Chapter 19 THE GLOBAL MARKETPLACE

MARKETING STARTER: CHAPTER 19

Coca-Cola in Africa: Everything Is Right There to Have It Happen.
Synopsis
Coca-Cola is one of the worlds truly iconic brandsa $46-billion global powerhouse. Already the worlds numberone soft drink maker, Coca-Cola plans to double its global system revenues between 2008 and 2020. But achieving such growth wont be easy. With sales stagnating in its mature markets, Coca-Cola must look elsewhere to meet its ambitious growth goals. Coca-Cola is no stranger to Africa. It has operated there since 1929, and its the only multinational that offers its products in every African country. Whereas the beverage giant invested $6 billion in the African market over the past decade, it plans to invest twice that amount during the next 10 years an effort that includes bottling plants, distribution networks, retailer support, and an Africa-wide promotional campaign called One Billion Reasons to Believe in Africa. In countless communities across Africa, whether its the dukas in Nairobi or tuck shops in Johannesburg, South Africa, small stores play a big role in helping Coca-Cola grow. Such shops are supplied by a rudimentary but effective network of Coca-Cola distributors. Theres little doubt that CocaColas increased commitment to Africa will be key to its achieving its global goals. As CEO Muhtar Kent concludes: Africa is the untold story and could be the big story of the next decade, like India and China were this past decade. . . . Everything is right there to have it happen.

Discussion Objective
Coca-Colas ventures in Africa demonstrate the fact that successful global marketing requires great flexibility and insight into local cultures. It also requires the ability to think globally and act locally. In this discussion, it will be important to get students to understand the vast differences between African markets and North American markets, and the challenges involved in successfully marketing an all-American product to people on the other side of the globe. Here, students should be able to identify and discuss Coca-Colas key steps in making this a reality.

Starting the Discussion

Start the discussion by going to Coca-Colas website (www.cocacola.com). From the home page, link to the companys Africa website. From there, explore the various countries where Coca-Cola is sold. Compare the images and key marketing messages found on these sites with those found in the United States. Ask students to describe how they differ. Probe further and ask students how the messages demonstrate that Coca-Cola understands its African customers. You can also check out television commercials running in Africa by visiting www.youtube.com and searching with Coca Cola Africa as your keywords. Use the following questions as a guide.

Discussion Questions
1. Why does Coca-Cola view Africa as a promising market? (Ask students what they know about Africa in general. Coca-Cola, along with many Western companies, view Africa as an untamed final frontiera kind of no mans land plagued by poverty, political corruption and instability, unreliable transportation, and shortages of fresh water and other essential resources. Why would Coca-Cola view this as a promising new market? Yet, Coca-Cola sees plenty of opportunity in Africa to justify the risks. Point out that Africa has a growing population of more than 1 billion people and a just-emerging middle class. The number of African households earning at least $5,000the income level where families begin to spend at least half their income on non-food itemsis expected to exceed 106 million by 2014, almost double the number in 2000.) What are some of the key challenges Coca-Cola has faced in entering the African marketplace? Copyright2014 Pearson Education

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(Students should understand that marketing in Africa is a very different proposition from marketing in more developed regions. As one analyst has observed, it is somewhat like sticking ones hand into a bees nest to get some honey. Beyond traditional marketing channels used in larger African cities, Coca-Cola is now invading smaller communities with more grassroots tactics. In a street -by-street campaign to win new consumers, the company goes to every town, every village, every community, and every township. Here, every small shop in every back alley is important.) 3. How does this chapter-opening Coca-Cola story relate to the basic concepts in Chapter 19 on global marketing? (Coca-Colas odyssey into Africa illustrates the prospects and perils of international marketing. Use it as you examine issues related to the global marketing environment, deciding which markets to enter, and designing global marketing strategies and programs. The Coca-Cola story and the later Real Marketing highlight on Starbucks in India vividly demonstrate the potential rewards and pitfalls of going global.)

CHAPTER OVERVIEW
Use Power Point Slide 19-1 here
In previous chapters, we learned the fundamentals of how companies develop competitive marketing strategies to create customer value and build lasting customer relationships. In this chapter, we extend these fundamentals to global marketing. Here, well focus on special considerations that companies face when they market their brands globally. Advances in communication, transportation, and other technologies have made the world a much smaller place. Today, almost every firm, large or small, faces international marketing issues. In this chapter, we will also examine six major decisions marketers make in going global.

CHAPTER OBJECTIVES
Use Power Point Slide 19-2 here 1. Discuss how the international trade system and economic, political-legal, and cultural environments affect a companys international marketing decisions. 2. Describe three key approaches to entering international markets. 3. Explain how companies adapt their marketing mixes for international markets. 4. Identify the three major forms of international marketing organization.

CHAPTER OUTLINE
p. 550 INTRODUCTION Coca-Cola is a truly global operation. Youll find a CocaCola product within arms length of almost anyone, anywhere in the world. Like many companies, Coca-Colas greatest growth opportunities lie in international markets. Coca-Cola has operated in Africa since 1929, and its the only multinational that offers its products in every African
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p. 551 Photo: Coca-Cola

country. Whereas the beverage giant invested $6 billion in the African market over the past decade, it plans to invest twice that amount during the next 10 years. The effort includes bottling plants, distribution networks, retailer support, and an Africa-wide promotional campaign called One Billion Reasons to Believe in Africa. Theres little doubt that Coca-Colas increased commitment to Africa will be key to its achieving its global goals. Assignments, Resources Use Web Resources 1 and 2 here Opening Vignette Questions 1. Why do international markets such as Africa appear to be so promising to companies like Coca-Cola? 2. What are some of the dangers and pitfalls for Coca-Cola could encounter marketing its products in Africa? 3. What do you suppose so many Africans enjoy Coca-Cola products as they do? What are the major appeals of this all-American product? Chapter Objective 1 GLOBAL MARKETING TODAY Since 1990, the number of multinational corporations in the world has grown from 30,000 to more than 63,000. Between 2005 and 2011, total value of world trade merchandise and commercial services grew by 10 and 9 percent respectively. Foreign firms are expanding aggressively into new international markets, and home markets are no longer as rich in opportunity. Few industries are now safe from foreign competition. p. 553 A global firm is one that, by operating in more than one Key Term: Global country, gains marketing, production, R&D, and financial Firm advantages that are not available to purely domestic competitors.
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p. 552

PPT 19-3

The global company sees the world as one market.

p. 553 Photo: Nike

PPT 19-4

It minimizes the importance of national boundaries and develops global brands. p. 554 Figure 19.1: Major The rapid move toward globalization means that all International companies will have to answer basic questions: Marketing Decisions What market position should we try to establish in our country, in our economic region, and globally? Who will our global competitors be and what are their strategies and resources? Where should we produce or source our products? What strategic alliances should we form with other firms around the world? A company faces six major decisions in international marketing. (Figure 19.1)

p. 554 p. 554

LOOKING AT THE GLOBAL MARKETING ENVIRONMENT The International Trade System p. 554 Tariffs are taxes on certain imported products designed to Photo: Trade Barriers raise revenue or to protect domestic firms. Quotas are limits on the amount of foreign imports that a country will accept in certain product categories. The purpose of a quota is to conserve on foreign exchange and to protect local industry and employment.

PPT 19-5

PPT 19-6

Exchange controls are limits on the amount of foreign exchange and the exchange rate against other currencies. Nontariff trade barriers are such things as biases against U.S. company bids, restrictive product standards, or excessive host-country regulations. Certain forces help trade between nations.

p. 555

The World Trade Organization and GATT The General Agreement on Tariffs and Trade (GATT) is a
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PPT 19-7

62-year-old treaty designed to promote world trade by reducing tariffs and other international trade barriers. p. 555 Photo: WTO and Since the treatys inception in 1947, member nations GATT (currently numbering 153) have met in eight rounds of GATT negotiations to reassess trade barriers and set new rules for international trade. The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured goods from 45 percent to just 5 percent. The benefits of the Uruguay Round (1994) include reducing the worlds remaining merchandise tariffs by 30 percent.

PPT 19-8

The Uruguay Round set up the World Trade Organization (WTO) to enforce GATT rules. The WTO acts as an umbrella organization, overseeing GATT, mediating global disputes, and imposing trade sanctions. Regional Free Trade Zones

p. 555 PPT 19-9

p. 555 Free trade zones or economic communities are groups of Key Term: nations organized to work toward common goals in the Economic regulation of international trade. Community One such community is the European Union (EU). The European Union represents one of the worlds single largest markets. Currently, it has 27 member countries containing close to half a billion consumers and accounts for more than 20 percent of the worlds exports. As a result of increased unification, European companies have grown bigger and more competitive. Widespread adoption of the euro has decreased much of the currency risk associated with doing business in Europe, making member countries with previously weak currencies more attractive markets. However, even with the adoption of the euro, it is unlikely that the EU will ever go against 2,000 years of tradition and become the United States of Europe.
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p. 556 Photo: EU

The North American Free Trade Agreement (NAFTA) established a free trade zone among the United States, Mexico, and Canada. The agreement created a single market of 463 million people who produce and consume over $18 trillion worth of goods and services annually. NAFTA has eliminated trade barriers and investment restrictions among the three countries. Total trade among the three countries has nearly tripled from $288 billion in 1993 to $1 trillion in 2011. The Central American Free Trade Agreement (CAFTA) established a free trade zone between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. Other free trade areas have formed in Latin America and South America. For example, the Union of South American Nations (UNASUR), modeled after the EU, was formed in 2004 and formalized in 2008. Consisting of 12 countries, UNASUR makes up the largest trading bloc after NAFTA and the EU, with a population of 361 million, a combined economy of more than $973 billion, and exports worth $182 billion. Assignments, Resources Use Discussion Questions 1 and 2 here Use Critical Thinking Exercises 1 and 2 here Use Additional Project 1 here Use Think-Pair-Share 1, 2, 3, and 4 here Use Web Resources 3 and 4 here Troubleshooting Tip The terms involved in the international trade system (tariff, quota, embargo, etc.) are generally unfamiliar to most students. Go through these carefully and use examples from recent press. Ask the students to express their feelings about tariffs, quotas, embargoes, etc. How does government policy affect free trade? Why would these barriers be erected? How do they feel about NAFTA? Do they think that it will be good for trade? When would trade barriers be justified?
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p. 556

Economic Environment

PPT 19-10 Two economic factors reflect the countrys attractiveness as a market: 1. Industrial structure 2. Income distribution The countrys industrial structure shapes its product and service needs, income levels, and employment levels. The four types of industrial structures are as follows: PPT 19-11 1. Subsistence economies: The vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities. 2. Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. These countries are good markets for large equipment, tools and supplies, and trucks. 4. Emerging economies: In an emerging economy, fast p. 557 growth in manufacturing results in rapid overall Photo: Nestl economic growth. The country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles. 5. Industrial economies: Major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semifinished goods. Income distribution is the second factor. p. 557 p. 558 PPT 19-12 Industrialized nations may have low-, medium-, and high- Photo: Ford income households. Countries with subsistence economies may consist mostly of households with very low family incomes. Still other countries may have households with only either very low or very high incomes.

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Even poor or developing economies may be attractive markets for all kinds of goods. Political-Legal Environment p. 558 Some nations are very receptive to foreign firms; others are PPT 19-13 less accommodating. Companies must consider a countrys monetary regulations. Sellers want to take their profits in a currency of value to them. Ideally, the buyer can pay in the sellers currency or in other world currencies. In addition to currency limits, a changing exchange rate also creates high risks for the seller. Assignments, Resources Use Discussion Question 3 here Use Think-Pair-Share 5 and 6 here Troubleshooting Tip Currency and exchange rates are usually confusing to undergraduate students, so these concepts and terms need to be described very carefully. The examples in the book are quite useful, and you can generally find additional examples in the business press. Joint venturing is slightly easier to understand, but again, using lots of examples will really help the students appreciate the complexities and how these decisions are made. p. 559 p. 559 Cultural Environment The Impact of Culture on Marketing Strategy Sellers must understand the ways that consumers in p. 560 different countries think about and use certain products Photo: IKEA before planning a marketing program. Business norms and behavior vary from country to country. p. 560 The Impact of Marketing Strategy on Cultures PPT 19-14 Social critics contend that large American multinationals such as McDonalds, Coca-Cola, Starbucks, Nike, Microsoft, Disney, and MTV are Americanizing the
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worlds cultures. p. 561 Critics worry that, under such McDomination, countries Photo: McDonalds around the globe are losing their individual cultural identities. Such concerns have sometimes led to a backlash against American globalization. In the most recent Millward Brown Optimor survey of global brands, 16 of the top 20 brands were Americanowned. Assignments, Resources Use Individual Assignment 1 here Use Think-Pair-Share 7 here Use Outside Example 1 here p. 561 DECIDING WHETHER TO GO GLOBAL Not all companies need to venture into international markets to survive. Any of several factors might draw a company into the international arena. Global competitors might attack the companys home market by offering better products or lower prices. The company might want to counterattack these competitors in their home markets to tie up their resources. The companys customers might be expanding abroad and require international servicing. International markets might simply provide better opportunities for growth.

Before going abroad, the company must weigh several risks and answer many questions about its ability to operate PPT 19-15 globally. Can it learn to understand the preferences and buyer behavior of consumers in other countries? Can it offer competitively attractive products? Will it be able to adapt to other countries business cultures and deal effectively with foreign nationals?
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Do the companys managers have the necessary international experience? Has management considered the impact of regulations and the political environments of other countries?

Troubleshooting Tip On deciding whether to go international, many students will believe that it is simply a matter of the company deciding to expand. The concept of being forced to go into other countries because of customers pulling you along, or having to fight a global competitor on your home turf, will surprise some of them. Challenge them to think about how small companies grow, and why they might start selling their goods overseas. Use a local company that sells unique items. How could foreign customers find them? How would they decide that there is a market in another country? You can break the class into teams to work on these types of issues. p. 562 DECIDING WHICH MARKETS TO ENTER

PPT 19-16 Before going abroad, the company should: Define its international marketing objectives and policies. Decide what volume of foreign sales it wants. Choose how many countries it wants to market. Decide on the types of countries to enter. Evaluate each selected country.

Possible global markets should be ranked on several factors, PPT 19-17 including: Market size Market growth Cost of doing business Competitive advantage Risk level

Assignments, Resources Use Critical Thinking Exercise 3 here Use Marketing Technology here Use Marketing Ethics here
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Use Web Resources 5 here Troubleshooting Tip The economic and political-legal environments will also most likely be unfamiliar to most students. Some students might have done mission or humanitarian work in foreign countries with economies and political systems vastly different from our own. If you are lucky enough to have them in your class, have them relate their experiences. Economics majors, or those who enjoyed an economics class, may also be able to relate what they have learned about these issues from a different point of view. p. 563 DECIDING HOW TO ENTER THE MARKET PPT 19-18 Exporting p. 563 Exporting is the simplest way to enter a foreign market. PPT 19-19 Indirect exporting is working through independent international marketing intermediaries. p. 564 Indirect exporting involves less investment and less risk. Chapter Objective 2 p. 563 Table 19.1: Indicators of Market Potential p. 563 Key Term: Exporting

p. 563 Direct exporting is where the company handles their own Figure 19.2: Market Entry Strategies exports. The investment and risk are somewhat greater in this strategy, but so is the potential return. p. 564 Key Terms: Joint Venturing PPT 19-20 Joint Venturing, Joint Venturing is joining with foreign companies to Licensing

produce or market products or services.

There are four types of joint ventures: 1. 2. 3. 4. PPT 19-21 Licensing Contract manufacturing Management contracting Joint ownership

p. 564 Ad: Sunkist

Licensing Licensing is a simple way for a manufacturer to enter

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international marketing. The company enters into an agreement with a licensee in the foreign market. For a fee or royalty, the licensee buys the right to use the companys manufacturing process, trademark, patent, trade secret, or other item of value. Licensing has disadvantages: The firm has less control over the licensee than it would over its own operations. If the licensee is very successful, the firm has given up profits. When the contract ends, it may find it has created a competitor.

p. 564 p. 564 Key Terms: Contract manufacturing occurs when the company Contract PPT 19-22 contracts with manufacturers in the foreign market to Manufacturing, Management produce its product or provide its service. Contracting The drawbacks are: Contract Manufacturing p. 564 Decreased control over the manufacturing process Loss of potential profits on manufacturing

The benefits are: The chance to start faster, with less risk The later opportunity either to form a partnership with or to buy out the local manufacturer

PPT 19-23

Management Contracting Management contracting takes place when the domestic firm supplies management know-how to a foreign company that supplies the capital. This is a low-risk method of getting into a foreign market, and it yields income from the beginning. The arrangement is not sensible if the company can put its management talent to better uses or if it can make greater
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profits by undertaking the whole venture. Joint Ownership Joint Ownership ventures consist of one company joining forces with foreign investors to create a local business in PPT 19-24 which they share joint ownership and control. p. 565 A company may buy an interest in a local firm, or the two parties may form a new business venture. Joint ownership may be needed for economic or political reasons. Joint ownership has drawbacks: The partners may disagree over policies. Whereas U.S. firms emphasize the role marketing, local investors may rely on selling. p. 565 Key Term: Joint Ownership

of

Direct Investment PPT 19-25 Direct Investment is the development of foreign-based assembly or manufacturing facilities. Advantages: p. 565 Lower costs in the form of cheaper labor or raw Photo: Ford materials, foreign government investment incentives, and freight savings. The firm may improve its image in the host country. Development of a deeper relationship with government, customers, local suppliers, and distributors. The firm keeps full control over the investment. p. 565 Key Term: Direct Investment

The main disadvantage of direct investment is that the firm faces many risks including: Restricted or devalued currencies Falling markets Government changes Assignments, Resources Use Discussion Question 4 here Use Additional Project 2 here Use Individual Assignment 2 here

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p. 566

DECIDING ON THE GLOBAL MARKETING PROGRAM

Chapter Objective 3

PPT 19-26 Standardized global marketing is using largely the same marketing strategy approaches and marketing mix p. 566 worldwide. Key Terms: Adapted global marketing is adjusting the marketing Standardized Global strategy and mix elements to each target market, bearing Marketing, Adapted Global Marketing more costs but hoping for a larger market share and return. Some global marketers believe that technology is making the world a smaller place and that consumer needs around the world are becoming more similar. This paves the way for global brands and standardized global marketing. Global branding and standardization, in turn, result in greater brand power and reduced costs from economies of scale. However, because cultural differences are hard to change, most marketers adapt their products, prices, channels, and promotions to fit consumer desires in each country. Product p. 568 p. 569 Five strategies exist that allow for adapting product and Figure 19.3: Five PPT 19-27 marketing communication strategies to a global market Global Product and Communications (Figure 19.3). Strategies 1. Straight product extension means marketing a product in a foreign market without any change. p. 568-569 Key Terms: Straight 2. Product adaptation involves changing the product Product Extension, to meet local conditions or wants. Product Adaptation 3. Product invention consists of creating something p. 568 new to meet the needs of consumers in a given Photo: McDonalds country. p. 569 Promotion Key Term: Product Invention Companies can either: 1. Adopt the same communications strategy they use in the home market
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p. 570 PPT 19-28

2. Change it for each local market Advertising themes are changed sometimes to avoid taboos in other countries. Communication adaptation is fully adapting their p. 570 advertising messages to local markets. Key Term: Communication Media also needs to be adapted internationally because Adaptation media availability and regulations vary from country to country. p. 570 Photo: Unilever Assignments, Resources Use Real Marketing 19.1 here Use Real Marketing 19.2 here Use Discussion Question 5here Use Additional Projects 3 here Use Small Group Assignments 1 and 2 here Use Web Resources 6 here p. 571 Price

PPT 19-29 Regardless of how companies go about pricing their p. 571 products, their foreign prices probably will be higher than Photo: Levi Strauss their domestic prices for comparable products. It is a price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price. To overcome this problem when selling to less-affluent consumers in developing countries, many companies make simpler or smaller versions of their products that can be sold at lower prices. The Internet is making global price differences more obvious. When firms sell their wares over the Internet, customers can see how much products sell for in different countries. This is forcing companies toward more standardized international pricing. Distribution Channels p. 571 The whole-channel view takes into account the entire
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global supply chain and marketing channel. It recognizes PPT 19-30 that to compete well internationally, the company must p. 571 effectively design and manage an entire global value Key Term: Wholedelivery network. Channel View Figure 19.4 shows the two major links between the seller p. 571 and the final buyer. Figure 19.4: WholeChannel Concept Channels between nations moves company products from for International points of production to the borders of countries within Marketing which they are sold. Channels within nations moves the products from their p. 572 market entry points to the final consumers. Photo: Nokia Assignments, Resources Use Marketing by the Numbers here Use Video Case here Use Additional Projects 4 here DECIDING ON THE GLOBAL MARKETING ORGANIZATION

p. 572

Chapter Objective 4

PPT 19-31 A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department. Many companies get involved in several international markets and ventures. An international division may be created to handle all its international activity. International divisions are organized in a variety of ways. Geographical organizations: Country managers who are responsible for salespeople, sales branches, p. 573 distributors, and licensees in their respective Photo: Reckitt Benckiser countries. World product groups: Each responsible for worldwide sales of different product groups. International subsidiaries: Each responsible for its own sales and profits.

Global organizations are companies that have stopped thinking of themselves as national marketers who sell abroad and have started thinking of themselves as global marketers.

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 Assignments, Resources Use Outside Example 2 here Use Company Case here

END OF CHAPTER MATERIAL

Discussion Questions 1. Explain what is meant by the term global firm and list the six major decisions involved in international marketing. (AASCB: Communication) Answer: A global firm is one that, by operating in more than one country, gains marketing, production, R&D, and financial advantages that are not available to purely domestic competitors. The global company sees the world as one market. It minimizes the importance of national boundaries and develops transnational brands. It raises capital, obtains materials and components, and manufactures and markets its goods wherever it can do the best job. Figure 19.1 illustrates the six major decisions in international marketing: (1) understanding the global marketing environment, (2) deciding whether to go global, (3) deciding which markets to enter, (4) deciding how to enter the market, (5) deciding on the global marketing program, and (6) deciding on the global marketing organization. 2. Compare and contrast a tariff and a quota. (AACSB: Communication) Answer: Tariffs are taxes on certain imported products designed to raise revenue or to protect domestic firms. Tariffs are often used to force favorable trade behaviors from other nations. Countries may set quotas, limits on the amount of foreign imports that they will accept in certain product categories. The purpose of a quota is to conserve on foreign exchange and to protect local industry and employment. 3. Name and define the four types of country industrial structures. (AACSB: Communication) Answer: The four types of industrial structures are: Subsistence economies: In a subsistence economy, the vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. They offer few market opportunities.
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Raw material exporting economies: These economies are rich in one or more natural resources but poor in other ways. Much of their revenue comes from exporting these resources. Examples are Chile (tin and copper), Democratic Republic of Congo (copper, cobalt, and coffee), and Saudi Arabia (oil). These countries are good markets for large equipment, tools and supplies, and trucks. If there are many foreign residents and a wealthy upper class, they are also a market for luxury goods. Emerging economies (industrializing economies): In an emerging economy, fast growth in manufacturing results in rapid overall economic growth. Examples include the BRIC countriesBrazil, Russia, India, and China. As manufacturing increases, the country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles. Industrialization typically creates a new rich class and a small but growing middle class, both demanding new types of imported goods. Industrial economies: Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semifinished goods. The varied manufacturing activities of these industrial nations and their large middle class make them rich markets for all sorts of goods.

4. Discuss the strategies used for adapting products to a global market. Which strategy is best? (AACSB: Communication) Answer: Straight product extension means marketing a product in a foreign market without any change. It has been successful in some cases and disastrous in others. Straight extension is tempting because it involves no additional product development costs, manufacturing changes, or new promotion. But it can be costly in the long run if products fail to satisfy consumer in specific global markets. Product adaptation involves changing the product to meet local conditions or wants. Product invention consists of creating something new for a specific country market. This strategy can take two forms. It might mean maintaining or reintroducing earlier product forms that happen to be well adapted to the needs of a given country. Or a company might create a new product to meet a need in a given country. No one strategy is best in all cases. Companies must choose the strategy that best fits their products and situations. 5. Discuss how global distribution channels differ from domestic channels. Communication) Answer: The international company must take a whole-channel view of the problem of distributing products to final consumers. There are two major links between the seller and the final buyer. The first link, channels between nations, moves company products from points of production to the borders of countries within which they are sold. The second link, channels
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(AACSB:

within nations, moves the products from their market entry points to the final consumers. The whole-channel view takes into account the entire global supply chain and marketing channel. It recognizes that to compete well internationally, the company must effectively design and manage an entire global value delivery network. Channels of distribution within countries vary greatly from nation to nation. There are large differences in the numbers and types of intermediaries serving each country market, and in the transportation infrastructure serving these intermediaries.

Critical Thinking Exercises 1. Visit www.transparency.org and click on corruption perception index (CPI). What is the most recent CPI for the following countries: Denmark, Jamaica, Malaysia, Myanmar, New Zealand, Somali, and the United States? What are the implications of this index for U.S.based companies doing business in these countries? (AACSB: Communication; Use of IT; Reflective Thinking) Answer: The CPI score is based on multiple independent surveys and represents the perceived level of public-sector corruption in a country. The 2011 CPI for the following countries is: Denmark Jamaica Malaysia Myanmar New Zealand Somalia United States 9.4 3.3 4.3 1.5 9.5 1.0 7.1

A low number implies a high degree of corruption, so Somalia is perceived to have the most public-sector corruption. New Zealand is perceived as the having the least amount of publicsector corruption. The implications for companies doing business in a given country are that it may be more difficult to do business in a country with a high degree of corruption. U.S. companies cannot go along with corrupt practices outside of the United States even if they are standard business practices in the host country. This may put U.S. firms at a disadvantage if competitors from other countries give in to the corrupt demands of foreign governments. Visit this site to see the CPI scores as well as other useful information: http://cpi.transparency.org/cpi2011/interactive/ 2. Selling a product in a foreign country is difficult and many companies make mistakes. Find and report on two examples of companies making marketing mistakes when entering a foreign country. (AACSB: Communication; Reflective Thinking)

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Answer: Students examples will vary. Googling international marketing mistakes brings up several sites with examples, such as http://home.globility.com/~superdog/fun/int_mrkt.html. 3. One way to analyze the cultural differences among countries is to conduct a Hofestede analysis. Visit http://geert-hofstede.com/ to learn what this analysis considers. Develop a presentation explaining how three countries of your choice differ from the United States. (AACSB: Communication; Use of IT; Reflective Thinking) Answer: Hofestede considers five dimensions in his cultural analysis: power distance, individualism, masculinity, uncertainty avoidance, and long-term orientation. An index is developed for each dimension, and students can compare each index for each country chosen with the indices for the United States.

Marketing Technology: Pixels Instead of Pine Swedish company IKEA releases a 300-plus-page catalog each year featuring its furniture in fashionably modern room settings. The 2013 catalog comes in 62 different versions for 43 countries. IKEAs photo shoots for the catalog take place in one of Europes largest studios 94,000 square feetwhich employs almost 300 photographers, interior designers, carpenters, and others involved in making each scene just perfect. The process is very labor-intensive and wasteful because rooms are built up and torn down and often thrown into a dumpster after the photo shoot. The catalog typically consumes 70 percent of the companys marketing budget each year. However, all that is being reduced thanks to technology. IKEAs catalog is going digital. Instead of a couch or bed or table or entire room, many items depicted in the catalogs are now merely pixels instead of pine. This year, 12 percent of the content online, in catalogs, and in brochures is not even real, and that proportion will increase to 25 percent next year. Using 3-D graphics to create the scenes, IKEA can cut costs and more easily manipulate imagery from one country to the next. Whereas Americans might prefer darker woods, a given living room can be shown with lighter woods for Japanese consumers. Dont expect to find any fake people or pets, however, because 3-D figures tend to look like ghosts. 1. Visit www.ikea.com and compare a catalog from one country to that of another. What differences do you notice? Can you discern that some photos are 3-D mockups instead of real rooms with furniture? (AACSB: Communication; Use of IT; Reflective Thinking) Answer: The catalog can be found at the bottom left corner of a countrys online site. The 2013 Catalog for the United States can be found at http://info.ikea-usa.com/Catalog/. Comparing it to the catalog for Japan (see www.ikea.com/ms/en_JP/virtual_catalogue/online_catalogues.html). Some of the furniture in other shots was shown in different colors. There was no way to tell if a picture was real or a
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3-D rendering because it all looked real, but side-by-side comparisons revealed subtle differences in colors and design, especially for kitchen and bathroom cabinetry. 2. Note the prices of some of the products. Convert some of the foreign prices to U.S. dollars and compare them to the prices in the U.S. catalog. Are the prices equivalent? Are they consistently higher or lower? (AACSB: Communication; Reflective Thinking) Answer: Students can find currency converters sites on the Internet (for example, http://www.xe.com/ucc/). Converting and comparing prices showed that some prices are higher in the foreign country while some were lower. For example, one item priced at 140,000 Yen, which converted to $1,776.67, was priced at $1,350 in the U.S. catalog, while another item was priced at 6,990 Yen ($88.70) and was priced at $99 in the U.S catalog.

Marketing Ethics: Trade Incentives The U.S. apparel industry is fiercely competitive and marketers often need to keep prices low to survive. Many apparel manufacturers have shuttered their U.S. factories in favor of cheaper labor across the globe, and our government is encouraging this behavior. For example, the African Growth and Opportunity Act (AFOA) was signed into law in 2000 to foster economic growth in Sub-Saharan Africa countries. Consequently, several clothing manufacturers have located in Africa to take advantage of the cheap labor and liberal U.S. market access to these countries. The AFAO allows poorly developed African countries to export to the United States duty free. There has been an unintended consequence, however, as more-developed African countries such as South Africa, which must pay regular duties to export to the United States, are seeing their textile industries suffer. One factor is rising labor costs65 cents per hour in South Africa but only 19 cents in neighboring African countries such as Lesotho, Swaziland, and Mozambique. Another significant factor is the ability of these countries to export to the United States duty-free as allowed by the AFAO. As a result, the South African textile industry saw 52 factories closed in the first half of 2011 alone, 8,000 jobs lost, and a reduction of $1.5 billion in direct investment. Although regulations enacted in the United States are not completely responsible for this decline, critics argue that the AGOA plays a major role.

1. Find another example of a U.S. law or trade agreement that encourages or discourages trade with foreign countries. Discuss the positive and negative consequences of the law. (AACSB: Communication; Reflective Thinking) Answer: Students answers will vary. One example is the North American Free Trade Agreement (NAFTA), the free-trade bloc uniting the United States, Canada, and Mexico. The impact of this trade agreement has been mixed (see www.cfr.org/economics/naftas-economicimpact/p15790 or www.cbo.gov/doc.cfm?index=4247&type=0&sequence=1).
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Marketing by the Numbers: Balance-of-Trade The United States exported more than $2 trillion worth of goods and services in 2011 yet realized a trade deficit of more than $500 million, meaning it imported more than it exported. The U.S. balance of trade has been negative for decades, although the deficit is lower than it was in 2004 through 2008. Some Americans believe trade deficits harm the country. 1. Visit www.bea.gov and find the U.S. balance of trade in goods and services. Create a line chart showing the balance of trade from 1992 to present. (AACSB: Communication; Use of IT; Reflective Thinking) Answer: See www.bea.gov/international/index.htm#trade to obtain the data to create the line chart. Data are available in an Excel file titled, Trade in Goods and Services, 1992-present, and students can create a line chart from this data. This number represents a trade deficit, meaning the U.S. imports more goods and services than it exports. An example line chart representing the data from 1992-2010 is given below. U.S. Balance of Trade: 1992-2010

2. Debate the pros and cons of the United States having trade deficits consistently year after year. (AACSB: Communication; Reflective Thinking) Answer:

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Students will be able to find considerable debate on this issue by Googling, Are trade deficits bad? Students should be encouraged to analyze the arguments that experts have made over time to determine if the sentiment is more positive or negative and if that has changed over time as the United States trade deficits increased or decreased in magnitude.

Company Case Notes

Buick: Number One Import Brand Synopsis This is a very compelling case in that most people would be shocked at the idea that Buick is one of the best selling automotive brands given its stodgy image and declining market presence in the U.S. Most people would also be surprised that any U.S. brand of automobile is doing well in other regions of the world. But the truth is, Buick is the top seller of premium vehicles in China. And, its one of the top selling auto brands in China overall. This case outlines how a combination of heritage and understanding the customer have put Buick at the top. But the more important lessons to be learned from this case are derived from the influence that the Chinese consumers are having on the design of products for the domestic U.S. market.

Teaching Objectives The teaching objectives for this case are to: 1. Identify factors leading to the success of Nokias global expansion. 2. Understand the need to adapt strategy to differences in consumer markets around the globe; i.e., not all consumers are alike. 3. Apply the five global product and communications strategies. 4. Consider competitive issues for global companies.

Discussion Questions 1. Does Buick have a truly global strategy, or just a series of regional strategies? Explain. More traditionally, it appears that Buick has had a series of regional strategies. It has either made cars for the U.S. market and distributed them to other countries, or it taken cars designed by GM for other markets (Opel in Europe, Holden in Australia) and relabeled them as Buicks. Either way, the past has not really reflected a cohesive global strategy. As this is considered, it should be noted that most companies have had tremendous challenges trying to come up with a world car, one that works for all markets. Not
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only are there too many differences in taste, but size constraints, cost of fuel, and government regulations throughout the world have made it extremely difficult. That said, it appears that Buick is developing a more cohesive global strategy. In this case, it is not evident that Buick is merely having new cars designed in China, then sold in other countries. The example given of the Buick LaCrosse was actually more of a collaborative effort than the case lets on. The PATAC team designed the interior while a U.S. team designed the exterior. It became a joint effort from different regions to produce a car that could be sold in multiple regions. That is indicative of a global strategy. However, it still apparent that the old ways are only slowly giving way to the new. Buick and other GM brands will likely see more of this kind of collaboration in the future. But for now, Buick China is still selling vehicles produced by various divisions in various regions under various GM labels. That old method is far from a solid global strategy. 2. Do GMs global manufacturing facilities, such as Shanghai GM, solidify a global strategy? Why or why not? The short answer is no. GM has long had manufacturing facilities throughout the world. But as noted in question 1, that has resulted in lots of cars made for lots of markets under different brands. Then, that mix is further blended and twisted as those products are re-distributed throughout the world. Thats an international strategy, not necessarily a good global strategy. So while Shanghai GM has been an important factor in making GM and Buick more competitive by contributing to a global strategy, such manufacturing plants alone do not solidify such a strategy. 3. Discuss Buicks global strategy in terms of the five global product and communications strategies. From this case, we know little with respect to the communications strategy for Buick throughout the world. Thus, it is very difficult to make assumptions here. As far as product strategy, it does not seem that Buick (or GM for that matter) is inventing entirely new products for a given market such as China. Rather, it is apparent that Buick is somewhere between a strategy where products are not changed versus one where products are adapted. At the very least, we know that in most cases, some amount of adaptation is necessary to meet language and regulatory requirements. But if those were the only adaptations made, we could proclaim a fairly standardized product from one country to the next. The LaCrosse seems to fit that description. However, even within such a strategy, it should be noted that there is a difference between making a product for one market and exporting it to another with few changes, and making a product from the beginning with multiple markets in mind. 4. Can competitors easily replicate Buicks strategy in China? Why or why not? In the short-term, no. Buick has momentum. It has history and image on its side. With that, as long as Buick stays in tune with the Chinese customers and produces products that are relevant to them, it should stay ahead. But in the long-term, all we have to do
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is look at the U.S. market over the past 50 years. At that time, one would never have seriously considered that the U.S. market today would look like it does. Import brands from Europe and Asia compete very strongly with the U.S. Big Three. And, the Big Three have suffered tremendous loss of market share and profits. As far as replication of strategy, a company would need a design team located in or near China. They would need a manufacturing facility there. Then, they would need to put systems in place where sharing across markets on those important functions occurs. Many of the large manufacturers already have both manufacturing and design capabilities in China. So the strategy could be replicated. Easily is another issue. As the case notes, Ford is at a fraction of GMs China sales and Chrysler isnt even on the radar. But some of the European brands are doing better in China. And, Chinese manufacturers are posing a strong threat. 5. Based on Buicks goals as discussed in the case, what do you predict for Buick in the coming years in China? In the United States? If everything is as the case presents, it isnt hard to believe that Buick will continue to do very well in the future in China. Whether or not they hit 5 million vehicles or 3.3 million by 2015 is neither here nor there. Either scenario would represent substantial growth. Buick and GM have learned some hard lessons in the past decade. It appears that they are emerging smarter and leaner as a result. Thus, if anything, Buick is more competitive now, not less. Combined with their current market position, Buick has a bright future in China. The end of case includes the statement Whatever the outcome, its clear that Buick is a global brand with momentum in the right place. Based on current overall data on U.S. sales, this appears to be a true statement. However, for various models within the Buick family, sales trends are inconsistent in the U.S. Students can easily access annual and year-to-date (YTD) sales figures to analyze the trends.

Teaching Suggestions This case covers many of the concepts identified in the text. Thus, these things should be covered prior to discussing the case so that students can apply those concepts to the case content. One additional way of further illustrating the concepts of the case is to visit Buicks international website at http://www.buick.com/buick-worldwide.html. Select different countries from different parts of the world. Explore the products and services for each country, finding similarities and differences. Show how this information fits with the discussion questions and case information. This case is also a good fit with the chapter on marketing research (Chapter 4).

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ADDITIONAL PROJECTS, ASSIGNMENTS, AND EXAMPLES

Projects
1. Read about the WTO (www.wto.org). What are the advantages and disadvantages of the existence of this organization? Take a stand on its effectiveness and substantiate your position. (Objective 1) Describe the three key approaches to entering international markets. Which do you believe would be the best for a company just beginning to work internationally? (Objective 2) Describe the five basic strategies for adapting products to new markets. (Objective 3) Describe the whole-channel view of international distribution. (Objective 3)

2.

3. 4.

Small Group Assignments

1. Divide students into groups of three to five and have them read the opening chapter vignette on Coca-Cola in Africa. Students should then answer the following questions and share their answers with the class. (Objectives 2 and 3) a. Why do international markets such as Africa appear to be so promising to companies like Coca-Cola? What are some of the dangers and pitfalls for Coca-Cola could encounter marketing its products in Africa? b. What do you suppose so many Africans enjoy Coca-Cola products as they do? What are the major appeals of this all-American product?

2. Divide students into groups of three to five and have them read Real Marketing 19.2: Starbucks in India: A Global Brand in a Local Market. Students should then answer the following questions and share their answers with the class. (Objective 3) a. Why does Starubucks view India as such a promising market? What is unique about it? b. How has Starbucks had to adapt its products and marketing strategies to the Indian market? c. With so many other coffee and beverage choices available in India, why do you think Indian consumers appear to love this all-American product so much?

Individual Assignments
1. Read Thomas Friedmans book, The Lexus and the Olive Tree. Write a five-page summary of the major points he makes. (Objective 1)

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2. The simplest way to enter a foreign market is through exporting. The two primary types of exporting are direct exporting and indirect exporting. Define each team. Locate 10 companies that practice direct exporting and 10 companies that practice indirect exporting. Justify your answers. (Objective 2)

Think-Pair-Share
Consider the following questions, formulate an answer, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor. 1. How many countries are there in the world? (Objective 1) 2. What is the purpose of the World Trade Organization (WTO)? Do you believe it is doing a good job? (Objective 1) 3. Discuss NAFTA and FTAA. In the long run, which do you believe has the greatest probability of success? (Objective 1) 4. What is the fundamental difference between a tariff and a quota? (Objective 1) 5. What is countertrade and how does it work? (Objective 1) 6. What are some of the economic factors to consider when examining potential markets to enter? (Objective 1) 7. What are some of the sociocultural factors to consider when examining potential markets to enter? (Objective 1)

Outside Examples
1. Review the history of Disneyland Paris. Why was it initially such a failure? What lessons can we take away from their experiences in France? (Objective 1) Possible Solution: The Disneyland Paris Web site (www.disneylandparis.com) provides a lot of information that will be useful in answering this question. Disneyland Paris theme park was to be comprised of an updated, state of the art Disney Magic Kingdom. It has experienced numerous complications from its inception. Because the Walt Disney Company executives were determined to adhere to American philosophies, they did not thoroughly investigate all aspects of the European environment. This failure to do adequate research caused the Walt Disney Company executives and visionaries to construct their American dream theme park on foreign soil with little if any regard for the practical reality of the physical, financial, and/or cultural environment of their chosen site. There were various errors made in the operations of Disneyland Paris that offended the French culture. An example is Disneys policy of serving no alcohol. This caused astonishment and rebellion in France where a glass of wine for lunch is a given. After much consideration, in May 1993, the company changed its position.

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Disney had difficulty realizing Europeans were accustomed to eating at a set time every day although Americans are content to wander around the parks with lunch in their hands. A large majority of the European guests would converge on the restaurants at 12:30 p.m. expecting to be seated for a leisurely lunch. This caused the lines to be very long. To complicate matters further, once the Europeans reached the front of the line they were told they could not have wine or beer with their lunch. A final example of a cultural error is the Europeans approach to vacation time. The Europeans are reluctant to take their children from school for a vacation in mid-session whereas Americans do it frequently. Also, the Europeans prefer a few longer holidays rather than several short breaks. Disney was convinced it would be able to Americanize the European habits. Unfortunately for Disney, this was not the case. 2. Global organizations are companies that have stopped thinking of themselves as national marketers who sell abroad and have started thinking of themselves as global marketers. Name two global organizations and justify your answers. (Objective 4) Possible Solution: Obviously, there are a number of possible answers to this question. Ford Motor Company and General Motors are two great examples. Both of these Detroit, Michigan-based auto manufacturers produce, market, sell, and support their products around the world. As a matter of fact, both companies realize a very substantial percentage of their revenue from products designed and manufactured in and for countries other than the United States.

Web Resources
1. http://247.prenhall.com This is the link to the Prentice Hall support link. 2. coca-cola.com Here is Coca-Colas portal to the world. You can see what they are doing in any country in which they do business. 3. www.wto.org/ Learn more about the World Trade Organization and the work they do here. 4. www.gatt.org/ Here is the site for the General Agreement on Tariffs and Trade (GATT) 5. https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html China has become a powerhouse into which many companies are interesting in tapping. 6. www.starbucks.com The home of McDonalds and useful for Real Marketing 19.2.

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