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Introduction – Global Marketing Strategies On a political map, country borders are clear as ever. But on a competitive map, financial, trading, and industrial activities across national boundaries have rendered those political borders increasingly irrelevant. Not only firms that compete internationally but also those whose primary market is considered domestic is affected by competition from around the world. Note: Much of what your text puts in the future tense is really present tense. Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 2 Case: P&G in China Entry through joint venture with a Hong Kong based multinational in 1998 Chinese market characterized by: Huge disparity in income levels and consumer needs within China Large number of outlets for consumer goods Three tier consumer segment system developed Premium Middle Low price Marketing objective to promote global products as Chinese brands R&D in Beijing Use local ingredients Local cost and pricing targets Local customer research staff Go into villages to research rural consumers Tailor products to local traditions, local tastes, local budgets Different and more costly products for wealthier urban markets Global Strategy Elements 1. Competitive forces in an industry 2. Global industry – the extent of globalization 3. Competitive advantage (cost, differentiation, etc) 4. Hyper competition (disrupting the market) 5. Interdependency – standardized components Competitive Industry Structure An element of global strategy Michael Porter Industry competitors – rivalry among existing firms Potential entrants – note barriers to entry Barriers could be legislated Time and investment Bargaining power of suppliers (raw materials to components) Bargaining power of buyers (supermarket chains, large volume operations like WalMart, government as customer, single large company customer) Threats of substitutes (next slide) Competitive Industry Structure Substitute Products or Services Often overlooked or underestimated by established industry players HP in 2004 saw Personal Computers as a commodity Build cheap in high volume Main competitor thought to be Dell Computer of TX $3BB R&D under-utilized Substitutes can restructure entire industries Common in technology industries Always a threat in the petroleum industry But cost of entry for substitutes is high Once a substitute gains entry, costs may rapidly drop Pattern is to have price spikes, followed by periods of prices too low for substitutes to thrive Synthetic rubber became a substitute when war cut natural rubber supplies Nature of Competitive Industry Structure Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 7 Global Industry Those industries where a firm’s competitive position in one country is affected by its position in other countries. The first question that faces managers is the extent of globalization of their industry. Example: Foreign car brands in many countries are made locally. Every industry could have global aspects. Some academics believe consumer tastes are converging globally, and firms drive tastes to converge. Chapter 8 8 Industry Globalization Potential The potential globalization of an industry is determined by: 1. Market forces 2. Cost forces 3. Government forces 4. Competition forces Chapter 8 9 Exhibit 8-1: Industry Globalization Drivers Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 10 Global Industry Market Forces Per capita income convergence Rich consumers in emerging markets Convergence of lifestyles and tastes Increased international travel creates global customers Organizations behaving as global customers (Toyota) Growth of global and regional retail channels More regional successes than global Those that are global are adapted to regional culture (7-11) Establishment of world brands Global advertising Spread of global and regional media Revolution in communication technology* Chapter 8 11 *Revolution in Communication technology Much bigger and more fundamental than e-commerce alone Growth of worldwide secure financial settlements Rapid spread of ATMs from the mid-90s for example Ease of doing financial transactions across borders Rapid spread of cellular technology connected whole regions to the outside world, from late 1990s Rapid decrease in the price of bandwidth late 1990s Large scale long distance data transfer became viable Fiber optic technology means very cheap prices across oceans Google and others have mix of local and central content Offshore factories and suppliers have real time access Distributors have real time access to retail inventory Medical information and other data intensive documents exchanged real time Cultural diffusion via better communication Often thought of as spread of English Growing exposure and interest works in both directions Global Strategy Cost Forces 1. Global economies of scale and scope 2. Steep experience curve 3. Global sourcing efficiencies 4. Favorable logistics 5. Difference in country costs 6. High product development costs Need to spread costs onto higher volumes Emerging R&D centers in lower cost countries 7. Fast-changing technology 8. Shorter product life cycles Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 13 Global Strategy Government Forces 1. Favorable trade policies (and trading blocks) 2. Compatible technical standards 3. World Trading Regulations 4. High growth/low labor cost developing countries 5. Deregulation/privatization of industries 6. Shift to market economies in China, Russia, E. Europe Competitive Forces 1. High exports and imports 2. Competitors from different continents and countries 3. Interdependent countries (components specialization) 4. Globalized competitors 5. Globalized financial markets (and company ownership) Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 14 Global Strategy Competitive Advantage Cost leadership Builds on economies of scale Learning effects (how to be more efficient) Long production runs (high cost to change lines) Amortize fixed costs over more units (R&D often fixed) Cost leadership can be a barrier to entry (and a trap!) Product differentiation Customers willing to pay premium price for unique products Can be a barrier to entry (note Brand Relevance, “own a category”) Niche strategy Focus on a highly specialized segment Try to achieve a dominant global position in that segment Pays to stay ‘under the radar’ A overlooked niche can grow into something much bigger Global marketers combine cost control and product differentiation 15 Global Strategy Gaining Competitive Advantage Firms create series of temporary advantages Most advantages are temporary (methods are learned) Firms must innovate to stay ahead (think of Brand Relevance) Experiment with small product introductions – some will work Advantages and disadvantages of being the pioneer Can grow quickly in absence of competitors (a reason small firms with innovative ideas seek to go public or be bought – marketing) Can become the standard for a product But others may learn from mistakes of pioneers – first mover costs Competitor-focused approach Comparisons with competitor costs, prices, technology Firm might focus too intently on competitors Customer-focused approach (How would we describe P&G China?) Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 16 Global Strategy Interdependency Interdependency of modern companies Firms draw on outside technologies – purchase use of ideas Standardized components enable scale economies to suppliers Standardized components enable different firms to use same components Note that many firms may cooperate for open standards Governments affect parts of a firm’s cost structure Export restraints (to protect domestic markets or for defense purposes) Tariff and non-tariff barriers Chapter 8 17 Global Marketing Strategy Benefits of Global Marketing: Cost Reduction Standard packaging (include lower inventory) Consolidate multiple marketing functions Reduced total advertising costs Improved Products and Program Effectiveness (from integration of ideas and spreading costs over larger base) Enhanced Customer Preference through consistent theme Competitive Advantage through coordinating the worldwide organization (employee communication, intelligence gathering) Limits to Global Marketing: Globalization vs. localization (local adaptation) Worldwide Web has elements of both Languages and cultural values differ among national sites Global integration vs. local responsiveness Global companies create local subsidiaries to respond locally Local R&D etc Scale vs. sensitivity to local cultures 18 Degrees of Standardization of Products in World Markets Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 19 Typical Income Statement Net Revenue Less COGS (includes provision for inventory write-off) Gross Profit SG&A (mostly fixed cost in short term) Administration (includes finance) Sales and Marketing Distribution Research and Development Net (operating) income before taxes and depreciation Taxes etc Net income Marketing Interactions within the Company Marketing interacts with Finance, Operations, and R&D to determine whether new products are viable from a resources and opportunities perspective Financial resources (can we afford to launch?) Human and manufacturing hardware resources Marketing interacts with Finance to make forecasts and budgets Top line numbers – budgeting usually begins with revenue forecasts Marketing expenses Marketing interacts with Finance, Manufacturing, and Distribution to determine pricing and promotion strategies (what do we need to move this month?), fine tuning of production runs, and inventory obsolescence R&D, Operations and Marketing Interfaces R&D/Operations Interface (basic R&D & production R&D) New products, new component sources Process innovation Manufacturing influences design Manufacturing/Distribution/Marketing Interface Core Components Standardization in adapting to local needs Some cosmetic or packaging considerations might be applied in packaging and distribution Some adaptation might occur only in customer perceptions Timing and length of factory production runs Cost and pricing considerations Inventory management Avoiding excess inventory through coordinating sales with production Getting rid of unused inventory (obsolete product might be sold in LDC) Marketing/R&D Interface Customers as idea sources – more in ‘developing new products’ Coordinates with operations and distribution to have product available in sufficient quantities at the right time and place 22 Interfaces among R&D, Manufacturing, and Marketing Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 23 Regionalization of Global Marketing Strategy Regional strategies are the cross-subsidization of markets in pursuit of regional production, branding, and distribution advantages. Opportunities or perils in regionalization of global marketing strategy: Cross-Subsidies of Markets (competitor bases) The book mentions how Kodak ignored Japan Failure to counter an attack can be catastrophic Identification of Weak Market Segments Use a weak niche to expand in a foreign market Established players often ignore niches Lead Markets set standards for the world (India = tractors) Marketing Strategies for Emerging Markets Local companies identify strengths relative to foreign competition Local businesses are closer to customers, part of local culture 24 Competitive Analysis SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis (See Exhibit 8-6.) A SWOT analysis divides the information into two main categories: internal and external factors. Based on SWOT analysis, marketing executives can construct alternative strategies. The aim of any SWOT analysis should be to isolate the key issues that will be important to the future of the firm and that will be addressed by subsequent marketing strategy. Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 25 Exhibit 8-6: SWOT Analysis Chapter 8 Copyright (c) 2009 John Wiley & Sons, Inc. 26