are likely to still watch concerts on TV (see Figure 5).8

7 "MTV Music Television Profile." Cable TV Ad Buraeu. Cable Network Information. 22 Nov. 2006 <http://www.cabletvadburaeu.com>. 8 Fero, Richard, comp. Project Phoenix. 2006. Emap Advertising. 22 Nov. 2006 <http://www.emapadvertising.com/>.


Figure 1:

Figure 2:


Figure 3:

Figure 4:


Figure 5:


REQUEST FOR PROPOSAL

Prepared for Global Entertainment

Ventures (GEV) November 29, 2006

Prepared By: Jaspaul Kapoor

Keith Parker Jeffrey Urlich


Overview TV Channel We are planning to finance and establish a TV Channel, ConcertTV, which will exclusively feature live music footage. Concert TV (or The Channel) will air a range of video, ranging from amateur to high quality productions, covering a wide spectrum of artists. The Channel will target a young, media savvy audience and focus heavily on this key demographic. The Channel will rotate playtime between youth-oriented music including:

• Hip-hop • Rap • Alternative rock • Classic rock • Jazz • Reggae

It will be available only in high definition through HDNet and will be distributed by Time Warner in the Greater Los Angeles Area. Website

The Channel will be implemented with an ancillary website, ConcertTV.com, which will supplement the programming while also providing an outlet to watch and download concert footage on a 24 hour, on-demand basis. Selected programming on The Channel will available to consumers through the website and can be downloaded onto an iPOD or other media device. The website and television channel will actively promote each other using a virtuous cycle of cross promotion to maximize total viewer ship.


Location Los Angeles

Initially, The Channel will only be available in the Los Angeles area but will eventually expand nationally. We are focusing on the Los Angeles market due to the relatively lower start-up costs compared to a national approach. By focusing on a strong market such as Los Angeles, we feel that we can solidify a business model that will allow for expansion at an optimal and efficient level. Los Angeles is an ideal market for The Channel for two primary reasons:

• The city has a large, young population • It is a major center for recording labels, artists, etc.

Demographics

The city’s demographics fit into our business model well as a result of its large, young population. It is the second most populous city in the United States with over 13 million people living in the Greater Los Angeles Area. Furthermore, we believe that it is paramount to focus on a location with a relatively young population. Statistics prove that Los Angeles has a young population compared with other major US cities. According to Census 2000, 37.7% of the population is under 24 years of age. For comparison, New York City’s percentage of people under 24 is 34.2%. While the median age in New York is 34, it is 32 in Los Angeles. The youth driven culture of Los Angeles is essential to the success of our product, as we are targeting an age demographic of 14-24 years old.


Industry Exposure

The second driver affecting our decision to focus on Los Angeles is the city’s status as the entertainment capital of the United States. Symbolically, the city is renowned for iconic entertainment symbols including Universal Studios, Sunset Boulevard, and Hollywood. In practice, the city is a melting pot of aspiring artists and record labels. Thousands of young musicians flock to LA from around the country creating a rich culture of new musical styles and millions of eager fans. Furthermore, the majority of major record labels have either headquarters or major offices in Los Angeles. It is essential for The Channel to surround itself with key players in the music industry in order to form beneficial relationships and establish proximity to decision makers. We believe that Los Angeles is an ideal location because we strongly value the city’s rich musical landscape and the presence of the recording industry in general.


Employees Initially, the Channel will operate with a very limited staff to reduce start-up costs. The Channel will serve to obtain, edit, and broadcast live musical performances but will not be directly involved with production. In this respect, The Channel will follow the successful business model of MTV. The Channel will contact record labels, artists, and promoters to obtain video footage free of charge. In exchange for receiving the rights to broadcast footage, artists will benefit from additional exposure and promotion. This mutually beneficial relationship allows The Channel to avoid programming and production costs that other networks experience. The Channel will maintain the right to edit video footage so will require a broadcasting/editing staff of approximately five people. Following the initial launch of The Channel, we will use retained earnings to expand our production capabilities. The Channel will eventually sponsor and film its own concerts; however, this will occur later in the business plan and will not be financed by venture capital. In addition to our small broadcasting team, we will require fully staffed marketing, accounting, and managerial teams. The Channel’s overall staff will not be more than 20 people although this will increase rapidly during the latter stages of expansion. This number does not include expenses related to our “grass roots” marketing campaigns because these are part-time/volunteer employees (see section: Marketing Plan).


Product Overview The Channel’s live feed will be controlled directly by our team of broadcasting specialists. It will be available in 1080i HD, the best quality of high definition. We will broadcast using the platform of Time Warner Cable in Los Angeles. Although not everyone has access to HD technology, we firmly believe that our network’s success is tied to the utilization of the newest technologies available. Young consumers are hungry for the latest technological innovations, especially concerning media and entertainment. Due to the fact that our target audience is heavily engaged in music and emerging technologies, we believe it is essential to offer the highest quality, most innovative product. Distribution

We will use HDNet technology and Time Warner Distribution to broadcast The Channel. HDNet is the first national network to broadcast exclusively in high definition. It produces more hours of HD sports, news and entertainment programming than any other network. In line with estimates at Standard & Poor’s, we believe that high definition is a quickly growing market that will soon become the standard for all cable broadcasts. S&P estimates that within 5 years, the majority of broadcasting will be done exclusively in high definition. In fact, DirecTV plans to make high definition available to 76% of its customer base by the end of 2006!1 Broadcast

The Channel will broadcast with a 24-hour live feed from our studio. The programming will be controlled by our broadcasting/editing team. It will be scheduled with a framework of consistency but can be altered at our discretion. For example, we will broadcast an hour of classic rock concerts everyday at 4:00 PM but maintain the

1 Anobi, Tuna. Industry Surveys: Broadcasting, Cable, & Satellite. Standard & Poors. June 15, 2006.


flexibility to broadcast a live concert if possible. We will broadcast different types of music at different times throughout the day in a random fashion. For example, we will have hip-hop programming between classic rock and reggae. Production

Initially, we will not produce any of The Channel’s programming. We will obtain footage from artists and record labels to assemble daily play lists. The relationship between The Channel and record labels will be mutually beneficial like the MTV business model. Record labels will provide us with concert footage and will receive exposure and publicity through our broadcasts. Price

The price of our product to consumers is free. We will generate revenue through advertisements and sponsors just like all cable television channels. Time Warner customers will receive The Channel through their regular cable subscription at no extra cost to the consumer. The Channel’s most significant cost will be to access the Time Warner/HDNet platform which we have estimated to cost around $5 million (see section: Funding Request).


The Market Young Target Market

The Channel will be available to every cable subscriber in the Greater Los Angeles Area; however, we are specifically marketing to teenagers and young adults between the ages of 12 and 24, although younger adults between 24 and 40 will be targeted as well. There are 13 million people living in the Los Angeles Area. According to Census 2000, 37.7% of this population is 24 or under. We can accurately assume that approximately half of this falls into our target demographic of ages 12-24. Therefore, we can estimate our target market to be about 1.82 million people. It should be noted that while be are targeting this market, The Channel will also be available to millions of other consumers. Our customer base is very large and attractive to sponsors due to the high potential for advertising. We must be realistic and understand that not all young people in Los Angeles will watch The Channel or even care about music. However, we can maintain a steady audience of almost 200,000 viewers assuming that we appeal to 10% of our target demographic. This is still a huge pool of viewers presenting enormous value to advertisers and sponsors. MTV Comparison

MTV Networks, a subsidiary of Viacom, initially targeted a similar demographic; however, much has changed over its 25 year history. The network now primarily airs self-produced shows with a goal to retain mature audiences through content that lessens the importance of music and emphasizes drama. The channel will seek to attract audiences that have grown weary of the overly produced and corporate stigma of MTV. We will accomplish this goal by emphasizing the importance of the actual music and by providing exposure to genres not heard on MTV. We are seeking to attract a young, anti-MTV audience that places value on original music instead of contrived entertainment.


Marketing Plan

Overview As The Channel will originally be released in Los Angeles, our strategy for marketing this channel will be very specific to the Los Angeles environment. The marketing segment of this paper will be split into two components:

• Examining how we will market The Channel to viewers • Positioning of The Channel as a desirable advertising venue for advertisers and

venues alike. With the advertising plan set forth in the following paragraphs, we are sure that The Channel will be successful in promoting its image to viewers and appealing to advertisers. Marketing to Viewing Audience

The viewing audience that we will target will be slightly different from what other channels of similar genre. While MTV targets a trendy audience between the ages of 14-34 (although most of their viewers are under 22), we will target a slightly older, less trendy market. The Channel will position itself unlike any of our competitors using music outside of the mainstream for viewers who don’t want to be seen as trendy. Our marketing team will begin its campaign with advertisements at concert venues around the greater Los Angeles area. In doing this we will be reaching our target audience, i.e. those who enjoy watching concerts. More importantly, our adverts at will be placed in venues at which we are recording or where viewer-submitted videos were taped. With this strategy, we will reach devoted music listeners who are interested in the material we will be airing. For those who don’t attend concerts regularly, we will be using endorsements by recording artists, most of who will be known in the music scene but probably not in the widespread media. In order to gain these celebrity endorsements and advertising possibilities at concert venues, our team will make it clear that this advertising strategy favors both parties. The Channel will increase awareness of the Los Angeles area concert scene and increase ticket sales, just like how online music has spurred an increase in available music, especially for lesser known bands.


Research shows that there has been a significant increase in the number of music enthusiasts and casual listeners in recent years, and decrease in the number of people indifferent to the music world.2 This increase comes at a time when the US has seen a significant increase in music downloaded online. This concept will convince venue operators, who receive a cut of ticket sales, to sponsor The Channel with advertisements in order to increase ticket sales. Furthermore, artists will want to develop the

presence of The Channel. Increased concert sales will boost the income of recording artists outside of the top five percent of artists in the industry. Concert sales are very important to recording artists. In fact, only four of the top 35 earning recording artists earn more from recording than performing. Among these

35, the ratio of live earnings to earnings from recordings is 7.5 to 1. Nonetheless, while live shows are essential to artists, the top five percent of artists earn 84% of the total ticket sales for concerts.3 This high stratification will cause lesser-known recording artists to welcome the opportunity to increase awareness of a TV channel that will potentially

increase attendance at their concerts.

2 Fero, Richard, comp. Project Phoenix. 2006. Emap Advertising. 22 Nov. 2006 <http://www.emapadvertising.com/>. 3 Connolly, Marie, and Alan B. Krueger. Rockonomics: the Economics of Popular Music. Pinceton University. Princeton UP.


The media giant Clear Channel controls 41% of concert promotion, so it will be essential to work deals through them to gain exposure.4 In proposing advertisements to Clear Channel, we will make clear that our channel will increase general interest in music. Clear Channel, which who owns thousands of radio

stations coast-to-coast, benefits from increased interest in music. Further, studies show that most people in our target age group go to the Internet or their friends for information about music.5 Therefore, online advertising will be stressed, as well as advertisement directly

to our target audience. Direct advertisement to our audience will be done on college

campuses, where much of our target audience resides. With a small group of representatives on college campuses in the Los Angeles area, we will spread the word about The Channel and increase credibility be creating a ‘buzz’ on college campuses. In addition, studies show that concert attendees are considerably more likely to download music online.6 As our audience is more tech-savvy, we will cater to their online experience by offering concerts available for download on our website. Using a service such as iTunes would further increase awareness of The Channel to the public. We will aggressively pursue this option.

4 Connolly, Marie, and Alan B. Krueger. Rockonomics: the Economics of Popular Music. Pinceton University. Princeton UP. 5 Digital Music Survey. PC Pitstop. PC Pitstop, 2006. 6 Digital Music Survey. PC Pitstop. PC Pitstop, 2006.


Marketing to Advertisers

While we have few direct competitors, analysis of MTV will provide statistical information in regards to our appeal to advertisers. One of the more striking statistics is that viewers of MTV are 3 times more likely than the general population to have household incomes over $75,000. This means that advertising on MTV, or The Channel, will result in knowledge of a product or service among wealthy consumers. Furthermore, those who are the median age of MTV viewers, 20, are at the age most likely to form brand loyalties. This is very important to advertisers wishing to establish brand loyalty, as 69% of consumers make decisions based on brand names. Even more, the 12 to 43 age group, which is slightly broader than The Channel’s target audience, represents 41% of all retail shopping dollars.7

While appealing to a slightly narrower age group may seem to be a disadvantage to our appeal to advertisers, the ages of our target age group is actually an advantage for some advertisers. MTV has tried in the past to advertise alcohol products to its audience, but has run into many problems as a result of the under-21 age group most likely to watch MTV. The Channel eliminates this problem by appealing to a narrow age group that is more likely to attend

concerts. Without the problem of hosting an underage audience, The Channel appeals to alcohol advertisers as a venue through which they can reach this audience without dealing with the issues that MTV has had. On the other end of the age spectrum, advertisers will appreciate that older people will The Channel. Despite the fact that older people tend to attend fewer concerts, they are likely to still watch concerts on TV (see Figure 5).8

7 "MTV Music Television Profile." Cable TV Ad Buraeu. Cable Network Information. 22 Nov. 2006 <http://www.cabletvadburaeu.com>. 8 Fero, Richard, comp. Project Phoenix. 2006. Emap Advertising. 22 Nov. 2006 <http://www.emapadvertising.com/>.


Competition A business plan like Concert TV is not entirely unprecedented, other television stations, like MTV and VH1 (both now owned by Viacom), tried similar ideas in earlier stages to successfully supplement their viewing audiences. What offers us a competitive edge is that no one is offering this sort of service or product because the nature of our business is so unique. We will attract a myriad of performers from a variety of different genres at their respective venues, as well as places like schools where a high number of young people will learn about Concert TV. Not only will we allow up and coming artists and bands to send in footage of their performances to potentially be played during a designated time slot, we will send camera crews to record footage of already established artists to air at a later time. Our closest form of competition would fit loosely under the umbrella of various video music outlets like MTV, VH1, YouTube and MySpace.


Funding Request Overview In our society, businesses have the ability to produce sizeable cash flows if they can do one of two things: offering a useful product or service or improving upon someone else’s idea. The Channel is an innovative idea that will appeal to the massive demographic of teenaged to middle aged Americans. Starting with the greater Los Angeles area, we will cater to a market that is disproportionately saturated with younger people, who also tend to spend the most money, especially for entertainment related purchases. We have developed an idea that will produce sizeable and steadily increasing cash flows, while requiring only minimal levels of capital investment and overhead costs. Most of our costs in the preliminary stages will involve producing a high definition channel and purchasing the rights to air certain videos and other costs involved with avoiding copyright infringement. We will only require funding to maintain liquidity for a few months after which we will be able to successfully capture our targeted demographic in Los Angeles and will use that momentum to help us grow in other areas. Eventually this plan will become lucrative enough to be attractive to other telecom and media giants like Viacom. Comparable Transactions

Though information about acquisition costs for mature television businesses is rather limited, recent television channel sales have ranged from $160 MM to $600 MM; however, these were from a variety of different countries where the viewing audience was probably much smaller. Thus, one must conservatively analyze these figures because they might have similar margins and returns but the rates of growth will ultimately be lower. The Channel has much greater potential for growth than many of these other channels, so we would gauge our value significantly higher. Acquisition Costs for Recent Television Companies:

• Doughty Hanson & Co.- Private Equity -Irish TV Channel, TV3: $338 MM

• Bonnier & Bonnier AB- Investment Fund -Finnish TV Channel, MTV3: $600 MM


• Suez SA- Company -French TV Channel, Paris Premiere TV- $420 MM

• Israel 10 ltd.- Private Equity -Israeli Men’s Channel- Channel 10: $160 MM

In the end, one must also bring into account that no other television company is really offering a product/service like ConcertTV’s. Whether we try to grow independently and capture a piece of the television and media market share or seek to be acquired by a larger company, we are confident that we will be able to produce value with this company in the next few years. Funding Required

The costs associated with production of an HD channel, purchase of rights, and coverage of any extraneous legal fees is a very dynamic set of variables, and it is difficult to arrive at a safe estimate. We spoke with Collette Carey, Director of Media and PR at HDNet, and she said that given our circumstances and strategy, the launch of an HD channel of this sort in the greater Los Angeles area could cost up to or around $5 million. Although we have low levels of overhead, we will also need some additional cash for initial capital investments and some liquidity to help fuel our growth more rapidly. An additional $5 million would easily cover our overhead, capital expenditures, and employee salaries for a couple years until we have more momentum. We are requesting a net investment of $10 million, and after a time horizon between 5 and 10 years we believe we will become viable acquisition candidates in this industry. Regardless, The Channel will provide lucrative cash flow generation for the company and increase shareholder value significantly.


1

Jeffrey UrlichKeith Parker

Jaspaul Kapoor

Company Overview Broadcast Concert Footage Variety of Music (hip-hop, rap, indie rock,

classic rock, alternative, jazz) Ancillary Website

Location Greater Los Angeles Area (low initial costs) Exposure to 13 Million People Long Term Plan of Expansion (5 years)

Employees

No Production Staff = Low Start-up Costs Staff of 20 (broadcasting, marketing,

accounting, management)

Product Broadcast in 1080i High Definition Use HDNet Technology & Time Warner

Distribution Highest Quality, Most Used Hi-Def Platform


2

Product

24-hour Live Feed

Price

Free to Consumers! Part of Basic Cable Plan

The Market

Young Audience 1.82 Million in Los Angeles Area Anti-MTV Marketing

Marketing ConcertTV

Greater Los Angeles Area Focus Two sections

Marketing to Viewers Marketing to Advertisers

Positioning: For Viewers Who Don’tWant To Be Trendy

Marketing Campaign

Concert Venues In The Area Reach Our Target Audience Reaching More Devoted & Enthusiastic

Potential Viewers Endorsements By Recording Artists

Less-Known But Recognizable Artists


3

Building Relations Marketing Strategy Will Increase Concert

Attendance What File-Sharing Did For Music

Our Channel Will Increase Awareness in TheConcert Scene

Artist and Venue Relation

Our Channel Will Promote ConcertAttendance For These Smaller Artists

Artists and Venues Will Be Willing Need For Higher Concert Attendance

Among Smaller Artists

Advertising

Clear Channel Controls 41% of Concert Promotion

Internet and Word-of-Mouth Stress Online Advertisements College Campuses

Online Sales

Digital Content Available Online

Positioning

Appealing To The Un-Trendy Audience Broadcasting in HD Giving Viewers The Chance to

Discover New Artists


4

Appeal To Advertisers

MTV For Statistical Information High Income Of Viewers Age For Developing Brand Loyalty 12-43 Age Group Represents 41% Of

Retail Dollars

Competition andFunding Request

Competition

MTV/VH1MySpace/YouTube

BLS Consumption Data

Average Numbers in Consumer Unit Persons: 2.5 Children under 18: .6 Persons 65 and Over: .3 Earners: 1.3

Consumption by Income Bracket

Entertainment Consumption Levels

Lowest 20% : 3.1Second 20% : 3.0Third 20% : 2.7Fourth 20% : 3.0Highest 20% : 2.8

Entertainment Spending

Audio and VisualEquipment and

ServicesUnder 25 years: 2.325-34 Years: 2.134-44 Years: 1.944-54 Years: 1.954-64 Years: 1.7

Other services &Equipment

Under 25 years: 1.225-34 Years: 1.334-44 Years: .944-54 Years: 1.254-64 Years: .8


5

Total Investment Needs

$5 million- Purchasing Rights for Broadcastand Launch of an HD Channel

$5 million- Capital Expenditures, Salaries,and Meeting Liquidity Requirements

TV Channel Acquisition Costs

Doughty Hanson & Co.- Private Equity-Irish TV Channel, TV3: $338 MM

Bonnier & Bonnier AB- Investment Fund-Finnish TV Channel, MTV3: $600 MM

Suez SA- Company-French TV Channel, Paris Premiere TV- $420 MM

Israel 10 ltd.- Private Equity-Israeli Men’s Channel- Channel 10: $160 MM

Funding Request

Steady Cash Flow Growth Viable Acquisition Candidate and

Potential to Go Public within a five toten year Horizon

Appeal to a Large and Quickly GrowingDemographic

Thank You

BUAD-351: SyllabusGSBA 511 http://www-rcf.usc.edu/~amarino/buad351.htm

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BUAD 351: Fall 2006Professor Anthony M. Marino

Department of Finance and Business Economics, Marshall School of Business

Course Information

Textbook: Pindyck, R. and D. Rubinfeld, Microeconomics, Macmillan, 2005 (Sixth Edition).

The lecture notes for the course will be available as a course reader and on my web page in

pdf form.

Grading Scheme:

1. Your grade will be based on the following point scheme

two midterm worth 50 points each..two discussion questions sets worth 25 points each.a final exam worth 100 points.total course points = 250.

2. Office Hours: Tuesday and Thursday 3:40-5PM.

602F Hoffman Hall (213) 740-6525 (213) 740-6650 FAX e-mail: [email protected] web page: http://www-rcf.usc.edu/~amarino/ or http://www-rcf.usc.edu/~amarino/main.html (thesecond version has no frames)

Topics and Readings

1. Introduction.

a. Models and Economic Theory - Ch 1 and Lecture Notes LN 1.

b. Supply and Demand Analysis - Ch 2. and LN 1.

c. Mathematics Review - LN 2.

2. Consumer Choice and Demand.

a. The Consumer's Choice Problem and the Derivation of an Individual's Demand - Ch 3 and LN 3.

b. Individual and Market Demand - Ch 4 and LN 3.

c. Two Topics in Consumer Theory- Ch 4 and LN 4.

d. Choice Under Uncertainty - Ch 5 and LN 5.

3. Production and Cost


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a. Production Theory- Ch 6 and LN 6.

b. Cost Theory-Ch 7 and LN 7.

4. Perfect Competition

a. The Competitive Firm - Ch 8, Ch14 and LN 8.

b. Applications of Perfect Competition - Ch 9 and LN 8.

5. Imperfect Competition

a. The Profit Maximizing Monopoly and Monopsony - Ch10, Ch14 and LN 9

b. Pricing Strategy with Market Power - Ch 11 and LN 10.

c. Oligopoly - Ch 12 and LN 11.

d. Game Theory and Competitive Strategy - Ch 13 and LN 12.

7. Markets with Asymmetric Information and Public Goods

a. Asymmetric Information - Ch17 and LN 13.

b. Externalities and Public Goods - Ch 18 and LN 14.

Tentative Schedule

Session Date Topic P&R Marino1 T 8/22 Methodology, The Market System,

Supply and Demand, 1.a,1.bCh1,2 LN1

2 Th 8/24 Supply and Demand, 1.b, and MathReview, 1.c

Ch1,2 LN1, LN2

3 T 8/29 Math Review, 1.c, Demand, 2.a Ch3 LN2, LN34 Th 8/31 Demand 2.a, 2.b Ch3,Ch4 LN35 T 9/5 Demand, 2.b Ch4 LN36 Th 9/7 Consumer Theory Topics, 2.c Ch4 LN47 T 9/12 Uncertainty, 2.d Ch5 LN58 Th 9/14 Uncertainty, 2.d Ch5 LN59 T 9/19 Review and DQ 1 Due ****** ****** ****** 10 Th 9/21 Midterm 1****** ****** ******

11 T 9/26 Production, 3.a Ch6 LN612 Th 9/28 Production, 3.a, Cost, 3.b Ch6, Ch7 LN6, LN713 T 10/3 Cost, 3.b Ch7 LN714 Th 10/5 Perfect Competition, 3.a C8 LN815 T 10/10 Perfect Competition,3.a, 3.b Ch8,Ch9,Ch14 LN816 Th 10/12 Perfect Competition, 3.b Ch9 LN8


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17 T 10/17 Monopoly, 5.a Ch10 LN918 Th 10/19 Monopoly, 5.a Ch10 LN919 T 10/24 Review and DQ 2 Due ****** ****** ****** 20 Th 10/26 Midterm 2****** ****** ******

21 T 10/31 Monopsony, 5.a and Pricing, 5.b Ch10,Ch11,Ch14

LN9, LN10

22 Th 11/2 Pricing, 5.b Ch11 LN1023 T 11/7 Oligopoly Ch12 LN1124 Th 11/9 Oligopoly Ch12 LN1125 T 11/14 Games and Competitive Strategy Ch13 LN12

26 Th 11/16 Auctions Ch13 LN12

27 T 11/21 Asymmetric Information Ch17 LN13

28 T 11/28 Externalities and Public Goods Ch18 LN14

29 Th 11/30 Review ****** ****** ******

******Final Exam for 10 AM Section: 12/12, 8-10 AM******

******Final Exam for 2 PM Section: 12/7, 2-4PM******

Other Course Information.

1. The goal of this course is to provide the student with an understanding of the operation of a system ofprices and markets in determining an allocation of resources in a market economy. We will discuss theproperties of such an allocation and the circumstances under which a market system can not provide anefficient allocation.

2. In our description of the market economy, various sectors or decision making units will be modeled.For example, we will describe the derivation of market demand through a theory of consumer behaviorand choice. We will describe the production technology and cost structure of the firm in an effort tocharacterize the market supply schedule. We will discuss market supply under different marketorganizations, pricing strategy and the economics of competitive strategy. Finally, we will provide acomplete discussion of decision making, demand and supply in input or resource markets. We will alsodiscuss asymmetric information and public goods.

3. The above decision making problems will provide the student with a foundation for the study ofchoice in many areas of business. For example, the economics of consumer choice underlies much ofmodern marketing strategy, including pricing, segmentation and advertising. The theory of the firmcontributes to a sound understanding of cost accounting as well as production and location decisions.Economic analysis of intertemporal decisions and behavior in a risky environment form the foundationof finance. Finally, the study of market failure and industrial structure is necessary for an understandingof government's role in a market economy and the political environment for business..

4. This course is designed to examine all of the areas in which microeconomic reasoning is a necessarybasis for making informed business decisions. With this course you should be able to applymicroeconomic analysis to issues of real world interest both within and beyond the area of business.


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Discussion Questions

1. Discussion Questions 1 for 10 AM Section. Answers DQ1 10 AM. Discussion Questions 1 for 2 PM Section. Answers DQ1 2 PM. Due on or before Tuesday, 9/19 at the beginning of class.

2. Discussion Questions 2 for 10 AM Section. Discussion Questions 2 for 2PM Section. Due on or before Thursday, 10/24 at the beginning of class.

Grade for the Course

1. 2 PM Section

2. 10 AM Section

Formulas

BUAD-351: NotesBUAD-351 8/24/06 2:06 PM

Notes are available on Blackboard Individual Supply and Market supply

• Deriving the Market supply curve from the Individual supply curve Going over basic market equilibrium theories Changes cause shifts in the supply and demand in market equilibrium Do 11 questions for next Tuesday Comparative statics of S and D shifts

• Demand goes up, supply fixed; price goes up and quantity goes up and conversely

• And so on… Companies respond to a growing Latino population: increase demand

• Firms are responding to the tastes of a growing Latino population. Some Home Depot stores, for example, include signs in both English and Spanish. This results in an increase in demand.

Estimating the demand for printers at Hewlett-Packard

• Inaccurate forecasts in 2001 caused Hewlett-Packard to produce more printers than they could sell. This resulted in excess supply and eventually falling prices.

High demand and low prices in the lobster market?

• Supply and demand are both at their highest in the summer, and lowest in the winter. The increase in supply in the summer outstrips the increase in demand in the summer, so prices are lower.

End of Chapter 1 On to Math review Chapter 2

• Marginal functions • Marginal principle

BUAD-351: Notes

• Average functions • ...

Introduction

• Strategy variables Extensions to n choice variables

• Marginal function of the x-th strategy variable is denoted as pi Elasticity

• The most important measure in empirical work • The elasticity is the ratio of the % change in the dependent variable

to the % change in the independent variable • Elasticity has no units, it's a ratio of percentages •


Arc elasticity: Delta-Q: Change in Quantity; Delta-P: Change in Price On the bottom: Average Price and Average Quantity The cost minimization problem

• Iso-quant: hold the quantity fixed The MRS represents the absolute value of the slope of the iso-quant at a point Marginal benefit of the good on the horizontal axis (divided by) marginal benefit of the good on the vertical axis (equals) MRS C=P1X1 + P2X2

• C=Cost; P=Price; X=Good used (i.e. Capital or Labor) Chapter #3: Consumer Behavior Theory Choice and preferences

• A single consumer is assumed to be able to rank order alternative commodity bundles in terms of either preference of difference

• A commodity bundle can be represented by an ordered tuple of the amounts of each product the consumer can consume. For example x=(x1,x2)

The Key Assumptions

• A.1 The consumer can rank order any two bundles (Completeness) • A.2 For any three bundles, must be consistent

Representation of R

• Definition: A utility function represents a consumer’s preferences if for any commodity bundles x and y, xPy implies u(x) > u(y) and x|y implies u(x) = u(y)

• Representation Theorem: If the preference relation R satisfies A.1 and A.2, then there exists a utility function representing preferences

BUAD-351: Notes

The Key Point

• The ability to represent R with a u function allows us to use powerful optimization techniques to characterize demand

• If there are two commodities, we can use indifference curves (iso-contours of u) to illustrate preferences and gain insight into consumption choice and the relevant trade offs

Example: Nickels and dimes

• Any (N,D) is ordered according to its total monetary value. (Extra coins do not lead to disutility)

• A utility function representing the consumer’s preferences is U=2D+1N

The MRS

• Definition: The MRS between good one and two is defined as the amount of good two the consumer is willing to give up for one more unit of good one along an indifference curve. It is given by a formula that should be in the notes

Additional assumptions on preferences

• A.3 More is better • A.4 Diminishing MRS

Extreme cases: perfect substitutes and perfect complements

• The nickels and dimes example illustrates perfect substitutes. The MRS is a constant

• With perfect complements, the MRS is infinity, undefined, or zero. There is no flexibility in substitution. For example, coffee and milk

Questions 1-11 in Chapter 1

• 1.1: Right in the notes • 1.2:


Cases excluded: perfect substitutes, perfect complements, and satiation • The nickels and dimes example illustrates perfect substitutes. The

MRS is a constant • With perfect compliments, the MRS is infinity, undefined, or zero • More on slides…

The budget constraint

• I = p1x1 + p2x2 • Solving for x2 we have x2 = I/p2 – (p1/p2)x1

o Where x2 will be placed on the vertical axis. This is a linear equation with intercept I/p2 and slope – (p1/p2).

Demands

• Solve (1) and (2) for x1 and we have Marshallian demands • For either I, fix all other prices and income and vary own price.

This gives us simple demand. Many commodities: composite good Application: Employee housing subsidy

• Utility: u = u(H,M) • Budget: I=pH+M

Price subsidy

• New budget: I=(p-s)H+M • New equilibrium: (Hs, Ms) • Cost to the firm: Ms-A=(I-A)-(I-Ms) = [pHs-(p-s)Hs]=sHs

Cash grant: lump-sum

• Give the employee the cash that the firm would spend on the price subsidy = sHs

• The new equilibrium is shown at (Hm,Mm) • Yields higher utility than price subsidy

In-kind subsidy

BUAD-351: Notes

• Use expenditure on the subsidy sHs to purchase housing at the price p. Give this amount of housing to the employee directly

• This amount of housing is given by sHs/p=Hd • Equilibrium: (Hd,I) • In figure 8, this performs worst

IR 439: Political Economy of Eurasia (Fall 2006) Prof. Robert English office: VKC 305 Phone: 821-3090 hours: Wed 11:00-1:00 e-mail: [email protected] Thurs 1:00-2:00 Course Objectives: Since the end of the Cold War, and the collapse of state socialism, a dramatic international experiment has been underway: the attempted transition of some two dozen countries from centrally planned, one-party systems to free-market democracy. The West’s stake in their success is great—whether they will become stable, prosperous neighbors and trade partners, or languish in poverty and corruption while exporting only refugees, criminals, drugs, and perhaps chemical or nuclear weapons. The questions we will be addressing include: Have the prescriptions of the IMF and other international lending agencies helped or hurt? Has Russia finally found the path to steady growth? Why have some Central European and Baltic countries done so much better? Can regional integration, or new oil wealth, save the failing states of Central Asia and the Caucasus? And in what political, cultural, and historical circumstances is democratization a help—or a hindrance—to building a market economy? Course Format: This is primarily a lecture course, though there will also be a significant discussion component. In addition, these will be punctuated by occasional guest speakers or video presentations. The general pattern will be lecture for the first 45-50 minutes of each meeting, followed by a discussion and Q & A period. There will also be two exams and a research paper (see below for details). Course Requirements: One is to be an active participant, not only in discussions and assigned presentations but first and foremost by timely completion of the reading assignments; without this, successful engagement with the ideas and information vital to understanding post-communist political economy is impossible. The assignments are from several books (available at the University bookstore), an instructor-compiled reader (available for sale) and electronically (on Blackboard or by e-mail, as noted).

Anders Aslund, Building Capitalitsm: The Transformation of the Former Soviet Bloc (Cambridge University Press, 2002). Daniel Gros and Alfred Steinherr, Economic Transition in Central and Eastern Europe: Planting the Seeds (Cambridge University Press, 2004) Dale Herspring, ed., Putin’s Russia: Past Imperfect, Future Uncertain (Rowman & Littlefield, 2005) Juliet Johnson, A Fistful of Rubles: The Rise and Fall of the Russian Banking System (Cornell University Press, 2000) IR 439: Readings on the Political Economy of Eurasia

In addition to the assigned readings, there will be occasional instructor-supplied handouts (available only in class on one day—if you miss class, it is your responsibility to copy or borrow these articles from colleagues) as the fast-changing nature of post-Soviet and East European political economy dictates. Finally, your attention will occasionally be directed to various websites and on-line sources of news and information. These will be particularly helpful in preparing your research papers, and a number of the most respected websites on post-Soviet and East European affairs are listed on the next page.

There will also be two exams—one in-class, one final—that together will make up a large portion of your final grade. Finally, the single most important assignment is a 15-20 page research paper. This presents an opportunity to explore in detail one or another issue of interest (see below) as well as giving you a product that can be helpful in future internship, job, or graduate school applications. Needless to say, in all these assignments strict adherence to the honor code is expected and violations will be dealt with harshly. Class Participation: Ideally, our discussion periods will be spontaneous and free-flowing, an opportunity to raise questions and debate interpretations of issues that come up in readings and lectures. But owing to a common tendency toward procrastination in reading, as well as to variations in students’ volubility and prior experience, such discussions are often dominated by a small number of voices. To counter this tendency, each student will be required no later than 10:00 am each Tuesday to e-mail the instructor a paragraph that critiques one or more of the readings, or raises a question relating the readings to some issue mentioned in lecture. This practice is meant both to encourage timely reading and to serve as a basis for our discussions (meaning that I may call on students to elaborate on their written critiques in order to stimulate a larger conversation). Together these two elements—weekly e-mail critiques, and contributions to class discussions—will comprise the “participation” portion of your grade. Research Papers: Here you are expected to produce a serious work of political-economic analysis, based on research that includes at least 15 sources—books, journal and other periodical articles, reputable websites, etc. Many will choose to do a “country study,” analyzing the political-economic performance of any one post-communist country. Others may decide to compare two states, or focus on a regional issue such as Caspian Sea oil or Baltic economic integration. Topics will be chosen in consultation with the instructor, and deadlines for proposals, outlines, etc. are noted in the course schedule. Extensions will be granted only in cases of genuine emergency; coincidence with other academic deadlines or extracurricular events does not constitute such an emergency. Final grades will be determined according to these weights: first exam: 20 % class participation, discussion: 15 % research paper: 35 % final exam: 30 % Finally, on keeping up with changes in Russia, the former USSR, and Eastern Europe. As noted, I will assign additional readings as events dictate. But you are also expected to stay abreast of major developments, ideally by perusing such periodicals as Foreign Affairs and The Economist. For the more ambitious, those with a special interest or simply seeking to get a jump on their research projects, I suggest looking over such specialized journals as Post-Soviet Affairs, Europe-Asia Studies, Problems of Post-Communism, World Politics and Journal of Comparative Economics. I also recommend the websites of: Radio Free Europe-Radio Liberty (www.rferl.org); Transitions On-Line (www.tol.cz); Eurasia Foundation (www.eurasia.org); Central European Review (www.ce-review.org); and Johnson’s Russia List (www.cdi.org/russia/johnson). Most of these contain links to additional sources, and some also include subscription instructions that enable you to receive daily or weekly bulletins of useful material. For the latest studies and statistics, especially as you begin work on your research papers, the websites of the World Bank (www.worldbank.org) and the International Monetary Fund (www.imf.org) are also valuable.

Course Schedule Date Topic Reading Assignments Aug 22, 24 Russia and Eastern Europe Westwood, “On the Eve,” from Endurance Before Communism and Endeavor (Oxford, 1987)

Rothschild, “The Interwar Background,” from Return to Diversity (Oxford, 1993) Excerpts from Ransel, Mothers of Misery and Troyant, Daily Life in Russia

Gros & Steinherr, Planting the Seeds, chap. 1 Aug 29, 31 The Origins and Evolution of the Aslund, Building Capitalism, chap. 1 “Command-Administrative System Tucker, “The Five-Year Plan in Four!” and “The

Making of a Rural Upheaval” from Stalin in Power (Norton, 1990) Gros & Steinherr, Planting the Seeds, chap. 2 Rothschild, “A Precarious Stalemate”

Sept 5, 7 Crisis, Reform, and the Collapse Aslund, Building Capitalism, chap. 2 of Soviet-style Economies Remnick, “Party Men” and “Poor Folk,” from Lenin’s Tomb (Vintage, 1994) Rothschild, “The Various Endgames”

Sept 12, 14 “Shock Therapy” and Efforts Toward Aslund, Building Capitalism, chaps. 3, 5, 6 Macroeconomic Stabilization; Theory Gros & Steinherr, Planting the Seeds, chap. 3

of Market-Democratic Transition Haggard and Kaufman, “Comparing Democratic Transitions,” in The Political Economy of Democratic Transitions (Princeton, 1995)

Stephen Cohen, “Russia-Watching Without Russia,” in Failed Crusade (Norton, 2001)

Sept 19, 21 Privatization, Property, and the Rise Aslund, Building Capitalism, chap. 7 of the Russian “Oligarchs” Hoffmann, “Unlocking the Treasure,” from The Oligarchs (Public Affairs, 2002)

Freeland, “Who Gets the Loot?”, “The Oligarchs: Outsider, Apparatchik, Blueblood.” and “The Nomad and the Impresario,” from Sale of the Century (Crown, 2000) Wedel, “Tainted Transactions,” Ermarth, “Seeing Russia Plain,” The National Interest, 1999-2000

Sept 26, 28 The Yugoslav and Czecho-Slovak Doder, “Searching for Identity,” The Yugoslavs Break-ups; German Reunification (Vintage, 1980) Brown, “The First Yugoslav War,” The Grooves

of Change (Duke University Press, 2001) Kraus and Stanger, eds., “Inevitability, Problems, Possibilities” and “Assessing Economic

Performance,” chapters in Irreconcilable Differences? Explaining Czechoslovakia’s Dissolution (Rowman and Littlefield, 2000) Gros & Steinherr, Planting the Seeds, chap. 6

Date Topic Reading Assignments Oct 3, 5 Differences (and Similarities) in Brown, “Economics 1945-2000: Behemoth,” East-Central Europe and the Baltics and “Country Profiles: Facing the Future,”

in The Grooves of Change Amsden, Kochanowicz, Taylor, “The Black Box of State-Owned Enterprises,” in The Market Meets its Match (Harvard, 1995)

Gros & Steinherr, Planting the Seeds, chap. 4 Oct 10, 12 Ukraine, Central Asia, the Caucasus; Selections from Transition on Ukraine, Moldova, Crime, Corruption, Capital Flight Central Asia and the Caucasus Gros & Steinherr, Planting the Seeds, chap. 7

Handelman, “The Russian Mafiya,” Foreign Affairs, March-April 1994 Glinkina, Rutland and Kogan, et al., “The Ominous

Landscape of Russian Corruption” and other selections from Transitions, March 1998

http://www.transparency.com (corruption reports) Oct. 17 Factory and Farm; Labor and Welfare Aslund, Building Capitalism, chap. 8

Selections on agriculture from Transitions Kubicek, “Organized Labor in Postcommunist * NB: Midterm October 19 * States,” Comparative Politics, 1999

Herspring, ed., Putin’s Russia: Past Imperfect, Future Uncertain, chaps. 6, 8

Oct 24, 26 Banking and Payments, Financial and Johnson, A Fistful of Rubles, chaps. 1-4, 6 Legal Structures; Democracy and the Gustafson, “Toward the Rule of Law,” from Rule of Law Capitalism, Russian-Style (Cambridge, 1999)

Hellman, “Winners Take All,” World Politics,1998 Guriev, “The Role of Oligarchs,” Journal of Economic Perspectives, Winter 2005

* NB: paper proposals due by Monday, October 31 *

Oct 31, Nov 2 Center-Regional Ties and the Erosion Aslund, Building Capitalism, chap. 9 of State Authority; Drug Barons and Kirkow, “Regional Warlordism in Russia,” Warlords Europe-Asia Studies, 1995 Johnson, A Fistful of Rubles, chap. 5 Selections from Transitions on regional barons Herspring, ed., Putin’s Russia, chap. 12 Nov 7, 9 The August 1998 Ruble Collapse and Johnson, A Fistful of Rubles, chaps. 7, 8 Aftermath; Putin’s Political-Economic “Surviving the Apocalypse,” from Transitions Reforms “What Went Wrong in Russia?”, symposium in Journal of Democracy, 1999 Herspring, ed., Putin’s Russia , chaps 2-4, 7, 9 Gros & Steinherr, Planting the Seeds, chap. 8

Date Topic Reading Assignments Nov 14, 16 Central Europe and the European Garnett, “Europe’s Crossroads,” in Mandelbaum,

Union; Postwar Reconstruction in ed., The New Russian Foreign Policy The Balkans Selections on EU enlargement from Transitions,

Central European Review, et al. Gross & Steinher, Planting the Seeds, chaps 5, 9-10 Smolansky, “Fuel, Credit, and Trade: Ukraine’s Economic Dependence on Russia,” Problems of Post-Communism, 1999 http://www.europa.eu.int/comm/enlargement/report2005

“Transnational Crime and Conflict in the Balkans,” * NB: Nov 17—prelim. bibliography due* excerpts from special issue of Problems of Post-

Communism (June 2005) On postwar issues and the Balkan Stability Pact see www.crisisweb.org and www.stabilitypact.org Nov 21 The New Geopolitics of Caspian Oil; Collection on Oil, Central Asia and the Caucasus from Transitions Rutland, “Paradigms for Russian Policy” in Ebel &

Menon, eds., Energy and Conflict in Central Asia * Nov 23 – Thanksgiving Holiday * and the Caucasus (Lanham, 2000)

Cummings, ed., Oil, Transition and Security in Central Asia (Routledge, 2003), parts 1, 3-4 Excerpts from Transition on-Line, re Uzbekistan, Kyrgyzstan, pipelines and military bases Nov 28, 30 Transition States in the Global Aslund, Building Capitalism, chaps. 10, 11 Political Economy Brown, “Looking Outward and Inward,” in The

Grooves of Change Amsden et al., “Pseudo-Privatization and the World Bank,” in The Market Meets its Match Gros & Steinherr, Planting the Seeds, chap. 11

Herspring, ed., Putin’s Russia, chaps 13, 14 Desai, “Russian Retrospectives on Reform” and

Schleifer & Triesman, “A Normal Country,” in Journal of Economic Perspectives, Winter 2005 Stiglitz, “Who Lost Russia?” in Globalization and its Discontents (Norton, 2003)

* NB, papers due by COB Monday, December 11 * Dec 12 Final Examination on Tuesday, 8:00-10:00 a.m.

IR-439: Class NotesIR-439 8/24/06 11:09 AM

Serfdom • One bad harvest could mean starvation • Vast area very susceptible to invasions and raids

Boyar – a member of the highest rank in Russian feudal society Serf/ Peasant agriculture

• Becomes serf agriculture as the government expands from the 16th century to the 19th century

• Government needs these peasants to farm the land of the nobles • About 80% of peasants became enserfed, couldn’t leave and had to

work the noble’s land • Kiev period – from 9th century • Between 1240 and 1380, the Mongol occupation, the Mongols take

over all of European Russia • This creates a new state that centers around Moscow • Russia becomes very autocratic, one person rules with an Iron Fist • Highly centralized, highly secretive, ‘Ivan the terrible’ invents the

Russian secret police • Ivan IV (Ivan the terrible) crushes the nobility, only leaves five

alive, and later regrets even that • Ivan’s period of tsardom around 1530-1584 • No longer permit liberties to different regions, had to become

completely unified and come together to defeat a unified enemy • Ivan’s largest imperial conquest was to the southeast, (northwest of

the Black sea) • Ivan commissions a cathedral, thought it was so beautiful that he

had the architect's eyes put out so that nobody else could hire him Peter the Great – ruled 1964-1725

• Very tall person, very smart, in his childhood (born in nobility) he was very ambitious, aspired to be many things

• Peter was interested with the skill and craftsmanship of westerners • Capitol moves to St. Petersburg, makes it a very European city • Very strong emphasis on the move to the west by Peter

IR-439: Class Notes

• Nonetheless, in order to pay for the new wars and all of the ambitions of the government, the money would come from the peasants in serfdom. Any time more money was needed, they squeezed more out of the peasant

o More land is given to the nobles, tax burden increases o For the lower classes, over 80% or Russians, this is a step

backwards, even less freedom than they had before Catherine the Great - 1762-1796

• Russia expands greatly, becomes a major European empire o This is largely due to Catherine the Great and Peter the Great

• Russia defeated the great Swedish empire under Peter • Takes control of the Baltic’s • Poland shrinks, gradually being taken over by Russia • Much of Ukraine was taken back by Russia • The parts of Poland taken over by Russia, the people there still

resent Russia’s takeover and are very restless • Finally, in 1795, Poland disappears from the map and there is no

longer a Poland for people in the area to rebel against Russia for • Pockets of westernization and development in European Russia • Why has there always been so much dispute between the Serbs and

the Croats? One was under the Russian empire for 250 years, the other under the Ottoman empire

• When the empires collapse, it becomes clear the ethnic and religous differences in Eastern Europe

• For Poland, once a free state, disappeared under Russia • The fall of Poland owes much to Poland's enlightenment

o Poland had a constitution, gave enormous authority to the nobility

o Had a parliament Individual members of the Parliament had the ability to

veto any important decision o This was a recipe for weakness, against determined, unified

neighbors being ruled with an iron fist o Beginning of the 1600s, Poland invades and occupies Moscow

IR-439: Class Notes

Russia’s industrial revolution, economic take-off • It was costing more to expand than it was worth • Peasant rebellions were becoming more frequent • Under Catherine the Great, a peasant rebellion was almost

successful • Samoderzhavie – Autocracy

State of Russian military

• Russians were fairly primitive, slower on the battlefield • Very weak commanders, ideas from below were unwelcome and

unacceptable, while European commanders were thinking on their own

• Wasn't very militarily innovative • The Crimean war shows that Russia is politically backed up • The nobility, even though they depended on the serfs, understood

that the serfdom thing couldn’t go on • Alexander II takes over right after the Crimean defeat, decides that

Russia must reform its ways now, or it won’t make it • Europeans created the reserve system, because they couldn't afford

a massive standing army o People will serve temporarily o There will be some standing, but the far majority will go back

to civilian life when there is no crisis o Russians envied this European system, it was cheaper and

you could have a larger army when you wanted it o It didn't make much sense with Russia being a serf based

system – couldn’t train serfs how to kill then put them back in the villages; there were so many rebellions that this would be a terrible idea

1830s, 1840s, Marxism is being published

• This ideology sweeps the European nobility world • Russian’s educated youth (there are now more, though still not very

much, because of Catherine and Peter the greats’ universities) start adopting these Marxist ideas

• Ideology for the working class, fully adopted industrialism

IR-439: Class Notes

• Why did it attract more adherents in Russia than in Europe? • In Russia, the backwards-ness was so intense that the

revolutionary idea of Marxism was more attractive, Europe didn't feel so revolutionary because they weren't so backwards

• Marxism's anti-nationalism idea • In Central Europe, countries were just finding their nationalism,

were becoming proud to be states, and wanted that strong nationalism

• Marxism was seen as a Jewish ideology, and anti-Semitism was becoming strong in central Europe


Overview • Russia & East-Central Europe on the Eve • World War I • The Bolshevik Revolution • Civil War: Reds & Whites • N.E.P.: Progress & Problems • Stalin’s Triumph

Russia & East-Central Europe on the Eve

• Predominately peasants • In north and south eastern Europe, progress was being made in the

industrial revolution • Connecting west to east Russia was a new railway, but this only

benefited the very few that had wealth • Grinding poverty for the mass majority of the population, aside

from a tiny elite • Witte – Prime minister of Russia 1900-1905 • Stolypin – 1906 – 1911 • These two leaders are largely responsible for the development of

Russia • Witte raised the money and set the plans for building the railroads • Stolypin began agricultural reform (There weren’t enough workers,

everybody was tied to serfdom) o “Wager on the strong” forced peasants off of the land and into

the cities o Made it easier for farmers to buy up land, and expand their

farms – more capitalist ideas o Great industrial progress, but with much social distress at bad

working conditions in the cities and having to leave their land when one of the ‘strong’ peasants takes it over

• Nationalism • Now because many empires are weaker inside, and the nationalist

ideology that every people deserves their own state, things begin to weaken further

• Poles rebelling against Russian rule, other groups rebel against their holders

IR-439: Class Notes

o These people used to be peasants, now they are becoming more educated and more able to rebel

• “Westernizers” – Looked at Russia and said that we need more reforms along western lines, both economically and politically

• "Slavophiles" – Pointed towards Russia’s traditional culture, sense of sharing and helping the poor among the peasants, we are different from westerners and should remain this way, we will never make good capitalists

• Both of these groups couldn’t directly criticize the Russian Czar, there was strict censorship throughout Russia

o The aforementioned nationalists in other empires could run for office and get involved, these other two groups could only argue amongst themselves, hoping that the Czar would make changes from above

• Slovophile thinking: The first Rome fell, the second Rome (Constantinople) fell to the Ottomans, Moscow is the only Christian capital remaining that hasn’t been taken over

• Late 19th century, early 20th century, Russian nationalism comes to the surface called ‘Panslavian’

o Becomes more angry with Europe, they want to see aggressive combat with Europe

o The idea that slovs should all be united under Russia (this would include Poles and other who didn’t want to be under Russian control)

• Russia undergoes a revolution in 1905, starts with soldiers and sailors mutiny

o More troops in rebellion than loyal o Stolypin advised Witte to be harsh, hang and shoot rebels on

the spot o Things were given, though, the Duma was created as a

parliament • Things were moving more western, seemed that the westernizers

had won, but then WWI came along Bolshevik Revolution

IR-439: Class Notes

• Led by Lenin, very small political party, not much power and almost no respect by other parties

• Lenin was a political genius • Lenin stood out against the war in the beginning, which was very

dangerous politically because everybody in Russia was rallying around the flag to kill Germans

• When the line kept being pushed back into Russia by Germany, and millions were dying, people were staving at home as conditions got worse and workers were working non-stop; people began seeing things Lenin’s way

• Lenin recruited Trotsky, who had been a socialist but hadn’t joined Lenin’s party until the war was happening

• People (workers in the cities, who made up a very small percentage of Russia’s total population) began forming 'Soviet' parties, or ‘unions’

• Trotsky wins many of these groups over • The Czar loses support of all of the elite groups in Russia • Czar agrees to abdicate; leaders of the Duma form a committee

that will rule Russia temporarily until things can get organized and somebody can be elected

• This committee splits its power between these elite groups and the Unions (Soviets)

• Anything the Soviets don’t like, they block, they had more power than the elite groups

• The provisional government didn't stop the war or make any land reforms

• Lenin took over fairly easily with his followers, it was easy with everybody still so angry

• Lenin: "Peace, Land, Bread" • The Bolshevik revolution in October 25th • The country dissolves into civil war

o Reds and Whites, “Whites” didn’t want the Bolsheviks, they were a mixed group of people, including anarchists and everybody else, clashes within this group, its hard to get all of these kinds of people to work together

o The Whites undercut each other

IR-439: Class Notes

o The reds looked weaker in the beginning on paper, but quickly moved towards having the upper hand

o After a long bitter fight, Russia had been fighting this War for three years, starting after leaving the first world war

o 1921, war ends, widespread famine, many die from starvation o Peasant rebellion began to break out, Bolsheviks came in and

took grain after the war, didn’t make it any better for the peasants. City workers weren’t getting any better either

o N.E.P. – New Economic Policy – Progress and Problems “War Communism” Peasants will get what we promised, every peasant will

have a tax to pay – other than that, everything belongs to the peasants to sell themselves, or whatever they want

Let people have a private economy, private enterprise The Bolsheviks have to hold on to the commanding

height of the economy (Banking, telephones, foreign trade, military, et cetera)

In a few years, Russia attains the levels of development that had existed years before

IR-439: Class NotesIR-439 8/30/06 4:03 PM

6-8 pages of text on the paper, some exhibits on top of that Will be doing a country in the Middle East Developing A social/cultural profile

• Unobservable aspects Implications for marketing Focus on Japan Cases:

• Material world: photos • Industrial production in Latin America • Barbie

Sources of data Production or service operations Customer analysis

• Dec making unit & process • Usage behavior • Needs and preferences

Segment, targeting, and policy • Branding • Product line • Production features • Packaging • Customer service and support

Promo and communication • Advertising and promo • Personal selling

Two major sports in Japan

• Baseball and golf • Baseball rules are modified to fit Japanese customs • Golf is played indoors often, not much room • Golf courses are crowded and expensive • Hole-in-one insurance for banquets

Norms and Values

IR-439: Class Notes

• Support and competitiveness Group vs. Individually oriented

• Group oriented • Harmony is valued • How does one market to a group-oriented culture as opposed to an

individual-oriented culture? o Computers

Individual: a way to increase personal productivity Group: a way to more easily communicate with others

High vs. Low context culture

• How does a high context culture affect marketing? o More subtle and roundabout in advertising o Any customer contact, employees must be trained in the

ways of that country’s subtle communication Monochronic vs. Polychronic

• Mod Monochronic • How does this affect marketing?

o Deadlines, more difficult to have targets in the customer service department

o Advertising Hofstede’s Dimensions of Culture

• Individualism vs. collectivism o Japan: ML (Moderately Low)

• Power distance o MH (Moderately High)

• Uncertainty avoidance o H

• Masculine vs. Feminine cultures o H

• Long-term orientation vs. short-term orientation o MH


Stalinism and the “Command-Administrative” (or Centrally Planned) system Bolshevik wanted to change things to socialism, but they were still taking all of the surpluses and much more from the peasant

• They had won the war, but were losing peace at home Crisis of N.E.P.

• Developmental lag • Ideological and social distaste

N.E.P. allowed for (basically) free trade, while peasants paid a simple tax and could do whatever they wanted with any surplus

• Industrial growth got up to 500% annually N.E.P.

• Developmental lag o Those growth rates were made possible by taking factories

out of production, spicing them up, and re-opening them o After a couple of years of re-opening these factories, growth

stopped • Ideological and social distaste

o In the foreseeable future, it would still be a backwards peasant country

o If the Bolsheviks raised taxes, total receipts went down – hated the idea that they were at the mercy of the peasants when it comes to tax receipt income

• Numbers showed industrial growth, but wealth was being concentrated in the hands of a few

o The N.E.P. man – small business owners were importing cars from abroad, eating caviar, et cetera; while other peasants were struggling to get by

“Heroic-revolutionary” generation

• Many protested the whole N.E.P. thing, detested these new artists, the wealth of many of these people

• By 1925, Bolsheviks numbered 7 or 8 million

IR-439: Class Notes

o These new members were of the lower classes, most of the members were ordinary Russian peasants

o Attracted by the ambition of it all o Representatives of the old system were terrorized

Lenin’s Death, Stalin’s Triumph; early 1920s

• When Lenin died, N.E.P. went on • Stalin won power • “General Secretary” – Stalin’s official title

o Would check through files • Others were better known than Stalin

o Trotsky, Bukharin, Zinoviev, Kamenev, et al. • Stalin sided with Bukharin, led to the downfall of the other three

candidates, then turned on Bukharin and won himself • Stalin had, through being in control of promotions in the

government, gained many favors, many people owed him for their positions

• “War Scare”, Grain crisis • Stalin connected disconnected incidents, and said war was coming

o Stalin creates a general atmosphere of panic o Says we need to unite and industrialize faster

• Stalin’s regime comes up with many scares o Blames others, especially the British, for ‘wrecking’ things o ‘Wrecking’ becomes normal jargon, everything is being

sabotaged o Conspiracy theories

• Stalin has Trotsky killed in Mexico • Stalin used the power to kill and imprison many people, other

people in the party didn’t expect Stalin to use his power in these ways

Stalin’s “Revolution from above”

• 5-Year plan • Collectivization (agriculture)

o Land is taken away from the peasants (they used to have paper rights to the land – they owned the land outright)

IR-439: Class Notes

Used terrorism, Stalin would kill entire villages that were known to have some anti-collectivization sentiments, to scare the other villages into conforming

• Kulaks – those who were making a better living then the rest of the peasants – any of those who resisted were considered Kulaks

o How do they resist? o They slaughter animals, gorge, live up the day, burn fields of

grain In 1929, there were 68 million head of cattle

177 million sheep and goat In 1933, there were 38 million cattle

50 million sheep and goat • Stalin is harshest on the Ukrainian population

o Kept taking more and more grain, until there was almost none left

o There followed famine in Ukraine, killing millions • The 5-year plan

o The centralization of all farming and industry o Military has priority o It was a chaotic system, bottlenecks everywhere, bad

planning o Many foolish projects, things that cost way to much and didn’t

make any sense o Industrialization campaign, had mixed results

An enormous amount of waste The average worker is subjected to an almost military

regime – people were thrown in jail for being late 2 days in a row

Nonetheless, much is built in a short amount of time Electricity reaches almost everywhere, along with

running water Schools are built, literacy improves

The Great Terror (1937-39)

• Launched show trials of supposed enemies

IR-439: Class Notes

• 10s of thousands of officers are killed or imprisoned under false conspiracy theories

• His military wasn’t ready for war any more • 1939 pact with Hitler • Stalin tries to take over finland


Russia Its rivers all go North and South

• They connect Russia with itself, not with the west (which would be more beneficial)

• In the west, many rivers, like the Danu, connected the European countries with each other

Bad soil in Russia A poor country, not much wealth to be passed around

• Russia developed as a poor country Wide open indefensible borders

• Has been invaded from every side over the years Mongols occupied Russia

• Cut the country off from Europe in a critical time • During the Renaissance, Russia re-orientated to the east

o Capitol moved from Kiev to Moscow • To survive, Russia had to become more like the Mongols • In the move to the east, Russia turned more autocratic, more

centralized, with everything being for the benefit of the military • England is the opposite of Russia at this time

o Had the weakest kings One more aspect of Russian development

• Serfdom – serf-based agricultural system • Enormous drain on Russian development • At one point, 80% of the population were in serfdom • Mir – village commune – some might call it a primitive system


1) Brezhnev (64-82) “stagnation era” 2) Politics under Brezhnev 3) Ordinary life 4) The Stagnation Economy 5) Deny and Decline 6) Stalin’s Legacies 7) Stirrings of Reform The guy who ruled before Brezhnev (Khrushchev)

• Military didn’t like troop cuts • Secret police didn’t like the opening of the country • Khrushchev was ousted from office and replaced by Brezhnev in

1964 Brezhnev

• “Stagnation Era” – No more turnover in politics; politics became very stagnant

• “Gerontocracy” – The aristocracy becomes very old • Country becomes richer due to the oil boom • In exchange for arms control, Russia gets things from the west

such as grain and technology • 1979 Soviets invade unstable Afghanistan • This ends all links, west puts grain embargo on Soviets • The military expanded rapidly under Brezhnev, a lot of money going

into nuclear technology • More and more interest in Russia in becoming a major power in the

world • “The land of diminishing general secretaries” • Brezhnev doesn’t lead, he simply moderates. The military pushed

him into policy shifts • “Nomenklatura” “Officialdom” increase their power under Brezhnev • Corruption increased, people abused their positions because they

knew they wouldn’t lose their position • They had many privileges • MGU (Moscow State University) was the best school in Russia.

Corruption allowed bribes to get kids into this school

IR-439: Class Notes

• Massive corruption in the south, especially Uzbekistan o Always said they exceeded their quota of cotton and got

benefits from Moscow o Rashidov, the leader of one of these large areas, built himself

a palace; with a dungeon underneath the palace for those who opposed him

• The system encouraged bribery o There were always shortages of quality food o Not many seats in University were set aside for hard-working

ordinary people Ordinary workers: “They pretend to pay us, so we pretend to work”

• Couldn’t lose their job, so people stopped working hard, alcoholism increased and work got sloppier

• Most things (Rent, health care, electricity, water, et cetera) were taken care of by the state, workers were piling up rubles. Paying people more didn’t work as n incentive, they already had more money than they could spend. All money was discretionary income

• The flaws of not having a private-incentive-based system Decay and Decline

• Increase in alcoholism – a sharp rise – and all of the social ills that come from alcoholism

• Increase in religious interests, with it comes nationalism that makes people racist against others like the Uzbeks “If we didn’t have anything to do with them, we’d be fine”

• Dissident movements turn up (The KGB stops them, jails them, commits them, et cetera)

• Average woman spends 25 hours a week in line waiting for standard commodities

• Average woman of 18-40 years of age had 5 abortions Stalin’s legacies

• People don’t work hard or innovate, because there is no incentive or punishment for work

• The single-state-ownership idea doesn’t work


Crisis and transition: from Gorbachev to Yeltsin – “3rd World Profile” • The shooting down of civilian airline 007 by Russia • International isolation after invasion of Afghanistan • “Cost of empire” – to keep up with the US in the arms race and

support its belt of satellite states in the Eastern European belt • Cuba sold fruit to USSR for inflated prices, and in return was given

oil at low prices for all of their energy needs o Same type of thing in Eastern Europe o Was considered necessary because economic hardships in

these countries lead to rebellion o 1981 – ‘Solidarity’ in Poland

• Costs of empire soaring, economy failing, sense of crisis • “Children of the 20th Party Congress”

o In college when some opening had occurred, allowing restricted works to be read

March 1985 Gorbachev takes office: first rue post-Stalinist generation

• He was the most senior of these upper level people in this generation, but there were others as well: Yakovlev, Shevardnadze

• This was the beginning of a generational change • First move was called ‘Acceleration’ • This plan didn’t really work • Alcohol campaign: wanted to slow down alcoholism

o Limited alcohol sales and production o People were furious o Budget dropped – state made a lot of its money off of alcohol

tax o People started homebrewing – this resulted in many deaths

and poisonings from home brews – 10,000 deaths or injuries in the first year

• All of his other reforms met strong resistance • Chernobyl nuclear disaster: opened Gorbachev’s eyes to how

fundamental (not cosmetic) the problem was. This nuclear plant was poorly built: there were no real regulations for anything

Perestroika II: Glasnost, democratization and ‘New Thinking’

IR-439: Class Notes

• Opening to everything such as new movies, free speech, et cetera • Wants to reveal corruption • Begins a new more open type of elections – allows anybody to run • Parliament: Congress of People’s Deputies • 1988 – system is approved • 1989 – first elections: everywhere anti-communist, normal people

were elected • ‘New Thinking’ – the end of the cold war: Gorbachev announced the

end without any negotiations, that he was decreasing arms to save money

The genie escapes the bottle

• When given free speech, some parts of the empire want to break off

• In the south, when they can elect their own deputies, start fighting against each other because they don’t like each other

Revelations in Eastern Europe

• Poland elects one communist to its parliament and appoints non-communist Prim minister in 1989

• The dominos fall in 1989 – Hungarians follow Poland’s suit • Communism collapses in Eastern Europe

Polarization, Paralysis, and the Collapse of the USSR

• In 1991, USR collapses inevitably – with loss of Eastern Europe and because of many other factors


Transition overview • 1) The painful path to a market economy (“Shock Therapy”) • 2) Winners and losers: policies, leadership, geography, culture;

inheritance = “path dependency” Most incentives were for raising quality, this usually decreased quality

• There weren’t more supplies for enterprises to allow them to work extra hours, the weekends, et cetera

• Enterprise directors had to make the workers be more productive • Factories didn’t close down if they were inefficient, there was no

where else for workers to go (no private sector) • “Soft Budget Constraints” • In towns, everything was part of the industrial enterprise in town

(including schools, hospitals, et cetera) o If the factory was closed, it would also be closing all of these

schools, hospitals, fire stations, and everything else The Soviet Finale: Preconditions for shock therapy

• Pathologies of command-administrative system • State had to make all economic decisions: what to produce, how

much of it, and how much it will cost • Consumer products were shitty – bad toasters, uncomfortable

shoes • State provided basic goods and services for free – or at low prices –

this caused a lot of waste • Gorbachev’s final attempts at economic reform

o Legalized cooperative ventures; sort-of private enterprises o No boss or owner- people get together and shared the profits o Private restaurants started up

• All Gorbachev had were half-measures that never really worked • Why didn’t Gorbachev choose the ‘Chinese Model’ (changing the

economic system before the political system)? o Russia had an economic system very resistant to change o Gorbachev didn’t have the strong authority with the party to

get this done – he couldn’t just say ‘do it’

IR-439: Class Notes

o Had very little regard for the Chinese – also some racism and long-standing dispute

The ‘Washington Consensus’ model

• Yeltsin, Yavlinsky, Gaidar • Wanted to institute shock therapy • The economic system was broken up when the empire was broken

up = there were now borders and tariffs to pay, along with little wars and uprisings

• IMF and EBRD • Stabilization, Liberalization, Privatization, Internationalization • S.O.E: state-owned enterprises- need to break them up • Need to have ‘hard budget constraints’ – no more taking from

profitable industries o keep alive unprofitable industries • Internationalization very important, brings in knowledge, money,

and incentive to compete • Need to have confidence in the Ruble – required the stabilization

mentioned earlier


Privatization and the rise of oligarchs • Crisis of ‘Shock Therapy’ • Context of shock therapy • Privatization plans

Yeltsin, Gaidar, Chubais 1992: 2,400% inflation 1993: over 800% 1994: 200%, started to settle down after this Need to maintain fiscal order for shock therapy to work Privatization: getting enterprises into private hands Internationalization: opening up to foreign markets Inflation

• “Monetary overhang:” people had a lot of money, people were holding on to it under the communist regime; when prices were freed, all of this money came out

• Printing of money: state printed more money than it should have (printing money to cover its own bills)

Industrial collapse in Russia

• “New Russians” – those who were doing really well for themselves during this time

• “Capitol flight” – money leaving the country, much of it illegal between $60 and $100 billion residing abroad

This all lends to a fierce political opposition

• Supreme Soviet – many mini-parliaments in areas throughout Russia, they now had real power – people in these didn’t reflect the new era

• Powerful vested interests: large industrial enterprises and farms

IR-439: Class Notes

• Power was split between the executive (Yeltsin, Chubais, Gaidar) and legislative (these mini-parliaments that didn’t want so much change)

• Central Bank of Russia is subordinate to the Supreme Soviet • Supreme Soviet gives CBR authority to print way too much money,

further fueling inflation Context of Shock Therapy

• Yeltsin, Gaidar and Chubais wanted to get these changes through very quickly, for fear of conservatives turning the clocks back

Privatization plans

• 1990-91: Early ‘Spontaneous’ privatization o Cooperatives set up under a Gorbachev half-measure o These companies simply stole from state enterprises, and all

these things became private property o “Red Directors”

• 1992-93: Voucher Privatization o Chubais: head of state privatization committee o Privatization through vouchers, so that everybody within

country individually had opportunity (not just those with money)

o Investment funds opening up, so people invest their vouchers and investment companies can invest their money in enterprises intelligently

o Most of these vouchers were traded for things like vodka or food

• One of these investments funds, called M.M.M., founded by Mavrodi, was very corrupt and took everybody’s money

• People’s vouchers ended up going towards these fake investment funds, consumer goods, or the “Red Directors” who wanted to buy their entire factory

• “Asset Stripping” – Once these Red Directors had ownership of their factories, they would sell off the factory in pieces (The piping, the buildings, et cetera)


Those countries with the best structural reform indexes ended up having the highest average annual change in GDP Smaller countries had an advantage in reform; large countries had many more issues to deal with – more competing interests and harder to implement laws across the country Privatization: Russia’s voucher program Czech Republic did this too, but a little bit differently: state helped set up the investment funds and regulate them Eastern Europe wanted to rejoin the west, rejoin Europe: Russia didn’t have a deep heritage of ‘belonging to Europe’

• People stuck it out in Eastern Europe for the end goal • Russia didn’t trust that any of the reforms they were going through

were going to work Gaidar, Chubais: understanding why they moved so quickly even though they weren’t prepared

• Felt that they had a limited time to act • Were afraid of losing the opportunity • Thought that maybe it wouldn’t be that different in the long run • With inflation so high, it is tempting to do a little asset stripping and

move cash assets to safe overseas banks • Tax colletion in Russia was very bad, billions in uncollected taxes

yearly – didn’t have the advanced tax-collecting system set up that the US does

“Loans for Shares”

• Continuing story of oligarchies and privatization • 1995-96 • The state traded away about a dozen of its richest assets for the

support of its richest oligarchs • Only now were some of the state’s largest and most profitable SOEs

(State-Owned Enterprises) going to be sold off

IR-439: Class Notes

• Elections, Yeltsin doesn’t have much support, needs money for his campaign and to pay salaries in arrears

• Oligarchs were very wealthy, billionaires from the years of confusion in Russia, they came out on top

• Oligarchs: You give us controlling shares in these large SOEs, we’ll give you money (this plan was rejected at first)

• Yeltsin: We’ll give you these shares temporarily, while you loan us money

• Auctioned off shares, state never paid anything back, Oligarchs have never returned the shares of these companies

• Potanin: owns a bank called ‘Oneximbank’; wins ‘Norilsk Nikel’ company at the auction (mining and smelting operations)(owns 1/4th of the world’s nickel and 1/3rd of the Cobalt) for $170 million; this company in state hands brings in $3 billion a year in profits

• State didn’t get as much money as it should have for these things: about $2 billion total

• This was enough for Yeltsin: his campaign was enormous, and he did get re-elected. The loans became permanent purchases in these industries


“Y. Experiment” • Yugoslavia

The Yugoslav Saga • Balkan

Tito – “self-management” Slavic history

• Migration of the Slavs came in the 6th or 7th century AD, not as warriors, but as a group of people who just migrated to the region

• Rise of the ‘South Slavs’ • The name Yugoslavia means ‘land of the south Slavs’ • The region is very mountainous, thus leading to the separation of

cultures, and the development of separate identities • Religious differences

o In choosing Christianity, the Slovenians, Croats, become identified with the Roman Catholic church

o Those to the East, Serbs, Bulgarians, became part of the Eastern Orthodox church

• With the Ottoman empire, these two groups (the east and west) were living under one radical government

o With this came new educational systems, roads, et cetera • 1389 – battle of Kosovo, Serbian defeat; Croatia is just a province

at this point, while the Serbs had a genuine state o The Serbian kingdom falls around this date at the hands of

the advancing Turkish army • Croatians became satisfied with the Austrian-Hungarian empire,

while the Serbs suffered this occupation and often rebelled Jumping ahead to the 19th century

• Ottoman empire is militarily weaker, faces various defeats to European countries

• Greeks rebel, establish autonomy, than independence • Serbs do the same, but don’t gain full independence until 1870s • Independence for Bulgaria • Ottoman empire is crumbling

IR-439: Class Notes

• Eve of the first World War, started by the assassination of a Serbian national

• Bosnia is in dispute, Turks have been pushed back, Bosnia is the main disputed area

• Serbia has a historic claim: there are many Serbians in Bosnia o Bosnia: Bosnian Muslims, Serbs, Croats

• Bitterness, trying to drive out Albanians as the tides of WWI turned • Bulgaria, Serbs, and Greeks fight off the Turks

After the first World War

• The nationalist idea becomes strong, everybody has a right to their own state

o It was known that states can’t be too small, a balance must be struck

o All of the south Slavs should become one state • Serbian dynasty was resurrected, the Serbian king was nominally

the head of state, with a parliament • This broke down • The difficulty of starting a democracy from scratch, didn’t have

democratic habits • The great depression – these were mostly agricultural countries

o In 1918, people were buying their products • Great depression hits, about the same time as the steam ship

revolution o It was cheaper to ship things from across the ocean than to

get things across a continent • The neglect of the west • Hitler and the Nazis cultivated this market, being farsighted • Politically, ethnic differences flared up again • Minorities everywhere, used as scapegoats, et cetera • Serbian king imposes a royal dictatorship just to get things done • Rise of Hitler – Ustashe – a small Hitler nationalist group in Serbia

o Serbs and Croats become bitter enemies • Yugoslavia is carved up, the north by Germany, the southwest by

Italy • World War II

IR-439: Class Notes

• On the ground, nationalism • Nazi nationalist group in Croatia – Chetniks • Partisans – communist movement lead by Tito

o Based on a United Yugoslavia based on socialist system This broad appeal by Tito largely worked

• He was half Croat half Serb in heritage • Communist led movement did most of the fighting against the

Germans • Socialist Federated Republic of Yugoslavia • LCY – League of Communists in Yugoslavia • Tito launching reforms

o People could work abroad • Gastarbeiter – guest worker from Yugoslavia in Germany

o Became a large source of income, people sent money back to Yugoslavia

• Tourism – enjoyed tourism from the 1960s and on • Croats and Serbs were still a bit separated ideologically • Tito dies in the 1980s, breakdown starts almost immediately • Without a strong leader, country was bound to collapse – people

had a strong hatred for each other • Milosevic – Serbian communist leader

o Begins to inflame the dispute with Croats • By 1988-89, communism is collapsing everywhere • Yugoslavia began decentralizing and holding elections • Milosevic wanted votes, so he played on this nationalist idea • Tudjman – becomes the leader of the new political party in Croatia • Yugoslavia owed over $40 billion, after Tito died, in the mid and

late 80s, the west wanted their loan money back • Living standards start to decline fairly rapidly • Tourist industry goes down, with instability

o More money is lost • Everybody felt like the victim of the other nationality • Serbs have an upper hand – entire Yugoslav army

o Ethnic cleansing o Croats are fucked


Georgia shares a large border with Russia, also the same Orthodox Christian religion, but language very different, as well as culture and history 1922- formally annexed again to Russia When Russia loosens the reigns, Georgia (they are very nationalist) formed their own political parties

• Almost every Georgian jumped on the bandwagon for independence • This was troublesome for Moscow • Georgia assumed that once they left Russia, they would get a lot of

aid from the west, but it didn’t turn out that way • Shevardnadze returns to Georgia in 1992, elections had just

finished • Georgia realized that they had it good under Russia, Georgia

doesn’t get cheap energy anymore, they found out that their products aren’t very competitive on the market, and the tourist industry disappeared

• All of the warring parties agree that Shevardnadze would make a good president, he rules as president from 1992 until 2004

o Each time he runs, he becomes more corrupt in getting office, stuffing ballot boxes, et cetera

• He proves incapable of settling the economy and organizing things • Enormous amount of corruption, it was easy for him to work with

the many mafias everywhere • Osetians and Georgians don’t get along well, or other groups in the

area, Abkhaz • Gamsakhurdia (second president of Georgia), extreme nationalist,

made Georgians full citizens and other groups minority citizens • Those two areas turn into no-go zones for Georgia, and even

though they are part of Georgia, they are basically different countries

• Georgian policies are very pro-western, inviting NATO to have a base there, et cetera

• Joined every anti Russian western group out there • Russia supports the two areas, with economic funding and military

to fend off Georgia

IR-439: Class Notes

• Saakashvili is the next Georgian president, very western and young • First move is to take Agaria, pulled off a local coup, and brought

Agaria into Georgia, Agarians are ethnically Georgian, this is a success

• After this, wants to get back Abkhazia, but his hasn’t materialized yet

• OSCE and peace groups are still trying to complete talks between the regions, Russia still supports Abkhazia, there is still fighting

Germany

• In the west, in the mid 90s, 45% of people said that Germany was a united nation; in the east, only 15% said yes

• Older workers in the east will probably never hold a decent job again, they don’t have any skills relevant to the high-tech west

Kaliningrad

• This was once German territory • Became a strategic military point • Russia maintains its hold here • There used to be a German minority in the Baltic’s, they are gone

now • Anybody who came to Estonia under Russia didn’t get passports,

they were second class citizens • Russians had to pass a very hard language exam to gain full

citizenship, most of them didn’t know the Estonian language o Also had to pass a background check o Also had to pass a test in culture, et cetera

Checks didn’t have to worry about the Slovaks idea of slow movement from Russian plans

• Maciar pushed for Slovak independence, after he lost presidency, his successor led a faster move to independence

Hungary

• Hungary was once a much larger kingdom, was on the losing side of two World Wars

IR-439: Class Notes

• Over a million ethnic Hungarians live in Slovakia, with 2 million in Romania

• Close to war with Hungary and Romania • President of Hungary at the time, made a statement speaking for

the rights “I am the president of 15 million Hungarians” speaking for Hungarians not in Hungary

A look back at Germany, and German Czech relations

• Large German minority in Czechoslovakia • Germans are driven back to Germany from Czechoslovakia • Czech Republic is reestablishing trade relations with Germany • Czech republic said that anyone had the right to take back property

that was seized under communism, if it can’t be given back, then it will be paid for; with the exception of Germans

• Czech only recently expressed regret about pushing out the Germans after the war


Currencies, Inflation Organized crime and corruption

• Kholodev ‘93 • Listyev ‘96 • Staravoitova ‘99 • Khlebnikov ‘04

Government intervention in inflation rates and currency stability

• Anchor currency to a country with these ideal traits • Doing this, government gives up the right to print more money for

emergency reasons • Currency Boards work best in smaller countries

Corruption and assassinations

• Moscow news reporter: Kholodev o Star investigative reporter, was on the story of military

corruption o Particular opportunities for corruption o Russia was withdrawing its military from Eastern Europe, all

of this military hardware was hardly watched over, very little accounting

o For every piece of equipment that made it back, one was being illegally sold

o Pavel (nicknamed Pasha) was an officer who were suddenly driving expensive cars that couldn’t be afforded on their salary

• Listyev • Staraviotova

o Very notable female liberal reformist voice o Elected from a district in Armenia o Powerful voice in ethnic issues o Fame in a range of issues o Was killed while making it her business to check into

corruption • Khlebnikov

IR-439: Class Notes

o Russian Forbes editor from America o Was making a list of richest people in Russia, was gunned

down (Russians didn’t like this) • Kozlov

o Bank reformer killed a couple of weeks ago Russia: “A superpower of crime”

• Bureaucrats who take bribes, or demand bribes, to do anything • Over the 90s, more than 200 bankers alone were killed • Moscow averaged something like 3000 murders in the 90s, about

600 which were contract killings • Some of these murders are businessmen who invaded somebody’s

turf, or refused to pay for protection • At the end of the 90s, murder rate was exceeded only by South

Africa • Russia was second to Nigeria in corruption • Economic impact is severe

Sources

• Poverty, difficulty of transition • Low paid officials looking for a way to supplement their salaries • Culture: Living under a one-party system that lied, made false

promises, et cetera, bred disrespect for the government system Types

• Asset stripping • Pyramid schemes going unregulated

Organized crime: Origins of the problem

• “Thieves in the law” • Mafia structures that existed during the soviet period • These networks of pre-existing mafia expanded during the opening • Enormous amount of money underground, in private criminal hands • Expands under Gorbachev, then more under Yeltsin • Massive amounts of money spent abroad, trying to start revolution

in the US, et cetera

IR-439: Class Notes

• Many suicides among communist officials when the communist party collapsed

Stats at the end of the 90s

• Organized crime owns or controls a share 0f 50% of all private business, and up to 60% of government businesses

• Up to 80% of the banks are have links to the mafia • Up to 20% of all business profits in Russia were being siphoned off

by the mob • Extortion and protection • Drugs, many coming from Central Asia and Afghanistan through

Russia • Prostitution • Loan Sharking • Money Laundering • Illegal energy exports • Always easy to get something done with bribes • Murder for hire • Human trafficking • Organ harvesting

International Dimensions

• Activities of Russian Mafia are completely international, problem has spilled abroad

• This kind of criminal activity leaves Russia in a worse state than it should be

• Dissatisfaction among politics is high • Structural problems still need to be fixed to correct this corruption

and organized crime • Russian mafia operates extensively abroad • Director of FBI before 9/11 said Russia organized crime was

becoming the greatest threat to US security • Russian mafia abroad exploits Russians living abroad, they are easy

to exploit – usually poor and have family back home in Russia • There are major Russian organizing centers in 14 states, with

headquarters in major cities

IR-439: Class Notes

• Auto theft is big • Medicare, welfare insurance fraud • Many fraud operations • Fuel corruption, pocketing 42 cents a gallon on diesel fuel, in one

year this cost California 2 billion dollars in lost tax revenues • Telecommunications fraud, cyber crime, stock fraud schemes • Human trafficking, northern route through Poland


Midterm • 7 or so short answer, a few sentence questions, from a list of terms • Will be scheduling a review to go over the material • Review 4:30 to 5:30 on Wednesday, Monday 3 to 4:30

Ukraine

• From Black sea to central Europe, trade routes go through Ukraine • Largest state in Eastern Europe, huge population • 250,000 square miles • Resources • The weakest state, ethnically fragmented • Politically passive rural population • Krimean peninsula • Stalin killed and deported many Ukrainians, ethnic Germans,

Koreans • Lack of a consistent strategy left Ukraine weak, has been weak for

a long time • Ukrainians vote for independence at the end of 91, after the fall of

communism • People recognized the importance of Ukraine’s position • Ukraine just talked about reform for three years, causing it to lag • In ’95, only 40% of everything was in population’s hand • In addition to political and ethnic disputes (Western Ukraine was

orientaed towards Europe and wanted to make a fast transition, Eastern Ukraine wanted to move slower and had more ties to Russia)

• Ukraine had a huge coal industry that was unprofitable o It used to be subsidized by Russia, state could continue

subsidies or cause huge unemployment by letting it shut down

• Armor production in Ukraine collapsed because there was no longer much of a demand

• Ongoing legacy of Chernobyl, the nuclear meltdown in Ukraine Possibility of splitting Ukraine down the middle

IR-439: Class Notes

• Reforms starting after three years are even more poorly done than in Russia

• Mafia and organized crime is even more powerful than Russia’s • Government was even more riddled with corruption and organized

crime • Dual exchange rates, central bank of Ukraine set an exchange rate

that was much higher than the market worth • “Rentier-Patriarch” took advantage of this dual exchange rate to

make a profit • Results in a period of hyperinflation and stagnation, more prolonged

than Russia, plunges people into huge misery • About 30% of Ukrainians still live at or below the official exchange

rate • Kravchuk begins to try and move everything to Ukrainian language

and symbols, et cetera, without Russian ties, a very decisive ethnic decision

o This backfires in the East, turning the tables towards conservatism

• Kuchma replaces Kravchuk, modifies this western course of action, but still doesn’t take effective economic measures

• A half-way reform in Ukraine, half-measures, only means corruption and organized crime becomes stronger

• Kuchma decides to tilt strongly to the west • Ukraine is one of the first countries to join the ‘Partnership for

Peace’ and also joins ‘GUUAM’ o GUUAM: a regional organization for cooperation, under the

tutelage of the US, a pro-western Organization • Ukraine takes part in a PFP exercise in ’98, this infuriated Russia

because it involved NATO landing on some peninsula and taking it back from the coup

o This of course was aimed towards Russia • At this time, 97-98, Ukraine’s policies move far to the West • Economically, Russia is winning the battle for Ukraine’s future

direction

IR-439: Class Notes

• Ukraine passes Russia in 98 for rating of corruption and organized crime, and was awarded the most copyright infringing state, duplicated everything copy written more than anybody else

• Russia takes over much of the Ukrainian energy institutes • Ukraine is heavily dependent on Russian energy imports • Ukraine grew further and further behind in its payments for energy,

up to 4 billion dollars behind in bills • Russia would take shares in some of the un-privatized energy

companies, tankers, et cetera, in exchange for canceling some of this bill

• Ukraine is dependent in Russia in other sectors as well, over 50% of its imports and exports are will Russia

• Ukraine is simply poorer than Russia • In these disputes, Ukraine was forced to barter bigger and bigger

pieces of its economy in exchange for energy • A final settlement of the Black Sea Fleet

o Ukraine inherited this whole navy because they controlled the Crimean peninsula

o Agreed to a 50-50 split symbolically, planning on over the next decade or so Russia would buy back more, resulting in about 80% ownership of the navy for Russia

• Another political swing, Yushchenko is temporarily appointed Prime Minster, very western sided, launches program of long-overdue reforms

• Program to finally balance the budget, liberalization of the economy • In 2000, the years end, country shows first sign of economic

growth • Industrial production went up 12%, light industry went up 9%,

didn’t balance the budget but helped it, took steps to reduce corruption and encourage foreign investment

• Yushchenko was sacked in 2001, was forced to resign as Prime Minister

o Was hugely popular among the people, parliament voted him out for obvious reasons – old connections with Russia among many of them

IR-439: Class Notes

o Also ousted for because he was fighting corruption, which clashed with the interests of Kuchma

• Gongadze, was ahead of the curve, created a website for news called ‘The Truth of the Ukraine”

o Disappeared in September of 2000, a little while later a body with no head was found, later was tentatively identified as that guy; body was snatched away by federal agents who later said the body could not be identified

o Another guy goes public with stunning reading of transcripts and recording showing that Kuchma was huge in corruption

o Kuchma was doing everything corrupt o A policy of harassing the media and his critics o Kuchma’s voice was recorded saying “Pick him up and give

him to the Chechens, they’ll know what to do with him” o Amazingly, he survived this whole scandal

• It supported Russia to have a weak Ukraine, they were the only country to support Kuchma

• Three Russian companies owned 75% of Ukraine’s refineries, Russia was now investing in road and rail, power network, media, all of Ukraine’s infrastructure

• Yushchenko runs for president, Kuchma puts his weight behind Yanukovych who supports Eastern Ukraine with heavy industry, et cetera

o Yushchenko is western oriented market capitalism o Elections are fixed in 2004, electoral commission is also in

Kuchma’s pocket o Opposition was ready, invited westerners to oversea the

whole thing o People are pissed when it comes out that Yanukovych wins,

when overseers say that opposition won o Kuchma backs down after huge protests, and Yushchenko

becomes the new president • Most people payed less attention to the aftermath of the ‘Orange

Revolution’ as it is called o Pushed through laws ending special licenses, special credits,

et cetera

IR-439: Class Notes

o Economy has seen a huge improvement o Put down stepping stones for reforms o Underlying problems, a country who doesn’t produce any

energy o New elections for parliament earlier this year, produced again

a conservative majority, ousted Yushchenko and brought in Yanukovych as new president


Yeltsin Chechnya I: 1994-96 Major oil pipelines ran from the Caspian Sea through Chechnya Allowing Chechnya to succeed would result in a loss of this strategic pipeline and key refineries The first Chechnya war was a disaster from 94-96

• 60-80 thousands Chechnyans are killed, the far majority of them civilians

• Over 400,000 citizens are displaced • Russians took control of many northern parts of Chechnya, while

the higher mountainous parts were controlled by rebels • War drags on to a stalemate • A series of other events bring it to a conclusion • 1995 raid on Budyounnsk, took a half dozen civilian looking trucks,

dressed in civilian clothes heavily armed, set up north into the north, with $25,000 in their pocket for bribes at checkpoints

o Ceased a hospital, took people hostage o Yeltsin gives permission to raid the hospital, more patients

are killed than Chechnyans, end up letting the Chechnyans go and giving in

• Russians are preoccupied with domestic troubles • Russia, not only abroad, but from domestic critics is faulted for

brutalities committed during this war • Human rights commissioner Kovalev speaks out against the war

methods • As the years go towards 96, the possibility of a quick little war is

gone • Yeltsin is running again, this war is a drag on his popularity • They enter into negotiations • They agree to ceasefire, then a more formal peace, and the war is

eventually over in 1996 • Yeltsin diffuses it as an election issue

IR-439: Class Notes

• Ceasefire papers over the differences • Russia does not agree that the Chechnyans will be independent,

while they don’t agree to remain a part of Russia • Russian troops exit the region altogether • Semi-independence from 96-99, leaders fighting amongst

themselves, rivals for control politically and economically • Dusayev’s group was in contact with much more radical Islamism

groups, took a more radical turn • Maskhadov was moderately radical; general radical transition • They continue to argue, elections are held for control of Chechnya • Area is carved up into different groups, organized crime skyrockets,

the region becomes a stronghold for dirty business, hostage-taking, et cetera

• This radicalizes Moscow; Russia was doing a lot of this too o Russians turn against Chechnyans, do we really need them? o Economy starts to settle in Russia, people start to demonize

Chechnya o People from all darker people, including Georgians and the

such, are criticized by Russians • In 1998-99 a series of events, kidnappings and terrorist bombings

(In the space of a month over 100 Russians are killed in these apartment bombings) that lead Russia to launch the second Chechnyan war

o It isn’t clear that Chechnyans are responsible for all of these bombings

o Some of these bombings may have been provocations by Russia to lead to the war

• With the recent war, Putin in Russia has made no public concessions to terrorist acts in Russia by Chechnyans


Original oil city was in Azerbaijan in Baku Deposits in other parts of the world weren’t found yet Soviet authorities of the 50s and 60s explored under the Caspian for more oil Authorities continued to develop resources within the country of Russia

• Focus was on these resources, didn’t want to develop oil in the unstable Caspian region

During Perestroika, spent most of their time on Central Europe, not too much of a focus on the Caspian region By the mid 90s, enormous interest in the region, with partnering countries, discovering how much oil there might be there, and a similar political shift At the time of the Soviet collapse, the whole Caspian region might have 7-10 billion barrels of oil, within 5 years it looked like 40 and 50 billion barrels, today the estimate is around 250 billion barrels or more

• Proven reserves of maybe 12 billion liters of natural gas in the region

Azerbaijan interest in the mid-90s was quickly followed by interest in Kazakhstan in the Caspian, BP leading the way in Azerbaijan and Chevron in Kazakhstan Soviet and other oil production had historically been on shore, Chevron had more experience in drilling under water Western firms trying to operate in this new environment couldn’t do so on the purely business criteria that they may have hoped for, as one can image because of the Russian autocracy legacy in the region Politics reigned over economics in this region during the time of interest in the mid-90s, with wars the number one issue for many of these countries

IR-439: Class Notes

US didn’t support oil pipeline through Iran, although this was the simplest route for getting the oil out, didn’t want to go through Russia, reduce Russia’s near monopoly on transport routes Getting the good to the market

• Chechen factor, instability in the region to the west of the Caspian • Didn’t want to give more power to Russia by giving them the

transport routes • Didn’t want to go through Iran because of conflict • Instability in the Russian Caucus region, could be explosions in this

largely Muslim region The first big completed post-Russia pipeline was the CPC, runs from northeast Caspian region, through Kazakhstan and Russia, and into Novorossiyak on the Black Sea

• Traffic in the Turkish straights, where oil has to be shipped through to get to western Europe and other places, has more than doubled in the last five or so years

• With new exploration, this traffic will increase even further • Increasingly increasing spills and collisions, and even when things

are going good these huge ships clog traffic for hours • Turkey is making a huge amount of money off of this

Second major pipeline, the BTC

• Runs from Baku, through Georgia, exits from the port of Ceyhan in Turkey into the Mediterranean Sea

• This had been a decade project, cost of $6 billion to complete, and has had geopolitical problems all along

• In Georgia, this goes through delicate environmental regions o These problems were solved with BP

• When oil prices were low, companies didn’t want to invest in this, only when prices began to rise the companies jumped on board, began construction in 2000/2001, was built very quickly

IR-439: Class Notes

Up through the middle of Yeltsin’s presidency, Russian companies just wanted these projects to go through so they could make profit, even projects whose main point was to go around Russia

• Gung-ho development • Geo-political standpoint was to slow down and strategically keep

influence in this region, i.e. vie for the pipelines to go through Russia

• After this, the tendency swung towards the geo-political, with Russia twisting arms, et cetera, in order to gain influence

• The Yukos company Gazprom, Russia’s oil monopoly • This company turned into a state-run company (still a public

company, but biggest shareholder is the Russian government) For two decades, only two countries bordered the Caspian, Russia and Iran, they decided everything in bi-lateral negotiation, drew a line across the Caspian to divide it

• Now there are three new bordering countries on the Caspian • Could try to split it up, or adopt the international ‘Law of the Sea’

o Everybody gets a zone outside of their border Latvia and Lithuania turned their oil companies private

• As these things were sold off, the Russians stopped concluding new delivery contracts, this didn’t help Ventspill (Latvia oil company) much in terms of attracting western investors, Russia bought up most of it then continued the contracts

Russian natural gas

• Main two pipelines go to Eastern Europe through Belarus and Ukraine

• Gas is sold to Western Europe for a much higher price than to Eastern Europe transition countries, until very recently (this was to hold influence- they could raise the artificially low price of oil to Eastern Europe if they wanted to)

IR-439: Exam Prompts

IR 439 Political Economy of Eurasia 13 October 2006 Midterm Examination Review The midterm will be divided into two sections, equally weighted in grading. The second is an essay, where you will choose one of two questions to answer. Preparation for this requires familiarity with the main points of the lectures and readings. The first section consists of a number of terms/names, so-called “short answer” questions. You will be asked to select a certain number and, for each, to both identify the terms and explain its significance in one substantial paragraph. Sample terms to aid in studying are offered below. Eurasian plain Prague Spring asset stripping Five-year plan “gerontocracy” soft budget constraint collectivization perestroika Anatoly Chubais Gosplan shock therapy FDI Solidarity Norilsk Nickel voucher privatization

IR-439: Exam Prompts

IR 439 Political Economy of Eurasia 4 December 2006 Final Examination Review The final exam will be divided into two sections, equally weighted in grading. The second is the essay portion, where you will be given two questions to answer. Preparation for this requires familiarity with the main points of course lectures and readings. The first section of the final exam consists of a number of terms or names, the so-called “short answer” questions. You will be asked to pick a certain number and, for each, to both identify the term and explain its significance in one substantial paragraph. Sample terms to aid in studying are offered below. BTC Gazprom Federation Treaty

Niyazov CBR human trafficking Hague Tribunal Chubais Yukos Nazarbayev HIID Washington Consensus GKO Nazdratenko capital flight Ventspils CAP Yushchenko

IR-439: Study Notes for Final

October 17, 2006 Central Asia and the Caucasus “Arc of Instability”

- region to the south of Russia (central asia and the Caucasus) - explosive ethnic deivisions (ex: Armenia vs. Azjebaijain; within Georgia, etc) - region where Russia treats like its backyard, overwhelming economic

control…piece by piece taking over…much worse than the Ukraine - Russia says its not to be imperialistic but rather as a security issue b/c so close to

Russia (ex: Chechnya) o Fear of small Islamic revivals and mobilizations (Afghanistan is right

below) - Many migrant workers from these countries work in Russia - TONS OF DRUGS come through central Asia

Tsarist Legacies

- weak national identities, weak political development, scattered, nomadic people - historically had tribal links…didn’t identify as Kazakhs or Uzbeks, etc - nomadic…didn’t recognize borders - IMPORTANCE: identity is important in the transition period and it didn’t exist in

central Asia - Lenin/Stalin see chronic instability (Ottoman Empire was nearby) and didn’t want

these countries to attempt to ally with the Turkish Ottoman Empire…Islamic o So the borders became IRON o Stalin imposed the Cyrillic alphabet instead of the Latin or Arabic even

though it didn’t fit with most of their languages…so that they could not read Turkish or Arabic and could not ally

- Divide and conquer…drew the borders according to loyalty to the Bolsheviks…bad, uneven borders…angry people

Long term effects:

1) ethnic a. bad borders…people pitted against each other

2) economic a. it is the most disadvantaged area in the soviet union b. designated by the state as the “cotton-producing area”…lost its balance of

a multi-agricultural system and became mono-agricultural 3) environmental

a. diversion of rivers to satiate the demands for the irrigation for the cotton i. diverted from the Aral Sea and it dries up and exposes pollutants

which destroys the fishing industry and the pollutants are blown by the wind to the cotton fields and the cotton industry is harmed

b. many nuclear research facilities in the area that just dump wastes and lead to an environmental disaster!!!


Perestroika and the path to independence - overall the area was mostly quiet during this time…no major revolutions

Kazakhstan

- the one exception …1986…Gorbechev wanted to clean up Kazakhstan and fired the communist boss and replaced him with one of his own reformer guys

- backfires o Gorbechev didn’t understand ethnicity at all o Kazakhs were angry that a Russian was taking the place of a Kazakh to

rule the country (even though the previously leader was corrupt) o Riots ensue

- Nazarbayev took power and is still in power today o Highly authoritarian o But keeps getting reelected o Kazakhstan is the wealthiest country in central Asia (b/c mostly oil) o Doing one of the least bad…but still definitely not living up to its

potential…with its high levels of resources o Moderate policy of dual citizenship

Uzbekistan

- ruled by Karimov…was the former Soviet Union Communist party boss o despotic

- the poor border drawings left Uzbekistan with large minorities of Tajiks, Kazakhs, Meskheton Turks, etc

o the most ethnically diverse and fragile - Karimov is so autocratic…cracked down on Islamic revival

o Islamic fundamentalism is under threat o IMU (Islamic Movement of Uzbekistan) built a small army, terrorist

attacks, etc Side note: most central asian Muslims are Sunnis…traditionally less militant than the rest of the Islamic world…because of their Turkish decent, rather than Persian, etc…not much sentiment for the middle east Tajikistan

- civil war when the Soviet Union fell - clean groups rip the country apart

o Russia comes in to set the war down and puts their guy in power o Russian troops are still there

- Income: $1100/year - The worst in all of the post Soviet Union - The greatest national income is in drugs

Kyrgistan

- lacks any resources besides the source of the rivers - so poor…has nothing to do with them


- sooo much inner turmoil - Tulip Revolution

Turkmenistan

- Turkmenbashi o Been the leader since he was the communist party boss there o ABSOLUTELY autocratic rule o Real Stalinist…his cult of personality is worse than Stalin’s o Pursued “neutrality”…kept Turkmenistan out of any of the other

countries’ affairs - Major petroleum resources but he rules with such a soviet style that he hasn’t

allowed the country to grow to even a bit of its potential (regarding all of its resources)

Post Mid-Term Lecture 1 October 24, 2006 “Banking and Payments, Financial and Legal Structures; Democracy and the Rule of Law” “Agricultural Reform” Soviet Legacies- Vast systems of kolkhozy or collective farms from Stalin- large factory style farms- supposed to be efficient but are remarkably inefficient- unproductive, no incentive for farmers. High investments in agriculture with little returns. State spent lots of money providing best equipment and supplies- never provided success because there was an underlying structural problem linked to Gosplan (central planning agency). Ruined flexibility. Had to import a lot because so many crops were lost and the farms just didn’t produce enough to sustain the population. 200 metric tons produced but ¼ lost to planning problems. Gorbachev’s Half Measures- offered leases but people still didn’t trust it, agricultural reform failed, bureaucrats resisted change b/c private farming would disrupt their jobs, blocked/strangled reforms w/ red tape. Shock Therapy and Agriculture- see above, Soviet legacies continue- method they decide on to privatize and move to market economy. Do it all quickly, hurry up and privatize under Chubais. Backlash against Yeltsin from “loans for shares”, land reforms continually blocked, new land code allowing private farming blocked Pseudo-privatization of land, collective farmers could attempt to exercise their right to take pieces of land and farm their private plots, lots of bribery, collective farm bureaucrat could block privatization, collective farms = joint stock farms. Asset stripping of farms, collective farm chairmans steal and sell materials. Private Farming in Russia: Obstacles and Opportunities- Obstacles- asset stripping, cheaper to buy abroad than nationally, could not get smaller farms, no credit available, lifeblood of the economy, could not get $ to buy equipment, could not manage through


low seasons. Land reform never really took place- even under Gorbachev and other more liberal leaders- because there were these underlying infrastructure problems. Plus the beurocracy- all the agencies in charge of farming were against reform- blocked them and opposed them avidly- never let reforms get implemented because they knew that with private farming they would lose their jobs. There was a law that permitted private farming but that was blocked for about 10 years. Laws at end of 90s allowed some reforms got through and private farming was permitted and many of the blocks were broken down. However, there was no decent system of credit and farmers more than anyone else needed credit. No loans- it was very hard for them to get equipment and supplies to get started. Private farming today like in years under USSR is so much more productive small private plots still sustain most of the population on its products. Although today still your land has restrictions on it, or it’s not fully yours, or the title still as state on it somehow. Foreigners can’t own land and you are not permitted to sell you land either unless its to another farmer- not to a businessman or factory owner. ¾ completed reforms- still not fully privatized. “Banking in Russia” a healthy financial sector is critical to the economy especially in a transition period when one is trying to catch up. Banks pay you to put your money in the bank (interest) and then they loan it out. They are the lifeblood of the economy- all innovation and expansion is paid for on credit (agriculture, manufacturing, etc.). When whole sectors are trying to restructure, like in USSR, then credit is essential. Your surplus in the banking is working- it is fueling investment, growth, and job expansion, it is doubling circulation of currency as opposed to being under a mattress and not doing anything. Soviet-Era Legacies- no need for this type of credit or borrowing because state took care of everything and no one owned anything or could start anything buy themselves- state owned and ran everything- resulted in no infrastructure for market economy Plus people didn’t put money in banks- because they were distrustful of these institutions- had never done it before- didn’t allow for there to be money in circulation for loans or credit- didn’t allow economy to grow because people couldn’t get the money to start their businesses or farms. Also banks in Soviet era didn’t offer any interest and if they did it was not incentive enough- there was really no reason for people to put their money there. Hardly anyone did. Not real banks anyways- Gosplan decided all this too- where loans, went how much etc…state tells where money goes- not bankers and people schooled in economics and investments in charge- state beurocrats under Gosplan deciding. State stole from people- froze money in accounts, change exchange rates whenever they wanted etc..deep seated mistrust- people didn’t trust banks. New private banks also were fraudulent.

1. Banking monopolized completely by the state- not competitive banking

2. Didn’t conform to market supply and demand forces- just disbursing credits- no real banking activities

3. No accountability- soft budget constraints 4. Distrust of baks because of the deceit and incompetence on

the part of the state


Hyperinflation- “Not a lender but a Borrower Be”- 1000% inflation in 1993- the 2nd year of shock therapy- high inflation is very destructive for normal economy activity- need to get inflation down as a 1st step to reforming the economy. State printed more money, gave soft credits, more subsidies- further fueling inflation because they doubled and tripled the money supply by doing this. Printing too much money causes inflation and because of unknown rubles that flooded the economy- people had all this money under mattresses etc..becuase they had nothing to spend it on before. People lost so much so because of this inflation had to spend every last ruble to stay alive. General economic collapse, privatization fueling corruption, unemployment, etc…Only sector that was booming was banking- they took advantage of high inflation- money is losing value day by day so there are enormous profits to be made if you are a borrower. Good to borrow for as long as you can. Prices are going up so if you can by something and then wait a little bit then resell it you will make a profit because prices keep going up – called taking advantage of inflation. Your money will grow quickly in this environment if you have money initially to buy some stuff that you can hold on to and then sell when prices have gone up even more (i.e. raw materials etc…that won’t lose value). Banks who did well in this illegal business became financial industrial groups (FIGs) they became huge because there was big money to be made and they were making it. Very complex financial needs- corrupt people in there were making tons of money- i.e. delaying payment just a little allowed you to make so much money off this money. Mafia- very involved with banks- they had lots of money and it was a huge network- banks helping criminals and run by criminals, paying and receiving bribes etc..had lots of mafia money, sometimes owned by mafia, and participated in mafia activities (investments, funding, credits, etc). When you delay what you owe- that way what you eventually have to pay goes down- because inflation has made your money worth more. FIGs financing the rich people’s activities- import, export- investments, etc… By 1993 most enterprises had no access to credit at all- had to scrounge loans from their friends or skim off their profits in order to put money back into their company or starting anything new- no banks for commercial loans- little guy suffers the most- too hard to start a private business- you couldn’t get the money. Regulatory Vacuum- lack of reserve requirement or any backing for your money in the bank, no state backing to protect consumers and bank customers. Came up with a minimal insurance policy finally but millions had already lost everything because of bank failures. Lack of legal infrastructure behind Russian banking- there was no auditing or background check system before giving out loans- even banks because of this did not get repaid on their loans. No credit checks. Lacked database and know how. Banks, because of this didn’t want to do things for normal people- only wanted to do things for the well known elite because banks knew they were cash rich and that they would get their money back. The Banking Elite- Potanin- Norelsk Nickel, Gusinsky, Khodorkovsky- Menatep The banks were the perpetrators and the victims of organized crime Victims- when they had to pay protection tax or where coerced into giving loans even when they didn’t want to, and subject to many corrupt schemes


Perpetrators- money laundering, participated in capital flight, bankers to thugs, tax evasion, etc. Formed ARB- Association of Russian bankers- had enormous political influence had lots of money and contributed to campaigns- often wrote policy because of the weak government in power- close relationship to oligarchs and FIGs. Banking elite lobbied hard against foreign banking because they didn’t want the competition- when it did come in they made sure it was severely restricted. It would have been good for the state to have foreign banking because it would bring it more money for loans and such which was badly needed and also it would bring in western know how and ideas so Russians could learn. Lecture 2 October 26, 2006 R. Banks under Pressure- 1994- inflation is plummeting now, rubel loses value- however- this gives them some currency stability- now they can acknowledge the ruble is weak and keep it more or less at 25:1 1 dollar for 25 rubels. Exchange rate is steady= Reforms- no money to be made on currency speculation- good for improving banking operations. Reserve requirements are raised- accounting practices are regulated and standardized and made more transparent and open, central bank moves to tighten up procedures for getting a license to even open up a bank. Many banks close= want fewer banks but stronger ones. Got rid of intermediaries- because they had abused their power. Central bank is phasing out directed credits- which are forms of subsidies- IMF is telling them to do so- because it is helping keep decrepit businesses afloat- better form them to close. Stop printing money over what you have in reserves. Increase your money by increasing your revenues- taxes. GKO Pyramid- State credit obligation (equivalent to bonds here). IMF says they need this- Russian consumers would buy these by auction through banks- investment for consumers and will be lending state money in the mean time- profit made for banks on interest. All backed up by government. Makes more money available for loans. Better than issuing subsidies printing money, and sharing out credits. However has to be done properly and responsibility. Government can not issue these without knowing for sure it can pay them back- if they do they default- it’s a government pyramid scheme- because promising higher rewards and then not being able to pay out. This happened in Russia causing default of central bank and all others- ordinary depositors lost everything in this financial crises and collapse in 1998- everyone defaulted- could not pay everything back. Other “Normal” Operations- “Veksels” and the “Virtual” Economy- IOUs issued by enterprises- this market emerges- the buying and selling of these IOUs. Emerging of the “virtual” economy- enterprises are struggling to survive everything is out of control- everyone is poor, flood of imports that they can’t compete with, lack of FDI, and healthy banks focused on wealthy clients. No money for medium and small business- struggling to stay open. What they do to avoid bankruptcy is reduce salary for employees or delay paying them, dodge taxes, and pay with goods what they owe instead of with money- workers paid in goods


instead of money- pay bills by bartering- energy bill, tax bill, bank bill- companies offer goods instead. Called arrears crisis- everything is being bartered. Very inefficient- impossible to actually take delivery of all these goods- they were coming in truck loads and warehouses full- (i.e. thousands of mirrors in turn for energy bill or whatever)- these people who were getting these products didn’t have marketing system or transportation system- what could they do with all this it was a big pain- So these IOUs sprung up- they have an IOU for 1,000s of mirrors- don’t move goods around now just these pieces of paper. Venture capitalists see this virtual market emerging now- and start buying these IOUs and selling them or the products they are worth. House of Cards- looking at all this- every thing going on= a house of cards. This needs to be solved- fragile economy. Easily all come crushing down- huge pile up of debt- all covering up this looming financial crisis- just delaying the eventual collapse- looks like its okay but its not- all papered over by these schemes. August 1998- all came crushing down- state ultimately defaults- banking system and enterprises engaging in these schemes all collapse- not only middle class and poor people hurt but everyone- even the elite and wealthy foreigners. People lose everything. Because of this collapse: they got a new fresh start Banking system suffers a tremendous blow but it clears out the shakiest and most corrupt banks- allows establishment of healthy banks Regulation springs up to curb all these illegal practices Transparency is key- accounting practices become more transparent and standardized. Rules come into place- introduce western world wide accepted accounting standards. Banking sector has been made more open to foreign banks and other competition Consumer bank has made some progress- but very slow and not that great- it is backed by the state but other services and higher interest is not offered. Credit and loans being made are still weak still less than 20% of GDP. Total worth of all Russian banks, the whole sector, is only half of what Citi Bank is worth!!!! One American bank is worth more than whole Russian banking sector! Lecture 3 October 31, 2006

Evolution of the Russian Federation

Federalism, Soviet, and Russia- Russia is large, complicated, and diverse. Everyone thought it would collapse like the rest of these multi ethnic countries (i.e. Yugoslovia, Czechoslovkia) But it has stayed together...but at what cost? Has it hindered its democracy and road to capitalism. Federation is something in between- a unitary state and ??? Soviet federalism- each state under USSR had their own communist party- but they were all subordinate to Moscow- Russian communist party. Encouraged a separate national identity amongst people- each ethnicity was allowed their own culture, language, etc… By the end of the USSR local and regional officials had the power to resist central directives. So there was a sense of soviet federalism but it wasn’t legal or recognized. Reforms and new laws were always stopped from the center by regional and local leaders- tainted it as Russia trying to force them to do something when really by the end


they were reforms- these soviet leaders did not want to lose their power so they blocked central directives that were reformist. Nationalist and separatist movements sprung up. Many times these soviet regional leaders backed these movements and helped create them in order to halt these soviet directives from Russia- they just wanted to stay in power. Russia was the only one who didn’t have their own communist party- theirs was the main one for the USSR- even Moscow many said wasn’t a Russian capital it was the capital for the USSR. From Treaty of the Union to the Federation Treaty- “Parade sovereignty” local regions start taking as much power as they can under Yeltsin- making laws for themselves and governing all issues pertaining to them- central gov was only to oversee. Yeltsin declared that these regions should be as autonomous as they could- should take as much sovereignty as they could handle. Yeltsin got his independent Russia- but how to rule Russia and stop the fragmentation that he had started- problem of Russia’s territorial disintegration. “Subjects” of the Russian Federation -89 federal subjects- -49 oblasts- regions -21 republics- defined by dominate national or ethnic group) 10- autonomous okrugs- districts ethnically based as well -6 krais- territories -2 federal cities- Moscow and St. Petersburg -1 oblast- Jewish state created by Stalin- he was worried about Jewish nationalism and wanted an excuse to deport Jews from other major Russian cities. This main clevage between a territorial distinction and then a national culture creates problems- two tiered- sowed the seeds for political problems- fighting, inequalities Politics, Economics, Security- Russian constitution created lots of presidential powers- has right of arbitration between regions, etc…president has upper hand in determining the balance of power in the region Economics- this is very disputed- Moscow retains right to determine all these policies- taxes- how much goes to center how much stays in regions, decides issuing of federal aid to different regions- enormous disparities- regions all give different amounts to central gov and receive different amounts from Moscow. Moscow also controls currency, borders, and customs- this needs to be decide by the center however, or else chaos.. Many local areas have defied Moscow and made their own decisions. Deciding on duties and tariffs on their own- determining foreign economic policies themselves. Deliberately going against Moscow making all their own decisions- creating imbalances, lack of control of central gov, and creating a mess. Moscow is unable to enforce all these things- each region with different laws and policies makes it very un-unified and hard to control, predict, deters investment, security issues, economic issues, instable, not orderly, inefficient. Corrupt arrangements between local officials- protect their own interests- undermine Russian nationalism- every region out for themselves with own policies and interests. By mid 90’s regions wanted to reopen negotiations with Moscow- over 40 had special side deals because of renegotiations- exceptions, amendments, inconsistencies- each thought they could get a better deal then they had gotten originally.


Federalism or Feudalism Nazdrateuko, Ilyumzhinov, Rakhimov Russia’s Economic Fragmentation Lecture 4 November 2, 2006 Efforts to Reassert Central State Authority Yeltsin Tries to Reign in the Regions: took a harder stance on taxes and issues. Weren’t clear federal laws on issues with foreigners, raw materials, natural resources, etc…weren’t federal laws on all these things. The local elites were in deals with big wigs and there were many corrupt dealings under way to take over big businesses and other natural resources- very corrupt. All the good stuff gets put in hands of officials friends for bribes and other illegal ways. Court cases coming out dealing with discrepancies between federal and local laws. Many laws were conflicting- legal locally but maybe illegal federally and vice versa. Yeltsin trying to assert federal power- federal laws trumpted local laws- however, he didn’t have the power to make sure this happened. Local governments dug in their heels and resisted. 1998: low point of federal Russian government authority. Default of central bank of Russia. Banks collapse everywhere- everyone impoverished. Fall out of the ruble. This economic crisis only worsened the authority of the federal government. Gap between the rich and poor was huge! Economic and political fragmentation. Local governments seized power and suspended democratic government- declared a state of emergency and leaders took on a dictator role. Some of this is justified- people were so poor- leaders trying to help their people- but most just used this as an excuse to get more power. These dictators continued to rule and did not re-setup city councils-they continued to rule in autocratically. Putin’s Rise- came from soviet family and worked for the KGB for 15 years. Disillusioned by the fall of the USSR. Then worked for his former law professor a very liberal pro reformist mayor. Became deputy mayor trying to attract foreign investment and working to make laws more business friendly. 1996- Putin goes to work on Yeltsin’s reelection campaign. Eventually became head of the monitoring office- trying to encourage the various regions of Russia to comply with federal laws and directives. This was the turning point- he was gathering tons of experience and knowledge about this critical problem- this problem was critical to the success of Russia and would be the downfall if not solved- he learned the ins and outs of this situation got to know the leaders, etc. He was trying to keep these local abuses from happening and trying to assert federal authority. 1999- becomes unexpectedly the prime minister of Russia. At end of the year Yeltsin decides he is resigning early. Under constitution power goes to prime minister- so Putin becomes President and then gets officially elected 4 months later. Putin Takes on the Power Barons- makes this is first priority. Puts a team together- officials who would work closely every day to Putin- they are representatives from 7


districts- Putin divides country into the following: Moscow and Central Russia, St. Petersburg and North West Russia, Caucuses and Southern Russia, Volga and Central Russia, Eural mountain regions, Siberia, and the far east. These guys were to make sure that all laws were in compliance with federal laws, local abuses were stopped, they were to monitor closely all the goings on of local rulers and report daily to Putin, recommend what local laws should be thrown out because they violated the constitution, etc. All these viceroys or federal representatives were former military or KGB officials. Yeltsin had tried to do this but it backfired because these viceroys were bribed by locals- this way making 7 district big districts broke the corruption- these men couldn’t get persuaded by any one because the district were made up of many regions. Plus these were Putin’s trusted men- very harsh, un-corruptable, no negotiations, no compromise, no bribery. Putin had unilateral power of the president to implement these changes. Kompromat- compromising material- making incremenating evidence, to embarrass, imprison, and oust officials. Legal investigations and economic crack downs. Federation council (like senate) reformed under Putin- these officials are now full time officials screened by Putin himself (before had been governors in local regions and automatically on these councils part time). Federation council- is hand picked and screened by Putin- undemocratic- he radically transformed how the parliament worked. He did this to stop the corruption and special privilages these governors were getting- they were abusing their power. Also their legal immunity while in office was restricted they no longer had this legal protection to do whatever they wanted- governors and officials had been getting away with everything- tax evasion, bribery, special privilages, etc… not any more. Police and local officials now more under federal control. Taxes are more regular and balance has been restored- tax collecting has improved tremendously. However, Putin had been implementing many of these reforms illegally, undemocratically, and acting like an autocrat- even though these reforms were for the better people were still concerned that this was going to hinder democracy in the long run because he had taken so much presidential power. Chechnya: ethnically and linguistically diverse region in the world- 19 ethnic groups. Mountainous region has preserved their cultures- they are isolated from the world and from each other- very rural and not modern. Live in local clans. Only time this region united- a temp. unity in 19th century to stop Russian expansion. Divisions and hatred among all groups here is very strong- not unified. Predominately Muslim- not pro anything political really- not pro soviet or anything else. All the division among them makes them easy to divide and conquer- try to pacify them but really all the differences never went away. Fierce warrior culture- had faced intense suffering under the Russians. Entire Chechnyan population had bee deported and shipped to war camps under Stalin- he suspected they were being disloyal. This unites them in an anti-Russian sentiment. Nationalism takes off everywhere and even in Chechnya they start a Chechnyan nationalist movement. Appeal to Moscow to be in charge of more local things- more in charge of their money, laws, etc..under Yeltsin the policy of lots of sovereignty for these regions fueled all this- regions took whatever they could in the way of power. Chechnyan leadership is now elected and they begin to move for independence. Dudayev- leader of Chechnyan national movement- had grown up outside Chechnya because his family had been exported at end of WW2. He was also a military officer- he was a good compromise candidate because he didn’t have clan ties and he was well respected in this warrior


culture. Russian attempts to support a candidate and economic sanctions backfired- tons of corruption insued under all these attempts- worst of shock therapy ended in 1994 and finally Russia wondered what to do about Chechnya…. 1994- war of independence- Yeltsin has popularity and Chechnya problem- they are trying to succeed. Military and political advisors planned a little war to seize all the leaders easily. Chechnyans united and Russians fumbled- dirty guerrilla war. Ended after 2 years but not really 1999- (2nd war with Russia)- this same war is almost under way again

Lecture 5 November 7, 2006

First Chechny war: 1994-1996. Origins: deep historical grievances- they had not been treated well before or during the USSR. Felt they had a separate national and ethnic identity. Leaders of anti-Russian federation, warrior culture. Strong desire to not be a part of Russia. Fragmentation of control in Moscow- coup in Moscow during Yeltsin’s years- Chechnya felt this was there chance to declare independence- saw this moment of weakness. Major oil pipelines ran from the Caspian Sea through Chechnya. Allowing Chechnya to succeed would result in a loss of this strategic pipeline and key refineries In Russia there was lots of political and economic unrest- Yeltsin needed a victorious war to help his politics at home- so he thought go in and easily stop this Chechen rebellion. Ended up being a disaster- 60-80 thousands Chechnyans are killed, the far majority of them civilians- estimated 3,000 in one day died- over 400,000 are displaced- refugees. Capital of republic is leveled- bombed completely by air strikes. Dudayev- Chechen president. Russians took control of many northern parts of Chechnya, while the higher mountainous parts were controlled by rebels. War drags on to a stalemate. A series of other events bring it to a conclusion. 1995 raid on Budyounnsk, took a half dozen civilian looking trucks, dressed in civilian clothes heavily armed, set up north into the north, with $25,000 in their pocket for bribes at checkpoints. Ceased a hospital, took people hostage. Yeltsin gives permission to raid the hospital, more patients are killed than Chechnyans, end up letting the Chechnyans go and giving in. Russians are preoccupied with domestic troubles. Russia, not only abroad, but from domestic critics is faulted for brutalities committed during this war. Human rights commissioner Kovalev speaks out against the war methods. As the years go towards 96, the possibility of a quick little war is gone. Yeltsin is running again, this war is a drag on his popularity. They enter into negotiations. They agree to ceasefire, then a more formal peace, and the war is eventually over in 1996. War ends- Yeltsin defuses it as an election issue for political reasons- cease fire papers over the differences. Agreement to halt the war but no final resolution- Russia does not agree that the Chechnyans will be independent, while they don’t agree to remain a part of Russia- Chechnya has a default independence therefore for the next couple of years because Russian troops exit the region altogether under cease fire. Semi-independence from 1996-97-99. Radicalism- and leaders fighting amongst themselves, rivals for control politically and economically - no one could rule effectively with all this internal fighting. Islam becomes a major factor. Chaos- Islamic fundamentalist invade towns. Dusayev’s group was in contact with much more radical Islamism groups, took a more radical turn. Russia anxious to go back in and fix their first mistakes. Maskhadov was moderately radical; general radical transition. They continue to argue, elections are


held for control of Chechnya. Area is carved up into different groups, organized crime skyrockets, the region becomes a stronghold for dirty business, hostage-taking, et cetera This radicalizes Moscow; Russia was doing a lot of this too. Russians turn against Chechnyans, do we really need them? Economy starts to settle in Russia, people start to demonize Chechnya. People from all darker people, including Georgians and the such, are criticized by Russians 1999- 2nd war- Russia vows to restore order and fix this situation using force. Putin vows it will be quick and decisive. However, war went on for years- many have been killed. Post 9/11 Russia has said this war in Chechnya is a war on terror. Extremist groups and rebels have been fighting the Russians- the Chechen’s say they are just finishing their war for independence. Under Russian control now- Russians say the war is over and it is stable now under them- but reality is that no one I safe here- check points- bombardments every night by Russian soldiers. In 1998-99 a series of events, kidnappings and terrorist bombings (In the space of a month over 100 Russians are killed in these apartment bombings) that lead Russia to launch the second Chechnyan war. It isn’t clear that Chechnyans are responsible for all of these bombings. Some of these bombings may have been provocations by Russia to lead to the war. With the recent war, Putin in Russia has made no public concessions to terrorist acts in Russia by Chechnyans. Many have been displaced and live in refugee camps. Russians caused a lot of damage but they didn’t kill the Chechen leader. Lecture 7 November 14, 2006 East-Central Europe and the European Union- took in Poland, Hungary, Czech Republic, Yugoslovia, and four more. Hoping joining would solidify their place in Europe in military, security, economic, social, and cultural terms. Exclusive member of a free trade area, no more tariff barriers for imports and exports. Goods and people can now move freely. What is the EU? Started in early 50s- to remove barriers in certain industrial sectors (coal and steel) and to reconcile France and Germany after WW2- so economic and political reasons- one single open market in Europe. Italy, Belgum, Netherlands, Luxemburg, France, and Germany- all original members- create a single market for them. UK, Ireland and Denmark were admitted in 70’s. Then Greece, Spain and Portugal. 1995- Austria, Sweden, and Finland. This is where it was at until new members from former USSR were admitted. Maastricht and Beyond- goal of Maastricht treaty- a single currency for Europe- the Euro. Coordination of defense and foreign policy as well. Many rules and regulations for all of Europe (social, labor, environmental protection, banking, communication, etc..) many social services. Benefits- for member states no barriers, free trade. Deepening and Broadening- Reason they brought in these former USSR countries- they were causing lots of violence, refugees, and spill overs- were breeding conflict and violence.


What’s in it for us? So EU felt if they brought them in it would help their problems and stabilize whole region- east/central Europeans could work abroad and help their economy- make these countries more safe and secure- help FDI and in turn help all the economy. Common agricultural plan- subsidies. Huge budget for this sector- east-central Europe wanted this for their farmers. The EU redistributed funds to help infrastructure. East-central Europe really needed this help. The Accession Process- states joining the EU need to be ready to merge their social, political, and economic sectors with the rest of region. Need to have functioning democracy and free market. Must conform to Acquis Communitaire- legislative body that governs EU. Not simple- even for a well established democratic country- because there is a lot of preparation in order to be ready to be accepted. These are regulations that govern everything. 1st formal application, then wait for acceptance, then stability and accession agreement, team is set up for the country- 100s of people broken into different teams- i.e. environment team- to get country in line with environment code of EU- there are 31 of these chapters (legal system, infrastructure, labor movement, health, worker security, pension issue, border controls, agriculture, human health and security, human rights, etc) P.H.A.R.E- Poland and hungry aid to reconstruct the economy- not just to them but other former soviet countries to help them build in order to be admitted to EU. Special programs for agricultural and rural development- candidate countries got tons of aid to help them with everything you could think of- programs for every sector- airports, bridges, environment, etc…. Problems and Prospects- these east/central Europeans states were populous, poor, and perverted. They had been under communism for 40 plus years- corruption, weak judiciaries, poor, organized crime, ethnic problems inside and between states, discriminations, etc…how could all this be fixed in time? Infrastructure was easy- put money and build- these other cultural, political and legal aspects were very difficult. Must show that theses candidate countries have stable institutions for democracy, respect for human rights and minorities, abide by rule of law. Economic- need capacity to keep up with market pressures, free market economy, be able to compete, non market mechanisms all need to go- away with subsidies and other help for businesses, work towards a single currency. Former soviet countries in EU still are not on Euro. Problem of agriculture and subsidies. Immigration- underlying fear of western Europeans- one these east Europeans were admitted a flood of them would be coming west for jobs. Schengen Accord- move freely around Europe to all member states. Because the economic situation in the east was so unstable- they were worried about how many people would move to west. So thought this immigration would be good for western Europe- they need people to work and their birth rates were going down so they need more people. Agriculture- EU problem even before the former soviet states- too many subsidies in western Europe. Told eastern European countries they needed to reform their agriculture- no self-sufficient farmers- they will be crushed by competition and can’t afford to subsidize all off them. These governments were told by EU to cut all subsidies and help- it will be a hard transition but the agricultural profile needs to be changed. Their remaining farmers after these cutbacks will be allowed subsidies from the EU.


Contributed to disillusion that these eastern Europeans feel today- they had originally supported EU now people are not so for it. Was very painful and long and hasn’t been the big boom that everyone thought- for many it has worked (those who have restructured successfully). However for those left out- it has caused dissatisfaction. There has been more losers than winners- not so enthusiastic about EU anymore. _ Lecture 8 missed class November 16, 2006 Video- small lecture The destruction of war - Bosnian war 92-95…300 thousand killed, land mines are still killing people, 3 million displaced, ½ of the displaced have been returned to their home 10 yrs later; unlikely further people will return; 30 billion dollars in damage done to the economy; almost all infrastructure was destroyed; GDP 91 was about 1700 dollars a year, by end of war it was 330 dollars a year; slovenia- GDP is over 15000 dollars a year, Impact on Yugoslavia’s neighbors - germany at height of conflict, btwn 300-400 thousand refugees housed in germany; over half million from bosnia wound up spending whole war in croatia which was going through its own war; hungary, Bulgaria and Romania suffered economic disruption; each lost about 10 billions dollars b/c of restrictcion on trade b/c of UN sanctions; Romania lost about 850 million dollars in lost trade during few months of war, Bulgaria lost about 5-6 billion dollars b/c of drop in tourism and trade; Albania was overwhelmed-800 thousand Albanians about ½ fled to Macedonia and Albania proper Post war problems: corruption, econ-destruction, political deadlock Opportunities for organized crime grew exponentially; empowering of warlord-like leaders; Yugoslavia had a growth in corruption; econ destruction: rebuilding of economy has barely begun; political deadlock: everything is magnified here, the wounds so fresh from war in attempting to piece together and keep Kosovo together; ethnic problems in central asia, and central Europe, Balkan stability pact Compared to a Balkan martial plan, summit held in 1999 in Sarajevo; states came together to conclude this; 3 tables: political, economic and security; political: to democratize, supporting human rights and minority rights, independent media, election monitors, setting up trips btwn members of parliament to meet with European counter parts to see how democracy works; security: a lot of money spent to reform military so they don’t become gangland warlord militaries, to fight trafficking money given to repair damage and move forward; rebuilding damage of war and bridges and infrastructure; efforts to encourage regional trade to lower insanely high tariff barriers Lecture 9 November 21, 2006 Geopolitics of the Post-Soviet Energy Business Oil and Gas


Azerbaijan in Baku was one of the original oil cities on the edge of the Caspian Sea. Along Caspian Sea are many oil deposits. Huge oil found throughout Russia and around Caspian- Soviet authorities of the 50s and 60s explored under the Caspian for more oil to develop throughout Russia and kind of ignored Caspian finds. Authorities continued to develop resources within the country of Russia after the 60’s.For security reasons they wanted their oil in the center of Russia- concerned with stability and control in the Caspian region. Focus was on these resources, didn’t want to develop oil in the unstable Caspian region Also it’s harder to drill offshore than on land so they decided to focus all energy on drilling in central Russia. During Perestroika, spent most of their time on Central Europe, not too much of a focus on the Caspian region. Also years followed (before collapse of USSR) of no money to even think about investing in the Caspian oil. By the mid 90s, enormous interest in the region, with partnering countries, discovering how much oil there might be there, and a similar political shift. At the time of the Soviet collapse, the whole Caspian region might have 7-10 billion barrels, within 5 years it looked like 40 and 50 billion barrels, today the estimate is around 250 billion barrels or more. Proven reserves of maybe 12 billion liters of natural gas in the region. Deposits in other parts of the world aren’t found yet. This region is second to the Persian Gulf. Natural gas 3 trillion cubic meters at least but most likely way more. Azerbaijan interest is the newest find of tons of oil in the early mid 90s- British Petroleum and some American Companies. Was quickly followed by interest in Kazakhstan- in the Caspian, BP leading the way in Azerbaijan and Chevron/Texaco in Kazakhstan. Offshore drilling necessary because much of the reserves where under water. Soviet and other oil production had historically been on shore, Chevron had more experience in drilling under water. Western firms trying to operate in this new environment couldn’t do so on the purely business criteria that they may have hoped for, as one can image because of the Russian autocracy legacy in the region. Exxon mobile, royal dutch shell- all major companies were investing here. Immediate post collapse period of USSR- Azerbaijan and Armenia were still fighting and even though countries riches are growing. Dynamic for foreign investment changed- US congress supported Armenia- because of Armenian nationals etc….this meant American FDI was done, no official aid, etc. But then as oil interests increase dramatically this pro Armenian position loosens and Azerbaijan is back in favor because so much business was to be done here. Politics reigned over economics in this region during the time of interest in the mid-90s, with wars the number one issue for many of these countries. Especially post 9/11 war on terror- these blocks in this region where over. Best place to transport oil is through Iran- better than through central Europe because of civil wars and unrest. However Iran’s not very US friendly so this is a problem as well. US didn’t support oil pipeline through Iran, although this was the simplest route for getting the oil out, didn’t want to go through Russia, reduce Russia’s near monopoly on transport routes. Russia then by default has all the exit routes and gives them a monopoly. Getting the Goods to Market Pipelines- 2 main Russian exit ports- one on black sea and a northern port of Vatspills. Since fall there have been several new projects: build on soviet era infrastructure (easier than to start from scratch) but there are down falls: allowing all these regions with new oil to only go through Russia keeps the Russian monopoly going (gives them undue


leverage), also there is a lot of unrest in this region (political instability). Chechen factor, instability in the region to the west of the Caspian. Didn’t want to give more power to Russia by giving them the transport routes. Didn’t want to go through Iran because of conflict. Instability in the Russian Caucus region, could be explosions in this largely Muslim region. Lastly, these routes can not handle how much oil now as been found in this region, so there still needs to be other pipelines (can not export the oil fast enough). New big pipeline in 1999- still transits Russia but does avoid Caspian problem region. The first big completed post-Russia pipeline was the CPC, runs from northeast Caspian region, through Kazakhstan and Russia, and into Novorossiyak on the Black Sea Traffic in the Turkish straights, where oil has to be shipped through to get to western Europe and other places, Amount of oil shipped through Turkish straits has more than doubled in the last five or so years - should reach 80 million tons in next 10 years. With new exploration, this traffic will increase even further. Increasingly increasing spills and collisions, and even when things are going good these huge ships clog traffic for hours. Turkey is making a huge amount of money off of this. Supertankers and other oil tankers can clog up canals for at least 2 hours but sometimes up to 4- sometimes only 1 direction but often the bigger boats clog in both directions. Very overloaded in black sea- causing tons of environmental pollution. Another option- through China, Iran, or Afghanistan- too many political problems and instability, however. Another option- Runs from Baku, through Georgia, exits from the port of Ceyhan in Turkey into the Mediterranean Sea- Second major pipeline, the BTC- This had been a decade project, cost of $6 billion to complete, and has had geopolitical problems all along. In Georgia, this goes through delicate environmental regions. Many of these concerns were solved with British Petroleum . When oil prices were low, companies didn’t want to invest in this, only when prices began to rise the companies jumped on board, began construction in 2000/2001, was built very quickly. Regional problems- turkey borders Iraq- possible problems in future. Central Asia pipelines- there is no easy way out- is there enough oil and profits to make this all worth while? US Gov: not go through Russia, help economies of newly independent states, Armenia, Azerbaijan, etc…so new central Asian pipelines are better for US. Western European oil mainly still comes from Russia. Russian companies were then investing in these Caspian reserves and pipelines through central asia- Russia was angered at this- this is weakening Russia and in short term making money but in long term weakening their influence in this region. Caspian Sea- who’s oil is whose? Another problem along with environmental and political- for two decades, only two countries bordered the Caspian, Russia and Iran, they decided everything in bi-lateral negotiation, drew a line across the Caspian to divide it Now there are three new bordering countries on the Caspian. Could try to split it up, or adopt the international ‘Law of the Sea’. Everybody gets a zone outside of their border. But today there is Kazakstan, Azerbaijan, and Turkmenistan- now how do you break it up? 5 countries now- how do you divide among 5? Idea- first measure coastline and put in a coastal zone rule- from border out 25-50 km- then what about remainder- take deep


waters and divide them up by drawing a line. Or do you take the percentage of shoreline and match their percentage with deep waters- Iran for example has 12.5% coast line so they get 12.5% of deep water. Iran didn’t like that so they suggested they get 20% because they are 1 of 5. This issue has not been comprehensively settled- some have settled it bilaterally. No final resolution- but one doesn’t seem necessary at this point because of these bilateral settlements. Up through the middle of Yeltsin’s presidency, Russian companies just wanted these projects to go through so they could make profit, even projects whose main point was to go around Russia. Gung-ho development. Geo-political standpoint was to slow down and strategically keep influence in this region, i.e. vie for the pipelines to go through Russia. After this, the tendency swung towards the geo-political, with Russia twisting arms, et cetera, in order to gain influence. The Yukos company Gazprom, Russia’s oil monopoly. This company turned into a state-run company (still a public company, but biggest shareholder is the Russian government). In summary- Politics has gained the upper hand over economics How has Russia done this- Latvian port- (Ventspills) and Lithuania- both privatizing industries- oil being sold to private investors- As these things were sold off, the Russians stopped concluding new delivery contracts, this didn’t help Ventspill (Latvia oil company) much in terms of attracting western investors, Russia bought up most of it then continued the contracts- they used other exports- this took FDI so down because now they weren’t being used a lot. So Russia controlled this whole operation even to them getting FDI and privatizing- no one wanted to buy if oil wasn’t flowing. So Russian companies bought this for cheap and oil is now flowing making them money. Natural gas- main soviet built exit routes of natural gas into Eastern Europe go through Belarus and Ukraine- over time because Ukraine was in such debt to Russia, Russia got the majority of the energy infrastructure in Ukraine in exchange for forgiveness of some debt- Belarus has essentially the same story. Gas is sold to Western Europe for a much higher price than to Eastern Europe transition countries, until very recently (this was to hold influence- they could raise the artificially low price of oil to Eastern Europe if they wanted to) Lecture 10 November 28, 2006 Oil vs. Gas Oil has commanded the foreign direct investment Energy exports counted for 40%of GDP and 60% of their export earnings Collapse in the 90s Now up to 12 billion barrels a year- Russia is up there neck and neck with Saudi Arabia (but Russia uses more than Saudi so they export less). GAZPROM- biggest oil company-oil industry in general- soviet term carried over- its an arm of the state, owns 60% of Russia’s natural gas reserves


Russia as largest reserves of natural gas- use of natural gas will increase world wide soon- more environmentally sound and oil is running out- natural reserves are just beginning to be tapped. Before we get to these natural resources however, we have a long way to go…many problems Gas: Problems and Prospects Many eastern European countries are very dependent on Russian sources. Gas is very extensive and difficult to extract, process, and transfer to market. Natural gas is highly volatile- it can explode and it’s a sensitive substance-why its much harder to deal with. Needs to be cooled- needs sophisticated equipment, safety checks, better pipelines, all around more expensive to move than oil Crude oil is an inert substance- it is easier to move through pipes. Russia not taking very many steps to privatize their oil and gas companies because of political reasons. What can go Wrong: “Dutch Disease”- value of dutch currency sky rocketed once they found oil/gas then all their other sectors could not do well. When oil ran out all their other economic sectors were weak. “Resource Curse”- when oil or gas is coming out of the ground easily it makes it easier for political elites to build corruption, violence, not invest in education, infrastructure, etc…too much energy and bank that their economy will rely on that. Then it runs out and you are left with a state no capable of anything. Energy Environment: Russia is a very polluted country- highest percentage per capita and per economic size has the most dangerous and maybe the worst environmental problems. This is because of decades of bad economic development, Gosplan management, putting out as much as possible with no concern for safety and long term environmental protection. Had no environmental protection agencies until recently- Chernobyl- example. Cut corners, not done right, no checks to make sure its safe, recklessly built and not maintained properly. Every 3rd child in Russia has an illness related to environmental pollution/problems ½ of Russia’s people drink water that doesn’t meet the countries own standards. Russia’s rivers are open sewage channels many of its lakes are dead Outbreaks of 3rd world diseases- cholera, deptheria, etc… Russia has thousands of nuclear weapons, fissile material and nuclear waste unguarded and unprotected- don’t meet any ones standards. Future nuclear disasters. Security issue because of the unstable political situation in the region Russia signed the Kyoto protocol but waited it out for best terms etc…but then turned around and sold their terms to struggling countries so they were able to continue doing what they were doing before.


Video: Nuclear weapons, know how, etc…are everywhere in Russia- had been under Soviet control but after the fall- big security issue because they had lost control and weapons were spread over a vast region- US offered to help destroy some of Russia nuclear arsenal because it was a national security issue- threat reduction to keep nuclear materials out of the wrong hands. Russia is the largest source of fissile material for any terrorist group- hard to monitor and secure. Russian facilities don’t even know stuff is missing- don’t have a good infrastructure to monitor their supplies. Lecture 11 November 29, 2006 Overview- Russia, FSU, East, Central Europe Russia- under Putin: tax reform, tax collection, banking reform, administration reform-reestablish the rule of law- correction of worst abuses (regional bosses etc..)= result improvement in manufacturing sector and agriculture, improvement in worst abuses- west has applauded these reforms. Biggest sector- energy has back tracked- gov. has taken back control- renationalized once private companies (this has hindered growth and efficiency, Private companies would be doing much better)- Gazprom and others- so Russian state has directly and indirectly taken back control of this sector- even with some private countries Russian state has a monopoly over pipelines, etc..also they use political pressure to intimidate and coerce. Putin has done all this with a tighter grip on politics- clamped down on NGOs and political dissent, have been many assassinations of dissidents, opponents are silenced, very authoritarian right now. Very assertive foreign policy right now, Russia wants to distance itself from the west and carve out its influence in their region, reestablish Russia as a big world power independent from Europe and the US- use oil as their main lever to get this influence.

Emergence of highly authoritarian domestic political systems in most of central Asia (Uzbekistan, Kazakistan, etc) façade of democracy (there is voting but not democratic) but very dictatorial regimes- threat of fundamental Islam (dictators use this threat esp after 9/11 to justify their crack down in the government- there wasn’t/isn’t a threat of Islamic take over) the real opposition was western democratic opposition. These countries are the poorest of the poor, the most polarized (these countries have lots of oil wealth but has all gone to elite) no improvement, overwhelmingly rural- no benefit for these people, most don’t live in big cities, and we see complete subordination to Russia (not just oil and gas, every other sector as well) Russia has successfully through institutions in central asia set up their monopoly and coordinated the foreign policies of these states under Russian domination.

Western former USSR- done much better in transition to democracy and market economy- border western Europe so had more help, cultural influence, closer to markets, more FDI, joined NATO and EU.

Belarus- last dictatorship in Europe Ukraine- mixed- western half is democratic and pro west, want to join Europe-

eastern part is pro Russia- Russia has a big monopoly over Ukraine. All leaders end up constrained by this big domestic divide.


Maladova- divided, separatists movements- claimed own independence and of course Russia is all about that because they can assert their influence and it keeps the country weak- Russia is only state that supports it because it is in their own interested

East central Europe- bosnia etc???? don’t have good notes on this Russia is only member of UN security council that has taken a stance of no

independence for Kosovo- Russia’s interests are best served if rest of these states are fighting and weak that’s why they support anti western, separatist movements

Nationalism- problem for everyone- “Euroskeptic” turn for everyone- bad economic times, even for countries who

have done the best after fall of USSR and transition to market economy. Prolonged sacrifices and waiting for better economics promised that never materialized- reforms and better policies, social programs etc that didn’t work or haven’t helped situation. Treatment of minorities has still been bad and tensions exists- gypsies is one example. Under USSR no one was rich but no one was unemployed – now cutting of social programs and privatization has left many completely stranded esp. the minorities- rich can offered the private hospitals, schools, etc…the poor simply can not. Poorest and marginalized that had been employed under job programs and state projects in the USSR were now all out of work. Crime went up because of the desperate conditions, unresolved tensions between ethnic groups, etc.

EU was making demands for the state to fix these things and this caused resentment because local people felt EU doesn’t understand their history, their economic situation and why its not easy just to fix these problems.


III. Private Farming: Obstacles and Opportunities Putin introduces a new land code slow expansion of private farms 6% of agricultural lands = private farms 6% of land = “weekend” farms where urban citizens can grow food these “weekend” farms produce 40% of output Land code still unfinished foreigners not allowed to purchase land can only pass on land to children Banking in Russia What do banks do? lender and borrower lifeblood of economy restructure requires credit I. Soviet Legacies tightness of loans weakness of banking sector Soviet-Era no private businesses (including banks) only option was “Sberbank” which offered <1% interest Inflation overhang: 50 million rubles came out of the mattresses with inflation, no one wants to put $$ in a bank Gosbank no means of recourse to people who defaulted no accountability no conformity no faith II. Hyperinflation when prices were liberalized they skyrocketed over 200x high inflation kills economic growth in response to increased prices the gov’t printed more $$ monetary overhang increased economy contracted roughly 20% plunged the people into poverty the ONLY sector doing well was banking How is this possible? inflationary environment makes it good for borrowers buy w/ borrowed $ something that will not devalue (gold) and sell at a profit repay loans w/ devalued $ = profit no oversight 1992: credit system is saved by paying interest to borrow money


(October 26, 2006) Banking Legacies of the Soviet-Era Banking was monopolized by the state Didn’t respond to typical supply and demand No accountability – soft budget constraints Legacy of distrust 1990s: banking boom, but poor conditions for banking and consumer faith FIGs serve the rich Retail banking for ordinary consumers is grossly underdeveloped II. Regulatory Vacuum No system of recourse (Gustafson’s banking article) MMM or other pyramid schemes No federal deposit reserve no insurance against a run on the bank Failure to establish reliable credit ratings banks would often not get paid for loans did not build up required infrastructure 24 trillion rubles in unpaid loans by III. Banking Elite Vladimir Potanin – owner of Oneksimbank owns Norelisk Nickel through “loans for share” scam Vladimir Gusinksy - owner of MOST Khodorkovsky - owner of Menatep Bankers are the perpetrators of and victims of the banking system criminals could take advantage of the loopholes in the system and rip off banks crooks could take loans and never pay bankers were also crooks too (hid profits) Association of Russian Bankers could buy politics corrupted the Duma created their own weak Politburo and could write their own laws ex: Paramonova she pushed to bring in foreign bankers to “teach us how to bank” the ARB lobbied hard to delay her appointment IV. Russian Banks under Pressure Macroeconomic Changes easing of hyperinflation 1996: inflation down to 22% sharp devaluation of the ruble


hurts the consumers but helps Russia maintain a stable currency rate (25:1) speculative operations were no longer profitable delaying paying workers no longer meant that banks could make money far less $$ to be made than in speculating on currency fluctuations Microeconomic changes and policy steps reserve requirements are raised first steps to regularize accounting practice and make them more credible tighten up the procedures for granting a license to conduct banking business By mid-1990s: hundreds of banks close fewer but stronger banks beginning to hold banks themselves responsible for the repayment of credits V. GKO Pyramid equivalent of T-Bills banks would buy these GKOs from the government and offer them to their clients essentially created a legal pyramid scheme led to the Financial Crisis of 1998 VI. Other “Normal” Operations Wholly illegal or semi-legal operations Money laundering transfer abroad of a large amount of money VII. “Veksels” and the “Virtual” Economy “veksel” = bill of exchange in German Russian equivalent of an IOU Creation of an IOU market vast majority of small businesses are struggling just to survive stave off bankruptcy by reducing wages (paying later or reduced wages) barter system: goods become a currency of exchange (not rubles) creation of the inter-enterprise arrears crisis 1998: half of all business transactions are conducted in barter was often physically impossible to deliver or receive goods emerges a market of veksels or IOUs that can be freely traded easier than bartered goods 50-75% of all transactions are done in barter deals secondary market of venture capitalists who take advantage of the undervalued goods, buy them for cheap, and selling them at high prices where they are in high demand VIII. House of Cards GKO pyramid + Inter-enterprise arrears crisis = House of Cards: huge piling of debt with no means to cover it only raw materials are making consistent profits banking, and other industries, are parasitic the state is desperately trying to stay solvent and support the ruble by going deeper and deeper into debt August 1998: It all Comes Down the State, the banking system, and all the IOUs default Now, not just the commoners suffer


powerful lobbyists, international investors all suffer too Legacies clears out the most corrupt, and the weakest banks regulation to curb illegalities comes in to place accounting practices and efforts to achieve transparency begin to make strides people still have to choose between Sberbank or localized banks (October 31, 2006) Evolution of the Russian Federation Federalism, Soviet & Russian From Treaty of the Union to the Federation Treaty “parade of sovereignty” Subjects of the Russian Federation 89 federal subjects 49 oblasts or “regions” 21 republics defined by the dominant national group 10 autonomous okrugs or territories 6 krais or districts 2 federal cities – cities that are large enough that can be considered separate entities by themselves 1 autonomous oblast in the Far East – special status because of its Jewish identity and created by Stalin in response to the Palestinian movement A Federation of Unequal Subjects Politics Economics, Security Federalism or Feudalism Mazdrateuko, Ilyumzhinov, Rakhimov Russia’s Economic Fragmentation Federalism in Russia How has Russia held together? Soviet Federation Supposedly a federation with 15 republics Granted rights by the Constitution, but not in practice Creeping regionalism (de facto) Devolution of power to the regional officials Much more power in the regions to take advantage of opportunities for corruption Enormous regional and bureaucratic resistance to Gorbachev’s movements in the distant regions Gorbachev ultimately did not tackle the problem of Moscow vs. all others local communist party officials embraced nationalism/separatism to secure their interests Nationalism rises within Russia From Treaty of the Union to the Federation Treaty Wave of Russian nationalism in response to republic nationalism Yeltsin appealed to Russian nationalists and rides the wave to power Yeltsin fueled the “parade of sovereignty”


Gorbachev wakes up Allows the republics more autonomy and creates a new union treaty pushes for a new treaty but the regions hold out 1991: the union collapses Yeltsin faces the problem of halting the economic collapse and territorial disintegration 1992: Yeltsin signed a voluntary Federation Treaty with the exception of Tartarstan and Checnya, all the republics signed The paper version and the real version diverged quite a bit A Federation of Unequal Subjects Several Aspects of Compromise Subjects are not equal under the law There are some differences in rights depending on ethnicity created a two-tiered system of classes Some subjects entered the treaty under completely different circumstances Ethnic republics that otherwise would not have joined were given concessions by Yeltsin just to get them to sign the treaty Non Russian minority regions sought concessions and special dispensations and exceptions Some Russian-dominant regions also sought special exceptions Wanted special economic concessions Fueled ethnic & regional fragmentation Will these concessions continue to be enough for these regions? more federalism usually means more democracy however Russian regions have been taking advantage of their freedom Yeltsin had to exceed his own constitutional powers to reign in the “regions gone wild” At the same time as the constitution created extraordinary Russian presidential powers, they could at the same time undermine democracy Russian president has the right to appoint federal officials, judicial reviews, arbitration Despite a strongly federal structure, the constitution actually gave the president a lot of power Enormous imbalances Central power determines the balance of benefits, property rights, control over property and borders In practice: local authorities often act in direct defiance of Moscow and have made decisions for themselves Each region is running their own foreign economic policy routinely violated central laws that were trying to create standards to encourage foreign direct investment regional autarchy trade barriers sprung up between different regions some regions even issued their own currency Deterrent to FDI Politics, Economics and Security privatizing Russian armed forces local Russian leaders would use conscripts to build roads to avoid paying fair prices in the labor market


created a problem for readiness (ex: Chechnya) local officials would pay bribes to keep these forces at home and not go to war in Chechnya each region, as soon as they find out about the exceptions allowed to different regions, begin to renegotiate for amendments to the Constitution created a patchwork of exceptions and amendments and inconsistencies Federalism or Feudalism Mazdrateuko leader of Eastern maritime region economic policies are marked by defiance 1994: used his own riot police to force out of office the elected mayor of Vladivostok center of naval forces and imports/exports muzzled the local independent media had to be bought off by Yeltsin – given a job overseeing the fishing industry Ilyumzhinov governor of a region bordering the Caspian sea ruled like a tyrant directed the elimination of the regional parliament declared himself the only authority in the province some of the more egregious acts were reversed by Yeltsin Rakhimov removed all of his opponents from the ballot except for one token member of his party used the police to suppress the local media and demonstrations Russia’s Economic Fragmentation federalism, like shock therapy, failed miserably in Russia rather than leading to more democracy, it has led to much less


(November 14, 2006) East-Central Europe and the European Union (EU) I. What is the EU? II. Maastricht and Beyond III. Deepening and Broadening IV. What’s in it for US? V. The Accession Process VI. Problems & Prospects. I. What is the EU? began in the 1950s as the European coal and steel community Germany, France, Italy, Belgium, Netherlands, Luxembourg Reduce barriers to trade, create a single market for member countries II. Maastricht and Beyond Signed in 1991 Goal of Maastricht: create one single currency (Euro) Removed most remaining barriers to trade Meant to create a “united states of Europe” and a real single market European Economic Community changed to European Union Social and Political integration plans Regulations that govern how to discipline children, how to fire workers, common labor practices, maternity pay Regulations regarding environmental, banking, communications, food production standards Meant to get all the member states on one page Reduced barriers matched by a continuation of high barriers between EU and non-member nations III. Deepening and Broadening Post Cold-War time period Europe wanted to protect itself from Communists, but at the same time knew it needed to help weaker countries solve their problems to reduce problems (refugees, etc) for themselves Ethical problem: How come E. Germans are allowed in but others are not? Practical problem: Bosnian refugees fleeing into Belgium These countries needed to be integrated into the West to solve their problems IV. What’s in it for US? Could signal to the whole world that these countries were safe and secure Practical: could encourage FDI (Czech Republic, the Baltics, etc) A Europe whole and free Promised specific benefits Europe has a common agricultural policy: subsidies to farmers that is more generous than anywhere else Operating budget of the entire EU is over $100 billion per year and half of that goes to agricultural subsidies


Structural funds: monies that the wealthier countries distribute to the poor countries (generally a N to S pattern) totaling $30 billion per year Meant to help fund infrastructure problems V. The Accession Process Why has it taken so long for some of these countries to join? Why did it take over a decade for the most prosperous countries to join? States joining the EU must be prepared Firmly established political form Functioning free market economy Must conform to the Acquis Communitaire or the Acts of the Community The Process Begins with a formal application Administration sets up a team to evaluate the applicant country Contains 31 separate subdivisions or chapters to access policy (environment, human rights, technological infrastructure, labor movement issues, border control, and agriculture) Human rights: Baltic states had problems dealing with this chapter b/c of their discriminatory policies Democratization: no secretary of defense can be a serving member of the armed forces – Poland had a long tradition of a general being the head of the defense ministry Democratization: countries must be able to solve their problems peacefully – Romania and Hungary had a long-standing conflict over Transylvania and the large Hungarian minority there The process is eased b/c the EU is giving these countries funds and aid to help these countries build the necessary infrastructure to match the requirements PHARE: Poland and Hungary Aid to Reconstruct the Economy SAPARD: the Special Accession Program for Agricultural and Rural Development Over $50 billion was given to candidate countries before they joined to aid in every sector Then is followed by the signing of a stability and accession agreement VI. Problems & Prospects Most of these candidate countries are populous, poor and perverted Populous: over ¼ of the entire W. European population would be added with the inclusion of the C. European states Poor: how much time and money will be required for the West to rebuild their industries? They need major agricultural reform to fit the profile of the EU Perverted: after 40 years of communism, the peoples brought with them unprecedented problems including weak judiciaries, corruption, etc How could the process of accession be used to accelerate reforms? 1993: Copenhagen Criteria Codified everything Political criteria: candidate countries must show they have stable institutions guaranteeing democracy, they function under the rule of law, and respect for and protection of the rights of minorities


Economic criteria: existence of a functioning market economy, capacity to cope with market and competitive forces once joining the EU Ability to take on the obligations of membership, including social, political and economic, and take on the identity of the EU and adopt the Euro Immigration Underlying fear: once these countries were permitted to join the EU and once the Schengen Accord came into effect, hundreds of refugees from the East would flood the West Optimists: the restructuring and reformation of these countries will reduce the incentives to move In truth, there has been a combination of both Bigger issue: What did it mean for the countries joining? Moving of the border of the EU requires a strengthening of borders between new states and non-member states (Poland needs to fix the illegal Russian immigrant problem) Aging Europe could use the influx of Eastern European people to fill unwanted jobs Agriculture Tax on all working citizens in the EU to fund these subsidies Decision in the Berlin compromise to cut by half the subsidies Poland: had to restructure agriculture to reduce the number of subsistence farmers and increase the efficiency of farms by cutting off subsidies to force the remaining farmers to be more efficient and be able to compete with the EU market All of these reforms have left a lot of Europeans disillusioned, especially in Poland, about the EU. It was more painful than expected and hasn’t had quite the level of benefits they were expecting. A lot of newer, technology driven industries have seen a lot of progress, but for those left out, and who had to restructure, it was a big loss.


(November 16, 2006) Movie: 1989: Milosevic comes into power 1991: Croatian War 1992: Bosnian War 1995: Dayton Accords 1999: bombing of Chinese ministry UNMIK – United Nations Interim Mission in Kosovo: run Kosovo KFOR – Kosovo Protection Force: keep the peace 2001: Milosevic is toppled Post War Yugoslavia I. The Destruction of War - between 3 to 4 million killed - landmines continue to kill today - only about ½ of the displaced Bosnians have been returned to their homes II. Impact on Yugoslavia’s Neighbors - Hungary, Romania, Bulgaria lost over $10 million because of economic sanctions - disruption of trade cost over $850 million to Romania over $2 billion to Bulgaria III. Post-War Problems corruption economic destruction political deadlock: ethnic hatred are fresh and keep IV. Balkan Stability Pact V. ICTY (November 21, 2006) Geopolitics of the Post Soviet Energy Business History oil city: Baku in Azerbaijan on the Caspian Sea neighboring regions of Chechnya and Georgia (tapped out former oil centers) Importance of Caspian Oil Russia had oil within the interior of the country, but knew that there were far more resources beneath the Caspian Sea Productivity of the oil w/in Russia decreased after Perestroika


Collapse of the Soviet Union Offshore and onshore Caspian predictions were w/in 15 billion barrels – now an estimated 200 billion #2 only to the Persian Gulf region politics trumps economics: strong Armenian oil lobby meant the US Congress tilted heavily toward Armenia restricted investment in Azerbaijan Getting the Goods to Market US and other Western powers are concerned about pipelines that cross Russia give Russia undo leverage Chechen factor Continued instability in the region Potentially more explosions in largely Muslim populations Aging routes and pipelines A big pipeline can handle a million barrels a day, but existing Soviet pipelines can only handle half that to maybe 100-150 thousand barrels a day 1999: huge pipeline going from the Caspian Sea to the Black Sea ports, avoiding the Caucasus region, but still crossing Russia Environmental problems How does oil get from Novorosisyk to other areas? It still has to go through the Turkish straights Oil transportation requires continued relations with Russia, Turkey and Bulgaria Now shipping over 50 million tons but could reach 80 million within 20 years Collisions, dumping of waste, accidental spills adding to pollution and minor conflicts British Petroleum pipeline going through Azerbaijan, Georgia and Turkey Yeltsin Period Competing economic and political imperatives pulled in different directions Economics: it would be to everyone’s benefit to cooperate and have as many projects move forward as possible and have Russia cooperate with US and Kazak governments This strategy dominated through most of the first half of Yeltsin’s term Kremlin: security halks grumble that oil companies shouldn’t enter into projects that are going to threaten Russian dominance Slow or even halt growth so that Russia can retain geo-political influence over the region Yeltsin’s foreign policy swung during the second half of his term to more state-driven Whose Oil? New states, (Azerbaijan, Turkmenistan and Kazakhstan) increase the complexity of breaking up the Caspian Break it up according to national boundaries or follow the rule of the sea New states, (Azerbaijan, Turkmenistan and Kazakhstan) increase the complexity of breaking up the Caspian


OCTOBER 17 CENTRAL ASIA & the CAUCASUS Armenia, Georgia, Azerbaijan and the ‘stans: “Arc of Instability” -Russia has treated like its backyard, overwhelming economic advantage over these states -controls energy, transportation even when they have resources -Russia’s POV: Not imperialism, or undermining independence but DEFENSIVE action -instability are a major threat for Russia -militant thread in countries, afraid of onslaught of mobilization -refugees -Tsarists Legacies

-even before Katharine the Great … except Armenians and Georgians, REGION was weak, nomadic, sparsly populated

-claim was Silk Road – which disappeared -when Russia pushes south to Black Sea… -simple matter to conquer them

-w/ the exception of the Armenians and Georgians… who have separate identities and glorious histories

-everyone else had TRIBAL identities… didn’t see as “Uzbeks” -even into Soviet area… Kyrgies and Uzbeks the same language, no borders -THEY didn’t recognize the borders! -early soviet times… original map of USSR was “Turkistan” -WHY IMPORTANT? -strong sense of national self-identity is important in this time -Russia is modal case in the middle … unsure of what to do

-OTHER extreme = Central Asia … at least Russians understood Russianness

-Bolshevik-Soviet period -when Tsarist empire ended, former provinces were brought back into Soviet empire -Language

-Bols thought to pick Latin alphabet to educate vast central people -alphabet TURKEY used

-toyed with the idea of switching into Arabic -largely Islamic people

-THEN chose to impose Cyrillic (Russian) alphabet -had to invent some for them

-after a brief period, literate Kazaks/Kyrgyz couldn’t read any seditious material from Turkey, Islam…

-BORDERS drawn -didn’t conform to national lines -made them chronically weak, squabbling w/ each other -unfair advantages given to certain favored groups -people pitted against each other -MOST destructive treatment


-(Kazakhstan becomes dumping ground) -ECONOMICALLY -This region perhaps the most disadvantaged in the USSR

-so poor to begin with and subsequent policy decision lowered it to colonial raw-material provider

-Uzbekistan became cotton producing -had been balanced agricultural system -undermined for cotton -MONOculture -ENVIRONMENTAL consequences -grandiose diversions of rivers to irrigate for cotton -simply wasn’t enough water! -Tragedy of the Aral Sea -Begins to dry up -ultimately nature takes revenge -exposed former sea bed is repository of all pollutants -raised birth defects, etc.

-Nuclear research facilities – dumping into rivers, leaching from toxic materials

-PERESTROIKA and Path to Independence -overall C. Asia is pretty quiet -don’t see political uprising, com party bosses continue to lead -furthest from Western journalism -KAZAKHSTAN -Gorb decides to clean up in 1986, gets rid of Com leader -replaces with Gorb-selected reform guy -BACKFIRES -Gorb was bad at understanding ethnic stuff -by firing native Kazaks (though corrupt) he inflamed natives -no doubt communists support uprising -1st big ethnic flashpoint of perestroika (artificial) -Party boss that replaces is Nazarbayev … rules to this day -authoritarian president, not quite as despotic -WEALTHIEST of the central asian states -UZBEKISTAN -ruled by much more authoritarian Karimov -old com leader, now new “nationalist” leader -trying to build stronger national identity -more despotic than Nazarbayev -because of poor border drawing, it has large Kyrgyes, Tajics, etc. - -ethiniccally fragile, most awkwardly drawn borders -provoked militant Islam. -Least militant of the entire Islamic world. TAJIKISTAN

-Civil War/riot –Russia sent troups in . Fragile, but peaceful -lots of drugs


KYRGISTAN ooops fell asleep TURKMENESAN -build cult of personality to cover up authoritarianism -name is for the people -Like Stalin -on flag, much happening -policy of neutrality – kept out of squabbling -Truk has very large oil, gas reserves—still relies on Russia OCTOBER 24 – AGRICULTURAL REFORM -SOVIET LEGACIES -kolkhoz -less productive … very little incentive -no stake in having big harvest -people like factory workers, salary not tied to production -drunk people down the chain ruin chance of bonus -TOO big -GOSPLAN -also fouled up -economy too large for centralized economy -couldn’t account for local variations (weather, etc.) -grew 200 million metric tons of grain, lost 50 – make up for it w/ imports -subsidized with more profitable industry -Gorbechev

-tried to tackle it with half-measures -attached to the idea of state-owned farms -privatization had negative image -instead of privatization, offered leases

-25 years … why would you work the land for 25 years only to lose it?

-extended to 50 years … helped, but not enough -issues: transferable? Sellable? Inheritable? -beuaracry resiststed (9 million of 18 mil. bureaucrats in agri)

-obstacles meant land reform never took place -red tape, intimidation, violence -Yeltsin -doesn’t change much at all for 5-6 years -land cannot be bought or sold -can’t get through political infighting -backlash against loans for shares and hyperinflation -conservative parliament -big problem was Land Code – law that prohibited private farming -“pseudo” privatization of the land


-myth in USSR that not a STATE farm … a collective farm -every peasant has right to leave collection and take land -similar to every country having right to leave USSR -not the case… -in practice: if you were gutsy enough to “exercise legal right” -if not beaten up, stymied w/ red tape (90%) … garbage -corruption on both sides -more obstacles:

-Could asset strip a farm! -many sharemen, though riding high, saw decline and cashed in -left worse off than it had been before

-intense foreign competition -processed food cheaper than what Russian farms were producing -CREDIT -piece-by-piece, a new land code is put into place -w/ decent land what is farmer going to do?

-kolkhozy relied on HUGE machines … no domestic production of smaller stuff

-… and NO credit -Credit is the life-blood of any modern economy

-you borrow money to get better tech, up production, make profit and pay back loan

-larger pictures -Russia originally at 120 mil. metric tons of grain, down to 70 now 90 -late in Yeltsin and beg. Putin -FINALLY introducing rational land code -slow expansion of private farming -private farms occupy 6% of land -on paper there are many more … fiction -kolkhoz become incorporated… -average size is 30-50 hectares (U.S. average is 500 hectares) -Docha weekend farming – 6% -furiously work small plot for sustenance -doctors, lawyers, all professions -have to grow their own food -total 12% -still produce 40-60% of total output! -credit problems continue -small-sized machinery created, imported expensive -the LAW -not quite finished … sub-optimal for encouraging successful priv farms -Land Code still has various restrictions attached to it -not QUITE full title -ex: foreigners still cannot buy Russian farmland -against deeply held beliefs of foreigners owning Russia


-don’t get expertise -still can’t buy and sell land freely … can pass along to children -only if they’ll continue to farm it -can’t cash in land for non-agricultural purpose -can’t sell to foreigners -90% privatized … but need COMPLETELY free market to get max. -3/4 completed, perhaps -polar opposite of what was done in China -major liberalizing was BREAKING up farms in one motion BANKING Bank basics -borrow your money to make loans -pay some interest to entice you to invest savings -CHARGE interest for a loan – profit -lifeblood of an economy -agriculture, manufacturing -all innovation is paid for on credit -in West: loans to private sector = 80%-90% share of GDP -ENORMOUS amount of borrowing -close to 100% is, in essence, banking system doubles amt. of money -In East – 25% -In Russia – 12-14% … went below 10% during the worse -means less economic activity -Weakness of banking sector is symptom or cause of recovery? -Soviet-era legacies -what was on paper bore little resemblance to Western practices -Home, consumer banking banking

-NO private firms – banking was state operated individual, household banks … just one: Sberbank

-only place you could go -why would you? No interest, but NO inflation

-but forced, unofficial inflation -looooong joke that goes on and on

-interest rate so puny, and hidden inflation – actually LOSING money -so most people didn’t … some for safety -monetary overhang

-all the money that came out of the mattresses when it changed -50 billion rubles -Commercial Sector… -Promstroibank, Vneshtorgbank, Agrobank (agriculture) -monopolies, not there to make money; carry out state orders -not really banks, STATE credit agencies

-all loaning predetermined by Gosplan, NOT responding to local needs

-state financing state economic activity from above


-if something couldn’t make payment – would be extended MORE credit -never repaid -SUMMARY: -total state monopoly -no conformity to maket supply and demand forces -no accountability -DISTRUST inflamed by episodes where state STOLE $$ from people -corruption

-dirty money put in bank to distance ill-gotten gains -state freezes ALL accounts … gigantic audit -crooks could survive … had money to bribe -ordinary Joes couldn’t prove their income -Post-collapse -Banking HUGELY profitable in beginning of the ‘90s -2,500 private commercial banks spring up -only growth sector of the economy – HOW? -inflationary environment -took advantage of hyperinflation

-in time of high infl., when $$ losing value: enormous profits to be made if you’re a borrower

-instead of loaning money out to consumers, desperate people -bank became borrowers and played on interest rate differentials -mostly from the state! -FIGs – financial industrial groups -found lucrative business handling payment accounts of big clients -city of Moscow, custom service, gas service -had extensive financial needs -had employees to pay, funds to invest -big money to be made handling their money, investments -even if it was legal … and it wasn’t -delayed pay checks a few days – made $$$$$ -mafia needs bankers, too… -violated Central Bank of Russia (CBR) guidelines -Banking would have collapsed if CBR started charging negative interest -PAYING enterprises to borrow money Oct. 26: -how did banks benefit? -delayed payment … for payroll, credit, etc. -value of money goes down -bank gets profit OCTOBER 26 INTRO


-Consumer sector underdeveloped, FIGs serving monopolies/cities -Early ’92 over 1000% inflation, 30% GDP in bank credit down to 12% in ‘95 -bank deposits barely 4% of GDP in’95 -by ’93, overwhelming # of enterprises said they had no access to credit at all REGULATORY VACUUM -Emergence of investment houses/brokerages (MMM)

-promise big returns, turn out to be pyramid schemes -Not adequate reserve requirements -supposed to protect when everyone takes money out of bank -normal reserve: 20% (he thinks…) -finally has one now – what delayed it? -CBR and bankers fought in congress over who should pay for it -broke government? -bankers themselves? -no credible auditing procedures -banks might not be repaid if they DID give credit -need for internal revenue agency -no credit checks -over $X trillion debt owed to banks (awww poor bankers) -why they went to well-financed entities (FIGs) BANKING ELITE Patanin oligarch who gets Norilsk Nickel

Oneksinbank, his bank (FIG) Services for wealthy clients finagled loan for share because one of this own accounting firms was

overseeing the bids for Norilsk Gusinsky MOST bank (fascination with ATMs) -owned only nation-wide television station (NTV) -mags, newspapers, too Rupert Murdoch -praised by HR advocates ‘cause news was diverse, honest, critical -Best known oligarch? Khodorkovsky, Menatep bank -now in Siberian jail -got oil company in L for S -Banks were victims when criminal groups embezzled/defrauded them But also PARICIPATORS, money laundering Shifting around ill-gotten gains Facilitated capital flight

Evaded taxes Wrote legislation w/ lobbyists in Duma

-against opening to foreign competition


BANKING UNDER PRESSURE -1994, SHARP devaluation of the ruble -bad … but Russia received some stability -easier to control… peg to foreign currencies -hyperinflation goes away -not profitable to be speculative as banks were -Macroeconomic changes followed by micro from CBR -reserve requirements are raised -1st steps towards regularizing account practices, achieving transparency

-phases out directed credit plan, acting as intermediary between small banks and people who needed oans -CBR holds banks responsible for getting $$ from loans -force to improve collection, credit check operations

-closure of several hundred banks -central banks fewer, but STRONGER

GKO PYRAMID -backin’ up: -banks being phased out partly because of IMF pressure IMF encourages CBR to run business better -collect taxes, stop printing more money -introdcue T-bill (treasury bill) -short-term bond where gov promises rate of interest for loan -like savings bond, but shorter term -GKOs were bought by banks as investments from the governments -offered to consumers in smaller chunks -Central Bank should NOT sell beyond ability to pay! -buyers promised rate of return … has to meet it -if not, bank in default (don’t want central bank in default) -in order not to default, over-promised and make MORE -delays default, day of reckoning will be bigger -government engages in its own pyramid scheme COLLAPSE OF 1998 -Russian commercial banks had engaged in buying the GKOs (95-98) -many Russian banks defaulted, too OTHER “NORMAL” OPERATIONS -Big accounts only benefited few banks that won them -almost exclusively Moscow-based banks -Russia becomes world capital of money laundering done through legitimate operations -how is it done? -fake business contract with foreign entity (also maybe fake) -on paper, that business was purchasing a large amount of supplies -but sale never exits; only thing that existed was transfer abroad of money -can squirrel out of the country far more than you say (token purchase, maybe) -“Normal” = wholly illegal or semi-illegal


“VEKSELS” and the “VIRTUAL” ECONOMY -“Veksel’ a German bill of exchange -BUT in a Russia, Veksels an IOU given by emerging industries -Virtual Economy -flood of imports, domestic demand plummeted -hard for domestic enterprises to survive -paucity of domestic credit -after ’94, CBR tightening to keep down inflation -majority of enterprises struggling to avoid bankruptcy -no bankruptcy laws/soft budget restraints keeping them alive HOW THEY AVOIDED:

1) delay paying workers (but then with inflation, salaries worth less) 2) not pay taxes

3) relaying on payment in kind to pay bills – bartering -goods replace money as primary means of payments -workers @ first … then inter-enterprise debts -offer goods for resources INTER-ENTERPRISE ARREARS CRISIS -by 1998, ½ of all business transactions are conducted in barter -market emerges for VEKSELS (glorified IOUs) -promise to pay money -freely traded -Veksel market emerges -State tries to stop this by going further and further into debt with GKOs -August ’98 collapse … have to devalue ruble again -now, not just ordinary Russians suffering, BIG investors too -foreigners buy GKOs, too… -OPENNESS -Russia slowly opening up banking sector to foreign banks -until 1998, a limit to foreign involvement OCTOBER 31 – boo – EVOLUTION OF THE RUSSIAN FEDERATION -FEDERALISM, SOVIET & RUSSIAN -All dealing with political, economic and ethnic problems -after collapses of Yugo and Czech (which had struggled to find federalism), predictions that Russia would split up… would it be bloody or “velvet”? RUSSIA – technically a federation (meaning all had control over one) -many debunked local powers; most a myth -even origin, that they all came together as one, voluntary, a myth -nominal federal structure undercut by CENTRAL POWER of communism -all other republics had own com parties, seemed autonomous but not -REAL aspects to Soviet federalism (especially culture, ethnic matters)


-music, literature, poetry encouraged to develop own uniqueness -helped create nations where none had existed before (Kazaks and Kyrgyz …) -post-Stalin, creeping federalism into bloc -Stalin was the high mark of a central state -Kruschev not so much, local powers could resist some policy -Breshnev, locals could buy off local power -except military industrial complext -in Georgia (lang. difference), much more freedom -Caucuses had more economic freedom -some de facto federalism … more like regionalism -FROM TREATY of the UNION to the FEDERATION TREATY -Gorbechev struggled with this creeping fed. when he tried to make big changes

-almost no change in the fringes during Perestroika, elites mobilized against him, stymied change -rallied anti-reform sentiments cloaked in the flag of national/ethnic rights

-Gorb too idealistic … downplayed and ignored separatist movements -belatedly realized this was tied to other elements -Estonia/Georgia e.g. began embracing nationalism just to stay in power -by 1991, nationalist movement arises in Russia itself -Russia had its own problems with USSR

-particular grievance – we keep poor republic’s living standards up with our oil and gas subsidies and they don’t appreciate it! -“What about suffering Russia?” -plus, all other republics had own com party … Russia only had USSR -Moscow, even, was USSR capital NOT Russian capital -Yeltsin rides to power against Gorb/USSR/com -becomes first elected pres of Russia -“we will not run a unitary state” -begins new TREATY OF THE UNION

TREATY, spring/summer of ‘91 -New responsibilities and rights that would free up unitary state -voluntary -coup interrupts it … treaty collapses -republics hold referendums -- “Parade of Sovereignty’ -New Year’s 1992, all broken up -Yeltsin faces the problem of ruling Russia for real, and halting the economic problems he helped build … had to face Russia’s territorial disintegration “SUBJECTS” of the RUSSIAN FEDERATION (f.s. = federal subjects) -89 FS -49 oblasts (regions) -21 republics (defined by national or ethnic group) -10 autonomous okrugs (territories)


-6 krais (districts) -2 federal cities, Moscow and St. Petersburg -1 autonomous oblast (Stalin-created home for Russian jews in far east) (**teased ethnic group were Chukchi people of the north – Inuits) (**Jewish state … Stalin needed reason to get Jews out of Moscow) March of 1992, Yeltsin signed FEDERATION TREATY – updated status of post-communist regions in Russia, VOLUNTARY -one-by-one, all agreed with the exception of Chechnia (war!) and Tartarstan -a Republic, once center of Mongol empire … eventually agree -paper version and real version diverged quite a bit FEDERATION of UNEQUAL SUBJECTS -certain diversity has to be tolerated -but diverse set of structures w/ different rights and responsibilities -SOME have territorial structure, some are built on ethnic foundation -some argue entire map should have been re-drawn -kind of like 50 American states -STRICTLY territorial in nature -continued existence of two-tier system sows seeds of in-fighting/problems OTHER problems -these subjects came into new federation and signed new treaty under dif. circumstances -Tartarstan, e.g., had special bilateral treaty -agreed own Tartarstan laws/constitution had precedence over national -other ethnically based units received similar concessions -all in S. Russian region -wanted more control over economies … most resource-rich POLITICS, ECONOMICS, SECURITY “Paradox of super president federation” -More federalism SHOULD mean more democracy -more leeway for local liberties, etc. -but in Russia’s case, regions taken advantage of autonomy to act autocratically -local political elites taking control of political process, media -nepotism! Politics is dead in many regions -taken intervention from Moscow to restrain the most egregious abuses

-Yeltsin had to abuse own constitutional authority Presidential rights -arbitration on legal disputes between regions -judicial review -decides balance of federal aid -annually, regions PAY about 1,000 rubles per citizen -but enormous disparities -ECONOMIC authority -prop rights, foreign economic rights, customs, currency, borders


-even in confederal state … these are decided in the central -MORE HERE … get later -Practice very difference -local officials often act in direct defiance -some regions even issued their own currencies

-some improvement, but still lingering problem of Moscow’s inability to create common economic space

-Deterrent to foreign investment - -have to go through not ONE corrupt bureaucracy, but several -can change every time there’s a new leader FEDERALISM or FEUDALISM? Nazdratenko -poster child for corrupt local governor (Primorsky … region near Sea of Japan) -created own economic free zone (negative sense) -used own riot police to force out elected mayor in Vladislavok- main Pacific port -eventually reversed when Yeltsin intervened from Moscow -but such interventions the exception, not the rule Ilyumzhinov -banned regions Parliament, revived when it was under control -didn’t ACT like a despot … DECLARED himself one -sometimes Moscow intervened … still remain in office/powerful -engaged in political killings -chess fanatic Rakhimov -President of Bashkoktostan (or something … near Tartarstan) -took EVERYONE else of the ballot except token party member -closed down opposition radio station -something about poaching and trees Russia’s ECONOMIC FRAGMENTATION -experts who came in and said federalism = democracy have reconsidered -just like “Shock Therapy” -needed more regulatory foundation in order to work NOV. 2 -- EFFORTS TO REASSERT CENTRAL STATE AUTHORITY -Yeltsin tries to reign in the regions -especially during second term -blustering, threats, rhetoric -more assertive stance in terms of budget/taxes -launching of court cases (’96-’97, 2,000+) -overturned regional laws/declarations that contradicted federal ones -local governments battled for their resources, aid, taxes -pre-text of an auction in regions for … xxx? -illegal re-privatizations/business takeovers


-enterprises that turn things around STOLEN -late 1997, Ministry of Justice re-emphasizes supremacy of federal law -reopens negotiations over bilateral treaties -gives a few years for regional constitutions to be redrafted -said they’d never been ratified -some laughed! Didn’t take seriously -1998: The Nadir of Federal Authority -bank collapse doesn’t help -regions try to isolate themselves from currency fall out -institute price controls, making inflation/market forces illegal -implement export bans, prohibiting products from leaving -food rations/coupons for scarce goods -de facto (if not de jure) issuing of currency -suspend all bank transfers to Moscow -suspended tax payments to Moscow -“Every region for itself” -differentiation increases … rich-poor gap widens -was a 5-fold difference before crisis, now … -SOME leaders legitimate, desperately trying to get out of crisis -Others simply a reason to cover up grab for power VLADIMIR PUTIN’S RISE -late 1998 to mid 1999: obscure official in Yeltsin’s government -Went to Leningrad State -recruited by KGB, spent time in East Germany, no sig. accomplishments -left KGB, took more law, transferred to work for former law professor -Sobchak notable pro-perestroika liberal -mayor of Leningrad (soon St. Petersburg) -became deputy mayor -late ’96 Sobchak ousted, EVERYONE went with -Putin goes to work on Yeltsin’s re-election campaign -this work gets him job in the Kremlin -Works ineffectual jobs

-“President and Society” – PR, etc. -works for Borodin, property manager of the Kremlin Blah blah blah – has monitoring job, struggles with disintegration of region -goes to work for Russian FBI – then vaulted to Prime Minister position -5th of 1999 -Dec. 31, after only ½-year in office, Yeltsin announces early resignation -Presidency went to current PM, elections set for March -elected -Putin pardons Yeltsin (just like Ford did for Nixon) PUTIN TAKES ON THE POWER BARONS


-new decree, plenipotentiary committees … country divided into seven districts: -Moscow and central Russia -St. P and northern Russia -Cuacauses and southern Russia -Vulga and some other part of Russia -Ural mountains -Siberia -Far East -each given a new leader – out to closely monitor and immediately respond to abuses of past -5 of the 7 he appoints are former KBG or military people -IMMEDIATE assault on recalcitrant officials -Kompromat -“Compromising Materials”

-incriminating evidence (photo with prostitute popular) is used with investigations to send chill through barons

-prosecute a few select abusers -Ministry of Foreign Affairs -Barons denied right to travel -Fed. Council – used to automatically include regional leaders, became full-time officials screened by Putin

-Upper house like the Senate -Lower house, Duma, more important

-took way parliamentary immunity (which helped people like MMM guy) 1. Yeltsin still haven’t re=integrated regions, corruption still rampant, but HALTED it 2. methods? Some legal, some extralegal, EVEN if in the interest of the people CHECHNEA -Background -1994-1996, first war -1990-now, second war -most ethnically diverse region in the world – 19 diferent coups -mountainous region has preserved diversity MORE INFO here…. -Chechens deported … over 250,000 die during Stalin (Holocaust … unites them in hatred of Russia, even though Stalin a Georgian and done by Coms, not Russians) -during USSR, try to Russia-fy it, hundreds of thousands didn’t speak it -under Gorb -Glasnost … nationalism takes off, freedom of the press -Yeltsin fuels this with “take all the sovereignty you can handle” message Dudayev


NOVEMBER 14 – the EU -8 former communist states joined in 2004 -end of 1991, Masstricht euro the big focus… -meant to create a United States of Europe, free movement of goods/cap/later -name changed to EU -creates free market within, but bigger restrictions to those outside of club -political context = end of Cold War/reunification of Germany -ethically and historically correct and just that E. Europe should be in -also in their best interest -if Europe wanted to protect itself from refugees/crime/etc. … integration better -back to ethics…

-how could East Germany get integrated when ones you wanted to for years couldn’t?

-practically … wars going on in former Yugoslavia made lots o’ refugees “What’s in it for us?” -joining EU meant Eastern Europeans could export to West w/o barriers -import more freely, too -joining NATO simultaneously would be double stamp of approval -“this country has made it”

-some countries … Baltic states, etc. felt they wanted RE-JOIN club they already thought they were a member of

-promised specific benefits: -Europe has a common agricultural policy -generous subsidies for farmers *of $100 bil, roughly ½ (40 bil. Euros) goes to agricultural subsidies -E-Central Europe strongly agricultural -structural funds -$30 billion re-channeled from rich to development in southern Europe -E. Europe wanted to benefit from those as well

-The Accession Process -why did it take ‘til 2004 and Bulgaria and Romania are still out? -states have to be prepared to line up their political/economic w/ EU

-ACQUIS COMMUNITAIRE -DEMOCRACY Process:

1) begins with application, needs approval (Croatia’s been accepted, Turkey’s hasn’t)

2) Existing membership and bureaucracy sets of team for each applicant country a. 31 separate sub-divisions (chapters)

i. Environment ii. Human rights


iii. Legal system iv. Technological infrastructure v. Labor movement

vi. Border controls vii. Agriculture, etc.

b. Baltic states, ex., had trouble with human rights i. Discriminated against Russian-speaking minorities

c. example: can’t have a serving military officer be leader of armed forces i. problem in Poland… powerful military lobby

d. other road block: Hungarian diaspora in Romanian Transylvania i. Hungarians had to make concessions they were bitterly opposed to

with Romanian majority in order to close the democracy chapter 3) When fully conformed, that chapter is “closed”

a. EU gives funds to make reforms … and promises more… b. Gives aid and advice

i. P.H.A.R.E. 1. Poland/Hungary/Aid to Restructure Economy

a. Given to other countries, too -- $10B ii. S.A.P.R.D. special accession program for rural development

1. $$ given to candidates even before they joined 4) When all closed, the contract is signed

-PROBLEMS AND PROSPECTS -Biggest difficulty … “populist, poor, and perverted” -POPULIST -with some 75 million people, represented ¼ of existing population -POOR -thought many would emigrate to the west for better life -in West, GDP was more than $20,000 -East, from ¼ to ½ that

-how much $$ and time would it take to reform backward agricultural sec? -West is modern/even post-industrial -East has big agriculture numbers

-PERVERTED -after 40 years of communism … -difficult enough bringing in countries like Greece, Sweden, Portugal -BIG corruption/org. crimes/kangaroo courts/media-for-hire… -ethnic problems and prejudices in/between states -“How can these problems be improved fast enough for them to qualify?”

1993 Copenhagen Criteria -laid out 3 critera: POLITICAL: candidates must function under rule of law, protect HR/minorities/have stable institutions that guarantee democracy ECONOMIC: exist in free market, capacity to cope under EU’s “blast of competition” SOCIAL: take on the Acquis Communitaire


1999 Berlin Compromise -officially recognized problem of agricultural subsidies -couldn’t be given to E. Europe the same way -CAP cut by ½ -thought France still gets its big subsidies Immigration – Schengen Accord (part of Maastricht) -worried that 3 million people would move overnight -others said that was widely overblown -policies can help get rid of incentives of leaving -countries like France, though, has felt the pinch… -high unemployment already … feels a few 10,000s more

-problem … barrier that kept Poles out of Western Europe, for example, would have to be moved to keep USSR people out of Poland

-could/would it do it? But… Aging Europe NEEDS workers… -so not all bad -Italy only creating 1.2 kids! -So many benefits ... so it’s easier to be unemployed for longer -immigrants from Poland, Hungary, etc. fill the void Agricultural stuff… -E. Europe had too many self-sustenance farmers … A lot of cynicism … joining EU hasn’t been as promising as it was supposed to be -industries doing well … -those left out … had to restructure (mostly agriculture) feel left out … -realized goal was to turn them into homogenized version of W. Europe countries GET NOV. 16 NOTES NOVEMBER 21 ENERGY DAY HISTORY -Before Bolsheviks, Baku (now in Azerbaijan) was “Oil City” – Caspian Sea -Persian oil reserves hadn’t been found -People used kerosene to light houses, etc. -relied on foreign capital -Russia preferred to keep critical industry in mainland, not Muslim extremities -vast Persion/Caspian resources go unfound for awhile… -plus, they’re under water – lot harder to get to SHITLOAD OF OIL


-flash-forward to mid-‘90s, Russia and foreign co. start re-looking in Caspian Basin -thought 7-10 billion barrels of oil -then pre-lim said it was more like 40-50 billion -no somewhere between 250 to 400 billion barrels -second only to the Persian Gulf (www.eia.doe.gov) KAZAKHSTAN -Attention ships from Azerbaijan -“Tengez” fields, swampy land on NE side of C. Sea in Kazakh -Chevron leads the way -helps get oil 30 miles+ beneath the ground -Brits, US, French get in on boom -some is off-shore, need for Western investment -all Russian history is on-shore – lack in technical abilities WESTERN FIRMS -Couldn’t go in on purely official, business-like basis -Intervening politics -North Korean style of autocracy -PLUS dispute between Azerbaijan and Armenia **THEME: Politics trump economics** -Legislation: “Freedom support act” -restricted FDI and US Aid into Azerbaijan … shifts when oil interests lobby -now Armenia-Az dispute gone down a bit PIPELINES! – “Getting the Goods to Market” -Easiest to go through Iran, US doesn’t support -Wants to go through Russia – US thinks that gives Russia too much monopoly -Main line now goes through the Caucasus -Allowing oil riches in new countries (Azerbaijan, etc.) to go through Russia = BAD Problems: 1. Russia can tax the lines, turn them off, etc. … monopoly, undue leverage 2. Instability in Russian Caucasus regions 3. PLUS! Existing lines aren’t able to handle current flows -Existing pipelines that DO bypass Russia have limited capacity -NEW lines -CPC (Caspian Pipeline Consortium) -goes up into Russia and then back down to Black Sea -4-5 times bigger than smaller, existing ones -came online around 1999/2000 -avoids volatile caucauses but still goes through Rusia --Environmental problems -amt. of oil leaving Russia increasing … -doubled in last 5 years – 40-50 million tons a year. -spills, collisions going up


-tankers clog passage way in both direction hours -raises pollution in Black Sea and the straight -can’t widen … have to shut the whole thing down -China pipelines (or Iran or Pakistan) -political problems -second major pipeline after CPC – BIC -runs through Baku, sends up though Armenia, down through Turkey -like puttinpg a permanent a national park. WASN’T ENOUGH INESTMENT – prices too cheap … didn’t think the foreign reporter couldn’t sell it. -2001, first spade on new something something -Is there enough oil to make it work -would be building more pipelince field. -Told Baku they had to make … send oil out of the ground through new pipeline to make it all com – told to meet commitments -pipe line running UNDER the Black Sea – deepest one (~1,--- pipeline Japanese helped … most advanced at deep undersea pipelines USA gets 30% of oil use, some countries get 80%-90% Evolution: YELTSIN PERIOD: -Competing economic/political groups divided – “zig zag” -Everyone’s best interests at heart -Dominated -Oligarchs had a lot of autonomy in business -Russian companies did what they wanted after privatizing. PUTIN: -We need to bring these companies under our control! -Serve Russia’s best interests -Slow down … craft policy to retain a dominance in the region, geopolitically -Hadar xxxx Gazprom -state now owns more than 50% … state-run company again -people didn’t trust government … stocks went down CASPIAN SEA TERRITORIAL DISPUTES -Bordered Iran and Russia, etc. -treated as a lake -Now a BUNCH of new states on the sea -needed to be broken up into 5 now … -or could do Law of the Sea – which set certain guidelines -Iran and Azerbaijan have almost come to blows (Iran wants more!)


-NO final resolution! VENTSPIL … something in the Baltic Sea where Russia cut of a Baltic (Latvian?) oil co. right when it was working with Western $$ -Russia squeezed it dry, crippled the privatization – then Russia bought it!! UKRAINE … -Natural gas lines run through Ukraine and Belarus … -Russia agreed to wipe out certain Ukrainian and Belarusian debts to get pipeline control NOVEMBER 28 – EURASIA’S ENERGY and Environmental future Oil vs. Gas – -Energy accounts for 40% of Russia’s GDP, 60% of exports, ¾ is OIL not GAS -Oil accounts for most FDI -Peak, produced 12 billion barrels a year, down to 6,back up to 12 (neck-neck w/ Saudis) State never lost control of GAS: Gazprom -owns 60% of Russia’s natural gas -main pipelines review: through Belarus and Ukraine -mutual dependence and exploitation Russia is world’s SUPERPOWER of natural gas – largest reserves -1,700 trillion cubic feet Natural gas uses expected to increase … will give Russia more leverage/earnings -makes up only 20% now … 1 = oil, 2 = coal -w/in a generation nat. gas will skyrocket to 50%+ -why? -much cleaner, produces less carbon, oil expected to run down -gas is just beginning to be tapped GAS: Problems TECH: -much more difficult and expensive to extract/process/transport than others -natural gas “a waste” – found WITH oil and only complicates oil extraction -burnt off to get to oil -volatile … -crude oil is fairly inert substance -attacking gas creates catastrophe -oil is just pumped where gas is cooled and pressurized -most gas consumed w/in 1,000 k of production site -story about huge explosion when gas pooled in land depression near Siberia


-can turn to liquid and ship easier, but need reconstituting plant on the other side (building one in long beach?) ECON/POL: -Russia only exports 6-7 trillion c.f. a year, but has 1,700 trillion! -Needs major investment in infrastructure -state monopoly … deters foreign investment -EU is constantly monitoring Russia, presenting HR concerns -stifled press/jailed oligarchs, etc -want to liberalize Russian gas market -Does Russia have “Dutch Disease” or “Resource Curse”? -Resource Curse = wealth out of the ground at little effort makes it easy for political officials not to build up other things like education, makes everyone more corrupt, banks everything on energy supply -Dutch Disease = oil crippled Dutch industry … other sectors grew weak because Dutch currency went up, exports got too expensive, oil ran out … RUSSIA’S ENVIRONMENT: -Russia is very polluted … one of the most in the world -Population is 140 million in urban concentrations, getting smaller -Highest percentage of environmental problems in the world -Product of decades of reckless economic development, Gosplan management that tried to make as MUCH as possible as FAST as possible w/o long-term concerns -Russia didn’t even have EPA equivalent until Gorb’s Perestroika Specific examples: -110 million bring air that is polluted beyond Russia’s own limits -every third child in Russia falls ill, temp or permanent, from pollution-related cause -1/2 of Russian soldier applicants are rejected because of poor health -1/2 of Russia’s people drink water that doesn’t meet standards -St. Petersburg… 2x the microclorins than in EU areas … in Ural Mountains is 350x EU limit -Rivers can be open sewage channels… lakes are dead -Outbreaks of third world diseases still hit Russia (cholera, typhus, diphtheria) -Not ONLY the environment, but mostly from drinking public water Russia has thousands of nukes… … so tons of WASTE – doesn’t meet ANY standards -decommissioned subs, etc lying unsupervised -all potential nuclear disasters -dumber indiscriminately -Scandinavia had pharmaceutical waste -East Germany left a mess -Kazakhstan was the nuclear testing site – still radiation


-EPA-like agency made a committee … put in control of gas branch! -Whistle-blowers have been jailed under false charges -W/ Kyoto Protocol … it held out for largest quotas for various pollutants – traded credits to countries having trouble meeting caps … VIDEO – Nuclear waste is bad.

IR-439: Final Paper

IR 439 Professor English Political Economy of Eurasia Research Paper Assignment This project, making up 35 percent of your grade in this class, is essentially to do a typically sized and executed modest research paper. That means a final length of 15-20 double-spaced pages, including appropriate references (approx. 15 sources) and proper citations (any common academic style is acceptable, so long as consistently employed). As for topics, the range of acceptable ones is broad. They can be very contemporary or very historical, policy oriented or culturally centered, etc. They need only have some link to post-Soviet/post-communist political economy, however distant! Student unsure of what to tackle often choose a country study—“Economic Transition in Post-Communist Armenia,” for example. Or they can choose a two-country or regional issue—“Russian-Ukrainian Political and Economic Relations since the Cold War’s End,” “Environmental Issues in the Baltic area,” “Sex Trafficking From the Former USSR and Eastern Europe.” Below are some further, more “specialized” topic suggestions. Whatever you choose—or are simply thinking about—I need to see a proposal by Friday (Nov 3). This can be as simple as a one-sentence declaration that you’re interested in a particular country or political-economic problem. Those of you who haven’t done so yet, please give this some thought and make some choices. Once that is done, I can help you further refine a topic and find the necessary sources. Alcohol and Alcoholism in Russia, Past and Present Drug Trafficking in Central Asia Politics and Economics in the Breakup of Czechoslovakia (or Yugoslavia) The Fall and Rise of the Russian Arms Industry Environmental Challenges in the Development of Caspian Energy Resources The Nuclear Power Industry in Eastern Europe and the Former USSR EU Enlargement and East-Central Europe Rebounding from War: Croatia, Serbia and Bosnia Compared Corruption in Eastern Europe and Russia China’s Political and Economic Relations with Russia and Central Asia Reflecting on “Shock Therapy:” Russia and the IMF in the 1990s

Women in the Soviet and post-Soviet Russian Economies “The Little Engines That Could:” Estonia and Slovenia Compared

IR-439: Final Paper

Interactions Between Social Structures Within Societies of

Central-Eastern Europe and the Transition Process Following

the Collapse Of The Soviet Union

Keith Parker ID#6390.4899.77

IR-439 Final Paper Professor Robert English

IR-439: Final Paper

When the Soviet Union collapsed, much of the focus in the region of Central-

Eastern Europe was on the impact that the coming structural transitions would have on

the populations of these countries. A discussion of these types of effects will be included

in this text, but the focus of this essay will rest more on the interaction between the

people of these states and the institutional changes occurring at this time. That is to stay

that there will also be a focus on the way in which cultural and social structures in place

before the collapse affected transition and general progress in these states. It is precisely

this interaction that is important in developing strategies for successful transition, not

merely the affect that one has on the other.

To begin, a discussion of some of the general theories for the absence of clearly

successful transition in the first few years after the Soviet collapse is necessary. While

some of the countries being observed here have seen economic and social success since

the communist collapse, this essay will focus on the time period directly after the collapse

and how attempted transitional strategies interacted with social situations.

People living under the communist regimes in Eastern Europe found themselves

with a complete lack of faith in the Leninist communist ideals that were looked so highly

upon during the early years of their implementation. The social problems due to

communism that affected the far majority of citizens in these countries, vast in number

and the basis for many scholarly works, had left entire generations of families with no

trust or pride in their political institutions. This absence of faith in political and economic

structures had enormous impacts on the social structures of these countries and the

personalities of their people. The values created by this lack of faith are very unique to

these countries, and wouldn’t just be replaced with democratic and consumerist values.

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Parker, Page 2

This is mostly because these western values are built upon years of history and

submersion in these values, as well as a general history with the protestant ethic. As one

historian put it, “The problem is not that the Soviet values have been jettisoned but that

there is nothing to replace them.” (Tsepkalo, 1998)

In order to fill this void, much work has been done by Western powers to immerse

these cultures in Western norms and work ethics after the Soviet collapse. Going back a

few pages in history, though, reveals that attempts at this Western immersion have been

made numerous times even before the collapse, but were actually initiated from within

the Union. Glasnost allowed for the liberalization of media and free speech, paving the

way for some social opening to the western world even prior to the Soviet break-up.

Glasnost was originated by Gorbachev in order to increase debate and social awareness

of current issues and, as Gorbachev was hopeful of, support the economic changes he had

set forth with his Perestroika agenda. While the original idea behind Glasnost was the

improvement of debate and transparency pertaining to the Russian management, it was

seen by the west as a step forward in free media and speech. This relaxation of

censorship pushed the communist party to lose its grip over the media. This, in turn,

allowed for more liberal news sources to highlight and publish to the masses many of the

social and economics ills throughout the Russian empire that previously had been

covered up by the state media; these issues included poor housing, food shortages,

alcoholism, widespread pollution, creeping mortality rates and the second-rate position of

women. Following this, and for years to come, Western cultural materials, including

books, TV programs, music, and magazines, increasingly were translated into the

languages of areas under control of the Soviet Union. While this liberalization helped to

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Parker, Page 3

open people’s eyes to many of the issues previously suppressed by Russian authorities, it

did not significantly alter the worldviews help by people of these societies, their social

structure, or their personal ethics and attitudes.

Aside from small cultural openings, the majority of people in East-Central Europe

didn’t have very much of a western culture base during their years under communism.

Following the communist collapse, people from across the entire Soviet empire didn’t

have a reference point to begin the transition to consumerism and capitalism. In other

words, they were starting a cultural transformation relatively from scratch, in terms of

past experience (Their structural starting point will be discussed in more detail later).

Central-Eastern Europe had an advantage over the rest of the Soviet Union in this

transformation process, though. Unlike other Soviet territories, this region began with

historical links to Western Europe. Prior to World War II, many of the countries of

Central-Eastern Europe were culturally, economically, and politically linked to Western

Europe. While providing a reference point for reconstructions and cultural transition, this

historical link helped in other ways as well. Bordering Central European countries have

pushed large amounts of resources and other help into the economies of these countries.

Germany is the most notorious of these investors. German trade with The Czech

Republic, Slovakia, Hungary, Romania, Bulgaria, Ukraine, and Belarus is comparable

with the total trade that the rest of Europe and the United States do with these same

countries. German investment in the region has been so strong, in fact, that Britain and

The United States have made determined efforts to increase their investment in the region

in order to counter German dominance, particularly in Poland. This economic input has

led to increased contact with Western cultural practices and the consumerist notions the

IR-439: Final Paper

Parker, Page 4

West has tried so hard to spread. As a result of their proximity and historical relations

with Western Europe, East-Central Europe was had more of an advantage in transforming

culturally and socially over other more distant Soviet territories.

In addition to a beneficial geographic location, the social structures of East-

Central Europe weren’t as state-dominated and controlled as appearances conveyed.

According to an analysis of the region, “The relations between and interactions among

members of these communities didn’t conform to normal, officially prescribed social

patters.” (Stark and Nee, 1989) Market transactions were widespread in these countries

in both the socialist sector as well as in the ‘second economy’ of these states. These

transactions were largely the result of the contradictions that result from a state

attempting to scientifically manage an entire economy. At the lower level, shortages and

bottlenecks in supply chains led to bargaining and exchanges between supervisors and

informal groups. Moving up to the managerial level, attempting to meet plan targets

required a thick network of informal ties that spread across enterprises and local

organizations. These ‘second economy’ structures are clear examples of some

consumerism and market economy activity occurring within these countries, even under a

state-planned economy. This system of working outside of the administrative economy

in order to reach one’s own goals is deeply engrained in the mindsets of people living in

these societies where, even today, large amounts of market activity still take place outside

of the regulated sphere even with a legal capitalist economy in place.

Nonetheless, even with a ‘second economy’ running outside of government

influence, this was not to say that societies were strong while the government was weak.

Conversely, during the transition years both societies and the Government were weak.

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These transition years saw inefficient bureaucracies confronted with weak societies while

there was no history of political organizations rooted deep within society to provide a

channel for collusion. Even so, the existence of parallel structures among society,

mentioned earlier in speaking about the ‘second economy,’ allow for a building point

towards a structured society. Instead of the empty vacuum that many outsiders saw in

these societies, there were structures already in place that could be built upon in order to

see more efficient, smooth, and successful transition. These routines, practices,

organizational forms, and social ties become assets, resources, and the basis for credible

commitments and coordinated activities. The main idea behind all of this is that instead

of economic and social influences from outside countries aiding in a social transition

from communism to capitalism and consumerism by replacing ideals, practices, and

methods of market interaction, we see something else. From a more enlightened vantage

point, it is clear that a ‘transformation’ has taken place, during which new ideas have

interacted with old structures to create collections of adaptations, rearrangements,

permutations, and reconfigurations of the existing organizational forms.

Up to this point, countries in East-Central Europe have been grouped into one

entity for the purpose of overall analysis of the topic at hand. The fact that most of these

countries began transition around the same time, after the Soviet collapse, contributes to

the mistaken belief that there is one united Eastern European transition in which

transitions among states vary only in degree and speed. However, these countries were

not all witnessing the same transition at different speeds, each country was actually

seeing a different transition. These transitions varied in kind and the paths taken to

achieve them. Further, these variances occurred differently among countries and within

IR-439: Final Paper

Parker, Page 6

each state at the political, economic, and social levels. With this in mind, it is important

to take note that social change often takes place much more slowly than political or even

economic transition. Nonetheless, social changes may start taking place well before any

political or economic transition even begins. This is decidedly true in the case of Central-

Eastern Europe. As faith in the communist system, already low towards the end of Soviet

reign, plummeted as the Union began to collapse, the social transformation began to take

place well before political and economic structures began their steep descent. While the

social and cultural change in East Europe began early, the transformation still continues

today. On another note, as these countries were under the communist stronghold for such

a long period of time that the generation that lived without communism had all but

passed. The deep roots that communism planted among these citizenry are not easily

transformed, though significant progress towards consumerism had been made. Even

with this progress, though, there have been considerable backlashes against all things

western, as influence sometimes grows too overwhelming in these regions. Recently, as

Poland has seen large increases in foreign interest, many people within the country have

been angered with a sense that they are being force-fed Western ideas without regard for

their traditional values and needs. This has been seen many times and in many forms,

commonly in large-scale protests, among these states since the transformation from

communism began nearly 15 years ago. Examples of these movements in East-Central

Europe are easily found, with the two largest most recent movements in Prague, Czech

Republic on September 26, 2000 and in Warsaw, Poland on April 29, 2004.

It is largely due to the over-exposure of Western influence that these anti-Western

sentiments arise. One of the factors that led to this phenomenon following the

IR-439: Final Paper

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communist collapse was the proliferation of ‘grand design’ theories meant to replace

entire systems of political and economic structures within societies. As a result of the

unique situations, politically, socially, and economically, that were in place in each of the

countries of Central-Eastern Europe, these prescriptions often did not work. These plans

were implemented at often very large cost, but for most post-Soviet countries they didn’t

work for a variety of reasons. The Washington Consensus was the most prominent of

these plans. The Washington Consensus was a fairly specific set of ten macroeconomic

policy prescriptions that were considered by many Western powers to constitute a

"standard" reform package promoted for countries in need of reform or in economic and

structural peril. Washington-based institutions such as the International Monetary Fund,

World Bank and U.S. Treasury Department created it for this purpose in 1990. While

some countries in other parts of the world have been successful in implementing reform

using these standards, the policies didn’t work for countries in Central-Eastern Europe.

Much of the reason for the Washington Consensus’ failure was due to its inadequate

implementation in some countries, and the complete inability of others to implement its

prescriptions given previous structural restrictions. In place of these grand economic

theories, many theorists have since recommended that smaller ‘designs’ be implemented

in these countries, but in larger quantities. In other words, instead of one grand

prescription, countries would be better to implement partial solutions to particular

problems. Using this strategy, societies find that design implementation and

transformation becomes a process undertaken by a number of different institutions,

organizations, and people on many different levels, leading to a more cooperative system

of structure building.

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As we move toward the more micro level of changes, we will take a look at the

way in which change took place in these countries’ societies. The changes that occurred

after the Soviet collapse were largely dependent on the system of trade and social

structures that were in each particular country before the transformation. As discussed

earlier, each of these countries being discussed went about change in much different

ways, and not only to differing degrees and speeds. Largely, this is due to the different

structures present in these states beforehand. In Poland, for example, the legacy and

importance of workers’ organizations in Polish society before the collapse had led to

trade unions and workers’ councils often being disproportionately highly influential in

changes taking place after the collapse. Another example was found in Hungary, where

the legacy of semi-autonomous contracting units within firms led to the presence of

larger variants of these units operating independently outside of these firms as limited-

liability corporations. While Russia isn’t among those states being discussed, a similar

phenomenon found in Russia’s transition helps strengthen this point. Russia’s end to

central planning didn’t leave a complete structural void in society, as old state-owned

company directors began to engage in barter trade through their old network connections.

These examples provide evidence that organizational forms in place before the collapse,

such as Polish workers’ organizations, shaped society to the extent that these societies

still interact in similar ways even after the collapse, such as using a trade union in Poland

as a channel through which to develop economic activity. Further, it is clear that the

structures in place before the collapse didn’t disappear with the end of the Union, but

instead will persist in these societies and must be considered when further transforming

the regions’ structural forms. Even more, while transformation has come a long way in

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Central-Eastern Europe, this lesson is helpful when considering the restructuring of

societies in other countries in similar situations today.

Following this discussion on many of the more theoretical interactions between

societies and transformations, this essay will be moving towards a more direct description

of the consequences and costs of transition using statistics form the period. To begin, the

transformation process had a severe effect on unemployment in these countries. While

the previous system in these post-communist societies held zero-unemployment as one of

its fundamental requirements, unemployment inevitably rose after the collapse. Further,

job losses were not necessarily always matched with increased opportunities for

employment in other sectors of the economy, as many transition optimists had hoped. A

few of the more extreme examples follow. In Hungary between the years of 1991 and

1996, the level of full-time employment fell from 49 percent to 37.8 percent. During the

same period, levels fell from 55.4 percent to 36.6 percent in Bulgaria, from 60 percent to

48.8 percent in Estonia and from 63.3 percent to 44.2 percent in Romania. Furthermore,

the drop in employment levels has been more sever in some regions within countries than

in others, creating areas where pockets of extreme poverty are found amid relative

prosperity. (Fowkes, 1999)

Second, transition resulted in drops of real income in these countries. The income

of the wage-earning sector of the population, that is real income, fell even faster and

further than GDP during the period of transition. This effect owes to the differential

impact that higher than expected rates of inflation have on wage earners. In

Czechoslovakia and Poland, falls in wages represented the majority of the fall in incomes

between 1989 and 1991, which in turn contributed to an increase in poverty. Third, food

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Parker, Page 10

shortages resulted from large declines in agricultural production during the period of

transformation. Between 1990 and 1994, agricultural production fell 32 percent in

Poland, 30 percent in Bulgaria, 27 percent in Hungary and 13 percent in Czechoslovakia.

(Data provided by UNICEF)

Fourth, rises in mortality and declines in birth rates during transition led to

decreases in the rate of growth of the population in every country in the region. Where

populations had been declining prior to 1989, such as in Hungary, rates of population

decline increased. Where populations were increasing, the rate of increase dropped in the

countries of Poland and Slovakia, and turned into a decline in Bulgaria, Romania, and all

three Baltic states. These tendencies became a cause of concern for leaders of these

countries, where these newly independent states saw increases in population as essential

to national survival. In Latvia, which holds the record for falling birth rates, the

government introduced financial incentives to encourage the population to have more

children. In 1997, the incentive level was at 196 lats per child. In 1999, spending on this

program accounted for 10 percent of the national budget. Population decreases in the

region had been attributed to a variety of factors including economic instability, social

stress, a sense of hopelessness, and a lack of a government intervention in general

population health and welfare. Further, using a poverty line of $120 a month at 1990

price levels, research has shown that in 1994 the number of people living in poverty in

Eastern Europe had grown from 3.6 million to 18.7 million, a move from 4 percent of the

population to 19 percent. (Data provided by UNICEF)

Moving to an even more personal level, the changes in these societies after the

Soviet collapse had direct implications on the average worker himself. In studying the

IR-439: Final Paper

Parker, Page 11

type of worker created by socialist countries, sociologist Victor Zaslavsky describes the

average ‘state-dependent worker’ as one who more closely resembled his predecessors at

the time of the Tsar than his counterpart in Western cultures. Policies of forced

industrialization and collectivization implemented in these socialist countries deprived

peasants of their status as free producers and transformed them into an enormous mass of

unattached and uprooted migrant workers. The urbanization of these masses was not

accompanied by a state-sponsored development of social infrastructure within the cities,

as the state was focusing on investing in more efficient production methods and high

rates of accumulation. As a result of this lack of increased social infrastructure, the

civilizing effect of the urban lifestyle, seen elsewhere in moves towards urbanization,

failed to become a reality for people of these states. What came about in these urban

centers instead was more of a mix of these migrants’ previous community values and the

emerging values of urban civilization. This new urban population wasn’t able to

experience urban market relations either, as both city-dwellers and new urbanized

peasants were subject to the same system or bureaucratic controls, propaganda, and

indoctrination. Furthermore, the state continued to reduce peasants’ freedom with the

systematic action of socializing institutions that reinforced traditional psychological traits

like social passivity and obedience to authority. With the collapse of the Soviet Union

came also the inability of the state to support these systems that had previously supported

the ‘state-dependent worker.’ Zaslavsky has singled out three basic reactions that this

group of people experienced with the transition away from communism. First, some

adapted by more or less participating in illegal market activity. These activities were

seen more in the form of market scamming than entrepreneurial innovativeness. The

IR-439: Final Paper

Parker, Page 12

second reaction was to revert to an older system of survival: a subsistence economy

consisting of trades and barters among groups of kinship or friends. This process created

conditions favorable to the re-traditionalization of society. A third adaptive reaction to

these changing conditions was one more typical of state-dependent workers. This group

of people clang to the gigantic and obsolete factories that continued to provide wages,

social benefits, and some income for the state, although at the price of squandering

human and material resources. Furthermore, one of the many unforeseen consequences

of the state-controlled administrative economy was that it not only destroyed peoples’

will to work productively, but also fostered an alliance between the unskilled workers of

the masses and incompetent managers. Although the socio-economic transformations

that have come from the transition period in these states have alleviated the proliferation

of these alliances, they have not eliminated them altogether.

This analysis continues with a look at some of the innovate entrepreneurs in some

of these states. Sociologist Andrzej Kozminski found that, as a result of the changing

environment around them, these entrepreneurs have become much more ‘alert’ than those

found elsewhere. It seems that the best thing that new entrepreneurs can do in a ‘limbo

economy’ where legislation is irrational and constantly changing is to be alert to

opportunities for profit. Entrepreneurial activity in Central-Eastern Europe can be

separated into two distinct periods, according to a paper by Cristiano Codagnone. The

first stage, from about 1986 to 1991, is that of Soviet perestroika, when the majority of

entrepreneurs were engaged in appropriation and redistribution of state properties in a

grey area between legality and illegality. Many of these agents’ activities were similar to

the speculative activities that were characteristic of the arbitrageurs of the pre-industrial

IR-439: Final Paper

Parker, Page 13

era. The second stage begins with the end of the Soviet Union and the beginning of

privatization programs. From 1992 and on, those from the nomenklatura era no longer

dominated the economic scene of these states insofar as many of the members of the

scientific- technological community became entrepreneurs. Codagnone concluded his

findings by stating that the contribution of this second group of entrepreneurs to society

has been limited, but significant: they have commodified the economy and contributed to

modernization as much as was possible for them to do.

Another study, referenced earlier, conducted by Andrzej Kozminski focuses more

on management strategies to cope with the restructuring requirements of enterprises after

the Soviet collapse. Kozminski stresses the fact that western perception of positive

change is usually based on macro-economic progress, but rather should be focused on the

development of competitive enterprises. Only with successful competitive enterprises

can a state develop and integrate with the market system of economics. He further states

that privatization and business schools may help with this process, but are not sufficient

in developing this necessary condition for positive economic and social change in the

countries. It is necessary instead to draw up a list of the problems faced by the new post-

socialist enterprise and develop responses to these items. Kozminski concentrates his

study on managerial strategies in three types of enterprise: the ‘dinosaurs’ of the military-

industrial complex, the ‘pretenders’ whose enterprises manage to export and whose

technological level of expertise allows them to compete in the international market, and

‘mixed’ enterprises. Three types of managers emerge from the transformation process of

post-Soviet restructuring. The first are the ‘populist politicians,’ who are more numerous

in the ‘dinosaur’ enterprises considering their deep-rooted traditions of productive

IR-439: Final Paper

Parker, Page 14

activism and the various institutions of populist industrial democracy. As their factories

employed many workers, they pressured their employees to put pressure on the

government to speed up the privatization process in order to get their factory sold to the

highest bidder in order to liquidize their debt and restart production in a restructured and

downsized enterprise. The second type of manager described in this study was the ‘new

technocrat’ who based his restructuring strategies on international consulting firms and

resources rather than on the institutions of the populist industrial democracy.

Nonetheless, this case also involved the division and downsizing of enterprises. In this

case, though, this activity was accompanied by financial and productive integration with

Western companies and by the elimination of self-management structures. Two more

types of managers were involved in the restructuring process during transformation in

this region, according to the study. The first was the ‘foreign mercenary’ who was

basically a consultant who sold standardized and simplified versions of Western

management techniques. The second type was unlike the ‘mercenary’ in that he took into

account the local context and cultural differences of running a business in these countries.

He was the ‘foreign crusader,’ with different motivations and sensitivities than the

mercenary. Most of these types were first and second generation emigrants who

produced organizational and cultural change because, apart from making a profit, they

hoped to do something useful for the people of their country of origin.

A widely acknowledged fact seen in the aforementioned study and others similar

to it is that privatization is absolutely necessary to advance the transition process, but not

sufficient for the marketization of post-socialist countries in Central-Eastern Europe.

Another study by Bruno Grancelli proposes further that despite the institutional and

IR-439: Final Paper

Parker, Page 15

organizational changes that had taken place in these states, there was still a significant

semantic incongruency between Eastern and Western definitions of management

principles. Clearly structures of management and types of managers that have emerged

from the post-Soviet enterprising field play an important role in restructuring these

societies, but it is also important to note that the methods implemented by states in the

restructuring process also shape the future managers of that state’s economy and society.

Having found that the occurrence of transition itself in Central-Eastern Europe

was responsible for a significant portion of negative effects on the populations of these

countries, we also have seen that the structures embedded into these societies have

affected directly the successes or failures of independent transformational strategies. It

was often the failure of these strategies, or of their implementations, that led to the social

ills mentioned in this text. This Catch-22 effect, where societal structures lead to the

failure of some transition strategies, and the failure of these strategies leads to social ills,

is precisely the interaction that must closely be studied when today’s political forces are

considering transformational aid in situations similar to those of Central-Eastern

European countries after the Soviet Union collapse.

IR-439: Final PaperKeith Parker, ID#6390.4899.77

Preliminary Bibliography for Final Paper Paper Topic “Western cultural influences in Eastern Europe's transition after the Soviet collapse” Bakacsi, Gyula, Takacs Sandor, Karasconyi Andras, and Imrek Viktor. “Eastern European Cluster: Tradition and Transition.” Journal of World Business 37 (2002): 69-80. Bernhard, Michael. “Civil Society and Democratic Transition in East Central Europe.” Political Science Quarterly 108 (1993): 307-326. Eronen, Jarmo. “Cultural Regions and Integration in Europe.” Helsinki School of Economics, ‘New Europe 2020’ conference August 2004. 10 February 2006. Fowkes, Ben. The Post-Communist Era : Change and Continuity in Eastern Europe. New York: St. Martin's P, 1999. Goldnman, Minton F. Revolution and Change in Central and Eastern Europe: Political, Economic, and Social Changes. New York: Armonk, 1997. Grancelli, Bruno. Social Change and Modernization: Lessons From Eastern Europe. Berlin: Walter De Gruyter, 1995. Inglehart, Ronald, and W. E. Baker. “Modernization, Cultural Change, and the Persistence of Traditional Values.” American Sociological Review 65 (2000): 19-51. Inglehart, Ronald. Modernization and Postmodernization : Cultural, Economic, and Political Change in 43 Societies. Princeton: Princeton UP, 1997. Ramet, Sabrina P. Social Currents in Eastern Europe : the Sources and Consequences of the Great Transformation. 2nd ed. Durham: Duke UP, 1995. Rupnik, Jacques. “Eastern Europe.” Journal of Democracy 11 (2000): 115-129. Stark, David. "The Great Transformation? Social Change in Eastern Europe." Contemporary Sociology 21 (1992): 299-304. Slowinski, Joseph. “SOCRATES Invades Central Europe.” Education Policy Analysis Archives 6 (1998). Tsepkalo, Valery V. “The Remaking of Eurasia.” Foreign Affairs 77 (1998): 107-127. Weiner, Robert. Change in Eastern Europe. Westport: Praeger, 1994.

Marshall School of Business

USC

MARKETING 465 GLOBAL MARKETING MANAGEMENT

Fall, 2006

Faculty: Dennis A. Schorr, Ph.D. Office: ACC 301J Phone: 740-5041 e-mail: [email protected]

Office Hours: Thurs. 4:00-6:00 P.M. or by appointment

Course Objectives: The major objectives of this course are to:

a) Understand the key characteristics of various country markets and how to develop marketing plans in diverse environments

b) Appreciate the limitations of an ethnocentric approach to international

marketing and develop a complex, global perspective on marketing

c) Understand the role of marketing in a company’s global strategy and learn how to develop global marketing strategies

d) Develop a multidimensional, nuanced perspective on marketing

standardization vs. adaptation and learn how to balance the pressures for globalization vs. localization of the various elements of the marketing mix

e) Appreciate the roles of global, regional, and local brands in a

company’s portfolio and learn how to manage effectively each type of product or service

In support of these goals, the course is divided into five major topic areas. The first topic area focuses on the opportunities and challenges of international marketing and how to assess country environmental factors that are most relevant to the management of international marketing. The second topic area concentrates on how to select markets to enter and how to

MRKT-465: Syllabus

Marketing 465 Global Marketing Management Professor Schorr

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develop international and global marketing strategies. The third topic area examines the similarities and differences in product markets across countries and how to develop marketing strategies for various types of products and services. The fourth topic area deals with how to develop product policy in the international context including the management of branding, positioning, product attributes, and packaging. The fifth topic area is concerned with how to develop distribution/retailing, advertising/promotional, and pricing policies in the international context including how to manage the tradeoffs of standardization vs. adaptation associated with each element of the marketing mix. Throughout the course, a variety of country markets in various regions of the world will be discussed and a variety of different types of products and services will be addressed.

Class Sessions: The class sessions will focus on the understanding of major concepts, frameworks, and analytical tools used in global marketing and the application of these concepts, frameworks, and tools to the understanding of real-world situations. The textbook chapters are designed to introduce the major concepts in the field. Readings are chosen to expose you to recent trends in global marketing. Case discussions will develop your skills in applying the concepts to actual managerial situations. Assignments and exercises will also assist in developing your knowledge and competencies in the area. Class sessions will consist of lectures in which conceptual material will be clarified and of discussions of cases, readings, exercises, and concepts to allow you to practice applying the material. Before each class session, you should read the assigned textbook chapters, readings, and cases and be prepared to discuss them in class. Course Evaluation: 25% Midterm Exam 25% Final Exam 10% Class Participation 10% Group Assignment # 1 10% Group Assignment # 2 10% Group Assignment # 3 10% Group Assignment # 4 As an important part of the learning in this course comes from class, you are expected to participate actively in class sessions. The level of class discussions and how much you gain from them depend in large part on how well prepared you are for each class and how actively you take part in the discussions. Thus, your level of preparation for class sessions and participation in discussions will be factored into the final evaluation. I realize that occasionally it is not possible to attend class. You can miss up to three class sessions without it affecting your grade; however, if you miss more than three sessions, it could have an impact on your participation grade.

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Occasionally, I will ask groups to make informal presentations in class; these informal presentations will be factored into the participation grade. Your individual mastery of the course material will be tested in a midterm and a final examination. The exams are designed to assess your knowledge of the material covered up to that point in the course. The four group assignments should be completed in groups of 4-5 people. They are designed to give you hands-on experience developing skills relevant to global marketing. Learning in these assignments should be enhanced by interacting and discussing the material with other members of your group. Peer evaluations of each member of your group will be conducted to ensure that all members contribute equitably to the assignments. All assignments are due at the beginning of class on the due date. Assignments that are handed in late will have their grades marked down. Texts:

KG: Keegan, Warren J., & Green, Mark C. 2005. Global Marketing (4th Ed.). Upper Saddle River, NJ: Prentice Hall.

PCR: Packet of Cases and Readings.

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Course Outline: Week 1 Introduction and Overview: International Marketing Opportunities and Challenges

8/21 No Preparation for Today 8/23 Textbook: Chapter 1 (KG) Week 2 International Marketing Opportunities and Challenges:

Assessing the Cultural and Social Environment

8/28 Textbook: Chapter 4 (KG) 8/30 Case: Barbie: The American Girl Goes Global (Case 4-2 KG) Marketing an Industrial Product in Latin America (Case 14-1 KG) Week 3 International Marketing Opportunities and Challenges:

Assessing the Economic, Financial, and Technological Environment

9/4 University Holiday – No Class Today 9/6 Textbook: Chapter 2 (KG) Case: Vietnam’s Market Potential (Case 2-1 KG) Week 4 International Marketing Opportunities and Challenges: Assessing the Political and Regulatory Environment

9/11 Textbook: Chapters 3 & 5 (KG) Case: Acer, Inc. (A) (Case 1-2 KG) Acer, Inc. (B) (Case 2-2 KG)

9/13 Reading: Articles on European Integration (PCR) Case: The Euro Yo-yo (Case 3-2 KG) Due: Group Assignment # 1

Week 5 Global Marketing Strategy: Entering New Markets and Allocating Resources Across

Countries 9/18 Textbook: Chapter 6 (KG)

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9/20 Case: Citibank: Launching the Credit Card in Asia Pacific (PCR)

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Week 6 Global Marketing Strategy: Understanding the Relationships Between Business Strategy and

Marketing 9/25 Textbook: Chapter 15 (KG) Case: Proctor & Gamble Europe: Vizir Launch (PCR) 9/27 Reading: Articles on International Fast Food (PCR) Case: McDonald’s Expands Globally While Adjusting Its Local Recipe (Case 1-1 KG) Week 7 Global Marketing Strategy: Balancing the Pressures for Standardization vs. Adaptation

10/2 Textbook: Chapters 9 & 16 (KG) 10/4 Case: Kao Corporation (PCR) Due: Group Assignment # 2

Week 8 International Product and Service Markets: Analyzing Customers, Competitors, Company Resources, and

Level of Market Development 10/9 Case: Emdico (A) (PCR) Kodak in the Twenty-First Century (Case 15-1 KG) 10/11 Textbook: Chapter 7 (KG) Week 9 Global Product Policy:

New Product Development 10/16 Exam: Midterm Exam 10/18 Case: International and Global Greeting Cards

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Week 10 Global Product Policy: Managing Branding and Positioning 10/23 Reading: How Global Brands Compete (PCR) Articles on Global Branding (PCR) Case: Bud versus Bud (Case 5-1 KG) 10/25 Textbook: Chapter 10 (KG) Case: Procter & Gamble: Balancing Global vs. Local Concerns in the

Worldwide Feminine Care Business (PCR) Week 11 Global Product Policy: Designing Product Attributes and Packaging 10/30 Reading: The Lure of Global Branding (PCR) Case: Research Helps Whirlpool Act Local in the Global Market (Case 6-1

KG) The Smart Car (Case 10-2 KG) 11/1 Case: Cola Wars in China: The Future is Here (PCR)

Due: Group Assignment # 3 Week 12 The Global Marketing Mix: Analyzing the Advertising and Promotional Environment The Internet and Global Marketing 11/6 Textbook: Chapter 13 (KG) Reading: Articles on International Advertising (PCR) Case: Benetton Group SpA (Case 13-1 KG) 11/8 Textbook: Chapter 17 (KG) Reading: Articles on the Internet and International Marketing (PCR) Case: DeRemate.com: Building a Latin American Internet Auction Site (PCR) Week 13 The Global Marketing Mix: Developing Advertising and Promotional Campaigns 11/13 Textbook: Chapter 14 (KG) Case: The Global Brand Face-Off (PCR) 11/15 Case: Unilever in India: Hindustan Lever’s Project Shakti (PCR)

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Due: Group Assignment # 4

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Week 14 The Global Marketing Mix: Managing Distribution Channels and Retailing 11/20 Textbook: Chapter 12 (KG) Case: Fair Trade Coffee: Ethics, Religion, and Sustainable Production (Case

4-1 KG) Concerns About Factory Safety and Worker Exploitation (Case 8-1

KG) 11/22 Reading: Articles on International Retailing (PCR) Case: Wal-Mart’s Global Expansion (Case 12-1 KG) Week 15 The Global Marketing Mix: Managing Pricing Policies 11/27 Textbook: Chapters 8 & 11 (KG) Case: Pricing AIDS Drugs in Emerging Markets (Case 11-1 KG) 11/29 Case: LVMH and Luxury Goods Marketing (Case 11-2 KG) Week 16 Final Examination 12:00-1:50PM Section 12/8 Exam: Final Examination – Friday, 11:00AM – 1:00PM 4:00-5:50PM Section 12/6 Exam: Final Examination – Wednesday, 4:30PM – 6:30PM

MRKT-465: Syllabus

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MRKT-465: Course Documents

1Prof. Schorr

Motivations to Internationalize

• Traditional Motivations– Resource Seeking Motives– Market Seeking Motives

• Emerging Motivations– Changing Industry Economics– Scanning and Learning Capabilities– Competitive Positioning

Resource Seeking Motives

• Secure Key Supplies• Access Low Cost Factors of Production

– Source components or complete products

Market Seeking Motive

• Companies with competitive advantagesover local players

• Small domestic markets• Saturated domestic markets

Changing Industry Economics

• Increasing Scale Economies• Ballooning R&D Investments• Shortening Product Life Cycles

Scanning and LearningCapability

• Exposure to alternative sources of supplyor alternative low-cost production sources

• Exposure to new technologies or marketneeds

Competitive Positioning

• Cross-Subsidization of Markets• Attack Competitors in Home Markets or

Major Markets


Occupants % Headed Average Age % Pop % Pop % HHsPer HH by Women Women 1st 0-14 65+ Owning

Marriange HomeFrance 1 1 2.41 25.8 29.6 18.7 16.1 54.6Germany 2 2 2.11 32.0 28.4 14.8 17.7 48.6Italy 3 3 2.53 28.7 28.9 14.3 18.6 73.1UK 4 4 2.36 34.8 28.7 18.1 16.1 74.0Russia 5 6 2.69 30.5 24.2 15.6 13.6 50.8US 6 17 2.58 60.1 29.2 20.9 12.3 69.0Argentina 7 14 3.61 26.9 24.9 27.6 10.0 79.7Brazil 8 15 3.47 27.4 27.0 27.3 5.5 77.1Mexico 9 16 4.31 21.1 28.6 32.0 5.1 72.8China 10 7 3.45 48.6 26.1 19.5 8.0 88.5India 11 8 5.29 12.2 27.5 32.6 5.2 71.7Japan 12 9 2.63 NA 32.0 14.0 19.0 63.5Egypt 13 10 4.36 18.3 23.4 33.2 4.1 72.2Nigeria 14 12 4.81 18.3 22.4 44.3 3.1 NASaudi Arabia 15 11 5.91 NA 22.3 39.8 3.1 48.1South Africa 16 13 3.89 NA 30.0 30.8 5.1 62.7EU 17 5 2.43 NA NA 16.4 16.3 62.2

Note: 2004 DataSource: Euromonitor International, Global Market Information Database


1

Global Marketing

Role of Culture and Social Factors inInternational Marketing

Prof. Schorr Conducting a CountryEnvironmental Analysis

Political and Regulatory Economic and Financial Social and Cultural Technological and Infrastructure

Implications for Marketing

Product and Service Opportunities Customer Attitudes, Needs, and Preferences Segmentation, Targeting, and Positioning Product and Branding Promotion, Advertising, and Communications Place/Distribution Pricing

What is Culture?

A Shared System of Values and Meanings– guides how world is perceived and interpreted

Learned– derived from social environment, not biology

About Groups– a collective phenomenon that is passed down

to new generations

The Iceberg Model of Culture

The Tip of the Iceberg– Music, Art, Food and Drink, Greetings, Dress,

Manners, Rituals, Outward Behaviors Most of the Iceberg is Below the Surface

– Consists of Orientations to: Environment, Time, Action, Communication,

Space, Power, Individualism, Competitiveness,Structure, Thinking

Aspects of Culture – OutwardBehaviors, Events, Symbols

Languages -- spoken and written Religious and Ethnic Groups Holidays Aesthetics, Art, and Music Colors, Numbers, and Symbols Tastes, Food, and Drink Dress Material Culture History Customs and Traditions


2

Aspects of Culture - SocialOrganization

Greetings and Social Interactions Roles of Men and Women in Society Household Sizes and Organization Age Distribution Age at Marriage Work Hours Educational Levels

Social Roles - Role of Father inDifferent Cultures

% of Kids Rating Dads as Somewhat or VeryActively Involved in Their Lives– U.S. 89%– Germany 63%– Japan 47%

% of Kids Who Say They Talk with Their DadsEvery Day– U.S. 87%– Germany 63%– Japan 54%

Aspects of Culture - Values andOrientations

Norms and Values Group vs. Individual High vs. Low Context Monochronic vs. Polychronic Hofstede’s Five Dimensions of Culture

Group vs. Individual OrientedCulture

Group Oriented Culture– people tend to identify themselves by the group to

which they belong harmony is highly valued

– e.g., Japan

Individual Oriented Culture– people tend to identify themselves as individuals

competition is rewarded e.g., most Western societies

High to Low Context Cultures

Implicit vs. Explicit Styles of Communication– Japan– Arab– Greek– Spanish– Italian– English– French– American– Scandinavian– German

Monochronic vs. PolychronicCulture

Monochronic– a linear, more rigid attitude towards time

e.g., U.S. and Northern Europe

Polychronic– a more fluid attitude towards time, activities

not regimented by the clock e.g., Latin America and Middle East


3

Hofstede’s Basic Dimensions ofCulture

Individualism vs. Collectivism– personal freedom vs. responsibility to the group

Power Distance– degree of acceptance of social hierarchy and respect for authority

Uncertainty Avoidance– degree to which risk is avoided and security is valued

Masculinity vs. Femininity– degree of emphasis placed on so-called masculine values of

performance and visible achievement Long Term Orientation vs. Short Term Orientation

– degree of emphasis on the future, delay in gratification of needs,and persistence


A CULTURAL PROFILE Observable Manifestations of Culture

• Languages -- spoken and written • Religious and Ethnic Groups • Holidays • Aesthetics, Art, and Music • Colors, Numbers, and Symbols • Tastes, Food, and Drink • Dress • Material Culture • History • Customs and Traditions

Social Organization

• Greetings and Social Interactions • Roles of Men and Women in Society • Household Sizes and Organization • Age Distribution • Age at Marriage • Work Hours • Educational Levels

Underlying Values and Orientations

• Norms and Values • Group vs. Individual • High vs. Low Context • Monochronic vs. Polychronic • Hofstede’s Five Dimensions of Culture

Individualism vs. Collectivism Power Distance Uncertainty Avoidance Masculinity vs. Femininity Long Term Orientation vs. Short Term Orientation


Sheet1

2004Countries with Largest Population Countries with LargestSorted by Level of Economic Development Land Areas (sq. miles)(World Bank Publications) Russia 6,592,800

GNI/cap GNI/cap at PPP Canada 3,851,809LOW INCOME ($825 or less) China 3,691,521India 620 3,100 U.S. 3,536,341Pakistan 600 2,160 Brazil 3,286,470Vietnam 550 2,700 Australia 2,966,150Sudan 530 1,870 India 1,229,737Kenya 460 1,050 Argentina 1,072,067Bangladesh 440 1,980 Kazakstan 1,049,000Nigeria 390 930 Sudan 967,491Tanzania 330 660Congo, Dem Rep 120 680Ethiopia 110 810 Countries with Highest Average AnnualMyanmar GDP Growth Rates 1990-2003LOWER MIDDLE INCOME ($826-$3,255) (greater than 5.5%)Brazil 3,090 8,020 China 9.6%Thailand 2,540 8,020 Ireland 7.7%Iran 2,300 7,550 Vietnam 7.5%Algeria 2,280 6,260 Myanmar 7.4%Colombia 2,000 6,820 Mozambique 7.0%Morocco 1,520 4,100 Liberia 7.0%Egypt 1,310 4,120 Uganda 6.8%China 1,290 5,530 Cambodia 6.5%Ukraine 1,260 6,250 Singapore 6.3%Phillipines 1,170 4,890 Lao PDR 6.3%Indonesia 1,140 3,460 Malaysia 5.9%UPPER MIDDLE INCOME ($3,256-$10,065) India 5.9%Mexico 6,770 9,590 Dominican Rep. 5.8%Poland 6,090 12,640 Yemen 5.8%Turkey 3,750 7,680 Sudan 5.7%Argentina 3,720 12,460 Chile 5.6%South Africa 3,630 10,960 South Korea 5.5%Russia 3,410 9,620HIGH INCOME ($10,066 or more)US 41,400 39,710Japan 37,180 30,040UK 33,940 31,460Germany 30,120 27,950France 30,090 29,320Canada 28,390 30,660Italy 26,120 27,860Spain 21,210 25,070South Korea 13,980 20,400

Page 1


1

Global Marketing

The Economic and FinancialEnvironments

Prof. Schorr General Environmental FactorsAffect International Marketing

Economic and Financial Factors Cultural and Social Factors Technological and Infrastructure Factors Political and Regulatory Factors

Wealth

GDP per capita or GNP per capita– at exchange rates– at PPP

Stages of Market Development Private Consumption per capita Growth Rates

Stages of Market Development

High Income CountriesUpper Middle Income CountriesLower Middle Income CountriesLow Income Countries

Size of Economy

Population GDP or GNP

– at exchange rates– at PPP

Growth Rates

Economic Distribution

By Income Level By Region Urban vs. Rural


2

Financial Situation

Inflation Exchange Rates Interest Rates

Structure of Economic Activity

Trade– Size of Imports and Exports– Imports and Exports by Product Category– Major Trading Partners

Foreign Investment– amount– by sector– by country

Economic Statistics by Sector– production, services, agriculture

Structure of Consumption

Private Consumption By Category– Food Expenditures– Clothing Expenditures– Transportation Expenditures– Housing Expenditures– Health Care Expenditures– Education Expenditures– Leisure Expenditures– Etc.


AN ECONOMIC/FINANCIAL PROFILE Wealth

• GDP per capita or GNI per capital o At exchange rates o At PPP

• Stages of Market Development High Income Countries Upper Middle Income Countries Lower Middle Income Countries Low Income Countries

• Private Consumption per capita • Growth Rates

Size of Economy

• Population • GDP or GNI

o At exchange rates o At PPP

• Growth Rates

Economic Distribution

• By Income Level • By Region • Urban vs. Rural

Financial Situation

• Inflation • Exchange Rates • Interest Rates

Structure of Economic Activity

• Trade • Foreign Investment • Economic Statistics by Sector

Structure of Consumption

• Private Consumption by Category


1

Global Marketing

The Technological Environment

Prof. Schorr Geography and Climate

Size of Country Population Density Major Geographical Features Climate

Basic Infrastructure

Water Sanitation Electricity

Transportation Infrastructure Transportation Networks

– Road– Rail– Water– Air

Vehicles– Bicycles– Motorcycles– Automobiles– Commercial Vehicles

Communications and InformationTechnology

Media– Newspapers and Magazines– Radios– Televisions– Cable and Satellite TV Connections

Communications– Landline Telephones– Cellular Phones– Internet Connections

Information Technology– Computers

Household Technology Kitchen Technology

– Microwave Ovens– Refrigerators and Freezers

Cleaning Technology– Vacuum Cleaners– Washing Machines

Entertainment Technology– Music Systems

Stereo Systems, CD Players– Video Systems

Televisions, DVD Players, Videotape Recorders, Videogame Consoles

Climate Control– Electric fans and Air conditioners


A TECHNOLOGICAL PROFILE Geography and Climate

• Size of Country • Population Density • Major Geographical Features • Climate

Basic Infrastructure

• Water • Sanitation • Electricity

Transportation Infrastructure

• Transportation Networks • Vehicles

Communications and Information Technology

• Media • Communications • Information Technology

Household Technology

• Kitchen Technology • Cleaning Technology • Entertainment Technology • Climate Control


1

Global Marketing

Political and Regulatory Environment

Prof. Schorr Home vs. Host CountryConsiderations

Home Country Considerations– promotion of exports– restrictions on exports

Host Country Considerations

Type of Government

Political System– Democratic vs. Authoritarian– Structure of Government

Political Parties– Single-party dominant– Dual-party– Multiple-party

Government Centralization vs.Decentralization

Role of Government in theEconomy

Control vs. Ownership– Market– Mixed/Market– Mixed/Command– Command

Index of Economic Freedom Protection and Support of Industries Government Procurement Taxes Corruption

Tariff and Nontariff Barriers

Tariffs Nontariff Barriers

– government participation in trade procurement and subsidies

– customs and entry requirements– product requirements– quotas– financial controls– structural impediments

Investment Policies

Ownership Limitations Financial Controls


2

Types of Legal Systems

Common Law vs. Code Law Reliance on Legal System to Settle Disputes Methods of Enforcement

Major Legal Issues

Intellectual Property Protection– patents– copyrights– trademarks– trade secrets

Antidumping Laws Antitrust Laws U.S. Foreign Corrupt Practices Act

Risks of Conducting BusinessOverseas

Country Risk Ratings– political risk– financial risk– economic risk– composite risk

Reductions of Worldwide Tradeand Investment Barriers

GATT and WTO Regional Trading Groups

– free trade area– customs union– common market– economic union– political union

EC 92 Market IntegrationProgram

Eliminating Border Control Regulations and Principle of Mutual

Recognition– minimum standards set, e.g. food and toy safety

Opening Up of National Procurement VAT Harmonization Liberalization of Services -- e.g., Financial

Services

Issues Facing EU

Maastricht Treaty and European MonetaryUnion

Expansion into Eastern Europe Decision and Budget Problems Concerns About Sovereignty A Two Track Europe


A POLITICAL/REGULATORY PROFILE Type of Government

• Political System • Political Parties • Government Centralization vs. Decentralization

Role of Government in the Economy

• Market vs. Command Economy o Market o Mixed Market o Mixed Command o Command

• Index of Economic Freedom • Protection and Support of Industries • Government Procurement • Taxes • Corruption

Tariff and Nontariff Barriers • Tariff Levels • Nontariff Barriers

Investment Policies • Ownership Limitations • Financial Controls

Type of Legal System • Common Law vs. Code Law • Reliance on Legal System to Settle Disputes • Methods of Enforcement • Major Legal Issues, such as Intellectual Property Protection

Risk • Political, Financial, Economic, and Composite Risk

Trade Group Memberships

• WTO • Regional Trading Groups


1

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Evaluating Country Markets

Selecting Countries to Enter andAllocating Resources Across

Countries

Global Marketing

Prof. Dennis Schorr International Presence of YourCompany

Countries Where You Make Sales– for target product– for other products

Breakdown of Sales by– region of world– country

Market Share– global– in major markets

Factors Affecting Country Selectionfor a Worldwide Business

CountrySelection

StandaloneAttractiveness

Relative Competitive

Strength

Global Strategic

Importance

Narrow Market Choices

Evaluate All Potential Countries in World usingRough Indicators of Attractiveness– General Economic Indicators– Widely Available Industry Information

Evaluate A Short List of Countries using MoreSpecific Indicators of Attractiveness– General Economic Indicators– Additional Industry Specific Criteria

Rough Indicators ofAttractiveness

Economic Statistics Social and Cultural Statistics Technological and Geographical Features Political and Regulatory Environment Widely Available Industry Specific

Statistics– widely available proxies

Industry Specific Indicators ofAttractiveness

Market Characteristics– size and growth of market– distribution channels

Customer Characteristics– attitudes towards product– use of product and similar products

Competitive Characteristics– intensity of competition– characteristics of competitors

Regulations Affecting Your Product


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Examples of Industry SpecificIndicators of Attractiveness

Size of Market Growth Rate of Market and Market Potential Competitive Situation Similar Product Performance Cultural Acceptance Barriers to Entry Political and Regulatory Conditions Taxes and Duties Marketing Infrastructure

– Distribution Channels and Communication Media

Production Levels Imports and Exports Price Levels Level of Risk Profit and ROI Potential etc.

Specify Criteria to AssessAttractiveness

Fit with Company Strategy and Goals

Selection Models

Filters Qualitative and Quantitative Multivariate

Comparisons

Steps in Conducting QuantitativeMultivariate Comparisons

Develop a Set of Criteria for Evaluating Countries Break Each Category of Criteria into Subcriteria that

Provide Measures of the Category Assign Weights to Each Category of Criteria and Each

Subcriterion Collect Data for Each Country on the Subcriteria Translate the Data for Each Country into a Rating for

Each Subcriteria Multiple Weights by Ratings and Sum for Each Country

to Get a Weighted Average Index for Each Country

Techniques for EstimatingCountry Market Size

Estimation by ProxyEstimation by Analogy

– Cross-sectional– Time lagged

Estimation Using Income Elasticity ofDemand

Estimation Using Regression Analysis

Issues in Analyzing Data

Per Capita Data vs. Overall Market Size Percentage Data vs. Overall Size Dealing with Missing Data


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Evaluating Country Markets

Selecting Countries to Enter andAllocating Resources Across

Countries

Global Marketing

Prof. Dennis SchorrFactors Affecting Country Selection

for a Worldwide Business

CountrySelection

StandaloneAttractiveness

Relative Competitive

Strength

Global Strategic

Importance

Relative Competitive Strength

Ability to enter and establish competitiveadvantage

Fit with current resources and strengths incountry– in target business– in other businesses

Fit with current resources and strengths inneighboring countries

Indicators of RelativeCompetitive Strength

Potential competitive strengths in market– product fit– resources, capabilities, and core competencies fit– strengths relative to competition– similarity to existing markets– etc.

Current competitive strengths in market– market share– access to distribution channels– brand reputation– etc.

Similarity to Home Country andCompetitive Strength

Competitive strength and similarity to the home country Companies often enter countries in order of similarity to

home country Countries most similar to U.S. (in rank order)

– Canada, Australia, U.K., Germany, France, Belgium, Italy, Japan,Netherlands, Argentina, Mexico, Spain, India, Brazil

Position in Investment Sequence for U.S. Companies (inrank order)– U.K., Canada, Australia, France, Japan, Germany, Brazil, Mexico,

Italy, Belgium

Developing a Model forAssessing Markets

Portfolio Models (GE-McKinsey)– Attractiveness of Market– Relative Competitive Strength in Market


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Ford Tractor Business CountryAttractiveness Factors

Market size Market growth rate Government regulations

– Price controls– Nontariff barrier– Local content

Economic and political stability– Inflation– Trade balance– Political stability

Ford Tractor BusinessCompetitive Strength Factors

Market share Product fit Contribution margin

– Profit per unit– Profit percentage, net of dealer cost

Market support– Quality of distribution system– Advertising vs. competition

Global Strategic Importance

* Home market of global customers

* Home market of global competitors

* Significant market of global competitors

* Major source of industry innovation

* Home of most demanding customers

Source: Yip, Total Global Strategy

Scheduling of Global Expansion

Concentric Expansion Platform Expansion Focused Expansion

Market Participation

FULLYMULTILOCAL

FULLY GLOBAL

No ParticularPattern

Significant Share In Strategic Markets

Choice of country-markets in which to conduct business, and the level of activity, particularly in terms of market share.

Source: Yip, Total Global Strategy


1

Global Marketing Strategy

Global Marketing Strategy

• Types of Global Marketing Strategies• Coordinating Mechanisms and the Complex

Global Strategy

Types of Global MarketingStrategies

Types of Global MarketingStrategies

• Market Extension or Ethnocentric• Multidomestic or Polycentric• Simple Global or Geocentric• Complex Global, Transnational, or

Complex Geocentric

Advantages of theMultidomestic Strategy

• Fit to Customer Preferences• Fit to Competitive Conditions• Responsive to Political/Regulatory

Environment• Strong, Entrepreneurial Country Managers

Advantages of the SimpleGlobal Strategy

• Efficiencies and Cost Reductions• Transfer of Learning• Consistency of Image• Coordinated Global Competitive Approach


2

Advantages of the ComplexGlobal Strategy

• Combines the Advantages of the– Multidomestic, and the– Simple, Global

• But, Very Difficult to Implement!

Coordinating Mechanisms andthe Complex Global Strategy

Coordinating, Not Dictating

• Keep Marketing and Managerial ResourcesDispersed and Decentralized

• Build In Mechanisms to Achieve GreaterCoordination of Marketing Activities

Create a Matrix in EachManger’s Mind

• Change the Organizational Culture andMindset

• Balance Global versus Local Concerns inEach Manager’s Mind

Mechanisms for Coordinationwith Dispersed Resources

• Cross-country Managerial Teams• Forums to Come Together, Share Ideas, and Develop

Informal Relationships• Foster Intensive Communications Through Technology• Rotate Managers Across Countries and Between

Headquarters and Countries• Reward Systems Based on Local and Global Performance• Build in Managerial Interdependencies Across Countries –

Each Country Leads Different Cross-country Teams• Developing Guidelines for Managing Brands Across

Countries


Lecture

Analyzing theProduct Market

Situation

Situation Analysis forInternational Product Markets

• Competitive• Customer• Company• Market

– Marketing Infrastructure

For Each Category Need to Ask

• How Similar vs. Different are variouscountries on each factor?

• What Impact will each factor have on themarketing of this product?

• Are there ways of Changing orOvercoming the pressures for adaptationamong countries?

Competitive Factors

• Competitors and Competitive Positions• Competitive Environment

– Products, Pricing, Distribution, Advertising• Your Company’s Competitive Position

– Market Share, etc.

Customer Factors

• Segmentation• Conditions of Product Use• Needs Satisfied• Preferences• Perceptions of Category Offerings• Amount of Cross-Border Communication

– Amount of International Travel– Amount of Media Spillover

Company Factors

• Core Competencies• Stage of Development of Presence in

Country• Resources Available in Country• History of Past Performance in Country• History of Products and Brands in Country• Route to Entry into Country


Market Factors

• Stage of Market Development– Product Life Cycle Stage

• Strategic Importance of Market– Lead Markets

• Size• Growth

Marketing Infrastructure Factors

• Distribution Channels• Advertising Vehicles• Promotional Vehicles• Market/Customer Information• Marketing Support Firms

For Each Category Need to Ask

• How Similar vs. Different are variouscountries on each factor?

• What Impact will each factor have on themarketing of this product?

• Are there ways of Changing orOvercoming the pressures for adaptationamong countries?


1

Perspectives on GlobalMarketing Strategy

Levitt’s Perspecitve on Global MarketingOhmae’s Perspective on Global MarketingQuelch and Hoff’s Perspective on Global

Marketing

Levitt’s Perspective on GlobalMarketing

Theodore LevittThe Globalization of Markets

1983 Harvard Business Review

Consumer Tastes Around Worldare Converging

• Communication and transportation technologiesexpose people around world to similar information

– television and radio– movies– telecommunications

• phone• fax• internet

– satellites– jet travel

High Quality and Low Cost GlobalProducts will Beat out Adapted Products• Global scale permits

– Low cost and low price– High quality

• Consumers will choose lower priced, high quality productseven if they are not exactly tailored to part habits and localmarket needs

– consumers around world desire same things• value -- stretching their income as far as possible• alleviation of life’s burdens and expansion of discretionary time

– so lower priced goods of high quality will beat out locally tailoredproducts that are higher priced

• Strategy can expand markets with aggressive low pricing

Quote from Theodore LevittArticle

• “If the price is low enough, theywill take highly standardizedworld products, even if thesearen’t exactly what mother saidwas suitable, what immemorialcustom decreed was right, or whatmarket-research fabulists assertedwas preferred.”

The Japanese Approach

• Japanese companies have becomepowerful players in certainindustries–consumer electronics–automobiles

• Used this strategy of low cost andhigh quality global products


2

The Multinational (orMultidomestic) Corporation

• Tailors products to each country• Slavishly responds to what it perceives as

different product needs in different countries• Many are thoughtlessly accommodating

– believe preferences are fixed not because they are but because of rigidhabits of thinking

– respond to way things have been done in past, habit, without questioningwhether it is necessary

• Costs and prices are higher because of lowereconomies of scale and development economies

The Global Corporation

• Offers standardized global products aroundthe world– offers combination of low price and high

quality• Does not refrain from customization when

required– “But the global corporation accepts and adjusts

to these differences only reluctantly, only afterrelentlessly testing their immutability, aftertrying in various ways to circumvent andreshape them…”

Ohmae’s Perspective on GlobalMarketing

Kenichi OhmaeManaging in a Borderless World

1989 Harvard Business Review

Global Strategy and anEquidistant Mindset

• Companies tend to focus primarily on thedomestic market

– everything else is the “rest of the world”

• Global Strategy requires a global perspective– take an equidistant perspective on markets around world– “overseas” should not be part of corporate vocabulary

The New Borderless World

• Free Flow of Information Around World– communication technology has advanced tremendously– foreign travel is becoming common in many countries– ability of governments to restrict information is limited

• Therefore, people look for best, least expensiveproducts from around world

• Operating Procedures in Many Industries haveWorldwide Standards

– needs for industrial equipment are becomingstandardized in these industries

How to Develop a GlobalProduct

• Designing by averages can lead to lacklusterappeal

• So Design products for lead markets– design different cars for different lead markets– then sell to worldwide segments that desire each car

• Nissan example– Sporty Z model and four wheel drive family vehicle for

U.S.– Car suitable for fleet sales in U.K.– Small, high quality economy car for Japan


3

Different Types of GlobalProducts

• Ted Levitt’s Globalization– products lend themselves to aggressive cost reductions

through economies of scale• The “Japan game” like battery powered electonic products

– cameras, watches, pocket calculators

• Premium-Priced Fashion-Oriented Items– Gucci bags, Mercedes-Benz, Rolex watches– wealthy consumers will search for these goods– operate through a pull strategy

Different Types of GlobalProducts

• Products requiring insiderization like Coca-Cola– need to replicate complete business system in each

country– need to establish infrastructure in each country to push

product and establish local demand

• Industrial products– largely chosen on performance characteristics– still need to have insider functions

• engineering, sales, installation, finance, service

Headquarters Mentality can Getin Way of Globalization

• If Foreign Operation becomes successful– headquarters might get more involved in decisions

• If Problems Develop Overseas– headquarters wants to get more involved

• Local Autonomy is Restricted and Decisions Made withHeadquarters/Home Country Perspective

– can’t respond adeptly to needs of local market• Corporate Systems and Structures can Restrict

Globalization– financial statements don’t accurately reflect foreign operations– reward systems may interfere with globalization

Customers are Becoming MoreAlike

• Needs and preferences are globalizing andfixed costs of meeting them have risen

• Need to see customers around world fromequidistant mindset

• This way can see customers around worldclearly and try to meet needs with a globalstrategy

Quelch and Hoff’s Perspectiveon Global Marketing

John A. Quelch andEdward J. Hoff

Customizing Global Marketing1986 Harvard Business Review

Globalization Is Not an Either -Or Proposition

• Standardization vs. Adaptation Along aContinuum

• Different Elements of the Marketing MixAnd Different Levels of Standardization

• Potential for Standardization Depends onthe Situation– Type of Product– Type of Country


4

Problems Created by Lack ofGlobalization

• Inconsistent Brand Identities• Limited Product Focus and Expertise

Among Managers• Slow New Product Launches

Standardization and ProductType - Economies and

Efficiencies• Standardized Products can Lead to

Economies of Scale in Manufacturing andR&D

• Marketing can potentially Contribute toScale Economies– by Offering Standardized Products– by Offering Standardized Advertising

Executions

Standardization and ProductType - Economies and

Efficiencies• Standardized Products and Marketing

Programs Conserve Managerial and OtherResources

• Standardized Products and MarketingPrograms can Leverage Scarce InnovativeMarketing Ideas

Standardization and ProductType - Amount of Cultural

Grounding• Products Used in Homes More Subject to Cultural

Influence than Those Used Outside of Home• Industrial Products Less Subject to Cultural

Influence– Tend to buy on performance and value characteristics

• Young People Tend to Be Less Influenced byCultural Variables in their Purchases

• People who Travel a Lot or are Exposed toInformation from Other countries tend to be lessCulture Bound in their Purchases

Standardization and Type ofCountry

• Small Countries Lend Themselves toGreater Standardization– may not have enough resource to develop their

own programs to same level• Poor Performing Countries are Often Under

More Pressure to Adhere to CorporateWishes on Standardization

How Implement Globalization is asImportant as Amount of Globalization

• Multidomestic Corporation Has Many Strengths– strong local managers– local managers have autonomy to run business effectively– local managers can be responsive to local environment and can

react quickly to developments– strong local managers are a good source of new innovative ideas

• Standardization Should be Done in a Way That RetainsMany of these Strengths

– don’t act too quickly or radically– poor implementation could lead to departure of good strong

managers and their strengths


1

Global Marketing

Product Policy

Prof. Schorr Product Policy can be BrokenDown into Elements

Standardization vs. Adaptation DecisionsCan be Made About Each Element

Each Element can Vary Along aContinuum from very adapted to verystandardized adapted– e.g., very adapted, somewhat adapted,

somewhat standardized, very standardized

Global Companies andPortfolios of Products

Global Regional Local

Elements of Product Policy

Product Positioning Branding Product Features Packaging Product Line Customer Support

Product Positioning

Benefits - needs satisfied Usage situations Position vis-a-vis other brands Value = quality/price Target segments

Branding

Image Name Typeface Logo Super and subbranding


2

Product Features

Attributes Specifications Ingredients Taste Texture Appearance Performance Levels Quality

Packaging

Layout Pictures Instructions Labeling Promotions Cross-promotions Language Size

Product Line

Which products offered Number of variations Types of variations Which products emphasized

Customer Support

Service Technical Support Maintenance Warranties Customer Information and Contact

Product Elements Specific toYour Product

Elements of Product Policy to be ThoughtOut for Your Product Category

This List is Generic

General Questions Related to ProductPolicy Standardization vs. Adaptation

What attributes are most important to the customer in eachmarket?

Where are the commonalities in customer preferences? Which preferences are unique and strong? Are customers willing to pay more for adaptations? What is the cost of adaptations? Are the resources available for adaptation? What is the incremental volume that can be expected from

adaptation? What is overall profitability of adaptation?


1

Marketing in Developing Countries“The End of Corporate Imperialism”

C.K. Prahalad and KennethLieberthal

Harvard Business Review, 1998

Market Segments and EconomicStatus

• Tier 1 – greater than $20,000– Wealthy – High Income– Very small percentage

• Tier 2 - $10,000-$20,000– Upper Middle Income– Small percentage, less than 10 percent

• Tier 3 - $5,000-$10,000– Middle Income– But Lower or Lower Middle Income by Standards of Wealthy

Countries– Significant percentage, about 30 percent– Standards of Living Rapidly Rising

• Tier 4 – less than $5,000– Low Income

Tiers In Brazil, China & IndiaTiers In Brazil, China & India

Consumer Behavior andEconomic Status

• Tier 1 – responsive tointernational brands

• Tier 2 – less attracted tointernational brands

• Tier 3 – loyal to local customs,habits, and often local brands

Corporate Imperialism• Big, Emerging Markets

– Great deal of potential for international companies• Typical Entry Approach

– Use same mindset and marketing strategies as inestablished markets

• Limited, Niche Position in Market– Can reach upper-income customers (Tiers 1 and some

in Tier 2)• Difficulty Penetrating Mass Market

– Huge growth potential– Can’t reach emerging middle-class (Tier 2 and Tier 3)


2

The Solution• Rethink every element of business model to

appeal to mass market– Emerging middle class in developing countries

not like middle class in developed countries• Upper class in developing countries often like

middle class in developed countries– Can use this alternative model and marketing

strategy in large areas of the world (developingcountries)

Business Model for Emerging MiddleClass in Developing Countries

• Rethink price-performance equation– Good value for low prices with global standards

• Rethink brand management– Not do all things the same regarding the brands

• Rethink cost of market building– May be profitable to develop local types of products instead of

changing habits• Rethink product design

– Redesign for local needs and uses and local distribution systems• Rethink packaging

– Size and protection• Rethink capital efficiency and cost structures

– Rethink business models to lower cost structure

Importance of DistributionSystems

• Invest in local distribution• National distribution is important

–Buy ways to obtain differ by country–May have to invest in buildingdistribution systems in countrieswith undeveloped nationaldistribution structure

Mix of Local and ExpatriateManagement

•Get right mix of local andforeign managers–Foster two way knowledgeflows

Importance of GovernmentRelations

• Often necessary to present oneface in dealing with government

• One set of policies for allbusiness units in negotiatingwith government

Careful Consideration of Partners inLocal Markets

• Partnerships are typical way of entering butsubject to problems and tensions

– Different strategic objectives of partners• Long term market building vs. short term profits

– Local partners often don’t have local consumer andmarket knowledge

• Predate emergence of real consumer markets

• Increasing numbers of companies enteringdeveloping countries with wholly-ownedsubsidiaries

– 18% in China in 1992– 37% in china in 1996


1

Global Branding

A Portfolio of Global, Regional,and Local Brands

• Global Brands– Worldwide consistency

• Regional Brands– Consistency within a region

• Local Brands– Offered in Individual Countries

• Define the International Scope of Your Brands– Marketing Strategy Impacted by International Scope

Brand Names Across Borders

• Meaning of the Brand Name in the LocalLanguages

• Subtle Associations of the Brand Name inthe Country and Local Languages

• Ease of Pronouncing the Brand Name• Ease of Remembering the Brand Name

Brands and Country of OriginPositioning

• Brands are Often Associated with Country ofOrigin

• Some Country of Origin Associations areHighlighted in the Brand Positioning– Certain Countries of Origin Bring Positive

Associations to the Brand

• Some Country of Origin Associations MayConjure up Negative or Neutral Associations

Overcoming Negative Countryof Origin Associations

• Give it a Foreign-Sounding Brand Name• Get a Foreign Designer and Emphasize• Emphasize Other Things in Communications

– Such as good value and price• Obtain a Celebrity to Endorse the Brand• Make Products for A Strong Brand• Make Private Label Products for a Strong Retailer• Assemble Part of the Product in a Foreign Country• Specialize in Niche Products with Positive

Country of Origin Associations

Legal Strategies Against Piracyand Counterfeiting

• Register Trademarks and Copyrights inCountries Worldwide

• Lobby Governments for Stricter Laws• Lobby Governments for Stricter

Enforcement• Court Cases


2

Marketing Strategies andProtections Against Imitation

• Communications Campaign to Differentiate the“Authentic” Product from Imitators

• Distribute a Portion of the Product Offering andOffer the Full Offering After the CustomerRegisters the Product

• Leverage Relationships with Distributors toObtain Better Shelf Space than Imitators

• Innovate Faster than the Imitators• Acquire or Partner with the Imitators

Transitioning from a Local to aGlobal Brand

• Summary Axing– Immediately drop and replace with global name– Usually not recommended

• Platform Branding– Develop a global look and feel for the brand platform– Maintain the local brand name

• Fade-In, Fade-Out– Include both the local and global brand name– Gradually increase the size of the global name and decrease the

size of the local name• Transparent Forwarding

– Intensive communications program to alert customers to change


1

Aaker and Joachimsthaler’sPerspective on Global Branding

“The Lure of Global Branding”David Aaker and Erich Joachimsthaler

Harvard Business Review, 1999

Global Brand Leadership

• Global Brand Leadership, Not GlobalBrand Standardization Should be the Goal

• Global Brand Strategy Should Coordinateand Leverage Country Brand Strategies

Difficulties of GlobalizingBrands

• Economies of Scale Often Elusive• Influence of Cross-Border Media Often

Overstated• Successful Global Brand Teams Difficult

to Form• Company Resources, Customer

Characteristics, and CompetitiveConditions Differ Across Countries

A Nuanced Approach to GlobalBrand Management is Needed

• Sharing Insights and Best PracticesWorldwide

• Using A Consistent Global Brand PlanningProcess Worldwide

• Assigning Global CoordinationResponsibility for Brands

• Delivering Brilliance

Sharing Insights and BestPractices Worldwide

• Formal Meetings• Informal Meetings• Communications Technology• Internal Intranet and Databases

Using A Consistent GlobalBrand Planning Process

Worldwide• Analysis Frameworks/Templates• Monitor Brand Associations• Monitor Brand Equity• Communicate Brand Identity Internally• Link Country Brand Strategy to Global

Brand Strategy


2

Assigning Global CoordinationResponsibility for Brands

• Senior Executive Group or Individual Responsible forGlobal Brand– Business Management Team– Brand Champion

• Middle Management Group or Individual Responsible forGlobal Brand– Global Brand Teams– Global Brand Manager

• Some Aspects of Brand Management Influenced Heavilyby the Global Teams or Managers

• Some Aspects of Brand Management Left Mostly at theLocal Level

Delivering Brilliance

• Look for Most Brilliant Ideas Across theGlobe

• Transfer Good Ideas Across Borders• Roll-Out Brilliant Innovations Across

Borders

Conclusion

• All Companies Should Engage in GlobalBrand Leadership– But Not Necessarily Global Brand

Standardization• Companies That Use Unconnected and

Directionless Local Brand Strategies WillFind Mediocrity as Its Reward

Holt, Quelch, and Taylor onGlobal Branding

“How Global Brands Compete”Douglas Holt, John Quelch, and Earl

TaylorHarvard Business Review, 2004

Challenge for Global Brands

• Glocalization in Managing Global Brands• Lightening Rods for Antiglobalization• Very Salient in Minds of Consumers

Dimensions of Strong Global Brands

• Quality Signal (44% of variance in preference forglobal brands)– Global products seen as high quality

• Global Myth (12% of variance)– Global products tie people to a shared, perhaps

imagined, global identity• Social Responsibility (8% of variance)

– Expect global brands to behave responsibly and holdthese brands to a high standard of social responsibility

• U.S. Brands were not perceived more negativelyor positively


3

Global Consumer Segments• Global Citizens (55%)

– See global success of a brand as signal of quality and innovation,concerned about social responsibility

• Global Dreamers (23%)– See global brands as quality products and readily buy into the

myths associated with the brands, less concerned about socialresponsibility

• Antiglobals (13%)– Skeptical that global brands are higher quality and don’t trust their

social responsibility• Global Agnostics (8%)

– Don’t base purchase decisions on whether brand is global or not

Opportunities and Responsibilitiesin Managing Global Brands

• Manage Brand as a Global Symbol• Manage the Dark Side• Build Credible Myths• Treat Antiglobals as Customers and Try to

Gain their Trust• Be Proactive in Social Responsibility


1

Global Marketing

International and Global Advertising,Promotion, and Communication

Prof. Schorr Aspects of International andGlobal Communications

Target Audience Objectives Theme and Message Platform Execution Budget Media and the Communications Mix

Target Audience

Who is the target audience in each country? How broad is the audience?

– Mass vs. Targeted How similar are the target audiences across

countries? Is it possible to target an intermarket

segment?

Objectives Consistency with Other Marketing Mix Elements Positioning Objectives Image vs. Product Benefits One-Way vs. Two-Way Communications Pull vs. Push Marketing Objectives and the Product Life Cycle

– Cognitive: Awareness and Knowledge– Affective: Liking, Preference, Conviction– Behavioral: Trial, Repeat Purchase– Switch Users from Competitors vs. Develop New Users– Reinforcing Existing Uses vs. Generating New Uses

for Product

Theme and Promotional Message

What is the theme and general message you wantto convey?

What are the benefits or attributes emphasized? What is the message regarding the positioning of

the product? What is the type of image presented? Coca-Cola

– soothing, relaxing drink that fits with contemporarylifestyles

– “Can’t Beat the Feeling”; “I Feel Coke”

Platform

Structure– Order– Placement of Items

Color SchemeMelodyToneForm


2

Platform and Tone

Emotional vs. Informational Humorous vs. Serious Argumentative vs. Narrative Competitive vs. Non-competitive Hard Sell vs. Soft Sell Direct vs. Indirect

– Mostly in words or in pictures

Platform and Form Announcement Display Association Transfer

– Lifestyle, Celebrity Lesson Drama Entertainment

– Humor Imagination

– Cartoon Special Effects

Execution

Source– Actors– Celebrities

Content– Words– Images/Visuals– Music

Settings

Budget

Objective and task - 64% Percentage of sales - 48% Executive judgment - 33% All you can afford - 12% Matched competitors - 12% Same as last year plus a little more - 9% Same as last year - 3%

Media and The CommunicationsMix

Advertising– Television, Radio, Newspapers, Magazines

Direct Marketing– Infomercials, Catalogs, Direct Mail, E-mail, Telemarketing, Internet Marketing

Sales Promotions– Samples, Coupons, Rebates, Price and Bonus Packs, Premiums, Tie-ins, Continuity programs,

Contests Trade Promotions

– Slotting allowances, Coop advertising, Floor planning, Temporary price cuts, Volumediscounts, Contests

Public Relations Sponsorships Product Placements

– Products in movies and television shows Personal Selling Sales Force Promotion Tools

– Trade shows and conventions, Sales contests, Promotional gifts

Media Strategy

Which media or communications vehiclefor which messages

Percent of budget allocated to each mediaor communications vehicle


3

Selecting Media and theCommunications Tool

Availability Regulations Habits and Intended Audience

– which media or communications vehicle is ourtarget audience most receptive to

Fit of the Objectives/Message to the Mediaor Communications Vehicle

Cost

Scheduling of Media andCommunications Vehicles over Time

Schedule over Course of Year Schedule over Course of Week and Day Schedule the Intensity

– Even– Pulse– Blitz

Determining the Schedule

When is our target audience most likely tobe exposed to the communications?

Seasonality of product usage and exposure Introduction of a new product

– pre-launch, launch, post-launch Communicating new information about a

product Response to competition

Consumer and Trade Promotions

Mostly a local activity– economic development– culture and perceptions– regulations– retail structure– infrastructure for promotions

Consumer and Trade Promotions

Increasing Headquarters Involvement– Cost– Complexity– Global Branding– Transnational Retailing

Agency Selection

Different Agencies Different Countries Same Agency Across Countries - Little

Coordination Same Agency Across Countries - Much

Coordination


4

Constraints in InternationalAdvertising

Cultural and language differences Different regulations Different infrastructures

– media availability, agency availability, research data availability Different consumer characteristics and attitudes

– economic status, literacy, role of advertising in society Different market characteristics

– stage of product life cycle, competitive environment Different product strategies

– differences in positioning, packaging across countries

Trends in InternationalAdvertising

Deregulation of Media Growth of Commercial Television and Radio Growth in Cross-Border Cable and Satellite TV Increased Availability of Global Media Growth of Global Advertising Agency Networks Growth in Worldwide Sports and Events Sponsorships Growth of Product Placements in TV and Film Reaching

Global Audiences Growth of Advertising in Emerging Countries Potential of the Internet

Growth in Global Advertising

Trend toward harmonization of strategicelements of advertising

While maintaining flexibility at local levelfor execution

Think Globally, Act Locally

The Product Portfolio andGlobal Marketing

Distinguish among global, regional, localbrands

Global Brands

Highest level of headquarters influence Headquarters promotes coordination of

marketing strategy– certain marketing elements may be

standardized Implementation left to local level

– perhaps with guidelines and approvalprocedures

Regional Brands

Moderate level of regional managementinfluence

Regional management promotescoordination of marketing strategy– certain marketing elements may be harmonized

across countries Implementation left to local level

– perhaps with a few guidelines and approvalprocedures


5

Local Brands

Highest level of local autonomy Development of marketing strategy and

execution left at local level– little need for coordination– little need for guidelines and approval

procedures Information may be transferred across

countries but with no attempt to influencelocal managers to adopt new ideas


1

The Global Brand Face-Off

Anand P. RamanHarvard Business Review, 2003

The Grid and The Grid Revisited

• Stars of film wore new line of sunglassesfrom a eyewear brand.

• Created much publicity for the company’sbrand and its new line

Espoir’s Marketing Decision• Espoir is a major global cosmetics brand• Positioned for women who are smart, independent, risk

takers• Opportunity to sponsor sequel to Diana’s She Devils• Three stars are from Europe, Asia, and South America• Create three new lipstick and nail polish combinations in

right palette for each of three stars• Launch new combinations at same time as film and

associate the stars with the advertising

Natasha Singh – Executive VicePresident of Global Marketing

• Made Espoir’s Indian business successfulby challenging headquarters ideas

• In India can get a facial for Rs 300 ($6.66)or a manicure for Rs 75 in a beauty parlor.

• Why pay Rs 120 for lipstick or Rs 75 fornail polish?

Indian Success• Reduced pack sizes - 8 ml vs. 12 ml• Slashed prices - Rs 35 vs. Rs 75• Penetrated small retailers around country• Small trays of lipsticks and nail polishes created for small

retailers to place on counters• Local market leader 12ml for Rs 30• Introduced purple shades to fit with current rage in

traditional Indian dresses• Later had to introduce global colors in India because

consumers were asking why weren’t available• So segmented market, less expensive local line and more

expensive international line

U.S. Reaction

• Willing to help pay for campaign becausetwo of stars represent big ethnic markets inU.S.


2

Western European Reaction

• Revlon had boosted top-of-mind awarenessby tying in with movies, like the Bond filmDie Another Day

• Positive to Global Movie Sponsorship idea• But, argued website to buy customized

products from Espoir would need to have adifferent look and feel from the U.S. and adifferent name to appeal to Europeans

Eastern European Reaction• Manager claims Eastern Europe is different from rest of

world• Movie promotions won’t help sales. We are in beauty

business, not movie business• Wanted to appoint beauty queens like Miss Russia and

Miss Ukraine as brand ambassadors• Contests where write in with suggestions for new colors,

each beauty queen will pick her favorite, and there will belots and lots of prizes

• Brand not well known, so major goal is to develop brandas quick as possible

• Manager threatens to leave if force the global campaignon him

Indian Reaction• Many new department stores opening in cities, easing retailing

bottlenecks• Many international brands now competing in market• Farmers adopting cell phones• Internet cafes every two miles in countryside• Rooftops crowded with satellite TV dishes

– Customers asking for latest global colors advertised on satellite TV fromother other countries

• Billboards in countryside for Cosmo, Elle, Friends• Point of reference for rural areas used to be closest large city, now it is

becoming the world• Hollywood films doing well in India recently, in addition to

Bollywood films – better dubbing, quick global releases, less importregulations

• But still need local responsiveness because of large incomedifferences and cultural differences

Arguments for Global Campaign

• Trend toward global convergence in customertastes

• Global movies a good way for reaching targetedsegments around the world

• Cost Savings• Quality of global campaigns is typically better

than what can be done locally• Leveraging good knowledge and ideas worldwide

Arguments Against GlobalCampaign

• Many companies that have tried globalizingmarketing have failed at it

• Global approaches tend to either over-standardize or oversimplify

• Global approaches tend to discourage localinnovation

• Espoir brand may have different images indifferent parts of world

Expert Reactions to the Case• Singh is on right track to want to globalize marketing more, but needs

to find the right balance balance between globalization and localization• She needs to keep Espoir’s marketing programs relevant to local

markets as global scale and best practices are leveraged• She has to get buy-in of frontline executives who will be

implementing the program• She has to become less of a developer of marketing programs and

more an orchestrator• Achieving both global scale and local relevance requires time and a

flexible approach• The organization and implementation of the global marketing

approach is key


3

Expert Recommendations• A team of managers from the different regions/countries should

develop and shape global marketing ideas• Identify areas of marketing that must be globally consistent and leave

other areas of marketing to the decisions of local managers– Marketing strategy may be more globalized while execution can be left to

local control• Identify global products that must be more standardized across

countries and then allow other products that are country specific• Create a global communications platform and menu of options, but

local managers can choose from the menu and add local elements tothe global platform

• Quantify both the benefits and costs of global consistency and developa measurement system for tracking in future


1

International Distribution andRetailing

Global MarketingProf. Schorr

Modes of Entry intoInternational Markets

• Increasing Commitment, Risk, Expertise,and Control– Indirect Exporting– Direct Exporting– Licensing– Joint Ventures– Direct Investment

• Marketing and Sales Subsidiaries• Manufacturing Subsidiaries

Distribution and RetailingEnvironments Across Countries

• Distribution and Retailing Environments areHighly Localized– Different Retail and Distribution Structures in

Different Countries– Retailers and Distributors Tend to be Local Players– Relationships with Retailers and Distributors Needs

to be Localized• Recent Trends are Making Distribution and

Retailing Environments More Similar AcrossCountries

Traditional RetailingEnvironments

• Traditional Retail Formats– Outdoor Stalls - Street Markets– Small “Mom and Pop” Retailers - The Corner

Market• Early Modern Form of Retailing

– Department Stores

International Trends in Retailing

• Growth of Large Scale Retailing• Rise of Discount Stores• Internationalization of Retailing• Retailers are Taking Power from Branded

Manufacturers• Increasing Sophistication of Information Systems• Greater Ability to Shop Anytime, Anywhere• Opportunities for Internet Retailing

Growth of Large Scale Retailing

• Increase in Number of Large Stores• Growth of Chain Stores• Movement to City Outskirts• Rise of Shopping Malls


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Rise of Discount Stores

• With Quality Products• Including Branded Goods

Internationalization of Retailing

• Pan-European Supermarket Chains• International Hypermarket Chains• Department Stores Operating Across

Borders• Worldwide Retailing in Narrow Categories

– Ikea and Toys’R Us

A Few Major Global Retailers• Wal-Mart

– One of Mexico’s largest retailers– Stores in South America and Asia– Stores in U.K.

• Makro, Dutch Wholesale Club– One of SE Asia’s largest retailers, $2B Sales– Stores in Latin America

• Carrefour, French Hypermarket– One of Brazil and Argentina’s leading retailers– Stores in Asia

• Japanese Department Stores– Stores Throughout Asia

• Costco– Stores in North America, Northeast Asia, and U.K.

• Toys’R Us• Ikea

Foreign Retailing InvestmentsIn China

• Carrefour• Wal-Mart• Makro• Metro• Lotus• Ikea

Local Copies of GlobalRetailers Emerging

• Japan– Victoria Sports– Aoki, Aoyama Men’s Suits

• Hong Kong– Grand Mart– M-Mart

• Korea– E-Mart

Increasing Sophistication ofInformation Systems

• Increase Efficiency and Lower Costs• Better Understand Customers• More Sophisticated Marketing

– including more precise targeting


3

Retailers Are Taking Power fromBranded Manufacturers

• Consolidation of Retailers• Retailers are Extracting Greater Price

Concessions• Growth of Private Label Goods• Retailers are Making Their Names into

Strong Brands

Ways Branded Manufacturers CanRespond to Powerful Retailers

• Reinforce Pull Marketing– Reinforce quality image– Discredit private brands– Relationship marketing

• Provide Adequate Push Marketing• Lower Your Costs Through Efficiencies

– Lower Prices to Diminish Price Gap– Eliminate the Gouge Factor– Use Promotional Pricing

• Negotiate with Retailers on a Global Basis• Establish Strategic Partnerships with Retailers

– Category Management• Innovation

Greater Ability to ShopAnytime, Anywhere

• Longer Hours for Retail Stores• Growth of Direct Marketing

Opportunities for InternetRetailing

• Certain Segments of Most CountriesHave Internet Access

• Internet Retailing Provides NewPossibilities for Market Entry

• Internet Retailing Gives CustomersGreater Information, Selection, andBargaining Power

Global Retail Trends andImplications for Manufacturers

• Simplifies the Task of International Distribution– Allows for Entry into a New Country with Less

Investment– Allows for Greater Standardization of Distribution

Across Countries• But It Comes at a Price

– Lose Power to Global Retailers– Price Concessions Extracted– More Dependent on a Small Number of Powerful

Retailers– Risk of Losing Retailer to Another Manufacturer


1

Global Marketing

Pricing for International Markets

Prof. Schorr Factors to Consider in SettingPrices in International Markets

Company Internal Factors Cost and Profit Factors Market Factors Environmental Factors Managerial Issues

Company Internal Factors

Consistent with Marketing Strategy andOther Elements of the Marketing Mix– Consistent with target market characteristics– Consistent with product positioning and image

Consistent with Company Strategy andGoals– Marketing skimming vs. penetration pricing– Profitability vs. market share goals

Internal Cost and Profit Factors

Manufacturing costs– direct manufacturing costs– indirect manufacturing costs

Selling, marketing, and generaladministrative costs

Profit margin Manufacturer’s selling price

Cost and Profit Factors Externalto the Company

Costs Related Either to Domestic, Overseas Production, or ExportSales– Taxes– Distributor Margins

wholesalers retailer

Costs Related to Exporting– Transportation and Insurance Costs– Tariffs

Manufacturer’s Selling Price Plus Above Costs Determine Final Priceto Customer

Export Related Costs and PriceEscalation

Costs of shipping, insurance, tariffs, taxes,importer margins, and distribution margins canmake retail prices in export markets much higherthan domestic retail prices

How to lower price escalation– price based on marginal costs– eliminate layers of middlemen in importing and

distributing the product– redesign product to lower costs– set up production in overseas markets


2

Market Factors

Demand– demand vs. supply– price elasticity of demand

Income Level of Country Competition

– price levels– intensity

– differentiation of product Product Life Cycle Stage

Environmental Factors

Government Regulations– price controls– anti-dumping laws

Inflation Rates Foreign Exchange Rates

Managerial Issues

Relative vs. Absolute Pricing Multidomestic vs. Global Strategic Orientations Coordination and Pricing Policies

– global customers and potential need for coordination

Gray Market Problems Product Characteristics, Package Sizes, and Prices


1

Global Marketing

Segmentation

Prof. Schorr Segmentation Strategies

National Market Segment Strategy– Primary Segmentation Variable: Within Each

Country Country Clusters Market Segment Strategy

– Primary Segmentation Variable: Groups ofSimilar Countries

Global Market Segment Strategy– Primary Segmentation Variable: Factors that

Cut Across Countries or Regions

Criteria for Grouping Countries -General Characteristics

Economic Grouping Geographic Grouping Political Grouping Religious Grouping Cultural Grouping Quality of Life Grouping Product Usage Grouping

Criteria for Grouping Countries -Product Market Specific Variables

Size of Market Growth of Market Competitive Intensity Product Life Cycle Stage Customer Acceptance of Product Customer Knowledge of Product Other Criteria Relevant to Your Product

Market

Formal Technique for GroupingCountries

Cluster Analysis– a statistical technique– groups countries into clusters– countries within a cluster are relatively similar

to each other on the variables used for theclustering

– multiple variables can be used to clustercountries

Customer Trends AcrossCountries

Increasing Homogenization Increasing Segmentation

– customers are being segmented into morespecialized segments

How Can These Two Trends BeReconciled?– specialized segments can be enlarged by

segmenting across countries using intermarket segments


2

Emerging Intermarket Segments

Teenagers Working Women Middle Class Families Upscale Consumers Business Managers

Potential Intermarket Segments -Teenagers

Common Needs Common Products and Services Common Media Common Icons and Vocabulary

Potential Intermarket Segments - BusinessManagers

Have Many Similar Needs– effectively and efficiently carry out managerial responsibilities

Desire Similar Products and Services– notebook computers, pocket organizers, calendar and address book

software, cellular phones, briefcases, airline travel, hotels, business attire,etc.

Can Be Targeted with Global Media– Economist, Wall Street Journal, International Herald Tribune, Financial

Times, Business Week, In-flight Magazines– CNN, BBC

Have Similar Icons and Vocabulary– many speak English– many read same business books and are familiar with similar managerial

theories and practices Porter, Drucker, Peters, Ohmae, Iacocca


GLOBAL MARKETING MANAGEMENT MARKETING 465 ASSIGNMENT # 1

Professor Schorr

Fall, 2006

The goal of this assignment is to give you experience in conducting environmental analyses of a selected country and considering the implications of the environment on marketing. Select any country in the world that interests you, and develop environmental profiles for that country. Note: Do not select a country where a group member has lived for more than three months. 1.) Develop a cultural and social profile of the country. Consider the implications of the cultural

and social environment for marketing in that country. 2.) Develop an economic, financial, and technological profile of the country. Consider the

implications of the economic, financial, and technological environment for marketing in that country.

3.) Develop a political and regulatory profile of the country. Consider the implications of the

political and regulatory environment for marketing in that country. 4.) Summarize the highlights of the environmental analyses, and summarize the implications of

the environmental factors for marketing. Be sure to reference sources of information. Feel free to use exhibits to help present your profiles, if appropriate This assignment is due at the beginning of class on September 13.

MRKT-465: Assignments

Criteria used for analysis: Population: The population indicates the total population of the given countries. Ranks were assigned to the countries based on the total population, higher populations being assigned higher ranks. Although much of populations may not be able to afford the product in question, this is adjusted for with the disposable income and GNI per capita indexes. Population was given a 12% weight because it is important in determining the market size which directly correlates with the potential profit to be made in each country; the population is not as important of an indicator as other factors which more accurately display the amount of the population may be captured with this product. GNI per Capita: The GNI per capita indicates the Gross National Income per citizen of the given country. Ranks were assigned to the countries based on a higher GNI per capita indicating a more attractive market. Countries with the highest GNI per capita are likely to be best able to purchase the product. GNI per capita was given a 10% weight because it’s not as strong of a determinant in ability of consumers to purchase the product, with more weight given to the related criteria of disposable income. Technology Infrastructure/ Internet Users: Tech infrastructure indicated the amount of technology available to consumers, most notably the number of computer in use in the market per capita; it is necessary for a consumer to have a computer to be able to use an mp3 player, therefore there must be a high computer usage rate for consumers to even consider purchasing the product. Countries with a higher computer usage per capita were given higher rankings, because it would follow that they are more likely to purchase mp3 players. Tech Infrastructure was given a 20% weight because the product’s success depends highly on the amount of infrastructure, specifically PCs, in place within the country in question. Disposable Income: Disposable income is the amount of income that consumers are able to keep for the purchase of luxury items, such as mp3 players. As mp3 players are largely seen as a luxury item, high disposable incomes are necessary in order for consumers to consider purchasing mp3 players. Ratings were assigned to countries based on highest disposable income levels, adjusted to a common currency. Disposable income was given the high weight of 20% because it is seen as one of the most important factors leading to the adoption of mp3 players into the population. Only if consumers have high disposable incomes will they be able to purchase mp3 players. Lack of Saturation: Lack of saturation indicates the stage of penetration in regards to mp3 players that the market is currently in. With a high lack of saturation (i.e. low market saturation), markets are more attractive due to the lack of competition and market penetration. Markets with high levels of saturation were rated least attractive, while markets with low levels were labeled most attractive. The market saturation factor was given a weight of 15% largely because it is very important in a market such as mp3 players, where the first into the market tends to become the market leader (i.e. iPod in the United States). Nonetheless, it is not as determinant of a factor as disposable income or tech infrastructure because it is most important for consumers to have the ability to


purchase the product (these two highest weighted indicators are signs of purchasing power in relation to mp3 players) Consumer Electronics Growth Rate: The consumer electronics growth rate indicates the growth in the given countries of the consumer electronics industry over the last two years, representing signs for future growth of the mp3 market important in determining long-term company goals. Countries were rated based on GMID data on the growth rates in the luxury consumer goods sector, with higher growth rates given a higher overall rating. An 18% weight was given to this category because of its importance in determining where the market is heading over the coming years, and thus a strong indicator of potential growth in company products after entering the market. Age distribution: Age distribution indicated the percentage of country residents within the


The worldwide markets for MP3 Players

I. INTRODUCTION TO MP3 PLAYERS

MP3 players 1. Product description

o Generic term used to refer to portable digital audio players. o Device that stores, organizes and plays digital music files:

i. downloaded music from online music stores internet connections

ii. music ripped from Compact Discs via computer PC o Wide range of types and models o Range in price from US$300 to US$500 target: high income levels and

countries o Benefit: convenience of storing 1,000-5,000 songs

2. Product use

o Users often connect players to car and home stereos o The growing cell phone market is adopting MP3 capabilities

3. Market overview

o MP3 are currently enjoying the most dynamic growth in personal/portable audio products growing market for MP3, not saturated!!! No need to look for high income levels in emerging countries; better to directly focus on high income countries

o Most of the growth results from the success of Apple's iPod o Mp3 demand remains in its infancy in several major markets, notably the

UK: consumer reluctance to change from mini-disc to MP3 there is a large room in developed rich countries

o Research firm IDC predicts that the MP3 player market will experience 20 % growth each year for the next few years and hit $58 billion in revenues in 2008

o Spain: growth of 562% from February to September 2004. o China's market for MP3 players:

i. growing with a 250-per-cent increase year-on-year in demand for MP3 chips predicted (nov 2004)


ii. In 2004, China's MP3 player market maintained a momentum of fast growth, seeing a steady rise in both sales volume and sales revenue. Falling flash chip prices and intensified market competition resulted in continuous price drop in the MP3 player market and a gradual expansion of the user base that could afford it. Together with a growing recognition and acceptance among users, MP3 players gradually spread. As small- and medium-sized brand vendors entered the market with a low price strategy and overall product prices dropped, there was a notable fall in market concentration. Personalization and large capacity were the two major features of MP3 player innovations in China in 2004 (http://www.globaldp.com/ConsumerGoods/ConsumerElectronics/AnnualReportonChinaMP3PlayerMarket.html).

o US market: i. “In 2006, the MP3 and portable audio player market is worth an

estimated $5.7 billion in manufacturer sales, almost three times its worth of just over $1.9 billion in 2001.” (http://www.marketresearch.com/browse.asp?categoryid=1436&SID=38753965-312454812-282130481)

ii. The % of U.S. households with MP3 players will jump from about 6 percent in 2004 to as much as 25 percent by the end of 2006.

o The top brands and manufacturers of MP3 players are not well-known (with the exception of IPOD)

The goal of this assignment is to give you experience in analyzing country markets to prioritize countries in terms of attractiveness for marketing a specific product or service.

II. MAIN CRITERIA

1.) Use a filtering model for selecting a short list of eight to ten countries from all countries around the world to analyze in more detail. Describe and justify the criteria that you used in this initial filtering process. Obtain data for your filtering criteria. Describe how you came up with this short list using your filtering model. Attach copies of the data that you used for you filtering model and annotate the data to show how you filtered out the most attractive countries for your short list.

The following criteria have been used to set up the final list of 8 countries by using the filtering system.

1. High-income countries


We will focus on those countries with high income levels and large numbers of wealthier people. There are 54 high-income countries.

2. GNI per capita: > 25 000 3. This indicator shows the size of the economy. We have selected the biggest

economies. 4. GDP growth: > 2,5% growing eco 5. GDP ppp: > 1.000.000 mn$ in 2006 6. Population 7. We are seeking countries with around 50 millions people. The biggest the

population in high-income countries, the biggest should be the potential market for MP3.

8. Age distribution MP3 customers are aged between 15-64 years. We will select those countries with a % of 65 or more of this population.

9. Annual Disposable income 10. Households (% of total) with an annual disposable income over US$25,000

We have selected an income of $25000 as an indicator of attractiveness. People have to afford without too much effort the purchase of MP3. PC's in Use: # per capita > 0,4

11. Internet users We look for those countries with a % of internet users above 40%. As we said earlier MP3 involve the use of the internet to download music.

12. Total Consumer Electronics: Global Volume Sales % Growth We are interested in those regions in which the % of growth in global volume sales of consumer electronics is higher. That is why we will pay attention to Asia-pacific, Western Europe and North America.

Other criteria

1. Inflation The countries selected should have inflations rates around 3% or less.

2. MP3 market growth o “China's market for MP3 players is growing with a 250-per-cent increase

year-on-year in demand for MP3 chips predicted.”(Nov 2004) o “The percentage of U.S. households with MP3 players will jump from

about 6 percent in 2004 to as much as 25 percent by the end of 2006” (January 2006)


Filtering system Having ranked all the countries we have selected those which fulfilled all the requirements or criteria above mentioned. In such a way we have been able to list 8 attractive countries for the MP3 market. List

1. USA 2. UK 3. JAPAN 4. Hong Kong, China 5. Germany 6. South Korea 7. France 8. Italy

Source: https://www.cia.gov/cia/publications/factbook/fields/2092.html http://devdata.worldbank.org/data-query/

III. SHORT CRITERIA ANALYSIS

Use a quantitative multi-factorial model for evaluating your short list of countries and prioritizing the short list in terms of attractiveness for your product or service. Describe and justify the criteria you used for evaluating your short list of countries. Justify the weights you assigned to each criterion. Obtain data related to your criteria for your short list of countries. Describe the system you used for assigning ratings to the criteria. Attach a copy of your table or spreadsheet containing the weights, data, ratings, and overall index


for each country. Which countries are most attractive based on the quantitative analysis? Rank the attractiveness of the countries based on this analysis. Discuss why the top countries come out as most attractive based on the quantitative model. Explanations of criteria used for analysis (discuss in this paragraph). Population: The population indicates the total population of the given countries. Ranks were assigned to the countries based on the total population, higher populations being assigned higher ranks. Although much of populations may not be able to afford the product in question, this is adjusted for with the disposable income and GNI per capita indexes. Population was given a 12% weight because it is important in determining the market size which directly correlates with the potential profit to be made in each country; the population is not as important of an indicator as other factors which more accurately display the amount of the population may be captured with this product. GNI per Capita: The GNI per capita indicates the Gross National Income per citizen of the given country. Ranks were assigned to the countries based on a higher GNI per capita indicating a more attractive market. Countries with the highest GNI per capita are likely to be best able to purchase the product. GNI per capita was given a 10% weight because it’s not as strong of a determinant in ability of consumers to purchase the product, with more weight given to the related criteria of disposable income. Technology Infrastructure/ Internet Users: Tech infrastructure indicated the amount of technology available to consumers, most notably the number of computer in use in the market per capita; it is necessary for a consumer to have a computer to be able to use an mp3 player, therefore there must be a high computer usage rate for consumers to even consider purchasing the product. Countries with a higher computer usage per capita were given higher rankings, because it would follow that they are more likely to purchase mp3 players. Tech Infrastructure was given a 20% weight because the product’s success depends highly on the amount of infrastructure, specifically PCs, in place within the country in question. Disposable Income: Disposable income is the amount of income that consumers are able to keep for the purchase of luxury items, such as mp3 players. As mp3 players are largely seen as a luxury item, high disposable incomes are necessary in order for consumers to consider purchasing mp3 players. Ratings were assigned to countries based on highest disposable income levels, adjusted to a common currency. Disposable income was given the high weight of 20% because it is seen as one of the most important factors leading to the adoption of mp3 players into the population. Only if consumers have high disposable incomes will they be able to purchase mp3 players. Lack of Saturation: Lack of saturation indicates the stage of penetration in regards to mp3 players that the market is currently in. With a high lack of saturation (i.e. low market saturation), markets are more attractive due to the lack of competition and market penetration. Markets with high levels of saturation were rated least attractive, while markets with low levels were labeled most attractive. The market saturation factor was given a weight of 15% largely because it is very important in a market such as mp3


players, where the first into the market tends to become the market leader (i.e. iPod in the United States). Nonetheless, it is not as determinant of a factor as disposable income or tech infrastructure because it is most important for consumers to have the ability to purchase the product (these two highest weighted indicators are signs of purchasing power in relation to mp3 players) Consumer Electronics Growth Rate: The consumer electronics growth rate indicates the growth in the given countries of the consumer electronics industry over the last two years, representing signs for future growth of the mp3 market important in determining long-term company goals. Countries were rated based on GMID data on the growth rates in the luxury consumer goods sector, with higher growth rates given a higher overall rating. An 18% weight was given to this category because of its importance in determining where the market is heading over the coming years, and thus a strong indicator of potential growth in company products after entering the market. Age distribution: Age distribution indicated the percentage of country residents within the age group most likely to purchase mp3 players, those aged 15 to 64. The age distribution of the market is important in determining its attractiveness in that markets with a high percentage of the population in this age group are more likely to catch on to new technologies, such as the mp3 player, and are more prone to purchase trendier consumer electronics. Countries with the highest percentages of population in the age group 15 to 64 were given the highest rankings in this category, and vice versa. A 5% weight was placed on this category because, although it is important for the market to be comprised of this target age group, this factor was not considered to be as important as any of the other factors for the aforementioned reasons in the preceding paragraphs. Short Criteria Summary: Based on the quantitative model, Japan is ranked as one of the most attractive markets to enter due to its relatively low points ranking. Although the market is very saturated already, the Japanese economy has one of the highest consumer electronic growth rates. The high technological infrastructure suggests that the Japanese often invest in faster, stronger, and state-of-the-art technologies whenever available as to keep up with the economic world leaders. The United States has a very large population, high GNI per capita, high technological infrastructure, relatively considerate disposable income levels, and is one of the largest consumer electronic growth markets. It is a prime market to enter due to the fact that although the market is somewhat saturated, the high disposable income leads to people spending more on new products even if they have a similar substitutes. South Korea is a relatively unattractive market because it has a relatively small population, relatively low average disposable income levels, and low GNI per capita. Although the country passed through the filters, the market economy is just relatively too poor for us to enter.

IV. QUALITATIVE ANALYSIS

(MEGAN’S PART)


2.) Be sure to do a qualitative analysis of your countries in addition to the quantitative

analysis. Discuss your qualitative analysis. Which countries are most attractive based on your qualitative analysis? Rank the attractiveness of the countries based on this analysis. Discuss why the top countries come out as most attractive based on the qualitative analysis.

V. SUMMARY

3.) How consistent are the quantitative and qualitative conclusions? If they are

consistent, explain why you think they are consistent. If they are not consistent, explain why you think they are not consistent. If they are not consistent, how would you rank the attractiveness of the countries?


1

Worldwide Markets for MP3

Players

GLOBAL MARKETING MANAGEMENT Assignment 2

Elizabeth Doherty Michael Marzouk

Keith Parker Megan Ramer

Gisela Vendrell


2

I. INTRODUCTION TO MP3 PLAYERS This analysis will conclude in the development of a list with eight countries that are most attractive to the MP3 player market. To begin, a brief overview of the product itself is necessary. The term MP3 player is a generic term used to refer to portable digital audio players. Namely, these are devices that store, organize, and play digital music files. The user of an MP3 player would load their MP3 player with songs downloaded from the Internet or with music “ripped” (the process of copying music from your CDs to your hard-drive) from traditional CDs using a computer. It is important to note that ownership or access to a computer is a definite prerequisite to the purchase of an MP3 player, as computers are necessary to load the MP3 player with music and/or other data types. There are a wide range of types and models of MP3 players available to current markets today. Range in price is from US$60 to US$400; thus this analysis will emphasize an interest in high-income countries, especially as computer access is necessary for a market to be desirable. The main benefit MP3 players provide over traditional methods of playing music is its ability to store thousands of songs with easy access in a small package. MP3 players are often connected to home stereos or in cars to play music through these systems. Concurrently, there is a growing market for pseudo-MP3 players with cell phone capabilities, video capabilities, and other varieties of uses. An overview of the current MP3 player market shows that MP3 players are currently enjoying the most dynamic growth of any product in the ‘personal or portable audio product’ market; vis-à-vis the attractiveness of high income markets, our interest in these markets is validated by the lack of market saturation and continued growth in the MP3 player market in high income countries. Most of the growth in the MP3 player market has been the result of the wildly successful Apple iPod®. MP3 demand remains in its product cycle infancy in several major markets, notably the United Kingdom; consumers in the UK have shown a reluctance to change from mini-disc players to MP3 players, therefore there is still much room for growth. The research firm IDC predicts that the MP3 player market will experience 20% growth each year for the next few years and hit US$58 billion in revenues towards 2008. In Spain there was a growth of 562% from February to September 2004 alone. China’s market for MP players has also shown attractive, with a 250% increase year-on-year in demand in MP3 players predicted. In 2004, China’s market for MP3 players maintained strong momentum in its growth, seeing a steady rise in both sales volume and sales revenue. Falling chip prices and intensified market competition resulted in continuous price drops in the MP3 player market, combined with a growing recognition and acceptance among users, have resulted in large growth in the Chinese market. The US market has proven its worth in this market as well, with an estimated US$5.7 billion in manufacturer sales in 2006 (almost three times its worth of just over US$1.9 billion in 2001. Furthermore, the percent of US households with MP3 players is expected to jump from six percent in 2004 to as much as 25% by the


3

end of 2006. Nonetheless, the top brands and manufacturers of MP3 players are not well known, with the exception of the iPod®.

II. MAIN CRITERIA

Through the utilization of a complicated filtering model, we have prioritized countries in terms of attractiveness for marketing MP3 players. After analyzing country markets, we have selected a short list of eight countries from all the countries in the world to examine in more detail. The following criterion was used in this initial filtering process. High-Income Countries: After immense contemplation, our group decided to focus on wealthy countries possessing a significant “high-income” population. High-income countries are ideal for MP3 players because inhabitants will likely possess the disposable income, as well as the technological education, to purchase and use them. Through in-depth research on the MP3 market, we found that no country already possesses a saturated MP3 market. Therefore, our group decided to focus on markets where it is feasible and viable for a large number of consumers to afford and desire MP3s. According to our data, there are fifty-four countries classified within these terms.

NOTE: Initially we decided to aim our marketing effects toward upper- and lower-middle income countries. This notion was based on the principle foundation that high-income countries will likely already possess a saturated MP3 market, as disposable incomes are high and MP3 players have recently become increasingly popular. We wanted to focus on finding a less saturated market where our MP3 could quickly gain market share upon introduction. However, after applying a complete filtering model to these upper- and lower-middle income countries, we realized that the data associated with upper- and lower-middle income countries (i.e. GDP, growth rate, population density, number of PC’s in use, etc.) was not in concordance with what we felt to be the necessary characteristics for an ideal country for MP3 players. Ultimately our filtering model concluded with the following countries: Argentina, Chile, Czech Republic, Hungary, Malaysia, Russian Federation, Slovak Republic, Thailand, Turkey (please refer to the Appendix for data and the criteria used with this version of the filtering model). Although this list seemed reasonable, we did not believe that these ten countries were the absolute best for our product. We therefore generated a wholly new filtering model, starting with high-income countries, and implemented this model to see which countries to analyze in more detail.

Population: Population indicates the total population within a specified country. We are seeking countries with large populations because, even though a large portion might be unable to afford MP3 players, a high population typically implies a larger market size, higher growth potential, the possibility for a larger quantity of consumers, and so on. Because of these favorable attributes, we are seeking to find countries with large


4

populations, thereby eliminating any countries with populations less than fifty million people. Age Distribution: Analyzing the age distribution of the market is important in determining a country’s overall attractiveness, since markets with a large percentage of residents within the ideal range will inevitably provide a larger purchasing group for the product. We choose to target countries with a high percentage of residents within the range of 15 to 64 because those within this span make up the large age group of people most likely to purchase an MP3 player. Furthermore, people within this age group are likely to be more technologically advanced and in-tune with new trends and technologies. This means that this range makes up the age group of people most likely to purchase new consumer electronics, such as an MP3 player. We selected countries that possess a percentage of at least 65% of their population within the age range of 15 to 64. GNI per Capita: The GNI per capita indicates the Gross National Income per person in the specified country. Because countries with the highest GNI per capita are likely to be best able to purchase this relatively expensive product (most retail for anywhere from $70 to $500 US), we eliminated any countries where the GNI per capita was less than $25,000. Disposable Income: Disposable income is the amount of income that consumers are able to keep for the purchase of luxury or unnecessary items, such as MP3 players. Because MP3 players clearly aren’t necessary for survival, they are considered a luxury product. High annual disposable incomes are necessary to enable the purchase of such an expensive item. Consumers will only be able to consider buying this product if they have the financial purchasing power to do so. Therefore, in order for a country to be attractive for the MP3 player, a significant proportion of its residents must have an ample amount of purchasing freedom, as indicated by high annual disposable income. We have selected an annual disposable income of $25,000 as an indicator of attractiveness. Internet Users: As previously stated, MP3 players require a PC hook-up, as well as access to the internet. This is necessary in order for the user to download music onto the product. It is therefore necessary for a country to have not only a large number of PC’s in use, but it is equally important for a country to have a significant number of internet users, as well as readily available internet access. We looked for countries where the percentage of internet users was at least forty. PC’s in Use: The number of PC’s per capita is an important indicator for a country’s overall attractiveness because this can be used as a general indicator for the technological capabilities of a country. In order for MP3 players to thrive within a market, it is imperative for the market to have fundamental technological knowledge and a desire to keep up with the latest consumer electrics or basic technological products. Personal computers are often seen as a somewhat generic form of technology. A country with a large population of PC users implies that inhabitants are adverse in the world of technology and are also able to afford luxury technological items. This is an extremely important indicator for MP3 players because the majority of MP3 players require PC’s to


5

setup the product and download music onto it. Therefore, we are targeting countries with the number of PC’s in use per capita greater than 0.4. Main Criteria Summary: After reviewing numerous factors for market attractiveness, we have utilized specific criteria to prioritize countries in terms of attractiveness for marketing MP3 players. After analyzing country markets, we have selected a short list of eight countries from all the countries in the world to examine in more detail: United States, UK, Japan, Hong Kong/China, Germany, South Korea, France, and Italy. Not only did our data analysis illustrate these countries as possessing optimal markets for MP3 players, but several sources also verified our findings. For example, the CIA fact book stated in January 2006 that “the percentage of US households with MP3 players will jump from about six percent in 2004 to as much as 25 percent by the end of 2006.” It was also stated in November 2004 that “China’s market for MP3 players is growing with a 250-percent increase.” Using these statements and our collected data as evidence, we have selected these eight countries as potentially successful markets for our product.

III. SHORT CRITERIA ANALYSIS

After narrowing all of the countries in the world down to a list of eight countries, we utilized a quantitative multi-factorial model for evaluating this short list of countries and prioritized the short list in terms of attractiveness for your product or service. The following describes and justifies the criteria used for evaluating these eight countries. Population: The population indicates the total population of the given countries. Ranks were assigned to the countries based on the total population, higher populations being assigned higher ranks. Although much of populations may not be able to afford the product in question, this is adjusted for with the disposable income and GNI per capita indexes. Population was given a 12% weight because it is important in determining the market size which directly correlates with the potential profit to be made in each country; the population is not as important of an indicator as other factors which more accurately display the amount of the population may be captured with this product.


6

GNI per Capita: The GNI per capita indicates the Gross National Income per citizen of the given country. Ranks were assigned to the countries based on a higher GNI per capita indicating a more attractive market. Countries with the highest GNI per capita are likely to be best able to purchase the product. GNI per capita was given a 10% weight because it’s not as strong of a determinant in ability of consumers to purchase the product, with more weight given to the related criteria of disposable income. Technology Infrastructure/ Internet Users: Tech infrastructure indicated the amount of technology available to consumers, most notably the number of computers in use in the market per capita; it is necessary for a consumer to have a computer to be able to use an mp3 player, therefore there must be a high computer usage rate for consumers to even consider purchasing the product. Countries with a higher computer usage per capita were given higher rankings, because it would follow that they are more likely to purchase mp3 players. Tech Infrastructure was given a 20% weight because the product’s success depends highly on the amount of infrastructure, specifically PCs, in place within the country in question. Disposable Income: Disposable income is the amount of income that consumers are able to keep for the purchase of luxury items, such as mp3 players. As mp3 players are largely seen as a luxury item, high disposable incomes are necessary in order for consumers to consider purchasing mp3 players. Ratings were assigned to countries based on highest disposable income levels, adjusted to a common currency. Disposable income was given the high weight of 20% because it is seen as one of the most important factors leading to the adoption of mp3 players into the population. Only if consumers have high disposable incomes will they be able to purchase mp3 players. Lack of Saturation: Lack of saturation indicates the stage of penetration in regards to mp3 players that the market is currently in. With a high lack of saturation (i.e. low market saturation), markets are more attractive due to the lack of competition and market penetration. Markets with high levels of saturation were rated least attractive, while markets with low levels were labeled most attractive. The market saturation factor was given a weight of 15% largely because it is very important in a market such as mp3 players, where the first into the market tends to become the market leader (i.e. iPod in the United States). Nonetheless, it is not as determinant of a factor as disposable income or tech infrastructure because it is most important for consumers to have the ability to purchase the product (these two highest weighted indicators are signs of purchasing power in relation to mp3 players) Consumer Electronics Growth Rate: The consumer electronics growth rate indicates the growth in the given countries of the consumer electronics industry over the last two years, representing signs for future growth of the mp3 market important in determining long-term company goals. Countries were rated based on GMID data on the growth rates in the luxury consumer goods sector, with higher growth rates given a higher overall rating. An 18% weight was given to this category because of its importance in determining where the market is heading over the coming years, and thus a strong indicator of potential growth in company products after entering the market.


7

Age Distribution: Age distribution indicated the percentage of country residents within the age group most likely to purchase mp3 players, those aged 15 to 64. The age distribution of the market is important in determining its attractiveness in that markets with a high percentage of the population in this age group are more likely to catch on to new technologies, such as the mp3 player, and are more prone to purchase trendier consumer electronics. Countries with the highest percentages of population in the age group 15 to 64 were given the highest rankings in this category, and vice versa. A 5% weight was placed on this category because, although it is important for the market to be comprised of this target age group, this factor was not considered to be as important as any of the other factors for the aforementioned reasons in the preceding paragraphs. Short-Criteria Summary: Based on the quantitative model, Japan is ranked as one of the most attractive markets to enter due to its relatively low points ranking. Although the market is very saturated already, the Japanese economy has one of the highest consumer electronic growth rates. The high technological infrastructure suggests that the Japanese often invest in faster, stronger, and state-of-the-art technologies whenever available as to keep up with the economic world leaders. The United States has a very large population, high GNI per capita, high technological infrastructure, relatively considerate disposable income levels, and is one of the largest consumer electronic growth markets. It is a prime market to enter due to the fact that although the market is somewhat saturated, the high disposable income leads to people spending more on new products even if they have a similar substitutes. South Korea is a relatively unattractive market because it has a relatively small population, a relatively low average disposable income level, and a low GNI per capita. Although the country passed through the filters, the market economy is just relatively too poor for us to enter.

IV. QUALITATIVE ANALYSIS

Ranking of attractiveness of our eight countries based on Qualitative Analysis: 1. USA 2. China and Hong Kong 3. Japan 4. UK 5. South Korea 6. Germany 7. Italy 8. France

USA: The United States presents the most attractive market because of local familiarity with the product, and historical receptiveness to MP3 marketing campaigns. A strong marketing infrastructure is already in place and there are only a few key players in the market so far. There is a large population in our targeted income segment and excellent potential for this market. Consumer attitudes towards MP3 players are very receptive.


8

Cons: Barriers to entry. Apple’s iPod currently has a huge proportion of market share, making it difficult to envision a successful new player in the market. China and Hong Kong: This is also a very attractive market. An interesting advantage for entering China is that, since it still has a culture that values communist ideals, the Chinese culture encourages copying and borrowing of ideas. The modern day implications of this include the fact that file sharing on the internet is not seen as unethical. This makes MP3 technology very popular and will increase the demand for MP3 players. Furthermore, another interesting pro for the Chinese market is presented in the following graph:

According to the study on people who intend to buy an MP3 player in the next 12 months, 80% of the respondents from China already own one and are looking to replace it. Because people are already knowledgeable about the technology and are familiar with product features, downloading music, and listening to online radio broadcasts, MP3 manufacturers can take their marketing strategy to the next level in China and South Korea; that is, increasing brand loyalty and customizing features to these markets. One reason that China is not ranked as “most attractive” in our study is the issue of pirated technology. Western firms must keep in mind that Asian companies are quick to copy technology and drive prices down. For example, when Creative Technologies of Singapore introduced a small, patented MP3 player called the MuVo, knockoffs were soon found in the streets of Shanghai made by 40 different companies. In the end, the


9

company had to use Chinese manufacturers to make bargain versions of its products for the Chinese market and sell them at lower prices. (Fishman 233) Japan: Japan is an attractive market but not as much so as the previous two. Pros: Japan and several other countries in the Asia-Pacific region lead the world in terms of technical innovation as well as receptiveness to new technologies. Also, Japan is more industrialized than several of the other Asian markets. Thirdly, Japan is considered a ‘lead’ market in many categories and knowledge gained there can be applied around the globe. Cons: Unfamiliarity with distribution channels and customer profiles. Although Japan is an attractive market, much more information needs to be collected before a marketing plan can be formulated. The United Kingdom: Pro: This market is similar in a lot of ways to the US market, so tailoring a marketing plan to the UK customer won’t be too difficult. Apple’s iPod already has market dominance in the country, but there is plenty of opportunity for growth. The consumer is still in the ‘curious’ stages with MP3 technology, as evidenced by the preceding graph. Of the British respondents who intend to buy an MP3 player in the next year, only 30% have owned one before. Cons: the UK is not as digitally savvy as the “Asian Tigers” listed above, and is not nearly as aggressive in terms of adopting new technology. South Korea: South Korea presents itself as an exciting opportunity, but presents more challenges in terms of unfamiliarity with marketing infrastructure there. Parks Associates, an independent research firm, recently ranked nations according to their ‘digital living index’, a statistic that examines the availability, adoption rate, and use of technology-driven products and services in a given country. Korea was ranked second on this list behind Taiwan (BBCnews.com). It is obvious that the South Korean population would be receptive to MP3 players despite the marketing challenges. Germany, Italy, and France: These three countries came out with relatively similar results in the qualitative analysis. They are not as attractive because they are not “lead markets” since Europeans give preference to low-priced solutions in the MP3 industry. A poor design and mediocre performance will not prevent them from use. In these countries, the most popular MP3 players are currently also the least sophisticated. (mobile-review.com)

V. CONSISTENCY ANALYSIS In order to reconcile our two rankings, one must thoroughly consider all aspects of attractiveness in a market. The first most obvious discrepancy on our two lists is the placement of Hong Kong/China. Quantitatively, the country ranked #7 out of 8. This is due to the use of GNI per capita as a filter variable, since it does not take into consideration the vast income disparities. Because of the huge population, there is still a viable market of 30+ million upper income consumers. This was taken into consideration


10

along with the receptiveness to new technology and the aggressive rate of innovation, and leads China to be ranked #2 in our qualitative study. Next, note the difference in the ranking of South Korea. Upon considering the variables of population size, average disposable income, and GNI per capita, South Korea seems like a market of little use to the MP3 industry. But consider also that Korea is one of the “Asian Tigers;” that is, nations with a passion for technology and innovation who are experiencing rapid growth in the technology sector right now. Samsung, the number two maker of MP3 players in the entire world behind Apple, is located in Korea. The nation has tremendous pride in their production of new technological products and the market is incredibly receptive and quick to adopt new technology. This is why South Korea was last in terms of quantitative analysis but came in 5th in our qualitative discussion.

VI. CONCLUSION

After extensive marketing, statistical, and informational research, we have found the top countries’ markets into which we feel it would be most advantageous to enter. There are a wide range of types and models for MP3 devices varying at different price levels and there are countries whose economy cannot support up-to-date technologies and can, therefore, not afford to purchase these products. The quantitative and qualitative reports above prove that after a very thorough filtering process, quantitative analysis, and qualitative analysis, only the optimum markets that will generate the greatest revenue and return on investments are left in the pool. An overview of the current MP3 player market shows that MP3 players are currently enjoying the most dynamic growth of any product in the ‘personal or portable audio product’ market. The attractiveness of high income markets with low saturation levels and continued growth patterns lead us to believe that these countries will be great to enter with the product. Most of the growth in the MP3 player market has been the result of the successful iPod. MP3 demand still remains in its product-cycle infancy in several major markets such as the United Kingdom. The research firm IDC predicts that the MP3 player market will experience 20% growth each year for the next few years and hit US$58 billion in revenues towards 2008. In Spain there was a growth of 562% from February to September 2004 alone. Although the iPod is the most recognizable MP3 player in the United States, it is not that well known in markets with low saturation. If MP3 product imaging can be reinforced in the UK, it will make for a very valuable market economy to enter as shown by the quantitative and more so the qualitative analysis.


Qua

ntita

tive

Ana

lysi

s

Po

pula

tion:

12

%

GN

I per

C

apita

: 10

%

Tech

In

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ruct

ure/

In

tern

et

Use

rs: 2

0%

Dis

posa

ble

Inco

me:

20

%

Lack

of

Satu

ratio

n:

15%

Con

sum

er

Elec

troni

c G

row

th

rate

: 18%

Age

D

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n:

5%

Tot

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USA

1

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1 .1

1

.2

6 1.

2 5

.75

7 1.

26

2 .1

3.

63

UK

5

.6

3 .3

6

1.2

4 .8

4

.6

1 .1

8 5

.25

3.88

Ja

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2 .2

4 2

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3 .6

1

.2

7 1.

05

6 1.

08

3 .1

5 3.

37

Italy

6

.72

6 .6

8

1.6

3 .6

2

.3

3 .5

4 7

.35

4.36

H

ong

Kon

g 8

.96

7 .7

2

.4

7 1.

4 6

.9

2 .3

6 1

.05

4.72

Ger

man

y 3

.36

5 .5

4

.8

5 1

3 .4

5 8

1.44

4

.2

4.55

So

uth

Kor

ea

7 .8

4 8

.8

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8 1.

6 8

1.2

4 .7

2 8

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6.16

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8 4

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3.37

2

USA

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63

3 U

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Fran

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4.03

5

Italy

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6 G

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7

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s


11

VII. APPENDIX, part 1 The following is the criteria that we used for our first filtering model. However, as discussed earlier, Argentina, Chile, the Czech Republic, Hungary, Malaysia, Russian Federation, Slovak Republic, Thailand, and Turkey, are ultimately not the best and more viable markets for MP3 players. We therefore structured a new filtering model with revised criteria and concluded with a new set of countries, which we felt were better matches for our product. Regions: Lower-middle-income economies and upper-middle-income economies Total Population: > 4,000 Urban Population: > 55% Population between15-64: 3,500 Percentage of Households with Annual Disposable Income > 15000 GDP growth: > 3.5% PC's in Use: # per capita > 0.5 Imports: > $20,000,000,000

Criteria 1 Criteria 2 Criteria 3 Criteria 4 Criteria 5 Criteria 6 Criteria 7 Criteria 8 Albania Algeria Algeria Algeria Algeria Algeria Algeria American Samoa Angola Angola Angola Angola Argentina Argentina Argentina Argentina Argentina Argentina Argentina Argentina Armenia Azerbaijan Azerbaijan Azerbaijan Azerbaijan Azerbaijan Azerbaijan Barbados Belarus Belarus Belarus Belarus Belarus Belarus Belize Bolivia Bolivia Bolivia Bolivia Bolivia Bolivia Bolivia Bosnia and Herzegovina

Bosnia and Herzegovina

Botswana Brazil Brazil Brazil Brazil Brazil Bulgaria Bulgaria Bulgaria Bulgaria Bulgaria Bulgaria Bulgaria Cameroon

Cameroon Cameroon Cameroon Cape Verde

Chile Chile Chile Chile Chile Chile Chile Chile China China Colombia Colombia Colombia Colombia Colombia Colombia Colombia Congo, Rep.


12

Costa Rica Costa Rica Costa Rica

Croatia Croatia Croatia Cuba Cuba Cuba Cuba Czech Republic

Czech Republic

Czech Republic

Czech Republic

Czech Republic

Czech Republic

Czech Republic

Czech Republic

Djibouti Dominica Dominican Republic

Dominican Republic

Dominican Republic

Dominican Republic

Ecuador Ecuador Ecuador Ecuador Ecuador Egypt, Arab Rep.

Egypt, Arab Rep.

El Salvador El Salvador El Salvador El Salvador

Equatorial Guinea Estonia Fiji Gabon Georgia Georgia Georgia Grenada Guatemala Guatemala

Guyana Honduras Honduras Hungary Hungary Hungary Hungary Hungary Hungary Hungary Hungary Indonesia Indonesia Iran, Islamic Rep.

Iran, Islamic Rep.

Iran, Islamic Rep.

Iran, Islamic Rep.

Iraq Iraq Iraq Iraq Jamaica Jordan Jordan Jordan Kazakhstan Kazakhstan Kazakhstan Kazakhstan

Kiribati Latvia Lebanon Lebanon Lebanon Lebanon Lesotho Libya Libya Lithuania Macedonia, FYR Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Maldives Marshall Islands Mauritius


13

Mayotte Mexico Mexico Mexico Mexico Mexico Micronesia, Fed. Sts.

Moldova Moldova Morocco Morocco Morocco Morocco Morocco Namibia Nicaragua Nicaragua Nicaragua Northern Mariana Islands Oman Palau Panama Paraguay Paraguay Paraguay Paraguay Peru Peru Peru Peru Peru Peru Peru Philippines Philippines

Philippines Philippines Philippines Philippines Poland Poland Poland Poland Poland Romania Romania Russian Federation

Russian Federation Russian

Federation Russian Federation

Russian Federation

Russian Federation

Russian Federation

Russian Federation

Samoa Serbia and Montenegro

Serbia and Montenegro



Seychelles

Slovak Republic

Slovak Republic

Slovak Republic

Slovak Republic

Slovak Republic

Slovak Republic

Slovak Republic

Slovak Republic

South Africa South Africa

Sri Lanka Sri Lanka St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines

Suriname Swaziland Syrian Arab Republic

Syrian Arab Republic Syrian Arab

Republic Syrian Arab Republic

Thailand Thailand Thailand Thailand Thailand Thailand Thailand Thailand Tonga


14

Trinidad and Tobago

Tunisia Tunisia Tunisia Tunisia Tunisia Tunisia Tunisia Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkey Turkmenistan Turkmenistan

Ukraine Ukraine Ukraine Ukraine Ukraine Uruguay Vanuatu Venezuela, RB

Venezuela, RB

West Bank and Gaza

VIII. APENDIX, part 2

Total Population 2005 Age distribution Rank Country Pop Rank Country % Population 15-64

1 CHINA (excluding TAIWAN) 1,307,802 1 China - '000 72% 937,542.11 2 INDIA 1,094,583 2 India - '000 62% 681,509.04 3 UNITED STATES 294,931 3 USA - '000 65% 192,260.21

4 INDONESIA 220,558 4 Indonesia -

'000 67% 147,172.86 5 BRAZIL 180,641 5 Brazil - '000 68% 122,291.30

6 PAKISTAN 155,772 6

Russia - '000 71% 100,525.35

7 BANGLADESH 142,968

7 Bangladesh - '000 63% 89,940.74

8 RUSSIAN FEDERATION 142,322 8 Pakistan -

'000 57% 88,187.46 9 NIGERIA 141,115 9 Japan - '000 67% 85,264.85

10 JAPAN 127,169 10 Nigeria - '000 67,975.85 11 MEXICO 105,332 11 Mexico - '000 66,822.39

12 PHILIPPINES 84,392 12 Germany -

'000 67% 55,643.08 13 VIETNAM 82,966 13 Vietnam - '000 53,840.79

14 GERMANY 82,491 14 Philippines -

'000 51,056.18 15 TURKEY 72,636 15 Turkey - '000 47,568.00 16 ETHIOPIA 71,256 16 Iran - '000 45,945.57

17 EGYPT, ARAB REP. 69,907 17 Thailand -

'000 43,995.36

18 IRAN, ISLAMIC REP. 67,468

18 Egypt - '000 43,806.46

19 THAILAND 62,732

19 United Kingdom - '000 67% 39,451.36

20 FRANCE 60,090 20 France - '000 66% 39,362.30 21 UNITED KINGDOM 59,315 21 Italy - '000 68% 39,029.66 22 ITALY 57,471 22 Ethiopia - '000 37,967.66 23 CONGO, DEM. REP. 56,446 23 South Korea - 70% 33,792.66


15

'000

24 MYANMAR 50,429 25 KOREA, REP. 48,364 98 HONG KONG, CHINA 6,873

Total Population 2005 Age distribution

Rank Country Pop Rank Country % Population 15-64

1

CHINA (excluding TAIWAN) 1,307,802

1 China - '000 72% 937,542.11

2 INDIA 1,094,583 2 India - '000 62% 681,509.04

3 UNITED STATES 294,931

3 USA - '000 65% 192,260.21

4 INDONESIA 220,558 4 Indonesia - '000 67% 147,172.86 5 BRAZIL 180,641 5 Brazil - '000 68% 122,291.30 6 PAKISTAN 155,772 6 Russia - '000 71% 100,525.35

7 BANGLADESH 142,968 7 Bangladesh -

'000 63% 89,940.74

8 RUSSIAN FEDERATION 142,322

8 Pakistan - '000 57% 88,187.46

9 NIGERIA 141,115 9 Japan - '000 67% 85,264.85 10 JAPAN 127,169 10 Nigeria - '000 67,975.85 11 MEXICO 105,332 11 Mexico - '000 66,822.39 12 PHILIPPINES 84,392 12 Germany - '000 67% 55,643.08 13 VIETNAM 82,966 13 Vietnam - '000 53,840.79

14 GERMANY 82,491 14 Philippines -

'000 51,056.18 15 TURKEY 72,636 15 Turkey - '000 47,568.00 16 ETHIOPIA 71,256 16 Iran - '000 45,945.57

17 EGYPT, ARAB REP. 69,907

17 Thailand - '000 43,995.36

18 IRAN, ISLAMIC REP. 67,468

18 Egypt - '000 43,806.46

19 THAILAND 62,732 19 United

Kingdom - '000 67% 39,451.36 20 FRANCE 60,090 20 France - '000 66% 39,362.30

21 UNITED KINGDOM 59,315

21 Italy - '000 68% 39,029.66

22 ITALY 57,471 22 Ethiopia - '000 37,967.66

23 CONGO, DEM. REP. 56,446

23 South Korea - '000 70% 33,792.66

24 MYANMAR 50,429 25 KOREA, REP. 48,364

98 HONG KONG, CHINA 6,873

Households (% of total) with an annual disposable income over

US$25,000 Ann disposable income 1 Japan 97.73 Rank Country 2 Norway 93.17 1 Indonesia - Rp mn 1,374,486,043.13

3 Switzerland 91.28 2 South Korea -

Won mn 480,130,071.91 4 Austria 85.94 3 Vietnam - VND mn 421,415,743.06 5 France 85.19 4 Japan - ¥ mn 312,630,642.58 6 Finland 82.97 5 Colombia - Col$ mn 158,044,763.98 7 Kuwait 82.38 6 Venezuela - Bs mn 156,763,765.65

8 United Arab Emirates 82.2

7 Chile - CH$ mn 36,196,837.13

9 Ireland 79.89 8 Turkmenistan - 26,494,568.04


16

TMM mn 10 Netherlands 77.56 9 Belarus - BRb mn 24,155,757.04 11 Denmark 75.14 10 India - Rs mn 21,293,107.32 12 Italy 74.66 11 Hungary - HuF mn 10,837,275.43

13 United Kingdom 73.91

12 Russia - Rb mn 9,101,532.41

14 Germany 73.56 13 USA - US$ mn 7,477,666.48 15 USA 73.37 14 China - RMB mn 7,389,459.38 16 Belgium 72.92 15 Taiwan - NT$ mn 7,171,265.90 17 Singapore 72.78 16 Nigeria - NGN mn 5,552,590.30 18 Canada 72.02 17 Mexico - MX$ mn 4,889,658.68

19 Hong Kong, China 69.41

18 Thailand - Bt mn 3,825,975.15

20 Sweden 67.85 19 Slovenia - Tolars

mn 3,599,808.69 29 South Korea 33.41 20 Pakistan - PKR mn 3,344,239.82

21 Algeria - DZD mn 3,144,991.98

22 Kazakhstan - KZT

mn 2,797,351.15 23 Philippines - Ps mn 2,690,530.79 24 Germany - € mn 1,442,282.84

25 Czech Republic -

CK mn 1,347,267.47 26 Sweden - SEK mn 1,160,816.52

27 Hong Kong, China

- HK$ mn 1,052,179.26 28 France - € mn 1,010,459.86 29 Brazil - R$ mn 982,255.29 30 Italy - € mn 906,395.22 32 Slovakia - SKK mn 763,409.51

33 United Kingdom -

£ mn 761,609.43

Internet users PC's Rank Country % Internet users Rank Country #

1 United States 69% 203,824,428

1 USA - '000 208,760.84

2 China 8% 111,000,000

2 China - '000 80,620.19

3 Japan 68% 86,300,000

3 Japan - '000 54,996.40

4 India 50,600,000 4 Germany

- '000 40,998.60

5 Germany 59% 48,722,055

5 South Korea - '000 27,816.75

6 United Kingdom 64% 37,800,000

6 United Kingdom - '000 26,834.25

7 Korea, South 70% 33,900,000

7 France - '000 23,927.49

8 Italy 50% 28,870,000 8 Brazil -

'000 22,156.39

9 France 44% 26,214,174 9 Russia -

'000 21,979.35

10 Brazil 25,900,000 10 India -

'000 16,254.06

11 Russia 23,700,000 11 Italy -

'000 16,153.65

12 Canada 20,900,000 12 Canada -

'000 15,946.62

13 Indonesia 18,000,000 13 Mexico -

'000 14,480.73


17

14 Spain 17,142,198 14 Australia

- '000 12,539.05

28 Sweden 6,800,000 15 Taiwan -

'000 10,582.54

37 Hong Kong 71% 4,878,713

16 Spain - '000 10,330.10

High-income economies (56) # COUNTRY 2,005 Andorra Germany Netherlands

Antilles 1 Luxembourg 65,630 Antigua and Barbuda Greece New

Caledonia 2 Norway 59,590 Aruba Greenland New

Zealand 3 Switzerland 54,930 Australia Guam Norway 4 Denmark 47,390 Austria Hong Kong,

China Portugal

5 Iceland 46,320 Bahamas, The Iceland Puerto Rico 6 United States 43,740 Bahrain Ireland Qatar 7 Sweden 41,060 Belgium Isle of Man San Marino 8 Ireland 40,150 Bermuda Israel Saudi

Arabia 9 Japan 38,980 Brunei Darussalam Italy Singapore 10 United Kingdom 37,600 Canada Japan Slovenia 11 Finland 37,460 Cayman Islands Korea, Rep. Spain 12 Austria 36,980 Channel Islands Kuwait Sweden 13 Netherlands 36,620 Cyprus Liechtenstein Switzerland 14 Belgium 35,700 Denmark Luxembourg United Arab

Emirates 15 France 34,810 Faeroe Islands Macao, China United

Kingdom 16 Germany 34,580 Finland Malta United

States 17 Canada 32,600 France Monaco Virgin

Islands (U.S.) 18 Australia 32,220

French Polynesia Netherlands 19 Italy 30,010

20 Hong Kong, China 27,670

21 Singapore 27,490

22 New Zealand 25,960 23 Spain 25,360 # Country 2005 2006 2007

1 Indonesia - Rp mn 1,374,486,043.13 1,596,909,350.84 1,742,964,106.88 2 South Korea - Won mn 480,130,071.91 510,231,897.46 544,602,867.97 3

Vietnam - VND mn 421,415,743.06 467,118,278.68 511,549,310.65 4 Japan - ¥ mn 312,630,642.58 321,676,351.05 331,267,880.68 5 Colombia - Col$ mn 158,044,763.98 171,979,364.52 184,899,752.16 6 Venezuela - Bs mn 156,763,765.65 178,444,191.53 211,418,691.63 7 Chile - CH$ mn 36,196,837.13 37,988,412.27 39,834,053.73 8

Turkmenistan - TMM mn 26,494,568.04 29,730,841.44 32,656,137.48 9 Belarus - BRb mn 24,155,757.04 26,868,678.94 29,647,894.27


18

10 India - Rs mn 21,293,107.32 23,062,632.54 25,338,228.29

11 Hungary - HuF mn 10,837,275.43 11,574,707.33 12,642,643.96 12 Russia - Rb mn 9,101,532.41 10,302,955.08 11,532,467.15 13

USA - US$ mn 7,477,666.48 8,043,168.44 8,457,068.63 14 China - RMB mn 7,389,459.38 8,040,952.37 8,597,607.49 15 Taiwan - NT$ mn 7,171,265.90 7,506,190.89 7,828,024.53 16 Nigeria - NGN mn 5,552,590.30 6,211,961.40 6,832,932.52 17

Mexico - MX$ mn 4,889,658.68 5,168,746.27 5,477,916.26 18 Thailand - Bt mn 3,825,975.15 4,203,965.36 4,449,513.25 19

Slovenia - Tolars mn 3,599,808.69 3,781,210.19 3,913,243.02 20 Pakistan - PKR mn 3,344,239.82 3,688,387.78 4,070,785.91 21 Algeria - DZD mn 3,144,991.98 3,410,187.10 3,668,471.39 22 Kazakhstan - KZT mn 2,797,351.15 3,238,073.46 3,657,361.97 23 Philippines - Ps mn 2,690,530.79 2,955,349.79 3,176,421.85 24 Germany - € mn 1,442,282.84 1,492,796.60 1,556,810.45 25 Czech Republic - CK mn 1,347,267.47 1,409,835.87 1,482,432.71 26 Sweden - SEK mn 1,160,816.52 1,192,411.52 1,234,871.85 27

Hong Kong, China - HK$ mn 1,052,179.26 1,079,778.20 1,160,627.92 28

France - € mn 1,010,459.86 1,057,726.71 1,104,186.39 29

Brazil - R$ mn 982,255.29 1,042,153.15 1,109,369.32 30 Italy - € mn 906,395.22 965,860.90 999,116.69 32

Slovakia - SKK mn 763,409.51 825,226.31 880,074.59 33

United Kingdom - £ mn 761,609.43 797,497.12 827,703.32 # Country 6th semester Rank Country Internet users

1 China - '000 937,542.11 1 World 1018057389 2

India - '000 681,509.04 2 European Union 230097055

3 USA - '000 192,260.21 3

United States 203824428

4 Indonesia - '000 147,172.86 4 China 111000000 5 Brazil - '000 122,291.30 5 Japan 86300000 6 Russia - '000 100,525.35 6 India 50600000 7 Bangladesh - '000 89,940.74 7 Germany 48722055 8

Pakistan - '000 88,187.46 8 United Kingdom 37800000

9 Japan - '000 85,264.85 9

Korea, South 33900000

10 Nigeria - '000 67,975.85 10 Italy 28870000 11 Mexico - '000 66,822.39 11 France 26214174 12 Germany - '000 55,643.08 13 Vietnam - '000 53,840.79 14 Philippines - '000 51,056.18 15 Turkey - '000 47,568.00


19

16 Iran - '000 45,945.57 17 Thailand - '000 43,995.36 18 Egypt - '000 43,806.46 19 United Kingdom - '000 39,451.36 20 France - '000 39,362.30 21 Italy - '000 39,029.66 22 Ethiopia - '000 37,967.66 23 South Korea - '000 33,792.66

IX. APENDIX, part 4

2000-01 2001-02 2002-03 2003-04 2004-05 Leisure and personal goods retailers S1 United Kingdom - £ mn 2.19 5.24 8.41 6.44 4.96 Hong Kong, China - HK$ mn -5.84 -4.42 -2.99 2.01 2.64 Italy - € mn 2.53 2.15 3.28 5.37 2.2 South Korea - Won bn -0.01 8.28 3.72 2.18 1.63 France - € mn 2.92 2.45 2.38 1.87 1.51 Japan - YEN bn -5.98 -11.84 -0.27 2.24 0.49 USA - US$ mn -0.66 0.31 1.97 3.63 0.45 Germany - € mn -0.59 -7.02 -5.28 -2.07 -0.94 2000 2001 2002 2003 2004 Leisure and personal goods retailers S1 United Kingdom 586.84 595.58 624.9 675.17 716.43 Hong Kong, China 652.27 608.74 576.54 551.86 556.5 USA 555.03 546.66 543.83 550.08 565.54 Germany 492.89 489.41 454.04 429.52 420.17 Japan 490.91 460.23 405.29 403.71 412.29 Italy 326.57 333.88 340.09 350.43 368.57 France 302.06 309.35 315.3 321.09 325.38 South Korea 140.01 139.19 149.77 154.42 156.89


20

BIBLIOGRAPHY BBC News. 2006. <http://BBCNews.com> CIA World Fact Book. 2006. < https://www.cia.gov/cia/publications/factbook/index.html> Encyclopedia of the Orient. 2006. < http://lexicorient.com/e.o/morocco_2.htm> Euromonitor International. 2006. <http://www.euromonitor.com> Fishman, Ted. “China Inc: How the Rise of the Next Superpower Challenges America

and the World.” New York: Scribner Press, 2006 ISI Emerging Markets. 2006. <http://www.securities.com> Mobile Review. 2006. <http://mobile-review.com> Wikipedia. 2006. <http://www.wikipedia.com> The World Bank. 2006. <http://www.worldbank.org> World Trade Organization. 2006. <http://www.wto.org>


Assignment #3 Marketing 465

Global Marketing Management

The objective of this assignment is to research and understand the differences in products and how they are marketed between an overseas country and the U.S. The Los Angeles area is a particularly rich area in which to obtain some in-depth information about aspects of the marketing environment in other countries because it is such a cosmopolitan city with markets carrying imported goods from all over the world. You should choose a market that specializes in importing foreign foods and make a field visit to the market. The product category you should focus on for this assignment is room temperature pre-prepared packaged sweet snacks. Therefore, the product category includes items like cookies and candy. The room temperature specification excludes sweet snacks that are refrigerated or frozen such as ice cream. The pre-prepared specification excludes items like cake mixes and gelatin mixes that must be cooked or baked before they can be eaten. The packaged specification excludes fresh baked items, like fresh baked muffins and fresh baked cakes that can be bought in certain sections of U.S. supermarkets. In choosing a market that specializes in imported foods, you can choose one from any part of the world. However, make sure that the market you visit has a sizeable section of pre-prepared packaged sweet snacks. For example, Mitsuwa , a Japanese supermarket with locations in Little Tokyo, Mar Vista (West L.A.), Torrance, and a couple other locations, has a sizeable section of imported goods in this category from Japan. There are import stores from many other parts of the world too that have nice sized sections of imported sweet snacks. If you are unsure where to find these other markets, then focus on Japan and Mitsuwa. However, if you can find a store from another part of the world that has an ample section of sweet snacks, then feel free to select that store instead of Mitsuwa. As an example, there are nice sized markets in Los Angeles that import many food items from Korea, Taiwan, Mexico, and other countries. If the import store you visit does not have a large or representative sample of sweet snacks from that country, you may need to go to a second import store from your country to get a fuller picture of the category in your target country (and put the results together from the observations at both stores). Everyone should also visit an American supermarket (like Ralph’s, Vons, Albertsons, etc.) to compare U.S. sweet snack products with their overseas counterparts.

In visiting the stores, you should think about the full set of characteristics related to one of the four P’s, the product. Therefore, you should consider the a) types of products that are sold in the category, b) the characteristics of the products such as their ingredients, look, and taste, c) the positioning of the products, d) the packaging, e) the branding, f) the product line and variations associated with a brand, g) the type of customer support offered, if any, and h) any other aspects of the product that are relevant. When you visit the import market, you should spend some time examining the range of products available in the sweet snack category -- in other words, you should think about the kinds of products available in this category in the other country. When you visit a U.S. supermarket, you should think about the same question, namely the range of products available in this category in the U.S. Based on these visits, you should be able to develop some insights into the similarities and differences in the kinds of products in this category in both countries.

You should purchase five import products that you will analyze in more detail. You can then take the products home, examine them closely, open them up, examine the appearance and texture of the products, and taste the products if you’d like. Your five products should be different products as opposed to different flavors of the same product (e.g. Pocky from Japan comes in many different flavors but these different flavors of Pocky would not be considered different products). Make sure the products you select are produced in the foreign country and sold in the same packaging that is used in that country. For example, the Japanese packages at Mitsuwa usually, but not always, have an obvious label slapped onto the product with an English translation of the product and its ingredients. Also, the products in packages that are sold in Japan will typically have bar codes that begin with a “4;” one exception to this is when the barcode in on the slap-on label with English translation in which case it will not begin with a “4.” In addition to examining the slap-on translation labels (when they are available), you might want to ask some foreign friends or other students at USC to help you translate some of the additional items on the packaging to further understand what is written on them (this is optional since typically the translations you need will be on the slap-on translation labels). You should then purchase five products from the U.S. supermarket to compare to your foreign products. You should choose five U.S. products that you believe are most similar to your foreign products. In some cases, you will not be able to


find a similar U.S. product; that is fine as a product highly specific to another culture may not have a U.S. equivalent. In this case, you should choose a U.S. product that you think is the closest to your foreign product (even though it may not be that close) of the available U.S. choices. In thinking about the kinds of products available in both countries, please note that some types of products are not imported into the U.S. In particular, international brands available in both the U.S. and foreign countries are typically not imported into the U.S. from other countries. For example, the following products are available in stores in Japan but are not imported from Japan: Mars products such as M&M’s and Snickers, Nestle products such as Kit Kat, Hershey products such as Kisses, and Nabisco products such as Oreo cookies. Please note that this assignment focuses on the full set of characteristics related to one of the four P’s, the product policy; you do not need to analyze pricing, distribution, or advertising for this assignment. For your paper, you should address the following issues: 1.) What are the similarities and differences in this product category between your chosen country and the U.S., 2.) What are your hypotheses about what accounts for the similarities and differences between the product category in the

two countries, and 3.) If you were a consultant to an American sweet snack food company about to enter your chosen country market, what

recommendations would you make to them about what elements of the product policy could be standardized across the two countries, what elements would need to be adapted, and how they would need to adapt the product policy.

Be sure to tell me the name and location of the import store you visited and what country they specialize in. The bulk of the paper should focus on the first of these three issues. This part of the paper should include your analyses of the range of types of sweet snack products available in the foreign and American stores you visited and the specific analyses of each of your five pairs of foreign and U.S. products. If appropriate, feel free to use exhibits or tables to assist in presenting these analyses. Along with your paper, you should include the packages of your five foreign and U.S. products in a bag labeled with the names of the members of your group; you do not need to include the contents of the packages. Every member of your group should visit the import market that you select for this project (all of you do not need to visit at the same time, but everyone should visit at some time to learn first hand about the market and its products). Please do not choose a country to analyze where any member of your group has lived before for more than a year. Also, do not choose the country that you already analyzed for the first assignment (the environmental profile).


The Thai and Americans alike are very fond of candy, as are most cultures.

While these two countries, The United States and Thailand, both have a bit of a sweet

tooth, there are clearly differences in the types of sweets consumed by these markets. At

first appearance, many of these candies look extraordinarily foreign. To some it may

appear that size is the only similarity in these products (While this is not the only

similarity, it is true that both markets prefer their snacks in single-serve sizes).

Nonetheless, it’s important to take a second glance at the common types of candies in

these two markets and uncover the similarities between the two. In identifying product

similarities, a US company can discover whether their product strengths are attractive in

Thailand, as well as understand the extent to which the potential export must be adapted

to the Thai market.

To begin, there are a few key similarities in the types of candies sold that must be

observed. Five candy products were chosen from the Thai market, three of which had

very similar types of candy available in the US. The differences in these products will be

discussed later. Most similar of these were the Gummy Bears. The Gummy Bears from

Thailand were in a shiny plastic package, of similar shape and size to that of its US

counterpart. Even further, both packages prominently display a drawing of a bear sitting

down next to the Gummies. The English translation of the name is even “Jolli Bears,”

which is much too similar to the western name “Gummy Bears” to be coincidence (Or

even to the name “Rubber Bears” under which the product was first created by the

German company Haribo in 1922). Clearly, this product has been adopted from western

markets into the Thai market and has kept many of its distinctive features both as a

product and in its packaging. However, The product has been adapted to the local market


in a few ways that will be discussed in the next section. Vis-à-vis these similarities, a

parallel may be made between these Gummy products and the next product we have

selected for comparison: A chocolate bar that bears a strikingly similar taste and texture

to the Crunch bar that is well known in the United States. Again, looking past product

adaptations to the Thai market, these two products are similar in size, basic shape, taste,

and texture (though slight differences in taste and texture are recognized later). This

parallel doesn’t hold true for product packaging, as we will see in the next section.

Both the Thai and the US market seem to enjoy dried fruit as well. Both markets

have wide variety of dried fruits, including the dried mango analyzed from the US

purchases in our sample and the dried apricot purchased from the Thai market. Both

products feature similar packaging, in both size and shape. Further, both packages

incorporate a small clear window so that the purchaser can view the product itself.

Clearly, this detail displays the emphasis that both Americans and Thai put on the

appearance of their foods; this point will be expanded upon in the analysis of these

similarities. Further exhibiting this preference are the other eight products sampled from

the US market and the Thai market (with the exception of the Crunch Bar) which all

prominently feature a drawing or photograph of the product being sold or a clear window

through which the product can be seen.

Identifying the similarities in candy products found in these two very different

markets is essential in deciding on entering the Thai sweets market. Single-serving

packaging, product types, packaging (to an extent), preference placed on product

appearance (i.e. clear ‘windows’ in product packaging), and even product mascots (the


Gummy ‘Bear’) are all important similarities in these markets that can be used by

marketing teams in adapting a new product meant for Thai candy stores.


MRKT-465 8/23/06 4:06 PM

Importance of international business and Global Marketing Challenges of going abroad The PEST analysis

• What is Culture? • Developing a social/ Cultural profile • Implications for marketing • Focus on Japan

Highlights

• World is becoming more globalized • Large number of customers have significant international sales • Competitors are increasingly likely to be international customers

Many markets in the US are already nearly completely saturated, so many companies are growing more overseas Reasons for going global

• Market seeking reasons o Local market saturated

Product has competitive advantage over local products Local market may be limited

• Resource seeking reasons o Less expensive factors of production

Lower cost labor More relaxed regulations

• Changing Ind. economics o Access to global scale

• Competitive positioning o Competitors are going global, so many companies have to go

global to survive • Scanning and learning capacity

Why is marketing important in going into a new market

• Branding

MRKT-465: Class Notes

• Product awareness through promotions, advertising • Research into understanding the customers in each market we go

into o Understand the decision-making unit and process – Who is

making the decision for different products in different regions?

o Usage behavior – What do people normally use the product for in that region?

o Customer needs and preferences in relation to the product o Marketing will figure out the product policy

What features are going to go into the product? Product features will be different in different regions

Branding/Packaging Product line Language has to be localized Positioning – how will the product be positioned in each

region - who are the competitors? – competitor analysis - segmentation

Distribution – will be different region to region Price – pricing strategy in each country – what is

‘reasonably priced’ in individual countries Product and service opportunities

Challenges that companies face when they go abroad

• Cultural differences • Product entry barriers within the country – strong saturation

already exists in the country • Regulatory environment/ Political environment • Company management • Marketing/ Distribution • Economic environment • Technological environment • Customers differences

The PEST Challenges • Political and Regulations • Economic and Financial


• Social and Cultural • Technological

The Product Market Situation – The 3 C’s • Customer, Company, Competition

Positioning in relation to language

• Customer service and support • Packaging • Language used in advertising – using an Italian word in an add to

make the product sound classy • Signage at the retail outlet has to be customized • Segmentation and targeting – Different dialects in different regions

of countries Language

• In Japanese language o Three writing systems: Kanji, Hiragana, Katakana, Romanji o The different writing styles have different connotations –

Romanji is used to make something seem more western and modern

o The language is more indirect in its style o One talks differently to different classes and ages of people

Religious and Ethnic groups

• Japan is very homogenous in this regard o 96% say they are Shinto o 76% say they are Buddhist o 1% Christian o 12% Other

• India is the opposite, many different groups and languages o Hindi and English are the official languages, used mostly

among middle-upper class o The lower class uses the language local to their region

Holidays

• In Japan


o Emperor’s Day o Respect for the aged day o December 28th – January 3rd: Western New Year o Valentine’s Day (adopted from the US)

Women give presents to the guys One month later, guys give more expensive presents

back to those chicks who gave them shit earlier Aesthetics, Art and Music

• Traditional Japanese music, traditional string instruments • Avant-Garde music (edgy, non-traditional) • Western classical music • Traditional Japanese art, harmonious nature • Modern art (seen a lot in Tokyo) • Cutesy animation and art • Why are these things important

o For segmenting and positioning your product o If marketing traditional products to older people, ads and

packaging and music in ads will be more traditional in nature o Vis-versa if targeting the younger audience

Tastes

• Many tastes are very culturally specific • Some food products just wouldn’t sell at all in some markets


MRKT-465 8/31/06 2:08 PM

Cases excluded: perfect substitutes, perfect complements, and satiation • The nickels and dimes example illustrates perfect substitutes. The

MRS is a constant • With perfect compliments, the MRS is infinity, undefined, or zero • More on slides…

The budget constraint

• I = p1x1 + p2x2 • Solving for x2 we have x2 = I/p2 – (p1/p2)x1

o Where x2 will be placed on the vertical axis. This is a linear equation with intercept I/p2 and slope – (p1/p2).

Demands

• Solve (1) and (2) for x1 and we have Marshallian demands • For either I, fix all other prices and income and vary own price.

This gives us simple demand. Many commodities: composite good Application: Employee housing subsidy

• Utility: u = u(H,M) • Budget: I=pH+M

Price subsidy

• New budget: I=(p-s)H+M • New equilibrium: (Hs, Ms) • Cost to the firm: Ms-A=(I-A)-(I-Ms) = [pHs-(p-s)Hs]=sHs

Cash grant: lump-sum

• Give the employee the cash that the firm would spend on the price subsidy = sHs

• The new equilibrium is shown at (Hm,Mm) • Yields higher utility than price subsidy

In-kind subsidy


• Use expenditure on the subsidy sHs to purchase housing at the price p. Give this amount of housing to the employee directly

• This amount of housing is given by sHs/p=Hd • Equilibrium: (Hd,I) • In figure 8, this performs worst


MRKT-465 9/25/06 8:18 PM

Developing an Economic/ Financial profile Implications for marketing Focus on Mexico Cases

• Laundry practices in Mexico • Vietnam’s market potential

About 200 countries in the world

• How many with more than 100 million people? 11 Countries o China o India o Brazil o Mexico o USA o Japan o Russia o Indonesia o Pakistan o Bangladesh o Nigeria

World Bank divides countries into five groups

• High income: US, Japan, Western Europe, Canada, Australia, New Zealand, Singapore, Hong Kong, Korea, Taiwan

• Upper Middle income: Mexico, Brazil, Russia, Poland, Argentina • Lower Middle income: Turkey, China, Malaysia, Indonesia, Thailand,

Egypt • Low income: Nigeria, Congo, Cambodia, Laos, India

Wealth – GNI/capita – adjusting to PPP (Purchasing Power Parity)

• Relates how expensive things are in that country compared to the income per capita

• How rapidly is that wealth growing? After looking at the wealth of a country, the next thing to look at is the:

• Size of the economy


o Population o Adjusting for PPP

Economic distribution

• By region o Most of Mexico’s wealth is in Mexico city, Monterey,

Guadalajara o Important to know for many reasons

• Urban vs. rural o Mexico is 75% urban; China is about 35% but is urbanizing

rapidly • By income level

How would you market laundry detergents in Mexico


MRKT-465 9/29/06 9:48 PM

Countries with 100 million or more High income countries in the triad 37 Countries have populations of 30 million or more

• There’s about 200 countries, so that’s less than 20% of all countries Developing an Economic/ Financial profile Implications for marketing Vitenam’s market potential ACER case Looking at financial factors

• Inflation o Typical in US: 2 or 3%; some countries run much more

inflation o Mexico from 1980-90: inflation @ 72.1%

From 1990-99, @ 19.3% o How does inflation affect business decisions?

• Exchange rates • Interest rates

o Mexico: lending rate decreased tremendously from ’97-‘03 • Structure of economic activity

o Size of imports and exports o Imports and exports by product category o Major trading partners

• Foreign investment o Amount o By sector o By country

• Economic statistics by sector o Production, services, agriculture

• Structure of Private consumption o India spends 43.4% of its income on food, while the US

spends 8.4%. This shows where opportunities are as it shows where people are spending their money


A technological profile

• Geography and Climate o Size of country o Major geographical features o Population density o Climate

• Basic infrastructure o Water o Electricity o Sanitation

• Transportation infrastructure o Transportation networks o Vehicles

• Communication and Information technology o Media

Newspapers and magazines Televisions Radios Cable and satellite TV connections

o Communications o Information technology

• Household technology o Kitchen technology o Cleaning technology o Entertainment technology o Climate control

Using Global Market Information Database Opportunities and Challenges in Vietnam

• Looks like an attractive market to enter The ACER case study we were supposed to read for today


MRKT-465 9/25/06 8:45 PM

Developing a Political/ Reg profile Implications for marketing Protecting trademarks and intellectual property against imitators Euro Product opportunities Customer analysis: Needs and preferences Product/ branding policy

• Branding • Product line • Customer service • Product features • Packaging

Promotion/ Communication

• Advertising • Personal selling

Place distribution Pricing House vs. host country considerations

• Home country considerations o Promotion of exports o Restrictions on exports

• Host country considerations Type of government

• Political system o Democratic vs. Authoritarian o Structure of government

• Political parties o Single-party dominant


o Dual party o Multiple party

• Government centralization vs. decentralization Role of government in the economy www.heritage.org

• Numbers on the types of governments in countries • A republican thinktank

www.prsgroup.com

• Risk guide o Provides rating for how risky it is to enter a specific country’s

market www.wto.org

• Trade statistics for countries GMID – Global Marketing Information Database Monday (9/18/6) will be doing the Citibank case

• Will post case preparation questions under ‘Course assignments’ Brand protection

• How do you protect your brand? o Legal means

Register your brand in every country Lobby government for better protection Take violators to court

• How do you use non-legal means/ marketing strategies to protect your brand against imitators and violators?

o Use distribution channel ties to keep out all imitators o Advertise/ communicate that the real product is better than

the copy product o Make registering product mandatory


MRKT-465 9/30/06 12:35 PM

Free trade area: removal of internal tariffs • Customs Union: adds common external tariffs • Common Market: adds free flow of capital and labor • Economic Union: adds harmonization of economic policy • Political Union: ads political integration

European Union

• Started in order to unite European countries so as to prevent wars between countries

• 1960s, original 6 members in a full customs union • Currently 25 members of the European Union • 1992, Europe became a common market • 1999, added common currency, became an economic union • After 1992, people and goods could move across borders freely

without lines or paperwork or passports o This makes things much easier for businesses in Europe

Elimination of trade and service barriers at the border Only need to meet one set of standards for al of Europe One currency Elimination of trade and service barriers at the borders

• Move products easily across borders • Set up operations easily across borers • Consumers can easily shop across borders

Only meet one set of regulations

• Develop one product for all of Europe • Consumers can buy products from other countries easily

One currency

• Elimination of exchange rate risks • Elimination of exchange rate conversion costs • Consumers can compare costs/ prices easily across borders (price

transparency)


More on EU • Companies can easily expand throughout Europe • Consumers can easily shop or make price comparisons across

borders • Raises competition and increases consumer choice

o Lower prices o Restructuring companies for greater efficiency o Consolidation of operation o Consolidation of supplies

• Effects on marketing o Easier distribution o Standardization of products across Europe o More standardization of marketing approaches through

Europe o Barriers to make this happen: cultural and language barriers o Pan-European products: products that are standardized and

sold across borders, with different languages on the packaging

Citibank case: challenges and opportunities

• Selecting/ prioritizing countries • Standard vs. adaptation of marketing and positioning

Challenges

• Political/ regulatory o Lack of adequate legal structure to collect bad debts o Regional restrictions on banking

• Technology o Lack of infrastructure o Some markets saturated o Credit checking infrastructure limited o Telecomm o Postal Service

• Economy o Low per-capita income

• Competitors


o Lower priced local competing credit cards • Cultural

o Use of credit cards varies among countries o Cultural attitudes about debt are negative

Benefits

• Growing economies • Big populations • Large number of wealthier people (even though they are a small

percentage of the population) • Don’t need branches – cross sell products • Wealthy people are concentrated in big cities, so it is easy to reach

them


MRKT-465 9/25/06 8:55 PM

PESTanalysis summaries • Germany, Morocco

Standard vs. adaptation of marketing strategy for Credit Card in Asia Pacific at Citibank Selecting and prioritizing markets Citibank case continued from previous lecture

• Premium o High income o Upper-middle income o Middle income (aspirational)

Incomes over $12,500 TV ads in Asia for Citibank cards

• Similarities o Premium positioning, reliable other premium features o Branding – logo: not just Via, Citibank Visa o Product and Product features

• Differences o Local people used and local languages o Some male centered, others female centered o Emphasis on different products o Targeting different age groups

Next case for Monday: P & G laundry detergent case


MRKT-465 9/25/06 4:00 PM

Highlights of PEST profile for Vietnam Selecting and Prioritizing countries

• Quantitative serving models Procter & Visir Gamble case Narrow Market Choices Industry Specific Indicators of Attractiveness Quantitative analysis of a market

• Population • GNI per capita • Density of population • Tech infrastructure

o Number of telephone lines per 100 households o Development and reliability of mailing system o Number of businesses with processing equipment

• Government regulations o For. Bank access to ?? o Restrictions on income levels of consumers o Laws for collection of bad debts

• Competitors o Intensity of rivalry among established credit card companies o How well established are the competitors o Is main competitor there or not? o # of competitors in the market

• Size of market o # of Credit Card holders

• Growth potential of market o Saturation of the credit card market o Population with incomes above $12,500 o GNI per capita

• Ability to reach target segment o Density of population o Density of people with incomes over $12,500


• Customer attitudes • Give different categories different weights (20%, 12%, et cetera)

Making a spreadsheet

• List categories, with subcategories • To the left of this, the weights (.11, .11, .2, et cetera) • To the left of this, countries, divided into two columns

o The number (24 Million for market size, for example) o The rating (# 9 among countries analyzed, for example)

• A weighted average (.11 * 24 million, for example) P & G case

• European versus US clothes washing • More loads versus fewer loads • Lower temperatures vs. boil wash • Some liquids vs. no liquids • Larger vs. smaller loads • Top loading vs. front loading • More synthetic vs. more natural clothing

Europe

• Lead market for laundry detergent • More sophisticated, more demanding, and more discriminating

about laundry and what a ‘good clean job’ is Within Europe – Many Markets

• Differences o Hand wash vs. machine wash

Hand wash: Italy and Spain Machine wash: UK and Germany

o Coupons not permitted in some markets, vs. OK in others o Regulations about packaging differ from country to country o Distribution: Large retailers vs. small retailers selling these

products o Phosphate regulations differ among countries o Formulas and features differ


• Similarities within Europe


MRKT-465 9/27/06 4:01 PM

Selecting/ Prioritizing Countries • Estimating attractiveness

P&G Vizir Types of Global/International Marketing Strategies

• Advantages and Disadvantages Class on Monday is informal, so people who come to class will just be splitting up into their groups and working on the group projects P&G case

• What was the main difference between the US and European markets?

o European market is more demanding, sophisticated market o What do we call a market like this?

A ‘Lead’ market • More adapted vs. more standard approach

o They were using a more adapted approach o Mini P&G in each country

Marketing Manufacturing Research and Development

o How was Ariel positioned differently in different countries? Low suds vs. high suds High temperature vs. Low temperature Nine different formulas

o As country’s differences begin to subside, the adapted model begins to become less effective

• Advantages of adaptive model o Tailor products to different customer markets and customer

characteristics o Respond more rapidly to developments in the markets or

competitive conditions • Disadvantages

o Higher costs, duplication of efforts across countries o Inefficiencies


o Manager in case says overhead costs in Europe are 50% higher than in the US

o Slow innovation, new product launches don’t move along very quickly

• Where was the market growth in the 80s? o About 2% a year, it had basically flattened out o Product life cycle: mature

• Wait only 4 months to launch product o Henkel might preempt o First mover usually gets the market o Consistent with innovative position

• Wait 1 full year for launching product o Standard procedure o The ‘safe’ way of doing things

Should they stay adapted (non-Eurobrand) or become Eurobrand

• Become Eurobrand o Economies of scale o Brand consistency – reinforce consistency o Good transfer of ideas o New type of products can be released faster and produced

more efficiently o Mature environment

• Stay non-Eurobrand o Consumer washing preferences still differ too much between

countries o Getting coordinated across countries will be easier o But they might not get support from regional managers


MRKT-465 10/4/06 4:04 PM

International Global Marketing Strategies – Advantages and Disadvantages How to achieve complex global strategy Kao case and marketing in Japan Going over what we learned about the P&G laundry detergent case study --On a graph-- Pressures for Globalization, standard and integrated

• Simple, Global When pressure for both the above and below are high, Transnational Strategy (or Complex Global) approach, this is the middle point Pressures for local adaptation/ customization

• Multidomestic: P7G before 1981 in Europe Coordination of Marketing activities High Not reliable P&G moves here Low P&G in 1980 High Low

Centralization of marketing activities Market Extension (or Ethnocentric) = E Multidomestic (or Polycentric) = M Simple Global (or Simple Geocentric)= S Complex Global (or Transnational, or Complex Geocentric) = C Fit to local customer preferences

• M & C Fit to local competitive condition

• M & C Responses to local Political/ Regulatory environment

• M & C Strong entrepreneurial managers

• M & C


Efficiencies and Cost reductions • S & C & E

Transfer of Learning • S & C

Consistency of image • S & C & Maybe E (Will have consistency, but may not be effective

for the country in question) Coordinating global competitive approach

• S & C Create a Matrix in Each manager’s mind

• Change the Organizational Culture and Mindset • Balance Global versus Local Concerns in Each Manager’s Mind

Mechanisms for coordination with dispersed resources Diaper case – P&G Entering into the Japanese market

• Size too big – The US kids are bigger than Japanese kids o It leaked o 2 times too big, twice as big as Japanese competitors

• Disposable diapers are more expensive than cloth diapers • Cultural: Mothers were slacking if they used the easy disposable

diapers • Cardboard boxes dented on shipping from the United States,

making it look like the diapers were of poor quality: packing is important to Japanese consumers

• Traditionally used cloth diapers made from Old Kimonos • These aren’t the reasons that P&G did poorly, these are difficulties

for the entire disposable diaper market, not just P&G Reasons for P&G doing so poorly

• Poor relationships with distributors • Distribution systems in Japan are very complex, P&G couldn’t

handle it without close relationships


• Not much shelve space, only a few packages on the shelves, P&G couldn’t restock quickly

• Competitor could restock quickly with computer based system, restocked within 24 hours

• P&G didn’t have this, often there were no Pampers on the shelves • Don’t have automates inventory system like their competitors • Retailers received less profit from Pampers’ product, so product

wasn’t emphasized and not much shelve space was given • P&G didn’t have a 24 hour hotline • P&G diapers too thick, packages were too big; competitor used

thinner diapers and smaller plastic packages • Absorbance was much lower than the competitors ,leading to more

leaking Three big challenges for marketing products in Japan

• Product quality • Product packaging • Distribution

P&G was using an ethnocentric marketing strategy for Japan, didn’t work so well

• How successful do you think they are going to be with the new Pampers? (after they changes their strategy)

• They start to give retailers higher margins, and slowly begin correcting distribution problems

• New Pampers are thinner, smaller, absorbency of new product much higher than the Japanese competitors, didn’t leak

• Changed to smaller plastic packaging They hold onto a 25% market share now, similar to their leading competitor On Monday will be discussing the next (Amdico) case


MRKT-465 10/9/06 4:01 PM

Kao case and marketing in Japan Joy of P&G in Japan Importance of Japan market International situation analysis EMDI Co (A) case Important factors in Japan Marketing

• Small box, things must be shrunk into small packaging o Small houses o Very little shelf space in stores

• Packaging represents quality, must have nice packaging • Quality is important to Japanese consumers

P&G vs. Kao: Advantages

• P&G o Deep financial resources from international process o Global presence allows for knowledge transfer and able to

take leading edge knowledge from different parts of the world and combine to come up with more powerful higher quality product

o P&G is known for its marketing, brand management • Kao

o Deeper understanding of the Japanese market and culture o Established brand loyalty o Very strong distribution system with close relationships with

distribution channels and automated inventory systems What can Kao do when it finds out that P&G will be releasing new product that is better than theirs?

• Strengthen ties with distribution to effectively block P&G from stores

• Begin to improve own product quality • Leverage strong brand equity • Come out with high quality product as soon as possible (case says it

will be one to two years)


How important is the Japanese market to a company like P&G? • In 1985, at the time of the case, P&G had lost money in Japan for

13 years • Strongly considered pulling out • Japan is a lead market, so they could take learning from Japan to

make themselves more competitive in other parts of the world • Huge market, important to be in Japan, one of the four largest

markets in the world • Competitor in Japan, Kao, wanted to be a global competitor to P&G,

by P&G staying in Japan, they are hindering Kao’s progress in becoming a strong globally competitive company

• P&G decided that Japan was in strategy very important to stay in, for the aforementioned reasons

In 1987, P&G started to earn a profit in Japan

• Top three, including Kao and Lion, suppliers of consumer household goods in Japan

Why was dishwashing soap category declining in market value year by year in Japan? More people eating out

• Kao and Lion have 40% each of the market in this category • What to do?

o More concentrated, grease cutting formula o High quality packaging o Offer distributors and retailers high margins o Combine global innovation with local Japanese innovation,

come up with high quality grease cutting formula o Small packaging, efficiently uses distribution space

Beginning on situational analysis

• The product marketing strategies • Three C’s plus ‘Market Condition’

Competitive factors

• Competitors and competitive positions • Competitive environment


o Products, Pricing, Distribution, Advertising • Your company’s competitive position

o Market share, et cetera • Customer factors

o Segmentation o Conditions of product use o Needs satisfied o Preferences o Perceptions of category offerings o Amount of cross-border communication

Amount of international travel Amount of media spillover

• Company factors o Core competencies o Stage of development of presence… o …

• Market factors o Stage of market development

Product life cycle stage o Strategic importance of market

Lead markets o Size o Growth

Why is it difficult to market film products in Saudi Arabia

• Women in pictures- not cool o Strangers can’t see women unveiled

• People wait for their film to be developed, watching to make sure that nothing sketch is going on

• Men do most of the shopping o Only 1/7th of women actually go to the store to buy products o They have 1/3rd influence in purchasing decisions

• Women take photos – done professionally in photo studios of in weddings


• Fairly wealthy customer base, indicates that there might be more potential here than what is indicated in the market by previous statements

• High disposable income among middle class o (By world standards, still lower than US)

• 92% of homes have cars, almost all have washing machines, 2/3rds have A/V equipment

• Why do they have so much disposable income? o No income tax, subsidized things, free health care, et cetera

• 25% of the population are expatriates, may not have same stringent beliefs as locals

• 49% less than 16 years of age – hook them early • Concentrated in Urban areas • Pilgrims, can’t take pictures of holy sites, et cetera, but some

extend their stay and become tourists with purchasing power for a little while before or after their pilgrimage

How much potential for the market here?

• 17 million people • Growing very rapidly, going to double by 2010 to 34 million people • These people are increasingly exposed to outside influences • Adopted satellite TV after 1990 war, most people have satellite TV –

increasingly exposed to ads and lifestyles from other parts of the world

• How much untapped potential? A good amount • Find a way to market film that assures people that they won’t be

breaking customs by using this product


MRKT-465 10/11/06 4:05 PM

Turned in assignment #2 EMDICO(A) Case and marketing in Saudi Arabia Selecting/ Prioritizing Country Markets II Customers

• Restrictions on photo taking, et cetera • When looking closely, it is clear that there is an untapped potential

here o Fairly wealthy people o Large group of young people o Large expatriate population o Satellite- large exposure to outside influences

• What must be done to tap into this potential? o Marketing that reassures people that photos are good

What kind of marketing approach would fit more with the cultural constraints of this country?

• Mini-labs – less than 1 hour developing: can watch what is being done and make sure no Islamic code is being broken

o 216 mini-labs at the time o Saudi Arabia: 78,000 people per mini-lab o U.S.: 12,000 people per mini-lab o Neighboring countries: 10,000 – 20,000 per mini-lab o Would expect Saudi Arabia to be (17,000,000 people divided

by 12,000) 1,416 mini-labs o 80% of mini-labs are in two cities

• Digital photo would be good for this market, but wasn’t around so much in 1990 when this case was presented

• Instant cameras (Polaroid style) Competitive Analysis

• Kodak (43%), Konica (44%), Fuji (8%) • Not much fierce competition

o Few mini-labs o Higher prices


o Little advancement o Not broad scale

Company (Fuji)

• Weakness o Latecomer o Negative perception o Negative perception because they sell in Israel o Distributor is good with cameras, but not so good with film

distribution o Only 16 of 216 mini-labs o 100 Retailers dropped Fuji in the last year

Why? Late deliveries, stock-outs, not good relationships with distributors

o Lower penetration • Strengths

o Medical x-ray • Where do they have strengths in other markets that they could

bring into this market? o Developed more compact, durable mini-lab o Fuji mini-lab machines have a lower break-even point

• Market share in surrounding countries – Over 30% market share in mini-labs in surrounding countries

Marketing

• Emphasize mini-labs, in the two main cities but especially in those outside of these two cities where Fuji will have a greater market share in entering the market

• Where else to distribute product? o Supermarkets and drugstores, more retail channels o Hotels, et cetera

• Lots of advertising o TV ads, sampling promotions o Reassure of no people seeing the photos as they are produced o Educate them about photography o Build Fuji brand awareness in the market


• 460 mini-labs in 1995, forecast 742 by 2006 o Fuji had the majority of these new mini-labs

Factors affecting country selection for a worldwide business

• Country Selection o Standalone attractiveness o Relative competitive strength o Global Strategic Importance

• Similarity to Home country and competitive strength o Companies first go to countries most similar to the home

country, because of knowledge and competitive strengths relevant to these kinds of markets

• BCG Matrix

•

• GE-McKinsey Matrix

• Exam on Monday

• Mostly Short Answer question, 70-75% • Multiple Choice, 23-30% • Won’t ask about anything that wasn’t covered in class • Concepts, cases, aspects, lessons of cases


• Examples that we’ve talked about, such as Joy or Mexico economic conditions

General topics on Midterm

• PEST: why is it important to go abroad? o How to develop a cultural and social profile o Implications of this profile for how to do marketing in this

country o Economic/ Financial profile o Implications for marketing o Technological profile o Implications for marketing o Political/ Regulatory profile o Implications for marketing o Sources of data for these analysis o Applied to many different countries o Economic conditions in Mexico

Laundry detergents in Mexico How this is influenced by the economic environment

o Looked at the EU, and how to do marketing in Europe o China and India, some things going on in these markets

relating to the size and growth rates of these markets o Countries with largest populations in the world, countries with

largest economies in the world o Stage of market development in different parts of the world,

(Low income, high income, et cetera) o Cases:

Barbie case Marketing industrial products in Latin America Vietnam’s Market potential Protection against imitators and trademark violators

How a company can protect itself ACER case

Won’t be included on the exam • Selecting Markets

o Assessing attractiveness


o Relative competitive strength o Strategic Importance o Filtering, Quantitative, Scoring, Qualitative o Citibank

• Global and International marketing strategies o Market extension o Mulit-domestic o Simple Global o Complex Global, Transnational o Advantages and disadvantages of each o How to achieve Complex Gloab o Cases:

Laundry detergent, P&G in Europe Kao, P&G and Diapers in Japan Dishwashing soap, P&G in Japan Won’t talk about Fast Food reading

o Marketing successfully in Japan o Marketing in Europe o Marketing in Saudi Arabia

• Situational Analysis o Customers o Competitive o Company o Market conditions and product life-cycle o EMDICO(A) case and marketing in Saudi Arabia

• Wont’s ask about student’s powerpoint slides


MRKT-465 10/23/06 4:03 PM

Consumer tastes around the world and convergence Levitt’s simple global approach – case study High quality and low cost global products will beat out adapted products

• Global scale permits low cost and low price, and high quality • Customers will choose lower priced, higher quality products even if

they are not exactly tailored to part habits and local market needs • The Japanese approach – uses this idea

o Consumer electronics, automobiles • The global corporation

o Accepts and adjusts to differences reluctantly • This is basically the simple global approach to things • Global Strategy and an equidistant mindset

o Focus internationally, not domestically o Global strategy requires global perspective o Don’t use ethnocentric approach

• The new borderless world o Free flow of info around the world

Developing a global product

• Averaging product will produce lackluster results • Design products for lead market

Different types of products require different attention Headquarters mentality can get in the way

• End up being ethnocentric Customers are becoming more alike

• Need to see customers around world from equidistant mindset Levitt has a point, but only applies to certain products Quelch & Hoff’s perspective on global marketing: Customizing global marketing


Globalization isn’t either-or

• Different elements of the marketing mix and different levels of standardization

• Different types of products Standardization and product type

• Globalization: lower prices and transfer ideas and conserve managerial resources

• Don’t customize for small markets, it just won’t produce a profit because customization requires many resources

Product Policy can be broken down into elements Elements of product policy

• Product positioning • Branding • Product features • Packaging • Product line • Customer support

Can break the above elements down further McDonalds is different in different places, yet similar too- I Like! Categorizing

• Categories along the top o Very Adapted o More adapted o In between o More standardized o Very standard

• Categories along the left-hand side o Low price, predictable, American style fast food: Very

Standard


o For kids: More standard than adapted o Hip place to hang out: More adapted than standard o Branding: Name, color, logo: Very standard


MRKT-465 10/25/06 4:05 PM

Marketing internationally used to be focused on the triad, now more emphasis on emerging markets in order to gain more market share in these markets, which are generally less saturated Marketing in developing countries

• Babysan & Pampers in Chile • Corporate Imperialism • Kit Kat & Chocolate covered wafers in Chile • P&G Feminine care case

Babysan diapers market share in Chile was 90%, then it was bought by Pampers

• Over years, P&G phased out Babysan name and made Pampers name more prominent

• Over the years, market share went to 30-40% • Babysan used to be in red packaging, changed packaging when

bought by Pampers • Other company used name Babysec, took market share • In 2003, P&G changed name from Pampers back to Babysan

Kit Kat bars in Chile

• How to change them for a lower-class market in Chile P&G is a world leader in international marketing P&G FemCare case

• GBUs – doing more advertising o Media buying o Overall strategy for each product category o Evaluated on the basis of P&L (Profits and Losses) o Advertising o Branding is managed here o Pricing decisions o New product development

In Japan, US, and Germany Developing marketing


o Packaging o Product manufacturing and supply o Product positioning

• MDO – doing more direct customer marketing o Responsible for executing the marketing in each region or

country o Market development o Distribution and Retailing o Evaluated on the basis of sales revenue o Promotions

• Communication and coordination between these two groups o Global Brand teams o Weekly teleconferencing o 4 times per year face-to-face meetings o E-mails and phone calls o Become friends with each other o Rotate managers

FemCare case

• Focusing on Mexico and China • Mexico

o Customers Rush down Femcare aisle Know what they want, very demanding Good quality at affordable/ low price 20-25% Premium market 55% Mid-tier market 25% Lower market

o Competition Very competitive market

Saba – 26% - Mid-tier P&G – 21% - Premium K-C Kotex - Mid-tier

• China o Customers

Study products carefully before buying


Not so embarrassed purchasing these products, linger in the feminine care aisle for more time

Buying 2-3 different brands/products at one time Good quality at affordable/ low price 10% Premium market 40% Mid-tier market 50% Lower market

o Competition Competition very fragmented Many small local brands, over 1,000 selling locally Global competition

All five major global brands represented Two Japanese companies and three US companies

P&G Market Share – 11% Market share leader

Strong Chinese competitor – Has 15% of market P&G is premium product in China, while other players

are mid-tier or low-tier


MRKT-465 11/1/06 4:13 PM

2 Perspectives on global branding Lay’s around the world Global Cola Marketing and Cola Wars in China Cola taste tests

• Coke – Blue Lines • Pepsi – Disney • Go – Floral • RC – Blue palms

Reaching mass markets in low-income countries

• Create a good quality good value product • Global branding should mean global brand leadership

o Should strive for having the best brands around the world, but not necessarily standardizing everything about these global brands

o Companies that use global brand standardization and unconnected and directionless local brand strategies will find mediocracy as its reward

• Prof’s brilliant marketing strategy for ‘making great success’: Make a inexpensive product of top quality with perfect distribution- High Five!

Glocalization (Clever) – get the right blend of global and local emphasis Challenge for Global Brands

• Glocalization in managing global brands • Lightening rods for anti-globalization • Very salient in minds of consumers

Global Consumer Segments

• Global citizens (55%) • Global dreamers (23%) • Antiglobals (13%) • Global Agnostics (8%)


Opportunities and responsibilities in managing global brands Coke as a global brand

• Brand image • Distribution

o Philosophy to put the product within arms length of desire • Advertising

o Very important because they know they’re selling a brand o General strategy in each region – to support the brand image o Coke sponsors sporting events in each country, but different

types of sports for each country; use young, hip celebrities in adverts, but this is localized for each region

Future Cola as a global brand

• More adverts in rural areas in China o Coke and Pepsi are strong in the big cities on the eastern

seaboard of China o Less than a third of China’s population lives in the cities in

this region o Future Cola is going after the 2/3rd rural population, with less

purchasing power per capita but there are many more of them

• Lower prices • Very strong relations with Chinese distributors


MRKT-465 11/6/06 4:23 PM

Coca Cola case • How does Coke decide what to standardize in markets and what to

adapt • Standardize things that are globally strategically important

US

• Coke – 41% Market Share o % of Sales – 24% o % of Profit – 20% o Profit Margin – 21.7%

• Pepsi – 31% o % of Sales – 68% o % of Profit – 80% o Profit Margin – 15.6%

Internationally

• Coke – 45% o % of Sales – 76% o % of Profit – 80% o Profit Margin – 29.9 %

• Pepsi – 14% o % of Sales – 32% o % of Profit – 20% o Profit Margin – 6.2%

This data sucks for Pepsi Strategic importance of China in Cola/ Beverages – Why is this so strategically important

• Huge market, already one of the four largest markets in the world for beverages

• Disposable income is growing, market not yet saturated • Competitors are starting out on a more level playing field • Can upset the dominance of the global leader if you dominate this

market


Chinese companies are typically known for their operations, not marketing knowledge

• Recently some Chinese have started to master western marketing techniques

• Wahaha Marketing skills are like western skills o What are they doing in China? o Engaged in brand-building efforts, developed a strong brand o “Good for children” o Many sponsorships o Sophisticated advertising, lots of advertising, mostly on

national TV network o Celebrity endorsements o Know Chinese customs very well

• Where does Wahaha have a clear advantage over Coke & Pepsi? o Very strong in the rural markets o Great relationships with distributors in the rural markets o Lower price o Position as a Chinese brand o More product variety o Taste of Cola is tailored to Chinese preferences

• How worried is Pepsi about all of this? o Should be worried, but Pepsi and Coke both have very large

budgets and many more years of experience o Distribution is a problem

• Market shares in China o Coca-Cola – 42% o Pepsi-Cola – 23% o FutureCola – 18%

• Coke left India in 1977 because they didn’t want to give away their secret formula

o 1989, Parle Group (Thumbs Up Cola and Limca Cola) 90% of market share, Pepsi entered market

o 1993, Pepsi had 33%, Parle group had 60% o 1993, Coke bought Parle, suddenly had 60% of market share o Coke put all of their marketing budget behind Coca-Cola,

didn’t advertise Parle products


o This didn’t turn out too well, looked like Coke was ruining this local brand that people were proud of

o Coke went down to 53% in late 90s while Pepsi went up to 40%

• What can Coke do in this situation? o Adapt much more to the local market o Sponsor local events o Get Indian celebrities on ads o Show local Indian settings o Sell Both Global brand and local Brand, emphasize Thumbs

Up so they have a better image


MRKT-465 11/8/06 4:14 PM

Sweet snacks around the world International/ Global Advertising and Communication Deremate.com Case Coke ads: sports in ads (whichever sport is most popular in each country)

• Target Audience o Highly Standardized or Mass Market

• Objectives o Highly Standardized o Push vs. Pull o Image o Positioning

• Theme and promotional message o Highly standardized, Refreshing, Relaxing, Hero’s Elixir

• Platform o Highly standardized, same structure, storyline

No Class on the Wednesday before Thanksgiving Differences in Latin America internet business

• Lower penetration of internet throughout the population o Mostly upper-income and younger generation

• Unreliable internet infrastructure, instability on internet connections • Differing methods of payments, don’t use debit/credit cards, mostly

cash • Not into collectibles, selling electronics and cars • Selling older products that might be considered junk in the US • Using to monetize for old assets • Don’t have a well-developed reliable set of delivery options


MRKT-465 11/15/06 4:03 PM

Global Brand face-off Global marketing movie marketing Unilever in India Product placement in movies The grid and the Grid revisited Espoir’s Marketing Decision Espoir in India, shrunk package size, decreased price, and other things to customize products for India

• Indian reaction Arguments for the global campaign, against campaign Managers in Espoir

• Like the global idea, but want it mixed with localization • Quantify benefits and costs of global versus local campaign • Implementation is lacking in generating good buy-in for managers

across the country • What was the problem with the way she introduced this global-plan

campaign? o Said that marketing (including advertising and product line)

parts should be globalized, parts should be localized o Could have said that local managers could localize around the

suggested platform Eastern European manager could use eastern European

beauty queens in advertising, while still using the marketing plans from headquarters

o Shouldn’t have used simple global, should have used complex global

o Common platform, localize around the platform o Should have gone with a bottom-up approach and team to

develop the campaign


o Not dictating, should have been more of an orchestrator instead

o Headquarters could pay for the global campaign, and leave local managers with as much budget for local advertising as they were going to have before

o Lesson: Simple Global dictating = bad Not Global Dictating (i.e., not being a dumbass) = good

o What movies go global best? Action movies, easily translated, very few cultural nuances and cultural humor

o Positioning movies is different in different countries. Brilliant. • Reasons for movies being released simultaneously around the world

o Frustrating movie fans by making them wait months, might not go to theater when it finally comes out

o Counterfeit products o Will order US version before it is released in local cinema o Bad reviews don’t have time to spread

• Movie stars don’t like simultaneous rollouts, talk-show appearances aren’t staggered, have to promote movie all around the world at the same time

• Second problem- need to translate and dub these films before worldwide release

• In many countries there aren’t many cinema screens, might have to wait until screens become available

• Fourth problem, release timing (in US films are released early summer, other countries have different optimal times for releases)

Unilever® in India case

• #1 consumer products in India • Market share in India is 40-45% of market • Great sales and distribution network • Lots of different products and brands

o Personal care products o Fabric Care/ Detergents o Beverages and food products (Knorr food brand) o Femcare, compete with P&G in this market

• Very strong brands


• Local reputation – Hindustan Lever – JV’s with local shareholders • Urban areas

o Represent about 25% of the market, or about 250 million people

• Is Lever strong in rural areas? o Strongest of anybody in rural areas, but still not that much

penetration o Which rural areas have they reached already?

Accessible rural areas – in the vicinities of major cities How much of a market do these accessible markets

make up? About another 250 million people (25%) o Inaccessible rural areas

• Challenges and opportunities o Growth in urban areas o Many of global players

P&G Colgate-Palmolive L’Oreal Kao

o Profits have been declining o New local players

Local Indian players are targeting tier three of customers

• Lever introduced two new tier three brands • Designed these new brands from scratch


MRKT-465 11/20/06 4:04 PM

Global/ International advertising and promotion Unilever in India Marketing in an Indian Village – Kelve Localizing advertising and promotion

• Advantages o Resonate/ connect with customers more deeply o Avoid insulting o Media available for advertising varies o Customer needs and behavior varies o Competition varies o Regulations vary

• Disadvantages o Costly o Uses more managerial resources o Confusing customers about positioning and branding o Not reinforce brand as people hear messages across borders

• Growth of cross-border media spillover o Growth of the internet, people see ads across borders could

be confused over branding and positions o Satellite and Cable TV- brings programming and advertising

from other countries into the living room o International travel- people travel abroad more often,

inconsistent messages across borders, especially in Europe, could become confusing

Selecting media and the communications tool

• Availability • Regulations • Habits and intended audience

o Which media or communications vehicle is our target audience most receptive to?

• Fit of the Objectives/ Message to the media or communications vehicle

• Cost


Unilever in India • Shakti Entrepenuers

o Distribution to the inaccessible small, poor villages in India (who account for 50% of India’s population)

o Train women to distribute goods, increase their household income by 50%

o Working with SHG’s to obtain microfin for entrepreneurs • ShaktiVani

o Organize groups in local villages to educate about personal hygiene and health

o Communication vehicle for Unilever products • Shakti

o Access to internet in Shakti home store o Draws people to the Unilever distribution point o Communication about Unilever products through online

advertising on these computer terminals Challenges to this program set up by Unilever

• Sellers need training, support, and education in order to be successful

• Need to scale up the program nationally in India without raising resources needed too much in order to make this program work

• Can they make it profitable? • Self-Help groups and humanitarian groups, as well as consumers,

have concerns about possible exploitation of these poor customers in these villages; also host concerns about commercialization aspects of this program

Kelve

• 80 Km outside of Mumbai (Previously Bombay) • 2.5 hours by train, 3.5 hours by car • 3,000 people in the village, on the Indian Ocean • Extended families living under the same roof • 50% own their own banana groves and vegetable groves, make

small incomes from their small plot enough to get by • A few people own a lot of land and are relatively wealthy


• 10% are fisherman o Less well-off than those who have their own plots of land

• 15% are farmhands, or tribals, don’t own land just work on farms o Poorest of these groups

• 3% commute to Mumbai for work • A handful of professionals, such as doctors and dentists

Spent 20 minutes on slideshow- found out that Kelve is, in fact, a village. Things this class makes me want to do:

• Go to the village in the pics, and steal their fish • Dive out of the window to my left


MRKT-465 11/29/06 4:04 PM

International and Global Distribution and Retailing International and Global Pricing KFC in Japan Evaluations Outline of Course Material Other countries have stores

• Surprisingly, these stores have things for sale in them • One of these items: Coke. Megan tells me that Coke is, in fact, a

Global Product Rise of discount stores around the world, as well as a rise in large supermarkets Price escalation

• For exports • Shipping • Insurance • Taxes/ Tariffs • Importer and distributor margins

Absolute Price Standardizing

• Pricing something equally around the world Relative Price Standard

• Pricing relative to the average price level for that type of product in that country

KFC in Japan

• Customizing stores to fit to the Japanese environment • Adapted some of the side dishes and menu, but left core menu the

same • Branding left consistent • Employees are like 5 year old children

Potential for globalization


• More potential for standardization o Product

Branding – More Standard Features – Less Standard Positioning – Even Less Standard Packaging – Not So Standard Customer Service and Support – Not Standard at all

o Communication Advertising strategy – More Standard Advertising Platform – Less Standard Execution – More Localized Media – Even More Local Promotions – Most Local

• Less potential for standardization o Pricing o Distribution

Final Exam on Wednesday, 12/6 4:30-6:30PM Office hours:

• Thurs: 4:30-6:30 • Tues: 4:30-6:30

Perspectives on Global Marketing

• Levitt • Ohmae • Quelch and Hoff

Product branding

• Elements o Positioning o Branding o Product features o Packaging o Product line o Customer service and support


• Global Branding o Portfolios of global, regional, and local brands o Brand names across borders o Brands and COO Positioning and how to overcome negative

COO fxsoc o Protecting brands from piracy and imitation o Transitioning local brand to a global brand

Readings

• Haker and Joachinstaler – The lure of global branding • Holt, Quelch, and Taylor: How global brands compete • End of corporate imperialism

Cases

• ELC – International and global greeting cards • Bud versus Bud • P&G Femcare Case • Cola wars in China and WW • Coke and Thumbs up in India • Lay’s chips around the world • Super 8 in Chile • Babysan/ Pampers in Chile

Advertising/ Promoting and communications

• Elements o Target audience o Communication objectives o Theme and message of communication or ad o The platform

The tone of the ad- emotional of informational Form of the ad

o Execution of the ad o Budget o Media

Differences in Communications Environment Across Countries


• Constraints and trends in international advertising o Difficulties in making advertising global o Problems with mixed messages across borders with different

regional advertising • Cases

o Deremate.com o Global Brand face-off o IBM Global advertising approach o Coke ads around the world o Coke ads from India, Coke ads from japan, cultural

advertising differences o Kellogg’s Corn Flakes Boxes from around the world o Global movie marketing and changes in release dates around

the world o Distribution and retailing o Traditional formats for retailing like outdoor stalls and mom

and pop stores Trends affecting retailing around the world

o Need for localization of retailing and distribution o Unilever in India and project Shokti o Indian village outside of Bombay o Cost affecting pricing across countries o Market factors affect prices across countries o Environmental factors affect pricing across countries o Managerial issues, affect on pricing o Relative versus absolute pricing

Segmentation

• Country Cluster segmentation • Global international market segments • Teenagers, Business managers • 4 P’s potential for globalization • Example of KFC in Japan


Final Review Office Hours: Thursday 11/30 4:30-6 pm Tuesday 12/05 4:30-6pm Thursday 12/7 4:30-6 pm Perspectives on Global Marketing Strategies Levitt Ohmae Quelch and Hoff Product and Branding Policy Elements Positioning Branding Prod. Features Packaging Customer Service and Support Global Branding Portfolio of Global, Regional, and Local Brands Brand names across borders Brand and coo positioning and overcome negative coo position Protect brand from piracy, and imitation Transition on brand from local to global brands Readings Anker and Joachimstaler – Lure of global branding Hold, Quelch, and Taylor – how global brands compete What makes global brand strong

End of corporate imperialism Cases ELC – Int’l and global greeting cards Bud vs. bud P&G Fem Care Cola wars in china and WW Thumbs up 4 coke in India Lay’s Chips around world Super 8 in Chile Babysan and pampers in Chile Advertising/Promotion/Comm. Elements Target Audience Objectives Message - tone

MRKT-465: Study Notes for Final

Platform - form Execution Budget Media Diffs in Advertising/media Envir across countries Constraints in Int’l Advertising Trends in Int’l Advertising Cases Deremate.com Global Brand Face Off IBM Global Ads Coke Ads – worldwide, India, Japan Kellogg’s Around the World Global Marketing Dist. And Retailing Trad’l formats Trends around the world Needs for localization Cases Unilever in India – Project Shakti Indian Village – Kelve Pricing Elements Co. Internal factors Costs Mkt. factors Envir factors Managerial Issues Relative vs. Absolute 4P’s and Potential for Globalization Case KFC in Japan Segmentation Country Cluster Segmentation Global Intermarket Segments Teenagers, Business Managers


Global Marketing Management Final Exam Review

I. Perspectives on Global Marketing Strategy

a. Levitt i. Simple global

b. Ohmae i. Complex global

ii. Global strategy and an equidistant (complex global) mindset c. Quelch and Hoff

i. Customize global marketing ii. Break market down into different components and each has

different levels of potential for globalization iii. Globalization is not an either/or proposition iv. Potential of standardization depends on the situation (product and

country) II. Product and Branding Policy

a. Breaking down product into elements i. Positioning (benefits, usage situations, value = quality/price),

branding, product features (attributes, appearance, quality, performance levels, ingredients), packaging (pictures, language, labeling, promotions, size), product line (which products offered, variations), customer support (service, warranties)

ii. Standardization vs. adaptation decisions can be made about each element

b. Global Branding

i. Brands and country of origin positioning / how to overcome negative country of origin associations

1. Give it a foreign-sounding brand name, get a foreign designer and emphasize, emphasize other things in communications (good value, price), celebrity endorsements, make products for a strong brand, make private label products for a strong retailer, assemble part of the product in a foreign country, specialize in niche products with positive country of origin associations

2. Ex: China Clothing Manufacturing a. Overcome with: design by a foreign or Italian

designer, celebrity endorsements, OEM for strong western brands (partnerships, JV), private label for retailers, create a French or Italian sounding name

ii. Piracy and imitation 1. Legal strategies against piracy and counterfeiting: register

trademarks and copyrights in countries worldwide, lobby governments for stricter laws, lobby governments for stricter enforcement, court cases


2. Marketing strategies and protections against imitation: communications campaign to differentiate the “authentic” product from imitators, distribute a portion of the product offering and offer the full offering after the customer registers the product, leverage relationships with distributors to obtain better shelf space than imitators, innovate faster, acquire or partner with the imitators

iii. Transition of a local brand into a global brand 1. Summary axing

a. Immediately drop and replace with global name (not recommended)

2. Platform branding a. Develop a global look and feel for the brand

platform, maintain the local brand name 3. Fade-in, Fade-out

a. Include both the local and global rand name, gradually increate the size of the global name and decrease the size of the local name

4. Transparent forwarding a. Intensive communications program to alert

customers to change iv. Aaker-Joachimsthaler – The Lure of Global Branding (perspective

on global branding) 1. Global brand leadership, not global brand standardization

v. Holt, Quelch, Taylor – How Global Brands Compete 1. Strong global brands = high quality associations, global

myths, show corporate social responsibility a. US brands were not perceived more negatively or

positively 2. Challenge for global brands is getting the right mix of

localization and glocalization in managing global brands 3. Global consumer segments: global citizens (55%, see

global success of a brand as signal of quality and innovation, concerned about social responsibility), global dreamers (23%, see global brands as quality products and readily buy into the myths associated with the brands), antiglobals (13%, skeptical), global agnostics (8%, don’t base purchase decisiosn on whether brand is global or not)

vi. End of Corporate Imperialism (how to develop products for mid-tier, marketing in developing countries)

1. Tier 1: greater than $20,000 (responsive to international brands), Tier 4: Less than $5,000 (loyal to local customs and often local brands)

2. Corporate Imperialism – great deal of potential for international companies because of big, emerging markets typical entry approach: use same mindset and marketing


strategies as in established markets, can’t reach emerging middle class but huge growth potential in tier 2 and tier 3

c. Cases i. ELC – Designing greeting cards

ii. Bud vs. Bud iii. P&G Fem-care

1. GBU’s – doing more advertising, MDO – doing more direct consumer marketing

a. Communication and coordination between these two groups: global brand teams, weekly teleconferencing, 4 times per year face-to-face meetings, emails and phone calls, become friends with each other, rotate managers

2. Focusing on Mexico and China 3. Mexico

a. Customers: rush down Femcare aisle, know what they want / very demanding, good quality at low price, 20-25% premium market, 55% mid-tier market, 25% lower market

b. Competition: very competitive market, Saba 26% mid-tier, P&G 21% premium, K-C Kotex mid-tier

4. China a. Customers: study products carefully before buying,

not embarrassed when purchasing these products, linger in the feminine care aisle for more time, buying 2-3 different brands/products at one time, quality at low price, 10% premium market, 40% mid-tier, 50% lower

b. Competition: very fragmented, small local brands, all five major global brands represented (2 Japanese, 3 US), strong Chinese competitor has 15% of market

c. P&G is premium in this market iv. Cola-Wars in China and Worldwide v. Coke and Thumbs up in India

1. 1977 Coke leaves India because they didn’t want to give away their secret formula

2. Parle group: Thumbs up, Limea had 90% of market by 1989

3. Pepsi enters and gets 33%, Parle down to 60% 4. Coke buys Thumbs up and Limea gets 60% with

purchase a. Put all of their marketing budget behind Coca-Cola,

didn’t advertise Parle products 5. Coke’s market share started to decrease because the people

in India hate foreign dominance imperialism


6. Recommendations for Coca-Cola in India a. Adapt to local market b. Sponsor local events c. Get Indian celebrities on ads, show local Indian

settings d. Sell both global brands and local brands, emphasize

Thumbs Up 7. Coke’s strategy priorities: keep Pepsi’s market share in

India low, brand consistency 8. In the past 10 years Coke has localized itself more than in

the past a. The branding still remains global

9. Coke ads: sports in ads (whichever sport is most popular in each country

a. Target audience: highly standardized or mass market

b. Platform: highly standardized, same structure, storyline

vi. Lays Potato Chips around the world 1. Platform branding strategy (left Sabritas name on the chips

in Mexico but made packaging look like theirs) vii. Super 8 in Chile

1. Develop a chocolate covered wafer product for the mass market

viii. Babysan, Pampers in Chile 1. Babysan diapers market share in Chile was 90%, then it

was bought by Pampers 2. Over years, P&G phased out Babysan name and made

Pampers name more prominent 3. Market share when to 30-40% 4. Babysan used to be in red packaging, changed packaging

when bought by Pampers 5. Other company used name Babysec, took market share 6. In 2003, P&G changed name from Pampers back to

Babysan III. Advertising, Promotion, Communication

a. Aspects/elements of international and global communications i. Target audience (who in each country, mass vs. targeted,

similarities with other countries’ tm’s), objectives (consistency with other marketing mix elements, image vs. product benefits, pull vs. push, objectives and the product life cycle: cognitive (awareness and knowledge), affective (liking, preference), behavioral (trail, repeat purchase)), theme and message (ex: Coke soothing, relaxing drink that fits with contemporary lifestyles, “Can’t beat the feeling”), platform (structure, color scheme, tone, form), execution (source, content, settings), budget, media and the


communications mix (advertising, direct marketing, personal selling, sales/trade promotions, product placements, PR)

ii. Selecting media and the communications tool: availability, regulations, habits and intended audience, fit of the objectives, cost

iii. Trends: deregulation of media, growth of commercial tv and radio, growth in cross-border cable and satellite tv, increased availability of global media, growth of global advertising agency networks, growth in worldwide sports and events sponsorship, growth of product placement in tv and film reaching global audiences, growth of advertising in emerging countries, potential of the internet

iv. Growth in global advertising: trend toward harmonization of strategic elements of advertising, while maintaining flexibility at local level for execution

1. Think globally, act locally b. Differences in communication environments across countries

i. Ex: little TV advertisements in Sweden, lots in Mexico ii. Ex: lots of spending per capita in the US

iii. Advantages of localized adv and promo 1. Resonate/connect with customers, need and behaviors vary,

competition varies, avoid insulting or misunderstanding, media available varies, regulations vary

iv. Disadvantages 1. Costly, uses more managerial resources, confusing

customers about brand, not reinforcing brand v. If per capita spending is high, you’ll probably have to spend more

on advertising to achieve the same objective vi. Some countries have regulations on amount of TV ads (Finland:

government channels with no commercials) vii. Need to know what kind of media being emphasized in the market

c. Constraints and trends in international advertising i. Cultural and language differences, different regulations, different

infrastructures, different consumer characteristics and attitudes, different market characteristics, different product strategies (positioning, packaging)

d. Cases i. Deremate.com

1. Challenges / differences of auction website in Latin America

a. Unreliable internet infrastructure b. Different payment methods – lack of credit card use

/ prevalence of cash c. Lower penetration of internet connections

i. Mostly upper-income and younger generation

d. Reliable delivery services are not well developed


e. Selling electronics and cars, not collectibles, CDs, books

f. More of a market for older, obsolete products g. Use the site for different needs liquefy assets to

get access to cash 2. Similarities across Latin American countries

a. Spanish language (except Brazil), cultural similarities, developing countries (lower income)

3. Differences a. Usage of Spanish varies, delivery services, payment

methods, development of internet varies, income levels vary

4. Standardized by deremate.com across L Am. Markets a. Fee for posting, advertising on cable TV, branding,

positioning of website, look and feel of the website. software development / platform

5. Adapted / localized a. PR, different media for advertising, product

category, different delivery services, payment methods, execution of the site, local sales force

ii. Global Brand Face-Off 1. Espoir is a major global cosmetics brand positioned for

women who are smart, independent, and risky 2. Opportunity to sponsor sequel to Diana’s She Devils (3

stars are from Europe, Asia, and South America) 3. Natasha Singh – Executive VP of Global Marketing

a. Made Espoir’s Indian business successful by challenging HQ ideas

i. Reduced package sizes, slashed prices, penetrated small retailers, introduced purple shades and global colors

4. US reaction: willing to help pay for campaign because two of the stars represent big ethnic markets in the US

5. Western European reaction: positive to global movie sponsorship idea, but argued that the website to buy customized products would need to have a different look and feel for each country

6. Eastern European reaction: claims E. Europe is different from rest of world, movie promotions won’t help sales, wanted to appoint beauty queens as brand ambassadors, manager threatens to leave if the global campaign is forced on him

7. Indian reaction: still need local responsiveness because of large income and cultural difference

8. Arguments for global campaign: trend toward global convergence in customer tastes, global movies a good way


for reaching targeted segments around the world, cost savings, quality of global campaigns is typically better than what can be done locally, leveraging good knowledge and ideas worldwide

9. Arguments against: many companies have tried globalizing marketing and have failed, global approaches tend to either over-standardize or oversimplify, global approaches tend to discourage local innovation, espoir brand may have different images in different parts of the world

10. Expert reactions to the case: Singh needs to find the right balance between globalization and localization, needs to keep marketing programs relevant to local markets

11. Recommendations: a team of managers from the different areas should develop and shape global marketing ideas, identify areas of marketing that must be globally consistent, identify global products that must be more standardized across countries and then allow other products to be country specific, create a global communications platform and menu of options where local managers can choose from the menu and add local elements to the global platform

12. Not dictating, should have been more of an orchestrator iii. IBM global advertising approach iv. Coke ads (worldwide, India, Japan) v. Kelloggs Corn Flakes boxes from around the world

1. Standardized with adaptations in communications vi. Global movie market

1. Action films travel translate easily (success in the US = success in other countries), very few cultural nuances and cultural humor

2. Positioning movies is different in different countries IV. Distribution and Retailing

a. Distribution and retailing environments are highly localized b. Traditional formats

i. Outdoor stalls – street markets, small “mom and pop” retailers – the corner market

c. Trends i. Making distribution and retailing more similar across countries

ii. Growth of large scale retailing (increase in number of large stores, growth in chain stores, movement to city outskirts, rise of shopping malls), rise of discount stores, internationalization of retailing (pan-European supermarket chains, international hypermarket chains, department stores operating across borders, worldwide retailing in narrow categories like Ikea and Toys R Us), retailers are taking power from branded manufacturers (consolidation of retailers, retailers are extracting greater price concessions, growth


of private label goods, retailers are making their names into strong brands manufacturers should respond with strong pull marketing, adequate push marketing, lower costs through efficiencies, negotiate with retailers on a global basis, establish strategic partnerships with retailers, innovation), increasing sophistication of information systems (increase efficiency and lower costs), greater ability to shop anytime/anywhere, opportunities for internet retailing

1. Global retail trends and implications for manufacturers a. Simplifies the task of international distribution

(entry with less investment, greater standardization of distribution), but it comes at a price (lose power to global retailers, dependent on a small number of powerful retailers, risk of losing retailer to another manufacturer)

iii. Major Global Retailers 1. Wal-Mart, Makro (Dutch wholesale club), Carrefour

(French hypermarket), Japanese department stores, Costco, Toys R Us, Ikea

d. Need for localization e. Cases

i. Unilever in India ii. Kelve – Indian village

1. 80 km outside of Mumbai 2. 3000 people in the village, extended families under 1 roof 3. 50% own their own banana groves and vegetables groves,

make small incomes from their small plot enough to get by 4. 10% fisherman, 15% farmhands, 3% commute to Mumbai

V. Pricing (factors to consider in setting prices in international markets) a. Company internal factors

i. Consistent with marketing strategy and other elements of the marketing mix

ii. Consistent with company strategy and goals b. Cost and profit factors

i. Internal: manufacturing costs, selling / marketing / general admin costs, profit margin, manufacturer’s selling price

ii. External: costs related to domestic / overseas production / export sales, costs related to exporting, manufacturer’s selling price plus above costs determine final price to customer

iii. Price escalation: for exports, shipping, insurance, taxes/tariffs, importer and distributor margins

c. Market factors i. Demand, income level of country, competition, product life cycle

stage d. Environmental factors

i. Governmental regulations, inflation rates, foreign exchange rates


e. Managerial issues i. Relative vs. absolute pricing

1. Absolute: pricing something equally around the world 2. Relative: pricing relative to the average price level for that

type of product in that country ii. Multidomestic vs. global strategic orientations, coordination and

pricing policies, gray market problems, product charactertistics / package sizes / prices

VI. Segmentation a. Country cluster b. Global inter-market segments

VII. Four P’s a. Their potential for globalization

i. More potential for standardization in product and communication ii. Less for pricing and distribution

b. Ex: KFC in Japan i. Customizing stores to fit to the Japanese environment

ii. Adapted some of the side dishes and menu, but left core menu the same

iii. Branding left consistent iv. Employees are like 5 year old children


GLOBAL MARKETING NOTES 10/30 THROUGH 11/29 (I MISSED OCT 18, 23 AND 26)

10/30: P and G Feminine Care

• Good quality for a low price China Whisper brand extension for both top and mid-tier markets Brazil Brand extension, like China Due to: competitive structure and market conditions are similar to Chinas Also, Naturalmond already existed, it was similar to Naturella Mexico 2 different brands Always- top tier Naturella- mid tier Chile Used strategy like Mexico What did they learn? There are many considerations to global branding. Companies need to consider mass markets in developing countries and use a strategy of a whole new product, rethought from scratch to get value at low prices Branding Discussion Consistency

• as consumers travel, branding is reinforced • avoids confusing the customer • lower costs in advertising and marketing • transfer of knowledge and ideas • avoids competitive preemption, like in the Vizir case where competitors come in

first with similar names and products Brand Names Across Borders Ex: China- TV Station called “Konka” USA association- either it sounds amateur like a toy, or like “Konk out” Fashion- positive associations from Italy, poor from China What can they do? Celeb endorsements


Make the brand name sound foreign Budweiser- trying to market in Europe, but it rivaled an existing product name The Czech company wouldn’t sell out to Budweiser, as it was a source of national pride Transitioning from a Local to a Global Brand Many companies like P & G with their Ariel use a strategy where they just acquire a popular foreign brand, then gradually fade out their info to their own branding Example: Babysan de Pampers in Chile- eventually it transitioned to just Pampers Strategy #2: Transparent Forwarding Example: Comcast to TimeWarner Strategy #3: Summary Axing strategy Example: CVS/ SavOn: completely dropped SavOn from the Ads Probably because savon had no brand equity left 11/1/06 GLOBAL BRANDING Global brand teams are difficult to form Just coordinate the efforts, frameworks, and processes Two approaches: Global Brand Teams One global manager Certain kinds of products are easy to standardize and it makes sense to do so globally, others need to be adapted for different markets Portfolios: Global, regional, local Ex: Coke Global-Coke, Sprite Regional- Qoo cola, Diet Coke Local- Thumbs Up, Inca Cola HOW GLOBAL BRANDS COMPETE? The Challenge: getting the right mix of Glocalization Also: companies become targets of anti-globalization sentiments because they are very salient in the minds of consumers Example: the WTO riots in Seattle, they looted every Starbucks Advantages: people assume that ‘global=quality’ The concept of ‘global community’ is appealing to consumers What brands need to do: Build Credible Myths Be proactive in terms of social responsibility Treat Anti-global people as potential customers 11/6/06 Lay’s Around the World


Mexico- Lay’s bought Sabritas This was the ‘platform strategy’

They didn’t convert it to Lay’s because Sabritas brand name was strong enough already

India- Lay’s made local adaptations, like Magic Masala flavored potato chips China- the competition is very fragmented There’s lots of product variety All types of Lay’s A favorite: Five Flavored Fish Lay’s

The reason for all this variation? China is low on the Product Life Cycle, so Lay’s is just trying to build awareness

Cola Wars in China: Coke: Assets- Brand image, Advertising, widespread penetration These three assets need to be standardized to reinforce their strength around the world. Things like pricing, size, etc, can be adapted as long as these 3 most important stay consistent Chinese companies are known for low cost, good quality, NOT known for good marketing. This makes it easy for foreign players to come in and take market share Over the last four years, Chinese marketing has improved a lot One example: Wahaha Beverages Wahaha Marketing Skills:

1. Good for children 2. Lots of sponsorships 3. Sophisticated advertising 4. Celebrity endorsements 5. They know their customers well

Wahaha’s Advantages over Coke/Pepsi: 1. Strong in Rural Markets 2. Close relationships with distributors 3. Lower prices 4. Positioned as a Chinese Brand 5. Catered to Chinese tastes (fruits, milk, teas, etc) 6. Tastes are sweeter and stronger

Coke sees it as a priority to get into the rural markets Current market shares: Coke 42% Pepsi 23% Future cola 18%


COLA WARS

U. S. INTERNATIONAL Coke Pepsi Coke Pepsi

Market Share 41% 31% 45% 14% % of Sales 24% 68% 76% 32% % of Profits 20% 80% 80% 20% Profit Margin 21.7% 15.6% 29.9% 6.2% Summary: Pepsi should be worried about their position in the global market

• In China, the market is much more close • Already a huge market • Huge growth potential • Not yet saturated • The competitors are on a much more level playing field • Pepsi can make its move to upset Coke if they dominate China

Conclusion: China and India need to be top priorities for both Coke and Pepsi Both need to focus on their distribution, lowering prices, and adapting specifically for China Situation in India: 1977- Coke pulled out of India Why? The government wanted them to share their secret formula 1989- Pepsi enters India 1993- Coke buys Thumbs Up and Limca market: pepsi- 30% Parle group (coke) 60% Recommendations for Coke in India:

1. Adapt to the local market 2. offer both Coke and traditional Thumbs Up 3. Keep pepsis market share low

(their strategic priority in India. In other parts of the world, #1 strategy is brand consistency)

Coke’s advertising in India is becoming much more localized, using the 15 small languages and local music Bottom line: in Markets like China and India, you have to figure out how to get into mass markets and localize 11/13 Deremate.com Challenges and differences in Latin America vs the United States


• Unreliable internet infrastructure • Different payment methods • Prevalence of cash, lacking in credit cards • Lower penetration of internet connections, translates to less familiarity with e-

commerce • Lack of reliable delivery services • Types of items: more electronics, cars, as opposed to the US where we like CDs,

books, etc • Market for older, seemingly obsolete electronics • People use the site for different reasons, like liquefying assets for cash

Within Latin America: Similarities: Spanish language (except for Brazil) But don’t forget u must tailor your efforts to each country Cultural similarities Differences: Uses of Spanish Delivery services Development of internet varies Income levels Payment methods Brazil likes debit cards, other countries like cash Deremate’s strategy: Standardized:

• fee for postings is the same • cable tv advertising • branding • look and feel • software platform • features of the web site

Adapted: • marketing strategy, PR in each country • product categories: in Brazil, computers less, soccer more • different delivery services • different payment methods

customer education: sales force goes to college campuses, finds the technology-oriented people customer service: localized in every country Why do I care? Its important to know that websites and other high technology products must be very specialized in each country Deremate is using a COMPLEX GLOBAL strategy, also called GLOCALIZATION In 2000, market: Deremate.com Mercadolibre.com E Bay was not yet in Latin America


Recommendations Hire local managers Build more “Sold it on E Bay” stores Partner with E Bay See who can hook up first *Mercado libre did it first, in the last 6 months they have bought deremate using fade-in fade-out or transparent forwarding strategy 11/15 THE GLOBAL BRAND FACE-OFF Marketing (including the advertising and product line) should be partly global, partly localized. Global ideas mixed with localization They should have gone with a bottom-up approach and a global team Shouldn’t be ‘dictating’, orchestrating instead Headquarters could pay for the global campaign, but leave global managers with as much for local advertising as before. GLOBAL MOVIE MARKETING Action films do well Translate easily Comedy and Drama can be much tougher Considerations:

1. Fan base- don’t make them wait 2. Fans will buy counterfeit copies 3. Amazon.com 4. Bad reviews wont have time to spread 5. Stars hate simulataneous rollouts- they have to be at openings everywhere

UNILEVER IN INDIA CASE #1 consumer products company in India (US is P&G) Strengths: 40 to 45% market share Great distribution networks Different products and brands Personal care Fabric care Beverages Foods Feminine care Very strong brands Local reputation Has joint ventures with local shareholders Distribution systems are the best developed in the urban areas Urban= 25% of India, 250 million people Challenges and Opportunities:


The potential is huge, untapped Growth in urban areas is slowing down Theres lots of global players (P&G, Colgate Palmolive, L’Oreal, Kao) but none of these are going after the ‘inaccessible’ lowest income part of the population, 500 million people Shakti Entrepreneurs: They set up shop in their homes Women, for the most part, have no education and no rights This project is transforming social lives in small villages Before Shakti, women got approximately $22 per month, 300 per year. Shakti adds 150 more dollars per year Like the Grameen Bank 1960s- Bangladesh remote villages gathered groups of women and offered them ‘micro-loans’ of 10 to 30 dollars, then they started their own companies. No other bank would even consider them for loans Called “micro Finance” Vani Shakti: Seminars about personal care and health Promotes usage of Unilever products iShakti: internet in women’s homes

draws women to the Unilever distribution point, facilitates communication about Unilever products

Major Challenges: • Entrepreneurs need a lot of support and training • Scaling up the program without raising the necessary resources • Can Unilever make this profitable? • Self-help groups and consumers have concerns about possible exploitation and

commercialization attempts Opportunities: organize the women into smaller support groups, follow Grameen model 11/20 WHY LOCALIZE ADVERTISING AND PROMOTIONS? Advantages:

• To resonate/connect with customers • Avoid offensive misunderstandings with language, culture • Media availability varies • Customer needs and behaviors vary • Competition varies • Regulations vary

Disadvantages: • Costly • Uses more managerial resources • Confuses the customer about brand image • Doesn’t reinforce the brand


Growth of cross-media spillover: • Ads on the Internet • Satellite and cable TV • Increased international travel

Different Advertising Mediums Some countries have government funded television, and it doesn’t have commercials

Different regulatory environments Low use of TV? High usage of print advertisements Outdoor: streets, buses, etc These affect how you budget your $, consider the available mediums Promotions: Must be much more localized than advertisements because of all the regulatory environments Advertising agencies: Recent trend toward global agencies THINK GLOBAL ACT LOCAL Strategic aspects, globalize Executional aspects, localize CASE STUDY, KELVE: ‘Accessible’- 80 km north of Mumbai (Bombay)

• Takes 2.5 hours by train, 3.5 hours by car • 3,000 people • on the Indian ocean • employment: mostly agriculture • 50% own banana groves and vegetable groves • 10% are fisherman, lower income • 15% are farm hands, lowest income • 3% have jobs in Mumbai • 1% professionals like doctors

11/29 INTERNATIONAL TRENDS IN RETAILING AND DISTRIBUTION 1). Big stores- 80 check out lines all over the world is the growth of super/hypermarkets similar all over the world, france, spain, china Large-Scale Marketization 2). The rise of Discount Stores Category Killers- small marketplaces like IKEA, Toys R Us, Costco 3). Internationalization of retailers Takes the power away from branded manufacturers like Coke, Nestle, P&G Expanded shopping hours are more popular PRICING: INTERNATIONALLY AND GLOBALLY Consider internal factors: price positioning must align with local strategy and goals


Example: price penetration is priced much lower but it builds market share quickly Next consider Cost Factors Price escalations for exports: shipping, insurance, taxes/tariffs, importer markups Value-added tax Market factors Customer demand Income levels Competition? What stage in the PLC Environment factors Government price controls Inflation rates Exchange rates Managerial issues Absolute price vs relative price Absolute is standardized, relative is relative to the average price for a competitive product in a country. Hardly any companies use absolute KFC IN JAPAN The chicken and the branding stay the same everywhere The side items change


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October 23rd Perspectives on Global Marketing Strategies Levitt’s Perspective on Global Marketing: “The Globalization of Markets” Consumer Tastes Around the World are Converging

- Communication and transportation technologies expose people around the world to similar information

o Television and radio, movies, telecommunications (phone, fax, internet), satellites, jet travel

High Quality and Low Cost Global Products will Beat Out Adapted Products - Global scale permits

o Low cost and low price, high quality economies of scale! - Consumer will choose lower priced, high quality products even if they are not

exactly tailored to part habits and local market needs. o Consumers around the world desire the same things

Value – stretching their income as far as possible Alleviation of life’s burdens and expansion of discretionary time

o Lecture Notes: Lessons from lead markets, then expand worldwide Consortium: can buy globally (resource) Reputation Can put more money into R&D

- Strategy can expand markets with aggressive low pricing Example: The Japanese Approach

- Japanese companies have become powerful players in certain industries. o Consumer electronics o Automobiles didn’t fit American needs (too small, etc…)

- Used this strategy of low cost and high quality global products. Multinational or Multi-domestic Corporation

- Tailors products to each country. - Slavishly responds to what it perceives as different product needs in different

countries…is this necessary? - Many are thoughtlessly accommodating.

o Believe preferences are fixed not because they are of rigid habits of thinking.

o Respond to way things been done in past, habit, without questioning whether it is necessary.

- Costs and prices are higher because of lower economies of scale and development economies.

The Global Corporation - Offers standardized global products around the world.

o Offers combination of low price and high quality - Does not refrain from customization when required. - Lecture Notes:

o Only adjusts products as a LAST RESORT if need to. i.e. Adapt power supplies, but only absolute essential things.


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Disadvantages - Seems simplistic, sweeping and extreme - What about luxury items: people will still pay premium

o Theory only relevant to certain products. - SIMPLE GLOBAL APPROACH

Ohmae’s Prespective on Global Marketing: “Managing in a Borderless World” Global Strategy and an Equidistant Mindset

- Companies tend to focus primarily on the domestic market. o Know domestic market really well and everything else is the “rest of the

world” ETHNOCENTRIC Need to change this!

- Global strategy requires a global perspective. o Take on equidistant perspective on markets around world

All valued the same and get rid of ethnocentric market. o “Overseas” should not be part of corporate vocabulary

The New Borderless World - Free flow of information around the world

o Communication technology has advanced tremendously o Foreign travel is becoming common in many countries o Ability of government to restrict information is limited

- Therefore, people look for best, least expensive products from around the world. - Operating procedures in many industries have worldwide standards

o Needs for industrial equipment are becoming standardized in the industries.

How to Develop a Global Product - Designing by averages can leas to lackluster appeal – BAD

o i.e. average size of Japanese and American cars - So design products for lead markets

o Design different cars for different lead markets o Then sell to worldwide segments that desire each car

- Nissan example: o Sporty Z model and four-wheel drive family vehicle for U.S. o Car suitable for fleet sales in the U.K. o Small, high quality economy car for Japan.

Different Types of Global Products - Ted Levitt’s Globalization

o Products lend themselves to aggressive cost reductions through economies of scale – Agrees for certain products

- Premium-priced fashion-oriented items (products derived differently) o Gucci bags, Mercedes-Benz, Rolex watches… o Wealthy consumers will search for these goods o Operate through a pull strategy

- Products requiring insiderization like Coca-Cola o Need to replicate complete business system in each country o Need to establish infrastructure in each country to push product and

establish local demand


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- Industrial products o Largely chosen on performance characteristics o Still need to have insider functions (engineering, sales, installation,

finance, service) Headquarters Mentality Can get in Way of Globalization

- If foreign operation becomes successful o Headquarters might get more involved in decision

- If problems develop overseas o Headquarters wants to get more involved

- Local autonomy is restricted and decision made with headquarter/home country perspective

o Can’t respond adeptly to needs of local markets - Corporate systems and structures can restrict globalization

o Financial statements don’t accurately reflect foreign operations o Reward systems may interfere with globalization

Customers are Becoming More Alike - Customers coming more alike, but they are still different need to maintain an

equidistant mindset! Disadvantages

- Doesn’t take into account different sizes of countries - Too much emphasis on customer convergence - If loose domestic market focus can be risky - Takes more flexible view to globalization but can be difficult to obtain - Transnational, more complex global market

Quelch and Hoff’s Perspective on Global Marketing: “Customizing Global Marketing” Globalization is Not an Either-Or Proposition

- Standardization vs. adaptation along a continuum o A lot of grey area – on a sliding scale

- Different elements of the marketing mix and different levels of standardization o Packaging, etc… o NOTE: handed out chart – Global marketing Planning Matrix o Taking more of a complex view

- Potential for standardization depends on the situation o Type of product and country

Problems Created by Lack of Globalization - Inconsistent brand identities - Limited product focus and expertise among managers - Slow new product launches

Standardization and Product Type – Economies and Efficiencies - Standardized products can lead to economies of scale in manufacturing and R&D - Marketing can potentially contribute to scale economies

o By offering standardized products and advertising - Standardized products and marketing programs conserve managerial and other

resources - Standardized products and marketing programs can leverage scarce innovative

marketing ideas leverage ideas from lead markets


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Standardization and Product Type – Amount of Cultural Grounding - Products used in homes more subject to cultural influence than those used outside

of home o Products with less grounding can be standardized o Products with more grounding can be standardized

- Industrial products less subject to cultural influence o Tend to buy on performance and value characteristics

- Young people tend to be less influenced by cultural variables in their purchases - People who travel a lot of exposed to information from other countries tend to be

less cultural in their purchases Standardization and Type of Country

- Small countries lend themselves to greater standardization o May not have enough resource to develop their own programs to same

level – too costly! - Poor performing countries are often under more pressure to adhere to corporate

wishes on standardization How Implementation of Globalization is as Important as Amount of Globalization

- Multi-domestic corporation has many strengths o Strong local managers o Local managers have autonomy to run business effectively o Local managers can be responsive too local environment and can react

quickly to development o Strong local managers are a good source of new innovative ideas

- Standardization should be done in a way that retains many of these strengths o Don’t act too quickly or radically o Poor implementation could lead to departure of good strong managers and

their strengths COMPLEX GLOBAL STRATEGY


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Product Policy Elements

- Product positioning - Branding - Product features - Packaging - Product line - Customer support

Product Positioning - Benefits: needs satisfied

o Examples: ipod, over-counter medications, service companies - Usage situations

o Yogurt: snack, dessert, lunch, etc… (How do you use the product?) o Examples: cell phones (songs, text messages, email), clothing (formal,

casual sports, wedding) - Position vis-à-vis other brands

o Example: “7up the un-cola” - Value = quality/price

o Examples: Cars – Honda & Toyota, Walmart, Target, Arco Gas - Target segments (best for kids, parents, sports…?)

o Examples: deodorant, cars, ESPN phones, Nike – running, climbing, biking

Branding - Image - Name - Typeface - Logo - Super and subbranding

o Kit-Kat: Nestle versus Kit-Kat name (China: both names prominent, generally Kit-Kat>Nestle)

Product Features - Attributes - Specifications - Ingredients - Taste - Texture - Appearance - Performance Levels - Quality

Packaging - Layout - Pictures - Instructions - Labeling - Promotions - Cross-promotions


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- Language - Size

Product Line - Which products offered - Number of variations - Types of variations - Which products emphasized

o Example: M&Ms How big is the product line in each country What countries are

offered what? Customer Support

- Service - Technical support - Maintenance - Warranties - Customer information and contact

General Questions Related to Product Policy Standardization vs. Adaptation - What attributes are most important to the customer in each market? - Where are the commonalities in customer preferences? - Which preferences are unique and strong? - Are customers willing to pay more adaptations? - What is the cost of adaptations? - Are the resources available for adaptation? - What is the incremental volume that can be expected from adaptation? - What is overall profitability of adaptation?

McDonalds Around the World Differences and Similarities DIFFERENCES SIMILARITIES

- Meals: hamburgers, - Language: English always vegetarian, apple pie… and local language

- World: more upscale than in - Image oriented toward the U.S. children

- Different sauces - Mc in the name - Make small local changes - Menus all look the same

globally

Very Adapted

2 In Between

4 Very Standardized


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Positioning - American style food - Usage for socializing or on the go - Kids and families

√

√

√ √

Branding - Logo - Brand name - Colors - Typeface - Image

√

√ √ √ √

Features - Core menu - Sides - Counter area - Signage - Sitting area

√ √

√ √ √

Customer Service or Support

- Self Serve - Service

√

√


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October 25th Marketing in Developing Countries

- Marketing and products are successful with upper end customers. o PROBLEM: not reaching the masses, thus restricting. o Bigger growth rate in the middle of the pyramid.

Diapers in Chile - CMPC: “Babysan”.

o Came in a red package, had 90% market share. o SUCCESS: created for mass market at a low price.

- 1995: P&G buys Babysan o Turn it into Pampers by

Change package to pampers’ green color Raised quality and price Faded out Babysan name to Pampers

o RESULT: share went down to 30 – 40% - CMPC: non-competition agreement until 2000

o 2000: created Babysec in the red package - Pampers: lesson learned

o Can’t apply same policy to developing nations o Should have kept Babysan as is o Then could have introduced Pampers as a premium product

- 2003: Pampers brought back Babysan but too late! POWERPOINT Market Segments and Economic Status - Tier 1: greater than $20,000

o Wealthy – High Income o Very small percentage of population

- Tier 2: $10,000 - $20,000 o Upper Middle Income o Small percentage, less than 10%

- Tier 3: $5,000 - $10,000 o Middle Income o Lower or lower middle income compared to wealthy countries o Significant percent of population, about 30% o Standards of living rapidly rising

- Tier 4: less than $5,000 o Low income

Consumer Behavior and Economic Status - Tier 1: responsive to international brands - Tier 2: less attracted to international brands - Tier 3: loyal to local customs, habits, and local brands

Corporate Imperialism - Big Emerging Markets

o Great deal of potential for international companies - Typical Entry Approach

o Use same mindset and marketing strategies as in established markets


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- Limited, Niche Position in Market o Can reach upper-income customers (Tier 1 and some Tier 2)

- Difficulty Penetrating Mass Market o Huge growth potential o Can’t reach emerging middle class (Tier 2 and 3)

The Solution - Rethink every element of business model to appeal to mass market

o Emerging middle class in developing countries not like the middle class in developed countries

Upper class in developing countries often like middle class in developed nations

o Can use this alternative model and marketing strategy in large areas of the world (developing countries)

Business Model – 6 Things to Rethink for Emerging Middle Class: - Rethink price-performance equation

o Good value for low price with global standards - Rethink brand management

o Not do all things the same regarding the brands - Rethink cost of market building

o May be profitable to develop local types of products instead of changing habits

- Rethink product design o Redesign for local needs, uses and local distribution systems

- Rethink packaging o Size and protection

- Rethink capital efficiency and cost structures o Rethink business models to lower cost structure

Importance of Distribution Systems - Invest in local distribution - National distribution is important

o Buy ways to obtain differ by country o May have to invest in building distribution systems in countries with

undeveloped national distribution structure Mix of Local and Expatriate Management

- Get right mix of local and foreign managers o Foster two-way knowledge flows.

Importance of Government Relations - Often necessary to present one face in dealing with government - One set of policies for all business units in negotiating with government

Careful Consideration of partners in Local markets - Partnerships are typical way of entering but subject to problems and tensions.

o Different strategic objectives of partners Long term market building vs. short term profits

o Local partners often don’t have local consumers and market knowledge Predate emergence of real consumer markets


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- Increasing numbers of companies entering developing countries with wholly owned subsidiaries.

o 18% in China in 1992 o 37% in chine in 1996

Kit Kats in Chile - What can you do to reduce the cost of the Kit Kat but maintain design and relative

size? o Produce in Chile, using local ingredients o Lower quality of packaging o License to Chilean candy company o One stick instead of four o Thinner layer of chocolate o Less dense wafer

P&G Fem-Care Case Organization Support Organizations

- Global business service - Corporate functions

GBU’s - Centered around product categories - P & L

MDO’s - Market development in each region - Sales volume

What Each Organization Does GBU’s (things that can be standardized)

- Pricing → need to be adaptive/locally responsive - Branding - R & D Centers: Japan, Germany, & U.S. → PROBLEM: lead developing

nations - Advanced development

o Product supply and mfg - Packaging - Positioning

MDO’s (things that are adaptive/localized) - Market development - Distribution - Media buying - Promotions - CONFLICT: between sales volume and P & L

o Give MDO’s more P&L, esp. in developing countries o Exeptions: Chine and Eastern Europe have P&Ls…but is this enough?

What Are They Doing Right? – GOOD COORDINATION! - Global brand teams - Weekly teleconferences - Face to face meetings quarterly


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- Rotate managers - Intranets and emails

STEP 2: ANALYZE COUNTRIES AND CUSTOMERS China Mexican

Customers

- Knowledgeable, study product before buying

- Want good value - Use 2-3 brands at the same

time - Not embarrassed when

shopping - 10% premium, 40% mid-tier,

50% low-tier

- Fairly knowledgeable, but don’t study products as much

- Want good value - 20-25% premium, 55% mid-tier,

25%low-tier

Competition

- Lots of local competition, over 1000

- All 5 global competitors - P&G Whisper = 11-12%

market share - Fragmented

- Growth Stage: very low

- Very price competitive - Saba: 26% non-woven - P&G: 21% premium - Kotex: non-woven

- Growth Stage: low to medium

To Do – China: To Do – Mexico:

- Need good value products - Need good value products - More product variety - Creating brand awareness - Information on packages

What the Did – China: What They Did – Mexico: - Same brand name - New Brand - “Whisper” - “Naturella” - Brand extension - Adapted to customer - Contract marketing - Added chamomile - Unique resolution - More applicable

Overall: Good value product for mid-tier consumers

(good quality at a low price) LESSON: P&G learned how to be adaptive for developing countries, created models to role out globally. Note: Always – most of world Whisper – Asia only


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October 30th Managing Brands Globally Most Valuable Brands:

1. Coca-Cola 2. Microsoft 3. IBM 4. GE 5. Intel 6. Disney 7. McDonalds 8. Nokia 9. Toyota 10. Marlboro

- Brands need to be managed consistently across borders. Why Consistency in Branding is Important Across Borders?

- Saves cost in advertising and marketing → higher efficiencies - Not consistent: confuses customer and hurts brand equity - Consistent: reinforces brand images as travel - As customers shop globally it reduces search costs - Customer loyalty - Facilitates transfer of learning - No competitive pre-emption - Prestige factor

POWERPOINT A Portfolio of Global, Regional, and Local Brands

- Global companies can have different global, regional and local brands… - Global Brands

o Worldwide consistency - Regional Brands

o Consistency within a region - Local Brands

o Offered in individual countries - Define the international scope of your brands

o Marketing strategy impacted by international scope - Example:

o Global = Coca-Cola & Sprite o Regional = Fanta, Powerade, Qoo(Asia),& Diet Coke (can be Coca-Cole

Lite) o Local = canned teas and Georgia Coffee in Japan

Brand Names Across Borders - Meaning of the brand name in the local languages

o Could have negative connotations o Examples:

NOVA cars – “no go” in Mexico Bimbo Dolls – popular in Europe Asia: will use characters that will sound like the name


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• 7-Up said “drink from death” • Coca-Cola characters mean tasty & fun/happy

- Subtle associations of the brand name in the country and local languages o “Konka” television brand in Asia

U.s.: sounds like Tonka Toys & “konked out” o “Assugrin” – Brazilian sweetener

- Ease of pronouncing the brand name o Example: Sony (was a really long name)

- Ease of remembering the brand name o Frosted Flakes: Mexico – “Zucaritas” (sugar association)

Brazil – “Sucrilhos” (sugar association) Europe – “Frosties”

Brands and Country of Origin Positioning - Brands are often associated with country of origin - Some country of origin associations are highlighted in the brand positioning

o Certain countries of origin bring positive associations to the brand - Some country of origin associations may conjure up negative or neutral

association - Examples:

o German Cars – premium & luxury autos o Italy & France – premium clothing (Gucci, Louis Vuitton…) o China (clothing) – low quality/cheap

How do you overcome this? Overcoming Negative Country of Origin Associations (Chinese Clothing)

- Give it a foreign sounding name (i.e. Bossini & Giordano) - Get a foreign designer and emphasize - Emphasize other thing in communication

o Such as good value and price o Clothing – silk and cashmere

- Obtain a celebrity to endorse the brand - Make products for a strong brand (i.e. Yves Saint Laurent) - Make private label products for a strong retailer (i.e. Nordstrom’s) - Assemble part of the product in a foreign country - Specialize in niche products with positive country of origin association

Legal Strategies Against Piracy and Counterfeiting - Register trademarks and copyrights in countries worldwide - Lobby governments for stricter laws - Lobby government for stricter enforcement - Court Cases

Marketing Strategies and Protections Against Imitation - Communications campaign to differentiate the “authentic” product from imitators - Distribute a portion of the product offering and offer the full offering after the

customer registers the products - Leverage relationships with distributors to obtain better shelf space than imitators - Innovate faster than the imitators - Acquire or partner with the imitator


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Transitioning from a Local to a Global Brand - Summary Axing

o Immediately drop and replace with global name o Usually not recommended

- Platform Branding o Develop a global look and feel for the brand platform o Maintain the local brand name o Example: Bud in Europe

- Fade-in, Fade-out o Include both the local and global brand names o Gradually increase the size of the global name and decrease the size of the

local name o Example: Pampers with Babysan

- Transparent Forwarding o Intensive communications program to alert customers to change o Example: “SPC Is now AT&T”

Time Warner taking over Adelphia “Radar” candy in Germany into “Twix”

Budweiser Mini-Case - Town in Czechoslovakia → Bud…there is a beer from the town called Budweiser

as well - Originator of Budweiser knew this but did not realize future global market - 1900’s: companies agreed that Budweiser had North America & Asia, while Bud

had Europe - Recently a problem: Budweiser wants to go to Europe

o BW wanted to partner up, but Czech company didn’t want to because seen as a premium company

o BW is a mass production company - 2 Strategies 1. Call the beer Bud 2. Took case to court saying the agreement was no longer valid

o This worked in a few nations…had 2 different Budweisers Kellogg Corn Flakes Around the World

SIMILARITIES DIFFERENCES - Bowl of cereal

- Rooster character - “Corn Flake” name

- Coloring - Overall font

- Name “Kellogg” featured - Use of fruit with cereal

- Corn association - Featured as healthy product

- All have customer service info

- Box sizes - Promotions on American boxes

- Some feature other Kellogg products - Asia: use kiwis, not strawberries as

the featured fruit - Rooster: cartoonish to more realistic


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November 1st Aaker & Joachimsthaler’s: Perspective on Global Branding Global Brand Leadership

- Global brand leadership, not global brand standardization should be the goal - Global brand strategy should coordinate and leverage country brand strategies

o Coordinate but not overly standardized Difficulties of Globalizing Brands

- Economies of scale often elusive - Influence of cross-border media often overstated - Successful global brand teams difficult to form - Company resources, customer characteristics, and competitive conditions differ

across countries. A Nuanced Approach to Global Brand Management is Needed

- 4 Steps: 1. Sharing insights and best practices worldwide 2. Using a consistent global brand planning process worldwide – uniform framework to analyze country 3. Assigning global coordination responsibility for brands

a. Global teams, senior brand executive 4. Delivering brilliance

a. Look for best ideas globally to role out…causes global competitive advantage.

Sharing Insights and Best Practices Worldwide - Formal meetings - Informal meetings - Communication technology - Internal intranet and databases

Using a Consistent Global Brand Planning Process Worldwide - Analysis frameworks/templates - Monitor brand associations - Monitor brand equity - Communicate brand identity internally - Link country brand strategy to global brand strategy

Assigning Global Coordination Responsibility for Brands - Senior executive group or individual responsible for global brand - Middle management group or individual responsible for global brand - Some aspects of brand management influenced heavily by the global teams or

managers - Some aspects of brand management left mostly at the local level.

Delivering Brilliance - Look for most brilliant ideas across the globe - Transfer good ideas across borders - Roll-out brilliant innovations across borders

Conclusion - All companies should engage in global brand leadership

o But not necessarily global brand standardization


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- Companies that sue unconnected and directionless local brand strategies will find mediocrity as its reward

- GLOCALIZATION!! Balance with standardization and adaptation. COMPLEX GLOBAL


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Holt, Quelch, & Taylor on Global Branding Challenge for Global brands

- Glocalization in managing global brands - Recent years, anti-globalization

o I.E. Starbucks with WTO meeting in Seattle - Very salient in minds of consumers

o Don’t downplay globalization of company because consumers will still know

Dimensions of Strong Global Brands - Quality Signal (44% of variance in preference for global brands)

o Global products seen as high quality - Global myth (12% of variance)

o Global products tie people to a shared, perhaps imagined, global identity - Social Responsibility (8% of variance)

o Expect global brands to behave responsibly and hold these brands to a high standard of social responsibility

- U.S. brands were not perceived more negatively or positively Global Consumer Segments

- Global citizens (55%) o See global success of a bran as signal of quality and innovation, concerned

about social responsibility - Global dreamers (23%)

o See global brands as quality products, readily buy into the myths associated with the brands, less concerned about social responsibility

- Anti-globals (13%) o Skeptical that global brands are higher quality and don’t trust that social

responsibility - Global Agnostics (8%)

o Don’t have purchase decisions on whether brand is global or not Opportunities and Responsibilities in Managing Global Brands

- Manage brand as a global symbol - Manage the dark side - Build credible myths - Treat anti-globals as customers and try to gain their trust - Be proactive in SOCIAL RESPONSIBILITY

Cola Taste Test - Lesson of Exercise: taste of Coca-Cola, Pepsi, etc are indistinguishable and

people buy a certain brand (i.e. Coke) due to brand IMAGE Lays Around the World

- In many countries they bought an already established brand…kept the original name or not?

o Taiwan: Poca → early stage combined Poca in Chinese and lays in English

Eventually did FULL fade-in, fade-out. Lays in English and Chinese

o Australia: did the same as Taiwan


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o China: English and Chinese o Thailand: Thai characters that look like “lays” o Chile: fade-in, fade-out (“Evercrisp” to “lays”) o Spain: fade-in, fade-out (“Matitanu” to “lays”) o Mexico: kept Sabritas name but changed to Lay’s package → platform

branding o Brazil: Elma chips → platform branding

- China o HUGE amount of variety, many different flavors o Many meat flavors o Consumers like to try varieties (test & study) o Very fragmented market with many competitors

Brand awareness & get shelf space with a lot of variety Cola Wars Case What Are They Selling?

- Caffeine benefit - Image of fun & good times - American, western image around the world - Image association of pizza and hamburgers - Feelings of childhood memories

What Important strategically BRANDING IMAGE ADVERTISING (Most Important) STRATEGY

DISTRIBUTION PHILOSOPHY

“Put Coke within an arm’s reach of desire”.

- They keep these attributes consistent & similar o Specifics may vary/be localized but generally stays the same

- Myth: concentrate same around the world & recipe locked up in a vault in Atlanta

o Feeds into branding, image, mythology of the product Advertising Strategy

- Language - Actors - Sponsor sporting events & festivals

Diet Cokes vs. Coca-Cola Lite - Negative attitudes toward “diet”

Future Cola in China - Lower price range - Targeting rural areas/customers (lower incomes but big population) - A lot of other drinks beside cola - Very localized distribution system with close relationships - Position: “A Chinese Product” (homegrown)


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Coke Versus Pepsi - Pepsi needs to improve strength internationally - Compete with Coke in the U.s. despite international efforts - U.S. mature market, profits will decrease - Where can Pepsi increase international strength?

o Germany, Japan, Australia, Mexico already developed by Coke o China good because Coke is weak is well

Huge market Category unsaturated

o India same situation as China o India and China VERY important to Pepsi o Coke needs to defend itself in China and India to maintain global status

Strategic Importance of China to Coke 1. Huge market 2. Huge growth potential because it’s unsaturated 3. The global competitive positioning of players can change depending on Chinese

market 4. Competitors are on a more equal playing field


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November 6th Product Line Variation Across Countries Examples: Chips (especially in China)

Coca-Cola (Koo, Diet Coke, Coca-Cola Lite…) Pizza Around the World

- Japan: Pizza L.A. o BLT o Bacon, eggs, curry…

- Shakey’s Pizza Japan o Corn, curry…

- Domino’s Japan o Seafood pizza, spicy, Mexican, Tuna…

- Pizza Hut in Hong Kong o Corn popular, Hot & Spicy, seafood o BIG THING: thousand island sauce

CVS Pharmacy: Savon to CVS → SUMMARY AXING - Totally dropped Savon logo, name and image

WA-ha-ha - China What Characterizes Chinese Companies?

- Imitation - Lower production price - Weak marketing

Wa-ha-ha - Absorbed lessons from global players - Advertisements placed on National TV Channel - Sponsor - Use of local celebrities - Knew customers very well - Developed a strong brand image

Wa-ha-ha Over Coke and Pepsi 1. Strong relationships with distributors (esp. in rural areas) 2. Lower price 3. Position themselves as Chinese brand 4. Dominate in rural areas 5. Strong brand with awareness & reputation (means child and happiness) 6. Broad product line: shelf space and segmentation

o Milk (2nd biggest) o Tea (2nd biggest) o Mixed Kongi drinks (sweet & local) (2nd biggest) o Bottled Water (biggest segment) o Carbonated drinks (smallest section in market) o These other products growing rapidly worldwide

7. Cola taste adapted to Chinese tastes Pepsi/Coke Over Wa-ha-ha

- Strong in urban areas - Coke went to mid-sized cities, Pepsi only in biggest cities


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o Here income lower, but over population is larger - Market shares:

o Coke - 42% o Pepsi – 23% o Wa-ha-ha – 18%

- Wa-ha-ha could take product into cities so Coke needs to go rural (cities already saturated)

- Mass markets in China are in the rural areas o VERY difficult to do this, but strategically important

What Does Coke Need To Do This? - Lower price - Local distribution network - Bring in drinks that fit local tastes - Localize advertising - Sponsor local events - Endorse local celebrities - MUCH MORE LOCALIZED - Challenge for Coke:

o Maintain consistency o But adapt for these developing/rural markets

WA-ha-ha - India Strategic Importance of India to Coke

1. Huge market 2. Huge growth potential because unsaturated 3. The global competition position of players can change depending on Indian

market 4. Competitors are on more even playing field

History of Coke in India - Had to leave India in 70’s because government said had to partner & share syrup

with local company - Pepsi entered first - Coke’s bottling company had dominate share with “Thumbs Up” - Coke bought Parley’s group which gave them immediate 60% market share

o Now own competing Cola group o Took away marketing & advertising money away from “Thumbs Up” &

into Coke - Pepsi had 30% market share - India very sensitive to colonialism – Coke appeared imperialistic

o Coke share went down to 53% o Pepsi up to 40%

What Should Coke Do? 1. Emphasize “Thumbs Up” in marketing 2. Sell both products but slowly concentrate on Coca-Cola to phase out 3. Localize marketing, more sponsorship for local events (promote social

responsibility) Coke’s major Strategic Goal in India


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- Brand consistenvy - MAIN: keep Pepsi market share low.

o Thumbs Up does this better → Coke changes to emphasize Thumbs Up → Pepsi shares down

Advertising in India - STANDARD

o Tagline o Jungle o Logo o Glass bottle o Red Color

- LOCALIZED o “Baliwood” stars o Language o Sports (Cricket)

- NOTE: ads more localized now, segmented to local differences


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November 8th Advertising and Promotion Aspects of International and Global Communications

- Target Audience - Objectives - Theme and Message - Platform - Execution - Budget - Media and the Communications Mix

Target Audience - Who is the target audience in each country? - How broad is the audience?

o Mass vs. Targeted - How similar are the target audiences across countries?

o Standardization possible? - Is it possible to target an inter-market segment?

Objectives - Consistency with other marketing mix elements - Positioning Objectives

o How do you want to be positioned? o Companies normally reluctant to have adapted positioning o EXCEPTION: Japan → adapted KFC to premium position

- Image vs. Product Benefits - One-way vs. Two-way communications - Pull vs. Pull Marketing

o Pull: communicate to end consumer to pull the product through channels o Push: communicate with retailers/distributors to push product to

consumer - Objectives and the Product Life Cycle

o Cognitive: awareness and knowledge o Affective: liking, preference, conviction o Behavioral: trial, repeat purchase o Switch Users from competitors vs. develop new users o Reinforcing existing users vs. generating new users for product.

Theme and Promotional Message - What is the theme and general message you want to convey? - What are the benefits or attributes emphasized? - What is the message regarding the positioning of the product? - What is the type of image presented? - Coca-Cola

o Soothing, relaxing drink that fits with contemporary lifestyles o “Can’t beat the feeling”, “I feel Coke”

Platform - Structure

o Order

1st

Last


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o Placement of Items - Color Scheme - Melody - Tone - Form

o Blocking: structure/order of scenes Platform and Tone

- Emotional vs. Informational - Humorous vs. Serious - Argumentative vs. Narrative

o Argumentative: talks directly to you…”Go Buy Coke” o Narrative: tells a story

- Competitive vs. Non-competitive - Hard Sell vs. Soft Sell

o Hard Sell: Aggressively pushes the product - Direct vs. Indirect

o Mostly in words or pictures Platform and Form

- Announcement o Gives info…released on this date, sale this weekend o Example: Macy’s

- Display o Show product with out words o Example: cars

- Association Transfer o Lifestyle, Celebrity o Example: Nike, proactive

- Lessons o How might benefit, how to use o Example: infomercials, Insurance

- Drama o Slice of life o Example: Credit Cards, Pharmaceuticals

- Entertainment o Humorous o Example: Aflak, Beer

- Imagination o Cartoons o Example: cereal, Red Bull

- Special Effects o Example: Scion cars

Execution - Source

o Actors & Celebrities - Content

o Words, Images/visuals, Music


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- Settings Media and the Communication Mix

- Advertising o Television, radio, newspapers, magazines

- Direct Marketing o Infomercials, catalogs, direct mail, e-mail, telemarketing, internet

marketing - Sales Promotions

o Samples, coupons, rebates, price & bonus packs, premiums, tie-ins, continuity programs, contests

- Trade Promotions o Slotting allowances, coop advertising, floor planning, temporary price

cuts, volume discounts, contests - Public Relations - Sponsorships - Product Placement

o Products in movies & television shows - Personal Selling - Sales Force Promotion Tools

o Trade shows & conventions, sales contests, promotional gifts Media Strategy

- Which media or communications vehicle for which messages - Percent of budget allocated to each media or communications vehicle.

Coke Advertisements – Sport Star & Kid Ad Target Audience

- Coke Ads: highly standardized o Sports enthusiasts (different sport stars across nations)

- Are they geared to everybody? o U.S. football, Brazil soccer → national pastime, mass market

Objectives - Pull marketing - Image building - Positioning: something you could use broadly - Very standardized

Theme & Promotional Message - Refreshing - Relaxing - Hero’s elixir - Very standardized

Platform - Basically the same throughout the ads - Very Standardized

o Structure, order, storyline, blocking… Tone

- Emotional not information – standardized - More serious than humorous


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- Narrative - Non-competitive - Soft sell - Indirect (more pictures, scenes than words) - Everything standardized

Platform & Form - Drama - Association transfer - Standardized

Execution - Different celebrities

o Used sports (football, soccer…) - Platform the same, but local visuals

o According to each countries’ stadium - Different languages - Different specific setting - HIGHLY ADAPTED

OVERALL - Typically easier to standardize 1st three elements, more difficult to do the last two

o Coke standardized first 4, adapted the last (execution) Deremate.com Case Overview

- EBay type website - American web companies concentrated in the U.S., so… - Local European, Latin American, & Asian companies looked at American web

market, took idea, then made local adaptations - When American companies wanted to expand, there were already strong,

localized web companies Differences From U.S. to Latin America

- Reasons for using auction site o Limited cash, want to monetize assets

- People don’t use credit cards o Need to have cash on delivery o Need to exchange in person

- Internet not widely used o Target more medium-premium market

- Not used to yard sales, classified ads, etc. o Need to educate the customer A LOT

- Very different products being sold and bought o Lower end products o Used VCRs o Electronics & cars

- Underdeveloped delivery infrastructure o Need to set up strong relationships with services they can trust

- Can marketing be the same? NO!


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November 13th Deremate.com Case Continued Similarities (Within Latin America)

- Language (except Brazil) - Why customers use auction sites - Cultural similarities

Differences (Within Latin America) - Use of Spanish is different - Levels of internet development - Delivery methods - Payment methods - Types of goods sold

DEREMATE.COM STANDARDIZED ADAPTED

- Fees for using the service - Orange, logo, branding

- Look & feel of the website - The software platform

- Positioning - Ads on cable TV channels

- Product/website development (new features)

- Transaction completion method: payment, taxes, & delivery - Product categories

featured/emphasized - Content of ads: localize with

newspapers/radio/etc. - Media used to advertise depending

on infrastructure (billboards, radio…)

- Publicity, PR - Direct sales (especially with college

campuses - Customer Service

- Execution of specifics on the website

- OVERALL: similar to other cases where key aspects are standardized but specifics are localized

Competitors - Deremate.com - Meradolibre.com - EBay: What should they do to enter?

o Could partner with one of the 2 local companies Would combine global knowledge of EBay with local

responsiveness Small companies should court EBay

What Ended up Happening? - Mercadolibre.com ended up with EBay & became the dominant player across

Latin America - Branding is the same → PLATFORM - Specifics are very different from market to market - Marcadolibre.com eventually recently out deremate.com

o Chile & Argentina too strong & deremate.com did not sell out


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IBM Global Advertising Overview

- IBM one of the most valuable brands in the world - Thought of as: 1 brand with many expressions around the world - 1994: 400 marketing agencies into 1 agency → Ogilvy & Mathers - 1996: IBM brand association with internet and e-commerce

o “The Biggest Dot.Com of Them All” - Brand:

1. One brand, many point of contact 2. One brand, many tactics

- Advertisement: Will it work in the U.S. and Japan? o Language o Hierarchal structure (kid young & not respectful) o Sense of humor o Japanese board rooms look different

- IBM adapted ad for Japan, but standardized… o Branding o Sequential order & plot o Music o Black & white film footage

Advertisement Layout

1. Target Audience o Highly standardized: business people

2. Objectives o Highly standardized: e-commerce

3. Theme and Message o Highly standardized: use IGM for e-commerce

4. Platform o Fairly Standardized

5. Execution o Highly adapted

- At IBM: type of ad called intelligent adaptation - Why is execution localized?

o Objective to connect with customer deeply & psychological o Want resonation with customer

COMPLEX GLOBAL - GLOCALIZATION 2nd Advertisement (Japan vs. U.s.)

- Rhyming: there isn’t this sense of humor in Japan - Blaming - Adapted for Japan:

o Still humorous and concept the same o More questioning than blaming – more polite o More collaborative: people worry together to solve problem o Circular

- First 4 concepts standardized, execution localized

Same Strategy

Same Creative Idea

Expression is Localized


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Global Brand Face-Off The Grid and The Grid Revisited

- Stars of film wore new line of sunglasses from an eyewear brand - Created much publicity for the company’s brand and its new line

Espoir’s Marketing Decision - Espoir is a major global cosmetics brand - Positioned for women who are smart, independent, risk takers - Opportunity to sponsor sequel to Dianna’s She Devils - Three stars are from Europe, Asia, and South America - Create three new lipsticks and nail polish combinations in right palette for each of

the 3 stars - Launch new combinations at same time as film and associate the starts with the

advertising Natasha Singh – Executive Vice President of Global Marketing

- Make Espoir’s Indian business successful by challenging headquarters ideas - In India can get a facial for Rs 300 ($6.66) or a manicure for Rs 75 in a beauty

parlor - Why pay Rs 120 for lipstick or Rs 75 for nail polish?

Indian Success - Reduced pack size to 8ml vs. 12ml - Slashed prices to Rs 35 from Rs 75 - Penetrated small retailers around the country - Small trays of lipstick and nail polish created for dmall retailers to place on

counters - Local market leader 12ml for Rs 30 - Introduced purple shades to fit with current rage In traditional Indian dresses - Later had to introduce global colors in India because consumers were asking why

weren’t available - So segmented market, less expensive local line and more expensive international

line U.S. Reaction

- Willing to help pay for campaign because two of starts represent big ethnic markets in U.S.

Western European Reaction - Revlon had boosted top-of-mind awareness by ting in with movies, like the Bond

film Die Another Day - Positive to global movie sponsorship idea - But, argued website to buy customized products from Espoir would need to have

a different look and feel from the U.S> and different name to appeal to Europeans.

Eastern European Reaction - Manger claims Eastern Europe is different from rest of world - Movie promotions won’t help sales. We are in beauty business, not movie

business. - Wanted to appoint beauty queens like Miss Russia and Miss Ukraine as brand

ambassadors


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- Contests where write in with suggestions for new colors each beauty queen will pick her favorite, and there will be lots and lots of prizes

- Brand not well known, so major goal is to develop brand as quick as possible - Manager Threatens to leave if force the global campaign on him

Indian Reaction - Many new department stores opening in cities, easting retailing bottlenecks - Many international brands now competing in maker - Farmers adopting cell phones - Internet cafes every two miles in countryside - Rooftops crowded with satellite TV dishes

o Customers asking for latest global colors advertised on satellite TV from other countries

- Billboards in countryside from Cosmo, Elle, Friends - Point of reference for rural areas used to be closest large city, not it is becoming

the world - Hollywood films doing will in India recently, in addition to Bollywood films –

better dubbing, quick global releases, less important regulations - But still need local responsiveness because of large income differences and

cultural differences Argument for Global Campaign

- Trend toward global convergence in customer tastes - Global movies a good way for reaching targeted segments around the world - Cost savings - Quality of global campaign is typically better than what can be done locally - Leveraging good knowledge and ideas worldwide

Arguments Against Global Campaign - Many companies that have tried globalizing marketing have failed at it - Global approaches tend to either over-standardize or oversimplify - Global approaches ten to discourage local innovations - Espoir bran may have different images in different parts of world

Expert Reactions to the Case - Singh is on right track to want to globalize marketing much more, but needs to

find the right balance between globalization and localization - She needs to keep Espoir’s marketing programs relevant to local markets as

global scale and best practices are leveraged - She has to get buy in of frontline executives who will be implementing the

programs - She has to become less of a developer of marketing programs and more an

orchestrator - Achieving both global scale and local relevance requires time and flexible

approach - The organization and implementation of the global marketing approach is key

Expert Recommendations - A team of managers from different regions/countries should develop and shape

global marketing ideas


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- Identify areas of marketing that must be globally consistent and leave other areas of marketing to the decisions of local managers

o Marketing strategy make be more globalized while execution ca be left to local control

- Identify global products that must be more standardized across countries and then allow other products that are country specific

- Create a global communication platform and menu of options, but local managers can choose from the menu and add local elements to the global platform

- Quantify both the benefits and costs of global consistency and develop a measurement system for tracking in future


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November 20th Advertisement & Promotion Cont - Localized

ADVANTAGES DISADVANTAGES

- Resonate/connect with customer on deep level

- Customer Behavior can vary - Regulatory environment vary - Competitive situations vary

- Avoid misunderstanding & insults

- More costly - More resources: management

resources - Confuse customers

- Doesn’t reinforce the brand as people hear messages from

different countries More Cross Border Media Spillover

1. Internet 2. More International Travel 3. Cable & Satellite TV

Advertisement Statistics - Should look at a country’s stats in order to determine the best mode of

advertisement - Regulations on advertisement

o Europe especially o Not the same with new cable stations o Example: Can’t interrupt shows, have to do in between shows o Before: state owned channels, NO ADVERTISING

- Last 30 Years: o Britain – first to introduce advertisement o Last 10 years in some European countries with cable & satellite o IN GENERAL: advertising restrictions have decreased with time

- Cinema o France: 30 minutes of ads before movie…but assigned seating

POWERPOINT Selecting Media and the Communications Tool

- Availability - Regulations - Habits and Intended Audience

o Which media or communications vehicle is our target audience most receptive to?

- Fit of the objectives/message to the media or communications vehicle - Cost

Determining the Schedule - When is our target audience most likely to be exposed to the communications? - Seasonality of product usage and exposure - Introduction of a new product

o Pre-launch, launch, post-launch - Communicating new information about a product - Response to Competition

Consumer and Trade Promotions - Mostly a local activity


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o Economic development o Culture and perceptions o Regulations o Retail structures o Infrastructure for Promotions

Consumer and Trade Promotions - Increasing Headquarters Involvement

o Cost o Complexity o Global branding o Transitional retailing

Agency Selection - Different agencies different countries - Same agency across countries – little coordination - Same agency across countries – much coordination

Constraints in International Advertising - Cultural and language differences - Different regulations - Different infrastructures

o Media availability, agency availability, research data availability - Different consumer characteristics and attitudes

o Economic status, literacy, role of advertising in society - Different market characteristics

o Stage of product life cycle, competitive environment - Different product strategies

o Differences in positioning, packaging across countries Trends in International Advertising

- Deregulation of media - Growth of commercial television and radio - Growth in cross-border cable and satellite TV - Increased Availability of Global Media - Growth of global advertising agency networks - Growth in worldwide sports and events sponsorships - Growth of product placements in TV and Film reaching global audiences - Growth of advertising in emerging countries - Potential of the Internet

Growth in Global Advertising - Trend toward harmonization of strategic elements of advertising - While maintaining flexibility at local level for execution - Think globally, act locally

The Product Portfolio and Global Marketing - Distinguish among global, regional and local brands

Global Brands - Highest level of headquarters influence - Headquarters promotes coordination of marketing strategy

o Certain marketing elements may be standardized


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- Implementation left to local level o Perhaps with guidelines and approval procedures

Regional Brands - Moderate level of regional management influence - Regional management promotes coordination of marketing strategy

o Certain marketing elements may be harmonized across countries - Implementation left to local levels

o Perhaps with a few guidelines and approval procedures Local Brands

- Highest level of local autonomy - Development of marketing strategy and execution left at local level

o Little need for coordination o Little need for guidelines and approval procedures

- Information may be transferred across countries but with no attempt to influence local managers to adopt new ideas

Unilever in India Shakti Program

1. Shakti Entrepreneurs o Distribution into remote/rural area (50% of population) o Women entrepreneurs, increase HH income 50% o Work with self help groups like microfinance

2. Shaktivani o Meet with women in groups – educate them about hygiene & health o Communicate about Unilever products

3. iShakti o Internet access o Brings people the Unilever products o Communicates about Unilever

Challenges 1. Entrepreneur women need a lot of education & support 2. Was pilot program but not want to scale it up to entire country without a large

increase in resources 3. Want it to become profitable 4. Self help groups (SHG) – consumers working with Unilever but concerned about

exploitation and commercialization Indian Village: Kelve

- 800 km from Mumbai (a.k.a. Bombay) - Takes 2.5 hours by train, 3.5 hours by car - Road not straight & poor infrastructure (lower speed) - Population of 3000 - On Indian Ocean - Citizens:

o Banana Groves & 50% Regular groves o Fishing 10% o Farm Hands – Tribals >15% o 3% work in Bombay

Wealthier

Poorer


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o Less than 3% professional misc. (i.e. doctors) - Street vendors for fruit & fish (Other products - shoes, plastic buckets, etc) - Some small shops with sachets of detergent, shampoo… - Many outdoor ads painted on buildings - Tier 3 Village: close to the city/accessible

o Wealthy when compared to Shakti villages, poor vs. the city o Have electricity o 20% refrigeration o Wells, not running water (in back yard for average person, electronic

pump for wealthy) - Tribals

o Dirt floors in home, made of bamboo & mud, use communal wells - 3 elementary schools, 1 high school - Many Hindu temples (small to large)


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November 27th Segmentation Segmentation Strategies

- National market segment strategy o Primary segmentation variable: within each country o Multi-domestic → No coordination

- Country cluster market segment strategy o Primary segmentation variable: groups of similar countries o Segment within this block in a similar way

- Global market segment strategy o Primary segmentation variable: factors that cut across countries or regions

Criteria for Grouping Countries – General Characteristics - Economic grouping

o World Bank Clustering - Geographic grouping

o Most simple (i.e. North America, Europe, etc) o PROBLEM: U.K. with Europe for geographic grouping but with North

America for cultural grouping - Political grouping

o Index of economic freedom OR political trade group - Religious grouping - Cultural grouping - Quality of Life grouping - Product Usage

Criteria for Grouping Countries – Product Market Specific Variables - Size of market - Growth of market - Competitive intensity - Product Life cycle stage

o Mature: brand loyalty, differentiation & innovation, & efficiency & reasonable pricing

o Growing o Initial: awareness, education, generating primary demand

- Customer acceptance of product - Customer knowledge of product - Other criteria relevant to your product market

Formal Technique for Grouping Countries - When using multiple variables - Cluster Analysis

o A statistical technique o Group countries into clusters o Countries within a cluster are relatively similar to each other on the

variables used for the clustering o Multiple variables can be used to cluster countries

- Associated with a regional approach Customer Trends Across Countries


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- Increasing homogenization, BUT… - Increasing segmentation

o Customers are being segmented into more specialized segments o Example: cereal – for kids, adults, healthy, increased fiber…

- How can these two trends be reconciled? o Specialized segments can be enlarged by segmenting across countries →

Using Inter-market Segments Emerging Inter-market Segments

- Because the world is coming together, but becoming more specialized, companies have to find segments that are common across the globe

- Teenagers - Working Women - Middle Class Families - Upscale Consumers - Business managers

4 Characteristics That Define Inter-Market Segments 1. Have many similar needs 2. Desire Similar Products and Services 3. Can be Targeted with Global Media 4. Have Similar Vocabulary


39

November 28th International Distribution and Retailing Modes of Entry into International Markets

- Increasing commitment, risk, expertise, and control o Indirect Exporting: cheap and low risk o Direct Exporting: export yourself o Licensing: local company, they manufacture & sell with guidelines o Joint Venture o Direct Investment

Marketing and sales subsidiaries Manufacturing subsidiaries

Distribution and Retailing Environment Across Countries - Distribution and retailing environments are HIGHLY LOCALIZED

o Different retail and distribution structure in different countries o Retailers and distribution tend to be local players o Relationship with retailers and distributors need to be localized

- RECENT TRENDS are making distribution and retailing environments more similar across countries

Traditional Retailing Environments - Traditional = Localized - Traditional Retail Formats

o Outdoor Stalls – Street Markets o Small “Mom & Pop” retailers – The Corner Market o Example: Kelve, India

- Early Modern Form of Retailing o Department stores

- In the U.S.: traditional faded away after WWII o Traditional still strong in many countries o Others “modernized” in different time periods, other changing now

International Trends in Retailing - Growth of large scale retailing - Rise of Discount stores - Internationalization of retailing - Retailers are taking power from branded manufactures - Increasing sophistication of information systems - Greater ability to shop anytime, anywhere - Opportunities for internet retailing - Example: Shanghai → had mega stores but many bicycles outside.

→ Mom and Pop stores still exist next to mega stores Growth of Large Scale Retailing

- Increase in number of large stores - Growth of chain stores - Movement to city outskirts - Rise of shopping malls - Example: Carrefour is the lead market globally

Rise of Discount Stores

As You Go Down The List

More Commitment, Risk … Over Operations


40

- With quality products - Including branded goods - More competitive with prices - Examples: Wal-Mart, Costco, and then smaller ones within each country

Internationalization of Retailing - Pan-European Supermarket chains - International hypermarket chains - Department stores operating across borders - Worldwide Retailing in Narrow Categories - Examples:

o Wal-Mart o Makro, Dutch Wholesale Club o Carrefour, French Hypermarket o Japanese Department Stores o Costco o Toys’R Us o Ikea

- China o Carrefour o Wal-Mart o Makro o Metro o Lotus o Ikea

- Local Copies: o Japan

Victoria Sport Aoki, Aoyama Men’s Suits

o Hong Kong Grand Mart M-Mart

o Korea E-Mart

Increasing Sophistication of Informational Systems - Increase Efficiency and Lower Costs - Better understand customers - More sophisticated marketing

o Including more precise targeting

Retailers Are Taking Power From Branded Manufacturers - Consolidation of retailers - Retailers are extracting greater price concessions - Growth of Private label goods - Retailers are making their names into strong brands - Ways Branded manufactures Can Respond:

o Reinforce Pull Marketing


41

Reinforce quality image Discredit private brands Relationship marketing

o Provide adequate push marketing o Lower your costs through efficiencies

Lower prices to diminish price gap Eliminate the gouge factor Use promotional pricing

o Negotiate with retailers on Global Basis o Establish Strategic partnership With retailers

Category management o Innovation

Greater Ability to Shop Anytime, Anywhere - Longer hours for retail stores - Growth of direct marketing - Example: restrictions in Germany (have to close at 8)

Opportunities for Internet Retailing - Certain segments of most countries have internet access - Internet retailing provides new possibilities for market entry - Internet retailing gives customers greater information, selection and bargaining

power. Global Retail Trends and Implications for Manufacturers

- Simplifies the task of international distribution o Allows for entry into a new country with less investment o Allows for greater standardization of distribution across countries

- But it comes at a price o Lose power to global retailers o Price concessions extracted o More dependent on a small number of powerful retailers o Risk of Losing retailer to another manufacturer


42

Pricing for International Markets Examples

- Chart with Zurich = 100 - Price of Big Macs globally: vary due to costs and wages

Factors to Consider in Setting Prices in International Markets - Company internal factors - Cost and Profit factors - Market factors - Environmental factors - Managerial issues

Company Internal Factors - Consistent with marketing strategy and other elements of the Marketing Mix

o Consistent with target market characteristics o Consistent with product positioning and image

- Consistent with company strategy and goals o Marketing skimming vs. penetration pricing o Profitability (higher prices) vs. market share goals (lower prices)

Internal Cost and Profit Factors - Manufacturing Costs

o Direct manufacturing costs o Indirect manufacturing costs

- Selling, Marketing, and general administrative costs - Profit margin - Manufacturer’s Selling price

Cost and Profit Factors External to the Company - Cost related either to Domestic, overseas production, or export sales

o Taxes o Distribution margins

Wholesalers Retailer

- Cost related to exporting o Transportation and Insurance Costs o Tariffs

- Manufacturer’s selling price plus above costs determine final price to consumer Export Related Costs and Price Escalation

- Cost of shipping, insurance, tariffs, taxes, importer margins, and distribution margins can make retail prices in export markets much higher than domestic retail prices.

- How to lower price escalation (4 Ways) o Price based on marginal costs

Time

Price Skimming

Penetration Pricing

Add These 3 To Get Selling

Price


43

o Eliminate layers of middlemen in importing and distributing the product o Redesign product to lower costs o Set up production in overseas markets

Market Factors - Demand

o Demand vs. supply: High S, Low D OR Low S, High D o Price elasticity of demand: customers price sensitive or not?

- Income level of country - Competition

o Price levels o Intensity o Differentiation of Product

- Product Life cycle stage o Price comes down with maturity

Environmental Factors - Government regulations

o Price controls o Anti-dumping laws

- Inflation Rates - Foreign Exchange Rates

Managerial Issues - Relative vs. absolute pricing

o Relative: average price + relative price when compared to a competitor. More feasible because related to market conditions and competitors

o Absolute: Exact same price. Not frequently used because conditions in markets vary drastically.

- Multi-domestic vs. Global Strategic Orientation - Coordination and Pricing Policies - Gray Market Problems

o Entrepreneurs buy product at lower price in a different country then sell it for more but lower than true price in that country…angers retailers.

- Product characteristics, packaging sizes, and prices Pricing in the EU

- Theory: prices go down if not modereated to the lowest common price o Companies react by incrementally raising prices in cheap countries, and

lowering expensive countries = moderate LOWER price. - Reality: people feel that prices ROSE, not lowered.

KFC Video in Japan - Employees work for life - Image: American and HIGH QUALITY - Expensive to start a new store – very concerned about locations

GLOBALIZED ADAPTED - Branding elements

- Core product - General look and feel

- Side dishes - Size of store

- Positioning and advertisement


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Summary of the 4 Ps MORE POTENTIAL LESS POTENTIAL TO GLOBALIZE TO GLOBALIZE 1. Product 2. Advertising/Promotion 3. Pricing 4.Position/Distribution

PRODUCT

Brand Product Packaging Packaging Customer Features Design Material Service

ADVERTISING/COMMUNICATION/PROMOTION

Advertising Strategy Media Execution Customer Support

PRICING

Relative Price Absolute Price


Group email: [email protected] In today's business world, knowledge of overseas working practices is more important than ever. The Overseas Work Experience Organization is dedicated to the dissemination of knowledge about working abroad as a step towards a more successful career in any field. The OWEO will provide members with the valuable information needed for finding work overseas, as well as the steps that should be taken for getting the most out of an overseas work experience. This is the Facebook group for the USC chapter of the Overseas Work Experience Organization, which is an officially recognized USC group. USC OWEO was founded in September 2006 by Keith Parker as a means of spreading knowledge to the USC undergraduate student body about the benefits of traveling abroad for work during summer breaks, as well as information about how one would go about doing this. Meetings are held in the Philosophy building (or in the courtyard). Membership is open to all, and free. Just request to join this group and you'll be on the OWEO membership list and get news about meetings. Everything else you need to know about the group is on the group website, which also has some helpful travel info. Here's the OWEO mission statement: "In today's business world, knowledge of overseas working practices is more important than ever. The Overseas Work Experience Organization is dedicated to the dissemination of knowledge about working abroad as a step towards a more successful career in any field. The OWEO will provide members with the valuable information needed for finding work overseas, as well as the steps that should be taken for getting the most out of an overseas work experience." Cheers, Keith Parker President and Founder variety of ways during their stay at the backpacker’s resort. This put us in contact with backpackers from all over the world and also

OWEO: Mission Statement

gave us an insight into the business practices of a Greek company at the Micro-level. Many people find work similar to the aforementioned hostel job by buying tickets to a location of interest for them, then finding a job on arrival. This has worked for a large number of people. This shows that even if somebody hasn’t found a job overseas by the time that summer rolls around, all is not lost. While this approach might not work for everybody, it is usually very effective. Nonetheless, it is important to be very motivated upon arrival to a new place in order to find a job. In my personal experience, I have used this method in Italy, Greece, Maui and Thailand. I found a good job in each country, but never at first. Everywhere I have gone, it has taken up to a week of constant searching and persistence to find work. Every business I’ve worked for overseas didn’t need new employees when I arrived; after approaching owners and managers multiple times daily, I eventually was offered a position. Furthermore, finding work on arrival often results in a more unique work experience than if a job was found beforehand, as many jobs that are found on-location through word-of-mouth aren’t posted anywhere online. For many, though, planning ahead is necessary to eliminate the stress associated with finding work on arrival and the possibility that work just isn’t available upon arrival. In the Information page of this site there are many links that you may find helpful in deciding on an area to look for work. There are also links to sites dedicated to securing jobs in various locations before you even book your ticket. Cheers, Keith

OWEO: Mission Statement

Constitution for The Overseas Work Experience Organization University of Southern California

ARTICLE I. NAME AND PURPOSE

Section A: NAME Part 1.The official name for this organization is the Overseas Work Experience Organization.

Part 2.This organization will use the name or its acronym, OWEO, in all publicity materials and correspondence.

Section B: PURPOSE Part 1.The purpose of this organization is to explore and promote academic and career issues related to the field of psychology, and to help those interested in the field to get to know one another better outside the classroom and laboratory.

Part 2.All activities of this organization must be directed toward this purpose.

ARTICLE II.MEMBERSHIP Section A: REQUIREMENTS

Part 1. All currently enrolled undergraduate USC students are eligible to be voting members.

Part 2. All other USC students and USC staff, faculty, alumni, and alumnae are eligible to be non-voting members.

Part 3. Members must pay no fee to be a part of this organization, though fees may apply for participation in events sponsored by the organization.

Part 4. All members are required to demonstrate support for the purpose of this organization.

Part 5. Membership decisions will not discriminate on the basis of age, race, religion or creed, national origin, ethnicity, gender, disability, or sexual orientation.

Section B. RIGHTS Part 1. All members are eligible to attend all meetings and events of this organization.

Part 2. If a fee is charged to attend a particular event, the membership will establish a fee scale for voting members, non-voting members, and others as appropriate.

Section C. WITHDRAWAL OF MEMBERSHIP Part 1. Members may have their membership withdrawn for failure to adhere to the requirements for membership as stated above.

Part 2. A simple majority vote of the quorum of membership at a regular or special meeting shall be sufficient to withdraw membership.

Part 3. Members to be voted upon in this regard will be notified of the intention to do so in writing at least one week prior to the meeting at which the vote will be taken.

OWEO: Constitution

ARTICLE III. OFFICERS Section A: OFFICER TITLES

President

Vice President

Secretary/Treasurer

Program Committee Chair

Section B. DUTIES

Part 1. The President will chair all meetings of OWEO and will call special meetings as needed. The President will vote on OWEO matters only in case of a tie.

Part 2. The Vice President shall chair any ad hoc committees or task forces of the organization.

Part 3. The Secretary/Treasure will take, record, and file meetings minutes; produce all official correspondence for the organization, and maintain records and report on the financial transactions of OWEO.

Part 4. The Program Committee Chair will direct the planning of the organizations education and social programs.

Section C. REQUIREMENTS FOR RUNNING FOR AND HOLDING OFFICE Part 1. All officers and candidates for office must be currently enrolled USC undergraduate students.

Part 2. All officers must be voting members of OWEO.

Section D. NOMINATIONS AND ELECTIONS Part 1. Nominations for all offices will be taken from the floor of the third-to-last regular meeting of the spring semester each year.

Part 2. Any members may nominate any other member, including himself or herself.

Part 3.Elections will be held at the second -to-last meeting of the spring semester.

Part 4.Nominations may also be made during the election meeting itself, prior to closing of nominations and taking the vote.

Part 5.A simple majority vote of the quorum present at that meeting will be sufficient to elect an officer. If there are more than two candidates and no candidate receives a majority, there will be a run-off vote between the top two vote recipients in the general meeting.

Section E. REMOVAL FROM OFFICE Part 1. Officers may be removed from office for failure to perform duties or for violation of membership clause.

OWEO: Constitution

Part 2. Officers to be voted upon in this regard will be notified of the intention to do so in writing at least one week prior to the meeting at which the vote will be taken.

Part 3. A two-thirds majority of quorum present at a regularly scheduled meeting shall be sufficient for removal form office.

Section F. TERMS OF OFFICE AND VACANCIES Part 1. The term of office shall be from the last meeting of each spring semester until the end of the second-to-last meeting of the subsequent spring semester.

Part 2. Should a vacancy in office occur, there will be another nomination procedure and election for the vacant office.

Part 3. In the meantime, the Vice President will assume the duties of the President, the Secretary/Treasurer will assume the duties of the Vice President, and the Program Chair will assume the duties o the Secretary/Treasurer should those offices be vacant.

ARTICLE IV. MEETINGS Section A: Regular meetings will be held the first and third Tuesdays of every month.

Section B: Special meetings may be called by any combination of two of the officers. Notice of special meetings must be communicated to all members at least 48 hours in advance of the meeting.

Section C. To conduct business at any meeting, one half of the entire voting membership must be present to form quorum.

ARTICLE V. COMMITTEES Section A. PROGRAM COMMITTEE

Part 1. The only standing committee of OWEO is the Program Committee, whose purpose is to pan events and programs for the organization.

Part 2. All decisions of the Program Committee involving committing organization funds in amounts greater than $25.00 will require the approval of the majority of those members present at the regular or special meeting of OWEO. Similar decisions, but for $25.00 or less may be approved by the Program Chair with consent from all other officers.

Section B. OTHER COMMITTEES Part 1. Other committees may be appointed by a majority vote of the members at a regular meeting of OWEO, or by the President.

Part 2. In appointing such committees, OWEO members, or the President if the committee was appointed by the president, must specify the purpose and chair or co-char of that committee, and establish its duration.

ARTICLE VI. AFFILIATIONS Section A.USC

Part 1. This organization is a recognized student organization at the University of Southern California, but is not part of the University itself.

OWEO: Constitution

Part 2. In all correspondence and business transactions, it may refer to itself as an organization at USC, but not as part of USC itself.

Part 3. OWEO accepts full financial and production responsibility for all activities it sponsors.

Part 4. OWEO agrees to abide by all pertinent USC policies and regulations. Where USC policies and regulations and those of OWEO differ, the policies and regulations of USC will take precedence.

Part 5. This organization recognizes and understands that the University assumes no legal liability for the actions of the organization, and that the University is not providing blanket indemnification insurance coverage for any activities of the organization, unless those activities expressly benefit and further the goals of the University, and have received prior review, approval, and consent of Campus Activities, Risk Management, and/or General Counsel.

Section B. OWEO Part 1. OWEO is an independent group started at USC in 2006, and may branch out to other Universities.

ARTICLE VII. FACULTY/STAFF ADVISOR

Section A. ADVISOR REQUIREMENTS Part 1. As a recognized student organization at the University of Southern California, OWEO is required to have an official advisor from the USC faculty and/or staff.

Part 2. Other persons may serve as special advisors as needed.

Section B. DUTIES Part 1. The advisor must sign the recognition application each year, or whenever officer information changes or amendments are made to the constitution.

Part 2. Officers should meet with the advisor five times per semester.

Part 3. An advisor may not vote in OWEO matters, hold office or unduly influence decisions of the student organization.

ARTICLE VIII. BY-LAWS AND AMENDMENTS Section A. BY-LAWS

Part 1. By-laws can be added to this constitution by a simple majority vote of the entire membership at a regular meeting of OWEO.

Part 2. This constitution takes precedence over any and all by-laws.

Section B. AMENDMENTS Part 1. This constitution can be amended by a two-thirds vote of the entire membership at a regular meeting of OWEO.

Part 2. Notification of such a motion must be made to members at least one meeting in advance of the one in which the actual vote is taken.

OWEO: Constitution

Organization Name:

Affiliated Department/School:

Account Type:

❏ Academic ❏ Social ❏ Fraternal ❏ Other (please specify):

Requested Account Name (No more than 8 characters):

Account Owner (please print name):

Owner’s USC Email Address: Phone:

Faculty Advisor (please print name):

Advisor’s Email Address: Phone:

Departmental Authorized Signer* (please print name):

Student Affairs Authorization† (please print name):

USC Student Organization Account ApplicationThis application is for an organizational account on the campus’ student server. Below, please provide all requested information.Incomplete or inaccurate applications cannot be processed. The account owner must have a current USC computer account.

Account Owner’s Signature Date

Faculty Advisor’s Signature Date

Departmental Authorized Signers’ Signature Date

Student Affairs Authorization Signature Date

University Park Campus Applicants: Take this form to the ISD Customer Support Center (JEF 150) or send itvia campus mail.

Health Sciences Campus Applicants: Take this form to the Norris Medical Library Learning Resources Center(NML LRC).

Each individual must sign to indicate that they agree to read and abide by university computing policies. Policies can be

* Only required for organizations affiliated with academic departments.† Please see Heather Larabee, Office of Student Activities. (TSC 100, x05693)

OWEO: Group Application

OWEO: Facebook Picture

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1 post by 1 person. Updated 4 hours ago.Work in China

Thanks!

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Group InfoName: USC OWEOType: Organizations - Professional OrganizationsDescription: The USC Overseas Work Experience Organization

(OWEO)

This is the Facebook group for the USC chapter of the Overseas Work Experience Organization, which is an officially recognized USC group. USC OWEOwas founded in September 2006 as a means of spreading knowledge to the USC undergraduate student body about the benefits of traveling abroad for work during summer breaks, as well as information about how one would go about doing this. Meetings are held in the Philosophy building (orin the courtyard). Membership is open to all, andfree. Just request to join this group and you'll be onthe OWEO membership list and get news about meetings.

Everything else you need to know about the group is on the group website, which also has some helpful travel info.

Cheers,Keith ParkerPresident and Founder

Contact InfoEmail: [email protected]: http://www-scf.usc.edu/~kaparker/Welcome.htmlOffice: Philosophy Building (For meetings)City: Los Angeles, CA

edit

Along with the Marshall Business Student Government (MBSG), I, along with USC OWEO, will be helping to host a panel about the benefits of working overseas after graduation. Food and beverages will be provided. The panel will consist of speakers giving a 5-10 minute presentation, followed by a Q&A session. Afterwards, there will be time for some one-on-one talk and networking. The event is on November 28th from 7-9 PM in ZHS 252. Message me with any questions, hope to see you there if you're interested!

Recognized by the University October 3rd, 2006 through Fall of 2007!

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1 post by 1 person. Updated on Nov 1, 2006 at 12:40 AM.

MembersThis group has 61 members at USC. See All

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Travis van der Bell wroteat 9:25pm on November 1st, 2006

OWEO's Code of Excellence is in the pictures section, be sure to check it out and if you don't think you can handle the Code of Excellence, we don't want you at OWEO

Message - Report - Delete

Jessie Burr wroteat 9:21am on October 31st, 2006

great job w/ the website! it looks tight


Paul Loeb wroteat 11:20pm on October 30th, 2006

ha i love it


edit

Jimbo Bohan Alex Fine

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UC Davis

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Name: Craig SchinnererNetwork: USC '07Field: International Relations


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Name: John MurphyNetwork: USC '06Residence: 30th St.Field: Finance


Name: Paul LoebNetworks: USC '09

Los Angeles, CAResidence: Delta Chi THEPAD#3Fields: Business Administration

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Name: Megan RamerNetwork: USC '07Residence: Delta GammaField: Business Administration


Name: Ashley HinrichsenNetwork: USC '08Residence: Alpha Phi TEXASROOMFields: Business Administration

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Name: James TurnwallNetwork: USC '07Fields: Philosophy

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Name: Cosmonaut Paul GiulianoNetworks: USC '08

National Aeronautics and Space Administration (NASA)Los Angeles, CA

Fields: Astronautical EngineeringItalian


Name: Brittany BurtonNetworks: USC '08

Anchorage, AKResidence: Delta Delta DeltaField: Public Relations


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Name: Corey HallNetwork: USC '08Fields: Business Administration

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Name: Matt WorchesekNetworks: USC Alum '06

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Name: Ross FrankenNetwork: USC '07Field: Aerospace Engineering


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Name: Mano CamatsosNetwork: USC '07Fields: Philosophy

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Name: Ben TeresiNetwork: USC '08Residence: Delta ChiOfficer Title: Secretary


Name: Travis van der BellNetwork: USC '08Residence: Delta Chi BEERCLOSETFields: Business Administration

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Name: Sam PlimptonNetwork: USC '06Fields: Communication

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Name: Brian AbrahamNetwork: USC '08Residence: Delta Chi 119Field: Computer Engineering & Computer Science


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Copenhagen Business '06Orange County, CA

Residence: Delta ChiField: Business Administration


Name: Geoff LarsonNetwork: USC '09Residence: Delta Chi 205Field: Mechanical Engineering


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Los Angeles, CAResidence: Delta Chi 209.HOLEFields: International Relations

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Name: Nick Tarzan TurnerNetworks: USC '09

Los Angeles, CAResidence: Delta Chi 118Field: Writing for Screen and Television


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Name: Amy McWethyNetworks: USC '09

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Orange County, CAResidence: Delta ChiFields: facebook

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Orange County, CAResidence: EllendaleFields: Building Science

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8/4/07 3:50 PMWelcome

Page 1 of 2file:///Users/Keith/Desktop/University%20Books/Groups/OWEO/Website/USC%20OWEO%20Online/Welcome.html

OWEO

Welcome to the USC OWEO WebsiteI hope that the information on this site is helpful to everybody interested in workingoverseas during the summers of their undergraduate education at The University ofSouthern California.This is the website for the USC chapter of the Overseas Work ExperienceOrganization, which is an officially recognized USC group. USC OWEO was foundedin September 2006 by Keith Parker as a means of spreading knowledge to the USCundergraduate student body about the benefits of traveling abroad for work duringsummer breaks, as well as information about how one would go about doing this. Meetings are held in the USC Philosophy building (or in the courtyard). Officialmembership is open only to undergraduate students currently enrolled at USC, and isfree. Just send me an email or join the USC OWEO Facebook group and you'll be onthe official OWEO membership list and we’ll keep you up to date on everything that’shappening.

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8/4/07 3:50 PMWelcome

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Site Created by Keith Parker ©2006

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8/4/07 3:50 PMIntroduction

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Common Jobs: • Bartender • Waiter/Waitress • Hostel Work

Many People Are Worried... ...that they need to first make all of their plans foroverseas work beforehand, without considering thepossibility of just flying out to a new country andfinding work on arrival. First of all, if you arelooking for an office job or internship overseas, thisisn’t the group or the site for you. This groupadvocates a work experience that is, in my opinion,more culturally enlightening than that of mostinternships or office jobs overseas. This is not to saythat these jobs are not beneficial, as professional-oriented jobs do provide people with valuable workexperience. It just isn’t what this group is about. Thework that people in this group have found has beenfocused mostly in the service industry, with low paybut much more contact with the local environment. For example, Travis, Ben and I all worked at a youthhostel called The Pink Palace in Greece during thesummer of 2006. Our daily jobs were focused onserving guests in a variety of ways during their stay

Introduction to Working Overseas

“In today's business world,knowledge of overseas workingpractices is more important thanever. The Overseas WorkExperience Organization isdedicated to the disseminationof knowledge about workingabroad as a step towards a moresuccessful career in any field. The OWEO will providemembers with the valuableinformation needed for findingwork overseas, as well as thesteps that should be taken forgetting the most out of anoverseas work experience.”

-Keith Parker USC OWEO Officers

Keith ParkerPresident andFounder Travis BellVice President Ben TeresiSecretary

If you have any questionsabout anything, feel free tocontact Keith by email byclicking here

Photo by Keith Parker

OWEO: Website

http://usc.facebook.com/profile.php?id=3405904



mailto:[email protected]?subject=email%20subject

8/4/07 3:50 PMIntroduction

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• Hostel Work • TeachingEnglish • Tour Guides • Pub Crawls

serving guests in a variety of ways during their stayat the backpacker’s resort. This put us in contactwith backpackers from all over the world and alsogave us an insight into the business practices of aGreek company at the Micro-level.

Many people find work similar to the aforementioned hostel job by buying tickets to alocation of interest for them, then finding a job on arrival. This has worked for a largenumber of people. This shows that even if somebody hasn’t found a job overseas by thetime that summer rolls around, all is not lost. While this approach might not work foreverybody, it is usually very effective. Nonetheless, it is important to be very motivatedupon arrival to a new place in order to find a job. In my personal experience, I haveused this method in Italy, Greece, Maui and Thailand. I found a good job in eachcountry, but never at first. Everywhere I have gone, it has taken up to a week ofconstant searching and persistence to find work. Every business I’ve worked foroverseas didn’t need new employees when I arrived; after approaching owners andmanagers multiple times daily, I eventually was offered a position. Furthermore, findingwork on arrival often results in a more unique work experience than if a job was foundbeforehand, as many jobs that are found on-location through word-of-mouth aren’tposted anywhere online. For many, though, planning ahead is necessary to eliminate thestress associated with finding work on arrival and the possibility that work just isn’tavailable upon arrival. In the Information page of this site there are many links that you may find helpful indeciding on an area to look for work. There are also links to sites dedicated to securingjobs in various locations before you even book your ticket. I hope you find these linkshelpful and that you are successful in working abroad. Cheers,

Keith Parker


OWEO: Website

8/4/07 3:50 PMResources

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Resources for Finding Work Abroad

To Begin... ...It is important to know about the country you wish to visit. It wouldn’t be goodto arrive somewhere and find out that there was a recent extreme anti-Americanoutbreak. Looking for work in a place where the average wage rate in the serviceindustry is low enough that locals are hired for pennies an hour wouldn’t help either. Furthermore, although English has become very widespread, it is important to makesure that the place you are traveling to has a fair amount of English speakers if youdon’t speak the language. Overall, you want to make sure that the location you had inmind is actually as appealing as you image it to be. The US Department of State International Travel Site

This is a great site for basic travel information forthose who haven’t spent very much time overseas.

Among the many travel resources on this site are: Travel Warnings, Country ConsularInformation Sheets, and Document Requirements for every recognized country in theworld.

Photos: Left: The beach on Koh Phi Phi in Thailand by Keith Parker; RIght: Dr. George’s‘Fire Dance’ at The Pink Palace in Κέρκυρα, Greece by David ‘Swede’ Zak

OWEO: Website

http://travel.state.gov/travel/travel_1744.html



The Lonely Planet WorldGuideA great resource for understanding what a country is all about. Thissite contains photo galleries, cultural information, general resources,

and more.

Securing Work... ...For those looking to securing a job before heading out to your destination, thereare many resources available to you, most of which provide a means for finding workin a specific region. Here are a few to get you started. Lonely Planet’s i-to-i

Everyone always dreams of the glamorous life, working abroad. i-to-i are allabout enabling that in a feel-good way, and this time they're offering 15% offTEFL online courses - teach English abroad and earn while you travel!

Student TravelerThis site offers some good places to start when looking for places toteach, work, or study abroad. Lists aren’t very extensive, but the

businesses on the list offer many jobs and are very informative and reliable. Transitions Abroad

Offers a wide variety of resources including job offerings and the bestplaces to look for work. Information on this site might be a little

overwhelming, but hidden in all of it are many valuable resources. Backpacker’s Job Search

Currently this site focuses on job opportunities in Australia and NewZealand, though the site plans to expand and include opportunities

worldwide. Backpacker Board New Zealand

This site hosts a extensive list of jobs in New Zealand, as well asinformation on obtaining a Working Holiday Visa for New Zealand.

Bug Europe

Includes information about working in different European Countries, as wellas links to job listings for many of these countries.

On Your Own...

OWEO: Website

http://www.lonelyplanet.com/worldguide/

http://lonelyplanet.i-to-i.com/

http://www.studenttraveler.com/

http://www.transitionsabroad.com/index.shtml

http://www.backpackersjobsearch.com/index.php

http://www.backpackerboard.co.nz/work_jobs/index.php

http://www.bugeurope.com/essentials/work.html



...Stories about backpackers’ experiences overseas. You’ll be able to find some storiesabout working abroad on some of these sites, but many of them are simply aboutbackpacking. Inspiration or just enjoyable reading. The Backpacker

Backpacking and travel stories from around the world. Also on the siteare reviews for travel services, hostels, and ratings for bars and different

beers submitted by travelers. Great travel guides and backpacking articles. Wise Nomad

Backpacking stories and general discussions about traveling and thebackpacking culture. Blogs, area-specific travel stories and advice

written by travelers. Lonely Planet: The Thorn Tree

A very large discussion board for stories and information oneverything about backpacking around the world.

Books... ...Here are a few books about traveling I would recommend. Some of these booksare more informative, while others are entertaining and inspiring. I hope theserecommendations help you in your overseas work experience. Delaying The Real World by Colleen KinderFor the new college graduate who's not quite ready to jointhe ranks of the entry-level, here's a guide to help them"think outside the cubicle" as it presents a wide range of joband travel opportunities for the free-spiritedtwentysomething who yearns to create a long- or short-term adventure. By highlighting job opportunitiesappropriate for young people because of the time, energy,and commitment (or lack thereof) involved, this isspecifically targeted to the post-college crowd.

OWEO: Website

http://www.thebackpacker.net/travelstory/index.htm

http://www.wisenomad.com/

http://thorntree.lonelyplanet.com/

http://www.amazon.com/gp/product/0762421894/ref=pd_ys_ir_b_23/102-5069211-1792144



The Global Citizen by Elizabeth KruempelmannIf your dreams of career success include jobs in Prague orMunich, if you want to learn Mandarin while living in China,or if your travel plans always require a passport, then TheGlobal Citizen is for you. Written by Monster.com's formerinternational career mentor, Elizabeth Kruempelmann, TheGlobal Citizen is an international life and career planner thatwalks you through the ins and outs of working, studying,

volunteering, or living in a foreign country. The Back Door Guide to Short-Term JobAdventures by Michael LandesSummer jobbers, college grads, and anyone trying toreinvigorate or redirect a stalled career needs a short-termjob adventure. Whether river guiding in Alaska, restoring amedieval castle in the south of France, or creating asuccessful organic farm, THE BACK DOOR GUIDE TOSHORT-TERM JOB ADVENTURES offers a comprehensivelist of life-enriching experiences. From internships toseasonal work to volunteer jobs and adventures abroad, thisbest-of-the-best guide from short-term job expert MichaelLandes contains more than 1, 000 opportunities to work,play, learn, help, create, experience, and grow worldwide.

Tales from Nowhere by Don George (Editor)Lonely Planet's annual anthology contains 30 thrilling and bizarrestories. In some of them, the authors intentionally traveled to"Nowhere" but experience unintended consequences. In others, thewriters stumbled on "Nowhere" by accident and recounted theadventures that ensued.

The Art of Travel by Alain de BottenAn experienced traveler and the author of five books, includingHow Proust Can Change Your Life, De Botton here offers nineessays concerning the art of travel. Divided into five sections"Departure," "Motives," "Landscape," "Art," and "Return" theessays start with one of the author's travel experiences,meander through artists or writers related to it, and thenintertwine the two.

OWEO: Website

http://www.amazon.com/Global-Citizen-Creating-International-Career/dp/1580083528/sr=8-1/qid=1167561258/ref=pd_bbs_sr_1/102-2849770-6759354?ie=UTF8&s=books

http://www.amazon.com/Back-Door-Guide-Short-Term-Adventures/dp/1580086691/sr=1-1/qid=1167561848/ref=pd_bbs_sr_1/102-2849770-6759354?ie=UTF8&s=books

http://www.amazon.com/Nowhere-Lonely-Planet-Travel-Literature/dp/1741045193/sr=1-1/qid=1161923832/ref=pd_bbs_sr_1/104-9743835-6619936?ie=UTF8&s=books

http://www.amazon.com/Art-Travel-Alain-Botton/dp/0375420827/sr=8-1/qid=1161923313/ref=sr_1_1/104-9743835-6619936?ie=UTF8&s=books



Work Your Way Around the World by Susan GriffithThis guide for the working traveler explains how to findtemporary work around the world, not only in advance, butalso when on the spot while traveling. It incorporateshundreds of first-hand accounts from people who haveactually done the jobs with the finest hard factualinformation to offer authoritative advice on how to findwork. Work Your Way Around the World gives informationon all the main areas of temporary work including thetourist industry, agriculture, teaching English, childcare, andvoluntary work, plus insiders' information on how to work apassage or to earn money by using your initiative when you

spot a local opportunity. The Best of Keith’s Travel Photography by KeithParkerThis is a collection of my travel photos over the years, withpictures of backpacking through Thailand, Indonesia,Malaysia, Singapore, Greece, Italy, Spain, France, England,The Netherlands, Germany, Czech Republic, Slovakia,Hungary, and Maui. There’s also a few photos fromCalifornia and Alaska.


OWEO: Website

http://www.amazon.com/Work-Your-Around-World-12th/dp/1854583298/ref=pd_bxgy_b_text_b/102-2849770-6759354

http://www.amazon.com/Keith%2527s-Travel-Photography-Keith-Parker/dp/1411690125/sr=8-1/qid=1162084028/ref=sr_1_1/102-5069211-1792144?ie=UTF8&s=books

8/4/07 3:51 PMWorld Map

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Google World Map

World MapUse this map however you want. The Pink Palace’s Location is marked in Greece.


OWEO: Website

8/4/07 3:51 PMPhotos

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Photo GalleryOn this page are just a few of the photos taken by OWEO officers workingoverseas at The Pink Palace in Κέρκυρα, Greece. Enjoy.

OWEO: Website

8/4/07 3:51 PMMovie

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As mentioned numerous times throughout this site, The Pink Palace is a hostel/resort inCorfu Greece that serves the more adventurous European Backpackers. All threeofficers in this group, Keith, Travis, and Ben, worked there. It was only after we spent asummer there (Keith’s second summer there) that we decided to put this grouptogether. This is promotional clip for The Pink Palace made by the Europe’s FamousHostel’s website, just to give you an idea of the place that inspired this group.

The Pink Palace, Κέρκυρα, Greece

OWEO: Website

8/4/07 3:51 PMMovie

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OWEO: Website

University Notes - Senior Year, 1st Semester

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Transcript of University Notes - Senior Year, 1st Semester