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UNIT TEN (10)
Marketing in the Global Firm
Learning Objectives
In this chapter, you’ll learn about:
1. Global marketing strategy
2. Standardization and adaptation of international
marketing
3. Global branding and product development
4. International pricing
5. International marketing communications
6. International distribution
Organizing Framework for Marketing in the International Firm
Market Segmentation
• Process of dividing the firm’s customer base into
clusters, allowing management to formulate unique
marketing strategies for each group
• Within each market segment, customers exhibit
similar features, including income level, lifestyle,
demographic profile, or desired product benefits
• Internationally, common market segment variables
include income level, culture, legal system, etc.
Global Market Segment
• A group of customers that share common characteristics
across many national markets
• Firms target these buyers with relatively uniform
marketing programs, regarding product, pricing,
communications, and distribution
• Such segments often follow global media, embrace new
fashions or trends, and have much disposable income
Global Market Segment
• One global market segment, with considerable buying
power is business people. They – and their firms –
spend considerable money in many of the same ways
and can be targeted as a market segment, in this case
with a good deal of standardization. Other cases,
however, while still segmented, may require unique
approaches within each segment.
• Adaptation: Modifying elements of the marketing program
to accommodate specific customer requirements in
individual foreign markets
- E.g., industries in automaking, publishing, furniture
• Standardization: Efforts to make marketing program
elements uniform, so as to target entire regions of countries,
or even the global marketplace, with a similar product or
service
-
Standardization and Adaptation
Targeting the same product everywhere not usually feasible
• Goal: To strike some ideal balance between adaptation
and standardization
Tradeoffs Between Standardization and Adaptation
Standardization & Adaptation: A Balancing Act
• Adaptation is costly and may require substantial
changes to the marketing mix, especially when many
national markets are involved
• Thus, managers err on the side of standardization,
adapting marketing mix only when necessary
• Or, firms pursue a regional strategy, in which marketing
elements are formulated across a geographic region
Standardization & Adaptation: A Balancing Act
• Dell strikes a balance between standardization and
adaptation. The
basic machines are identical worldwide, while the
keyboards and software are varied to suit local
conditions
Global Branding • Well-known global brands include: electronics (i-Pod), personal
care products (Gillette), toys (Wii), food (Cadbury), beverages
(Heineken), credit cards (Visa), movies (e.g., Mission Impossible),
pop stars (Shakira), and sports stars (David Beckham)
• A strong global brand enhances:
Efficiency and effectiveness of marketing programs
The ability to charge premium prices
The firm’s leverage with resellers
Brand loyalty
Trust and confidence in the product
Top Global Brands by Region
Global Product Development
• In developing international products, managers
emphasize their commonalities across countries rather
than the differences between them
• A basic product incorporates only core features that are
then varied at the margins for individual markets
• A global new-product planning team is a group within
a firm that determines which product elements will be
standardized and which will be adapted locally, and
how products will be launched
International Pricing
• Pricing is complex in international business, due to
multiple currencies, trade barriers, added costs, and
typically longer distribution channels
• Prices affect sales and profits. An inverse relationship
often exists between profits and market share
• Firms face pressure to lower prices abroad, mainly due
to lower income levels
International Pricing
• Conversely, prices can escalate due to tariffs, taxes,
transportation, intermediary markups, and after-sales
service
Factors that affect International Pricing • Nature of the market: Local purchasing power and
distribution infrastructure are important factors
• Nature of the product or industry: A specialized or highly
advanced product, or an industry with few competitors, may
necessitate charging a higher price
• Type of distribution system: Channels are
complex in some countries, which pushes prices up
• Location of the production facility: Locating manufacturing
near customers or in countries with low-cost labor facilitates
lower prices
Factors that affect International Pricing
Steps in Setting the Price of a Product Abroad
Three Pricing Strategies
• Rigid cost-plus pricing: Set a fixed price for all export
markets by adding a flat percentage to the domestic
price to compensate for the added costs of doing
business abroad
• Flexible cost-plus pricing: Set price to accommodate
local market conditions, such as customer purchasing
power, demand, and competitor prices
Three Pricing Strategies
• Incremental pricing: Set price to cover only
variable (not fixed) costs. This assumes that fixed
costs are already paid from sales in the home or
other countries (carried to extreme can lead to dumping)
International Price Escalation
• The problem of end-user prices reaching high levels in the
export market
• Caused by multilayered distribution channels,
intermediary margins, tariffs, and other added costs
associated with the foreign market
• May result in an excessively high retail price in the target
market, creating a competitive disadvantage for the
exporter
• Various strategies to reduce price escalation
Strategies to Combat International Price Escalation
1. Shorten the distribution channel: That is, bypass some intermediaries in the channel
2. Redesign product to remove costly features: Whirlpool, for example, developed a no-frills washing machine
3. Ship products unassembled, as parts and components, qualifying for lower import tariffs: Do final assembly in the foreign market, using low-cost labor, or in Foreign Trade Zones
Strategies to Combat International Price Escalation
4. Have product reclassified using a different tariff
classification to qualify for lower tariffs
5. Move production or sourcing to another country to take
advantage of lower labor costs or favorable currency rates
Strategies for Dealing With Varying Currency Conditions
Transfer Pricing
• The pricing of intermediate or finished goods exchanged
among the subsidiaries and affiliates of the same corporate
family located in different countries
• May be used to repatriate profits from countries that
restrict MNEs from taking their earnings out of the country
• May be used to shift profits out of a high corporate tax
country into a low corporate tax one, thereby increasing
companywide profits
Possible Effects of Transfer Pricing
• Manipulating transfer pricing makes it tough to
determine true profit
• Morale problems at subsidiary could result from profit
performance looking worse that it should
• Legal problems could arise if this practice is not
accepted by local governments
Gray Marketing • Legal importation of genuine products into a country by
those other than authorized intermediaries
• Buy the product at a low price in one country, import it into
another country, and sell it there at a higher price
• Causes:
• Large difference in pricing of same product between two
countries, often the result of company/government strategy
- e.g., Canada’s price controls on drugs
• Exchange rate differences of products priced in two different
currencies
Manufacturer Concerns Over Gray Markets
• Risk of tarnished image when customers realize the
product is available at a lower price through alternative
channels
• Strained relations between the manufacturer and its
distributors, as the latter lose sales
• Disrupted company planning, forecasting, and marketing
• Legislation has not prevented parallel markets; firms
often must act on their own
Firm Strategies to Cope With Gray Markets
1. Aggressively cut prices in countries and regions targeted
by gray market brokers
2. Hinder the flow of products into markets where gray
market brokers procure the product
3. Design products with exclusive features that strongly
appeal to customers
4. Publicize the limitations of gray market channels
International Advertising
• Firms conduct advertising via media, which includes direct mail,
radio, television, cinema, billboards, transit, print media, and the
Internet
• Advertising spending on major media amounted to $100 billion in
both Western Europe & Asia in 2009
• In the United States, advertising expenditures totaled over $160
billion
• Advertising is influenced by local factors, such as availability of
media, literacy, regulations, culture, and local customs, as well as
the goals of the firm
Media Characteristics in Selected Countries
The Largest Global Ad Agencies
International Distribution
• Distribution is the most inflexible of the marketing program
elements—once chosen by a firm, it may be difficult to change
• The most common international distribution approaches are via
independent intermediaries (for exporters) and establishing a
subsidiary directly in the market (FDI)
• Both types of channels must perform a range of downstream
marketing activities
• The firm should seek to minimize channel length in order to
minimize final prices and decrease complexity
Bypassing Traditional Distribution Channels
• Direct marketing – selling directly to end users
• Reducing channel length – decreasing the number of
distributors or intermediaries it takes to get a product to
market
• Japan is an example of a country with long distribution
channels; increased costs to pay intermediaries escalates
prices
Global Account Management (GAM)
• Under globalization, foreign customers seek uniform and
consistent prices, quality, and customer service
• GAM means serving a key global customer in a consistent
and standardized manner, regardless of where in the world it
operates.
• For example, Walmart is a key global account for Procter &
Gamble, purchasing many P&G products
Global Account Management (GAM)
• Each global customer is assigned a global account
manager, or team, which provides the customer with
coordinated marketing support and service across
various countries
Human Resource Management in the Global Firm
Learning Objectives
In this unit, you’ll learn about:
1. The strategic role of human resources in international business
2. International staffing policy
3. Preparation and training of international employees
4. International performance appraisal
5. Compensating employees
6. International labor relations
7. Diversity in the international workforce
Challenges of International Human Resource Management
• Recruiting, managing, and retaining human resources at a firm
with extensive global operations is especially challenging
• For example, German firm Siemens has more than 400,000
employees in some 190 countries: 230,000 throughout Europe,
90,000 in the Americas, 70,000 in the Asia-Pacific region, and
12,000 in Africa, the Middle East, and Russia
• Volkswagen, Nestle, IBM, Unilever, Walmart, McDonald’s, &
Matsushita each have more than 150,000 employees outside the
firm’s home country
International Human Resource Management
• The planning, selection, training, employment, and
evaluation of employees for international operations
• How a firm recruits, trains, and places skilled personnel
in its worldwide value chains sets it apart from its
competition
• The combined knowledge, skills, and experiences of
employees are distinctive & provide many pluses for
the firm’s operations worldwide.
Three Employee Categories in the MNE
• Parent-country nationals (PCNs): Also known as home-
country nationals, PCNs are citizens of the country where
the MNE is headquartered
• Host-country nationals (HCNs): Citizens of the country
where the subsidiary or affiliate is located. HCNs make up
largest proportion of employees that the firm hires abroad
- Examples: The labor force in manufacturing, assembly, basic
service activities, clerical work, and other non-managerial
functions
Three Employee Categories in the MNE
• Third-country nationals (TCNs): Employees who are
citizens of countries other than the home or host
country. Most work in management and have unique
skills
Differences Between Domestic and International IHRM
1. New HR responsibilities, such as international
taxation, international relocation and orientation,
services for expatriates, host government relations, and
language translation services
2. Need for a broader perspective, such as establishing
fair, comparable compensation, when there is a mix of
PCNs, HCNs, and TCNs
Differences Between Domestic and International IHRM
3. Greater involvement in employees’ personal lives, such
as housing arrangements, health care, children’s education,
safety, security, appropriate compensation, and higher
living costs
Differences Between Domestic and International IHRM
4. Managing the mix of expatriates versus locals. Each
location may be staffed with a mix of HCNs, PCNs, and
TCNs, depending on firm’s international experience, cost of
living abroad, local laws, and availability of qualified local
staff
5. Greater risk exposure, such as political risk and terrorism
6. External influences of government and culture, such as
taxes, local work regulations, traditional work practices, and
cultural conditions
Key Tasks of IHRM
1. International staffing policy: Activities directed at
recruiting, selecting, and placing employees
2. Preparation and training of international employees
3. International performance appraisal: Providing
feedback for employees’ professional development
4. Compensation of employees: Includes formulation of
benefit packages that vary greatly from country to
country
Key Tasks of IHRM
5. International labor relations: Managing relationships
with unions; collective bargaining processes, known as
industrial relations
6. Diversity in the international workforce – especially as
it may relate to women and minorities
Key Tasks & Challenges of IHRM
Criteria for Selecting Employees for Foreign Operations
Staffing: Searching for Talent
• Recruitment: Searching for and locating potential job
candidates to fill the firm’s needs
• Selection: Gathering information to evaluate and
decide who to employ in particular jobs
• These two key HR processes require good interaction
and communication between HR and upper
management – a true collaboration
Developing Talent
HR & Management must:
• Align firm strategy with roles needed to achieve that
strategy
• Define desired skills, behaviors, and experience for those
roles
• Assess current talent pool and plan for future needs
• Develop talent inside firm or obtain it from market
• Assess current talent levels and develop that further from
inside
Employee Characteristics That Facilitate International Effectiveness
• Technical competence: Must have adequate managerial
and technical capabilities
• Self-reliance: Entrepreneurial, proactive mindset;
ability to function with considerable independence and
limited support from headquarters
• Adaptability: Ability to adjust to foreign cultures,
cultural empathy, flexibility, diplomacy, and a positive
attitude
Characteristics That Facilitate International Effectiveness (cont.)
• Interpersonal skills: Ability to build relationships is
key
• Leadership ability: Must view change positively, and
proactively manage threats and opportunities
• Physical and emotional health: Must handle stresses of
life abroad
• Spouse/dependents prepared for living abroad
Expatriate
• An employee who goes to work abroad for an extended
period, usually years
• Expatriate assignment failure: The premature return of
an expatriate, due to an inability to perform well abroad
- Costly to the firm (lost productivity and relocation
costs) and to expatriates themselves (family stress
and career disruption)
- As many as 1/3 of foreign assignments end early,
many because of culture shock
Culture Shock
• The confusion and anxiety, often akin to mental depression,
that can result from living in a foreign culture for an
extended period; often affects family members most
• Especially a factor for those assigned to culturally dissimilar
countries, such as China and South Korea
• Can be reduced via advance preparation, training, language
skills, deep interest in the new country
• Helpful activities: Regular exercise, relaxation techniques, or
keeping a detailed journal of experiences
Key Features of Preparation and Training for International Employees
Three Components of Training Personnel for International Assignments
1. Area studies: Factual knowledge of the historical,
political, & economic environment of the host country
2. Practical information: Knowledge and skills necessary
to function effectively in a country, including housing,
health care, education, and daily living
3. Cross-cultural awareness: Ability to interact effectively
and appropriately with people from different language
and cultural backgrounds
Training • In order of increasing rigor, training methods include: videos,
lectures, assigned readings, case studies, books, Web-based
instruction, critical incident analyses, simulations, role-playing,
language training, field experience, and long-term immersion
• Role-playing and simulations involve the employee acting out
typical encounters with foreigners
• Long-term immersion places the employee in the country for
several months or more, often for language and cultural
training
Training • Repatriation: Return of the expatriate to the home country
- Requires advance preparation
- Unless managed well, returning expatriate may encounter
problems, such as career disruptions and “reverse culture
shock”
• Many of the best companies train and prepare expatriates for their
return to the home country/culture
• HR managers can provide counseling and other help (e.g.,
financial assistance if needed upon return for down payments,
family issues, etc.)
Performance Appraisal
• Performance appraisal: Formal process of assessing how
effectively employees perform their jobs
• Helps identify problem areas where an employee needs to
improve and additional training is warranted
• Determines compensation and firm performance
• MNEs devise procedures to assess the performance of individual
employees; ascertain if any problems are attributable to
inadequate skill levels; provide additional training and resources;
and terminate employees who consistently fail to achieve goals
Performance Appraisal
• Often very challenging in international business
• Reasons include:
– Problem of non-comparable outcomes – if worker productivity in subsidiary is half the domestic average, it could be due to conditions in foreign country, sub-standard factory equipment, or more
– Incomplete information – because of geographic and time separation, difficult to observe employees working in foreign location and therefore must also rely on evaluators in that location
– Performance outcome differences – new subsidiaries do not achieve same level of operation/results until they reach a certain level of maturity
Compensation of Personnel
• Compensation varies internationally due to differences in
legally mandated benefits, tax laws, cost of living, local
tradition, and culture
• Employees posted abroad expect to be compensated at a level
that allows them to maintain their usual standard of living,
which can make compensating expatriates very costly
• Compensation includes base remuneration, benefits (e.g.,
health care plans), allowance (e.g., for housing, children’s
education, travel), and incentives
International Labor Relations
• Management and workers determine the job
relationships that will be in effect at the workplace
• Collective bargaining involves negotiations between
management & workers regarding wages and working
conditions
• Labor regulations vary substantially, from minimum
regulations in Africa and India to very detailed
regulations in Northern Europe
International Labor Relations
• Union membership has declined in most countries, but
remains high in several European countries
• Strikes can disrupt international operations & could
require a arbitrator/mediator to end dispute; time lost
from work though varies greatly across country
• Wages and productivity also vary considerably
• During recent economic downturn, labor has been laid
off (made “redundant)” in great numbers
Trends in International Labor
• Mobility of labor across national borders has increased
substantially
• Reasons include:
- Growing interconnectedness of national economies
- Rapid expansion of multinational firms
- Rise of international collaborative ventures
- Greater emphasis on global teams
Trends in International Labor
• Many countries are coping with an influx of
immigrants, both legal and illegal, who compete with
established workers by providing low-cost labor
- Trend significant in Europe, Persian Gulf, & the U.S. (not
Japan)
• Increasing global labor alliances
Women in International Business
• Women currently occupy relatively few top management positions
(in Europe, women occupy only 15% of senior executive posts)
• Reasons for scarcity of women in international jobs include:
- Senior managers often assume women do not make suitable leaders abroad
(e.g., due to cultural challenges)
- Some female managers prefer to remain in the home country to fulfill family
obligations or avoid disrupting partner’s career
- Most companies do not accommodate child-rearing or other family
responsibilities
- There are fewer women with sufficient experience to be sent abroad for senior
jobs
Recent Positive Trends
• Many more women are obtaining university degrees in
business (about 1/3 of MBA students worldwide are
women)
• Female graduates account for some 50% of recruits joining
European firms
• Businesswomen increasingly form their own networks,
such as Women Directors on Boards in Britain and The
International Alliance for Women
• Overall trend is positive
Success Strategies for Women in IB
• In many countries, being a foreign woman can be an
advantage. Women stand out more, and competent
women earn respect
• Smart women leverage their gender to their advantage
• Women overcome biases abroad by acquiring
managerial, language, and international skills
• Over time, managerial competence wins out over bias.
Success Strategies for Women in IB
• Gaining substantial experience as a domestic manager or
in short international assignments can greatly improve
prospects for working abroad
• Once abroad, women report the reaction of surprise is
often replaced by professionalism and respect