Download Chapter 11 –Global Marketing Management: Planning and

Chapter 11 –Global Marketing Management: Planning and
Organization
Teaching Objectives
An issue facing many multinationals today is how to compete in an increasingly competitive global
market. Whether a small company or one of the giants, staying competitive means constantly re-accessing
marketing strategies. How product, promotion, distribution, and pricing strategies evolve in international
marketing is dependent on the approach to internationalization the company takes. Of the three operating
concepts that characterize a company’s international orientation, Domestic Market Extension Concept,
Multidomestic Market Concept, or Global Market Concept, the main focus of this chapter and the text is
on the Global Market Concept. I believe that regardless of the size of a company or in how many
countries it operates, it should have a global orientation. The teaching objectives of this chapter are to:
1) Present the operating concepts an international company may have and explore the idea of global
marketing management.
2) Discuss the benefits of global orientation.
3) Stress the importance of quality and cost containment in global marketing competition.
4) Examine the different types of collaborative relationships and show how these alliances are being
embraced by international companies.
5) Focus on relationship marketing and strategic international alliances as two important types of
collaborative relationships for the global marketer.
6) Stress the need for strategic planning to achieve company goals.
Comments and Suggestions
1. It is important to stress the changing competitive structure of international marketing and show how
firms have to reexamine the way they operate to remain competitive. An analysis of multinational
versus global companies and the benefits of global orientation serve as basis of a good discussion.
Exhibit 11–1 is a good illustration of how the two approaches differ. A point that needs to be stressed
is that having a global orientation is more a philosophy of how to approach international markets than
how large you are, whether or not you have a “global” product, or in how many countries you market
your products. For some good examples of small companies that are moving into global markets see,
“It’s A Small (Business) World,” Special Report, Business Week, April 17, 1995, pp. 96–101.
2. The subject of collaborative relationships and the subsequent discussion of relationship marketing and
strategic international alliances are important ideas to focus on in this chapter. Changes in technology,
the shortening product life cycle, competition, the rapid growth of emerging markets and the need for
cost containment as major trends in global marketing means that many firms must engage in
collaborative relationships to remain competitive. There are several good examples in the text that
illustrate how these relationships have been used. Also, Michael Schrage, “Notes on Collaboration,”
The Wall Street Journal, June 19, 1995, p. A-10, has three good examples of important collaborations
by IBM, Microsoft, and Boeing. As Schrage states, “. . . ‘winning’ in tomorrow’s global markets isn’t
going to be a matter of scoring points but of creating value with customers, clients, suppliers and
colleagues in innovative ways.” These relationships span the complete range of contacts a company
has from customers through suppliers to other companies.
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It is important to stress that relationships are not necessarily permanent but exist to achieve mutually
beneficial goals and when those goals are achieved or change, then the relationships are dissolved.
This may be the case in the alliance between Ford and VW in Brazil. (See Rik Turner, “Why Ford,
VW’s Latin Marriage Succumbed to 7-Year Itch,” Advertising Age, March 20, 1995, p. I-22.).
3. Exhibit 11-1, International Planning Process, gives students a comprehensive overview of the
planning process. If a country project similar to the one described in Part VI, of the text, developing a
marketing plan, is used, Exhibit 11–1 is helpful in giving students an overall view of the steps in the
project. A brief review of this exhibit elicits many questions students have about the project and
affords the professor the opportunity give them a guided tour through the project.
4. Not to be overlooked in this chapter are the various alternative market entry strategies. It is important
to stress that there are a variety of ways to enter international markets and a company may use only
one or a combination depending on the goals of the company and target market characteristics.
Lecture Outline
I.
II.
III.
IV.
Global Marketing Management
A. Global versus International Marketing Management
B. Benefits of a Global Orientation
Planning for Global Markets
A. Company Objectives and Resources
B. International Commitment
C. The Planning Process
Alternative Market-Entry Strategies
A. Exporting
B. The Internet
C. Contractual Agreements
1. Licensing
2. Franchising
3. Joint Ventures
4. Consortia
D. Direct Foreign Investment
E. Strategic International Alliances (SIA)
Organizing for Global Competition
A. Locus of Decision
B. Centralized versus Decentralized Organizations
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Discussion Questions
1.
Define:
Global marketing management
Corporate planning
Direct exporting
Strategic planning
Indirect exporting
Tactical planning
Licensing
Franchising
Joint Venture
Global market concept
SIA
2. Define strategic planning. How is strategic planning different for international marketing than
domestic marketing?
Strategic planning is a systemized way of relating to the future. It is an attempt to manage the effects
of external uncontrollable factors on the firm’s strengths, weaknesses, objectives, and goals to attain a
desired end. Further, it is a commitment of resources to a country market to achieve specific goals.
The principles of planning are not in themselves different between international and domestic
marketing, but the intricacies of the operating environments of the MNC (host country, home, and
corporate environments), its organizational structure, and the task of controlling a multicountry
operation create differences in the complexity and processes of international planning. Strategic
planning on an international level allows for rapid growth of the international function, changing
markets, increasing competition, and the ever-varying challenges of different national markets. The
plan blends the changing parameters of external country environments with corporate objectives and
capabilities to develop a sound, workable marketing program.
3. Discuss the effect of shorter product life cycles on a company’s planning process.
Global competition is placing new emphasis on some basic tenets of business. It is reducing time
frames and focusing on the importance of quality, competitive prices, and innovative products. Time
is becoming a precious commodity for business, and expanding technology is shortening product life
cycles and creating greater opportunities for innovative products. A company no longer can introduce
a new product with the expectation of dominating the market for years while the idea spreads slowly
through world markets. In any given year, for example, two thirds of Hewlett-Packard’s revenue
comes from product introduced in the prior three years. Shorter product life cycles mean that a
company must maximize sales rapidly to recover development costs and generate a profit by offering
its products globally. Along with technological advances have come enhanced market expectation for
innovative products at competitive prices. Today, strategic planning must include emphasis on
quality, technology, and cost containment. To achieve the flexibility and speed required under such
conditions, many firms are entering collaborative relationships to shore up their weaknesses whether
in distribution, technology or manufacturing that will enable them to respond to the problems created
by shorter life cycles.
4. What is the importance of collaborative relationships to competition?
The competitive environment of international business is changing rapidly. To be competitive in
global markets a company must meet or exceed new standards for quality and new levels of
technology. There is an increasing change of pace for product development and profitability. Cost
efficient, technologically advanced products are being offered by competitors and demanded in
established markets as well as in markets rising from formerly Marxist-socialist economies.
Opportunities abound the world over, but to benefit, firms must be current in new technology, have
the ability to keep abreast of technological change, have distribution systems to capitalize on global
demand, have cost-effective manufacturing, and have capital to build new systems as necessary.
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The accelerating rate of technological progress, market demand created by global industrialization,
and the creation of new middle classes will result in tremendous potential in global markets. But,
along with this surge in global demand comes an increase in competition as technology and
management capabilities spread beyond global companies to new competitors from Asia, Europe, and
Latin America. Although global markets offer tremendous potential, companies seeking to function
effectively in a fragmented global market of five billion people are being forced to stretch production,
design\engineering, and marketing resources and capabilities because of the intensity of competition
and the increasing pace of technology. Improvements in quality and staying on the cutting edge of
technology are critical and basic for survival but often are not enough. Restructuring, reorganizing
and downsizing are all avenues being taken by firms to strengthen their competitive positions.
Additionally, many multinational companies are realizing they must develop long term, mutually
beneficial relationships throughout the company and beyond to competitors, suppliers, governments,
and customers. In short, multinational companies are developing orientations that focus on building
collaborative relationships to promote long-term alliances and they are seeking continuous, mutually
beneficial exchanges.
The environment facing multinational companies demands flexibility, quality, cost containment,
cutting edge manufacturing skills, and a rapid response to market changes to sustain a competitive
advantage. The strengths and capabilities a company must have to be a major player are enormous
and few companies can cover all the bases all of the time. To shore up weaknesses, companies are
entering relationships with others to share what each does best whether in marketing, research or
manufacturing. Collaborative relationships are becoming a common way to meet the demands of
global competition and a successful collaboration means that each achieves more together than either
can accomplish alone.
5. In phases one and two of the international planning process, countries may be dropped from further
consideration as potential markets. Discuss some of the conditions in each phase that may exist in a
country that would lead a marketer to exclude a country.
In phase one of the planning process, there are a host of reasons why a country would no longer be
considered. On balance, those countries that do not offer sufficient potential for further consideration
will be eliminated. Some of the reasons why this may occur are that product acceptance within the
country could not be achieved without extensive investment and new product development, and the
firm does not have sufficient resources to make that investment; the legal structure may be such that it
would be impossible for the company to function within that country. Competition in the country is
such that, based on the company’s objectives, resources, etc., it is felt that it would not be a profitable
venture. In other words, any problem that would lead to minimum market potential, minimum profit,
minimum return on investment, unacceptable competitive levels, unacceptable political stability,
unacceptable legal requirements, etc., may all lead to the dropping of a country.
While the major reasons for dropping a country in phase one center around general environmental
constraints, the reasons that a country may be dropped in phase two center around the more specific
questions of what cultural environmental adaptations are necessary for successful acceptance of the
company’s marketing mix, and will adaptation costs allow for profitable market entry. In phase two,
the marketing mix is the focal point of analysis. Still, the final determination of whether or not a
country is dropped depends upon the anticipated profitability of the market after necessary
adaptations are made.
6. Assume that you are the director of international marketing for a company producing refrigerators.
Select one country in Latin America and one in Europe and develop screening criteria to use in
evaluating the two countries. Make any additional assumptions about your company that are
necessary.
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This is a library-type project. Whatever the details of the screening criteria, the major points that
should be considered are: (1) company objectives and goals, (2) product-use characteristics, (3)
country environmental characteristics.
7. “The dichotomy typically drawn between export marketing and overseas marketing is partly fictional;
from a marketing standpoint, they are but alternative methods of capitalizing on foreign market
opportunities.” Discuss.
The dichotomy drawn between export marketing and overseas marketing is very misleading, for in
fact they are but alternative methods of approaching the foreign markets. Yet, on the other hand, these
approaches are often interrelated in the complete marketing structure. Both exporting and overseas
marketing can be successfully interchanged to reach various heterogeneous markets. Depending on
market structure, competition, and company policies, the organizational structure can be so devised so
as to use exporting, overseas marketing, or a combination of both to successfully reach a wide
assortment of foreign markets. In one country, due to high tariff rates, overseas production and
marketing might be advised; on the other hand, poor communications or resources might necessitate
exporting.
8. How will entry into a developed foreign market differ from entry into a relatively untapped market?
The differences between entering a fully developed market and an untapped foreign market are many
and extremely varied. Some of these differences are channels of distribution which may or may not be
developed. Governmental attitudes toward business, foreigners, and industry may be very liberal in a
growing economy, while an established market may be very restrictive. Communication and
transportation may be highly limited in untapped markets and highly developed in successful
countries. The amount of capital, banks, and exchange-rate systems will vary according to the
market’s development. Finally, the degree and amount of competition will vary accordingly. To this
list, endless factors could be added such as cost of entering the market, social customs, laws, etc.
9. Why do companies change their organizations when they go from being an international to a global
company?
An international marketing plan should optimize the resources committed to stated company
objectives. The organizational plan includes the type of organizational arrangements to be used, and
the scope and location of responsibility. Many ambitious multinational plans meet with less than full
success because of confused lines of authority, poor communications, and lack of cooperation
between headquarters and subsidiary organizations.
Companies are usually structured around one of three alternatives: global product divisions
responsible for product sales throughout the world; geographical divisions responsible for all products
and functions within a given geographical area; and a matrix organization consisting of either of these
arrangements with centralized sales and marketing run by a centralized functional staff, or a
combination of area operations and global product management.
Market-oriented firms are finding greater competitiveness in world markets makes it essential to
assume a global perspective in planning and organizational structure. Global competition also
requires quality products designed to meet ever-changing customer needs in the face of rapidly
growing competition from every corner of the world. Cost containment, escalating technology,
customer satisfaction and a greater number of players mean that every opportunity to refine
international business practices must be examined in light of company goals. Strategic international
alliances, strategic planning and alternative market entry strategies are important avenues to global
marketing that must be implemented in the planning and organization of global marketing
management.
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10. Formulate a general rule for deciding where international business decisions should be made.
International business decisions should reflect the culture of the country in which they will be
implemented. Thus the decision should be as close to the country where it is to be implemented as
possible.
11. Explain the popularity of joint ventures.
Joint ventures have become popular for a number of reasons. One important marketing reason is to
gain access to markets. Nearly all of the developing countries, and many developed countries, require
some degree of local participation for operating in their country. Mergers with distributor companies
or companies which already have well-established local distribution may provide rapid market access
and distribution to foreign companies entering a country. Sometimes companies join forces in order to
broaden the line of merchandise that they have available, thereby gaining marketing efficiency and
better public image. Another market reason for joining ventures is that local firms possess market
information and the marketing know-how which would take years for a foreign company to acquire.
Such participation minimizes the risk of market failure and speeds the marketing effort. Joint ventures
may also arise for financial and manpower reasons. Financially it is sometimes desirable to merge
with foreign companies because the merger provides access to local capital markets and combines the
resources and fund raising capabilities the companies have. It may also give access to a higher quality
and more capable managerial manpower.
12. Compare the organizational implications of joint ventures versus licensing.
Joint ventures involve the partners in a new venture and usually require significant inputs of both
capital and management. In licensing, the companies retain separate identity. Usually the licensor is
little affected by his licensing actions.
13. Visit the homepages of Maytag Corporation http://www.maytag.com/ and the Whirlpool Corporation
http://www.whirlpool.com/, both appliance manufacturers in the United States. Each has some
international involvement. Search their Web sites and compare their international involvement. How
would you classify each, as exporter, international, or global?
The following excerpts from the homepages of these two companies reveals rather forcefully that
these two giants in the U.S. market are far apart when it comes to international marketing. Maytag is
an exporter with some desire to become international while Whirlpool is an international company
with global sales.
Maytag
Maytag’s heritage is more than a hundred years old and synonymous with a single product:
washing machines. Today, Maytag Corporation is a $3.4 billion home and commercial appliance
company focused in North America and targeted international markets.
Maytag International is responsible for finished goods export sales, licensing of the corporation’s
appliance and floor care brands, and joint ventures worldwide.
Investing for profitable growth is a key corporate objective. That was underscored in September
1996 when Maytag announced a joint venture with Hefei Rongshida, the leading washing
machine company in the People’s Republic of China.
Maytag invested $35 million for an ownership position in the China joint venture and both parties
will each invest $35 million over approximately two years to expand the joint venture into the
Chinese refrigerator market. Maytag’s interests in the joint venture are managed by Maytag
International, the division responsible for appliance exports, licensing and international ventures.
China is a huge appliance market with tremendous growth potential. For example, Chinese
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consumers buy more than 8 million refrigerators a year, which is comparable to the U.S. market.
However, fewer than one out of four households in China has a refrigerator.
Maytag’s China joint venture involves a well-established, profitable business with high-quality
washers, a widely recognized brand name, RSD, and an effective nationwide sales and
distribution network. Their annual revenues more than doubled from 1993 to 1995, and operating
margins are strong. Maytag will receive a full-year benefit from its China joint venture in 1997,
and significant growth opportunities exist in the years ahead. The China joint venture is part of
Maytag’s strategy to grow profitably by making selective investments domestically and abroad.
Whirlpool
Whirlpool Appliances are manufactured in 13 countries and marketed in approximately 140
countries around the world. Whirlpool Corporation is the world’s leading manufacturer and
marketer of major home appliances. Its growth, from primarily a U.S. manufacturer to “world
leader,” is the result of strategic direction set in the mid 1980s and reaffirmed through an
exhaustive and integrated strategic planning process in 1992.
In the 1980s, four manufacturers accounted for almost all major home appliance sales in the
United States, a market where approximately 40 million appliances are sold annually. Each was a
tough, seasoned competitor fighting for greater sales in a market predicted to grow little in the
decade ahead. Whirlpool was one of those companies. Unable to find growth potential in the U.S.
appliance market and unwilling to accept the status quo, the company began a systematic
evaluation of opportunities—both inside and outside the appliance industry—worldwide.
At the same time, Whirlpool established parameters within which decisions about the company’s
future would be made. New ventures would provide opportunity for growth, build on existing
company strengths, and be market driven. Leadership opportunities, too, would be a
consideration.
With growth parameters established and study data in, the decision was made to remain focused
on major home appliances but to expand into markets not already served by Whirlpool. The goal
was world leadership in a rapidly globalizing major appliance industry in which approximately
190 million appliances are sold each year. A major acquisition in Europe, joint ventures with
companies in Mexico and India and increased ownership in companies in Canada and Brazil
swiftly followed.
Throughout the early 1990s, the company continued its expansion in Latin America and Europe
and a manufacturing and marketing presence was established in Eastern Europe. And, to manage
its small appliance business on a global basis, including the KitchenAid stand and hand mixers, a
Small Appliance Business Unit was formed.
In the past four years, Whirlpool has aggressively pursued its Asian strategy. A headquarters
office and four regional offices were established in 1993. Two years later, five majority-owned
joint ventures were announced in India and China to expand the company’s Asian manufacturing
base.
In Asia, Latin America, North America, Europe, and in all the countries where it has a presence,
Whirlpool seeks to set the standards against which the global major domestic appliance industry
is measured. To that end, the company vigorously pursues the goals of its Worldwide Excellence
System (WES). Initiated in 1991, WES incorporates the best of all Whirlpool quality programs,
worldwide, with Malcolm Baldrige Award and International Standards Organization criteria to
establish a common approach to quality, one that dedicates the company to the pursuit of
excellence and total customer satisfaction.
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14. Using the sources in question above i.e., http://www.maytag.com/) and http://www.whirlpool.com/,
list the different alternative entry modes each uses.
Both use foreign direct investment although Whirlpool is the most advanced. Maytag exports from
the United States.
15. Visit the Nestlé Corporation homepage http://www.nestle.com and Unilever N.V.
http://www.unilever.com/ and compare their strategies towards international markets. In what ways to
they differ (besides product categories) do they differ in their international marketing?
This exercise can lead to a good class discussion of multinational and/or global companies and
strategies. These two global giants probably are among the first real global companies. From their
beginning they viewed the world as their market and still follow that direction. The excerpts below
from their home pages gives a brief look at their philosophies.
Nestlé
In a world of endless diversity, there is one activity that almost everyone shares. No matter where
you go, you’ll find people of all ages, from every social class, and representing every religion and
ethnic group enjoying some Nestlé food or drink product. Our products (more than 8,500 in all)
are sold in more than 100 countries, and they bring pleasure to millions of people. Whether it’s
ready-to-eat meals, instant coffee, chocolate bars or mineral water, Nestlé products are enjoyed
around the world.
Meeting the needs and desires of a diverse and ever-changing world requires respect for and
knowledge of local values and desires. To achieve that, Nestlé has made decentralization a basic
principle. We have offices, factories and research centers throughout the world. It is our policy to
adapt as much as possible to local customs and circumstances while allowing decisions about
products, marketing and personnel to be made at the local level.
Nestlé is The World’s Largest Food Company. Only two percent of sales are generated in
Switzerland, our country of origin, and our management and staff reflect a truly international
outlook. As a Company, we do not believe in mission statements, because one would either be so
general as to become meaningless, or so specific that it wouldn’t be applicable or relevant
everywhere—we would like to offer a set of principles that will provide insight into the
Company’s attitudes and culture.
At Nestlé, we try to take the mentality and customs of individual countries into account, but there
are some general guidelines that we apply everywhere. Those include:

A positive attitude toward work

A pragmatic, realistic approach to doing business

An open-minded approach to the world

A minimal number of systems and written guidelines

A personal style of management

An atmosphere of mutual trust

An avoidance of showing off, windy rhetoric and hypocritical remarks

An emphasis on practical experience and on the setting of good examples.
Employees, people and products are more important at Nestlé than systems. Systems and
methods, while necessary and valuable in running a complex organization, should remain
managerial and operational aids but should not become ends in themselves. It is a question of
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priorities. A strong orientation toward human beings, employees and executives is a decisive, if
not the decisive, component of long-term success.
Our focus is on products. The ultimate justification for a company is its ability to offer products
that are appealing because of their quality, convenience, variety and price—products that can
stand their ground even in the face of fierce competition.
Nestlé makes clear a distinction between strategy and tactics. It gives priority to the long-range
view. Long-term thinking defuses many of the conflicts and contentions among groups—this
applies to employment conditions and relations with employees as well as to the conflicts and
opposing interests of the trade and the industry. Of course, our ability to focus on long-term
considerations is only possible if the company is successful in the struggle for short-term
survival. This is why Nestlé strives to maintain a satisfactory level of profits every year.
Switzerland is home to Nestlé’s Swiss subsidiary, its international headquarters and the registered
office of Nestlé’s holding company, but Nestlé does not regard its Swiss headquarters as the
center of the universe. Decentralization is a basic principle of Nestlé. Our policy is to adapt as
much as possible to regional circumstances, mentalities and situations. By decentralizing
operational responsibility, we create strength and flexibility and are able to make decisions that
are better attuned to specific situations in a given country. Policies and decisions concerning
personnel, marketing and products are largely determined locally. This policy creates stronger
motivation for Nestlé’s executives and employees and a greater sense of identification with
Nestlé’s business. It is not Nestlé’s policy to generate most of its sales in Switzerland,
supplemented by a few satellite subsidiaries abroad. Nestlé strives to be an “insider” in every
country in which it operates, not an “outsider.”
A very important concern at Nestlé has to do with uniformity: how consistent Nestlé’s principles,
policies, rules of conduct and strategies should be, and to what extent they should differ
depending on the country, subsidiary, region, branch or group of products. In general, Nestlé tries
to limit the uniformity of its policy to a requisite minimum. This minimum is then systematically
enforced, unless there are compelling reasons in a given market that justify deviation from policy.
Nestlé does not want to become either a conglomerate or a portfolio manager. Nestlé wants to
operate only those businesses about which it has some special knowledge and expertise. Nestlé is
a global company, not a conglomerate hodgepodge. We regard acquisitions and efforts at
diversification as logical ways to supplement our business, but only in the context of a carefully
considered corporate marketing policy.
The public’s sense of the power and size of a corporation is often inaccurate, for a company’s
power is limited by a host of factors including legislation, competition, regulatory bodies and
publicity. From a business point of view, it is desirable for a firm to achieve the size best suited to
a specific industry or mode of production. To be competitive internationally and make significant
investments in research and technology, a larger company has an advantage. From a strictly
organizational point of view, flexible, simple structures work best and excessively large units
should be avoided whenever possible. In both respects Nestlé has a natural advantage: Although
it is a big company, it is spread out over many countries and each of Nestlé’s factories has its own
management and responsibility.
Nestlé is probably unique in the food industry in having an integrated research and development
program that engages in applied and basic research in the fields of human physiology, health,
nutrition and raw materials. Our research and development program gives us the capacity to
create new types of products that we cannot even imagine today, especially in the critical area
where preventive medicine and food products overlap. In addition, as concern for the
environment grows, research will play an important role in overcoming environmental problems.
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For Nestlé, this is particularly important in packaging. Concern for the effects of packaging on
the environment is forcing us to look for new solutions and to consider their interaction with our
biological product—food.
At present, the world faces daunting questions about its ability to provide enough wholesome
food for everyone. Malnutrition and poor eating habits are still serious problems in many
developing countries. By 2100, the world’s population will double. Will it be possible to feed a
world with so many inhabitants? At Nestlé, the big picture is all about feeding the world and
providing food and nutrition for an ever-growing population. Our response to this situation is to
intensify research, strive for innovations and improve quality.
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