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Scope, Concepts, and Drivers of International Marketing Dana-Nicoleta Lascu Chapter 1 Copyright Atomic Dog Publishing, 2008 Chapter Objectives • Define international marketing and identify the different levels of international involvement. • Describe the different company orientations and philosophies toward international marketing. • Identify environmental and firm-specific drivers that direct firms toward international markets. • Identify obstacles preventing firms from successful international ventures. Copyright Atomic Dog Publishing, 2008 Importance of International Marketing • International marketing helps companies reach their full potential and the maximum return for their stockholders. • Many companies find that, to keep up with competition, they must reach for new international consumers. • For many companies, an international presence is essential to their success. • Exxon, General Motors, Microsoft and Mitsubishi earn profits higher than the gross domestic product of many low-income countries. Many small businesses can attribute their success and even survival to international markets. Companies with products in late stages of the product life cycle find that emerging markets offer them new life Privatization in countries where government monopolies had dominated for decades has made it possible for multinationals to compete for local energy, airline, railway, and telecommunications industries. Copyright Atomic Dog Publishing, 2008 Levels of International Marketing Involvement Domestic marketing: - Export marketing: - The firm is indirectly or directly involved in exporting. The firm considers the international market as an extension of the domestic market. International marketing: - The firm has the least commitment to international marketing Focus on domestic consumers and on the home-country environment. The firm focuses on international consumers in one or more countries. Firm’s sales offices, subsidiaries, joint ventures are in different countries. International activities are not coordinated across different countries. Global marketing: - The firm coordinates its marketing activities across different countries without focusing primarily on national or regional segmentation. The strategy is possible due to the emergence of uniform global consumer segments. The strategy entails an efficient global allocation of company resources. Copyright Atomic Dog Publishing, 2008 Levels of International Marketing Involvement (summarized) Domestic Marketing Export Marketing International Marketing • Low or no international commitment • Limited international commitment • Domestic focus • Direct or indirect • Focus on exporting countries or regions Copyright Atomic Dog Publishing, 2008 • Substantial international commitment Global Marketing • Extensive international commitment • Focus on market segments rather than countries or regions Internationalization Philosophies Human Resources Management internationalization philosophy affects all functional areas of the corporation. Impact on resource allocation, response to global threats/opportunities Finance Copyright Atomic Dog Publishing, 2008 Ethnocentric Orientation • Guided by domestic market extension concept. • Domestic strategies, techniques, and personnel are perceived as superior. • International markets are secondary, regarded primarily as outlets for surplus domestic production. • International marketing plans are developed in-house by the international division. Disneyland Resort Paris emphasizes a U.S. (domestic) theme: Main Street USA. Copyright Atomic Dog Publishing, 2008 Polycentric Orientation • Guided by the multidomestic marketing concept. • Focuses on the importance and uniqueness of each international market. • Firms establish independent businesses in each target country. • Fully decentralized, minimal coordination with headquarters. • Marketing strategies are specific to each country • Outcomes: no economies of scale. duplicated functions. higher final product costs. Copyright Atomic Dog Publishing, 2008 Regiocentric Orientation • Guided by the global marketing concept. • Considers world regions that share economic, political, and/or cultural traits as distinct markets . • Divisions are organized based on location. • Regional offices coordinate marketing activities, using a region-wide marketing approach. • Example: Regional brands such as Unilever’s Domestos (household cleaning agent containing bleach, sold in Central Europe) Copyright Atomic Dog Publishing, 2008 Geocentric Orientation • Guided by the global marketing concept. • Marketing strategies aimed at market segments, rather than geographic locations. • Maximizes efficiencies worldwide and provides standardized product or service throughout the world. • Example: Visa. Visa is omnipresent in world markets. This ad suggests to French consumers that Visa is widely used. Copyright Atomic Dog Publishing, 2008 International Expansion: Drivers in the Business Environment • The primary drivers in the business environment are: Competition Regional Economic and Political Integration Technology Improvements in Transportation and Telecommunication Economic Growth Transition to a Market Economy Converging Consumer Needs Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Competition • Competitive pressure from international companies will force the company to expand to new markets, even less profitable ones. Example: McCann Erickson, the advertising agency, followed longtime client, Coca Cola, Inc., to all countries where Coke was present – until recently. Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Regional Economic and Political Integration • Integration facilitates international trade for companies in member countries, and for companies from countries outside of the area. • Example: Regional agreements such as NAFTA, MERCOSUR, and the European Union lower and eliminate barriers and promote trade within these markets. Subsidiaries can be established in these markets to take advantage of free trade within the region. Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Technology • Examples: • Media development exposes consumers worldwide to foreign programming. Consumers worldwide are exposed to similar products, services, and entertainment, and marketing communications. • The Internet offers small and medium enterprises in both high- and low-income countries unlimited international exposure. Technology offers a broad reach to these businesses whose advertising budget cannot cover the high cost of international broadcast and print advertising. Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Transportation and Telecommunications • Lower cost and higher quality communication due to satellite technology, teleconferencing, and e-mail. • Allow for frequent interaction between subsidiaries in foreign countries and the headquarters. • Allow for outsourcing of customer service. • The introduction of containers in intermodal transportation and electronic communication between suppliers and customers greatly facilitates the transportation of physical goods. Container ship in the port of Rotterdam Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Economic Growth • Economic growth created markets of high potential for international brands, while also opening previously closed markets. Emerging middle class with increasing buying power in big emerging markets such as those of Brazil and India. Opening of new markets that were previously closed, such as those of China and Vietnam, and those of the former Eastern Bloc. Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Transition to a Market Economy • Transition to a market economy created important new markets and opportunities to transform inefficient government-owned companies into successful enterprises. • Poland, the Czech Republic, Slovakia, Slovenia, Hungary, Romania, and Bulgaria are members of the European Union. • Slovenia is already a member of the European Monetary Union. • China and Vietnam are opening doors to multinationals. Copyright Atomic Dog Publishing, 2008 Drivers in the Business Environment (contd.) Converging Consumer Needs • Consumers’ exposure (through media, travel) to global brands created demand for global products and worldwide loyalty to international brands. • The emergence of uniform consumer segments facilitates marketing strategies worldwide. • Examples of consumer segments worldwide: • global teenagers • global elite Copyright Atomic Dog Publishing, 2008 Firm-Specific Drivers of International Expansion • The primary firm drivers for international expansion are: Product Life Cycle High New Product Development Costs Standardization Economies of Scale Cheap Labor Experience Transfers Copyright Atomic Dog Publishing, 2008 Firm-Specific Drivers (contd.) Product Life Cycle Considerations: Companies prolong the product life cycle of their late-maturity brands by entering growth markets. Intro Growth Maturity Decline Sales Sales Profits Copyright Atomic Dog Publishing, 2008 Firm-Specific Drivers (contd.) High New Product Development Costs: • New-product-development costs are rapidly increasing and product life cycles are decreasing. As a result, firms must look beyond the home-country market to fully recover the high product development costs and to make a profit. Copyright Atomic Dog Publishing, 2008 Firm-Specific Drivers (contd.) Standardization, Scale Economies, Cheap Labor Price competition during the maturity stage of the product life cycle drives firm to new international markets in search of cheap labor. The firm lowers costs – and prices – as it takes advantage of: Economies of scale Standardization, and Cheap labor. Copyright Atomic Dog Publishing, 2008 Firm-Specific Drivers (contd.) Experience Transfers Companies benefit from lessons they learn in different parts of the world and transfer their knowledge to other markets they serve. . Copyright Atomic Dog Publishing, 2008 Obstacles to Internationalization • The primary obstacles to internationalization are the self-reference criterion, government barriers, and competitive barriers. • Self-reference Criterion Conscious and unconscious reference to own national culture and home-country norms while operating in the host country, which can prevent firms from adapting to local business environments and serving the needs of local consumers. To counter the impact of the self-reference criterion, the corporation must: - Select adaptable personnel for international assignments. - Sensitize expatriates to the local culture. Copyright Atomic Dog Publishing, 2008 Obstacles to Internationalization (contd.) • Government Barriers Restrictions placed on international corporations by imposing: - Tariffs - Import quotas - Other limitations, such as restrictive import license awards. Copyright Atomic Dog Publishing, 2008 Obstacles to Internationalization (contd.) • Barriers Imposed by International Competition Among the competitive barriers international companies commonly encounter are: - Blocked channels of distribution Exclusive retailer agreements Price cutting Advertising blitzes Copyright Atomic Dog Publishing, 2008 Chapter Summary • Discussed different levels of international involvement – domestic, export, international, and global marketing. • Addressed internationalization philosophies: Ethnocentric, polycentric, regiocentric, and geocentric. • Discussed the drivers of international expansion: Environmental (competition, regional integration, removal of trade barriers, improvements in transportation, telecommunications and technology, and converging consumer needs). Firm-specific (prolonging product lifecycle, recovering new product development costs, price competition, standardization, economies of scale and cheap labor, experience transfers). • Addressed obstacles to entry – the self-reference criterion, government barriers, and competitive barriers. Copyright Atomic Dog Publishing, 2008