PART SIX

MANAGING INTERNATIONAL OPERATIONS

International Business

Chapter Sixteen
Marketing Globally
Chapter Objectives
• To understand a range of product policies and the
circumstances in which they are appropriate
internationally
• To grasp the reasons for product alternations when
deciding between standardized versus differentiated
marketing programs among countries
• To appreciate the pricing complexities when selling in
foreign markets
• To interpret country differences that may necessitate
alterations in promotional practices
• To comprehend the different branding strategies
companies may employ internationally
• To discern complications of international distribution and
practices of effective distribution
• To perceive why and how emphasis in the marketing mix
may vary among countries
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Marketing Strategies
Marketing: the performance of a wide range of
business activities directed at satisfying needs and
wants through the exchange process
• Marketing strategies depend upon a firm’s:
– marketing orientation
– target market(s)
• When firms select target markets, they may choose
market segments that exist in more than one country.
• Ways of identifying consumer market segments within
and across countries include demographics (income, age,
gender, religion) and psychographics (attitudes, values,
lifestyles).

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Marketing Orientations
• production orientation: emphasizes production variables such as
efficiency, quality, and/or capacity [used internationally for selling
commodities and passive exports and for serving foreign market
segments that resemble domestic markets]
• sales orientation: assumes that global customers are reason-ably
similar and that the same product can be sold at home and
abroad
• customer orientation: stresses sensitivity to customer needs, i.e.,
identifying and serving the needs of the customer
• strategic marketing orientation: commits to continuously serving
foreign markets and to making incremental adapta-tions to satisfy
local customers [draws upon elements of the production, sales, and
customer orientations, as appropriate]
• societal marketing orientation: requires that activities be con-
ducted in a way that preserves or enhances the well-being of all
stakeholders [addresses the environmental, health, social, and work-
related problems that arise in foreign operations]

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Fig. 16.1: Marketing in
International Business

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Product Policy:
Reasons for Making Alterations
• Legal reasons: explicit product-related legal requirements vary
widely by country but are usually meant to protect customers,
the environment, or both. [Protective packaging laws and product
standards are very complicated legal issues.]
• Cultural reasons: cultural factors affecting product demand may
or may not be easily discerned [While religious beliefs offer clear
guidelines regarding product acceptability, other factors such as color,
design, and artistic preferences are more subtle.]
• Economic reasons: levels of income, differences in income distri-
bution, and the extent and condition of available infrastructure can all
affect demand for a given product [Price-reducing alterations may be
required if a firm expects to enter an emerging market.]
Firms usually prefer to standardize basic components while
altering critical end-use characteristics.

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Product Policy:
Other Considerations
• Extent and Mix of the Product Line
– Whereas narrowing a product line allows for the
concentration of effort and resources, the broadening
of a product line may capture distribution economies.
• Product Life-cycle Considerations
– A product facing declining sales in one country may
have growing or sustained sales in another; such
country differences can lead to an extended life for
a specific product.
Differences will likely exist across countries in
both the shape and the length of a product’s life cycle.

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Pricing
• Price: the value asked for a product
[Although usually expressed as a monetary value,
in countertrade transactions, it might not be.]
– The complexities of pricing are exacerbated in
the international arena.
– Pricing decisions must assure the firm of
sufficient funds to replenish inventory.
– In the long-run, price must be low
enough to generate sufficient demand
but high enough to yield a profit.
The Internet is causing more firms to compete for the same business
as customers gain increasing access to global products and global
prices.

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Pricing Complexities

• Government Intervention
– Every country has laws that either directly or
indirectly affect prices to the final customer.
– Price controls may set either maximum or
minimum prices for designated products.
– The WTO permits a government to establish
restric-tions against any imports that enter the
country at a price below the price charged to
customers in the exporting country (dumping).
– A firm may charge different prices in different
regions or countries because of differing
competitive and demand factors.

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Pricing Complexities
• Market diversity, i.e., country variation, leads to
many ways of segmenting the market for a given
product. Depending upon market conditions, a firm
may adopt any of the following pricing strategies:
– skimming price: sets a high price for a new product
aimed at market innovators [Over time, the price will be
progressively lowered in response to demand and supply
conditions, i.e., the presence of additional competitors.]
– penetration price: sets an aggressively low price (i) to
discourage competition and (ii) to attract a maximum
number of customers (some of whom will hopefully switch
from competitors’ brands)
– cost-plus price: sets the price at a desired margin over
cost

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Pricing Complexities
• Price Escalation in Exporting
– Common reasons for price escalation in export sales are (i)
tariffs and (ii) the often greater distance to the market.
– If standard markups occur within a distribution channel, either
lengthening the channel or adding expenses at additional
points within the network will increase the delivered cost of a
product.
– To compete in export markets, a firm may have to sell its
products to intermediaries at reduced prices in order to
lessen the amount of price escalation.
A firm may choose to exclude fixed costs in the price
calculation of products exported to developing countries in
order to be price competitive in those markets.

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 Fig. 16.3: Price Escalation in
Exporting if Companies Use Cost-
plus Pricing

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Pricing Complexities
• Currency Values and Inflation Rates
– Currency fluctuations: affect a firm’s
competitiveness and, ultimately, its profitability
[Sales contracts may specify that payment be
made in a given currency.]
– High inflation in a host country: negatively affects
the value of a firm’s foreign receipts
[A firm may need to adjust its
margins downward in order to remain competitive.]
̶ High inflation in a home country: negatively af- fects
the costs of a firm’s foreign-sourced inputs
[A firm may need to source locally in order to
remain competitive.]

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Effect of Taxes and Inflation on
Pricing: An Example
Assumptions: beginning cost = $1,000; inflation = 36%; tax rate = 40%; after-tax profit
goal on replacement cost = 30%
IF STOCK IS SOLD AND FUNDS IF STOCK IS SOLD AND FUNDS ARE COLLECTED WHEN STOCK ARE
COLLECTED ONE YEAR IS PURCHASED AFTER STOCK IS PURCHASED
Cost$1,000Replacement cost $1,360
+ Mark-up 500+ Replacement mark-up 320
Sales price 1,500Sales price 1,680
- Cost 1,000- Original cost 1,000
Taxable income 500Taxable income 680
- Tax @40% 200- Tax @ 40% 272
After-tax income 300 After-tax income 408

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Pricing Complexities
• Fixed-cost vs. Variable-cost Pricing
– The extent to which producers can set prices at
the retail level varies substantially by country.
– There is substantial variation in whether,
where, and for which products customers
expect to be able to negotiate a price.
– Local laws and customs may limits firm’s
abilities to set optimal prices.
– In many cultures prices are simply the starting
point in the bargaining process.

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Import-Export Price
Negotiations: An Example
Goal: to delay a pricing commitment while
discussing a whole package of other commitments
IMPORTER’S REACTION EXPORTER’S RESPONSE
1. Offer is too expensive What is meant by expensive?
Determine what price is acceptable.
2. Budget is insufficient How large is the importer’s budget?
Determine the time frame and explore payment
alternatives.
3. Offer does not fit needs Insist on specific details of real needs.
Repackage offer in light of new info.
4. Offer is not competitive Determine details of competitors’ offers.
Reformulate offer in non-comparative ways; stress uniqueness of
offer.

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Promotion
Promotion: the presentation of messages intended
to help sell a product
[direct and indirect forms of communication designed to inform,
persuade, and/or remind a target audience about an
organization, its products, and/or its positions]
Promotion Mix: the particular combination of
elements used in a promotion strategy
̶ personal selling
̶ advertising
̶ sales promotion activities
̶ publicity/public relations activities

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Promotion: The Push-Pull
Mix
Push strategy: direct marketing techniques designed
to create immediate demand, i.e., personal selling
[primarily used when a product is relatively expensive
and distribution is tightly controlled]

Pull strategy: indirect marketing techniques designed

to create final demand, i.e., advertising, sales
promotion, and publicity/public relations
• The cross country push-pull mix is determined by:
– types of distribution systems
– the cost and availability of media
– customer attitudes toward sources of information
– the relative price (affordability) of a product

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Promotion: The
Standardization of Advertising
Programs
Advertising: any paid form of media
(nonpersonal) presentation
• The advantages of standardized advertising include:
– substantial cost savings
– improved quality (effectiveness) at the local level
– rapid entry into new country markets
• The challenges of standardized advertising include:
– translation [content, meaning, images]
– legality [differing views on consumer protection, compe-
titive protection, standards of morality, and nationalism]
– message needs [national differences in perceptions and
product demand]

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Branding
• Brand: a name, term, symbol, and/or design
intended to identify a product or product line
and differentiate it in the marketplace
• Trademark: a brand, or part of a brand, i.e., a
mark, that is granted legal protection because it
is capable of legal appropriation
• MNEs must consider the following branding options:
– brand vs. no brand
– manufacturer’s brand vs. private brand
– one brand vs. multiple brands
– worldwide brands vs. local brands
Overall, the portion of local brands to international
(regional or global) brands is decreasing.
[continued]

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• Challenges to regional and global brands include:
– language factors [the translation and pronunciation of
brand names; the cultural sensitivity of shapes, symbols,
and colors]
– brand acquisitions [local brands may be well-known but
expensive and strategically difficult to maintain]
– country-of-origin images [products from particular
countries may be perceived as being particularly desirable
and of relatively high quality]
– generic and near-generic names [generic names may
either stimulate or frustrate the sales of the firm from
whom a name is expropriated]

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Distribution
Distribution: the physical and legal path that products
follow from the point of production to the point of
consumption
Distribution channel: the set of interdependent individuals
and organizations that take title to or assist in the transfer
of a title to a product from producer to final customer
[banks --- transportation companies]
[producers --- wholesalers --- retailers]
[agents & brokers]
• Often, geographic barriers and poor transport infrastructure
divide a country into distinctly viable and non-viable markets.
The selling of goods through unauthorized distributors, i.e.,
the gray market, causes a firm’s operations in different countries to
complete with one another, thus preventing them from pricing
according to local market conditions.

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Distribution:
The Difficulty of
Standardization
• Each country has its own national distribution system
that is historically intertwined with its cultural,
economic, and legal environments.
• Factors that influence the distribution of consumer
products within a country include:
– citizens’ attitudes towards their own retailers
– the ability (or inability) to pay retail workers
– retailers’ trust in their employees
– legislation affecting chain and individually-owned stores
– restrictions on the size of stores and their hours of
operation
– the financial ability of retailers to carry large inventories
– the efficacy of the national postal system

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Distribution:
Distributor and Channel
Selection
• Firms should handle the distribution function internally if:
– sales volume is high
– human, capital, and financial resources are sufficient
– the nature of the product demands that the producer deal
directly with customers
– customers are global
– it is possible to gain a competitive advantage
• The more complex and expensive a product, the greater the
importance of after-sales service.
– Firms may need to invest in service centers, which in turn can
become important sources of revenues and profits.
[continued]

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• Criteria for the selection of potential distributors include:
– financial strength
– quality of connections
– the extent of a distributor’s other commitments regarding
both complementary and competitive products
– the state of a distributor’s equipment, facilities, and personnel
– trustworthiness and contract enforcement issues
• A new client must convince a desired distributor of the
viability of its firm and its products.
– A new client may need to offer distributors extra incentives or
be willing to enter into exclusive arrangements.
Firms may choose a combination of internal distribution and
outsourced distribution services.

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Distribution:
Hidden Costs
• Differences in national distribution systems that may
contribute to increased costs include:
– poor infrastructure [port, roads, warehouse facilities]
– levels within a distribution system [multi-tiered wholesale
systems]
– retail inefficiencies [an insistence upon counter service]
– government restrictions [laws protecting small retailers or
limiting hours of operation]
– lack of retail storage space [more frequent, smaller deliveries
required to prevent stock-outs]

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The Internet and Electronic
Commerce
• Opportunities
– E-commerce offers firms a unique opportunity to
market their products worldwide.
– The Internet permits suppliers to deal more
quickly with their customers.
• Challenges
̶ Customers worldwide can quickly compare prices from
different distributors, thus intensifying price competition.
̶ Differentiation is difficult because the same web ads
and prices reach customers everywhere.
̶ Internet ads and prices must comply with the laws of
each country where a firm markets its products.

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Internet Usage by Region,
2005
WORLD % OF WORLD INTERNET % OF POP. % OF WORLD
REGIONS POPULATION USAGE [USAGE RATE] USERS

Africa 900,465,411 13,468,600 1.5% 1.5%

Asia 3,612,363,165 302,257,003 8.4% 34.0%
Europe730,991,138 259,653,144 35.5% 29.2%
Middle East 259,499,772 19,370,700 7.5% 2.2%
North Amer. 328,387,059 221,437,647 67.4% 24.9%
Latin Amer. 546,917,192 56,224,957 10.3% 6.3%
Oceania 33,443,448 16,269,080 46.6% 1.8%
WORLD 6,412,067,185 888,681,131 13.9% 100.0%
Source: Miniwatts International, Ltd.

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Managing the Marketing Mix:
Gap Analysis
Gap analysis: a method for estimating a firm’s potential sales of
a given product by determining the difference between the total
market potential and gaps in usage, competition, product line
offers, and distribution
Total market potential: the total potential sales of all
competitors within a given product market (category)
• The difference between total market potential and current
sales, i.e., the gap, is due to:
– usage patterns
– product line characteristics
– distribution coverage strategies
– the effect(s) of competitors’ strategies
Gap analysis helps managers determine both the size of and the
reasons for the differences between market potential and actual sales.

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Fig. 16.4: Gap Analysis

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Implications/Conclusions

• Marketing is a social and managerial

process through which individuals and
organizations satisfy their needs and
objectives through the exchange process.
• A standardized approached to worldwide
mar-keting means maximum uniformity in
products and programs amongst countries
in which sales occur.

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• A variety of legal, cultural, and economic con-
ditions may cause firms to alter their marketing
strategies, but the cost of adaptation must be
measured against the potential gain in sales.
• Gap analysis is a tool that help firms deter- mine
(i) why they have not yet maximized their market
potential in given countries and (ii) what parts of
the marketing mix to empha-size in which
countries and regions.

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