International Marketing

15th edition

McGraw-Hill/Irwin

Philip R. Cateora, Mary C. Gilly, and John L. Graham

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Introduction
As the 21st century continues to unfold, so does the
dynamism of the Asia Pacific Region as it has seen
double-digit annual growth rates
The economic miracle began by Japan in the
1970s and carried on by the Four Asian Tigers in
the 1980s has now been embraced by Greater
China and the region as a whole
Opportunities in the Asia-Pacific region abound,
brought about by the combination of fast
economic growth and half the population of the
world!
Roy Philip

11-2

Overview
Dynamic growth in the Asia Pacific region
Greater China, Japan, India, the Four Asian Tigers,
and Vietnam
Bottom-of-the-Pyramid Markets (BOPMs)
Market Metrics
Asia Pacific Trade Associations
ASEAN, ASEAN+3, and APEC
Focus on diversity within China
Northeast China, Beijing-Tianjin, Shanghai and the
Yangtze River delta, Pearl River delta, and the
Other Billion
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11-3

Global Perspective
Walmart, Tide, and Three-Snake
Wine

Developing markets are experiencing rapid

industrialization, growing industrial and
consumer markets, and new opportunities for
foreign investment
Walmart operates over 8,000 units in 15
countries, including almost 150 in China and
about 95% of what Walmart sells is sourced
locally, example the Three-Snake rice wine
P&Gs Tide detergent turned into unwieldy
clumps in China because of its oppressive
summer humidity
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11-4

Dynamic Growth in the

Asia Pacific Region

The Greater China

Japan
India
The Four Asian Tigers
Vietnam

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11-5

The Greater China

Refers to both the Peoples Republic of China
(PRC) and Taiwan (Republic of China - ROC)
which were in 1949, and each government
claimed the other as its territory
The ROC was one of the founding members of
the United Nations in 1945, but the PRC was
recognized into the UN in 1971
Relationship between the ROC and the PRC has
been both politically difficult and militarily
dangerous; this has been eased in the 21st
century due to increased trade between them
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11-6

The Peoples Republic of

China (PRC) (1 of 2)

Aside from the United States and Japan, there is

no more important single national market than
the PRC
The PRC with a dual economic system,
embracing socialism along with many tenets of
capitalism, has produced an economic boom
with expanded opportunity for foreign
investment
Its GNP averaged nearly 10% since 1970 and is
predicted to be around 8 10% in the next 10 to
15 years, equaling that of the US by 2015
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11-7

The Peoples Republic of

China (PRC) (2 of 2)

Two major events that occurred in 2000 had a

profound effect on Chinas economy:
Admission to the World Trade Organization
(WTO)
US granting normal trade relations (NTR) to
China on a permanent basis (PNTR)

Two steps China must take if its road to

economic growth must be smooth:
Improving human rights
Reforming the legal system
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11-8

The Tale of Two Chinas

Old China
Maddening, bureaucratic, bottomless money pit,
heaps demands on MNCs, local officials shaking
down major corporations, whipsawed by policy
swings, railroaded into bad partnerships, and
squeezed for technology

New China (Market-Driven)

Fast emerging, open to products from fast food to
shampoo, entry barriers eroding even in tightly
guarded sectors
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11-9

Hong Kong
After 155 years of British rule, Hong Kong
reverted to China in 1997, when it became a
special administrative region (SAR) of the PRC
Hong Kong is given a high degree of autonomy. It
negotiates bilateral agreements (which are then
confirmed by the PRC0 and makes major
economic decisions on its own
Hong Kong is a free society with legally protected
rights as the PRC continues to pursue a generally
noninterventionist approach to economic policy
that stresses the private sector
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11-10

Taiwan, The ROC

Both Taiwan and China continue to implement
WTO provisions between themselves
Taiwan companies have invested over %50
billion in China, and about 250,000 Taiwaneserun factories are responsible for about 12% of
Chinas exports
Trade helps out both countries: Taiwanese
companies face rising costs at home - China
offers a nearly limitless pool of cheap labor and
engineering talent; Chinas SOEs are laying off
millions and Taiwan provides plentiful jobs
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11-11

Japan
Japans fast growth in the 1970s and 1980s
amazed the world. Then came the early 1990s,
and Japans economy produced a stunning
surprise: it slowed, sputtered, and stalled
Four explanatory themes have emerged:

Faulty economic policies

Inept political apparatus
Disadvantages due to global circumstances
Cultural inhibitions

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Japans GNI per capita

(Current International $)
Exhibit 11.1

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Faulty Economic Policies

In the early 1990s, Japans stock market collapsed
as its Nikkei index level plummeted from over
35,000 to under 13, 000 (it is now around 11,000)
Decades of galloping economic recovery success had
bred a prideful national overconfidence. This was
followed by willingness to take exaggerated risks
which came in the form of borrowing heavily. After a
while, lenders became cautious and this caused the
inflated structure to collapse
Spending habits curtailed, causing demand to fall;
this caused industry to cut back on output and
hiring; unemployment soared and confidence fell
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11-14

The Political Explanation

Two major villains:
Japans long entrenched liberal democratic
political party a one party sickness brought on
by a 40-year hardening of political arteries.
Hidebound Japanese Bureaucracy Japanese
Bureaucracy controlled its elected politicians

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11-15

Global Circumstances
Japanese population is shrinking faster than the
U.S. In 2005, while American baby boomers
were at their peak of productivity, the Japanese
were about 10 years ahead to population declines
and graying hair
Serious disadvantage in the information age: its
complex language (three alphabet system)
hindered software innovations
With historically low real prices of oil and the
U.S. peak consumption level of SUVs, Japan was
late to tap this market
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11-16

The Cultural Explanation

The lack of a national goal for Japan plagued
them after successfully building themselves from
the ruins of World War II
The Japanese management culture such as,
lifetime employment, job promotion based not
on merit but on length of service, reciprocal
contractor/subcontractor loyalties, hindered
their adjustment to the new economic era
Japan is expected to continue its slow-growth
economy; Toyotas 2010 quality problems may
have disrupted its contributions to the economy
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11-17

India (1 of 4)
India s traditional insular policies, import
substitution, and aversion to free trade has
constrained its growth
Its five -point agenda:
Improving the investment climate
Developing a comprehensive WTO strategy
Reforming agriculture, food processing, an smallscale industry
Eliminating red tape, and
Instituting better corporate governance
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11-18

India (2 of 4)
The following steps have already been taken:
Privatizing state-owned companies ; reducing stake
to about 51%
Recasting the telecom sectors regulatory authority
and demolishing the monopolies enjoyed by SOEs
Signing a trade agreement with the U.S. to lift all
quantitative restrictions on imports
Maintaining momentum in the reform of the
petroleum sector
Planning the opening of domestic long-distance
phone services, housing, and real estate and retail
trading sectors to foreign direct investment
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11-19

India (3 of 4)
India still presents a difficult business
environment
Tariffs are well above those of developing world
norms
Inadequate protection of intellectual property rights
Anti-business attitudes of Indias federal and state
bureaucracies continue to hinder potential investors
and plague their routine operations
Delay by policymakers on selling money-losing SOEs,
making labor laws flexible, and deregulating banking
Widespread corruption and ingrained bribery
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11-20

India (4 of 4)
But India presents a lot of opportunities
Massive market (over 1 billion, second in size only to
China)
Cheap and qualified labor
Knowledge of English
Educated middle class numbering 250 million
(college graduates, scientists, engineers, etc)
Supplier and exporter of expertise in all areas of
information technology
Time zone puts India in a competitive position with
their European counterparts (they work while
Americans sleep)
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11-21

Four Asian Tigers

Hong Kong, South Korea, Singapore, and
Taiwan
First countries in Asia, after Japan, to move from
developing countries to newly industrialized
countries
They are rapidly industrializing and extending
their trading activity to other parts of Asia
They are also becoming more important as
economic leaders as the economies of other
Asian countries have strengthened and
industrialized
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11-22

Vietnam
Its economy and infrastructure were in shambles
after 20 years of socialism and war, but this
country of more than 88 million is poised for
significant growth
Although the population is educated and highly
motivated and the government is committed to
economic growth, there still exists poor
infrastructure, onerous government restrictions,
minimal industrial base, competition for
resources with China, and a lack of capital
technology
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Bottom-of-the-Pyramid
Markets (BOPMs)

It consists of the 4 billion people across the globe

with incomes of less than $1200.
These 4 billion consumers are, of course,
concentrated in the LDCs and LLDCs
They have been relatively ignored by
international marketers because of
misconceptions about their lack of resources
(both money and technology)and the lack of
appropriateness of products and services usually
developed for more affluent consumers
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Dynamic Transformation
of BOPM Clusters
Exhibit 11.2

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Standard of Living in the Eight Most

Populous Countries in the
Asia Pacific Region
Exhibit 11.3

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Infrastructures of the Eight Most

Populous Countries in the
Asia Pacific Region
Exhibit 11.4

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Consumption Patterns in the Eight Most

Populous Countries in the
Asia Pacific Region
Exhibit 11.5

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Asia Pacific Trade

Associations

Once a source of inexpensive labor for products

shipped to Japan or to third markets, countries
in the Asia Pacific region are now seen as viable
markets
Three free trade associations in this region:
Association of South East Asian Nations (ASEAN)
ASEAN+3 (ASEAN members plus ministers from
China, Japan, and South Korea)
Asia-Pacific Economic Cooperation (APEC)

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11-29

Association of Southeast Asian

Nations (ASEAN)(1 of 2)
Goals of the ASEAN
Operating within a free trade area
The ability to sell in an entire region without
differing tariff and nontariff barriers
Distribution can be centralized at the most costeffective point rather than having distribution
points dictated by tariff restrictions
Pricing can be more consistent, which helps
reduce smuggling and parallel importing
Marketing can become more regionally and
centrally managed
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11-30

Association of Southeast Asian

Nations (ASEAN)(2 of 2)
Four major events that caused the vigorous
economic growth of ASEAN
The ASEAN governments commitment to
deregulation, liberalization, and privatization of their
economies
The decision to shift their economies from commodity
based to manufacturing based
The decision to specialize in manufacturing
components in which they have a comparative
advantage
Japans emergence as a major provider of technology
and capital
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Asia Pacific Market Group

Fundamental Market Metrics
Exhibit 11.6

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ASEAN+3
ASEAN plus China, Japan, and South Korea was
created as a result of the Asian financial crisis
(1997-1998) to deal with trade and monetary
issues facing Asia
ASEAN+3 consists of foreign and finance
ministers of each country, which meets annually
after ASEAN meetings
Closer links between Southeast Asia and
Northeast Asia are seen as a step toward
strengthening Asias role in the global economy
creating a global three-bloc configuration
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Asia-Pacific Economic
Cooperation (APEC)
APEC was formed in 1989
Provides formal structure for major governments to discuss
mutual interests in open trade and economic collaboration
Includes all major economies of the region and the most
dynamic, fastest-growing economies in the world

Common goal and commitment to:

Open trade
Increase economic collaboration
Sustain regional growth and development
Strengthen the multilateral trading system
Reduce barriers to investment and trade without detriment
to other economies
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A Focus on Diversity
Within China
Todays China is divided into mutually
competitive, complementary economic warring
states, just as it was two thousand years ago,
before being united in the Qin Dynasty
There are four regional economies from the north
to the south of the country, along the Pacific
Coast:

Northeast China Industrial heartland

Beijing-Tianjin information technology corridor
Yangtze River Delta
Pearl River Delta
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Chinese Administrative
Divisions
Exhibit 11.7

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Northeast China
Northeast China was the industrial and
technological center of the country in the 1970s and
1980s
The three contiguous provinces in Northeast China:
Liaoning (43.2 million persons) closest economic
ties with Japan
Jilin (27.4 million persons) shares border with North
Korea and houses 60% of North Koreans
Heilongjiang (38.3 million persons) shares border
with Russia; the capital city of Harbin is called the
little Moscow
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Beijing - Tianjin
The 75-mile corridor between Beijing and its coast cousin
Tianjin hosts some 5,000 Chinese high-tech companies,
among them Lenovo, and more than 1,000 international
IT companies
Tianjin is Chinas third largest industrial city after
Shanghai and Beijing, but it is also the fastest growing one
Primary industries include automotive, electronics,
metals, and petrochemicals
Motorolas huge investments in the Tianjin Economic and
Technology Development Zone have yielded perhaps the
biggest mobile phone manufacturing operations in the
world
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Shanghai and the Yangtze

River Delta
Shanghai has been undergoing a major industrial
renaissance during the past two decades
Although medium value-added industries now
account for the vast majority of Shanghais industrial
employment, but new emphases are being put on
developing its automobile assembly industry and
other high-tech industries, such as computer,
telecommunications equipment, and integrated
circuit manufacturing
Chinas sustained economic growth and accession to
the WTO have aided Shanghais position as a
regional trade and financial center
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11-39

Pearl River Delta

The Greater Pearl River area includes three cities of
over 5 million inhabitants; five cities with more than
1 million inhabitants; and a number of cities that
each contain approximately half a million
inhabitants
Shenzhen, bordering Hong Kong, leads the local
economy. Its population is 7 million, reflecting the
significance and attractiveness of the city as a
manufacturing and transportation in base
Proximity to Hong Kong is one of its advantages as it
can use Hong Kong as a trade platform to expand the
global market
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The Other Billion

There is a part of China that few Westerners ever see
and has not yet participated in the global economy.
They are called the Other Billion, and they usually
receive about 10 % of the central government budget
which amounts to less than $100 a head for rural
roads, water, power supplies, schools, and hospitals
Although the government is not spending much in
the area, MNCs such as HP, Volvo, and Yamaha are
funding development, with Yum! Brands, Tricon
Global, and McDonalds closely following
But, the area is filled with economic divide and a
massive lack of infrastructure and technology
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11-41

Differences in Business Negotiation

Styles within Greater China
Northeastern negotiators (Forthright, industrious,
competent, honest, and plainspoken, yet averse to risk and
lack of creativity)
Beijing area (Bureaucracy, imperialist perspective, lack of
creativity)
Shanghai area (Shrewd, outgoing, big talkers and
spenders, creative-thinkers, and successful)
Pearl River Delta (Entrepreneurship, spontaneity,
honest, and forthright)
Hong Kong (Bilingual, adept with the British culture, and
humble)
Taiwan (Conservative, age, rank, and family important,
and autocratic decision style)
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Marketing Opportunities in
Greater China
Across this vast land of opportunity, there are extreme
differences in economic wellbeing, cultures, and
political structures
The following sectors are great for American exporters:
Automotive components, cleaner coal, construction
equipment, education and training services, machine
tools, marine industries, healthcare, water and
wastewater treatment, rail equipment, renewable
energy, and green building

Finally, the influence of national government policies

and regulations of marketing will often be minor
compared with that of their local counterparts
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Summary (1 of 2)
The Asia Pacific region is the most dynamic of
the three regions covered in chapters 9-11
China and India both grew at double-digit rates
during the last five years, and so far, they have
fared better than the United States or Europe
coming out of the 2008-2009 global recession
Japan still remains the second most important
national market, behind only the United States
New concepts, such as marketing to the bottom
of the pyramid, are also most applicable in south
Asia
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Summary (2 of 2)
The mixed stages of economic development
present a variety of opportunities for
international marketers
Infrastructure development, new industrial
markets, and huge consumer markets

The countries of the Asia Pacific region are

cooperating in two major trade associations:
ASEAN+3 and APEC
There is a great deal of diversity in markets,
industries, and cultures within China
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11-45