Ch1 PDF - International Marketing Summary

1.1: Introduction to International Marketing Summary Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. A company that engage...

1.1: Introduction to International Marketing Summary Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. A company that engages in global marketing focuses resources on global market opportunities and threats. Successful global marketers such as Nestle, Coca-Cola, and Honda use familiar marketing mix elements – the four Ps – to create global marketing programs. Marketing, R&D, manufacturing, and other activities comprise a firm’s value chain; the value equation (V =B/P) expresses the relationship between values and the marketing mix. Global companies also maintain strategic focus while pursuing competitive advantage. The marketing mix, value chain, competitive advantage, and focus are universal in their applicability, irrespective of whether a company does business only in the home country or has a presence in many markets around the world. However, in a global industry, companies that fail to pursue global opportunities risk being pushed aside by stronger global competitors. A firm’s global marketing strategy (GMS) can enhance its worldwide performance. The GMS addresses several issues. First is nature of the marketing program in terms of the balance between a standardization (extension) approach to the marketing mix and a localization (adaptation) approach that is responsive to country or regional differences. Second is the concentration of marketing activities in a few countries or the dispersal of such activities across many countries. Companies that engage in global marketing can also engage in coordination of marketing activities. Finally, a firm’s GMS will address the issue of global market participation. The importance of global marketing today can be seen in the company rankings compiled by the Wall Street Journal, Fortune, Financial Times, and other publications. Whether ranked by revenues, market capitalization, or some other measure, most of the world’s major corporations are active regionally or globally. The size of global markets for individual industries or product categories helps explain why companies “go global”. Global markets for some product categories represent hundreds of billions of dollars in annual sales; other markets are much smaller. Whatever the size of the opportunity, successful industry competitors find that increasing revenues and profits means seeking markets outside the home country. Company management can be classified in terms of its orientation toward the world: ethnocentric, polycentric, regiocentric, or geocentric. The terms reflect progressive levels of development or evolution. An ethnocentric orientation characterizes domestic and international companies; international companies pursue marketing opportunities outside the home market by extending various elements of the marketing mix. A polycentric worldview predominates at a multinational company, where the marketing mix is adapted by country managers operating autonomously. Managers at global and transnational companies are regiocentric or geocentric in their orientation and pursue both extension and adaptation strategies in global markets. The dynamic interplay of several driving and restraining forces shapes the importance of global marketing. Driving forces include market needs and wants, technology, transportation and communication improvements, product costs, quality, world economic trends, and recognition of opportunities to develop leverage by operating globally. Restraining forces include market differences, management myopia, organizational culture, and national controls such as nontariff barriers (NTBs). Source The above note was adapted from the course note from the ‘Global Marketing’ course published online by Centre for Teaching and Learning (CTL) of Universiti Teknologi Malaysia (UTM). ‘Introduction to Global Marketing’ is Copyright (c) by Dr. Inda Sukati and made available under a Attribution-Noncommercial-Share Alike 3.0 license This page titled 1.1: Introduction to International Marketing Summary is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.1: Introduction to International Marketing Summary is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.1.1 https://biz.libretexts.org/@go/page/111743 1.2: Defining Marketing  Learning Objectives After reading this section, students should be able to … 1. Recall the definition of ‘Marketing’ learned in their previous marketing courses. While we are attempting to understand and define International Marketing, it may help to go back to our basic definitions of ‘Marketing’, and the concepts that we learned in one of our introductory marketing courses. Noted Harvard Professor of Business Theodore Levitt, states that the purpose of all business is to “find and keep customers”. Furthermore, the only way you can achieve this objective is to create a competitive advantage. That is, you must convince buyers (potential customers) that what you have to offer them comes closest to meeting their particular need or want at that point in time. Hopefully, you will be able to provide this advantage consistently, so that eventually the customer will no longer consider other alternatives and will purchase your product out of habit. This loyal behavior is exhibited by people in the US who drive only Fords, brush their teeth only with Crest, buy only Dell computers, and have their plumbing fixed only by “Samson Plumbing—On Call 24 hours, 7 days a week”. Creating this blind commitment—without consideration of alternatives—to a particular brand, store, person, or idea is the dream of all businesses. It is unlikely to occur, however, without the support of an effective marketing program. In fact, the specific role of marketing is to provide assistance in identifying, satisfying and retaining customers. While the general tasks of marketing are somewhat straightforward, attaching an acceptable definition to the concept has been difficult. A textbook writer once noted, “Marketing is not easy to define. No one has yet been able to formulate a clear, concise definition that finds universal acceptance”. Yet a definition of some sort is necessary if we are to lay out the boundaries of what is properly to be considered “marketing”. How do marketing activities differ from non-marketing activities? What activities should one refer to as marketing activities? What institutions should one refer to as marketing institutions? Marketing is advertising to advertising agencies, events to event marketers, knocking on doors to salespeople, direct mail to direct mailers. In other words, to a person with a hammer, everything looks like a nail. In reality, marketing is a way of thinking about business, rather than a bundle of techniques. It is much more than just selling stuff and collecting money. It is the connection between people and products, customers and companies. Like organic tissue, this kind of connection—or relationship—is always growing or dying. It can never be in a steady state. And like tissue paper, this kind of connection is fragile. Customer relationships, even long-standing ones, are contingent on the last thing that happened. Tracing the evolution of the various definitions of marketing proposed during the last thirty years reveals two trends: (1) expansion of the application of marketing to non-profit and non-business institutions; e.g. charities, education, or health care; and (2) expansion of the responsibilities of marketing beyond the personal survival of the individual firm, to include the betterment of society as a whole. These two factors are reflected in the official American Marketing Association definition published in 1988. “Marketing is the process of planning and executing the conception. pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual (customer) and organizational objectives.” While this definition can help us better comprehend the parameters of marketing, it does not provide a full picture. Definitions of marketing cannot flesh out specific transactions and other relationships among these elements. The following propositions are offered to supplement this definition and better position marketing within the firm. The overall directive for any organization is the mission statement or some equivalent statement of organizational goals. It reflects the inherent business philosophy of the organization. Every organization has a set of functional areas (e.g. accounting, production, finance, data processing, marketing) in which tasks that are necessary for the success of the organization are performed. These functional areas must be managed if they are to achieve maximum performance. Every functional area is guided by a philosophy (derived from the mission statement or company goals) that governs its approach toward its ultimate set of tasks. Marketing differs from the other functional areas in that its primary concern is with exchanges that take place in markets, outside the organization (called a transaction). 1.2.1 https://biz.libretexts.org/@go/page/111744 Marketing is most successful when the philosophy, tasks, and manner of implementing available technology are coordinated and complementary. Source The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4 Section 1.1 Defining Marketing is also adapted from the chapter section of the same title appearing in ‘Chapter 1: What is Marketing?’ of the textbook ‘Principles of Marketing,’ authored by University of Minnesota Libraries Publishing edition, 2015 – this book was adapted from a work originally produced in 2010 by a publisher who has requested that it not receive attribution. The following changes were made to the most recent edition: Created new title for Figure 1.1: Marketing activities; Created new title for Figure 1.2: Creating Offerings That Have Value – BMW versus CRV; Created new title for Figure 1.3: Creating Offerings That Have Value – Social media sites; Added learning objectives. This page titled 1.2: Defining Marketing is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John- Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.2: Defining Marketing is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.2.2 https://biz.libretexts.org/@go/page/111744 1.3: Defining International Marketing  Learning Objectives After reading this section, students should be able to … 1. Extend the definition of ‘Marekting’ to ‘International Marketing’ 2. Define ‘International Marketing’  Case: Toyota has a vehicle for every market Each market has unique cultural characteristics and contextual circumstances that must be considered. For example, in the United States roads tend to be wide; highways can accommodate a broad array of vehicles with a high number of lanes, and people demand a mix of cars based on their needs. Conversely, in Europe roads tend to be narrow, and the market demands smaller, more fuel-efficient vehicles. Therefore, while a Toyota 4Runner tends to sell extremely well in the United States, it would not be a very popular model in Europe for these very reasons. As a result, Toyota invests billions of dollars every year into market research and market development to make sure they meet the needs and wants of its customers, in each specific country that they sell their vehicles in. This has led to Toyota’s success in the US automotive market, as our earlier case suggested. With their #1 selling sedan, Toyota Camry, a wide array of hybrid models, trucks, and SUVs to meet the United States constantly-changing expectations, Toyota is, arguably, the strongest player in the automotive industry. Now that the world has entered the next millennium, we are seeing the emergence of an interdependent global economy that is characterized by faster communication, transportation, and financial flows, all of which are creating new marketing opportunities and challenges. Given these circumstances, it could be argued that companies face a deceptively straightforward and stark choice: they must either respond to the challenges posed by this new environment or recognize and accept the long-term consequences of failing to do so. This need to respond is not confined to firms of a certain size or particular industries. It is a change that to a greater or lesser extent will ultimately affect companies of all sizes in virtually all markets. The pressures of the international environment are now so great, and the bases of competition within many markets are changing so fundamentally, that the opportunities to survive with a purely domestic strategy are increasingly limited to small and medium-sized companies in local niche markets. Perhaps partly because of the rapid evolution of international marketing, a vast array of terms have emerged that suggest various facets of international marketing. Clarification of these terms is a necessary first step before we can discuss this topic more thoroughly. Let us begin with the assumption that the marketing process that you have learned in any basic marketing course is just as applicable to domestic marketing as to international marketing. In both markets, we are goal-driven, do necessary marketing research, select target markets, employ the various tools of marketing (i.e. product, pricing, distribution, communication), develop a budget, and check our results. However, the uncontrollable factors such as culture, social, legal, and economic factors, along with the political and competitive environment, all create the need for a myriad of adjustments in the marketing management process. One of the inevitable questions that surfaces concerning international marketing are: how does international marketing truly differ from domestic marketing, if at all? There has historically been much discussion over commonalities and differences between global and domestic marketing, but the three most common points of view upon which scholars agree are the following. First, all marketing is about the formulation and implementation of the basic policies known as the 4 P’s: Product, Price, Place, and Promotion. Second, international marketing, unlike domestic marketing, is understood to be carried out “across borders”. Third, international marketing is not synonymous with international trade (Perry, 1990). Perhaps the best way to distinguish between the two is simply to focus on the textbook definition of international marketing. One comprehensive definition states that, “international marketing means identifying needs and wants of customers in different markets and cultures, providing products, services, technologies, and ideas to give the firm a competitive marketing advantage, communicating information about these products and services and distributing and exchanging them internationally through one or a combination of foreign market entry modes” (Bradley, 2005) At its simplest level, international marketing involves the firm in making one or more marketing decisions across national boundaries. At its most complex, it involves the firm in establishing manufacturing and marketing facilities overseas and 1.3.1 https://biz.libretexts.org/@go/page/111745 coordinating marketing strategies across markets. Thus, how international marketing is defined and interpreted depends on the level of involvement of the company in the international marketplace. Source The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4 This page titled 1.3: Defining International Marketing is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.3: Defining International Marketing is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.3.2 https://biz.libretexts.org/@go/page/111745 1.4: The Motivation for International Marketing  Learning Objectives After reading this section, students should be able to … 1. appreciate why firms enter international markets 2. explain why firms may want to avoind entering international markets Reasons for entering international markets Many marketers have found the international marketplace to be extremely hostile. A study by Baker and Kynak, for example, found that less than 20 per cent of firms in Texas with export potential actually carried out business in international markets. But although many firms view in markets with trepidation, others still make the decision to go international. Why? In one study, the following motivating factors were given for initiating overseas marketing involvement (in order of importance): large market size stability through diversification profit potential unsolicited orders proximity of market excess capacity offer by foreign distributor increasing growth rate smoothing out business cycles Other empirical studies over a number of years have pointed to a wide variety of reasons why companies initiate international involvement. These include the saturation of the domestic market, which leads firms either to seek other less competitive markets or to take on the competitor in its home markets; the emergence of new markets, particularly in the developing world; government incentives to export; tax incentives offered by foreign governments to establish manufacturing plants in their countries in order to create jobs; the availability of cheaper or more skilled labor; and an attempt to minimize the risks of a recession in the home country and spread risk. Reasons to avoid international markets Despite attractive opportunities, most businesses do not enter foreign markets. The reasons given for not going international are numerous. The biggest barrier to entering foreign markets is seen to be a fear by these companies that their products are not marketable overseas, and a consequent preoccupation with the domestic market. The following points were highlighted by the findings in the previously mentioned study by Barker and Kaynak, who listed the most important barriers: too much red tape trade barriers transportation difficulties lack of trained personnel lack of incentives lack of coordinated assistance unfavorable conditions overseas slow payments by buyers lack of competitive products payment defaults language barriers It is the combination of these factors that determines not only whether companies become involved in international markets, but also the degree of any involvement. 1.4.1 https://biz.libretexts.org/@go/page/111746 Source The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4 This page titled 1.4: The Motivation for International Marketing is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.4: The Motivation for International Marketing is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.4.2 https://biz.libretexts.org/@go/page/111746 1.5: Stages in International Marketing  Learning Objectives After reading this section, students should be able to … 1. define domestic marketing, international marketing, export marketing, multinational marketing, and global marketing 2. explain the difference between domestic marketing, international marketing, export marketing, multinational marketing, and global marketing Earlier in our discussion on definitions, we identified several terms that relate to how committed a firm is to being international. Here we expand on these concepts and explain the rationale behind this process. Two points should be noted. First, the process tends to be ranked in order of “least risk and investment” to “greatest involvement”. Second, these are not necessarily sequential steps, even though exporting is apparently most common as an initial entry. Firms typically approach involvement in international marketing rather cautiously, and there appears to exist an underlying lifecycle that has a series of critical success factors that change as a firm moves through each stage. For small and medium-sized firms, in particular, exporting remains the most promising alternative to a full-blooded international marketing effort, since it appears to offer a degree of control over risk, cost, and resource commitment. Indeed, exporting, especially by the smaller firms, is often initiated as a response to an unsolicited overseas order-these are often perceived to be less risky. Therefore, the following possibilities exist: Domestic marketing. This involves the company manipulating a series of controllable variables, such as price, advertising, distribution, and the product, in a largely uncontrollable external environment that is made up of different economic structures, competitors, cultural values, and legal infrastructure within specific political or geographic country boundaries. International marketing. This involves the company operating across several markets in which not only do the uncontrollable variables differ significantly between one market and another, but the controllable factor in the form of cost and price structures, opportunities for advertising, and distributive infrastructure are also likely to differ significantly. Export marketing. In this case the firm markets its goods and/or services across national/political boundaries. In general, exporting is a simple and low risk-approach to entering foreign markets. Firms may choose to export products for several reasons. First, products in the maturity stage of their domestic life cycle may find new growth opportunities overseas, as Perrier chose to do in the US. Second, some firms find it less risky and more profitable to expand by exporting current products instead of developing new products. Third, firms who face seasonal domestic demand may choose to sell their products to foreign markets when those products are “in season” there. Finally, some firms may elect to export products because there is less competition overseas. A firm can export its products in one of three ways: indirect exporting, semi-direct exporting, and direct exporting. Indirect exporting is a common practice among firms that are just beginning their exporting. Sales, whether foreign or domestic, are treated as domestic sales. All sales are made through the firm’s domestic sales department, as there is no export department. Indirect exporting involves very little investment, as no overseas sales force or other types of contacts need to be developed. Indirect exporting also involves little risk, as international marketing intermediaries have knowledge of markets and will make fewer mistakes than sellers. In semi-direct exporting, an American exporter usually initiates the contact through agents, merchant middlemen, or other manufacturers in the US. Such semi-direct exporting can be handled in a variety of ways: (a) a combination export manager, a domestic agent intermediary that acts as an exporting department for several noncompeting firms; (b) the manufacturer’s export agent (MEA) operates very much like a manufacturer’s agent in domestic marketing settings; (c) a Webb-Pomerene Export Association may choose to limit cooperation to advertising, or it may handle the exporting of the products of the association’s members and; (d) piggyback exporting, in which one manufacturer (carrier) that has export facilities and overseas channels of distribution handles the exporting of another firm (rider) noncompeting but complementary products. 1.5.1 https://biz.libretexts.org/@go/page/111747 When direct exporting is the means of entry into a foreign market, the manufacturer establishes an export department to sell directly to a foreign film. The exporting manufacturer conducts market research, establishes physical distribution, and obtains all necessary export documentation. Direct exporting requires greater investment and also carries a greater risk. However, it also provides greater potential return and greater control of its marketing program. Multinational marketing. Here the marketing activities of an organization include activities, interests, or operations in more than one country, and where there is some kind of influence or control of marketing activities from outside the country in which the goods or services will actually be sold. Each of these markets is typically perceived to be independent and a profit center in its own right. Global marketing. The entire organization focuses on the selection and exploration of global marketing opportunities and marshals resources around the globe with the objective of achieving a global competitive advantage. The primary objective of the company is to achieve synergy in the overall operation, so that by taking advantage of different exchange rates, tax rates, labor rates, skill levels, and market opportunities, the organization as a whole will be greater than the sum of its parts. Thus Toyota Motors started out as a domestic marketer, eventually exported its cars to a few regional markets, grew to become a multinational marketer, and today is a true global marketer, building manufacturing plants in the foreign country as well as hiring local labor, using local ad agencies, and complying to that country’s cultural mores. As it moved from one level to the next, it also revised attitudes toward marketing and the underlying philosophy of business. Ultimately, the successful marketer is the one who is best able to manipulate the controllable tools of the marketing mix within the uncontrollable environment. The principal reason for failure in international marketing results from a company not conducting the necessary research, and as a consequence, misunderstanding the differences and nuances of the marketing environment within the country that has been targeted. Source The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de-3019-4843-8ffd-2b204bc45c29@4 This page titled 1.5: Stages in International Marketing is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.5: Stages in International Marketing is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.5.2 https://biz.libretexts.org/@go/page/111747 1.6: Why International Marketing Matters  Learning Objectives After reading this section, students should be able to … 1. explain why international marketing matters to firms and marketing managers Why It Matters Suppose you’re in the marketing department for a highly successful snack food company in the U.S. You’re in a brainstorming meeting about expanding into China, and the discussion is starting to get heated. Should you lead with your company’s best-selling nacho-cheese-flavored snacks to take China by storm? Or would it be better to start out with the ranch-dressing-flavored snack instead, because it’s so quintessentially American and it’d be a great way to introduce the Chinese to the tastes Americans love? Or would something else be a better fit? It’s time to vote: your manager wants everyone on the team to name the flavor they want to lead with. What are you going to choose? Set aside your top pick while you watch this short but very interesting video. Chinese Flavors for American Snacks Video:https://youtu.be/BA8bCNiKZsg You can read a transcript of the video here. So... how did you do? How close did you come to favorite flavors in the video? Were you in the ballpark? Are you ready for a career developing snack foods for global markets? If you’re like most Americans, your recommendation probably wasn’t very close to the mark, and you’re probably thinking that many of the flavors that are delicious to Chinese consumers sound a bit odd to you. Well, now you know how a lot of Chinese consumers probably feel when presented with Cheetos Crunchy Flamin’ Hot Limon Cheese Flavored Snacks or Zapp’s Spicy Cajun Crawtator potato chips. A little queasy. Hopefully this scenario helps highlight some of the challenges of global marketing, as companies start selling products in other countries. How should you enter a new market? Are you offering products that consumers in other countries will want to buy? What should you do to make sure your product–and the rest of your marketing mix–is a good fit for the global customers you want to attract? 1.6.1 https://biz.libretexts.org/@go/page/111748 Global marketing is a complex and fascinating business. The rest of the sections will introduce key challenges, opportunities, and factors to consider when marketing to target audiences outside your home country. Source The above content was adapted from textbook content provided by: Lumen Learning. License: CC BY: Attribution, titled “Why It Matters: Marketing Globally”. CC LICENSED CONTENT, SHARED PREVIOUSLY Chinese Flavors for American Snacks. Provided by: BBC. Located at: https://youtu.be/BA8bCNiKZsg. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives This page titled 1.6: Why International Marketing Matters is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.6: Why International Marketing Matters is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.6.2 https://biz.libretexts.org/@go/page/111748 1.7: Challenges of Global Marketing  Learning Objectives After reading this section, students should be able to … 1. appreciate the challenges and opportunities presented by global markets 2. explain the challenges and opportunities presented by globalization A global company is generally referred to as a multinational corporation (MNC). An MNC is a company that operates in two or more countries, leveraging the global environment to approach varying markets in attaining revenue generation. These international operations are pursued as a result of the strategic potential provided by technological developments, making new markets a more convenient and profitable pursuit both in sourcing production and pursuing growth. Figure : McDonald’s Locations: Over the last 70 years, McDonald’s has become a global corporation. (CC-BY-SA; Wikimedia) McDonald’s Locations: Over the last 70 years, McDonald’s has become a global corporation.International operations are therefore a direct result of either achieving higher levels of revenue or a lower cost structure within the operations or value-chain. MNC operations often attain economies of scale, through mass producing in external markets at substantially cheaper costs, or economies of scope, through horizontal expansion into new geographic markets. If successful, these both result in positive effects on the income statement (either larger revenues or stronger margins), but contain the innate risk in developing these new opportunities. Opportunities As gross domestic product (GDP) growth migrates from mature economies, such as the US and EU member states, to developing economies, such as China and India, it becomes highly relevant to capture growth in higher growth markets. It is a particularly strong visual representation of the advantages a global corporation stands to capture, where the darker green areas reppresent where the highest GDP growth potential resides. High growth in the external environment is a strong opportunity for most incumbents in the market. 1.7.1 https://biz.libretexts.org/@go/page/111749  Figure : GDP Growth Rate: This map highlights (via dark green) where the strongest growth opportunities currently are as of 2010.. (CC-BY-SA; (CC-BY-SA, Wikimedia ) Challenges However, despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors: Public Relations: Public image and branding are critical components of most businesses. Building this public relations potential in a new geographic region is an enormous challenge, both in effectively localizing the message and in the capital expenditures necessary to create momentum. Ethics: Arguably the most substantial of the challenges faced by MNCs, ethics have historically played a dramatic role in the success or failure of global players. For example, Nike had its brand image hugely damaged through utilizing ‘sweat shops’ and low wage workers in developing countries. Maintaining the highest ethical standards while operating in developing countries is an important consideration for all MNCs. Organizational Structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions within the value chain and corporate structure. International expansion requires enormous capital investments in many cases, along with the development of a specific strategic business unit (SBU) in order to manage these accounts and operations. Finding a way to capture value despite this fixed organizational investment is an important initiative for global corporations. Leadership: The final factor worth noting is attaining effective leaders with the appropriate knowledge base to approach a given geographic market. There are differences in strategies and approaches in every geographic location worldwide, and attracting talented managers with high intercultural competence is a critical step in developing an efficient global strategy. Combining these four challenges for global corporations with the inherent opportunities presented by a global economy, companies are encouraged to chase the opportunities while carefully controlling the risks to capture the optimal amount of value. Through effectively maintaining ethics and a strong public image, companies should create strategic business units with strong international leadership in order to capture value in a constantly expanding global market. Globalization Opportunities Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases. This means larger volumes of sales and exchange, larger growth rates in GDP, and more empowerment of individuals and political systems through acquiring additional resources and capital. These benefits of globalization are viewed as utilitarian, providing the best possible benefits for the largest number of people. 1.7.2 https://biz.libretexts.org/@go/page/111749 Challenges Along with arguments supporting the benefits of a more globally-connected economy, there are criticisms that question the profits that are captured. Opponents argue that the expansion of global trade creates unfair exchanges between larger and smaller economies, arguing that developed economies capture significantly more value because of financial leverage. Other commonly raised concerns include damage to the environment, decreased food safety, unethical labor practices in sweatshops, increased consumerism, and the weakening of traditional cultural values. Source The above content was adapted from textbook content provided by: Lumen Learning. License: CC BY: Attribution, titled “Introduction to Global Marketing”. CC LICENSED CONTENT, SHARED PREVIOUSLY Curation and Revision. Provided by: Boundless.com. License: CC BY-SA: Attribution-ShareAlike CC LICENSED CONTENT, SPECIFIC ATTRIBUTION Globalization. Provided by: Wikipedia. Located at: http://en.Wikipedia.org/wiki/Globalization. License: CC BY-SA: Attribution-ShareAlike Multinational corporation. Provided by: Wikipedia. Located at: http://en.Wikipedia.org/wiki/Multinational_corporation. License: CC BY-SA: Attribution-ShareAlike International marketing. Provided by: Dropbox. Located at: http://dl.dropbox.com/u/31779972/Introducing%20Marketing.pdf. License: CC BY: Attribution Mcdonalds World locations. Provided by: Wikimedia Commons. Located at: http://commons.wikimedia.org/wiki/File:Mcdonalds_World_locations_map.PNG. License: CC BY-SA: Attribution-ShareAlike Provided by: Wikimedia. Located at: http://upload.wikimedia.org/Wikipedia/commons/e/e7/GDP_real_growth_rate_CIA_Factbook.PNG. License: CC BY-SA: Attribution-ShareAlike Competitive advantage. Provided by: Wiktionary. Located at: http://en.wiktionary.org/wiki/competitive_advantage. License: CC BY-SA: Attribution-ShareAlike Introducing Marketing by John Burnett. Provided by: Global Text Project. Located at: https://dl.dropboxusercontent.com/u/31779972/Introducing%20Marketing.pdf. License: CC BY: Attribution World Trade Organization. Provided by: Wikimedia. Located at: http://upload.wikimedia.org/Wikipedia/commons/3/32/WTO_map_2005en.png. License: CC BY-SA: Attribution-ShareAlike This page titled 1.7: Challenges of Global Marketing is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.7: Challenges of Global Marketing is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.7.3 https://biz.libretexts.org/@go/page/111749 1.8: What is Globalization  Learning Objectives After reading this section, students should be able to … 1. list the elements of economic globalization 2. explain the positive and negative effects of globalization  Case: United States Domestic Automaker, Ford Nowhere are the effects of globalization seen more drastically than in the automobile industry, especially for the United States “Big 3” automakers: General Motors, Chrysler, and Ford. Ford’s history dates back to the Model T created by Henry Ford, with the goal of building a car for every family. Today, Ford is in dire competition with not only their domestic competitors, but also now foreign car manufacturers such as Toyota, Volkswagen and Hyundai. At the current pace, the automotive market is approaching a 50/50 split between United States and overseas-based control of the US market. As a result, Ford is challenged to constantly reevaluate and revamp its market strategy. This is evident, as Ford decided that it was more cost-effective to buy existing networks than to start from scratch, by bringing Jaguar, Volvo, Mazda, Aston Martin and Land Rover under its control. However, Ford has recently decided to sell its stake in both Jaguar and Land Rover to the Indian automaker, Tata, and may divest other divisions as well. Today, Ford faces a number of important questions. As the globalization of the auto industry continues, how should Ford market its vehicles? What target markets should Ford appeal to? How can it continue to improve production and quality and adhere to the needs of even more demanding customers? And, how should Ford position itself, as a company, in the face of formidable competition? While the future of Ford is uncertain, one thing is clear, globalization will continue to affect the way domestic and foreign companies do business. Globalization is difficult to define because it has many dimensions—economic, political, cultural and environmental. The focus here is on the economic dimension of globalization. Economic globalization refers to the “quickly rising share of economic activity in the world [that] seems to be taking place between people in different countries” (World Bank Briefing Paper, 2001). More specifically, economic globalization is the result of the increasing integration of economies around the world, particularly through trade and financial flows and the movement of people and knowledge across international borders (IMF Issue Brief, 2000). Figure : Global Market Share, 2007-2008 (Edmunds.com, 2007) 1.8.1 https://biz.libretexts.org/@go/page/111750 As this figure suggests, the “Big Three” must adapt to changes in the market and globalization factors to remain key players in the automotive market. At one point in 2007, for the first time in history, US automaker’s share of their home market fell below 50 percent. Elements of economic globalization The growth in cross-border economic activities takes five principal forms: (1) international trade; (2) foreign direct investment; (3) capital market flows; (4) migration (movement of labor); and (5) diffusion of technology (Stiglitz, 2003). International trade: An increasing share of spending on goods and services is devoted to imports and an increasing share of what countries produce is sold as exports. Between 1990 and 2001, the percentage of exports and imports in total economic output (GDP) rose from 32.3 per cent to 37.9 per cent in industrialized countries, and from 33.8 per cent to 48.9 per cent in low and middle-income countries (World Briefing Paper, 2001). In the 1980s, about 20 per cent of industrialized countries’ exports went to less industrialized countries; today, this share has risen to about 25 per cent, and it appears likely to exceed 33 per cent by 2010 (Qureshi, 1996). The importance of International trade lies at the root of a country’s economy. In the constant changing business market, countries are now more interdependent than ever on their partners for exporting, importing, thereby keeping the home country’s economy afloat and healthy. For example, China’s economy is heavily dependent on the exportation of goods to the United States, and the United States customer base who will buy these products. Foreign Direct Investment (FDI): According to the United Nations, FDI is defined as “investment made to acquire lasting interest in enterprises operating outside of the economy of the investor”. Direct investment in constructing production facilities, is distinguished from portfolio investment, which can take the form of short-term capital flows (e.g. loans), or long-term capital flows (e.g. bonds) (Stiglitz, 2003). Since 1980, global flows of foreign direct investment have more than doubled relative to GDP (World Briefing, Paper, 2001). Capital market flows: In many countries, particularly in the developed world, investors have increasingly diversified their portfolios to include foreign financial assets, such as international bonds, stocks or mutual funds, and borrowers have increasingly turned to foreign sources of funds (World Briefing, Paper, 2001). Capital market flows also include remittances from migration, which typically flow from industrialized to less industrialized countries. In essence, the entrepreneur has a number of sources for funding a business. Migration: Whether it is physicians who emigrate from India and Pakistan to Great Britain or seasonal farm workers emigrating from Mexico to the United States, labor is increasingly mobile. Migration can benefit developing economies when migrants who acquired education and know-how abroad return home to establish new enterprises. However, migration can also hurt the economy through “brain drain”, the loss of skilled workers who are essential for economic growth (Stiglitz, 2003). Diffusion of technology: Innovations in telecommunications, information technology, and computing have lowered communication costs and facilitated the cross-border flow of ideas, including technical knowledge as well as more fundamental concepts such as democracy and free markets (Stiglitz, 2003). The rapid growth and adoption of information technology, however, is not evenly distributed around the world—this gap between the information technology is often referred to as the “digital divide”. As a result, for less industrialized countries this means it is more difficult to advance their businesses without the technical system and knowledge in place such as the Internet, data tracking, and technical resources already existing in many industrialized countries. Negative effects of globalization for developing country business Critics of global economic integration warn that: (Watkins, 2002, Yusuf, 2001) the growth of international trade is exacerbating income inequalities, both between and within industrialized and less industrialized nations 1.8.2 https://biz.libretexts.org/@go/page/111750  global commerce is increasingly dominated by transnational corporations which seek to maximize profits without regard for the development needs of individual countries or the local populations protectionist policies in industrialized countries prevent many producers in the Third World from accessing export markets; the volume and volatility of capital flows increases the risks of banking and currency crises, especially in countries with weak financial institutions competition among developing countries to attract foreign investment leads to a “race to the bottom” in which countries dangerously lower environmental standards cultural uniqueness is lost in favor of homogenization and a “universal culture” that draws heavily from American culture Critics of economic integration often point to Latin America as an example where increased openness to international trade had a negative economic effect. Many governments in Latin America (e.g. Peru) liberalized imports far more rapidly than in other regions. In much of Latin America, import liberalization has been credited with increasing the number of people living below the USD $1 a day poverty line and has perpetuated already existing inequalities (Watkins, 2002). Positive effects of globalization for developing country business Conversely, globalization can create new opportunities, new ideas, and open new markets that an entrepreneur may have not had in their home country. As a result, there are a number of positives associated with globalization: it creates greater opportunities for firms in less industrialized countries to tap into more and larger markets around the world this can lead to more access to capital flows, technology, human capital, cheaper imports and larger export markets it allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade For example, the experience of the East Asian economies demonstrates the positive effect of globalization on economic growth and shows that at least under some circumstances globalization decreases poverty. The spectacular growth in East Asia, which increased GDP per capita by eightfold and raised millions of people out of poverty, was based largely on globalization—export-led growth and closing the technology gap with industrialized countries (Stiglitz, 2003). Generally, economies that globalize have higher growth rates than non-globalizers (Bhagwati and Srinivasan, 2002). Also, the role of developing country firms in the value chain is becoming increasingly sophisticated as these firms expand beyond manufacturing into services. For example, it is now commonplace for businesses in industrialized countries to outsource functions such as data processing, customer service and reading x-rays to India and other less industrialized countries (Bhagwati et al, 2004). Advanced telecommunications and the Internet are facilitating the transfer of these service jobs from industrialized to less industrialized and making it easier and cheaper for less industrialized country firms to enter global markets. In addition to bringing in capital, outsourcing helps prevent “brain drain” because skilled workers may choose to remain in their home country rather than having to migrate to an industrialized country to find work. Further, some of the allegations made by critics of globalization are very much in dispute—for example, that globalization necessarily leads to growing income inequality or harm to the environment. While there are some countries in which economic integration has led to increased inequality—China, for instance—there is no worldwide trend (Dollar, 2003). With regard to the environment, international trade and foreign direct investment can provide less industrialized countries with the incentive to adopt, and the access to, new technologies that may be more ecologically sound (World Bank Briefing Paper, 2001). Transnational corporations may also help the environment by exporting higher standards and best practices to less industrialized countries. In the fortune at the bottom of the pyramid, Prahalad and Stuart point out that C.K. Prahalad and Stuart L. Hart have suggested that the four billion people in the world whose per capita income is less than U-S- $1500 (the people "at the bottom of the pyramid ") represent an enormous opportunity for business. Their theory is that the poor in developing countries comprise a vast, untapped market for goods and services, including basic needs as well as more advanced offerings such as financial services, cellular telephones and inexpensive computers. An example of a successful business that services this market is the Crameen Bank Ltd. in Bangladesh. Founded by Nobel Prize winner Muhammad Yunus, Grameen Bank extends 1.8.3 https://biz.libretexts.org/@go/page/111750  small loans ("micro-credit") to low- income customers. Cirameen Bank charges high interest rates of approximately 20% a year, but does not require collateral, which enables even the very poor to obtain credit and gain an opportunity to participate in the formal economy. Grameen Bank's success has stimulated interest in micro-credit around the world. Although Prahalad and Hart mostly discuss "the bottom of the pyramid" as a potential market for transnational corporations ("TNCs") based in developed countries, this market also offers opportunities to businesses in developing countries. These firms, either alone or in partnership with TNCs, can use their understanding of the needs, and obstacles faced by, the poor to create sustainable enterprises, which will have the added benefit of helping to alleviate poverty. Source The above content was adapted from textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at Download for free at http://cnx.org/contents/[email protected]. This page titled 1.8: What is Globalization is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John- Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.8: What is Globalization is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.8.4 https://biz.libretexts.org/@go/page/111750 1.9: The Globalization Debate  Learning Objectives After reading this section, students should be able to … 1. Understand the flattening world perspective in the globalization debate. 2. Understand the multidomestic perspective in the globalization debate. 3. Know the dimensions of the CAGE analytical framework. In today’s global economy, everyone is accustomed to buying goods from other countries—electronics from Taiwan, vegetables from Mexico, clothing from China, cars from Korea, and skirts from India. Most modern shoppers take the “Made in [a foreign country]” stickers on their products for granted. Long-distance commerce wasn’t always this common, although foreign trade—the movement of goods from one geographic region to another—has been a key factor in human affairs since prehistoric times. Thousands of years ago, merchants transported only the most precious items—silk, gold and other precious metals and jewels, spices, porcelains, and medicines—via ancient, extended land and sea trade routes, including the famed Silk Road through central Asia. Moving goods great distances was simply too hard and costly to waste the effort on ordinary products, although people often carted grain and other foods over shorter distances from farms to market towns.1 What is the globalization debate? Well, it’s not so much a debate as it is a stark difference of opinion on how the internationalization of businesses is affecting countries’ cultural, consumer, and national identities—and whether these changes are desirable. For instance, the ubiquity of such food purveyors as Coca-Cola and McDonald’s in practically every country reflects the fact that some consumer tastes are converging, though at the likely expense of local beverages and foods. Remember, globalization refers to the shift toward a more interdependent and integrated global economy. This shift is fueled largely by (1) declining trade and investment barriers and (2) new technologies, such as the Internet. The globalization debate surrounds whether and how fast markets are actually merging together. We Live in a Flat World The flat-world view is largely credited to Thomas Friedman and his 2005 best seller, The World Is Flat. Although the next section provides you with an alternative way of thinking about the world (a multidomestic view), it is nonetheless important to understand the flat-world perspective. Friedman covers the world for the New York Times, and his access to important local authorities, corporate executives, local Times bureaus and researchers, the Internet, and a voice recorder enabled him to compile a huge amount of information. Many people consider globalization a modern phenomenon, but according to Friedman, this is its third stage. The first stage of global development, what Friedman calls “Globalization 1.0,” started with Columbus’s discovery of the New World and ran from 1492 to about 1800. Driven by nationalism and religion, this lengthy stage was characterized by how much industrial power countries could produce and apply. “Globalization 2.0,” from about 1800 to 2000, was disrupted by the Great Depression and both World Wars and was largely shaped by the emerging power of huge, multinational corporations. Globalization 2.0 grew with the European mercantile stock companies as they expanded in search of new markets, cheap labor, and raw materials. It continued with subsequent advances in sea and rail transportation. This period saw the introduction of modern communications and cheaper shipping costs. “Globalization 3.0” began around 2000, with advances in global electronic interconnectivity that allowed individuals to communicate as never before. In Globalization 1.0, nations dominated global expansion. Globalization 2.0 was driven by the ascension of multinational companies, which pushed global development. In Globalization 3.0, major software advances have allowed an unprecedented number of people worldwide to work together with unlimited potential. The Mumbai Taxman What shape will globalization take in the third phase? Friedman asks us to consider the friendly local accountants who do your taxes. They can easily outsource your work via a server to a tax team in Mumbai, India. This increasingly popular outsourcing trend has its benefits. As Friedman notes, in 2003, about 25,000 US tax returns were done in India.2 By 2004, it was some 100,000 returns, with 400,000 anticipated in 2005. A software program specifically designed to let midsized US tax firms outsource their files enabled this development, giving better job prospects to the 70,000 accounting students who 1.9.1 https://biz.libretexts.org/@go/page/111751  graduate annually in India. At a starting salary of $100 per month, these accountants are completing US returns and competing with US tax preparers.  Chris C. Got It Wrong? In 1492, Christopher Columbus set sail for India, going west. He had the Niña, the Pinta, and the Santa María. He never did find India, but he called the people he met “Indians” and came home and reported to his king and queen: “The world is round.” I set off for India 512 years later. I knew just which direction I was going in—I went east. I was in Lufthansa business class, and I came home and reported only to my wife and only in a whisper: “The world is flat.” And therein lies a tale of technology and geoeconomics that is fundamentally reshaping our lives—much, much more quickly than many people realize. It all happened while we were sleeping, or rather while we were focused on 9/11, the dot-com bust, and Enron—which even prompted some to wonder whether globalization was over. Actually, just the opposite was true, which is why it’s time to wake up and prepare ourselves for this flat world, because others already are, and there is no time to waste.3 This job competition is not restricted to accountants. Companies can outsource any service or business that can be broken down to its key components and converted to computerized operations. This includes everything from making restaurant reservations to reporting corporate earnings to reading x-rays. And it doesn’t stop at basic services. With the “globalization of innovation,” multinationals in India are filing increasing numbers of US patent applications, ranging from aircraft-engine designs to transportation systems and microprocessor chips. Japanese-speaking Chinese nationals in Dailian, China, now answer call-center questions from Japanese consumers. Due to Dailian’s location near Japan and Korea, as well as its numerous universities, hospitals, and golf courses, some 2,800 Japanese companies outsource operations there. While many companies are outsourcing to other countries, some are using “home sourcing”—allowing people to work at home. JetBlue uses home sourcing for reservation clerks. Today, about 16 percent of the US workforce works from home. In many ways, outsourcing and home sourcing are related; both allow people to work from anywhere. How the World Got Flat Friedman identifies ten major events that helped reshape the modern world and make it flat:4 Figure :Infosys Bangalore Hall Infosys is a multibillion-dollar global IT and consulting firm headquartered in India. (Copyright 2011, Infosys.) 1. 11/9/89: When the walls came down and the windows went up. The fall of the Berlin Wall ended old-style communism and planned economies. Capitalism ascended. 1.9.2 https://biz.libretexts.org/@go/page/111751 2. 8/9/95: When Netscape went public. Internet browsing and e-mail helped propel the Internet by making it commercially viable and user friendly. 3. Work-flow software: Let’s do lunch. Have your application talk to my application. With more powerful, easier-to-use software and improved connectivity, more people can share work. Thus, complex projects with more interdependent parts can be worked on collaboratively from anywhere. 4. Open-sourcing: Self-organizing, collaborative communities. Providing basic software online for free gives everyone source code, thus accelerating collaboration and software development. 5. Outsourcing: Y2K. The Internet lets firms use employees worldwide and send specific work to the most qualified, cheapest labor, wherever it is. Enter India, with educated and talented people who work at a fraction of US or European wages. Indian technicians and software experts built an international reputation during the Y2K millennium event. The feared computer-system breakdown never happened, but the Indian IT industry began handling e-commerce and related businesses worldwide. 6. Offshoring: Running with gazelles, eating with lions. When it comes to jobs leaving and factories being built in cheaper places, people think of China, Malaysia, Thailand, Mexico, Ireland, Brazil, and Vietnam. But going offshore isn’t just moving part of a manufacturing or service process. It means creating a new business model to make more goods for non-US sale, thus increasing US exports. 7. Supply-chaining: Eating sushi in Arkansas. Walmart demonstrates that improved acquisition and distribution can lower costs and make suppliers boost quality. 8. Insourcing: What the guys in funny brown shorts are really doing. This kind of service collaboration happens when firms devise new service combinations to improve service. Take United Parcel Service (UPS). The “brown” company delivers packages globally, but it also repairs Toshiba computers and organizes delivery routes for Papa John’s pizza. With insourcing, UPS uses its logistics expertise to help clients create new businesses. 9. Informing: Google, Yahoo!, MSN Web Search. Google revolutionized information searching. Its users conduct some one billion searches annually. This search methodology and the wide access to knowledge on the Internet transforms information into a commodity people can use to spawn entirely new businesses. 10. The steroids: Digital, mobile, personal, and virtual. Technological advances range from wireless communication to processing, resulting in extremely powerful computing capability and transmission. One new Intel chip processes some 11 million instructions per second (MIPS), compared to 60,000 MIPS in 1971. These ten factors had powerful roles in making the world smaller, but each worked in isolation until, Freidman writes, the convergence of three more powerful forces: (1) new software and increased public familiarity with the Internet, (2) the incorporation of that knowledge into business and personal communication, and (3) the market influx of billions of people from Asia and the former Soviet Union who want to become more prosperous—fast. Converging, these factors generated their own critical mass. The benefits of each event became greater as it merged with another event. Increased global collaboration by talented people without regard to geographic boundaries, language, or time zones created opportunity for billions of people. Political allegiances are also shifting. While critics say outsourcing costs US jobs, it can also work the other way. When the state of Indiana bid for a new contract to overhaul its employment claims processing system, a computer firm in India won. The company’s bid would have saved Indiana $8 million, but local political forces made the state cancel the contract. In such situations, the line between the exploited and the exploiter becomes blurred. Corporate nationality is also blurring. Hewlett-Packard (HP) is based in California, but it has employees in 178 countries. HP manufactures parts wherever it’s cheapest to do so. Multinationals like HP do what’s best for them, not what’s best for their home countries. This leads to critical issues about job loss versus the benefits of globalization. Since the world’s flattening can’t be stopped, new workers and those facing dislocation should refine their skills and capitalize on new opportunities. One key is to become an expert in a job that can’t be delegated offshore. This ranges from local barbers and plumbers to professionals such as surgeons and specialized lawyers. 1.9.3 https://biz.libretexts.org/@go/page/111751 We Live in a Multidomestic World, Not a Flat One! International business professor Pankaj Ghemawat takes strong issue with the view that the world is flat and instead espouses a world he characterizes as “semiglobalized” and “multidomestic.” If the world were flat, international business and global strategy would be easy. According to Ghemawat, it would be domestic strategy applied to a bigger market. In the semiglobalized world, however, global strategy begins with noticing national differences.5 Ghemawat’s research suggests that to study “barriers to cross-border economic activity” you will use a “CAGE” analysis. The CAGE framework covers these four factors:6 1. Culture. Generally, cultural differences between two countries reduce their economic exchange. Culture refers to a people’s norms, common beliefs, and practices. Cultural distance refers to differences based in language, norms, national or ethnic identity, levels of trust, tolerance, respect for entrepreneurship and social networks, or other country-specific qualities. Some products have a strong national identification, such as the Molson beer company in Canada (see Molson’s “I am Canadian” ad campaign).7 Conversely, genetically modified foods (GMOs) are commonly accepted in North America but highly disdained in Western Europe. Such cultural distance for GMOs would make it easier to sell GMO corn in the United States but impossible to sell in Germany. Some differences are surprisingly specific (such as the Chinese dislike of dark beverages, which Coca-Cola marketers discovered too late). 2. Administration. Bilateral trade flows show that administratively similar countries trade much more with each other. Administrative distance refers to historical governmental ties, such as those between India and the United Kingdom. This makes sense; they have the same sorts of laws, regulations, institutions, and policies. Membership in the same trading block is also a key similarity. Conversely, the greater the administrative differences between nations, the more difficult the trading relationship—whether at the national or corporate level. It can also refer simply to the level and nature of government involvement in one industry versus another. Farming, for instance, is subsidized in many countries, and this creates similar conditions. 3. Geography. This is perhaps the most obvious difference between countries. You can see that the market for a product in Los Angeles is separated from the market for that same product in Singapore by thousands of miles. Generally, as distance goes up, trade goes down, since distance usually increases the cost of transportation. Geographic differences also include time zones, access to ocean ports, shared borders, topography, and climate. You may recall from the opening case that even Google was affected by geographic distance when it felt the speed of the Internet connection to Google.com was slowed down because the Chinese were accessing server farms in other countries, as none were set up in China (prior to the setup of Google.cn). 4. Economics. Economic distance refers to differences in demographic and socioeconomic conditions. The most obvious economic difference between countries is size (as compared by gross domestic product, or GDP). Another is per capita income. This distance is likely to have the greatest effect when (1) the nature of demand varies with income level, (2) economies of scale are limited, (3) cost differences are significant, (4) the distribution or business systems are different, or (5) organizations have to be highly responsive to their customers’ concerns. Disassembling a company’s economy reveals other differences, such as labor costs, capital costs, human capital (e.g., education or skills), land value, cheap natural resources, transportation networks, communication infrastructure, and access to capital. Each of these CAGE dimensions shares the common notion of distance. CAGE differences are likely to matter most when the CAGE distance is great. That is, when CAGE differences are small, there will likely be a greater opportunity to see business being conducted across borders. A CAGE analysis also requires examining an organization’s particular industry and products in each of these areas. When looking at culture, consider how culturally sensitive the products are. When looking at administration, consider whether other countries coddle certain industries or support “national champions.” When looking at geography, consider whether products will survive in a different climate. When looking at economics, consider such issues as the effect of per capita income on demand. 1.9.4 https://biz.libretexts.org/@go/page/111751   An Amusing Anecdote Pankaj Ghemawat provides this anecdote in partial support of his multidomestic (or anti-flat-world) view. “It takes an aroused man to make a chicken affectionate” is probably not the best marketing slogan ever devised. But that’s the one Perdue Chicken used to market its fryers in Mexico. Mexicans were nonplussed, to say the least, and probably wondered what was going on in founder Frank Perdue’s henhouse. How did the slogan get approved? Simple: it’s a literal translation of Perdue’s more appetizing North American slogan “It takes a tough man to make a tender chicken.” As Perdue discovered, at least through his experience with the literal translation of his company motto into Spanish, cultural and economic globalization have yet to arrive. Consider the market for capital. Some say capital “knows no boundaries.” Recent data, however, suggests capital knows its geography quite well and is sticking close to home. For every dollar of capital investment globally, only a dime comes from firms investing “outside their home countries.” For every $100 US investors put in the stock market, they spend $15 on international stocks. For every one hundred students in the Organisation for Economic Co-operation (OECD) universities, perhaps five are foreigners. These and other key measures of internationalization show that the world isn’t flat. It’s 90 percent round, like a rugby ball.8 References 1. William J. Bernstein, A Splendid Exchange: How Trade Shaped the World, New York: Atlantic Monthly Press, 2008 2. Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus and Giroux, 2005). 3. Thomas L. Friedman, “It’s a Flat World, After All,” New York Times Magazine, April 3, 2005, accessed June 2, 2010, http://www.nytimes.com/2005/04/03/magazine/03DOMINANCE.html. 4. Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus and Giro1.10: Standardization and Customizationux, 2005), 48–159. 5. Pankaj Ghemawat, “Distance Still Matters,” Harvard Business Review 79, no. 8 (2001): 137–47. 6. Pankaj Ghemawat, “Distance Still Matters,” Harvard Business Review 79, no. 8 (2001): 137–47. 7. “I Am Canadian,” YouTube video, posted by “vinko,” May 22, 2006, accessed May 4, 2011, http://www.youtube.com/watch? v=BRI-A3vakVg. 8. Pankaj Ghemawat, Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter(Boston: Harvard Business School Press, 2007), 42. Source The above content was adapted from textbook content provided in the chapter “The Globalization Debate”, section 1.4 from the book Challenges and Opportunities in International Business (v. 1.0), published by publishers and authors who would like to remain anonymous. Their book was licensed under a Creative Commons by-nc-sa 3.0 license. This page titled 1.9: The Globalization Debate is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.9: The Globalization Debate is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.9.5 https://biz.libretexts.org/@go/page/111751 1.10: Standardization and Customization  Learning Objectives After reading this section, students should be able to … 1. make the argument for standardized marketing 2. make the argument to localize marketing 3. make the case for blending standardization and localization Most of the basic principles for effective marketing apply equally well to domestic and global marketing activity. However, globalization introduces a number of challenges that are unique to operating simultaneously in different countries and global markets. What is the best way to enter a global market? When should you adjust a product’s features to customize it to consumer needs in a different global market? How do you manage the costs and complexities of product promotion when it must take place in different locations, with different languages, cultural sensitivities and consumer expectations? What considerations should go into product pricing, when a good is offered in different markets using different currencies and exchange rates? In 1983, Harvard marketing professor Theodore Levitt wrote an article entitled, “The Globalization of Markets”, and nothing about marketing has been the same since. According to Levitt, a new economic reality-the emergence of global consumer markets for single standard products-has been triggered in part by technological developments. Worldwide communications ensure the instant diffusion of new lifestyles and pave the way for a wholesale transfer of goods and services. Adopting this global strategy provides a competitive advantage in cost and effectiveness. In contrast to multinational companies, standardized (global) corporations view the world or its major regions as one entity instead of a collection of national markets. These world marketers compete on a basis of appropriate value: i.e. an optimal combination of price, quality, reliability, and delivery of products that are identical in design and function. Ultimately, consumers tend to prefer a good price/quality ratio to a highly customized but less cost-effective item. Levitt distinguished between products and brands. While the global product itself is standardized or sold with only minor modifications, the branding, positioning, and promotion may have to reflect local conditions. Critics of Levitt’s perspective suggest that his argument for global standardization is incorrect and that each market strategy should be customized for each country. Kotler notes that one study found that 80 per cent of US exports required one or more adaptations. Furthermore, the average product requires at least four to five adaptations out of a set of eleven marketing elements: labeling, packaging, materials, colors, name, product features, advertising themes, media, execution, price, and sales promotion. Kotler suggests that all eleven factors should be evaluated before standardization is considered. To date, no one has empirically validated either perspective. While critics of Levitt can offer thousands of anecdotes contradicting the validity of standardization, a more careful read of Levitt’s ideas indicate that he offers standardization as a strategic option, not a fact. Although global marketing has its pitfalls, it can also yield impressive advantages. Standardized products can lower operating costs. Even more important, effective coordination can exploit a company’s best product and marketing ideas. Too often, executives view global marketing as an either/or proposition-either full standardization or local control. But when a global approach can fall anywhere on a spectrum-from tight worldwide coordination on programming details to loose agreements on a product ideas-there is no reason for this extreme view. In applying the global marketing concept and making it work, flexibility is essential. The big issue today is not whether to go global, but how to tailor the global marketing concept to fit each business and how to make it work. Global Marketing Strategies U.S. firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program—depending on how much centralized control a firm wishes to maintain over its marketing. If an organization wants to maintain strong centralized control and uniformity in its products and marketing activities, it is choosing a strategy called standardization. If an organization wants to adjust products, messaging, and marketing activities to fit the needs and preferences of local markets around the world, it is choosing a localization strategy. You’ll recall our earlier discussion of the unique flavors of Oreo cookies developed for the Chinese market: that’s an example of a localization strategy. 1.10.1 https://biz.libretexts.org/@go/page/111752 Global Standardization: The Argument for Standardized Marketing To the extent that global consumers desire standardized products, companies can pursue a global standardization strategy. Using this approach, a product and the way in which it is marketed are largely uniform across the world, with little variation in the marketing mix from country to country. Advocates of standardization strategy argue that companies can achieve competitive advantage by offering the optimal combination of price, quality, and reliability with products that are identical in design and function throughout the world; they also claim that consumers will prefer this standardized product to a highly localized product that is also more expensive. Standardization can translate into lower operating costs because there aren’t extra costs associated with developing and marketing unique products tailored to local market needs. It also expands the customer base receptive to a common global product. There is no need to adjust product features, naming, or other attributes for each new market, and marketing materials themselves can be repurposed across different world regions. Below are the primary benefits of a global standardization strategy: Marketers can use the same approach for developing, promoting, and delivering products and services worldwide, creating lower operating costs and economies of scale in product development and marketing The ability to develop and invest in a unified brand and/or company identity throughout the world, along with the opportunity to develop brand awareness and brand equity that give a competitive advantage Product lines that consist of a small number of global brands rather than a plethora of localized product brands and extensions, along with cost savings and improved efficiencies associated with managing a smaller total number of brands Companies that pursue this approach assume that consumer needs are relatively homogenous around the world and that the same basic marketing mix will work across global markets. These organizations typically have a centralized approach to the marketing function and try to minimize the need for developing localized marketing strategies. The case for a standardization strategy was made by Harvard marketing professor Theodore Levitt in his 1983 article, “The Globalization of Markets.” He argued that technology and worldwide communications have helped trigger the emergence of global consumer markets that are receptive to single, standardized global products. According to Levitt, adopting a standardized global strategy provides a competitive advantage in cost and effectiveness. Localization: The Argument to Localize Marketing On the other end of the spectrum is localization strategy, in which firms adjust their products and marketing mix for each target market. Advocates of localization argue that, in reality, global standardization doesn’t work, and in fact nearly all exported products require one or more adaptations to be successful. In work by Kotler, one study found that 80 percent of U.S. exports require one or more adaptations, and the average product requires at least four to five adaptations out of eleven different elements: labeling, packaging, materials, colors, name, product features, advertising themes, media, execution, price, and sales promotion. Localization strategy recognizes that diversity exists in global markets and that marketers need to understand and respond to this diversity in the goods they offer and the way they market to consumers in these markets. Language, culture, customs, the physical environment, the degree of economic development, societal institutions, and other factors all contribute to how well a product fits a local market’s needs. Localization may involve: 1) altering existing products to fit the needs of the local target market, or 2) creating completely new products to fit the needs of the local target market. Although localization does increase the cost and complexity associated with developing and marketing tailored products, its supporters argue that it results in products and marketing strategy that are a better fit for local market needs and ultimately a greater sales success. A localized approach can protect companies from high-profile, disastrous consequences when a standardized product fails. Standardization is often responsible for marketing misfires like offensive marketing images, catastrophic naming, and product-design glitches. Its critics argue that standardization strategy overestimates how well any single, uniform product and marketing approach will succeed in markets all over the world. The Middle Ground: Blending Standardization and Localization In reality, global marketing is not an either/or proposition requiring either full standardization or localized control of product and marketing. In fact, a successful global approach can fall anywhere on a spectrum–from tight worldwide coordination on programing details to loose agreements on product ideas. Most organizations find that flexibility is essential in order to allow organizations to capitalize global opportunities available to them. The right answer for each business depends on organizational structure, leadership and operations; the product category; the markets in question; and other factors. Both strategies offer attractive 1.10.2 https://biz.libretexts.org/@go/page/111752 benefits as well as costs and risks. Most organizations find ways to balance the options available to them with a focus on how to maximize success in their target markets. McDonalds Global and Local Strategy. v Few would disagree that fast-food chain McDonald’s is a master of global marketing. As you watch this video, look for ways that McDonald’s has blended elements of global standardization strategy with localization strategy to penetrate global markets and offer products that align perfectly with local appetites and preferences. Source The above content was adapted from textbook content provided by: Lumen Learning. License: CC BY-SA: Attribution-ShareAlike and textbook content produced by Global Text Project and is licensed under a Creative Commons Attribution License 3.0 license. (Under this license, any user of the textbook contents herein must provide proper attribution as follows: The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the creative commons license and may not be reproduced without the prior and express written consent of Rice University. For questions regarding this license, please contact [email protected]. The original content can be downloaded for free at http://cnx.org/contents/6fdb38de- 3019-4843-8ffd-2b204bc45c29@4) CC LICENSED CONTENT, SHARED PREVIOUSLY Introduction to Global Marketing. Provided by: Lumen Learning. Located at: https://courses.candelalearning.com/principlesmktg1x2kscope/chapter/13-1-introduction-to-global-marketing/. License: CC BY-SA: Attribution-ShareAlike Global Marketing: Points of Controversy. Provided by: Lumen Learning. Located at: https://courses.candelalearning.com/principlesmktg1x2kscope/chapter/global-marketing-points-of-controversy/. License: CC BY-SA: Attribution-ShareAlike McDonald’s. Provided by: BBC. Located at: https://youtu.be/4hQwdIVyi2s. License: CC BY-NC-ND: Attribution- NonCommercial-NoDerivatives This page titled 1.10: Standardization and Customization is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Babu John-Mariadoss via source content that was edited to the style and standards of the LibreTexts platform. 1.10: Standardization and Customization is licensed CC BY-NC-SA 4.0. Original source: https://opentext.wsu.edu/cpim/. 1.10.3 https://biz.libretexts.org/@go/page/111752