International marketing samenvatting - Ceren Altay (2).pdf

# Political environment and host country activities in international marketing The political environment and host country activities are crucial considerations for international marketers, impacting market access, operational feasibility, and overall business success [24](#page=24) [28](#page=28). ### 1.1 National policies governing exports and imports Nations generally favor exports and restrict imports. Governments support exports through various programs to address trade deficits or foster economic development, implemented at national, regional, and local levels. Examples include tax incentives, subsidies, governmental assistance, and the establishment of free trade zones [24](#page=24). Conversely, governments employ actions to discourage imports and block market access. These include [24](#page=24): * **Tariffs:** These are duties imposed on imported goods, characterized by rules, rate schedules, and regulations [24](#page=24). * **Ad valorem duty:** A percentage of the value of the goods [25](#page=25). * **Specific duty:** A fixed amount of currency per unit of weight, volume, length, or another measurement [25](#page=25). * **Compound or mixed duties:** A combination of ad valorem and specific duties [25](#page=25). * **Import controls:** Measures to regulate or limit imports [24](#page=24). * **Nontariff barriers:** Hidden, non-monetary restrictions on foreign products [24](#page=24) [27](#page=27). * **Quotas:** Limits on the quantity of goods or services that can enter or leave a country during a specific period [24](#page=24) [27](#page=27). * **Discriminatory procurement policies:** Policies that favor domestic suppliers in government purchasing [24](#page=24). * **Restrictive customs procedures:** Bureaucratic hurdles that complicate the import process [24](#page=24). * **Arbitrary monetary policies:** Unpredictable monetary measures that can affect trade [24](#page=24). * **Restrictive administrative & technical regulations:** Rules that hinder imports [24](#page=24). * **Embargoes:** A complete ban on trading specific products or with a particular country [27](#page=27). * **Administrative delays:** Regulatory controls or bureaucratic rules designed to slow down imports [27](#page=27). * **Local-content requirements:** Laws mandating that a certain proportion of a product or service be sourced domestically [27](#page=27). #### 1.1.1 Special duties and import charges * **Anti-dumping Duties:** Applied when merchandise is sold in export markets at "unfair prices" (dumping), these charges equal the dumping margin [25](#page=25). * **Countervailing Duties:** Imposed to offset subsidies provided by exporting countries [25](#page=25). * **Variable Import Levies:** Often applied to agricultural products [25](#page=25). * **Temporary Surcharges:** Used to protect local industries or adjust balance of payment deficits [25](#page=25). #### 1.1.2 Preferential tariff and trade agreements * **Preferential Tariff:** A reduced tariff rate for imports from specific countries. While generally prohibited by GATT, exceptions exist for historical arrangements, formal economic integration treaties, and preferential market access for Least Developed Countries (LDCs) ] [25](#page=25). * **General Agreement on Tariffs and Trade (GATT):** Established in 1947, it aimed to promote trade among member nations, handling trade disputes but lacking enforcement power. It was replaced by the World Trade Organization (WTO) in 1995 [25](#page=25). * **World Trade Organization (WTO):** A forum for trade negotiations among its 160 members, based in Geneva. It serves as a dispute mediator through its Dispute Settlement Body (DSB) and possesses enforcement power, including the ability to impose sanctions [25](#page=25). * **Preferential Trade Agreements (PTAs):** Over 300 PTAs exist, where countries offer partners special treatment and may discriminate against others [25](#page=25). #### 1.1.3 Hierarchy of preferential trade agreements (PFTs) PTAs evolve through several stages of economic integration [25](#page=25) [26](#page=26) [27](#page=27): * **Free Trade Area (FTA):** Abolishes tariffs and other trade barriers among member countries, but each country maintains its own independent trade policies with non-members. NAFTA (North American Free Trade Agreement) between Canada, the United States, and Mexico is an example [26](#page=26) [27](#page=27). * **Customs Union:** Builds upon an FTA by eliminating internal trade barriers and establishing common external barriers (CEBs) for non-member countries. Examples include the EU and Turkey, the Andean Community, Mercosur, CARICOM, and the Central American Integration System (SICA) ] [26](#page=26) [27](#page=27). * **Common Market:** Incorporates the features of a customs union (elimination of internal barriers and CEBs) and additionally allows for the free movement of factors of production, such as labor, capital, and information [26](#page=26) [27](#page=27). * **Economic Union:** The most advanced stage, encompassing the elimination of internal barriers, common external barriers, and free movement of factors of production. It also involves coordinated and harmonized economic and social policies within the union. Full evolution includes a unified central bank, a single currency, and common policies on various economic and social issues, requiring extensive political unity. The European Union (EU) is a prominent example, evolving from the Treaty of Rome to the Maastricht Treaty, leading to a single currency (the Euro) and harmonization of laws [26](#page=26) [27](#page=27). ### 1.2 Political environment and host country activities The political environment encompasses trade laws favoring local firms and discriminating against foreign ones. Host country activities present significant challenges and risks for international marketers [27](#page=27) [28](#page=28). #### 1.2.1 Host country restrictions and controls Host countries can impose various restrictions that impact foreign firms: * **Import restrictions:** Limits on importing raw materials, machinery, and spare parts [28](#page=28). * **Local-content laws:** Requirements for products to include domestically manufactured parts [28](#page=28). * **Exchange controls:** Regulations on capital movement to conserve foreign exchange during shortages [28](#page=28). * **Market control:** Preventing foreign companies from competing in specific markets [28](#page=28). * **Price controls:** Imposed on essential products with significant public interest [28](#page=28). * **Tax controls:** Taxes that can be raised without warning [28](#page=28). * **Labour restrictions:** Laws that favor labor, potentially increasing business costs [28](#page=28). #### 1.2.2 Political risks in the host country International marketers face several political risks: * **Ownership risk:** Exposes property and life to potential harm or seizure [28](#page=28). * **Operating risk:** Involves interference with the ongoing operations of a firm [28](#page=28). * **Transfer risk:** Primarily encountered when companies need to move capital between countries [28](#page=28). #### 1.2.3 Government actions affecting foreign firms Host governments can take direct actions that significantly impact foreign businesses: * **Government party change:** A new government may not honor agreements made by its predecessor with companies [28](#page=28). * **Nationalization:** The official seizure of foreign property by the host government [28](#page=28). * **Domestication:** Imposing controls and restrictions on foreign firms to gradually reduce the owners' control [28](#page=28). > **Example:** Google's experience in China illustrates the challenges of operating in a restrictive political environment. Despite initial market success, Google reduced its presence after four years due to disagreements over censorship terms and suspected government-backed hacker attacks [28](#page=28). ### 1.3 Home country activities supporting international marketing Home countries can also engage in activities to support their firms in international markets [28](#page=28): * **Promotional activities:** Government organizations may implement programs to encourage exporting [28](#page=28). * **Financial activities:** National governments can act as international bankers, providing financial support [28](#page=28). * **Information services:** Governments are a significant source of basic marketing information, particularly for smaller companies [28](#page=28). * **Export-facilitating activities:** Government initiatives aimed at stimulating exports [28](#page=28). * **Promotion by private organizations:** Non-governmental organizations can assist companies in global expansion [28](#page=28). * **State trading:** The establishment of import monopolies by the government can create difficulties for private international marketers [28](#page=28). > **Example:** Huawei Technologies Corporation's international expansion was supported by the Chinese government through soft loans from the state and credit facilities from the China Development Bank to help overseas customers fund purchases. The Ministry of Information Industry also encouraged domestic operators to buy equipment from Chinese manufacturers [28](#page=28). ### 1.4 Market selection criteria and screening International Market Selection (IMS) is a critical determinant of success in internationalization. It influences foreign marketing programs and the ability to coordinate global operations [29](#page=29). #### 1.4.1 Defining criteria and developing segments Market segmentation involves using multiple criteria, which can be drawn from the political, economic, sociocultural, and technological environments. These criteria can be categorized as general or specific characteristics. Effective market segments should be [29](#page=29): * **Measurable:** Their size and purchasing power can be quantified [29](#page=29). * **Accessible:** They can be effectively reached and served [29](#page=29). * **Sustainable/Profitable:** Sufficiently large and profitable [29](#page=29). * **Actionable:** The organization possesses the resources to develop and implement effective marketing programs [29](#page=29). #### 1.4.2 Segment screening Screening involves reducing the number of potential markets in two stages: * **Preliminary Screening:** Uses coarse-grained, macro-oriented methods to reduce the number of markets. Key factors include potential buying power, political risks, and market potential [30](#page=30). * **Country Responsiveness:** Measures the tendency of consumers to spend more in a specific product category as their income rises [30](#page=30). * **Knock-out Criteria:** Used to exclude countries upfront [30](#page=30). > **Example:** Bosch Security Systems screened out Iran and Egypt from its Middle East IMS because they were not politically stable and too conservative in politics and religion [30](#page=30). * **Fine-grained Screening:** Further reduces market numbers based on the firm's competences relative to market attractiveness and competitive strength, often using the MACS matrix [30](#page=30). * **Market Attractiveness:** Considers market size, growth, buying power, host country activities, trade barriers, economic and political stability, and psychic distance [30](#page=30). * **Competitive Strength:** Evaluates market share, product fit to market demands, price, technology position, product quality, market support, and financial resources [30](#page=30). > **Example:** Bosch Security Systems screened out Kuwait, Jordan, and Oman during fine-grained screening due to factors like economic position, industry growth, and the strength of their local network and support [30](#page=30). #### 1.4.3 Microsegmentation After selecting target countries, firms decide which products or services to offer and in which specific market segments within the host country to operate. This is based on more specific characteristics such as demographics, lifestyles, consumer motivations, geography, buyer behavior, and psychographics [31](#page=31). ### 1.5 Market expansion strategies Once markets are selected, firms must decide on their market expansion strategy, answering two key questions: ] [31](#page=31). 1. Will the firm enter markets incrementally or simultaneously? 2. Will the entry be concentrated or diversified across international markets? #### 1.5.1 Incremental or simultaneous entry * **Waterfall Approach:** Entering one key market first, then others sequentially. This strategy is appropriate when "testing the waters," for new/expensive products, firms with little international experience, or limited resources [32](#page=32). * **Shower Approach:** Entering multiple markets simultaneously. This is suitable for firms aiming for economies of scale, introducing innovative products, forestalling competition, or possessing substantial financial and management resources [32](#page=32). #### 1.5.2 Concentration or diversification * **Concentration:** Entering countries similar to the domestic market or focusing on proximate countries. This is advisable for risk-averse management, high-volume products for general use, large and stable markets, or when product adaptation and distribution costs for additional markets are high [32](#page=32). * **Diversification:** Entering countries that differ in environmental or market characteristics. This strategy is appropriate when management accepts risk, for low-volume specialized products, small and unstable markets, or when product adaptation and distribution costs for additional markets are low [32](#page=32). --- # Global economic environment analysis The global economic environment significantly influences the decision of which markets to enter, encompassing economic, cultural, and political factors [14](#page=14). ### 2.1 The world economy: an overview Economic integration has dramatically increased since the early 20th century, with regions like the EU and NAFTA exhibiting high levels of integration. Global competitors have increasingly supplanted local ones. The current economic landscape is characterized by capital movements replacing trade as the primary driver, a decoupling of production from employment with a focus on productivity, the dominance of the world economy over individual countries, the conclusion of the capitalism versus socialism struggle, and the diminishing importance of national barriers due to e-commerce [14](#page=14). ### 2.2 Economic systems: classification and characteristics Globalization has complicated the categorization of economies. Key considerations for analyzing an economy include: * **Type of economy:** Advanced industrial state, emerging or transition economy, or developing nation [14](#page=14). * **Type of government:** Ranging from monarchy and dictatorship to democracy [14](#page=14). * **Trade and capital flows:** Whether a country engages in free trade, is part of a trading bloc, or has currency controls [14](#page=14). * **The commanding heights:** Ownership (state, private, or mixed) of critical sectors like transportation, communications, and energy [14](#page=14). * **Services provided by the state:** Such as pensions, healthcare, and education [14](#page=14). * **Institutions:** Assessing transparency, standards, and the absence of corruption [14](#page=14). * **Markets:** Characterized by entrepreneurial high-risk/high-reward environments, socialized markets, or government-controlled pricing and wages. Corruption can manifest as payments to authorities to permit certain actions, influencing cost structures and wages [14](#page=14). #### 2.2.1 Market capitalism In market capitalism, individuals and firms are responsible for resource allocation, with privately owned production resources. This system is consumer-driven, and the government's role is to foster competition and protect consumers. Without government regulation, monopolies could emerge [15](#page=15). #### 2.2.2 Centrally planned socialism Centrally planned socialism is characterized by the state holding extensive powers to serve the public interest, dictating the types and quantities of goods and services produced. Consumers are limited to purchasing available goods, and the government typically owns entire industries and controls distribution. Demand often outstrips supply, leading to minimal reliance on product differentiation, advertising, or dynamic pricing strategies. While historically significant, countries like China, India, and the former USSR have been moving towards market allocation and private ownership [15](#page=15). #### 2.2.3 Market socialism Market socialism is an economic system where command resource allocation is extensively used within an environment of private resource ownership. The Swedish model, where the government controls a significant portion of spending, is an example of market socialism, though there are ongoing shifts towards privatization [15](#page=15). #### 2.2.4 Economic freedom Countries can be ranked based on their economic freedom, categorized as "free," "mostly free," "mostly unfree," or "repressed". This ranking considers variables such as trade policy, taxation, capital flows, foreign investment, banking, wage and price controls, property rights, and the presence of black markets [15](#page=15). ### 2.3 Stages of market development The World Bank categorizes countries into four development groups based on Gross National Income (GNI) per capita. Historically identified "big emerging markets" (BEMs) are now often grouped as BRICS: Brazil, Russia, India, China, and South Africa [15](#page=15). #### 2.3.1 Low-income countries These countries have a GNI per capita of 1,045 dollars or less. Characteristics include limited industrialization, a high proportion of the population in farming, high birth rates, low literacy, heavy reliance on foreign aid, and political instability. Many are concentrated in Sub-Saharan Africa [16](#page=16). #### 2.3.2 Lower-middle-income countries With a GNI per capita ranging from 1,046 to 4,125 dollars, these economies feature rapidly expanding consumer markets and a supply of cheap, motivated labor. They often host mature, standardized, and labor-intensive industries such as footwear, textiles, and toys. The 50 lowest-ranked countries are classified as Least Developed Countries (LDCs). India is noted as an example of a BRIC nation in this category [16](#page=16). #### 2.3.3 Upper-middle-income countries These countries have a GNI per capita between 4,126 and 12,745 dollars. They are characterized by rapid industrialization, declining agricultural employment, increasing urbanization, rising wages, and high literacy rates with advanced education. Wage costs are typically lower than in advanced countries. They are also referred to as industrializing or developing economies. Examples include Brazil, China, and South Africa (BRICS), as well as Malaysia, Chile, Venezuela, and Mexico [16](#page=16). #### 2.3.4 Newly Industrializing Economies (NIEs) NIEs are lower-middle and upper-income economies that have experienced the highest sustained rates of economic growth. They exhibit greater industrial output than developing economies and focus on exporting manufactured and refined products. Goldman Sachs identified the "Next-11" (N-11) as a new country grouping. NIEs include countries like Egypt, Indonesia, and the Philippines (lower-middle income), and Mexico and Turkey (upper-middle income) [16](#page=16). > **Tip:** It is crucial to avoid common mistaken assumptions about Less Developed Countries (LDCs) and Bottom of the Pyramid (BOP) markets, such as believing the poor have no money, will not spend on nonessentials, that entering these markets is unprofitable due to low prices, that people in BOP countries cannot use technology, or that global companies will be perceived as exploiting the poor [16](#page=16). #### 2.3.5 High-income countries With a GNI per capita of 12,476 dollars or more, these are also known as advanced, developed, industrialized, or postindustrial countries. They are characterized by sustained economic growth through innovation, a service sector exceeding 50% of GNI, and high household ownership of basic products. There is a significant emphasis on information processing and exchange, with knowledge, intellectual capital, and professionals holding greater importance than in the past. These economies are future-oriented and value interpersonal relationships [16](#page=16). ### 2.4 International economic organizations and blocs Several international organizations and economic blocs play a significant role in the global economic landscape: * **G-7, the Group of Seven:** Aims for global economic stability and prosperity and includes the U.S., Japan, Germany, France, Britain, Canada, and Italy [17](#page=17). * **G-20, Group of Twenty:** Established in 1999, it comprises Finance Ministers and central bank governors from 19 countries and the EU [17](#page=17). * **OECD, the Organization for Economic Cooperation and Development:** With 34 member nations and a post-WWII European origin, it is based in Paris and promotes economic growth and social well-being, focusing on world trade, global issues, and labor market deregulation. It also promotes anti-bribery conventions [17](#page=17). * **The Triad:** Historically comprised of the U.S., Western Europe, and Japan, representing 75% of world income. The expanded Triad includes all of North America, the Pacific Rim, and most of Eastern Europe. Global companies are advised to be equally strong in each part of the Triad [17](#page=17). ### 2.5 Product saturation levels Product saturation levels indicate the percentage of potential buyers or households that own a particular product. Examples illustrate significant variations: only 20% of people in India have telephones, while car ownership ranges from 1 per 43,000 Chinese to 565 per 1,000 Germans. Similar disparities exist for computer ownership [17](#page=17). ### 2.6 Balance of payments The balance of payments is a record of all economic transactions between a country's residents and the rest of the world. It includes [17](#page=17): * **Current account:** Records recurring trade in merchandise and services, and humanitarian aid. A trade deficit signifies a negative current account, while a trade surplus is a positive one [17](#page=17). * **Capital account:** Records all long-term direct investment, portfolio investment, and capital flows [17](#page=17). ### 2.7 International finance and foreign exchange Foreign exchange enables companies to conduct business globally with different currencies. **Exchange risk** arises when a currency's value changes during trade. Transactions can occur in the spot market for immediate delivery or the forward market for future delivery. Key participants in the currency market include central banks, companies converting currencies, and currency speculators [17](#page=17). * **Devaluation:** The reduction in a nation's currency value against other currencies [17](#page=17). * **Mercantilism or Competitive-currency politics:** A situation where countries prevent their currencies from fluctuating [17](#page=17). * **Revaluation:** When a nation allows its currency to strengthen [17](#page=17). The foreign exchange market allows for transactions across national currency boundaries for both immediate and future delivery. Currency risk introduces volatility into global commerce [17](#page=17). #### 2.7.1 Foreign exchange market dynamics The interaction of supply and demand governs foreign exchange markets. If a country exports more goods and services than it imports, demand for its currency increases, leading to an appreciation in its value [17](#page=17). ### 2.8 Managing economic exposure **Economic exposure** refers to the impact of currency fluctuations on a company's financial performance. This exposure occurs when sales are made in foreign currencies, as exemplified by Nestlé's 98% of sales outside its home country or Eurozone companies like GlaxoSmithKline and Daimler AG generating significant sales in the U.S.. Various strategies exist to mitigate exchange rate risk, including **hedging**, which involves balancing the risk of loss in one currency with a corresponding gain in another. **Forward contracts** can be used to set an exchange rate for a future date, thereby reducing risk [18](#page=18). ### 2.9 Conclusion When selecting markets to enter, it is essential to establish selection criteria. Criteria derived from the economic environment can include evaluating buying power and understanding the economic system of potential markets. The ability to classify and understand different economies, such as the shift in China's economic system from socialist to incorporating private enterprise, is critical [18](#page=18). --- # Social and cultural environment in international marketing Global marketers must study and understand the cultures of countries where they will conduct business to incorporate this knowledge into their marketing planning process [19](#page=19). ### 3.1 Understanding culture and its impact Culture is defined as the ways of living, built up by a group of human beings, that are transmitted from one generation to another. It encompasses both conscious and unconscious values, ideas, attitudes, and symbols. Culture is enacted through social institutions such as family, education, religion, government, and business, which reinforce cultural norms. Culture can be both physical (e.g., clothing, tools) and nonphysical (e.g., religion, attitudes, beliefs, values). Geert Hofstede defines culture as "the collective programming of the mind that distinguishes the members of one category of people from those of another" [19](#page=19). #### 3.1.1 Elements of culture Key elements of culture that influence international marketing include: * **Language:** Both verbal and non-verbal language are crucial for understanding a culture, including nuances like proximity during conversations. Misinterpretations can arise from differing linguistic meanings, such as Colgate meaning "go hang yourself" in Spanish, or product names having unintended sexual connotations [19](#page=19) [21](#page=21). * **Manners and customs:** Understanding these is vital in negotiations, as interpretations based on one's own frame of reference can lead to incorrect conclusions. For example, the use of the right versus left hand carries cultural significance [19](#page=19). * **Technology and material culture:** Material culture results from technology and directly relates to a society's economic organization. There is a growing convergence in penetration rates of technology globally [19](#page=19). * **Social institutions:** These institutions shape people's behavior and their relationships with each other. For instance, in Latin America and the Arab world, it's an obligation to give special treatment to relatives, while in Europe and the US, this might be perceived as favoritism [19](#page=19). * **Education:** This is the process of transmitting skills, ideas, and attitudes, along with training in specific disciplines [19](#page=19). * **Values and attitudes:** These help determine what is considered right, appropriate, important, and desirable [19](#page=19). * **Aesthetics:** Attitudes towards beauty and good taste in art, music, folklore, and drama can vary dramatically between cultures, even in seemingly similar markets [19](#page=19). * **Religion:** Major religions, shared by multiple national cultures, provide a basis for transcultural similarities and significantly impact beliefs, attitudes, and values. Religious tenets, practices, holidays, and history directly influence global marketing activities [19](#page=19) [20](#page=20). #### 3.1.2 Global consumer cultures Global consumer cultures are emerging, characterized by individuals who share meaningful sets of consumption-related symbols. Examples include pub culture, coffee culture, fast-food culture, credit card culture, and soccer culture. These are primarily products of a technologically interconnected world, driven by the internet and satellite TV [20](#page=20). #### 3.1.3 Attitudes, beliefs, and values * **Attitude:** A learned tendency to respond consistently to a given object or entity [20](#page=20). * **Belief:** An organized pattern of knowledge that an individual holds as true about the world [20](#page=20). * **Value:** An enduring belief or feeling that a specific mode of conduct is personally or socially preferable to another [20](#page=20). * **Subcultures:** Smaller groups within a larger culture that have their own shared attitudes, beliefs, and values, such as vegetarians [20](#page=20). #### 3.1.4 Aesthetics and sensory perceptions Aesthetics relate to the sense of what is beautiful, what represents good taste, and what is considered tasteless or obscene. These perceptions vary significantly [20](#page=20): * **Visual Aesthetics:** Manifest in the color or shape of a product, label, or package [20](#page=20). * **Color:** * **Red:** Associated with blood, wine-making, activity, heat, and vibrancy in many countries, but poorly received in some African nations [20](#page=20). * **Blue:** Historically associated with royalty and divinity due to pigment rarity, it is a favorite color for half of interviewees [20](#page=20). * **White:** Represents purity and cleanliness in the West but is associated with death in parts of Asia [20](#page=20). * **Gray:** Signifies inexpensive in Japan and China, but high quality and expensive in the U.S. [20](#page=20). * **Styles:** Different degrees of complexity are perceived differently worldwide [20](#page=20). * **Music:** Styles are often associated with specific countries or regions (e.g., bossa nova & Argentina, salsa & Cuba, reggae & Jamaica, blues). Marketers must understand appropriate styles for advertising, which vary by culture and government regulations. Rhythm, however, is found in all cultures and is universal [20](#page=20). #### 3.1.5 Dietary preferences Dietary preferences are deeply rooted in culture, significantly impacting food marketing. Domino's Pizza's initial withdrawal from Italy due to its "too American" offerings highlights this sensitivity. Conversely, Domino's success in India stems from localized toppings. Dunkin' Donuts adapted its strategy in India by introducing a chicken burger later in the day, acknowledging that Indians typically eat breakfast at home. Despite deeply rooted preferences, global dietary trends are converging with the increasing popularity of pasta, pizza, sushi, and other ethnic foods [20](#page=20). #### 3.1.6 Language and communication Semiotics, the study of signs and their meanings, is integral to language and communication. This includes both spoken and unspoken language, such as gestures, touch, and body language [20](#page=20). * **Pronunciation Problems:** Brand names can cause issues if they have negative connotations or are difficult to pronounce in local languages. Examples include "Colgate" in Spanish and IKEA's need to rename products in Thailand. Brands like "Diesel" were chosen for their consistent pronunciation across languages [21](#page=21). * **English as a Global Language:** A significant number of people speak English as a second language, and many international companies, like Sony and Nokia, require proficiency from their managers [21](#page=21). * **Nonverbal Communication:** This is crucial and varies greatly. In the Middle East, showing the soles of shoes or passing documents with the left hand is frowned upon. Bowing in Japan has intricate nuances. Asians often place greater value on nonverbal communication than Westerners [21](#page=21). ### 3.2 Marketing's impact on culture Universal aspects of the cultural environment present opportunities for standardizing marketing program elements. Increasing travel and improved communications contribute to a convergence of tastes and preferences in various product categories. This phenomenon is sometimes referred to as the "McDonaldization of Culture," where the expansion of global firms can lead to the breaking down of cultural barriers and alter deeply ingrained practices, such as eating habits [21](#page=21). ### 3.3 Hofstede's dimensions of national culture Geert Hofstede's framework offers insights into national cultural differences, including: * **High- and low-context cultures:** * **High-context cultures:** Information is embedded in the context, with emphasis on background, basic values, and social status. There is less reliance on legal paperwork and more focus on personal reputation. Examples include Saudi Arabia and Japan [21](#page=21). * **Low-context cultures:** Messages are explicit and specific, with words carrying all information. There is a strong reliance on legal paperwork and a focus on non-personal documentation of credibility. Examples include Switzerland, the U.S., and Germany [21](#page=21). ### 3.4 Self-reference criterion and perception The Self-Reference Criterion (SRC) involves the unconscious reference to one's own cultural values, which can lead to cultural myopia. To reduce cultural myopia, marketers should [22](#page=22): 1. Define the problem or goal in terms of home country cultural traits. 2. Define the problem in terms of host-country cultural traits, making no value judgments. 3. Isolate the SRC influence and examine it. 4. Redefine the problem without the SRC influence and solve it for the host country situation [22](#page=22). Disney's experiences in France and Tokyo illustrate the impact of the self-reference criterion [22](#page=22). ### 3.5 Diffusion theory and adopter categories Diffusion theory explains the mental stages an individual goes through from first learning about an innovation to its adoption or purchase. These stages are [22](#page=22): * Awareness * Interest * Evaluation * Trial * Adoption The document also touches upon Asian hierarchy and diffusion theory adopter categories, though detailed information is not provided on these specific sub-points [23](#page=23). ### 3.6 Marketing implications of social and cultural environments Cultural factors are essential considerations for marketing both consumer and industrial products. Environmental sensitivity refers to the degree to which products need adaptation to suit the culture-specific needs of national markets [23](#page=23). * Culture is a significant influence on consumption and purchasing, independent of social class and income [23](#page=23). * Food is the most culturally sensitive category of consumer goods [23](#page=23). * Bottled water has become a convenient alternative in countries where tap water quality is a concern, with consumption tripling in India and doubling in China in the last five years [23](#page=23). * Starbucks successfully overcame cultural barriers in Great Britain to establish over 800 locations [23](#page=23). > **Tip:** Always consider how deeply ingrained cultural practices, especially around food and social norms, might affect product acceptance and marketing strategies. > **Example:** Domino's Pizza's adaptation of toppings in India demonstrates a successful response to local dietary preferences, while their initial approach in Italy highlights the risks of cultural insensitivity in food marketing [20](#page=20). --- # Designing the global marketing program: standardization vs. adaptation Managers must decide the extent to which they will standardize or adapt their global marketing mix, which encompasses product, price, distribution, and communication decisions [40](#page=40). ### 4.1 Product and communication decisions #### 4.1.1 Globalization: standardization vs. adaptation **Standardization is favored when:** * Economies of scale exist in R&D, production, and marketing [40](#page=40). * Global competition is prevalent [40](#page=40). * Tastes and consumer needs are converging [40](#page=40). * International operations are managed centrally [40](#page=40). * Competitors employ a standardized concept [40](#page=40). * Competitive advantages can be easily transferred across markets [40](#page=40). * Communication, planning, and control are simplified [40](#page=40). * Stock costs are reduced [40](#page=40). **Adaptation is necessary when:** * Sociocultural, economic, and political differences are significant [40](#page=40). * Local competition is a key factor [40](#page=40). * Consumer needs vary considerably [40](#page=40). * Management is fragmented and decentralized, with independent country subsidiaries [40](#page=40). * Competitors use an adapted concept [40](#page=40). * Competitive advantages cannot be easily transferred across markets [40](#page=40). * Legal issues arise with foreign countries [40](#page=40). * Technical standards differ in foreign countries [40](#page=40). #### 4.1.2 Product decision The product decision involves determining which parts of a product should be standardized and which should be adapted. This decision requires considering various aspects of the product [40](#page=40). #### 4.1.3 Services in international strategy Services are crucial in international strategy, either accompanying products or as standalone offerings. Services differ from products due to the following characteristics [41](#page=41): * **Intangible:** Cannot be touched or tested before purchase [41](#page=41). * **Perishable:** Cannot be stored for future use [41](#page=41). * **Variable:** Rarely identical due to human interaction [41](#page=41). * **Inseparable:** Sold and consumed simultaneously [41](#page=41). * **Not owned:** Ownership is not transferred to the consumer upon purchase [41](#page=41). There are three categories of services: * **People processing:** Customers are integral to the production process (e.g., hairdresser). These are difficult to standardize due to customer involvement [41](#page=41). * **Possession processing:** Tangible actions performed on physical objects to enhance their value to customers (e.g., car repair). These are easier to standardize due to less customer-personnel interaction [41](#page=41). * **Information-based services:** Involve collecting, manipulating, interpreting, and transmitting data to create value (e.g., website FAQs, telecommunications). These are very easy to standardize due to their virtual nature and minimal customer involvement [41](#page=41). #### 4.1.4 New product development for international markets International customer needs, conditions of use, and purchasing power influence new product development decisions for global markets. Key considerations include [41](#page=41): * **Product life cycle:** Shorter development times and product life cycles can lead to higher profits. The product life cycle is defined by the life of a product in the market concerning business/commercial costs and sales measures. When internationalizing, firms must consider marketing objectives and strategies throughout the product's life [41](#page=41). * **Degree of newness:** The international product can be a novel invention or a modification of an existing product [41](#page=41). * **Product communication mix:** Decisions regarding international promotion strategies include: * **Straight extension:** A standardized product with the same promotion strategy across all markets. This can lead to significant savings but is often unsuccessful due to international differences. Example: Unilever's Organics Shampoo, initially launched in Thailand and then sold globally with the same core advertising concept [42](#page=42). * **Promotion adaptation:** A standardized product with adjusted promotional activities. This is cost-effective and considers cultural differences. Example: Drakkar Noir adapted its advertising in Saudi Arabia to align with Arabian morals [42](#page=42). * **Product adaptation:** A modified product with the same promotion strategy. This involves adapting the product to physical environmental conditions while maintaining its core function. Example: Exxon modified petrol's chemical composition for different climates but kept the 'Put a tiger in your tank' campaign globally [42](#page=42). * **Dual adaptation:** Both the product and the promotion strategy are adapted for each market. This is an expensive but often necessary strategy, especially for firms not in a leadership position. Example: Kellogg's Basmati Flakes were developed for Indian tastes with a locally adapted advertising campaign [42](#page=42). * **Product invention:** Products are specifically developed to meet the needs of individual markets, particularly in less developed countries where existing products may be too technologically complex. Example: Godrej created Chutokool, a low-cost portable refrigerator for India [41](#page=41) [42](#page=42). #### 4.1.5 Global product planning: strategic alternatives The International New Product Department considers several questions when developing global product strategies: * Market size at various price points [42](#page=42)? * Likely competitive responses [42](#page=42)? * Can the product be marketed through existing structures [42](#page=42)? * Can the product be sourced profitably [42](#page=42)? * Does the product align with the company's strategic development plan [42](#page=42)? #### 4.1.6 Product decision: positioning Positioning involves strategic decisions such as: * Target market (TOM) and premium pricing strategies [42](#page=42). * Perceptual mapping to understand market perceptions [42](#page=42). * Leveraging home country reputation (e.g., "made in Germany" or "made in China") [42](#page=42). ### 4.2 Pricing decisions Pricing decisions involve how prices should be adapted to new markets [45](#page=45). #### 4.2.1 Basic pricing concepts * **Law of One Price:** Aims for all customers in a market to receive the best product at the best price [45](#page=45). * **Global markets:** Prices are generally the same everywhere for products like diamonds, crude oil, commercial aircraft, and integrated circuits [45](#page=45). * **National markets:** Prices vary based on costs, competition, and regulation [45](#page=45). * Global managers must establish systems and policies addressing: * **Price Floor:** The minimum acceptable price [45](#page=45). * **Price Ceiling:** The maximum acceptable price [45](#page=45). * **Optimum Prices:** Determined by demand [45](#page=45). * Pricing must be consistent with global opportunities and constraints [45](#page=45). * Awareness of price transparency created by factors like the Euro zone and the internet is crucial [45](#page=45). #### 4.2.2 Pricing objectives and strategies Managers must define pricing objectives, such as maximizing unit sales, market share, or return on investment. Strategies to achieve these objectives include penetration pricing and market skimming [45](#page=45). #### 4.2.3 Pricing strategies * **First-time pricing:** Determining the price level for a new product [45](#page=45). * **Skimming:** Charging a high price to the top market segment, especially for unique products with price-sensitive segments. The price is gradually lowered as more segments are targeted [45](#page=45). * **Market pricing:** Setting customer prices based on competitive prices when similar products already exist [45](#page=45). * **Penetration pricing:** Offering products at deliberately low prices to stimulate market growth and capture market share, particularly for price-sensitive customers and mass markets [45](#page=45). * **Price changes:** Adjusting prices for existing products [45](#page=45). * **PLC pricing:** Prices adapt to changes in the product life cycle to remain competitive amidst increasing competition and limited differentiation opportunities [46](#page=46). * **Experience curve pricing:** Similar to PLC pricing, it considers value-added costs, meaning products become cheaper to produce over time as sales increase [46](#page=46). * **Pricing across products:** Setting prices based on the product itself. * **Product line pricing:** Differentiating items within a product line by pricing them appropriately to fend off competitors or gain market share [46](#page=46). * **Freemium:** Offering a basic product or service for free and charging for advanced features to build a customer base rapidly [46](#page=46). * **Product-service bundle pricing:** Selling two or more products or services as a package to increase profitability, especially if sales of the second item are low [46](#page=46). #### 4.2.4 Pricing factors for goods that cross borders Key considerations when pricing goods traded internationally include: 1. Does the price reflect product quality [46](#page=46)? 2. Is the price competitive given local market conditions [46](#page=46)? 3. Should the firm pursue market penetration, market skimming, or another pricing objective [46](#page=46)? 4. What types of discounts and allowances should be offered [46](#page=46)? 5. Should prices vary by market segment [46](#page=46)? 6. What pricing options are available if costs change, and is demand elastic or inelastic [46](#page=46)? 7. Will host-country governments view prices as reasonable or exploitative [46](#page=46)? 8. Do foreign country dumping laws pose a problem [46](#page=46)? #### 4.2.5 Crossing international borders The process of crossing international borders involves obtaining export licenses, packing goods for export, transporting them to the departure point, completing customs export papers, preparing customs or consular invoices, arranging ocean freight and preparation, and obtaining marine insurance [46](#page=46). #### 4.2.6 Cost-plus pricing * **Rigid cost-plus pricing:** Setting prices without considering the eight key pricing considerations [46](#page=46). * **Flexible cost-plus pricing:** Ensuring prices are competitive within the specific market environment [46](#page=46). #### 4.2.7 Terms of the sale (Incoterms) Incoterms define the responsibilities of buyers and sellers in international trade. Examples include: * **Ex-works:** The seller makes goods available at their premises, and the buyer assumes all risks and expenses from that point [47](#page=47). * **Delivery duty paid:** The seller delivers goods to the buyer in the importing country, including all costs and duties [47](#page=47). #### 4.2.8 Export price escalation This refers to the increase in the final selling price of goods traded across borders [47](#page=47). #### 4.2.9 Grey market goods These are trademarked products exported to a country and sold by unauthorized entities. This can occur due to product shortages, skimming strategies in some markets, or significant mark-ups. Issues associated with grey market goods include dilution of exclusivity, free riding, damage to channel relationships, undermining segmented pricing schemes, and reputation and legal liability [47](#page=47). #### 4.2.10 Pricing strategies – International * **Pricing across countries:** Coordinating prices between countries. * **Price standardization:** A single factory-gate price is applied in all markets, considering factors like foreign exchange rates and regulatory variances [47](#page=47). * **Price differentiation:** Each local subsidiary or partner sets a price deemed most appropriate for local conditions [47](#page=47). #### 4.2.11 Global pricing: three policy alternatives * **Extension or Ethnocentric pricing:** The per-unit price is the same globally, regardless of the buyer's location. Importers bear freight and duties. This approach fails to respond to national market variations. Example: Historically, Mercedes vehicles priced for the European market and translated to USD were significantly more expensive than competitors like Lexus [47](#page=47). * **Adaptation or Polycentric pricing:** Allows affiliate managers or distributors to set prices based on their perceived desirability in their respective circumstances. This is sensitive to market conditions but creates potential for grey marketing [47](#page=47). * **Geocentric pricing:** An intermediate approach that considers multiple factors for pricing decisions, including local costs, income levels, competition, and local marketing strategy [48](#page=48). #### 4.2.12 Pricing strategies – Euro zone Prices have become more standardized in Europe due to the Euro, and products are sometimes not launched in small, low-price European countries to prevent parallel imports [48](#page=48). #### 4.2.13 Dumping This involves selling imported products at a price lower than normally charged in the domestic market or country of origin. Proving dumping requires demonstrating both price discrimination and injury. Calculating dumping can be complex [48](#page=48). * **Cost-based pricing:** Based on internal and external cost analysis [48](#page=48). * **Full absorption cost method:** Used by firms with Western cost accounting principles, where per-unit product costs are the sum of all direct and indirect manufacturing and overhead costs. Additional costs incurred when goods cross national borders must be included [48](#page=48). #### 4.2.14 Transfer pricing This refers to the pricing of goods, services, and intangible property exchanged between operating units or divisions of a company with affiliates in different jurisdictions. Intra-corporate exchanges can utilize [48](#page=48): * Cost-based transfer pricing [48](#page=48). * Market-based transfer pricing [48](#page=48). * Negotiated transfer pricing [48](#page=48). #### 4.2.15 Price fixing This is an illegal, anticompetitive practice where representatives from two or more companies secretly set similar prices for their products [49](#page=49). * **Horizontal price fixing:** Competitors conspire to maintain high prices [49](#page=49). * **Vertical price fixing:** A manufacturer colludes with wholesalers or retailers to enforce specific retail prices [49](#page=49). #### 4.2.16 Other considerations * **Inflationary Environment:** Defined as a persistent increase in price levels, potentially caused by increased money supply or currency devaluation. Maintaining operating margins is essential [49](#page=49). * **Low Inflation Environment:** While prices can be raised, the global competitive environment must be considered. Factors like high unemployment, recessions, globalization, the internet, low-cost products, and cost-conscious consumers constrain pricing strategies [49](#page=49). * **Government Controls, Subsidies, and Regulations:** Policies such as dumping legislation, resale price maintenance, price ceilings, and general price level reviews significantly impact pricing decisions. Foreign governments may impose restrictions on non-interest-bearing accounts, profit repatriation, and price competition [49](#page=49). --- # Designing the global marketing programme This section outlines the critical decisions involved in establishing a global marketing program, focusing on distribution and communication strategies. ### 4.1 Distribution decisions The design of a global distribution program is influenced by several external factors [50](#page=50): * **Customer characteristics:** These include the size, geographic distribution, shopping habits, and outlet preferences of target customer groups [50](#page=50). * **Nature of product:** Product characteristics, such as perishability or complexity, influence the required intensity of the distribution network [50](#page=50). * **Nature of demand:** Customer perceptions, the geography of a country, and the development of its transportation infrastructure all shape distribution channel choices [50](#page=50). * **Competition:** The distribution channels utilized by competitors often serve as a benchmark or point of differentiation [50](#page=50). * **Legal regulations:** National laws can restrict the use of specific channels or intermediaries [50](#page=50). #### 4.1.1 Channel structure Key aspects of channel structure include: * **Market coverage:** This relates to the geographic focus and the number of retail outlets, where a distribution network is created to meet coverage goals. Strategies range from intensive to selective and exclusive distribution [50](#page=50) [51](#page=51). * **Channel length:** This is determined by the number and types of intermediaries. Longer channels are typically used for convenience goods requiring mass distribution [51](#page=51). * **Control:** This refers to the ability to influence the decisions and actions of other channel members. Longer channels generally result in less supplier control [51](#page=51). * **Integration:** This involves uniting all channel members under one leadership and set of goals, leading to greater channel stability through long-term commitments [51](#page=51). #### 4.1.2 Multiple channel strategy A multiple channel strategy involves making a product or service available through two or more distribution channels simultaneously, such as the internet, sales force, distributors, call centers, retail stores, and direct mail [51](#page=51). * **Advantages:** * Extended market coverage and increased sales volume [51](#page=51). * Better accommodation of diverse customer needs [51](#page=51). * Acquisition of more and better information [51](#page=51). * **Disadvantages:** * Increased organizational complexity [51](#page=51). * Potential for conflicts with intermediaries or internal distribution channels [51](#page=51). * Increased costs [51](#page=51). * Loss of distinctiveness across channels [51](#page=51). > **Example:** Dell's successful use of a multi-channel distribution strategy, offering products directly online, through retail partners, and via direct sales, exemplifies this approach [51](#page=51). #### 4.1.3 Managing and controlling channels Effective management and control of distribution channels involve several steps: 1. **Screening and selecting intermediaries:** Potential candidates are evaluated against important criteria. Criteria for evaluating foreign distributors are provided [52](#page=52). 2. **Contracting:** A foreign sales agreement is signed with a suitable intermediary [52](#page=52). 3. **Motivating:** Monetary and psychological rewards can be offered to keep intermediaries motivated [52](#page=52). 4. **Controlling:** Sales and distribution channels can be controlled by developing written performance objectives [52](#page=52). 5. **Terminating:** This step is taken when the international marketer is unsatisfied with the performance of foreign sales and delivery partners [52](#page=52). #### 4.1.4 Transportation Channel strategy necessitates analyzing each shipping mode to determine the most effective and efficient combination for a given situation [52](#page=52). ### 4.2 Communication decisions Communication decisions address how to effectively inform customers about products and services in international markets [52](#page=52). #### 4.2.1 Communication tools (media) Communication tools are broadly categorized into one-way and two-way communication: * **One-way communication (mass communication / traditional marketing):** * **Advertising:** Reaches a large number of small-volume customers through mass media like newspapers, magazines, journals, directories, radio, television, cinema, and outdoor advertising [53](#page=53). * **Public relations:** Marketing communications designed to earn public understanding and acceptance, encompassing annual reports, corporate image building, press relations, events, lobbying, sponsorships, celebrity endorsements, and product placement [53](#page=53). * **Sales promotion:** Activities that do not directly fall into advertising or personal selling, including catalogues, brochures, samples, coupons, gifts, competitions, rebates, and price discounts [53](#page=53). * **Two-way communication (personal and close communication):** * **Direct marketing:** Offering products and services to market segments through one or more media for informational purposes or to solicit a direct response. This includes direct mail/database marketing, internet marketing, telemarketing, mobile marketing (SMS, viral marketing), social media, and inbound marketing [53](#page=53). * **Personal selling:** A two-way communication process characterized by immediate feedback and relatively less "noise," involving sales presentations, salesforce management, and participation in trade fairs and exhibitions [53](#page=53). --- # Implementing and coordinating the global marketing programme Implementing and coordinating a global marketing programme involves establishing an appropriate organizational structure and a robust control system to ensure objectives are met and to facilitate continuous improvement [57](#page=57). ### 6.1 Organizing for global marketing The primary goal of organizing for global marketing is to create a structure that enables the company to effectively respond to diverse market environments while ensuring the seamless diffusion of corporate knowledge and experience across the entire organization. This requires balancing the need for autonomy in local market responses with the necessity of integration into the global system. There isn't a universally "best" structure for global marketing; leading competitors often feature flat and simple organizational designs that are flexible, efficient, and responsive to global market demands [54](#page=54). ### 6.2 Organizational structures for global marketing The choice of organizational structure is crucial as it dictates the firm's ability to exploit opportunities and respond to challenges. Companies operating internationally must decide whether to structure their organization by functions, products, or geographical areas [54](#page=54). #### 6.2.1 Functional structure In a functional structure, the organizational level below top management is divided into functional departments. An export department is typically situated at or below the level of these functional departments and assumes responsibility for all international marketing activities. This structure is often adopted by companies that are new to internationalization, manufacture few standardized products, and operate in markets with low diversity [54](#page=54) [55](#page=55). #### 6.2.2 International division structure With an international division structure, the level below management is again divided into functional departments. However, the international division is established at the same organizational level as the functional departments and is tasked with developing and implementing the overall international strategy. This structure is suitable when international sales and profits are growing but still relatively insignificant compared to domestic operations, and when products do not vary significantly in terms of their environmental sensitivity [55](#page=55). #### 6.2.3 Product structure In a product structure, the organizational level below management is divided into product divisions. Each product division holds responsibility for the international marketing of its respective products. This approach is beneficial for companies with more extensive international business and marketing experience, diversified product lines, and significant R&D activities, particularly when products have the potential for worldwide standardization [55](#page=55). #### 6.2.4 Geographical structure A geographical structure divides the level below management into international divisions, each responsible for the production, marketing, and financing of products within their designated geographical area. This structure is advantageous when market conditions vary considerably across different world markets, when products are homogeneous but require fast and efficient worldwide distribution, and when companies aim to respond quickly and easily to the environmental and market demands of specific geographic regions [56](#page=56). #### 6.2.5 Matrix structure The matrix structure involves the intersection of two organizational structures, typically product divisions and geographical areas. Under this model, each product division has worldwide responsibilities for its business, while each geographical division is accountable for the foreign operations within its region. This structure is best suited for companies that are both product-diversified and geographically widespread, and which need to address the distinct needs of both markets and products simultaneously [56](#page=56). ### 6.3 Market control system The market control system represents the final stage of international market planning, focused on evaluating the company's performance. It provides essential feedback for initiating the next cycle of international market planning. The objective is to establish a control mechanism capable of early detection of emerging problems. This involves monitoring performance aspects and implementing necessary corrective actions. The process generally includes [57](#page=57): 1. Setting plans for implementation based on objectives and strategies [57](#page=57). 2. Establishing performance standards for each component of the global marketing programme [57](#page=57). 3. Identifying the individual(s) responsible for the marketing planning process [57](#page=57). 4. Evaluating performance against the set standards [57](#page=57). 5. Taking corrective or supportive actions as needed [57](#page=57). ### 6.4 The 5-stage decision model in global marketing Implementing and coordinating the global marketing programme is the fifth stage in a 5-stage decision model, which provides a systematic approach to developing a global marketing plan. The preceding stages are [57](#page=57) [58](#page=58): 1. The decision whether to internationalize [57](#page=57) [58](#page=58). 2. Deciding which markets to enter [57](#page=57) [58](#page=58). 3. Determining market entry strategies [57](#page=57) [58](#page=58). 4. Designing the global marketing programme [57](#page=57) [58](#page=58). 5. Implementing and coordinating the global marketing programme [57](#page=57) [58](#page=58). > **Tip:** The choice of organizational structure is heavily influenced by the extent of internationalization and the strategic significance of international operations to the firm [57](#page=57). > **Tip:** A robust control system is essential to ensure that global marketing activities are executed as intended and to facilitate continuous improvement through feedback [57](#page=57). --- # Market entry modes and selection Deciding on the mode of entry is a key strategic issue for firms operating in today's rapidly internationalizing marketplace. There is no single ideal market entry strategy, and firms often combine different modes to enter or develop a specific foreign market [33](#page=33) [37](#page=37). ### 7.1 Overview of entry modes Entry modes can be broadly categorized into three main types, differentiated by the level of control, risk, and flexibility involved: * **Export modes:** Characterized by low control, low risk, and high flexibility. In these modes, a firm's products are manufactured in the domestic market or a third country and then transferred to the host market [33](#page=33) [37](#page=37). * **Intermediate modes:** Involve shared control and risk, with split ownership. These modes focus on the transfer of knowledge and skills between partners to create foreign sales, with ownership and control shared between the parent firm and a local partner [33](#page=33) [37](#page=37). * **Hierarchical modes:** Entail high control, high risk, and low flexibility. In these modes, the firm completely owns and controls the foreign entry mode [33](#page=33) [37](#page=37) [38](#page=38). > **Tip:** Understanding these fundamental distinctions is crucial for selecting the most appropriate entry strategy based on a firm's objectives and the specific market conditions. ### 7.2 Entry mode selection approaches There are three primary ways a firm can identify the most suitable entry mode: * **Naive approach:** The firm applies the same entry mode for all foreign markets, regardless of their unique characteristics [33](#page=33). * **Pragmatic approach:** The firm selects an entry mode and only considers an alternative when the initial choice proves unfeasible or unprofitable [33](#page=33). * **Strategic approach:** The firm systematically compares and evaluates all alternative entry modes before making a decision. Small and medium-sized enterprises (SMEs) tend to adopt a naive or pragmatic approach, while this guide focuses on the strategic approach [33](#page=33). ### 7.3 Factors influencing entry mode selection The choice of market entry mode is influenced by a complex interplay of internal, external, and transaction-specific factors. #### 7.3.1 Internal factors These are characteristics of the firm itself: * **Firm size:** Larger firms generally have greater resources available for international expansion [33](#page=33). * **International experience:** More experience in international markets facilitates resource availability and decision-making [33](#page=33). * **Product/service characteristics:** * More complex products or services necessitate a higher degree of control by the firm [33](#page=33). * A diverse product range can offer a higher competitive advantage [33](#page=33). The stronger these internal factors, the more likely a firm is to favor hierarchical modes of internationalization due to the increased availability of resources and desire for control [33](#page=33). #### 7.3.2 External factors These relate to the environment in which the firm operates: * **Sociocultural distance:** Significant sociocultural differences between the home and host countries can increase uncertainty and make firms less likely to opt for direct investments abroad [34](#page=34). * **Country risk:** Higher country risk also discourages direct foreign investment [34](#page=34). * **Competition intensity:** Intense competition can reduce market profitability, leading firms to choose entry modes with low resource commitment to test the market cautiously [34](#page=34). * **Market size and growth:** Larger market size and growth potential increase management's willingness to commit resources to market development [34](#page=34). * **Trade barriers:** Direct and indirect trade barriers encourage firms to perform more functions locally, thus gaining greater control over the supply chain [34](#page=34). * **Availability of export intermediaries:** A limited number of export intermediaries can create a monopolistic situation, prompting firms to increase control to mitigate opportunistic behavior [34](#page=34). The stronger these external factors, the more likely firms are to lean towards export modes, especially if they are risk-averse and prioritize flexibility. However, factors like market size, growth, and trade barriers can push firms towards hierarchical modes to gain more control [34](#page=34). #### 7.3.3 Transaction-specific factors These factors relate to the nature of the transaction and the potential for friction between parties: * **Tacit nature of know-how:** When a firm's know-how is difficult and costly to transfer, it increases the preference for modes that offer greater control [35](#page=35). * **Opportunistic behavior:** Friction arising from opportunistic behavior between a home-country producer and a foreign intermediary can lead firms to increase control to protect their brand equity from damage caused by local partners' inappropriate actions [35](#page=35). The stronger these transaction-specific factors, the more firms tend to move towards hierarchical modes of internationalization [35](#page=35). ### 7.4 Specific entry modes in detail #### 7.4.1 Export modes In export modes, products are manufactured domestically or in a third country and then transferred to the host market. The specific type of export mode depends on which functions are handled by external agents and which by the firm itself [37](#page=37). * **Indirect export:** The manufacturing firm does not directly manage exporting activities, relying instead on independent organizations in the home country. This is appropriate for firms with limited expansion objectives, those viewing international sales as a way to dispose of surplus production, SMEs wanting gradual market entry, or those seeking to leverage experienced exporters' resources [36](#page=36). * **Types of indirect export intermediaries:** * **Export buying agent:** A representative of foreign buyers [36](#page=36). * **Broker:** Facilitates contractual agreements to connect buyers and sellers [36](#page=36). * **Export management company (EMC):** A specialist firm acting as the export department for multiple non-competing companies [36](#page=36). * **Piggyback:** An SME utilizes the international distribution network of a larger, experienced company. For instance, Ferruform used Volvo Trucks' international operations to enter new markets [36](#page=36). * **Direct export:** The manufacturing firm manages its own exporting activities and maintains direct contact with the first intermediary in the foreign market. This mode is suitable when the exporter gains confidence, wishes to handle exporting tasks independently, or when the product is technical and requires significant servicing [36](#page=36) [38](#page=38). * **Types of direct export partners:** * **Distributor:** An independent company that stocks the manufacturer's product and sets its own prices and customer base [36](#page=36). * **Agent:** An independent company that sells on behalf of the manufacturer to customers [36](#page=36). * **Cooperative export:** Involves collaborative agreements with other firms to perform export functions [35](#page=35). #### 7.4.2 Intermediate modes Intermediate modes involve the transfer of knowledge and skills between partners to generate foreign sales, with shared ownership and control. The specific intermediate mode chosen depends on which part of the value chain is transferred to an external agent [37](#page=37). * **Contract manufacturing:** The parent firm outsources manufacturing to an external partner specializing in production and technology. This is appropriate when management lacks resources or willingness for full manufacturing and selling operations, desires proximity to foreign customers, benefits from lower foreign production or transportation costs, or faces tariffs or quotas restricting imports. Benetton, for example, heavily relies on a network of overseas contract manufacturers [36](#page=36). * **Licensing:** The parent firm grants a licensee the right to manufacture a specific product, typically based on a patent. This is suitable when firms want to focus on core competencies, are too small to possess extensive financial, managerial, or marketing expertise, the product is nearing its life cycle end, or government regulations restrict foreign direct investment or political risks are high. Jack Daniel's licensing program aims to broaden brand exposure through various associated products [37](#page=37). * **Franchising:** The parent firm grants a franchisee the right to use a complete business concept or system, including trademarks. This is ideal when a large number of geographically dispersed outlets are needed, or when government policies favor small businesses. IKEA, for instance, franchises its concept globally [37](#page=37). * **Joint venture:** Two or more firms join together in an equity partnership. This is appropriate when firms possess complementary technology or management skills, foreign ownership is restricted by the host government, or global R&D and production operations are prohibitively expensive. Sony-Ericsson, a venture between Sony and Ericsson, exemplifies a joint venture [37](#page=37). > **Example:** Table 11.5 (not provided in detail here) likely outlines the advantages and disadvantages of these various intermediate modes, which would be a critical point of comparison for strategic decision-making [37](#page=37). #### 7.4.3 Hierarchical modes Hierarchical modes involve the firm having complete ownership and control over the foreign entry strategy. These modes are typically chosen when firms desire high control, often due to strong internal factors or when external factors push towards greater control [33](#page=33) [34](#page=34) [38](#page=38). * **Domestic-based sales:** A sales representative resides in the home country and travels abroad to perform sales functions. This is suitable for better control of sales, demonstrating commitment to customers, serving a few large B2B clients, or when order sizes justify travel expenses [38](#page=38). * **Foreign-based sales:** The sales function is transferred to the foreign market. This is appropriate for technical and complex products requiring servicing, when tax advantages can be gained via subsidiaries in low-tax countries, or when greater autonomy is to be granted to foreign units [38](#page=38). * **Types of foreign-based sales:** * **Resident sales representative:** Resides in the foreign country where sales functions are performed [39](#page=39). * **Foreign sales branch:** A formal extension and legal part of the firm [39](#page=39). * **Foreign sales subsidiary:** A local company owned and operated by the home company under host country laws [39](#page=39). * **Sales and production subsidiary:** Both sales and production functions are transferred to the foreign market. This is advantageous for products with long-term market potential, politically stable host countries, demonstrating strong commitment to gain new business, cost savings from overseas production, or when foreign governments restrict imports. Toyota's establishment of operations in the UK for the European market is an example [39](#page=39). * **Region centres:** Regional headquarters are established to coordinate and stimulate sales across an entire region. This is relevant when the global market encompasses multiple countries within a region, the firm needs to compete effectively regionally, or wants to respond to regional customer needs. Unicef's structure around seven regional offices serves as an illustration [39](#page=39). * **Transnational organization:** Operations are coordinated and integrated across national boundaries. This advanced stage is pursued when companies aim for global synergies, view the world as interconnected markets, and seek global competitiveness by leveraging cross-border market similarities and differences. Unilever is cited as an example of a company operating at this level [39](#page=39). > **Example:** Zara employs a mix of entry modes. They utilize hierarchical modes in most European countries to maximize revenues due to high growth potential, low sociocultural distance, and low country risk. In markets with higher sociocultural distance, larger competitive markets, or low sales forecasts, they opt for intermediate modes to reduce risks [35](#page=35). --- # The international marketing planning process and control system International marketing planning involves a systematic approach to developing a global marketing plan aimed at creating sustainable competitive advantages in the global marketplace. This process can be broken down into a five-stage decision model, encompassing the decision to internationalize, market selection, entry strategies, program design, and implementation. The control system for international marketing ensures that marketing activities align with strategic goals and adapt to changing market conditions [2](#page=2). ### 8.1 The decision whether to internationalize The initial step in international marketing is deciding whether a firm should engage in international activities at all. International expansion offers access to new and potentially more profitable markets, enhances competitiveness, and provides access to new product ideas and technologies. However, internationalization is unlikely to be successful without thorough preparation [2](#page=2). #### 8.1.1 Globalization and its drivers Globalization is characterized by the growing interdependence of national economies, involving customers, producers, suppliers, and governments across different markets. This trend is driven by several factors [1](#page=1): * **Multilateral trade agreements:** Reduction of trade and investment barriers [1](#page=1). * **Converging market needs and wants:** Information revolution leading to similar consumer preferences globally [1](#page=1). * **Transportation and communication improvements:** Facilitating easier global operations [1](#page=1). * **Product development costs:** Driving firms to seek larger markets [1](#page=1). * **Leverage:** Firms can leverage experience transfers, economies of scale, resource utilization, and global strategies [1](#page=1). #### 8.1.2 Restraining forces on globalization Despite the trend towards globalization, several forces can restrain it: * **Management myopia:** A limited perspective that overlooks global opportunities [1](#page=1). * **Organizational culture:** Resistance to change and adaptation within a firm's structure [1](#page=1). * **National controls:** Government regulations and policies that restrict international business [1](#page=1). * **Opposition to globalization:** Societal or political resistance to increased global integration [1](#page=1). #### 8.1.3 The Global Paradox John Naisbett's "Global Paradox" suggests that as the world economy becomes more open and integrated, smaller and middle-sized companies can dominate by being more flexible and efficient than larger, bureaucratic enterprises. This leads to a convergence where the differences in global marketing behavior between small and large companies are diminishing [2](#page=2). #### 8.1.4 Need for competitive advantage Entering international markets is expensive in terms of money, time, and commitment. Therefore, firms must ensure that internationalization generates added value beyond just increased sales and achieves a competitive advantage. A successful global marketing program requires a balance between global coordination and local adaptation, encapsulated by the motto "think globally, act locally" [2](#page=2). #### 8.1.5 Solberg's strategic windows framework This framework helps determine conditions under which a company should either "stay at home" or "strengthen its global position" . It considers two dimensions [2](#page=2): 1. **Industry globalism:** The degree to which an industry is internationalized, influenced by the international marketing environment and competitive structure [2](#page=2). 2. **Preparedness for internationalization:** The firm's actual skills and ability to execute international business operations [2](#page=2). #### 8.1.6 Development of the global marketing concept Global marketing signifies a firm's commitment to coordinating marketing activities across national boundaries to find and satisfy global customer needs better than competitors. This requires developing a global strategy that accounts for similarities and differences between markets, exploiting headquarters' knowledge through worldwide diffusion and adaptation, and transferring best practices from any market to others [3](#page=3). #### 8.1.7 Views of the business organization (EPRG Network) The way a firm responds to global market opportunities depends on management's underlying assumptions, categorized by the EPRG network: * **Ethnocentric:** Believes the home country is superior, its needs are most relevant, and the company's way of doing business is extended to foreign affiliates, leading to highly centralized controls [3](#page=3). * **Polycentric (multidomestic):** Views each country as unique and requiring a distinct approach, recognizing different production and marketing conditions, and aiming to maximize profits in each location through decentralized control and limited HQ-affiliate communication [3](#page=3). * **Regiocentric:** Treats the world as a collection of regions (e.g., Europe, Asia) and integrates marketing programs within these regions, but not necessarily across them [3](#page=3). * **Geocentric (global):** Adopts global product concepts while allowing for local adaptation, embodying the "think global, act local" philosophy [3](#page=3). #### 8.1.8 Glocalization Glocalization involves developing and selling products or services for the global market while adapting them to suit local culture and behavior. This strategy optimizes the balance between standardization and adaptation in a firm's international marketing activities. A glocal strategy combines global integration with market responsiveness [4](#page=4). #### 8.1.9 Forces for global integration Several factors are driving the shift towards integrated global marketing: * **Removal of trade barriers (deregulation):** Facilitates easier international trade [4](#page=4). * **Global accounts/customers:** Large international clients like IKEA [4](#page=4). * **Standardized worldwide technology:** Enables consistent product offerings globally [4](#page=4). * **Worldwide markets/global village:** Increased interconnectedness and similar consumer tastes [4](#page=4). * **Worldwide communication:** Improved flow of information and marketing messages [4](#page=4). * **Global cost drivers:** Opening up previously closed value chains, leading to cost efficiencies [4](#page=4). #### 8.1.10 Forces for market responsiveness Despite global integration trends, several forces necessitate market responsiveness: * **Cultural differences:** Markets consist of people, and global products may not resonate universally due to varying cultural values [4](#page=4). * **Regionalism/protectionism:** The formation of regional economic blocs (e.g., EU) can create distinct market conditions [4](#page=4). * **Deglobalization trend:** A potential return to prioritizing local values and specific market characteristics [4](#page=4). > **Example:** McDonald's success in over 100 countries highlights the importance of adapting to local environments [4](#page=4). #### 8.1.11 Value chain analysis The Porter concept of the value chain provides a framework for identifying international competitive advantage. It comprises value activities (the building blocks of a product) and margin (the difference between total value and the cost of activities). Competitive advantage is achieved through either lower cost or differentiation [5](#page=5). * **Value activities:** Can be primary (physical creation, sale, after-sales) or support (infrastructural, human resource, technological) [5](#page=5). * **Internationalizing the value chain:** Firms must decide whether to move value chain functions to export markets or handle them centrally from head office [5](#page=5). * **Upstream vs. Downstream activities:** Downstream activities are tied to buyer location, while upstream and support activities are more independent [5](#page=5). ### 8.2 International competitiveness Developing international competitiveness involves adapting to the environment, including customers, competitors, and public authorities, and establishing a strong competitive basis of resources, competences, and relations. A three-stage model is used to study and develop national competitiveness [6](#page=6): 1. **Macro level:** Analysis of national competitiveness [6](#page=6). 2. **Meso level:** Competition analysis within an industry [6](#page=6). 3. **Micro level:** Value chain analysis, including the competitive triangle and benchmarking [6](#page=6). This model helps determine which value chain activities should be kept in-house and which should be outsourced [6](#page=6). #### 8.2.1 Competition analysis in an industry Competition analysis focuses on the underlying structure of an industry, extending beyond current competitors [6](#page=6). * **Industry:** A group of firms offering close substitutes [6](#page=6). * **Market:** A set of actual and potential buyers and sellers [6](#page=6). The goal of competition analysis is to find a defensible position within an industry or influence the five basic competitive forces to a firm's advantage [6](#page=6). #### 8.2.2 Porter's 5-forces model This model analyzes the state of competition and profit potential in an industry based on five key forces: 1. **Market competitors:** Intensity of rivalry between existing firms. Rivalry is higher with more competitors of equal size, slow market growth, high fixed costs, commodity products, low switching costs, and high exit barriers [7](#page=7). > **Golden tip:** Avoid damaging competitive stability; balance your position with the industry's overall well-being [7](#page=7). 2. **Suppliers:** Their bargaining power impacts raw material and component costs. Power is higher with a few dominant suppliers, unique or differentiated supplier products, and high switching costs to alternative suppliers [7](#page=7). > **Golden tip:** Reduce supplier power by seeking new sources but also invest in long-term, stable relationships [7](#page=7). 3. **Buyers:** Their bargaining power affects costs. Power is higher with concentrated buyers or large volume purchases, standard or undifferentiated products, numerous sellers, low buyer profit margins, and when price is more important than quality [7](#page=7). 4. **Substitutes:** The availability of substitute products lowers profits. Profits decrease with cheaper substitutes, lower buyer switching costs, and a high willingness of buyers to substitute [7](#page=7). > **Q:** How to defend your position? Differentiate products/services, focus on operational excellence, introduce new products, or enter new markets [7](#page=7). 5. **New entrants:** The threat of new entrants lowers industry profits. This threat is higher with lower entry barriers, such as limited economies of scale, little product differentiation, low production costs, and low customer or firm switching costs [7](#page=7). #### 8.2.3 Strategic groups A strategic group comprises firms within an industry that compete for the same customers using similar market-related strategies. Firms in different strategic groups do not directly compete with each other [8](#page=8). #### 8.2.4 Value chain analysis and customer perceived value Value chain analysis examines how firms create value for customers [8](#page=8). * **Customer perceived value:** The ratio of benefits received from a product/service to the costs of acquiring and using it. High perceived value exists when customer experience meets or exceeds expectations given the cost [8](#page=8). * **Competitive triangle:** Success depends on a firm's response being judged superior to competitors, influenced by customer perceived value and firm-related costs. Delivering the highest perceived value at the lowest firm-related cost is key [8](#page=8). #### 8.2.5 Blue ocean strategy and value innovation Blue ocean strategy focuses on creating new, uncontested market spaces rather than competing in existing "red oceans" where products are well-defined and competition is fierce [8](#page=8). * **Blue oceans:** Unserved markets with ill-defined products and unstructured competition [8](#page=8). * **Value innovation:** A strategy to create new markets by balancing the costs of delivering a value proposition with what buyers value. It involves asking four questions to reshape industry boundaries [9](#page=9): 1. Which factors should be reduced well below the industry standard? 2. Which factors that the industry takes for granted should be eliminated? 3. Which factors should be raised well above the industry standard? 4. Which factors should be created that the industry has never offered? [9](#page=9). > **Example:** Hotel Formule 1 used value innovation by reducing restaurant and lounge offerings, limiting reception hours, and offering basic rooms, while enhancing bed quality, hygiene, and quietness, and introducing automated room key systems [9](#page=9). ### 8.3 Initiating internationalization Initiating internationalization involves understanding the fundamental reasons why firms go global and the triggers that start the process. #### 8.3.1 Internationalization motives Motives can be categorized as proactive or reactive: * **Proactive motives (firm-initiated):** * **Profit and growth goals:** Seeking higher profits through increased sales or better purchasing [10](#page=10). * **Managerial urge:** Management's desire and enthusiasm for global marketing [10](#page=10). * **Technology competence/unique product:** Offering goods/services not widely available internationally [10](#page=10). * **Foreign market opportunities/market information:** Leveraging existing marketing competence for global expansion [10](#page=10). * **Economies of scale:** Transferring resources and capabilities abroad to achieve economies of scale [10](#page=10). * **Tax benefits:** Reducing costs or increasing profits through international operations [10](#page=10). * **Reactive motives (market-driven):** * **Competitive pressures:** Responding to competitors' international moves to avoid losing market share [10](#page=10). * **Domestic market: small and saturated:** Seeking foreign markets to extend product life cycles [10](#page=10). * **Overproduction/excess capacity:** Utilizing excess capacity by selling abroad [10](#page=10). * **Unsolicited foreign orders:** Responding to inquiries from overseas markets [10](#page=10). * **Extend sales of seasonal products:** Capitalizing on differing seasonality in demand across markets [10](#page=10). * **Proximity of international customers/psychological distance:** Engaging with markets that are physically or psychologically close [10](#page=10). > **Example:** Haier Group's global expansion is attributed to both proactive motives like technological upgrades and reactive motives such as increased competition in its domestic market [11](#page=11). #### 8.3.2 Triggers for export initiation Initiation triggers are events or factors that start the internationalization process: * **Internal triggers:** * **Perceptive management:** Managers with overseas market knowledge and an open mindset for expansion [11](#page=11). * **Specific internal event:** A new employee's belief in internationalization, overproduction, or a by-product suitable for export [11](#page=11). * **Importing as inward internationalization:** Knowledge and relationships gained from importing can facilitate export activities [11](#page=11). * **External triggers:** * **Market demand:** Growth in international markets stimulating demand for a firm's products [11](#page=11). * **Network partners:** External partners providing knowledge to trigger internationalization [11](#page=11). * **Competing firms:** Information from competitors indicating the value of certain international markets [11](#page=11). * **Trade associations:** Experiences shared by industry bodies, export agents, governments, etc., can encourage internationalization [11](#page=11). * **Financing:** Availability of financial resources and the firm's willingness to borrow influence the ability to fund internationalization [11](#page=11). #### 8.3.3 Information search and translation Effective internationalization requires acquiring relevant information from various sources and translating it into usable knowledge within the firm. This is a continuous cycle of search and translation until the uncertainty is reduced to an acceptable level, making the firm "internationalization-ready" [12](#page=12). #### 8.3.4 Internationalization barriers/risks Several barriers can hinder a firm from going global: * **Barriers affecting initiation:** * Inadequate information (customers, competition, practices) [12](#page=12). * Inadequate representation (distribution, service, payment, tariffs) [12](#page=12). * Communication difficulties [12](#page=12). * Product disruptions (need for non-standard products) [12](#page=12). * Insufficient financial strength [12](#page=12). * **Barriers affecting the process:** * General market risks (adaptation costs, competition, complexity) [12](#page=12). * Commercial risks (exchange rates, payments, delays, financing) [12](#page=12). * Political risks [12](#page=12). #### 8.3.5 Internationalization models Two main models describe how firms internationalize: * **Organic process:** Firms globalize through sequential stages, such as the Uppsala internationalization model (transaction cost analysis, network model) [12](#page=12). * **Born global process:** Firms rapidly globalize from their inception without preceding long-term internationalization stages [12](#page=12). > **Born globals** are typically internet-based startups that achieve rapid global reach through e-commerce platforms and social media. Characteristics include unique assets, focus on niche segments, customer orientation, and visionary entrepreneurs [13](#page=13). ### 8.4 Deciding which markets to enter Selecting international markets involves evaluating the economic, cultural, and political environments [14](#page=14). #### 8.4.1 The World Economy—An Overview Economic integration has increased significantly, with regions like the EU and NAFTA being highly integrated. Capital movements, rather than trade, are now the primary driver of the world economy, and e-commerce is diminishing the importance of national barriers [14](#page=14). #### 8.4.2 Economic Systems Economies can be classified based on several factors: * **Type of economy:** Advanced industrial, emerging/transition, or developing nation [14](#page=14). * **Type of government:** Democracy, dictatorship, etc. [14](#page=14). * **Trade and capital flows:** Free trade, trading blocs, exchange controls [14](#page=14). * **The commanding heights:** Ownership of transportation, communication, and energy sectors [14](#page=14). * **Services provided by the state:** Pensions, healthcare, education [14](#page=14). * **Institutions:** Transparency, standards, corruption levels [14](#page=14). * **Markets:** Entrepreneurial, socialized, or government-controlled price setting [14](#page=14). #### 8.4.3 Economic Systems Classifications * **Market Capitalism:** Resources are allocated by individuals and firms, production is privately owned, and the economy is consumer-driven. Government's role is to promote competition and consumer protection [15](#page=15). * **Centrally Planned Socialism:** The state holds broad powers, deciding production quantities and controlling distribution. Demand often exceeds supply, with little emphasis on differentiation or advertising. Many of these economies are transitioning towards market allocation [15](#page=15). * **Market Socialism:** A hybrid system combining command resource allocation with private ownership, where the government plays a significant role in the economy [15](#page=15). #### 8.4.4 Stages of Market Development The World Bank categorizes countries based on Gross National Income (GNI) per capita: * **Low-Income Countries:** GNI per capita of USD 1,045 or less. Characterized by limited industrialization, high birth rates, low literacy, reliance on foreign aid, and political instability [16](#page=16). * **Lower-Middle-Income Countries:** GNI per capita: $1,046 to $4,125. Exhibit expanding consumer markets, cheap labor, and industries like footwear and textiles. The 50 least developed countries (LDCs) fall into this category [16](#page=16). * **Upper-Middle-Income Countries:** GNI per capita: $4,126 to $12,745. These are rapidly industrializing economies with rising urbanization, increasing wages, high literacy, and lower wage costs than advanced countries. They are also called industrializing or developing economies [16](#page=16). * **Newly Industrializing Economies (NIEs):** Lower- and upper-middle-income economies with the highest sustained growth rates, characterized by greater industrial output and exports of manufactured products [16](#page=16). * **High-Income Countries:** GNI per capita: USD 12,476 or more. Known as advanced, developed, or postindustrial countries, they feature sustained economic growth through innovation, a strong service sector, high product ownership, and an emphasis on information and knowledge [16](#page=16). > **Mistaken Assumptions about LDCs:** It is incorrect to assume the poor have no money, will not "waste" it on nonessentials, that entering developing markets is fruitless due to low prices, that people in these countries cannot use technology, or that global companies will be seen as exploiting the poor [16](#page=16). #### 8.4.5 Global Economic Organizations and Regions * **G-7 (Group of Seven):** Aims for global economic stability and prosperity [17](#page=17). * **G-20 (Group of Twenty):** Comprises finance ministers and central bank governors of 19 countries and the EU [17](#page=17). * **OECD (Organization for Economic Cooperation and Development):** Promotes economic growth and social well-being through international cooperation [17](#page=17). * **The Triad:** Traditionally refers to the U.S., Western Europe, and Japan, representing a significant portion of world income. An expanded Triad includes North America, the Pacific Rim, and Eastern Europe [17](#page=17). #### 8.4.6 Product Saturation Levels and Balance of Payments * **Product Saturation Levels:** The percentage of potential buyers or households owning a product, indicating market penetration [17](#page=17). * **Balance of Payments:** Records all economic transactions between a country and the rest of the world, including the current account (trade in goods/services, aid) and capital account (direct/portfolio investment). A trade deficit occurs with a negative current account, and a trade surplus with a positive one [17](#page=17). #### 8.4.7 International Finance and Foreign Exchange * **Foreign exchange:** Enables global business across different currencies [17](#page=17). * **Exchange risk:** The risk of currency value changes during trading [17](#page=17). * **Spot market:** For immediate currency delivery [17](#page=17). * **Forward market:** For future currency delivery [17](#page=17). * **Devaluation:** Reduction in a nation's currency value against others [17](#page=17). * **Revaluation:** A nation allowing its currency to strengthen [17](#page=17). * **Foreign Exchange Market Dynamics:** Supply and demand interact to determine currency appreciation or depreciation. A country selling more goods/services than it buys increases demand for its currency, leading to appreciation [17](#page=17). * **Managing Economic Exposure:** This refers to the impact of currency fluctuations on a company's financial performance, particularly when sales are in foreign currencies. Techniques like hedging, using forward contracts, and balancing risks can mitigate exchange rate risk [18](#page=18). > **Conclusion:** Before choosing a country, select criteria from the economic environment, such as buying power and economic system [18](#page=18). --- International market selection (IMS) is a crucial determinant of success in internationalization, influencing foreign marketing programs and the coordination of global operations. This process involves a systematic approach to identifying and evaluating potential markets [29](#page=29). ### 8.1 International Market Selection (IMS) #### 8.1.1 Definition and Importance of IMS International market selection (IMS) is the process of identifying the most suitable markets for a firm's international expansion. It is a critical factor in the early stages of internationalization, directly impacting the effectiveness of foreign marketing strategies and the coordination of global operations [29](#page=29). #### 8.1.2 Determinants of IMS The selection of international markets is influenced by a variety of determinants, which can be categorized from the political, economic, and socio-cultural environments [29](#page=29). #### 8.1.3 International Market Segmentation **Step 1 & 2: Defining criteria and developing segments** [29](#page=29). Market segmentation involves defining criteria and developing distinct segments. Multiple criteria can be employed simultaneously, drawn from the political, economic, socio-cultural, and technological environments. These criteria can be classified as general or specific characteristics [29](#page=29). For effective segment development, the segments must meet the following criteria: * **Measurable:** The size and purchasing power of the segments can be quantified [29](#page=29). * **Accessible:** The segments can be effectively reached and served [29](#page=29). * **Sustainable/Profitable:** The segments are sufficiently large and/or profitable to warrant attention [29](#page=29). * **Actionable:** The organization possesses the necessary resources to formulate effective marketing programs and execute them [29](#page=29). #### 8.1.4 Segment Screening **Step 3: Segment screening** [30](#page=30). Segment screening reduces the number of potential markets through a multi-stage process. 1. **Preliminary screening:** This initial stage uses coarse-grained, macro-oriented methods to reduce the number of markets. Key considerations include: * Potential buying power [30](#page=30). * Political risks [30](#page=30). * Market potential [30](#page=30). * **Country responsiveness:** This reflects the tendency of consumers to spend in a specific product category in response to income increases [30](#page=30). * **Knock-out criteria:** These are used to immediately exclude countries that do not meet essential requirements [30](#page=30). > **Example:** Bosch Security Systems used knock-out criteria for the Middle East market, excluding countries that were politically unstable or too conservative regarding politics and religion, and those already established export markets for their fire detection systems. Iran and Egypt were screened out [30](#page=30). 2. **Fine-grained screening:** This stage further reduces the market pool based on the firm's specific competences and evaluates: * Market attractiveness [30](#page=30). * Competitive strength [30](#page=30). * **MACS matrix:** This matrix assesses both market attractiveness and competitive strength [30](#page=30). **MACS matrix components:** * **Market attractiveness:** Includes market size, market growth, buying power, host country activities, trade barriers, economic and political stability, and psychic distance [30](#page=30). * **Competitive strength:** Includes market share, product fit to market demands, price, technology position, product quality, market support, and financial resources [30](#page=30). > **Example:** Bosch Security Systems' fine-grained screening using the MACS matrix, considering economic position and industry growth for market attractiveness, and strong local network and sufficient support for competitive strengths, led to the screening out of Kuwait, Jordan, and Oman [30](#page=30). #### 8.1.5 Microsegmentation **Step 4: Microsegmentation** [31](#page=31). After selecting countries, firms engage in microsegmentation to determine: * Which products or services the company will offer [31](#page=31). * Which market segments within the host country the company will target [31](#page=31). This involves considering more specific characteristics such as demographic/economic factors, lifestyles, consumer motivations, geography, buyer behavior, and psychographics [31](#page=31). ### 8.2 Market Expansion Strategies Once markets are selected, a firm must decide on its market expansion strategy, which is a key export marketing decision. This involves answering two primary questions [31](#page=31): 1. **Incremental or simultaneous entry?** * **Waterfall approach:** Involves entering one key market first and then gradually entering others sequentially. This strategy is suitable for testing the waters, for new or expensive products/services, firms with limited international experience, and those with constrained resources [32](#page=32). * **Shower approach:** Entails entering multiple markets concurrently. This is appropriate when a firm aims for economies of scale, has innovative or technologically advanced offerings, wants to preempt competitors, or possesses substantial financial and management resources [32](#page=32). 2. **Concentration or diversification?** * **Concentration:** Focuses on entering markets that are similar to the domestic market in terms of characteristics and infrastructure, or on a group of proximate countries. This strategy is suitable for risk-averse management, high-volume products for general use, large and stable markets, and when product adaptation and distribution costs for additional markets are high [32](#page=32). * **Diversification:** Involves entering countries that differ significantly in environmental or market characteristics. This is appropriate for management that accepts risk, low-volume products for specialized use, small and unstable markets, and when product adaptation and distribution costs for additional markets are low [32](#page=32). ### 8.3 Market Entry Modes #### 8.3.1 Entry Mode Selection Deciding on the mode of entry is a critical strategic decision for firms operating in an internationalized marketplace. There is no single ideal market entry strategy, and firms often combine various modes. Entry modes can be broadly categorized [33](#page=33): * **Export modes:** Characterized by low control, low risk, and high flexibility [33](#page=33). * **Intermediate modes:** Involve shared control and risk, with split ownership [33](#page=33). * **Hierarchical modes:** Offer high control, high risk, and low flexibility [33](#page=33). Entry mode selection can be approached in three ways: * **Naive:** The firm uses the same entry mode for all foreign markets [33](#page=33). * **Pragmatic:** The firm selects an entry mode and only considers alternatives if the initial choice proves infeasible or unprofitable [33](#page=33). * **Strategic:** The firm systematically compares and evaluates all alternative entry modes before making a decision. Small and medium-sized enterprises (SMEs) often adopt a naive or pragmatic approach, while the strategic approach is discussed further [33](#page=33). #### 8.3.2 Factors Influencing Entry Mode Choice **Internal factors:** * **Firm size:** Larger firms generally have more resources available for international operations [33](#page=33). * **International experience:** Greater experience facilitates resource availability [33](#page=33). * **Product/service:** More complex products or services often necessitate greater firm control. A diverse product offering can enhance competitive advantage [33](#page=33). Stronger internal factors tend to push firms towards hierarchical modes of internationalization [33](#page=33). **External factors:** * **Sociocultural distance:** Significant sociocultural differences can create uncertainty, leading firms to avoid direct investment abroad [34](#page=34). * **Country risk:** Similar to sociocultural distance, higher country risk makes firms more hesitant towards direct investment [34](#page=34). * **Competition intensity:** High competition reduces market profitability, prompting firms to choose low-resource commitment entry modes to "test the waters" [34](#page=34). Stronger external factors generally lead firms towards export modes of internationalization [34](#page=34). * **Market size and growth:** Increases management's likelihood of committing resources to market development [34](#page=34). * **Trade barriers:** Direct and indirect trade barriers encourage firms to perform various functions locally, thus increasing control over the supply chain [34](#page=34). * **Relevant export intermediaries available:** A limited number of intermediaries may exploit a "monopolistic situation," prompting firms to increase control to mitigate opportunistic behavior [34](#page=34). Stronger versions of these external factors encourage firms to adopt hierarchical modes of internationalization [34](#page=34). **Transaction-specific factors:** * **Tacit nature of know-how:** When a firm's knowledge is difficult and costly to transfer, it may favor more control [35](#page=35). * **Opportunistic behavior:** Friction between home country producers and export intermediaries can lead to opportunistic behavior. Firms may increase control to safeguard brand equity from potential damage by local partners' inappropriate operations [35](#page=35). The stronger these transaction-specific factors, the more firms will move towards hierarchical modes of internationalization [35](#page=35). **Desired mode characteristics summarized:** * **Risk-averse:** Export modes involve the lowest financial and management resource commitment and offer the most flexibility, moving firms towards export modes [34](#page=34). * **Control:** Hierarchical modes offer the most control but require substantial resource commitment, thus moving firms towards hierarchical modes [34](#page=34). > **Example of Zara's entry modes:** Zara utilizes a hierarchical mode in most European countries to maximize revenues due to high growth potential, low sociocultural distance, and low country risk. It employs intermediate modes in markets like Kuwait, Andorra, and Puerto Rico to reduce risks in markets with higher sociocultural distance, significant competition, low sales forecasts, or where local cooperation is needed [35](#page=35). #### 8.3.3 Types of Entry Modes **Export modes:** Products are manufactured domestically or in a third country and then transferred to the host market directly or indirectly [35](#page=35). * **Indirect export:** The manufacturing firm does not directly manage exporting activities, relying on independent organizations in the home country. This is appropriate for limited expansion objectives, disposing of surplus production, firms with minimal resources seeking gradual international entry, and SMEs utilizing experienced exporters' resources [36](#page=36). * **Types of indirect export:** Export buying agents, brokers, export management companies, and piggyback arrangements [36](#page=36). > **Example:** Ferruform utilized piggybacking by selling to Volvo Trucks, leveraging their international operations for its own internationalization [36](#page=36). * **Direct export:** The firm sells directly to an importer or buyer in the foreign market. This is suitable when the exporter gains confidence and wishes to manage its own exporting tasks [36](#page=36). * **Types of direct export:** Distributors (stock products, set prices, choose customers) and agents (sell on behalf of the manufacturer) [36](#page=36). * **Cooperative export:** Involves collaborative agreements with other firms to perform export functions [35](#page=35). **Intermediate modes:** Involve the transfer of knowledge and skills between partners to generate foreign sales, with shared ownership and control [36](#page=36). * **Contract manufacturing:** The parent firm outsources manufacturing to an external partner specialized in production and technology. This is appropriate when management lacks resources for full operations, desires proximity to foreign customers, finds foreign production/transportation costs lower, or faces tariffs/quotas [36](#page=36). > **Example:** Benetton significantly relies on a network of overseas contract manufacturers [36](#page=36). * **Licensing:** The parent firm grants a partner the right to manufacture a specific product [36](#page=36). * **Franchising:** The parent firm permits a partner to use its entire business concept [36](#page=36). * **Joint venture:** Two or more firms collaborate in a partnership [36](#page=36). **Hierarchical modes:** Characterized by high control, high risk, and low flexibility, often involving direct investment or significant operational presence in the foreign market. --- This topic delves into the strategic decisions and operational frameworks involved in designing and managing a global marketing program, focusing on product, pricing, distribution, and communication decisions, as well as the organizational structures required for effective implementation and control. ### 8.1 Designing the global marketing programme The design of a global marketing programme involves making critical decisions about the marketing mix elements – product, price, distribution, and communication – and how they should be standardized or adapted to different international markets. #### 8.1.1 Product and communication decisions Managers must determine the degree to which products and communication strategies should be standardized or adapted across global markets. This decision is influenced by factors such as economies of scale, global competition, convergence of tastes, and the need for centralized management versus the realities of sociocultural and economic differences [40](#page=40). ##### 8.1.1.1 Standardization versus adaptation * **Standardization is preferred when:** * Economies of scale can be achieved in R&D, production, and marketing [40](#page=40). * Global competition is intense [40](#page=40). * Consumer tastes and needs converge globally [40](#page=40). * International operations are managed centrally [40](#page=40). * Competitors adopt standardized approaches [40](#page=40). * Competitive advantages are easily transferable across markets [40](#page=40). * Communication, planning, and control are simplified [40](#page=40). * Stock costs can be reduced [40](#page=40). * **Adaptation is necessary when:** * There are significant sociocultural, economic, and political differences between markets [40](#page=40). * Local competition is strong [40](#page=40). * Consumer needs vary significantly [40](#page=40). * Management is fragmented and decentralized, with independent country subsidiaries [40](#page=40). * Competitors use adapted concepts [40](#page=40). * Competitive advantages are difficult to transfer across markets [40](#page=40). * Legal issues arise with foreign countries [40](#page=40). * Technical standards differ in foreign countries [40](#page=40). ##### 8.1.1.2 Product decisions The decision regarding product adaptation involves identifying which parts of a product should be standardized and which should be modified for international markets [40](#page=40). * **Services in international strategy:** Services are crucial but differ from products due to intangibility, perishability, variability, inseparability, and the lack of ownership transfer [41](#page=41). * **Categories of services:** * **People processing:** Customers are integral to the production (e.g., hairdresser). Difficult to standardize due to customer involvement [41](#page=41). * **Possession processing:** Tangible actions on physical objects (e.g., car repair). Easier to standardize due to less customer-service personnel contact [41](#page=41). * **Information-based services:** Collecting, manipulating, and transmitting data (e.g., telecommunications, FAQs). Very easy to standardize due to virtual nature and minimal customer involvement [41](#page=41). * **New product development:** International customer needs, conditions of use, and purchasing power influence new product development decisions. Key considerations include the product life cycle, the degree of newness, and the product communication mix [41](#page=41). * **Product life cycle:** This refers to a product's lifespan in the market concerning business costs and sales measures. Firms internationalizing must consider marketing objectives and strategies throughout this cycle [41](#page=41). * **Product communication mix (international promotion):** This involves deciding on the promotional strategy for international markets, with several alternatives: * **Straight extension:** Standardized product with the same promotion strategy across all markets. Offers major savings but is often unsuccessful due to international differences [42](#page=42). * **Promotion adaptation:** Standardized product with a modified promotional activity. Relatively cost-effective and accounts for cultural differences [42](#page=42). * **Product adaptation:** Modified product with the same promotion strategy. Involves adapting the product to physical environmental conditions while maintaining its core function [42](#page=42). * **Dual adaptation:** Both the product and promotion strategy are adapted for each market. Expensive but often necessary, especially for firms not in a leadership position [42](#page=42). * **Product invention:** Products are specifically developed to meet the needs of individual markets. Suitable for supplying less developed countries where existing products are too technologically advanced [42](#page=42). * **Positioning:** Decisions involve setting premium prices, using perceptual mapping, and leveraging home country reputation (e.g., "made in Germany") [42](#page=42). * **Branding:** Brand equity is the value of a brand as perceived by the customer. Branding functions include distinguishing offerings, creating identification and awareness, guaranteeing quality, aiding promotion, and generating sales [43](#page=43). * **Branding decisions:** Whether to brand and the type of branding to use [43](#page=43). * **Brand or no brand:** No brand is used for commodities; branded products involve marketing, labeling, packaging, and promotion [43](#page=43). * **No brand:** Lower costs, flexible quality control, but severe price competition and lack of market identity [43](#page=43). * **Branded product:** Better identification, differentiation potential, loyalty, and premium pricing, but higher costs [43](#page=43). * **Types of branding:** * **Private label:** Retailer's own brand, suitable for SMEs [43](#page=43). * **Co-branding:** Cooperation between two or more brands retaining their names to create combined value [43](#page=43). * **Ingredient branding:** Supplier delivers a key component that adds value to the final product [43](#page=43). * **Manufacturer's own brand:** Manufacturers create their own brands for their products [43](#page=43). * **Single brand vs. multiple brands:** * **Single brand:** One family brand for multiple products; offers market efficiency, lower costs, and avoids confusion, but may have limited shelf space [44](#page=44). * **Multiple brands:** Several brands in one market; allows for market segmentation, protects existing brands, and gains shelf space, but incurs higher costs and loss of economies of scale [44](#page=44). * **Local brands vs. global brand:** * **Local brands:** Individual brands for different markets; offers local identification and allows quality variations, but increases costs and reduces economies of scale [44](#page=44). * **Global brand:** One international brand; provides maximum marketing efficiency, uniform image, and easy identification, but requires quality consistency and can have negative connotations [44](#page=44). #### 8.1.2 Pricing decisions Pricing decisions focus on how prices should be adapted to new international markets [45](#page=45). * **Basic pricing concepts:** * **Law of One Price:** All customers in a market should get the best product at the best price [45](#page=45). * **Global markets:** Prices are the same everywhere for products like diamonds, crude oil, commercial aircraft, and integrated circuits [45](#page=45). * **National markets:** Prices differ due to costs, competition, and regulation [45](#page=45). * **Global manager's responsibilities:** Develop systems and policies addressing price floors (minimum price), price ceilings (maximum price), and optimum prices (function of demand). Pricing must be consistent with global opportunities and constraints, acknowledging price transparency from mechanisms like the Euro zone and the internet [45](#page=45). * **Pricing objectives and strategies:** Managers must set pricing objectives (e.g., unit sales, market share, return on investment) and develop strategies to achieve them, such as penetration pricing or market skimming [45](#page=45). * **Pricing strategies for new products:** * **Skimming:** Charging a high price to the top market segment, then gradually lowering it to target more segments. Suitable for unique products where segments are willing to pay more [45](#page=45). * **Market pricing:** Customer price is based on competitive prices if similar products already exist [45](#page=45). * **Penetration pricing:** Offering products at deliberately low prices to stimulate market growth and capture share, especially for price-sensitive mass markets [45](#page=45). * **Pricing for existing products:** * **PLC pricing:** Price changes follow the product life cycle to remain competitive as competition increases and differentiation opportunities diminish [46](#page=46). * **Experience curve pricing:** Price changes align with the product life cycle and value-added costs; production becomes cheaper over time [46](#page=46). * **Pricing across products:** * **Product line pricing:** Differentiating items within a product line by pricing them appropriately to protect against competitors or gain market share [46](#page=46). * **Freemium:** Offering a product/service for free, then charging for advanced features to build a customer base quickly [46](#page=46). * **Product-service bundle pricing:** Selling two or more products or services as a package to increase profitability, especially if sales of one item are low [46](#page=46). * **Pricing factors for goods crossing international borders:** 1. Does the price reflect product quality [46](#page=46)? 2. Is the price competitive locally [46](#page=46)? 3. Should market penetration, skimming, or another objective be pursued [46](#page=46)? 4. What discounts and allowances should be offered [46](#page=46)? 5. Should prices differ by market segment [46](#page=46)? 6. What pricing options exist for cost changes? Is demand elastic or inelastic [46](#page=46)? 7. Will host-country governments view prices as reasonable or exploitative [46](#page=46)? 8. Do dumping laws pose a problem [46](#page=46)? * **Crossing International Borders:** This involves obtaining export licenses, packing goods, arranging transport, completing customs documents, preparing invoices, arranging freight and insurance [46](#page=46). * **Cost-plus pricing:** * **Rigid:** Prices set without considering the eight pricing considerations [46](#page=46). * **Flexible:** Ensures prices are competitive within the specific market environment [46](#page=46). * **Terms of the sale:** Incoterms, such as Ex-works and Delivery Duty Paid, define the responsibilities of buyers and sellers in international transactions [47](#page=47). * **Export price escalation:** The increase in the final selling price of goods traded across borders due to various costs [47](#page=47). * **Grey market goods:** Trademarked products sold by unauthorized entities in a country other than the one they were exported from, often due to price differences or skimming strategies. Issues include dilution of exclusivity, free riding, damage to channel relationships, undermining pricing schemes, and reputation/legal liability [47](#page=47). * **International pricing strategies:** * **Price standardization:** A single factory price applied in all markets, adjusted for exchange rates and regulations [47](#page=47). * **Price differentiation:** Each local subsidiary or partner sets prices based on local conditions [47](#page=47). * **Global Pricing: Three Policy Alternatives:** * **Extension (Ethnocentric):** The per-unit price is the same worldwide; importers absorb freight and duties. This fails to respond to national market variations [47](#page=47). * **Adaptation (Polycentric):** Affiliate managers or distributors set prices they deem desirable for their circumstances, being sensitive to market conditions but risking grey marketing [47](#page=47). * **Geocentric:** An intermediate approach recognizing local costs, income levels, competition, and local marketing strategy as relevant to pricing decisions [48](#page=48). * **Pricing strategies - Euro zone:** Prices have become more standardized in Europe due to the Euro, with some products not launched in small countries to avoid parallel imports [48](#page=48). * **Dumping:** Selling an imported product at a price lower than its domestic market or country of origin price. Proving dumping requires demonstrating price discrimination and injury. Calculating dumping is difficult [48](#page=48). * **Full absorption cost method:** Per-unit product costs are the sum of all past or current direct and indirect manufacturing and overhead costs, including cross-border expenses [48](#page=48). * **Transfer pricing:** Pricing of goods, services, and intangibles exchanged between operating units or divisions of a company in different jurisdictions. Types include cost-based, market-based, and negotiated transfer pricing [48](#page=48). * **Price fixing:** Competitors secretly set similar prices, which is illegal and anticompetitive. Horizontal price fixing involves competitors agreeing on prices, while vertical price fixing involves manufacturers conspiring with distributors to maintain retail prices [49](#page=49). * **Other considerations:** * **Inflationary Environment:** A persistent upward price change, potentially caused by increased money supply or currency devaluation. Maintaining operating margins is essential [49](#page=49). * **Low Inflation Environment:** While it may allow for price increases, global competitive dynamics must be considered. Factors like globalization, the internet, low-cost imports, and cost-conscious consumers constrain pricing [49](#page=49). * **Government Controls, Subsidies, and Regulations:** Policies like dumping legislation, resale price maintenance, price ceilings, and general price reviews affect pricing. Foreign governments may restrict profit repatriation, limit payments for imported materials, and restrict price competition [49](#page=49). #### 8.1.3 Distribution decisions Distribution decisions address how products and services will be distributed to foreign markets [50](#page=50). * **External determinants of channel decisions:** * **Customer characteristics:** Size, geographic distribution, shopping habits, and outlet preferences [50](#page=50). * **Nature of product:** Product characteristics influence the distribution network's intensity [50](#page=50). * **Nature of demand:** Target customer perceptions, country geography, and transportation infrastructure development [50](#page=50). * **Competition:** Channels used by competitors [50](#page=50). * **Legal regulations:** Specific laws may prohibit certain channels or intermediaries [50](#page=50). * **Channel structure:** * **Market coverage:** Geographic focus and the number of retail outlets, aiming to meet coverage goals [51](#page=51). * **Channel length:** Determined by the number and types of intermediaries; longer channels are common for convenience goods and mass distribution [51](#page=51). * **Control:** The ability to influence channel members' decisions and actions; longer channels result in less supplier control [51](#page=51). * **Integration:** Uniting all channel members under one system and leadership for higher channel stability through long-term commitments [51](#page=51). * **Multiple channel strategy:** Making a product/service available through two or more channels (e.g., internet, sales force, distributors, retail stores) [51](#page=51). * **Advantages:** Extended market coverage, increased sales volume, better accommodation of customer needs, and improved information flow [51](#page=51). * **Disadvantages:** Increased organizational complexity, potential conflicts, higher costs, and loss of distinctiveness [51](#page=51). * **Managing and controlling channels:** 1. **Screening and selecting intermediaries:** Comparing potential candidates against important criteria [52](#page=52). 2. **Contracting:** Signing a foreign sales agreement with a suitable intermediary [52](#page=52). 3. **Motivating:** Offering monetary and psychological rewards to keep intermediaries motivated [52](#page=52). 4. **Controlling:** Developing written performance objectives to oversee sales and distribution channels [52](#page=52). 5. **Terminating:** Ending relationships with underperforming foreign sales and delivery partners [52](#page=52). * **Transportation:** Analyzing shipping modes to determine the most effective and efficient combination for channel strategy [52](#page=52). #### 8.1.4 Communication decisions Communication decisions focus on how to communicate with customers to provide information in international markets [52](#page=52). * **Communication tools:** * **One-way communication (mass communication/traditional marketing):** * **Advertising:** Reaching large numbers of small-volume customers via mass media (newspapers, magazines, radio, TV, cinema, outdoor) [53](#page=53). * **Public relations:** Marketing communications designed for public understanding and acceptance (annual reports, press relations, events, lobbying, sponsorship, celebrity endorsements) [53](#page=53). * **Sales promotion:** Selling activities outside advertising and personal selling (catalogues, samples, coupons, competitions, rebates, discounts) [53](#page=53). * **Two-way communication (personal and close communication):** * **Direct marketing:** Offering products/services to market segments via media to solicit a direct response (direct mail, internet marketing, telemarketing, mobile marketing, SMS, viral marketing, social media, inbound marketing) [53](#page=53). * **Personal selling:** A two-way communication process with immediate feedback and less noise, involving sales presentations, salesforce management, and trade fairs [53](#page=53). ### 8.2 Implementing and coordinating the global marketing programme Implementing and coordinating a global marketing programme requires appropriate organizational structures and consideration of top management nationality. #### 8.2.1 Top management nationality Companies are increasingly recognizing their global portfolio of human resources, tapping into worldwide talent for leadership roles, meaning non-Americans are likely to rise to top positions [54](#page=54). #### 8.2.2 Organizing for global marketing The goal is to find a structure that enables responsiveness to market differences and ensures the diffusion of corporate knowledge. Organizations must balance autonomy with integration and the need for individualized local responses. There isn't a single best structure, but leading global competitors often have flat and simple organizational designs. In the 21st century, companies need flexible, efficient, and responsive structures to meet global market demands [54](#page=54). #### 8.2.3 Organizational structure An appropriate organizational structure is crucial for implementing a global marketing programme, influencing the firm's ability to exploit opportunities, respond to challenges, and effectively and efficiently manage international operations. Companies must decide whether to structure along functions, products, or geographical areas [54](#page=54). * **Functional structure:** The level below management is divided into functional departments. The export department exists at or below this level and is responsible for international marketing across all products [54](#page=54). --- The international marketing planning process culminates in a control system that evaluates performance and informs future planning cycles [57](#page=57). ### 8.1 International marketing planning process overview The international marketing plan is developed through a systematic, 5-stage decision model [57](#page=57) [58](#page=58): 1. **The decision whether to internationalize**: Firms assess whether to expand their operations internationally [58](#page=58). 2. **Deciding which markets to enter**: Companies identify target international markets [58](#page=58). 3. **Market entry strategies**: The appropriate methods for entering chosen markets are selected [58](#page=58). 4. **Designing the global marketing programme**: A comprehensive marketing program is developed for global operations [57](#page=57) [58](#page=58). 5. **Implementing and coordinating the global marketing programme**: The plan is put into action and managed effectively across different markets [57](#page=57) [58](#page=58). #### 8.1.1 Organizational structures for implementation The successful implementation of a global marketing program relies on an appropriate organizational structure. The choice of structure is influenced by the degree of internationalization and the strategic importance of international operations [57](#page=57). * **International division structure**: This structure is suitable when companies are new to internationalization, manufacture few standardized products, and operate in markets with low diversity. International sales and profits are growing but still relatively insignificant compared to domestic ones, and products do not vary much in environmental sensitivity. The international division is responsible for developing and implementing the overall international strategy [55](#page=55). * **Product structure**: This structure is adopted when companies have more international experience, diversified product lines, extensive R&D, and products with potential for worldwide standardization. Each product division manages the international marketing of its products [55](#page=55). * **Geographical structure**: This structure is employed when market conditions vary significantly across world markets, products are homogeneous but require fast, efficient worldwide distribution, and companies need to respond quickly to geographic area demands. Each international division is responsible for production, marketing, and financing in its specific region [56](#page=56). * **Matrix structure**: This structure is ideal for companies that are both product-diversified and geographically spread, and need to address both market and product needs simultaneously. It involves the intersection of product divisions and geographical divisions, where each product division has worldwide business responsibilities, and each geographical division handles foreign operations within its region [56](#page=56). ### 8.2 The market control system The control process is the final stage of international market planning. It is crucial for evaluating company performance and providing feedback for the subsequent planning cycle. The goal is to establish a control mechanism that can intercept emerging problems early and involve monitoring performance aspects to take corrective action [57](#page=57). The market control system involves the following steps [57](#page=57): 1. **Setting plans for implementation**: The company establishes plans based on its objectives and strategies [57](#page=57). 2. **Setting performance standards**: Standards are defined for each aspect of the global marketing program [57](#page=57). 3. **Identifying responsible persons**: The individuals accountable for the marketing planning process are identified [57](#page=57). 4. **Evaluating performance**: Actual performance is assessed against the established standards [57](#page=57). 5. **Taking corrective or supportive actions**: Necessary adjustments or reinforcements are made based on the performance evaluation [57](#page=57). > **Tip:** A robust control system is essential for ensuring that global marketing activities align with the initial plans and objectives, allowing for timely adjustments to market dynamics [57](#page=57). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Tariffs | Direct taxes and charges imposed on imports to protect local companies from outside competition, which can be specific, ad valorem, or discriminatory. | | Import Controls | Measures implemented by a country to regulate or limit the quantity or value of goods and services that can be imported. | | Nontariff Barriers | Non-monetary obstacles that restrict the entry of foreign products into a domestic market, often through regulations or procedures. | | Quotas | A restriction placed on the amount of specific goods or services that can be imported into or exported from a country during a defined period. | | Embargoes | A complete prohibition on trade with a particular country or on specific products, often enacted for political or economic reasons. | | Administrative Delays | Bureaucratic rules or regulatory controls designed to impede the swift flow of imports into a country, creating operational challenges for foreign firms. | | Local-Content Requirements | Laws that mandate a specific proportion of a product or service must be sourced from domestic producers within the host country. | | Preferential Tariff | A reduced tariff rate applied to imports originating from specific countries, often based on historical relationships or economic integration agreements. | | Ad Valorem Duty | A customs duty calculated as a percentage of the value of the imported goods. | | Specific Duty | A customs duty calculated as a fixed amount of currency per unit of weight, volume, length, or another measurement of the imported goods. | | Anti-dumping Duties | Special import charges imposed to counteract the practice of selling merchandise in export markets at unfairly low prices, equal to the dumping margin. | | Countervailing Duties | Tariffs imposed to offset subsidies provided by the exporting country's government to its domestic industries. | | Economic Integration | The process by which different economies merge or cooperate, leading to increased trade, capital flows, and policy coordination. Historically, economic integration has significantly increased from the early 20th century to the present day. | | Capital Movements | The flow of financial assets and investments across national borders, which has become a primary driver of the global economy, surpassing traditional trade in its influence. | | Productivity | The efficiency with which resources are used to produce goods and services. In the modern global economy, productivity has gained significant importance as production has become decoupled from employment levels. | | E-Commerce | The buying and selling of goods and services over the internet. E-commerce plays a crucial role in diminishing the significance of national borders and compels companies to rethink their business strategies. | | Advanced Industrial State | An economy characterized by a high level of industrialization, advanced technology, a significant service sector, and a focus on innovation and knowledge-based industries. | | Emerging or Transition Economy | An economy that is undergoing significant structural changes, moving from a centrally planned or developing state towards a more market-oriented system, often experiencing rapid economic growth. | | Developing Nation | An economy with a low level of industrialization, a high proportion of its population engaged in agriculture, low literacy rates, and often a heavy reliance on foreign aid and facing political instability. | | Market Capitalism | An economic system where individuals and private firms own production resources and allocate them based on consumer demand. The government's role is primarily to foster competition and protect consumers. | | Centrally Planned Socialism | An economic system where the state holds extensive power, dictating the production of goods and services, controlling distribution, and owning entire industries. Demand often outstrips supply in such systems. | | Market Socialism | An economic system that combines elements of both centrally planned socialism and market capitalism, where command resource allocation is used extensively within an environment of private resource ownership. | | Economic Freedom | A measure of the extent to which individuals and firms are free to make their own economic decisions without undue government intervention, assessed through variables like trade policy, taxation, and property rights. | | Gross National Income (GNI) | The total income earned by a nation's residents and businesses, including income earned domestically and abroad, used as a primary metric for categorizing countries by their stage of market development. | | Culture | The collective programming of the mind that distinguishes the members of one category of people from those of another, encompassing ways of living transmitted from one generation to another, including conscious and unconscious values, ideas, attitudes, and symbols. | | Social Institutions | Key societal structures such as family, education, religion, government, and business that function to reinforce cultural norms and influence the behavior of individuals and their relationships. | | Material Culture | The physical aspects of a culture, including tangible items like clothing, tools, decorative art, body adornment, and homes, which are often a result of technological development and economic activity. | | Abstract Culture | The non-physical elements of a culture, encompassing intangible aspects such as religion, perceptions, attitudes, beliefs, and values, which shape individual and collective thought processes. | | Sociocultural Environment | The complex interplay of social and cultural elements within a society, including language, manners, customs, technology, social institutions, education, values, attitudes, aesthetics, and religion, which significantly impacts marketing efforts. | | Global Consumer Culture | The emergence of groups of people who share meaningful sets of consumption-related symbols, often driven by technological interconnectedness and global media, leading to shared consumption patterns like coffee or fast-food culture. | | Attitude | A learned tendency to respond in a consistent way to a given object or entity, representing a predisposition that can be influenced by cultural factors and marketing communications. | | Belief | An organized pattern of knowledge that an individual holds to be true about the world, forming the foundation for attitudes and values, and significantly shaped by cultural upbringing and societal norms. | | Value | An enduring belief or feeling that a specific mode of conduct is personally or socially preferable to another mode of conduct, representing fundamental guiding principles that influence behavior and decision-making. | | Subcultures | Smaller groups within a larger society that share their own distinct attitudes, beliefs, and values, requiring marketers to understand these specific group dynamics for effective targeting. | | Aesthetics | The sense of what is considered beautiful and what represents good taste within a culture, encompassing visual elements like color and shape, as well as artistic styles in music, folklore, and drama, which can vary significantly across markets. | | Semiotics | The study of signs and their meanings, encompassing both spoken and unspoken language, including gestures, touching, and body language, which are crucial for effective cross-cultural communication in marketing. | | Standardization | A strategy where a company uses the same marketing mix elements, such as product and communication, across different international markets to achieve economies of scale and simplify management. | | Adaptation | A strategy where a company modifies its marketing mix elements, including product, price, distribution, and communication, to suit the specific sociocultural, economic, and political differences of individual national markets. | | Product Decision | The strategic choice regarding which components of a product should remain consistent across international markets and which should be altered to meet local needs and conditions. | | Product Life Cycle | The progression of a product in the market, characterized by distinct stages from introduction to decline, influencing marketing objectives and strategies throughout its lifespan. | | Straight Extension | A product communication strategy where a standardized product is marketed with the identical promotional approach in all target markets, aiming for significant savings but often facing challenges due to international variations. | | Promotion Adaptation | A strategy involving a standardized product but with adjusted promotional activities to account for cultural nuances and local market specificities, offering a cost-effective approach. | | Product Adaptation | A strategy where a product is modified to suit physical environmental conditions or local preferences while maintaining its core function, with the same promotion strategy applied across markets. | | Dual Adaptation | A comprehensive strategy where both the product and its associated promotion strategy are tailored to meet the unique requirements of each individual market, often employed when a firm is not in a leadership position. | | Product Invention | The development of entirely new products specifically designed to address the distinct needs and conditions of individual markets, particularly relevant for less developed countries where existing products may be too sophisticated. | | Law of One Price | A principle suggesting that in global markets, identical products should theoretically be available to all customers at the same price, although variations occur due to costs, competition, and regulations in national markets. | | Price Floor | The minimum acceptable price for a product, determined by considering production costs and the need to achieve profitability. | | Price Ceiling | The maximum acceptable price for a product, influenced by customer willingness to pay, competitive pricing, and perceived value in the market. | | Customer Characteristics | These refer to the attributes of customer groups, including their size, geographic distribution, shopping habits, preferences for specific outlets, and how they utilize products or services. | | Nature of Product | This describes the inherent characteristics of a product, which directly influence the required intensity and structure of its distribution network to effectively reach the target market. | | Nature of Demand | This encompasses how target customers perceive a product, the geographical landscape of a country, and the development of its transportation infrastructure, all of which significantly impact the choice of distribution channels. | | Competition | This external determinant considers the distribution channels that rival companies are currently utilizing to market and sell their products or services. | | Legal Regulations | These are specific laws or statutes within a country that may restrict or prohibit the use of certain distribution channels or intermediaries, influencing market entry strategies. | | Market Coverage | This refers to the extent to which a distribution network reaches the target market, often determined by the geographic focus and the number of retail outlets available to consumers. | | Channel Length | This is defined by the number and variety of intermediaries involved in bringing a product from the producer to the final consumer, with longer channels typically used for convenience goods. | | Control | This signifies the degree to which a supplier can influence the decisions and actions of other members within the distribution channel, with longer channels generally offering less control. | | Integration | This involves bringing all members of a distribution channel together into a unified system, operating under a single leadership and common set of objectives to enhance channel stability. | | Multiple Channel Strategy | This strategy involves making a product or service available to the market through two or more distinct channels of distribution, such as the internet, sales force, or retail stores. | | Screening and Selecting Intermediaries | This is the initial step in managing distribution channels, involving the comparison of potential candidates against a list of important criteria to identify suitable partners. | | Contracting | This stage involves formalizing the relationship with a chosen intermediary by signing a foreign sales agreement, outlining the terms and conditions of their partnership. | | Organizational Structure | The framework that defines how a firm's activities are directed and controlled to achieve its objectives, crucial for effectively implementing a global marketing program by determining the firm's ability to exploit opportunities and respond to challenges. | | Functional Structure | An organizational design where the level below top management is divided into specialized functional departments, with an export department often existing at or below this level, responsible for all international marketing activities. | | International Division Structure | An organizational model where the international division operates at the same level as domestic functional departments and is specifically tasked with developing and implementing the overall international strategy for the company. | | Product Structure | A hierarchical organization where the level below management is segmented into product divisions, with each division holding responsibility for the international marketing efforts pertaining to its specific product line. | | Geographical Structure | An organizational arrangement where the company is divided into international divisions, each accountable for the production, marketing, and financing of products within its designated geographical area. | | Matrix Structure | A complex organizational design that combines two or more structures, typically product and geographical divisions, where each product division has worldwide business responsibilities and each geographical division manages foreign operations within its region. | | Market Control System | The final phase of international market planning, involving the evaluation of company performance against set standards to provide feedback for future planning cycles and to identify and address emerging problems through corrective actions. | | Decision Model in Global Marketing | A systematic, five-stage approach to developing a global marketing plan, encompassing decisions on internationalization, market selection, entry strategies, program design, and finally, implementation and coordination. | | Export Modes | These entry modes involve the manufacturing of products in the domestic market or a third country, with subsequent transfer to the host market. They are characterized by low control, low risk, and high flexibility, making them suitable for firms with limited resources or those looking to gradually enter international markets. | | Intermediate Modes | These entry modes involve the transfer of knowledge and skills between partners to facilitate foreign sales, with shared ownership and control between the parent firm and a local partner. They are often used when sociocultural distance is high, markets are large and competitive, or when obstacles require local cooperation. | | Hierarchical Modes | These entry modes are characterized by the firm completely owning and controlling the foreign entry mode, offering high control but also entailing high risk and low flexibility. They are typically adopted when internal factors like firm size, international experience, and product complexity are significant, or when transaction-specific factors necessitate greater control. | | Naive Entry Mode Selection | A simplistic approach where a firm utilizes the same market entry strategy for all foreign markets, regardless of their specific characteristics or requirements. This method is often employed by Small and Medium-sized Enterprises (SMEs) due to its ease of implementation. | | Pragmatic Entry Mode Selection | An entry mode selection strategy where a firm initially chooses a specific mode and only considers alternative options if the initial choice proves unfeasible or unprofitable. This approach is reactive and less systematic than a strategic selection process. | | Strategic Entry Mode Selection | A systematic and comprehensive evaluation process where a firm thoroughly compares and analyzes all available alternative entry modes before making a final decision. This method aims to identify the most optimal entry strategy based on a detailed assessment of various factors. | | Sociocultural Distance | The degree of difference in cultural norms, values, beliefs, and behaviors between a firm's home country and a target foreign market. A greater sociocultural distance can increase uncertainty and make firms more hesitant towards direct foreign investments. | | Country Risk | The potential for political, economic, or social instability in a foreign country that could negatively impact a firm's operations and investments. High country risk often leads firms to avoid direct investments and opt for less commitment-intensive entry modes. | | Transaction-Specific Factors | Elements related to the nature of the transaction itself, such as the tacit nature of know-how and the potential for opportunistic behavior between parties. These factors can influence the firm's desire for greater control to protect its assets and brand equity. | | Indirect Export | An export strategy where the manufacturing firm does not directly manage the exporting activities. Instead, it utilizes independent organizations located in the home country to handle the export process, often suitable for firms with limited resources or those viewing international sales as a way to dispose of surplus production. | | Direct Export | An export strategy where the manufacturing firm directly handles its exporting activities and maintains direct contact with the first intermediary in the foreign market. This approach is appropriate when a firm gains confidence and wishes to undertake its own exporting tasks. | | Cooperative Export | An export strategy that involves collaborative agreements with other firms to jointly perform exporting functions. This can leverage the resources and expertise of multiple companies to facilitate market access. | | Globalization | The trend of firms buying, developing, producing, and selling products and services in most countries and regions of the world, signifying a growing interdependence of national economies. | | Global Marketing | A marketing approach that reflects the trend of firms selling and distributing products and services in many countries around the world, aiming to coordinate marketing activities across national boundaries to satisfy global customer needs better than competitors. | | Industry Globalism | The degree to which an industry is internationalized, primarily determined by the international marketing environment and the strategic behavior of firms within the industry's competitive structure. | | Preparedness for Internationalization | A firm's capability to execute strategies effectively in the international marketplace, encompassing its actual skills and readiness for international business operations. | | Ethnocentric World View | A business perspective where the home country is considered superior, its needs are most relevant, and the company's home-country business practices are extended to foreign affiliates, often with highly centralized controls. | | Polycentric (Multidomestic) World View | A business perspective that views each country as unique, requiring distinct targeting strategies and adaptations to local production and marketing conditions to maximize profits, with decentralized control and limited communication between headquarters and affiliates. | | Regiocentric World View | A business perspective where the world is divided into regions, and the firm attempts to integrate and coordinate its marketing programs within these regions, rather than across them. | | Geocentric (Global) World View | A business perspective that embraces global product concepts while allowing for local adaptation, often summarized by the phrase "think global, act local." | | Glocalization | The development and selling of products or services intended for the global market, but adapted to suit local culture and behavior, aiming to optimize the balance between standardization and adaptation in international marketing activities. | | Value Chain | A framework that displays total value and consists of value activities and margin, where value activities are the distinct physical and technological activities a firm performs, and margin is the difference between total value and the cost of performing these activities. | | Primary Activities (Value Chain) | Activities involved in the physical creation of the product, its sale and transfer to the buyer, as well as after-sales assistance, forming the core operational processes of a firm. | | Support Activities (Value Chain) | Activities that support the primary activities and each other by providing purchased inputs, technology, human resources, and various firm-wide functions, enabling the smooth operation of primary activities. |