The Global MarketplaceThe Global Marketplace

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ROAD MAP: Previewing the Concepts

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

• Describe three key approaches to entering Describe three key approaches to entering international markets.international markets.

• Explain how companies adapt their Explain how companies adapt their marketing mixes for international markets.marketing mixes for international markets.

• Identify the three major forms of Identify the three major forms of international marketing organization.international marketing organization.

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Global Marketing in the 21st Century

• The world is shrinking rapidly with The world is shrinking rapidly with the advent of faster communication, the advent of faster communication, transportation, and financial flows.transportation, and financial flows.

• International trade is booming and International trade is booming and accounts for 25% of U.S. GDP.accounts for 25% of U.S. GDP.

• Global competition is intensifying.Global competition is intensifying.

• Higher risks with globalization.Higher risks with globalization.

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U.S. Globalization

Many U.S. companies have made the world their market.

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Major International Marketing Decisions

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Looking at the Global Marketing Environment

The International Trade System:Restrictions—tariffs, quotas, embargos, exchange

controls, and non-tariff trade barriers.

The World Trade Organization and GATT:Helps Trade—reduces tariffs and other

international trade barriers.

Regional Free Trade Zones:Groups of nations organized to work toward

common goals in the regulation of international trade.

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•What types of U.S. companies What types of U.S. companies would like to see higher tariffs would like to see higher tariffs and what types would like to see and what types would like to see lower tariffs or no tariffs? Why is lower tariffs or no tariffs? Why is this the case?this the case?

Discussion Question

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Industrial Structure• Shapes a country’s product and service needs, Shapes a country’s product and service needs,

income levels, and employment levels.income levels, and employment levels.

Subsistence EconomiesSubsistence Economies

Raw Material Exporting EconomiesRaw Material Exporting Economies

Industrializing EconomiesIndustrializing Economies

Industrial EconomiesIndustrial Economies

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Political-Legal Environment

Attitudes Toward International Buying

Government Bureaucracy

Political Stability

Monetary Regulations

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Cultural Environment

• Sellers must examine the ways Sellers must examine the ways consumers in different countries think consumers in different countries think about and use products before about and use products before planning a marketing program.planning a marketing program.

• Business norms vary from country to Business norms vary from country to country.country.

• Companies that understand cultural Companies that understand cultural nuances can use them to advantage nuances can use them to advantage when positioning products when positioning products internationally.internationally.

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Cultural Differences

When Nike learned that this stylized “Air” logo resembled “Allah” in Arabic script, it apologized and pulled the shoes from distribution.

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Deciding Whether to Go Global

• Reasons to consider going global:Reasons to consider going global:– Foreign attacks on domestic marketsForeign attacks on domestic markets– Foreign markets with higher profit Foreign markets with higher profit

opportunitiesopportunities– Stagnant or shrinking domestic marketsStagnant or shrinking domestic markets– Need larger customer base to achieve Need larger customer base to achieve

economies of scaleeconomies of scale– Reduce dependency on single marketReduce dependency on single market– Follow customers who are expandingFollow customers who are expanding

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Deciding Which Markets to Enter• Before going abroad, the company should try to Before going abroad, the company should try to

define its international marketing objectives and define its international marketing objectives and policies.policies.

What Volume of Foreign Sales is Desired?

How Many Countries to Market In?

What Types of Countries to Enter?

Choose Possible Countries and Rank Based on Market Size, Market Growth, Cost of

Doing Business, Competitive Advantage, and Risk Level

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Colgate Goes to China

Using aggressive promotional and educational programs, Colgate has expanded its market share from 7% to 35% in less than a decade.

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Market Entry Strategies

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Market Entry Strategies

• Exporting:Exporting:– Indirect:Indirect: working through independent working through independent

international marketing intermediaries.international marketing intermediaries.– Direct:Direct: company handles its own company handles its own

exports.exports.

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Market Entry Strategies

• Joint Venturing:Joint Venturing:– Joining with foreign companies to Joining with foreign companies to

produce or market products or services.produce or market products or services.

• Approaches:Approaches:– LicensingLicensing– Contract manufacturingContract manufacturing– Management contractingManagement contracting– Joint ownershipJoint ownership

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Joint Ownership

KFC entered Japan through a joint ownership venture with Japanese conglomerate Mitsubishi.

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Market Entry Strategies

• Direct Investment:Direct Investment:– The development of foreign-based The development of foreign-based

assembly or manufacturing facilities.assembly or manufacturing facilities.– This approach has both advantages and This approach has both advantages and

disadvantages.disadvantages.

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Deciding on the Global Marketing Program

• Standardized Marketing Mix:Standardized Marketing Mix:– Selling largely the same products and Selling largely the same products and

using the same marketing approaches using the same marketing approaches worldwide.worldwide.

• Adapted Marketing Mix:Adapted Marketing Mix:– Producer adjusts the marketing mix Producer adjusts the marketing mix

elements to each target market, bearing elements to each target market, bearing more costs but hoping for a larger market more costs but hoping for a larger market share and return.share and return.

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Marketing Mix Adaptation

In India, McDonald’s serves chicken, fish, and vegetable burgers, and the Maharaja Mac—two all-mutton patties, special sauce, lettuce, cheese, pickles, onions, on a sesame-seed bun.

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Five Global Product and Promotion Strategies

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Global Product Strategies

• Straight Product Extension:Straight Product Extension:– Marketing a product in a foreign market Marketing a product in a foreign market

without any change.without any change.

• Product Adaptation:Product Adaptation:– Adapting a product to meet local Adapting a product to meet local

conditions or wants in foreign markets.conditions or wants in foreign markets.

• Product Invention:Product Invention:– Creating new products or services for Creating new products or services for

foreign markets.foreign markets.

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Global Promotion Strategies

• Can use a standardized theme Can use a standardized theme globally, but may have to make globally, but may have to make adjustments for language or cultural adjustments for language or cultural differences.differences.

• Communication Adaptation:Communication Adaptation:– Fully adapting an advertising message Fully adapting an advertising message

for local markets.for local markets.

• Changes may have to be made due Changes may have to be made due to media availability.to media availability.

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Global Pricing Strategies

• Companies face many problems in setting Companies face many problems in setting their international prices.their international prices.

• Possible approaches include:Possible approaches include:– Charge a uniform price all around the world.Charge a uniform price all around the world.– Charge what consumers in each country will pay.Charge what consumers in each country will pay.– Use a standard markup of costs everywhere.Use a standard markup of costs everywhere.

• International prices tend to be higher than International prices tend to be higher than domestic prices because of domestic prices because of price escalationprice escalation..

• Companies may become guilty of Companies may become guilty of dumpingdumping –a –a foreign subsidiary charges less than its costs foreign subsidiary charges less than its costs or less than it charges in its home market.or less than it charges in its home market.

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International Pricing

Twelve European Union countries have adopted the euro as a common currency, creating “pricing transparency” and forcing companies to harmonize their prices throughout Europe.

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Whole-Channel Concept for International Marketing

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Deciding on the Global Marketing Organization

• Organize an export departmentOrganize an export department

• Create international divisionsCreate international divisions– Geographical organizationsGeographical organizations– World product groupsWorld product groups– International subsidiariesInternational subsidiaries

• Become a global organizationBecome a global organization

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Rest Stop: Reviewing the Concepts

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

2.2. Describe three key approaches to Describe three key approaches to entering international markets.entering international markets.

3.3. Explain how companies adapt their Explain how companies adapt their marketing mixes for international marketing mixes for international markets.markets.

4.4. Identify the three major forms of Identify the three major forms of international marketing organization.international marketing organization.

Katy HaasCoordinator, Alianzas

www.alianzas.us

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Index

• Why Enter a Free Trade Why Enter a Free Trade Agreement?Agreement?

• What is NAFTA?What is NAFTA?

• Background of NAFTABackground of NAFTA

• Reaction after ImplementationReaction after Implementation

• The Mexican Peso CrisisThe Mexican Peso Crisis

• What about America’s Farmers?What about America’s Farmers?

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• Impact on:Impact on:– EmploymentEmployment– ImmigrationImmigration– EnvironmentEnvironment

• Trucking industryTrucking industry

• Missouri’s roleMissouri’s role

• NAFTA’s futureNAFTA’s future

• ConclusionConclusion

“Mexico is the most important country to the United States in the 21st century”

--President George W. Bush Sept. 5, 2001

Why Enter a Free Trade Agreement?

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3

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3 5 7 9United States production

(in tons)

Mexic

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on

(i

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Corn

Sugar

Levels of Economic Integration

*If the policies are not just harmonized by separate *If the policies are not just harmonized by separate governments, but have a unified government with binding governments, but have a unified government with binding commitments on all members, then you reach political commitments on all members, then you reach political integration and have “full economic integration”.integration and have “full economic integration”.

Type of BlocFree Tradeamong theMembers

CommonExternalTariffs

Free Movement of Factorsof Production (Example:

free labor movementbetween countries)

Harmonization* of AllEconomic Policies - Fiscal,Monetary, etc. (Example:

common currency)Free-trade

area

Customsunion

Commonmarket

Economicunion

What is NAFTA?Effective as of January 1,

1994A trade agreement between CANADA,

MEXICO, and the UNITED STATES which provides for the elimination of

tariffs on North American goods shipped among the

three countries.

Background of NAFTA

An IntroductionAn Introduction

ZedilloClintonSalinas Marcos

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UNITED STATES: Would solidify an expanding trade relationship, which would spur job creation at home and help to continue the

revolutionary shift throughout Latin America away from state controlled markets toward freer markets.

MEXICO: Lower inflation and foreign debt; create more well-paying jobs for Mexicans, thus producing less incentive for Mexicans to

work illegally in the U.S.; Mexico would become a richer market for American exporters.

Would exert presidential authority, improve inter-American relations and advance the cause of global trade liberalization.

Expectations and Goals

Reaction After Implementation

How the Countries How the Countries Were Affected Were Affected ImmediatelyImmediately

How They Are How They Are

Affected NowAffected Now

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Top U.S.

1. Aircraft 2. Electronic Computing Equipment

3. Motor Vehicle Parts 4. Motor Vehicles

5. Semiconductors 6. Aircraft/Space/Missile Parts

7. Chemicals 8. Plastics

9. Airplane Engines/Parts 10. Refined Petroleum Products

1. Motor Vehicles 2. Oil/Natural Gas

3. Motor Vehicle Parts 4. Semiconductors 5. Electronic Parts

and

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NAFTA Pros

+Goods/Services at lower cost Goods/Services at lower cost

+Most underdeveloped countries gain Most underdeveloped countries gain the most (i.e. standards of trade the most (i.e. standards of trade increased)increased)

+Tariffs reducedTariffs reduced

+Jobs createdJobs created

+Mexico’s economy is growing againMexico’s economy is growing again

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NAFTA Cons

– Fuel for peso crisisFuel for peso crisis

– Benefits Mexico more than the U.S.Benefits Mexico more than the U.S.

– U.S. deficit with trading partnersU.S. deficit with trading partners

– Loss of low-wage American jobs to MexicoLoss of low-wage American jobs to Mexico

– Environmental problemsEnvironmental problems

– Traffic congestion and delays along the Traffic congestion and delays along the bordersborders

The Mexican Peso Crisis

Was NAFTA to Blame?Was NAFTA to Blame?

Wages in United States and MexicoWages in United States and Mexico

What about America’s Farmers?

BENEFITS:BENEFITS: More export opportunities. More export opportunities. Since NAFTA was approved in 1993, Since NAFTA was approved in 1993, U.S. agricultural exports to Mexico U.S. agricultural exports to Mexico have nearly doubled.have nearly doubled.

DISADVANTAGES: Face regulations that increase the costs of production while foreign competitors gain from

cheap production and labor.

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Impact on:Employment

• Was U.S. workers’ loss Mexican Was U.S. workers’ loss Mexican workers’ gain?workers’ gain?

• Maquiladora - Primarily foreign-Maquiladora - Primarily foreign-owned assembly plantsowned assembly plants

• Jobs lost to Mexico vs. Jobs Jobs lost to Mexico vs. Jobs supported by exports to Mexico and supported by exports to Mexico and CanadaCanada

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Impact on:Immigration

• In the 1990s, U.S. population grew 13.2%, In the 1990s, U.S. population grew 13.2%, with 60% growth of Mexican immigrants. with 60% growth of Mexican immigrants.

• Among Latinos nationwide, 26% are Among Latinos nationwide, 26% are between the ages of 25-40. between the ages of 25-40.

• Remittances from Mexicans working in the Remittances from Mexicans working in the U.S.: $6.65 billion (for 2001 through 3rd U.S.: $6.65 billion (for 2001 through 3rd quarter)quarter)

• Increase in Mexican migrants led to Increase in Mexican migrants led to increase in Border Patrol staffincrease in Border Patrol staff

Impact on:Environment

NAFTA Environmental Agreements: NAFTA Environmental Agreements:

North American Agreement on Environmental Cooperation (NAAEC) - commission to enforce environmental

law. Border Environment Cooperation

Commission and the North American Development Bank - commission to

address pollution problems along the U.S.-Mexican border

Trucking Industry

The areas of concern include: vehicle safety, driver

training, environmental issues and possible illegal

drug trafficking.A recent investigation determined that the average 18-wheeler in Mexico is 40% overloaded, carrying a gross vehicle weight of more

than 120,000 pounds. If U.S. truckers operated at a similar overcapacity, interstate highways would have a life span of 14 years,

as opposed to their 40-year design life.

Missouri’s Role

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Mill

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1993 1994 1995 1996 1997 1998 1999

Missouri's Exports Under NAFTA

Mexico Canada

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Canada and Mexico are Missouri’s first- and second-largest export markets, respectively,

accounting for 50.5% of Missouri’s total exports 1999.

Between 1994 and 1999, Missouri exports to NAFTA partners increased 63.4%.

Missouri’s Role (continued)

Mid-Mid-ContinentContinent

InternationInternational al

Trade Trade CorridorCorridor1. A trade pattern

2. A system of connecting highways and rail

routes3. An opportunity to

strengthen economic development in a

region

Missouri and Employment

6.5

4.9 4.8 4.6 4.2 4.23.4

012345678

Pe

rce

nt

1993 1994 1995 1996 1997 1998 1999

Unemployment Rate in Missouri, 1993-1999

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The Missouri-Mexico Partnership

• The Missouri Department of The Missouri Department of Economic Development moved its Economic Development moved its hub to Monterreyhub to Monterrey

• Branch office in GuadalajaraBranch office in Guadalajara

• For the past 12 years, the Missouri For the past 12 years, the Missouri Department of Agriculture’s Department of Agriculture’s headquarters has been in headquarters has been in GuadalajaraGuadalajara

NAFTA’s Future

Where is it going and what effects will Where is it going and what effects will it have?it have?

U.S.-Central American Free Trade AgreementFree Trade Area of the

Americas (FTAA)

Conclusion