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Welcome to INTERNATIONAL MARKETING Prof. Dr. Christina Sichtmann Course objectives Understanding of the relevance and the main management decisions connected with the international marketing process Knowledge of the factors that influence the selection of markets and the international market selection process Understanding strategic and managerial issues related to international marketing Developing decision-making skills for the successful formulation, implementation and control of international marketing strategies Ability to design and conduct an international marketing research study (e.g., your Bachelorarbeit). Prof. Dr. Christina Sichtmann A note on: Cheating, plagiarism , and other instructional offences are not tolerated and can have severe penalties Prof. Dr. Christina Sichtmann You should not take this course if… You are not open-minded, committed and (highly!) motivated. You want an easy life. All students should carefully read the course outline for full course details. Prof. Dr. Christina Sichtmann Rules of communication Please use e-mail ([email protected]) only for precise questions that cannot be answered through other means. Do not use e-mail for the following questions: − questions about deadlines (available online) − questions about your grade (When they are ready I will publish them) − any question that should be better solved in a face-top-face meeting (e.g., lengthy questions or complicated issues) Prof. Dr. Christina Sichtmann Class Behaviour For the sake of smooth and more efficient classes, please try to respect the following: Be on time and do not leave the class unless urgent Do not eat in class Do not use your mobile phone in class Show respect and good manners towards your classmates and teachers Do not use your laptop computer for other things but to make notes Prof. Dr. Christina Sichtmann Assessment 50 % Group Project: Country Market Analysis Report 50 %. Final Exam: 30th of November (duration: 50 minutes) Prof. Dr. Christina Sichtmann Country Market Analysis and Report Group work (5-6 students per group) Analysis of the market environment for a specific product DO NOT develop a marketing strategy! DO NOT assume a specific company/product Analysis the market from a generic perspective Report: 10 pages (excl. references, appendix), English, double-spaced, see guidelines Deadline: December 16t, 2016 to be sent to [email protected] Prof. Dr. Christina Sichtmann Assessment 50 % Group Project: Country Market Analysis Report 50 %. Final Exam: 30th of November (duration: 50 minutes) Prof. Dr. Christina Sichtmann Group project: Groups Please find yourself together in groups of 5-6 people Please organize yourself! (Exchange e-mail addresses!) Prof. Dr. Christina Sichtmann Literature Textbook: Pervez Ghauri/Phillip Cateora (2014). International Marketing, 4/e, McGrawHill, ISBN: 0077148150 There is a possibility to rent the textbook for 360 days: Additional selected cases and readings will be provided during the course. Teaching Slides: Will be provided via email Prof. Dr. Christina Sichtmann Learning Resources Session Slides Case Studies Session Notes Student Essential Reading (Textbook) Prof. Dr. Christina Sichtmann Further Reading Your Instructor Newspapers, Magazines… Organization of Learning You do not learn for the teacher but for yourself! Sessions serve to deepen your understanding of the topic of internationalization strategies as well as to discuss selected topics in more detail It is essential to read the relevant literature in order to prepare and wrap-up the sessions and to be able to participate in the discussions during the sessions. I offer you to do things – it is your own choice if you do them! Preparation of a session is essential to follow the session and to participate in the case studies, exercises etc. discussed in class. Wrap-up of the course may help you to internalize topics discussed in class, understand issues that you have not understood and integrate topics with topics formerly discussed in this course or in other courses. Prof. Dr. Christina Sichtmann Factors that led to growth of international trade Interdependence of world economies and the globalisation of production and consumption Growth of regional free-trade areas Free-trade area: Where products can move freely, without tariffs and restrictions EU, NAFTA, ASEAN and APEC More purchasing power throughout the world Evolution of large emerging markets Availability of advanced methods of communication and transportation Prof. Dr. Christina Sichtmann 1 Growth of world trade and output since 1950 [Index (1950=100)] 3300 World merchandise export 2900 2500 2100 1700 1300 World GDP 900 500 Source: Ghauri and 100 Cateora 2010, p. 32 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Prof. Dr. Christina Sichtmann 2 Nationality of the world’s 100 largest industrial corporations (by country of origin) Source: Ghauri and Cateora 2010, p. 33 Prof. Dr. Christina Sichtmann 3 Number of Trade Agreements put in force by the WTO Number 20 15 10 5 0 1958 1963 1968 1973 1978 1983 1988 1998 2003 Source: WTO 2010 [Year] Prof. Dr. Christina Sichtmann 1993 4 2008 EU member states Source: Cateora/Ghauri (2014) Prof. Dr. Christina Sichtmann 5 Trade agreements outside the EU Source: Gersemann and Handschuh 2003 Prof. Dr. Christina Sichtmann 6 Forms of economic integration in regional markets Prof. Dr. Christina Sichtmann 7 Definition of Global Marketing The firm’s commitment to coordinate its marketing activities across national boundaries in order to find and satisfy global customer needs better than the competition. This implies that the firm is able to: develop a global marketing strategy, based on similarities and differences between markets; exploit the knowledge of the headquarters (home organization) through worldwide diffusion (learning) and adaptations; transfer knowledge and ‘best practices’ from any of its markets and use them in other international markets. Prof. Dr. Christina Sichtmann 8 Forces for Global Coordination/Integration Removal of trade barriers Global customers Relationship management Standardized worldwide technology Prof. Dr. Christina Sichtmann Worldwide markets Global village Worldwide communication Global cost drivers 9 Forces for Market Responsiveness Cultural differences Regionalism/protectionism Deglobalization trend Prof. Dr. Christina Sichtmann 10 EPRG framework of business activities • • • • Ethnocentric Orientation home country is superior; foreign countries are similar Polycentric Orientation each host country is unique; foreign countries are different Regiocentric Orientation similarities within a region; ethnocentric or polycentric view of the rest of the world Geocentric Orientation world view: similarities and differences in home and host countries Prof. Dr. Christina Sichtmann 11 8 Trade Barriers Encourage the development of domestic industry and protect existing industry Imposed against imports and foreign businesses Types - Tariffs, quotas, boycotts, monetary, non-tariff and market barriers Monetary barriers: Putting monetary restrictions on trade Market barriers: Imposed in an attempt to promote domestic industry Used as revenue-generating taxes or to discourage the importation of goods Arbitrary and discriminatory, requiring constant administration and supervision Used as reprisals against protectionist moves of trading partners Prof. Dr. Christina Sichtmann 12 Types of Trade Barriers Economic Barriers Protectionistic Barriers Behavioural Barriers Country Risks Prof. Dr. Christina Sichtmann 13 Categories of trade barriers Tariff barriers: • Specific • Ad valorem • Discriminatory Prof. Dr. Christina Sichtmann Non-tariff barriers: • Quotas • Embargoes • Administrative delays • Local-content requirements 14 27 Country risk ratings Source: Ghauri and Cateora 2010, p. 131 Scores are based on indicators from three categories: currency risk, sovereign debt risk and banking risk (Standard 6 Poor‘s, Fitch Ratings 2009) Prof. Dr. Christina Sichtmann 14 27 Distribution of international trade 3,6 % 6,7 % Northern America 17,1 % 6,8 % 3,3 % 3,3 % 4,2 % 2,7 % Latin America 5,4 % 0,9 % Europe 43,0 % 29,7 % 0,5 % 0,1 % 0,1 % 3,2 % 4,6 % Asia 25,5 % 0,5 % 11,9 % Africa 2,0 % 0,4 % 0,2 % 0,3 % 0,6 % 0,3 % Prof. Dr. Christina Sichtmann 15 Source: WTO 2008 Hofstede’s culture dimensions Power distance Uncertainty avoidance Time perspective Individualism Masculinity Prof. Dr. Christina Sichtmann 16 Hofstede’s results Source: Ghauri and Cateora 2010, p. 80 Prof. Dr. Christina Sichtmann 17 Usage of the Hofstede Dimensions Source: https://geerthofstede.com/germany.html Prof. Dr. Christina Sichtmann 18 The firm Environment Step 1: Selection of segmentation criteria Step 2: Development of segments Step 3: Screening of segments Step 4: Microsegmentation Market entry Prof. Dr. Christina Sichtmann 19 Which of them are most important? International Market Selection Process The firm Environment Step 1: Selection of segmentation criteria Step 2: Development of segments Fine-grained screening Step 3: Screening of segments Step 4: Microsegmentation Market entry Criteria that can be used for this analysis Prof. Dr. Christina Sichtmann 20 Practical application Prof. Dr. Christina Sichtmann 21 Country Attractiveness Evaluation Prof. Dr. Christina Sichtmann 22 Waterfall Approach Advanced countries Gross national product per capita High Developing countries Less developed countries Low Time Prof. Dr. Christina Sichtmann 23 Shower Approach Advanced countries Prof. Dr. Christina Sichtmann Developing countries 24 Less developed countries The Marketing Planning Process Business mission Marketing Audit Marketing Analysis SWOT analysis Marketing planning at the business level Marketing objectives Marketing Mix Decisions Marketing Implementation Core strategy Marketing mix decisions Organization and implementation Control Prof. Dr. Christina Sichtmann 25 Marketing planning at the product level Global versus International Marketing Management (I) Prof. Dr. Christina Sichtmann 26 Sales and Profits Product Life Cycle (PLC) Time Prof. Dr. Christina Sichtmann 27 Use and Limitations of the PLC Use • Product termination • Growth projections • Marketing objectives and strategies over the PLC • Product planning Limitations • • • • Fads and classics Marketing effects Unpredictability Misleading objective and strategy prescriptions Prof. Dr. Christina Sichtmann 28 Global versus International Marketing Management (II) Prof. Dr. Christina Sichtmann 29 Target Marketing Select target market Differentiation Market Segmentation Opportunities & Threats Prof. Dr. Christina Sichtmann 30 Tailor marketing mix B2C: Market Segmentation Segmentation Criteria Behavioural Psychographic Profile Benefits sought Lifestyle Demographic Purchase occasion Personality Socio-economic Purchase behaviour Geographic Usage Perceptions/beliefs/values Prof. Dr. Christina Sichtmann 31 Requirements for Effective Segmentation Measurability Accessibility Substantiality Actionability Prof. Dr. Christina Sichtmann 32 Evaluating Market Segments Competitive Factors Market Factors Environmental Factors Attractiveness of Segment Prof. Dr. Christina Sichtmann 33 Selecting Market Segments Undifferentiated Marketing mix Entire market Marketing mix 1 Segment 1 Marketing mix 2 Segment 2 Marketing mix 3 Segment 3 marketing Differentiated marketing Segment 1 Focused marketing Customized marketing Prof. Dr. Christina Sichtmann Marketing mix Segment 2 Segment 3 Marketing mix 1 Customer 1 Marketing mix 2 Customer 2 Marketing mix 3 Customer 3 34 Global versus International Marketing Management (III) Prof. Dr. Christina Sichtmann 35 Advantages of Standardization Over Adaptation Economies of scale in production and marketing Savings in advertising Uniform international image Prof. Dr. Christina Sichtmann 36 Factors Influencing International Marketing Strategy Prof. Dr. Christina Sichtmann 37 The Planning Process: Phase 1 Preliminary analysis and screening - Matching company/country needs Company character Home country constraints • • • • Host country constraints Strategic Objectives • Political Planning • Economic Resources • Legal • Political/Legal Organisation Competitive A systematised• Economic way of relating to• the future Financial • Others • Level of limitations technology • Management • Culture and marketing • Structures of skills distribution • Products • Geography Prof. Dr. Christina Sichtmann 38 The Planning Process: Phase 2 Adapting the marketing mix to target markets Product Price Promotion • Extent of adaptation • Brand name • Packaging • Service • Warranty • Credit • Discounts • Positioning • Advertising • Personal selling • Media • Message • Sales promotion Prof. Dr. Christina Sichtmann 39 Distribution • Logistics • Channels The Planning Process: Phase 3 and Phase 4 Phase 3 - Developing the marketing plan development • • • • • Situation analysis Objectives and goals Strategy and tactics Budgets Action programmes Prof. Dr. Christina Sichtmann Phase 4 - Implementation and control • • • • • 40 Objectives Standards Assign responsibility Measure performance Correct errors Export Modes Hollensen 2011, p. 336 Prof. Dr. Christina Sichtmann 41 Intermediate Entry Modes Hollensen 2011, p. 357 Prof. Dr. Christina Sichtmann 42 Hierarchical Entry Modes Hollensen 2011, p. 386 Prof. Dr. Christina Sichtmann 43 Evaluation of Entry Modes Risk Capital investmen t Control Autonomy very limited low low low low very intensive low to medium low high high medium medium low medium low Licensing very limited medium low medium low Franchising very limited medium low medium low Joint Venture very intensive high high medium medium Management Contracting very intensive low low high High Foreign sales branch very intensive high high high high Acquisition very intensive high high high high Greenfield investment very intensive high high high high Entry Mode Indirect export Direct export Contract manufacturing Local contacts Prof. Dr. Christina Sichtmann 44 Memorable logos Prof. Dr. Christina Sichtmann 45 Influence of Familiarity with brands Prof. Dr. Christina Sichtmann 46 Siegel and Gale 2015 Logo Evolution Prof. Dr. Christina Sichtmann 47 Global branding Expanding local brands Born Global Brands Expanding successful local brands on international markets Creating global brands from the start Used by the majority of companies Rarely applied in practice. Rapidly build world brand, same name, same positioning, Economies of scale + Less risky, less expensive + Fast - High risk of failure - Slow Prof. Dr. Christina Sichtmann 48 Adopted from Schuiling and Lambin 2003 Global vs. local brands Global brand Local brand = „brands that consumers can find under the same name in multiple countries with generally standardized and centrally coordinated marketing strategies“ (Özsomer 2012, p. 72) = „developed for and tailored to the unique needs and desires of local markets“ (Özsomer 2012, p. 73) wide availability, recognition and geographical reach aspirations of achievement, excitement and happiness convenience and low risk environmental and ethical responsibility uniformity and standardization adaptation to local preferences and culture uniqueness and originality pride of representing the local area and culture high awareness and availability in local market Prof. Dr. Christina Sichtmann 49 Global branding „Global brands are brands that consumers can find under the same name in multiple countries with generally similar and centrally coordinated marketing strategies“ (Steenkamp, Batra, andAlden 2003) A global brand is „defined as a brand that shares common meaning across cultures”[1], has „centrally coordinated marketing strategies“[2] and „whose positioning, advertising strategy, personality, look, and feel are in most respects the same from one country to another“[3]. [1] cf. Sousa (2000), Global Branding, p. 21. [2] cf. Steenkamp, Batra, and Alden (2003), How Perceived Brand Globalness Creates Brand Value, p. 53. [3] cf. Aaker and Joachimsthaler (1999), The Lure of Global Branding, p. 137 Prof. Dr. Christina Sichtmann 50 Global Consumer Culture Positioning Brands as a symbol of a given global consumer culture Prof. Dr. Christina Sichtmann 51 Local Consumer Culture Positioning Brands as an intrinsic part of a local culture Prof. Dr. Christina Sichtmann 52 Foreign Consumer Culture Positioning Brand mystique built around a specific foreign culture Associates the brand‘s users, use occassions, or product origins with a foreign country or culture Prof. Dr. Christina Sichtmann 53 Influencing Factors Prof. Dr. Christina Sichtmann 54 Hollensen 2011, p. 455 Standardization and adaptation of the international marketing mix Prof. Dr. Christina Sichtmann 55 Hollensen 2011, p. 456 Marginal costs and lost marginal revenue marginal costs lost marginal revenue sum of costs complete differentiation Prof. Dr. Christina Sichtmann complete standardization 56 Johansson 2009, p. 404 The Reality In reality few marketing mixes are totally standardized. Useful rule is to standardize where you can, stay local where you must. Standardization can create massive economies of scale but full standardization can be difficult. Adaptation allows local tastes and preferences to be met but increases costs. Prof. Dr. Christina Sichtmann 57 The Difficulties Culture and consumption patterns Language differences Regulations Media availability and promotional references Organizational structure and culture Prof. Dr. Christina Sichtmann 58 Brand Name Difficulties Pronunciation Daewoo Sony: formerly Tokyo Tsushin Kogyo Negative associations: Fiat regata: Sweden „grumbler“ (Nörglerin) Fiat uno: Finnish „fool“ (Trottel) Mitsubishi: Pajero, Spanish „mollycoddle“ (Weichei) Audi: étron„dung pile“ (Misthaufen) Porsche 911: bad association after 9-11 Meaningful „Drink 10“ for a juice is meaningful while „High C“ is not Douglas –„come in and find out“ Patents -Chinese computer firm „Legend“ turned into LENOVO (LE from Legend, Novo = New) Prof. Dr. Christina Sichtmann 59 Brand Name Difficulties Prof. Dr. Christina Sichtmann 60 Ghauri/Cateora (2014) Factors Influencing Standardization/Adaptation of Product Attributes Prof. Dr. Christina Sichtmann 61 Usunier/Lee (2013) Study: Adaptation What difference between countries would compel you to adapt the marketing mix of the brand? Type of Difference % of managers naming type as reason for adaptation Legal Differences 55 Competition 47 Consumption Habits 41 Distribution Structure 39 Brand Awareness 38 Lifestyle Differences 25 Cultural Differences 25 Prof. Dr. Christina Sichtmann 62 Adopted from Kapferer 2004 Study: Standardization Which facets of the brand mix are most often globalised? Brand Facet % of pan-European Brands Logotype, Trade mark 93 Brand name 81 Product features 67 Packaging 53 ... 29 Advertising Positioning ... 10 Sales Promotion Prof. Dr. Christina Sichtmann 63 Adopted from Kapferer 2004 Reported Levels of Standardization and Adaptation Prof. Dr. Christina Sichtmann 64 Usunier/Lee (2013) Factors influencing the standardization/ adaption decision in pricing Firm-level factors Market factors Image ability to pay (1) (2) consumer affinity to preferences arbitrage (3) (4) costs (5) competitive factors competitive re-imports environment (6) (7) environmental factors tax inflation and differences differences in distribution currency risks channels (8) (9) (10) Backhaus/Voeth 2010, p. 152 Prof. Dr. Christina Sichtmann 65 Consumer Preferences Knowledge of demand elasticity and price is crucial Demand elasticity: Demand for a product changes due to minor changes in the price For undifferentiated products, competition is more on pricing For differentiated products, brand names and an image of high quality are important Prof. Dr. Christina Sichtmann 66 Parallel Imports Definition: When products are imported into a country without the consent of the brand owner are a result of price adaptation (when prices are lower in one country than in another) are lucrative when wide margins exist between prices for the same product in different countries occur when price difference are greater than the cost of transportation between two markets Prof. Dr. Christina Sichtmann 67 Pricing Strategies Under Varying Currency Conditions Prof. Dr. Christina Sichtmann 68 Tax differences [VAT in %] Dänemark 25 Schweden 25 Ungarn 25 Polen 22 Finnland 22 Irland 21 Belgien 21 Lettland 21 Litauen 21 Bulgarien 20 Italien 20 Österreich 20 Portugal 20 Slowenien 20 Tschechische Republik 20 Estland 20 Frankreich 19,6 Deutschland 19 Griechenland 19 Niederlande 19 Rumänien 19 Slowakische Republik 19 Malta 18 Vereinigtes Königreich 17,5 Spanien 16 Zypern 15 Luxemburg 15 Prof. Dr. Christina Sichtmann 69 Backhaus/Voeth 2010, p. 164 Tax differences tax (25%) 20 Net price 80 tax (33%) 25 Gross WTP country A Prof. Dr. Christina Sichtmann Net price 75 country B 70 Backhaus/Voeth 2010, p. 166 Price Escalation Definition: Increase in price when products move from one country to another Factors leading to it: Taxes, tariffs and administrative costs Inflation and exchange variation Exchange variation: Variation in the exchange rate of two currencies Exchange-rate fluctuations Hedging: Insuring against a negative currency rate Varying currency values Middleman costs Transportation costs Lack of price control in overseas market Price control: Prices are regulated/fixed by an authority Retailer mark-ups: Profit margin of the retailer Prof. Dr. Christina Sichtmann 71 Transfer pricing (I) Definition: Company uses selective prices for internal transactions Benefits: Lowering duty costs Shipping goods into high-tariff countries at minimal transfer prices so duty base and duty are low Reduction of income taxes in high-tax countries Overpricing goods transferred to those countries Facilitation of dividend repatriation To show more or less profit as required Objectives Maximising profits for the corporation as a whole Facilitating parent-company control Offering management at all levels a basis for maintaining, developing and receiving credit for their own profitability Prof. Dr. Christina Sichtmann 72 Transfer pricing (II) Arrangements for pricing goods for intracompany transfer Sales at the local manufacturing cost plus a standard mark-up Sales at the cost of the most efficient producer in the company plus a standard markup Sales at negotiated prices Arm’s-length sales using the same prices as quoted to independent customers Prof. Dr. Christina Sichtmann 73 Decision Factors Communication effectiveness Cost Drivers Standardization/ Adaptation Prof. Dr. Christina Sichtmann 74 Optimal Degree of Standardization Marginal cost savings (C) Marginal Decrease in Effectiveness (Ei) C E standardization Optimal degree of standardization Backhaus/Voeth, p. 189 Prof. Dr. Christina Sichtmann 75 Global vs Local Advertising Global Campaigns: standardized ad for all countries (in English) Global Theme Approach: One standardized advertising theme in all countries, while the execution of the theme can be adapted for single countries and thus vary across countries Regional Campaigns: Advertising campaign is developed for a group of countries (e.g. Pan-European campaigns). Local Campaigns: Advertising campaigns are developed on a country-basis. Prof. Dr. Christina Sichtmann 76 Example: Standardized Campaign Prof. Dr. Christina Sichtmann 77 Example: Global Advertising Theme Prof. Dr. Christina Sichtmann 78 Challenges of international advertising Legal and tax considerations Language Cultural diversity Production and cost limitations Prof. Dr. Christina Sichtmann 79 Claims and actual understanding Endmark 2015 Prof. Dr. Christina Sichtmann 80 Claims and actual understanding Cateora/Ghauri (2014) Prof. Dr. Christina Sichtmann 81 Basic Ways to Enter a Foreign Market Internal expansion Merger or takeover of a host country firm Franchising Joint Ventures Non-controlling interest in a host country firm Prof. Dr. Christina Sichtmann 82 Distribution Structure Channels (I) Supplier-oriented distribution structure Importer controls a fixed supply of goods Limited supply of goods are sold at high prices to small number of affluent customers Involves limited number of middlemen Middleman: Businessman, other than producer and consumer, involved in exchange of goods Distribution systems are local and not national in scope Prof. Dr. Christina Sichtmann 83 Distribution Structure Channels (II) European distribution structure Transit documents have been simplified and custom formalities have been eliminated Firms are using centralised distribution centres Just-in-time (JIT) production and purchasing methods have gained popularity Just-in-time (JIT): Deliveries made at a time when the component is to be used and not before Elimination of trade barriers has increased Pan-European franchising Prof. Dr. Christina Sichtmann 84 Distribution Structure Channels (III) Distribution structure in the USA Huge size of the market has led to large-sized retailers who buy direct from manufacturers Many manufacturers have their own distribution channels or retail stores Distribution structure in Japan High density of middlemen Traditional structure serves consumers who make small, frequent purchases at small, conveniently located stores Prof. Dr. Christina Sichtmann 85 Distribution Structure Channels (IV) Distribution structure in Germany Channel control – Manufacturers Depend on wholesalers to provide various services to others in the distribution network Control wholesalers and other middlemen to ensure marketing support for their products and to exclude competitors from the channel Business philosophy - Emphasis is on loyalty, harmony and friendship Supports long-term dealer/supplier relationships that are resistant to change Prof. Dr. Christina Sichtmann 86 Choice of Foreign Distribution Channels Control Consumers and their characteristics Culture Continuity Character 9 C‘s Necessary capital Coverage Competition Prof. Dr. Christina Sichtmann Costs 87