The Global Market Place

8/7/2019 The Global Market Place

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The Global Market Place

Globalization of Markets and Competition: Trade is increasingly global in scopetoday. There are several reasons for this. One significant reason is technologicalbecause of improved transportation and communication opportunities today, tradeis now more practical. Thus, consumers and businesses now have access to thevery best products from many different countries. Increasingly rapid technologylifecycles also increases the competition among countries as to who can producethe newest in technology. In part to accommodate these realities, countries in thelast several decades have taken increasing steps to promote global trade throughagreements such as the General Treaty on Trade and Tariffs, and tradeorganizations such as the World Trade Organization (WTO), North American FreeTrade Agreement (NAFTA), and the European Union (EU).

Stages in the International Involvement of a Firm . We discussed several stagesthrough which a firm may go as it becomes increasingly involved across borders. Apurely domestic firm focuses only on its home market, has no current ambitions of

expanding abroad, and does not perceive any significant competi tive threat fromabroad. Such a firm may eventually get some orders from abroad, which are seeneither as an irritation (for small orders, there may be a great deal of effort andcost involved in obtaining relatively modest revenue) or as "icing on the cak e." Asthe firm begins to export more, it enters the export stage, where little effort ismade to market the product abroad, although an increasing number of foreignorders are filled. In the international stage, as certain country markets begin toappear especially attractive with more foreign orders originating there, the firmmay go into countries on an ad hoc basisthat is, each country may be enteredsequentially, but with relatively little learning and marketing efforts being sharedacross countries. In the multi-national stage, some efficiencies are pursued bystandardizing across a region (e.g., Central America, West Africa, or Northern

Europe). Finally, in the global stage, the focus centers on the entire World market,with decisions made optimize the products position across marketsthe homecountry is no longer the center of the product. An example of a truly globalcompany is Coca Cola.

Note that these stages represent points on a continuum from a purely domesticorientation to a truly global one; companies may fall in between these discretestages, and different parts of the firm may have characteristics of various stagesfor example, the pickup truck division of an auto -manufacturer may be largelydomestically focused, while the passenger car division is globally focused. Althougha global focus is generally appropriate for most large firms, note that it may not beideal for all companies to pursue the global stage. For example, manufacturers ofice cubes may do well as domestic, or even locally centered, firms.

Some forces in international trade . The text contains a rather long-windedappendix discussing some relatively simple ideas. Comparative advantage,discussed in more detail in the economics notes, suggests trade between countriesis beneficial because these countries differ in their relative economic strengths some have more advanced technology and some have lower costs. TheInternational Product Life Cycle suggests that countries will differ in their timing


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of the demand for various products. Products tend to be adopted more quickly inthe United States and Japan, for example, so once the demand for a product (say,VCRs) is in the decline in these markets, an increasing market potential might existin other countries (e.g., Europe and the rest of Asia). Internalization/transactioncosts refers to the fact that developing certain very large scale projects, such asan automobile intended for the World market, may entail such large costs that

these must be spread over several countries.

Economics of International Trade

Exchange rates come in two forms:

y Floatinghere, currencies are seton the open market based on thesupply of and demand for eachcurrency. For example, all otherthings being equal, if the U.S.

imports more from Japan than itexports there, there will be lessdemand for U.S. dollars (they arenot desired for purchasing goods)and more demand for Japaneseyenthus, the price of the yen, indollars, will increase, so you will getfewer yen for a dollar.

y Fixedcurrencies may bepegged to another currency (e.g.,the Argentine currency isguaranteed in terms of a dollar

value), to a composite of currencies(i.e., to avoid making the currencydependent entirely on the U.S.dollar, the value might be 0.25*U.S.dollar+4*Mexican peso+50*Japaneseyen+0.2*German mark+0.1*Britishpound), or to some other valuablesuch as gold. Note that it is verydifficult to maintain these fixedexchange ratesgovernments mustbuy or sell currency on the openmarket when currencies go outsidethe accepted ranges. Fixedexchange rates, although theyproduce stability and predictability,tend to get in the way of marketforcesif a currency is keptartificially low, a country will tendto export too much and import toolittle.


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Trade balances and exchange rates. When exchange rates are allowed tofluctuate, the currency of a country that tends to run a trade deficit will tend todecline over time, since there will be less demand for that currency. This reducedexchange rate will then tend to make exports more attractive in other countries,and imports less attractive at home.

Measuring country wealth. There are two ways to measure the wealth of acountry. The nominal per capita gross domestic product (GDP) refers to the valueof goods and services produced per person in a country if this value in localcurrency were to be exchanged into dollars. Suppose, for example, that the percapita GDP of Japan is 3,500,000 yen and the dollar e xchanges for 100 yen, so thatthe per capita GDP is (3,500,000/100)=$35,000. However, that $35,000 will notbuy as much in Japanfood and housing are much more expensive there.Therefore, we introduce the idea of purchase parity adjusted per capita GDP,which reflects what this money can buy in the country. This is typically based onthe relative costs of a weighted basket of goods in a country (e.g., 35% of thecost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost ofother items). If it turns out that this measure of cost of living is 30% higher inJapan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%)= $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP)are almost identical figures. The GNP, for example, includes income made bycitizens working abroad, and does not include the income of foreigners working inthe country. Traditionally, the GNP was more prevalent; today the GPD is morecommonly usedin practice, the two measures fall within a few percent of eachother.)

In general, the nominal per capita GPD is more useful for determining localconsumers ability to buy imported goods, the cost of which are determined in

large measure by the costs in the home market, while the purchase parity adjustedmeasure is more useful when products are produced, at local costs, in the countryof purchase. For example, the ability of Argentinians to purchase micro computerchips, which are produced mostly in the U.S. and Japan, is better predicted bynominal income, while the ability to purchase toothpaste made by a U.S. firm in afactory in Argentina is better predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed sothat these average measures may not be very meaningful. In Brazil, for example,


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there is a very large underclass making significantly less than the national average,and thus, the national figure is not a good indicator of the purchase power of themass market. Similarly, great regional differences exist within some countriesincome is much higher in northern Germany than it is in the former East Germany,and income in southern Italy is much lower than in northern Italy.

Political and Legal Influences

The political situation. The political relations between a firms country ofheadquarters (or other significant operations) and another one may, t hrough nofault of the firms, become a major issue. For example, oil companies whichinvested in Iraq or Libya became victims of these countries misconduct that led tobans on trade. Similarly, American firms may be disliked in parts of Latin Americaor Iran where the U.S. either had a colonial history or supported unpopular leaderssuch as the former shah.

Certain issues in the political environment are particularly significant. Some

countries, such as Russia, have relatively unstable governments, whose policiesmay change dramatically if new leaders come to power by democratic or othermeans. Some countries have little tradition of democracy, and thus it may bedifficult to implement. For example, even though Russia is supposed to become ademocratic country, the history of dictatorships by the communists and the czarshas left country of corruption and strong influence of criminal elements.

Laws across borders. When laws of two countries differ, it may be possible in acontract to specify in advance which laws will apply, although this agreement maynot be consistently enforceable. Alternatively, jurisdiction may be settled bytreaties, and some governments, such as that of the U.S., often apply their laws toactions, such as anti-competitive behavior, perpetrated outside their borders

(extra-territorial application). By the doctrine known as compulsion, a firm thatviolates U.S. law abroad may be able to claim as a defense that it was forced to doso by the local government; such violations must, however, be compelledthatthey are merely legal or accepted in the host country is not sufficient.

The reality of legal systems. Some legal systems, such as that of the U.S., arerelatively transparentthat is, the law tends to be what its plain meaning wouldsuggest. In some countries, however, there are laws on the books which are notenforced (e.g., although Japan has antitr ust laws similar to those of the U.S.,collusion is openly tolerated). Further, the amount of discretion left togovernment officials tends to vary. In Japan, through the doctrine ofadministrative guidance, great latitude is left to government officials, whoeffectively make up the laws.

One serious problem in some countries is a limited access to the legal systems as ameans to redress grievances against other parties. While the U.S. may relyexcessively on lawsuits, the inability to effectively hold contractual partners totheir agreement tends to inhibit business deals. In many jurisdictions, pre-trialdiscovery is limited, making it difficult to make a case against a firm whoseinternal documents would reveal guilt. This is one reason why personal


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relationships in some cultures are considered more significant than in the U.S. since enforcing contracts may be difficult, you must be sure in advance that youcan trust the other party.

Legal systems of the World. There are four main approaches to law across theWorld, with some differences within each:

y Common law, the system in effect inthe U.S., is based on a legaltradition ofprecedent. Each casethat raises new issues is consideredon its own merits, and then becomesa precedent for future decisions onthat same issue. Although thelegislature can override judicialdecisions by changing the law orpassing specific standards throughlegislation, reasonable courtdecisions tend to stand by default.

y Code law, which is common inEurope, gives considerably shorterleeway to judges, who are chargedwith matching specific laws tosituationsthey cannot come upwith innovative solutions when newissues such as patentability ofbiotechnology come up. There arealso certain differences instandards. For example, in the U.S.

a supplier whose factory is hit witha strike is expected to deliver onprovisions of a contract, while incode law this responsibility may benullified by such an act of God.

y Islamic lawis based on theteachings of the Koran, which putsforward mandates such as aprohibition of usury, or excessiveinterest rates. This has led someIslamic countries to ban interestentirely; in others, it may be

tolerated within reason. Islamic lawis ultimately based on the need toplease God, so getting around thelaw is generally not acceptable.Attorneys may be consulted aboutwhat might please God rather thanwhat is an explicit requirements ofthe government.


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y Socialist lawis based on the premisethat the government is alwaysright and typically has notdeveloped a sophisticatedframework of contracts (you dowhat the governments tells you to

do) or intellectual propertyprotection (royalties areunwarranted since the governmentultimately owns everything).Former communist countries such asthose of Eastern Europe and Russiaare trying to advance their legalsystems to accommodate issues in afree market.

U.S. laws of particular interest to firms doing business abroad.

Anti-trust. U.S. antitrust laws are generally enforced in U.S. courts even if thealleged transgression occurred outside U.S. jurisdiction. For example, if twoJapanese firms collude to limit the World supply of VCRs, they may be sued by theU.S. government (or injured third parties) in U.S. courts, and may have their U.S.assets seized.

y The Foreign Corrupt Influences Act came about as Congress was upsetwith U.S. firms bribery of foreignofficials. Although most if not all

countries ban the payment ofbribes, such laws are widelyflaunted in many countries, and it isoften useful to pay a bribe to getforeign government officials to actfavorably. Firms engaging in thisbehavior, even if it takes placeentirely outside the U.S., can beprosecuted in U.S. courts, and manyexecutives have served long prisonsentences for giving in totemptation. In contrast, in the past

some European firms could actuallydeduct the cost of foreign bribesfrom their taxes! There are somegray areas hereit may be legal topay certain tips known asfacilitating paymentsto low levelgovernment workers in somecountries who rely on such paymentsas part of their salary so long as


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these payments are intended only tospeed up actions that would betaken anyway. For example, it maybe acceptable to give a reasonable(not large) facilitating payment toget customs workers to process a

shipment faster, but it would not belegal to pay these individuals tochange the classification of aproduct into one that carries alower tariff.

y Anti-boycott laws. Many Arabcountries maintain a boycott ofIsrael, and foreigners that want todo business with them may be askedto join in this boycott by stoppingany deals they do with Israel andcertifying that they do not tradewith that country. It is illegal forU.S. firms to make this certificationeven if they have not dropped anyactual deals with Israel to get a dealwith boycotters.

y Trading With the Enemy. It isillegal for U.S. firms to trade withcertain countries that are viewed tobe hostile to the U.S.e.g., Libyaand Iraq.

Culture

Culture is part of the external influences that impact the consumer. That is,culture represents influences that are imposed on the consumer by otherindividuals.

The definition of culture offered one text is That complex whole which includesknowledge, belief, art, morals, custom, and any other capabilities and habitsacquired by man person as a member of society. From this definition, we makethe following observations:

y Culture, as a complex whole, is asystem of interdependentcomponents.

y Knowledge and beliefs are importantparts. In the U.S., we know andbelieve that a person who is skilledand works hard will get ahead. Inother countries, it may be believed


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that differences in outcome resultmore from luck. Chunking, thename for China in Chinese, literallymeans The Middle Kingdom. Thebelief among ancient Chinese thatthey were in the center of the

universe greatly influenced theirthinking.

y Other issues are relevant. Art, forexample, may be reflected in therather arbitrary practice of wearingties in some countries and wearingturbans in others. Morality may beexhibited in the view in the UnitedStates that one should not be nakedin public. In Japan, on the otherhand, groups of men and womenmay take steam baths togetherwithout perceived as improper. Onthe other extreme, women in someArab countries are not even allowedto reveal their faces. Notice, by theway, that what at least somecountries view as moral may in factbe highly immoral by the standardsof another country.

Culture has several important characteristics: (1) Culture is comprehensive. Thismeans that all parts must fit together in some logical fashion. For example,

bowing and a strong desire to avoid the loss of face are unified in theirmanifestation of the importance of respect. (2) Culture is learnedrather thanbeing something we are born with. We will consider the mechanics of learninglater in the course. (3) Culture is manifested within boundaries of acceptablebehavior. For example, in American society, one cannot show up to class naked,but wearing anything from a suit and tie to shorts and a T -shirt would usually beacceptable. Failure to behave within the prescribed norms may lead to sanctions,ranging from being hauled off by the police for indecent exposure to being laughedat by others for wearing a suit at the beach. (4) Conscious awareness of culturalstandards is limited. One American spy was intercepted by the Germans duringWorld War II simply because of the way he held his knife and fork while eating.(5) Cultures fall somewhere on a continuum between static and dynamic

depending on how quickly they accept change. For example, American culture haschanged a great deal since the 1950s, while the culture of Saudi Arabia haschanged much less.

Dealing with culture. Culture is a problematic issue for many marketers since it isinherently nebulous and often difficult to understand. One may violate thecultural norms of another country without being informed of this, and people fromdifferent cultures may feel uncomfortable in each others presence without


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knowing exactly why (for example, two speakers may unconsciously continue toattempt to adjust to reach an incompatible preferred interpersonal distance).

Warning about stereotyping. When observing a culture, one must be careful notto over-generalize about traits that one sees. Research in social psychology hassuggested a strong tendency for people to perceive an outgroup as more

homogenous than an ingroup, even when they knew what members had beenassigned to each group purely by chance. When there is often a grain of truth tosome of the perceived differences, the temptation to over -generalize is oftenstrong. Note that there are often significant individual differences within cultures.

Cultural lessons. We considered several cultural lessons in class; the importantthing here is the big picture. For example, within the Muslim tradition, the dog isconsidered a dirty animal, so portraying it as mans best friend in anadvertisement is counter-productive. Packaging, seen as a reflection of thequality of the real product, is considerably more important in Asia than in theU.S., where there is a tendency to focus on the contents which really count.Many cultures observe significantly greater levels of formality than that typical inthe U.S., and Japanese negotiator tend to observe long silent pauses as a speakerspoint is considered.

Cultural characteristics as a continuum . There is a tendency to stereotypecultures as being one way or another (e.g., individualistic rather thancollectivistic). Note, however, countries fall on a continuum of cultural traits.Hofstedes research demonstrates a wide range between the most individualisticand collectivistic countries, for examplesome fall in the middle.

Hofstedes Dimensions. Gert Hofstede, a Dutch researcher, was able to interviewa large number of IBM executives in various countries, and found that cultural

differences tended to center around four key dimensions:

y Individualism vs. collectivism: Towhat extent do people believe inindividual responsibility and rewardrather than having these measuresaimed at the larger group? Contraryto the stereotype, Japan actuallyranks in the middle of thisdimension, while Indonesia and WestAfrica rank toward the collectivisticside. The U.S., Britain, and the

Netherlands rate towardindividualism.

y Power distance: To what extent isthere a strong separation ofindividuals based on rank? Powerdistance tends to be particularlyhigh in Arab countries and someLatin American ones, while it is


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more modest in Northern Europeand the U.S.

y Masculinity vs.femininityinvolves asomewhat more nebulous concept.Masculine values involvecompetition and conquering

nature by means such as largeconstruction projects, whilefeminine values involve harmonyand environmental protection.Japan is one of the more masculinecountries, while the Netherlandsrank relatively low. The U.S. isclose to the middle, slightly towardthe masculine side. ( The fact thatthese values are thought of asmasculine or feminine does notmean that they are consistently heldby members of each respectivegenderthere are very largewithin-group differences. Thereis, however, often a largecorrelation of these cultural valueswith the status of women.)

y Uncertainty avoidance involves theextent to which a structuredsituation with clear rules ispreferred to a more ambiguous one;in general, countries with lower

uncertainty avoidance tend to bemore tolerant of risk. Japan ranksvery high. Few countries are verylow in any absolute sense, butrelatively speaking, Britain and HongKong are lower, and the U.S. is inthe lower range of the distribution.

Although Hofstedes original work did not address this, a fifth dimension of longterm vs. short term orientationhas been proposed. In the U.S., managers like tosee quick results, while Japanese managers are known for take a long term view,often accepting long periods before profitability is obtained.

High vs. low context cultures: In some cultures, what you see is what you getthe speaker is expected to make his or her points clear and limit ambiguity. This isthe case in the U.S.if you have something on your mind, you are expected to sayit directly, subject to some reasonable standards of diplomacy. In Japan, incontrast, facial expressions and what is not said may be an important clue tounderstanding a speakers meaning. Thus, it may be very difficult for Japanesespeakers to understand anothers written communication. The nature of languagesmay exacerbate this phenomenonwhile the German language is very precise,


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Chinese lacks many grammatical features, and the meaning of words may besomewhat less precise. English ranks somewhere in the middle of this continuum.

Ethnocentrism and the self-reference criterion. The self-reference criterionrefers to the tendency of individuals, often unconsciously, to use the standards ofones own culture to evaluate others. For example, Americans may perceive more

traditional societies to be backward and unmotivated because they fail toadopt new technologies or social customs, seeking instead to preserve traditionalvalues. In the 1960s, a supposedly well read American psychology professorreferred to Indias culture of sick because, despite severe food shortages, theHindu religion did not allow the eating of cows. The psychologist expressed disgustthat the cows were allowed to roam free in villages, although it turns out that theyprovided valuable functions by offering milk and fertilizing fields. Ethnocentrismis the tendency to view ones culture to be superior to others. The importantthing here is to consider how these biases may come in the way in dealing withmembers of other cultures.

It should be noted that there is a tendency of outsiders to a culture to overstatethe similarity of members of that culture to each other. In the United States, weare well aware that there is a great deal of heterogeneity within our culture;however, we often underestimate the dive rsity within other cultures. Forexample, in Latin America, there are great differences between people who live incoastal and mountainous areas; there are also great differences between socialclasses.

Language issues. Language is an important element o f culture. It should berealized that regional differences may be subtle. For example, one word maymean one thing in one Latin American country, but something off-color inanother. It should also be kept in mind that much information is carried in non -

verbal communication. In some cultures, we nod to signify yes and shake ourheads to signify no; in other cultures, the practice is reversed. Within thecontext of language:

y There are often large variations inregional dialects of a givenlanguage. The differences betweenU.S., Australian, and British Englishare actually modest compared todifferences between dialects ofSpanish and German.

y Idioms involve figures of speechthat may not be used, literallytranslated, in other languages. Forexample, baseball is apredominantly North and SouthAmerican sport, so the notion of inthe ball park makes sense here,but the term does not carry thesame meaning in cultures where thesport is less popular.


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y Neologisms involve terms that havecome into language relativelyrecently as technology or societyinvolved. With the proliferation ofcomputer technology, for example,the idea of an add-on became

widely known. It may take longerfor such terms to diffuse intoother regions of the world. In partsof the World where English is heavilystudied in schools, the emphasis isoften on grammar and traditionallanguage rather than on currentterminology, so neologisms have awide potential not to beunderstood.

y Slang exists within most languages.Again, regional variations arecommon and not all people in aregion where slang is used willnecessarily understand this. Thereare often significant generation gapsin the use of slang.

Writing patterns, or the socially accepted ways of writing, will differs significantlybetween cultures.

In English and Northern European languages, there is an emphasis on organization

and conciseness. Here, a point is made by building up to it through background.An introduction will often foreshadow what is to be said. In Romance languagessuch as Spanish, French, and Portuguese, this style is often considered boringand inelegant. Detours are expected and are considered a sign of class, not ofpoor organization. In Asian languages, there is often a great deal of circularity.Because of concerns about potential loss of face, opinions may not be expresseddirectly. Instead, speakers may hint at ideas or indicate what others have said,waiting for feedback from the other speaker before committing to a point of view.


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Because of differences in values, assumptions, and language structure, it is notpossible to meaningfully translate word-for-word from one language to another.A translator must keep unspoken understandings and a ssumptions in mind intranslating. The intended meaning of a word may also differ from its literaltranslation. For example, the Japanese word hai is literally translated as yes.To Americans, that would imply Yes, I agree. To the Japanese speaker,

however, the word may mean Yes, I hear what you are saying (without anyagreement expressed) or even Yes, I hear you are saying something even though Iam not sure exactly what you are saying.

Differences in cultural values result in different prefer red methods of speech. InAmerican English, where the individual is assumed to be more in control of his orher destiny than is the case in many other cultures, there is a preference for theactive tense (e.g., I wrote the marketing plan) as opposed to the passive(e.g., The marketing plan was written by me.)

Because of the potential for misunderstandings in translations, it is dangerous torely on a translation from one language to another made by one person. In thedecentering method, multiple translators are used. The text is first translatedby one translatorsay, from German to Mandarin Chinese. A second translator,who does not know what the original German text said, will then translate back toGerman from Mandarin Chinese translation. The text is then compared. If themeaning is not similar, a third translator, keeping in mind this feedback, will thentranslate from German to Mandarin. The process is continued until the translatedmeaning appears to be satisfactory.

Different perspectives exist in different cultures on several issues; e.g.:

y Monochronic cultures tend to valueprecise scheduling and doing onething at a time; inpolychroniccultures, in contrast, promptness isvalued less, and multiple tasks maybe performed simultaneously. (Seetext for more detail).

y Space is perceived differently.Americans will feel crowded wherepeople from more densely populatedcountries will be comfortable.

y Symbols differ in meaning. Forexample, while white symbols purity

in the U.S., it is a symbol of death inChina. Colors that are consideredmasculine and feminine also differby culture.

y Americans have a lot of quiteshallow friends toward whom littleobligation is felt; people inEuropean and some Asian cultureshave fewer, but more significant


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friends. For example, one Ph.D.student from India, with limitedincome, felt obligated to try buy anairline ticket for a friend to go backto India when a relative had died.

y In the U.S. and much of Europe,agreements are typically ratherprecise and contractual in nature; inAsia, there is a greater tendency tosettle issues as they come up. As aresult, building a relationship oftrust is more important in Asia,since you must be able to count onyour partner being reasonable.

y In terms of etiquette, some cultureshave more rigid procedures thanothers. In some countries, forexample, there are explicitstandards as to how a gift should bepresented. In some cultures, giftsshould be presented in private toavoid embarrassing the recipient; inothers, the gift should be madepublicly to ensure that noperception of secret bribery couldbe made.

Cross-Cultural Market Research

Primary vs. secondary research. There are two kinds of market research:Primaryresearch refers to the research that a firm conducts for its own needs(e.g., focus groups, surveys, interviews, or observation) while secondaryresearchinvolves finding information compiled by someone else. In general, secondaryresearch is less expensive and is faster to conduct, but it may not answer thespecific questions the firm seeks to have answered (e.g., how do consumersperceive our product?), and its reliability may be in question.

Secondary sources. A number of secondary sources of country information areavailable. One of the most convenient sources is an almanac, containing a greatdeal of country information. Almanacs can typically be bought for $10.00 or less.The U.S. government also publishes a guide to each country, and the handbookInternational Business Information: How to FindIt, How to Use It (HF 54.5.P33[1998] in the Reference Department of the Gelman Library), provides leads onnumerous sources by topic. Stat-USA, a database compiled by the U.S.Department of Commerce and available through the Gelman Library (you canaccess it through the Links section of my web-site), contains a great deal of


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statistical information online. Excellent full text searchable indices to periodicalsinclude Lexis-Nexis and RDS Business and Industry, also available through Gelman.

Several experts may be available. Anthropologists and economists in universitiesmay have built up a great deal of knowledge and may be available for consulting.Consultants specializing in various regions or industries are typically considerably

more expensive. One should be careful about relying on the opinions ofexpatriates (whose views may be biased or outdated) or ones own experience(which may relate to only part of a country or a certain subsegment) and may alsosuffer from the limitation of being a sample of size 1.

Hard vs. soft data. Hard data refers to relatively quantifiable measures such asa countrys GDP, number of telephones per thousand residents, and birth rates(although even these supposedly objective factors may be subject to s omecontroversy due to differing definitions and measurement approaches acrosscountries). In contrast, soft data refers to more subjective issues such ascountry history or culture. It should be noted that while the hard data is oftenmore convenient and seemingly objective, the soft data is frequently asimportant, if not more so, in understanding a market.

Data reliability. The accuracy and objectivity of data depend on several factors.One significant one is the motivation of the entity that releases it. For example,some countries may want to exaggerate their citizens literacy rates owing tonational pride, and an organization promoting economic development may paint anoverly rosy picture in order to attract investment. Some data may be dated (e.g.,a census may be conducted rarely in some regions), and some countries may lackthe ability to collect data (it is difficult to reach people in the interior regions ofLatin America, for example). Differences in how constructs are defined indifferent countries (e.g., is military personnel counted in people who are

employed?) may make figures of different jurisdictions non-comparable.

Cost of data. Much government data, or data released by organizations such asthe World Bank or the United Nations, is free or inexpensive, while consultantsmay charge very high rates.

Issues in primary research. Cultural factors often influence how people respondto research. While Americans are used to market research and tend to find thisrelatively un-threatening, consumers in other countries may fear that the data willbe reported to the government, and may thus not give accurate responses. Insome cultures, criticism or confrontation are considered rude, so consumers maynot respond honestly when they dislike a product. Technology such as scanner data

is not as widely available outside the United States. Local customs and geographymay make it difficult to interview desired respondents; for example, in somecountries, women may not be allowed to talk to strangers.

Country Entry: Decisions and Strategies


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Segmentation, Targeting, and Positioning. Segmentation, in marketing, is usuallydone at the customer level. However, in international marketing, it maysometimes be useful to see countries as segments. This allows the decision makerto focus on common aspects of countries and avoid information overload. It shouldbe noted that variations within some countries (e.g., Brazil) are very large andtherefore, averages may not be meaningful. Country level segmentation may be

done on levels such as geographybased on the belief that neighboring countriesand countries with a particular type of climate or terrain tend to share similarities,demographics (e.g., population growth, educational attainment, population agedistribution), or income. Segmenting on income is tricky since the relative pricesbetween countries may differ significantly (based, in part, on purchasing powerparity measures that greatly affect the relative cost of imported and domesticallyproduced products).

The importance of STP . Segmentation is the cornerstone of marketingalmost allmarketing efforts in some way relate to decisions on who to serve or how toimplement positioning through the different parts of the marketing mix. Forexample, ones distribution strategy should consider where ones target market ismost likely to buy the product, and a promotional strategy should consider thetargets media habits and which kinds of messages will be most persuasive.Although it is often tempting, when observing large markets, to try to be "all thingsto all people," this is a dangerous strategy because the firm may lose its distinctiveappeal to its chosen segments.

In terms of the "big picture," members of a segment should generally be as similaras possible to each other on a relevant dimension (e.g., preference for quality vs.low price) and as different as possible from members of other segments. That is,members should respond in similar ways to various treatments (such as discountsor high service) so that common campaigns can be aimed at segment members, but

in order to justify a different treatment of other segments, their members shouldhave their own unique response behavior.

Approaches to global segmentation. There are two main approaches to globalsegmentation. At the macro level, countries are seen as segments, given thatcountry aggregate characteristics and statistics tend to differ significantly. Forexample, there will only be a large market for expensive pharmaceuticals incountries with certain income levels, and entry opportunities into infant clothingwill be significantly greater in countries with large and growing birthrates (incountries with smaller birthrates or stable to declining birthrates, entrenchedcompetitors will fight hard to keep the market share).

There are, however, significant differences within countries. For example,although it was thought that the Italian market would demand "no frills"inexpensive washing machines while German consumers would insist on highquality, very reliable ones, it was found that more units of the inexpensive kindwere sold in Germany than in Italyalthough many German consumers fit thepredicted profile, there were large segment differences within that country. Atthe micro level, where one looks at segments within countries. Two approachesexist, and their use often parallels the firms stage of international involvement.Intramarket segmentation involves segmenting each countrys markets from


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scratchi.e., an American firm going into the Brazilian market would do rese archto segment Brazilian consumers without incorporating knowledge of U.S. buyers. Incontrast, intermarket segmentation involves the detection of segments that existacross borders. Note that not all segments that exist in one country will exist inanother and that the sizes of the segments may differ significantly. For example,there is a huge small car segment in Europe, while it is considerably smaller in the

U.S.

Intermarket segmentation entails several benefits. The fact that products and

promotional campaigns may be used across markets introduces economies of scale,and learning that has been acquired in one market may be used in another e.g., afirm that has been serving a segment of premium quality cellular phone buyers inone country can put its experience to use in another country that features thatsame segment. (Even though segments may be similar across the cultures, it shouldbe noted that it is still necessary to learn about the local market. For example,although a segment common across two countries may seek the same benefits, thecultures of each country may cause people to respond differently to the "hard sell"advertising that has been successful in one).

The international product life cycle suggests that product adoption and spread insome markets may lag significantly behind those of others. Often, then, a segmentthat has existed for some time in an "early adopter" country such as the U.S. orJapan will emerge after several years (or even decades) in a "late adopter" countrysuch as Britain or most developing countries. (We will discuss this issue in moredetail when we cover the product mix in the second half of the term).

Positioning across markets. Firms often have to make a tradeoff betweenadapting their products to the unique demands of a country market or gainingbenefits of standardization such as cost savings and the maintenance of aconsistent global brand image. There are no easy answers here. On the one hand,McDonalds has spent a great deal of resources to promote its global image; on theother hand, significant accommodations are made to local tastes and preferences

for example, while serving alcohol in U.S. restaurants would go against the familyimage of the restaurant carefully nurtured over several decades, McDonalds hasaccommodated this demand of European patrons.

The Japanese Keiretsu Structure. In Japan, many firms are part of a keiretsu, ora conglomerate that ties together businesses that can aid each other. For example,a keiretsu might contain an auto division that buys from a steel division. Both ofthese might then buy from a iron mining division, which in turns buys from achemical division that also sells to an agricultural division. The agricultural divisio n


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then sells to the restaurant division, and an electronics division sells to all others,including the auto division. Since the steel division may not have opportunities forreinvestment, it puts its profits in a bank in the center, which in turns lends i t outto the electronics division that is experiencing rapid growth.

This practice insulates the businesses to some extent against the business cycle,guaranteeing an outlet for at least some product in bad times, but this structurehas caused problems in Japan as it has failed to "root out" inefficient keiretsumembers which have not had to "shape up" to the rigors of the market.

Methods of entry. With rare exceptions, products just dont emerge in foreignmarkets overnighta firm has to build up a market over time. Several strategies,

which differ in aggressiveness, risk, and the amount of control that the firm is ableto maintain, are available:

y Exporting is a relatively low riskstrategy in which few investmentsare made in the new country. Adrawback is that, because the firmmakes few if any marketinginvestments in the new country,market share may be belowpotential. Further, the firm, by notoperating in the country, learns lessabout the market (What doconsumers really want? Which kindsof advertising campaigns are mostsuccessful? What are the mosteffective methods of distribution?) Ifan importer is willing to do a goodjob of marketing, this arrangementmay represent a "win-win" situation,


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but it may be more difficult for thefirm to enter on its own later if itdecides that larger profits can bemade within the country.

y Licensing and franchising are alsolow exposure methods of entryyou

allow someone else to use yourtrademarks and accumulatedexpertise. Your partner puts up themoney and assumes the risk.Problems here involve the fact thatyou are training a potentialcompetitor and that you have littlecontrol over how the business isoperated. For example, Americanfast food restaurants have foundthat foreign franchisers often fail tomaintain American standards ofcleanliness. Similarly, a foreignmanufacturer may use lower qualityingredients in manufacturing abrand based on premium contents inthe home country.

y Contract manufacturing involveshaving someone else manufactureproducts while you take on some ofthe marketing efforts yourself. Thissaves investment, but again you maybe training a competitor.

y Direct entry strategies, where thefirm either acquires a firm or buildsoperations "from scratch" involvethe highest exposure, but also thegreatest opportunities for profits.The firm gains more knowledgeabout the local market andmaintains greater control, but nowhas a huge investment. In somecountries, the government mayexpropriate assets withoutcompensation, so direct investment

entails an additional risk. A variationinvolves a joint venture, where alocal firm puts up some of themoney and knowledge about thelocal market.

Entry Strategies


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Methods of entry. With rare exceptions, products just dont emerge in foreignmarkets overnighta firm has to build up a market over time. Several strategies,which differ in aggressiveness, risk, and the amount of control that the firm is ableto maintain, are available:

y Exporting is a relatively low riskstrategy in which few investmentsare made in the new country. Adrawback is that, because the firmmakes few if any marketinginvestments in the new country,market share may be belowpotential. Further, the firm, by notoperating in the country, learns lessabout the market (What doconsumers really want? Which kindsof advertising campaigns are mostsuccessful? What are the mosteffective methods of distribution?) Ifan importer is willing to do a goodjob of marketing, this arrangementmay represent a "win-win" situation,but it may be more difficult for thefirm to enter on its own later if itdecides that larger profits can bemade within the country.

y Licensing and franchising are alsolow exposure methods of entryyouallow someone else to use your

trademarks and accumulatedexpertise. Your partner puts up themoney and assumes the risk.Problems here involve the fact thatyou are training a potentialcompetitor and that you have littlecontrol over how the business isoperated. For example, Americanfast food restaurants have foundthat foreign franchisers often fail tomaintain American standards ofcleanliness. Similarly, a foreign

manufacturer may use lower qualityingredients in manufacturing abrand based on premium contents inthe home country.

y Turnkey Projects. A firm usesknowledge and expertise it hasgained in one or more markets toprovide a working projecte.g., afactory, building, bridge, or other


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structureto a buyer in a newcountry. The firm can takeadvantage of investments alreadymade in technology and/ordevelopment and may be able toreceive greater profits since these

investments do not have to bestarted from scratch again.However, getting the technology towork in a new country may bechallenging for a firm that does nothave experience with theinfrastructure, culture, and legalenvironment.

y Management Contracts. A firmagrees to manage a facilitye.g., afactory, port, or airportin a foreigncountry, using knowledge gained inother markets. Again, one thing isto be able to transfer technologyanother is to be able to work in anew country with a differentinfrastructure, culture, andpolitical/legal environment.

y Contract manufacturing involveshaving someone else manufactureproducts while you take on some ofthe marketing efforts yourself. Thissaves investment, but again you may

be training a competitor.y Direct entry strategies, where the

firm either acquires a firm or buildsoperations "from scratch" involvethe highest exposure, but also thegreatest opportunities for profits.The firm gains more knowledgeabout the local market andmaintains greater control, but nowhas a huge investment. In somecountries, the government mayexpropriate assets without

compensation, so direct investmententails an additional risk. A variationinvolves a joint venture, where alocal firm puts up some of themoney and knowledge about thelocal market.


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Product Issues in International Marketing

Products and Services. Some marketing scholars and professionals tend to draw astrong distinction between conventional products and services, emphasizingservice characteristics such as heterogeneity (variation in standards amongproviders, frequently even among different locations of the same firm),inseperability from consumption, intangibility, and, in some cases, perishability the idea that a service cannot generally be c reated during times of slack and bestored for use later. However, almost all products have at least some servicecomponente.g., a warranty, documentation, and distributionand this servicecomponent is an integral part of the product and its position ing. Thus, it may bemore useful to look at the product-service continuum as one between very low andvery high levels of tangibility of the service. Income tax preparation, for example,is almost entirely intangiblethe client may receive a few printouts, but most ofthe value is in the service. On the other hand, a customer who picks up rocks forconstruction from a landowner gets a tangible product with very little value addedfor service. Firms that offer highly tangible products often seek to add an

intangible component to improve perception. Conversely, adding a tangibleelement to a servicee.g., a binder with informationmay address manyconsumers psychological need to get something to show for their money.

On the topic of services, cultural issues may be even more prominent than they arefor tangible goods. There are large variations in willingness to pay for quality, andoften very large differences in expectations. In some countries, it may be moredifficult to entice employees to embrace a firms customer service philosophy.Labor regulations in some countries make it difficult to terminate employeeswhose treatment of customers is substandard. Speed of service is typicallyimportant in the U.S. and western countries but personal interaction may seemmore important in other countries.

Product Need Satisfaction. We often take for granted the obvious need thatproducts seem to fill in our own culture; however, functions served may be verydifferent in othersfor example, while cars have a large transportation role in theU.S., they are impractical to drive in Japan, and thus cars there serve more of arole of being a status symbol or providing for individual indulgence. In the U.S.,fast food and instant drinks such as Tang are intended for convenience; elsewhere,they may represent more of a treat. Thus, it is important to examine throughmarketing research consumers true motives, desires, and expectations in buying aproduct.

Approaches to Product Introduction. Firms face a choice of alternatives inmarketing their products across markets. An extreme strategy involvescustomization, whereby the firm introduces a unique product in each country,usually with the belief tastes differ so much between countries that it is necessarymore or less to start from scratch in creating a product for each market. On theother extreme, standardization involves making one global product in the beliefthe same product can be sold across markets without significant modificatione.g., Intel microprocessors are the same regardless of the country in which theyare sold. Finally, in most cases firms will resort to some kind of adaptation,


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whereby a common product is modified to some extent when moved between somemarketse.g., in the United States, where fuel is relatively less expensive, manycars have larger engines than their comparable models in Europe and Asia;however, much of the design is similar or identical, so some economies areachieved. Similarly, while Kentucky Fried Chicken serves much the same chickenwith the eleven herbs and spices in Japan, a lesser amount of sugar is used in the

potato salad, and fries are substituted for mashed potatoes.

There are certain benefits to standardization. Firms that produce a global productcan obtain economies of scale in manufacturing, and higher quantities producedalso lead to a faster advancement along the experience curve . Further, it is more

feasible to establish a global brand as less confusion will occur when consumerstravel across countries and see the same product. On the down side, there may besignificant differences in desires between cultures and physical environments e.g., software sold in the U.S. and Europe will often utter a beep to alert theuser when a mistake has been made; however, in Asia, where office workers areoften seated closely together, this could cause embarrassment.

Adaptations come in several forms. Mandatoryadaptations involve changes thathave to be made before the product can be usede.g., appliances made for theU.S. and Europe must run on different voltages, and a major problem wasexperienced in the European Union when hoses for restaurant frying machinescould not simultaneously meet the legal requirements of different countr ies.Discretionary changes are changes that do not have to be made before a productcan be introduced (e.g., there is nothing to prevent an American firm fromintroducing an overly sweet soft drink into the Japanese market), althoughproducts may face poor sales if such changes are not made. Discretionary changesmay also involve cultural adaptationse.g., in Sesame Street, the Big Bird becamethe Big Camel in Saudi Arabia.

Another distinction involves physical product vs. communication adaptations. Inorder for gasoline to be effective in high altitude regions, its octane must behigher, but it can be promoted much the same way. On the other hand, while thesame bicycle might be sold in China and the U.S., it might be positioned as aserious means of transportation in the former and as a recreational tool in the


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latter. In some cases, products may not need to be adapted in either way (e.g.,industrial equipment), while in other cases, it might have to be adapted in both(e.g., greeting cards, where the both occasions, language, and motivations forsending differ). Finally, a market may exist abroad for a product which has noanalogue at homee.g., hand-powered washing machines.

Branding. While Americans seem to be comfortable with category specific brands,this is not the case for Asian consumers. American firms observed that theirproducts would be closely examined by Japanese consumers who could not find amajor brand name on the packages, which was required as a sign of quality. Notethat Japanese keiretsus span and use their brand name across multiple industriese.g., Mitsubishi, among other things, sells food, automobiles, electronics, andheavy construction equipment.

The International Product Life Cycle (PLC) . Consumers in different countries

differ in the speed with which they adopt new products, in part for economicreasons (fewer Malaysian than American consumers can afford to buy VCRs) and inpart because of attitudes toward new products (pharmaceuticals upset the powerafforded to traditional faith healers, for example). Thus, it may be possible, whenone market has been saturated, to continue growth in another market e.g., whilesomewhere between one third and one half of American homes now contain acomputer, the corresponding figures for even Europe and Japan are much lowerand thus, many computer manufacturers see greater growth potential there. Notethat expensive capital equipment may also cycle between countri ese.g., airlinesin economically developed countries will often buy the newest and most desiredaircraft and sell off older ones to their counterparts in developing countries.While in developed countries, three part canning machines that solder on the

bottom with lead are unacceptable for health reasons, they have found a marketin developing countries.

Diffusion of innovation. Good new innovations often do not spread as quickly asone might expecte.g., although the technology for microwave ovens has existedsince the 1950s, they really did not take off in the United States until the lateseventies or early eighties, and their penetration is much lower in most other


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countries. The typewriter, telephone answering machines, and cellular phonesalso existed for a long time before they were widely adopted.

Certain characteristics of products make them more or less likely to spread. Onefactor is relative advantage. While a computer offers a huge advantage over atypewriter, for example, the added gain from having an electric typewriter over a

manual one was much smaller. Another issue is compatibility, both in the socialand physical sense. A major problem with the personal computer was that itcould not read the manual files that firms had maintained , and birth controlprograms are resisted in many countries due to conflicts with religious values.Complexityrefers to how difficult a new product is to usee.g., some people haveresisted getting computers because learning to use them takes time. Trialabilityrefers to the extent to which one can examine the merits of a new product withouthaving to commit a huge financial or personal investment e.g., it is relatively easyto try a restaurant with a new ethnic cuisine, but investing in a global positio ningnavigation system is riskier since this has to be bought and installed in ones carbefore the consumer can determine whether it is worthwhile in practice. Finally,observabilityrefers to the extent to which consumers can readily see others usingthe producte.g., people who do not have ATM cards or cellular phones can easilysee the convenience that other people experience using them; on the other hand,VCRs are mostly used in peoples homes, and thus only an owners close friendswould be likely to see it.

At the societal level, several factors influence the spread of an innovation. Notsurprisingly, cosmopolitanism, the extent to which a country is connected to othercultures, is useful. Innovations are more likely to spread where there is a high erpercentage of women in the work force; these women both have more economicpower and are able to see other people use the products and/or discuss them.Modernityrefers to the extent to which a culture values progress. In the U.S.,

new and improved is considered highly attractive; in more traditional countries,their potential for disruption cause new products to be seen with moreskepticism. Although U.S. consumers appear to adopt new products more quicklythan those of other countries, we actually score lower on homiphily, the extent towhich consumers are relatively similar to each other, and physical distance, whereconsumers who are more spread out are less likely to interact with other users ofthe product. Japan, which ranks second only to the U.S., on the other hand,scores very well on these latter two factors.

International Promotion

Promotional tools. Numerous tools can be used to influence consumer purchases:

y Advertisingin or on newspapers,radio, television, billboards, busses,taxis, or the Internet.

y Price promotionsproducts arebeing made available temporarily as


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at a lower price, or some premium(e.g., toothbrush with a package oftoothpaste) is being offered forfree.

y Sponsorshipsy Point-of-purchasethe

manufacturer pays for extra displayspace in the store or puts a couponright by the product

y Other method of getting theconsumers attentionall the Gapstores in France may benefit fromthe prominence of the new storelocated on the Champs-Elysees

Promotional objectives. Promotional objectives involve the question of what thefirm hopes to achieve with a campaignincreasing profits is too vague anobjective, since this has to be achieved through some intermediate outcome (suchas increasing market share, which in turn is achieved by some change in consumerswhich cause them to buy more). Some common objectives that firms may hold:

y Awareness. Many French consumersdo not know that the Gap even

exists, so they cannot decide to goshopping there. This objective isoften achieved through advertising,but could also be achieved throughfavorable point-of-purchasedisplays. Note that since advertisingand promotional stimuli are oftenafforded very little attention byconsumers, potential buyers may


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have to be exposed to thepromotional stimulus numeroustimes before it registers.

y Trial. Even when consumers knowthat a product exists and couldpossibly satisfy some of their

desires, it may take a while beforethey get around to trying theproductespecially when there areso many other products thatcompete for their attention andwallets. Thus, the next step is oftento try get consumer to try theproduct at least once, with the hopethat they will make repeatpurchases. Coupons are often aneffective way of achieving trial, butthese are illegal in some countriesand in some others, theinfrastructure to readily acceptcoupons (e.g., clearing houses)does not exist. Continuedadvertising and point-of-purchasedisplays may be effective. AlthoughCoca Cola is widely known in China,a large part of the population hasnot yet tried the product.

y Attitude toward the product. Ahigh percentage of people in the

U.S. and Europe has tried Coca Cola,so a more reasonable objective is toget people to believe positive thingsabout the producte.g., that it hasa superior taste and is better thangenerics or store brands. This isoften achieved through advertising.

y Temporary sales increases. Formature products and categories,attitudes may be fairly wellestablished and not subject to cost-effective change. Thus, it may be

more useful to work on gettingtemporary increases in sales (whichare likely to go away the incentivesare removed). In the U.S. andJapan, for example, fast foodrestaurants may run temporary pricepromotions to get people to eat outmore or switch from competitors,but when these promotions end,


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sales are likely to move back downagain (in developing countries, incontrast, trial may be a moreappropriate objective in thiscategory).

Note that in new or emerging markets, the first objectives are more likely to beuseful while, for established products, the latter objectives ma y be more useful inmature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies. Although firms that seekstandardized positions may seek globally unified campaigns, there are severalconstraints:

y Languagebarriers: The advertisingwill have to be translated, not justinto the generic language category(e.g., Portuguese) but also into thespecific version spoken in the region(e.g., Brazilian Portuguese).(Occasionally, foreign language adsare deliberately run to add mystiqueto a product, but this is theexception rather than the rule).

y Cultural barriers. Subtle culturaldifferences may make an ad thattested well in one country

unsuitable in anothere.g., an adthat featured a man walking in tojoin his wife in the bathroom wasconsidered an inappropriate invasionin Japan. Symbolism often differsbetween cultures, and humor, whichis based on the contrast to peoplesexperiences, tends not to travelwell. Values also tend to differ


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between culturesin the U.S. andAustralia, excelling above the groupis often desirable, while in Japan,The nail that sticks out getshammered down. In the U.S., Theearly bird gets the worm while in

China The first bird in the flockgets shot down.

y Local attitudes toward advertising.People in some countries are morereceptive to advertising thanothers. While advertising isaccepted as a fact of life in theU.S., some Europeans find it toocrass and commercial.

y Media infrastructure. Cable TV isnot well developed in somecountries and regions, and not allmedia in all countries acceptadvertising. Consumer media habitsalso differ dramatically; newspapersappear to have a higher reach thantelevision and radio in parts of LatinAmerica.

y Advertising regulations. Countriesoften have arbitrary rules on whatcan be advertised and what can beclaimed. Comparative advertising isbanned almost everywhere outside

the U.S. Holland requires that atoothbrush be displayed inadvertisements for sweets, andsome countries require thatadvertising to be shown there beproduced in the country.

Some cultural dimensions:


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y Directness vs. indirectness: U.S.advertising tends to emphasizedirectly why someone would benefitfrom buying the product. This,however, is considered too pushyfor Japanese consumers, where it is

felt to be arrogant of the seller topresume to know what the consumerwould like.

y Comparison: Comparativeadvertising is banned in mostcountries and would probably bevery counterproductive, as aninsulting instance of confrontationand bragging, in Asia even if it wereallowed. In the U.S., comparisonadvertising has proven somewhateffective (although itsimplementation is tricky) as a wayto persuade consumers what to buy.

y Humor. Although humor is arelatively universal phenomenon,what is considered funny betweencountries differs greatly, so pre-testing is essential.

y Gender roles. A study found thatwomen in U.S. advertising tended tobe shown in more traditional roles inthe U.S. than in Europe or

Australia. On the other hand, somecountries are even moretraditionale.g., a Japanese ad thatclaimed a camera to be so simplethat even a woman can use it wasnot found to be unusually insulting.

y Explicitness. Europeans tend toallow for considerably more explicitadvertisements, often with sexualovertones, than Americans.

y Sophistication. Europeans,particularly the French, demand

considerably more sophisticationthan Americans who may react morefavorably to emotional appealse.g., an ad showing a mentallyretarded young man succeeding in ajob at McDonalds was veryfavorably received in the U.S. butwas booed at the Cannes filmfestival in France.


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y Popular vs. traditional culture. U.S.ads tend to employ contemporary,popular culture, often includingcurrent music while those in moretraditional cultures tend to refermore to classical culture.

y Information content vs.fluff.American ads contain a great deal ofpuffery, which was found to bevery ineffective in Eastern Europeancountries because it resembledcommunist propaganda too much.The Eastern European consumersinstead wanted hard, cold facts.

Advertising standardization. Issues surrounding advertising standardization tendto parallel issues surrounding product and positioni ng standardization. On the plusside, economies of scale are achieved, a consistent image can be establishedacross markets, creative talent can be utilized across markets, and good ideas canbe transplantedfrom one market to others. On the down side, culturaldifferences, peculiar country regulations, and differences in product life cyclestages make this approach difficult. Further, local advertising professionals mayresist campaigns imposed from the outsidesometimes with good reasons andsometimes merely to preserve their own creative autonomy.

Legal issues. Countries differ in their regulations of advertising, and someproducts are banned from advertising on certain media (large supermarket chainsare not allowed to advertise on TV in France, fo r example). Other forms ofpromotion may also be banned or regulated. In some European countries, for

example, it is illegal to price discriminate between consumers, and thus couponsare banned and in some, it is illegal to offer products on sale outside a very narrowseasonal and percentage range.

Pricing Issues in International Marketing


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Price can best be defined in ratio terms, giving the equation

resources given upprice =

goods received

This implies that there are several ways that the price can be changed:

y "Sticker" price changesthe mostobvious way to change the price isthe price tag you get the samething, but for a different (usuallylarger) amount of money.

y Change quantity. Often, consumersrespond unfavorably to an increasedsticker price, and changes inquantity are sometimes noticedlesse.g., in the 1970s, thewholesale cost of chocolateincreased dramatically, and candymanufacturers responded by makingsmaller candy bars. Note that, forcash flow reasons, consumers in lessaffluent countries may need to buysmaller packages at any one time(e.g., forking out the money for alarge tube of toothpaste is no bigdeal for most American families, but

it introduces a greater strain on thebudget of a family closer to thesubsistence level).

y Change quality. Another way candymanufacturers have effectivelyincreased prices is through areduction in quality. In a candy bar,the "gooey" stuff is much cheaperthan chocolate. It is frequentlytempting for foreign licensees of amajor brand name to use inferioringredients.

y Change terms. In the old days, mostsoftware manufacturers providedfree support for their programsitused to be possible to call theWordPerfect Corporation on an 800number to get free help. Nowadays,you either have to call a 900 numberor have a credit card handy to gethelp from many software makers.


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Another way to change terms is todo away with favorable financingterms.

Reference Prices. Consumers often develop internal reference prices, orexpectations about what something should cost, based mostly on their experience.

Most drivers with long commutes develop a good feeling of what gasoline shouldcost, and can tell a bargain or a ripoff.

Reference prices are more likely to be more precise for frequently purchased andhighly visible products. Therefore, retailers very often promote soft drinks, sinceconsumers tend to have a good idea of prices and these products are quite visible.The trick, then, is to be more expensive on products where price expectations aremuddier.

Marketers often try to influence people's price perceptions through the use ofexternal reference pricesindicators given to the consumer as to how muchsomething should cost. Examples include:

y Manufacturer's Suggested RetailPrice (MSRP). This is often purefiction. The suggested retail pricesin certain categories aredeliberately set so high that evenfull service retailers can sell at a"discount." Thus, although theconsumer may contrast the offeringprice against the MSRP, this latterfigure is quite misleading.

y "SALE! Now $2.99; Regular Price$5.00." For this strategy to be usedlegally in most countries, the claimmust be true (consistency ofenforcement in some countries is, ofcourse, another matter). However,certain products are put on sale sofrequently that the "regular" price ismeaningless. In the early 1990s,Sears was reported to sell some 55%of its merchandise on sale.

y "WAS $10.00, now $6.99."y "Sold elsewhere for $150.00; our

price: $99.99."

Reference prices have significant international implications. While marketers maychoose to introduce a product at a low price in order to induce trial, which isuseful in a new market where the penetration of a product is low, this may haveserious repercussions as consumers may develop a low reference price and maythus resist paying higher prices in the future.Selected International Pricing Issues. In some cultures, particularly where retail


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stores are smaller and the buyer has the opportunity to interact with the owner,bargaining may be more common, and it may thus be more difficult for themanufacturer to influence retail level pricing.

Two phenomena may occur when products are sold in disparate markets. When aproduct is exported, price escalation, whereby the product dramatically increases

in price in the export market, is likely to take place. This usually occurs because alonger distribution chain is necessary and because smaller quantities sold throughthis route will usually not allow for economies of scale. "Gray" markets occur whenproducts are diverted from one market in which they are cheaper to another onewhere prices are highere.g., Luis Vuitton bags were significantly more expensivein Japan than in France, since the profit maximizing price in Ja pan was higher andthus bags would be bought in France and shipped to Japan for resale. Themanufacturer therefore imposed quantity limits on buyers. Since these quantitylimits were circumvented by enterprising exchange students who were recruited tobuy their quota on a daily basis, prices eventually had to be lowered in Japan tomake the practice of diversion unattractive. Where the local government imposesprice controls, a firm may find the market profitable to enter nevertheless sincerevenues from the new market only have to cover marginal costs. However,products may then be attractive to divert to countries without such controls.

Transfer pricing involves what one subsidiary will charge another for products orcomponents supplied for use in another country. Firms will often try to charge highprices to subsidiaries in countries with high taxes so that the income earned therewill be minimized.

Antitrust laws are relevant in pricing decisions, and anti -dumping regulations are

especially noteworthy. In general, it is illegal to sell a product below your cost ofproduction, which may make a penetration pricing entry strategy infeasible. Japanhas actively lobbied the World Trade Organization (WTO) to relax its regulations,which generally require firms to price no lower than their average fully absorbedcost (which incorporates both variable and fixed costs).Alternatives to "hard" currency deals. Buyers in some countries do not have readyaccess to convertible currency, and governments will often try limit firms abilityto spend money abroad. Thus, some firms have been forced into non -cash deals. In


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barter, the seller takes payment in some product produced in the buying country e.g., Lockheed (back when it was an independent firm) took Spanish wine in returnfor aircraft, and sellers to Eastern Europe have taken their payment in ham. Anoffset contract is somewhat more flexible in that the buyer can get paid butinstead has to buy, or cause others to buy, products for a certain value within aspecified period of time.

Psychological issues: Most pricing research has been done on North Americans, andthis raises serious problems of generalizability. Americans are used to sales, forexample, while consumers in countries where goods are more scarce may attributea sale to low quality rather than a desire to gain market share. There is someevidence that perceived price quality relationships are quite high in Britain andJapan (thus, discount stores have had difficulty there), while in developingcountries, there is less trust in the market. Cultural differences may influence theextent of effort put into evaluating deals (potentially impacting the effectivenessof odd-even pricing and promotion signaling). The fact that consumers in someeconomies are usually paid weekly, as opposed to biweekly or monthly, mayinfluence the effectiveness of framing attempts"a dollar a day" is a much biggerchunk from a weekly than a monthly paycheck.

International Distribution

Promotional tools. Numerous tools can be used to influence consumer purchases:

y Advertisingin or on newspapers,radio, television, billboards, busses,

taxis, or the Internet.y Price promotionsproducts are

being made available temporarily asat a lower price, or some premium(e.g., toothbrush with a package oftoothpaste) is being offered forfree.

y Sponsorships


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y Point-of-purchasethemanufacturer pays for extra displayspace in the store or puts a couponright by the product

y Other method of getting theconsumers attentionall the Gap

stores in France may benefit fromthe prominence of the new storelocated on the Champs-Elysees.

Promotional objectives. Promotional objectives involve the question of what thefirm hopes to achieve with a campaignincreasing profits is too vague anobjective, since this has to be achieved through some intermediate outcome (suchas increasing market share, which in turn is achieved by some change in consumerswhich cause them to buy more). Some common objectives that firms may hold:

y Awareness. Many French consumersdo not know that the Gap evenexists, so they cannot decide to goshopping there. This objective isoften achieved through advertising,but could also be achieved throughfavorable point-of-purchasedisplays. Note that since advertisingand promotional stimuli are oftenafforded very little attention byconsumers, potential buyers mayhave to be exposed to thepromotional stimulus numerous

times before it registers.y Trial. Even when consumers know

that a product exists and couldpossibly satisfy some of theirdesires, it may take a while beforethey get around to trying theproductespecially when there areso many other products thatcompete for their attention andwallets. Thus, the next step is oftento try get consumer to try theproduct at least once, with the hope

that they will make repeatpurchases. Coupons are often aneffective way of achieving trial, butthese are illegal in some countriesand in some others, theinfrastructure to readily acceptcoupons (e.g., clearing houses)does not exist. Continuedadvertising and point-of-purchase


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displays may be effective. AlthoughCoca Cola is widely known in China,a large part of the population hasnot yet tried the product.

y Attitude toward the product. Ahigh percentage of people in the

U.S. and Europe has tried Coca Cola,so a more reasonable objective is toget people to believe positive thingsabout the producte.g., that it hasa superior taste and is better thangenerics or store brands. This isoften achieved through advertising.

y Temporary sales increases. Formature products and categories,attitudes may be fairly wellestablished and not subject to cost-effective change. Thus, it may bemore useful to work on gettingtemporary increases in sales (whichare likely to go away the incentivesare removed). In the U.S. andJapan, for example, fast foodrestaurants may run temporary pricepromotions to get people to eat outmore or switch from competitors,but when these promotions end,sales are likely to move back downagain (in developing countries, in

contrast, trial may be a moreappropriate objective in thiscategory).

Note that in new or emerging markets, the first objectives are more likely to beuseful while, for established products, the latter objectives may be more useful inmature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies. Although firms that seekstandardized positions may seek globally unified campaigns, there are severalconstraints:

y Languagebarriers: The advertisingwill have to be translated, not justinto the generic language category(e.g., Portuguese) but also into thespecific version spoken in the region(e.g., Brazilian Portuguese).(Occasionally, foreign language adsare deliberately run to add mystique


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to a product, but this is theexception rather than the rule).

y Cultural barriers. Subtle culturaldifferences may make an ad thattested well in one countryunsuitable in anothere.g., an ad

that featured a man walking in tojoin his wife in the bathroom wasconsidered an inappropriate invasionin Japan. Symbolism often differsbetween cultures, and humor, whichis based on the contrast to peoplesexperiences, tends not to travelwell. Values also tend to differbetween culturesin the U.S. andAustralia, excelling above the groupis often desirable, while in Japan,The nail that sticks out getshammered down. In the U.S., Theearly bird gets the worm while inChina The first bird in the flockgets shot down.

y Local attitudes toward advertising.People in some countries are morereceptive to advertising thanothers. While advertising isaccepted as a fact of life in theU.S., some Europeans find it toocrass and commercial.

y Media infrastructure. Cable TV isnot well developed in somecountries and regions, and not allmedia in all countries acceptadvertising. Consumer media habitsalso differ dramatically; newspapersappear to have a higher reach thantelevision and radio in parts of LatinAmerica.

y Advertising regulations. Countriesoften have arbitrary rules on whatcan be advertised and what can be

claimed. Comparative advertising isbanned almost everywhere outsidethe U.S. Holland requires that atoothbrush be displayed inadvertisements for sweets, andsome countries require thatadvertising to be shown there beproduced in the country.


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Some cultural dimensions:

y Directness vs. indirectness: U.S.advertising tends to emphasizedirectly why someone would benefitfrom buying the product. This,

however, is considered too pushyfor Japanese consumers, where it isfelt to be arrogant of the seller topresume to know what the consumerwould like.

y Comparison: Comparativeadvertising is banned in mostcountries and would probably bevery counterproductive, as aninsulting instance of confrontationand bragging, in Asia even if it wereallowed. In the U.S., comparisonadvertising has proven somewhateffective (although itsimplementation is tricky) as a wayto persuade consumers what to buy.

y Humor. Although humor is arelatively universal phenomenon,what is considered funny betweencountries differs greatly, so pre-testing is essential.

y Gender roles. A study found thatwomen in U.S. advertising tended to

be shown in more traditional roles inthe U.S. than in Europe orAustralia. On the other hand, somecountries are even moretraditionale.g., a Japanese ad thatclaimed a camera to be so simplethat even a woman can use it wasnot found to be unusually insulting.

y Explicitness. Europeans tend toallow for considerably more explicitadvertisements, often with sexualovertones, than Americans.

y Sophistication. Europeans,particularly the French, demandconsiderably more sophisticationthan Americans who may react morefavorably to emotional appealse.g., an ad showing a mentallyretarded young man succeeding in ajob at McDonalds was veryfavorably received in the U.S. but


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was booed at the Cannes filmfestival in France.

y Popular vs. traditional culture. U.S.ads tend to employ contemporary,popular culture, often includingcurrent music while those in more

traditional cultures tend to refermore to classical culture.

y Information content vs.fluff.American ads contain a great deal ofpuffery, which was found to bevery ineffective in Eastern Europeancountries because it resembledcommunist propaganda too much.The Eastern European consumersinstead wanted hard, cold facts.

Advertising standardization. Issues surrounding advertising standardization tendto parallel issues surrounding product and positioning standardization. On the plusside, economies of scale are achieved, a consistent image can be establishedacross markets, creative talent can be utilized across markets, and good ideas canbe transplantedfrom one market to others. On the down side, culturaldifferences, peculiar country regulations, and differences in product life cyclestages make this approach difficult. Further, local advertising professionals mayresist campaigns imposed from the outsidesometimes with good reasons andsometimes merely to preserve their own creative autonomy.

Legal issues. Countries differ in their regulations of advertising, and someproducts are banned from advertising on certain media (large supermarket chains

are not allowed to advertise on TV in France, for example). Other forms ofpromotion may also be banned or regulated. In some European countries, forexample, it is illegal to price discriminate between consumers, and thus couponsare banned and in some, it is illegal to offer products on sale outside a very narrowseasonal and percentage range.

Documents

The Global Market Place