Download - Lecture 2RJ
-
7/30/2019 Lecture 2RJ
1/60
GLOBAL MARKETING
Lecture 1: an introduction
-
7/30/2019 Lecture 2RJ
2/60
Global Marketing
BUS603Lecture 2
Dr Rosalind Jones
-
7/30/2019 Lecture 2RJ
3/60
Country Selection and Entry
Strategies- chapter 2 core text
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
4/60
Learning Objectives- To explore the following 1. What two factors drive market economies, and how are these
factors different in command economies?
2. How do Rostows five stages of economic development applyto the concepts of most-, less-, and least-developed economies,emerging markets, newly industrialized countries, and transitioneconomies?
3. What factors help create a national competitive advantage foran economy?
4. How do the five forces that increase competitive rivalriesrelate to industry-level competitive advantage?
5. How do the various modes of entry balance a companys levelof control with its level of risk?
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
5/60
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
6/60
Learning Objective #1
1. What two factors drive marketeconomies, and how are these factors
different in command economies?
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
7/60
Economic Systems
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
8/60
Market Economy
An economy in which most economic decisions aremade in the marketplace is a market economy.
The marketplace may be found anywhere moneychanges hands in a capitalist economic system.
Supply and Demand
Supplyis the amount of goods and services thatproducers will provide at various prices.
Demandis the amount or quantity of goods andservices the consumers are willing to buy at variousprices.
The market price, or equilibrium price, represents themeeting place between supply and demand.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
9/60
Components of Market Economies Profit
Revenue exceeds costs
Personal and business
Private Property Rights
Allow individuals to buy land, machinery, and othergoods
Competitive Marketplace
Government does not interfere with prices or sales
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
10/60
Most Economically Free Countries
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
11/60
Command Economy
A central authority makes all key economicdecisions in acommand economy. Socialism refers to economic systems where the
state owns at least some parts of industry.
Strong command economy Heavy governmental control will be present.
Communism is an extreme form of socialism that
bans private ownership of property. Moderate command economies
A degree of private enterprise operates.
The state owns all of the major resources.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
12/60
Mixed Economy
The marketplace guides part of theeconomic system and the governmentruns the other part.
Government may oversee defense, education,building and repairing roads, and/or fireprotection.
Marketplace vends other items, including
necessities, sundries, and luxuries. Most countries have mixed economies.
One force, marketplace or government, tendsto be more dominant.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
13/60
Learning Objective #2
2. How do Rostows five stages of economicdevelopment apply to the concepts of
most-, less-, and least-developed
economies, emerging markets, newly
industrialized countries, and transition
economies?
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
14/60
Economic Development
Degree of economic development in aregion or country drives manyinternational marketing decisions.
Development can be controversial androoted in politics and conflicts between
countries.
Different levels of economic development
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
15/60
Stages of Economic Development
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
16/60
Initial Stages of Development
Traditional Society
Subsistence economy
Agricultural primary occupation and means of
production Limited technology and capital
Preconditions for Takeoff Technology begins to develop
Rudimentary transportation to encourage trade
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
17/60
Rapid Development
Takeoff Manufacturing industries grow rapidly
Airports, roads, and railways built
A few leading industries support high levels ofeconomic growth
The Drive to Maturity Growth has spread to all parts of the economy and is
self-sustaining Modern transportation systems embedded
Rapid urbanization
Traditional industries may start to decline
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
18/60
Final Stage and Application
The Age of Mass Consumption
Rapid rise of tertiary, third-wave support
industries Decline in manufacturing
Citizens enjoy abundance, prosperity, and avariety of purchasing choices
At each stage, the presence and growth ofpotential target markets changes.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
19/60
Emerging Markets
Emerging markets are countries that are movingthrough the transformation from developing to
developed. Mexico, South Africa, and several countries in Asia
Big Emerging Markets (BEMs)
Emerging markets with a large population
BRIC countries Brazil, Russia, India, and China
Large regional (and increasing global) economic andpolitical footprint
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
20/60
Newly Industrialized Countries (NICs)
For NICs, rapid economic development placesthem between less- and more-developedstages.
China, Taiwan, South Korea, Mexico, Brazil
NICs are always emerging markets, but
emerging markets are not always NICs Government plays a clear role in NICs and less so
in some emerging markets
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
21/60
Characteristics of NICs
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
22/60
Transition Economies
Occur in formerly communist countries withcentrally planned economies as the countrytransitions to a free market economy.
Eastern Europe, China
Opportunity for growth
Increased standard of living
Increased purchasing power
Gaps in market may be filled by foreign companies
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
23/60
Features of Transition Economies
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
24/60
Struggles for Transition Economies
Split population Younger consumers more comfortable with the
change
Older consumers may desire return to old system Economic growth more beneficial for urban than for
rural consumers
Corruption a large problem limiting growth
The task may be difficult, but the resources arescarce.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
25/60
Transparency International
Corruption Index
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
26/60
Bottom-of-the-Pyramid
Low-income, bottom-of-the-pyramid customersare most likely to reside in least-developedeconomies or in Rostows traditional societies.
The potential does exist for products that aretailored to these consumers.
As an economy moves forward and infrastructureemerges, the opportunities tend to grow andexpand impressively.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
27/60
Learning Objective #3
3. What factors help create a nationalcompetitive advantage for an economy?
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
28/60
National Competitive Advantage The basis of global economic leadership
Michael Porters Diamond- National CompetitiveAdvantage Model-
This model moves beyond traditional ideas of cost of
labour, currency differences or availability of naturalresources and looks at what drives a country toinnovate. Demand conditions
Related and supporting industries Firm strategy, structure, and rivalry
Factor conditions
Government (can encourage the other 4 factors)
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
29/60
Demand Conditions
The unique features of demand in a nation make upthat countrys demand conditions.
Domestic consumers may be more or lessrepresentative of the global consumers.
Consumers who move the global taste in a category orindustry help a nation become global leaders in thatcategory. France and fashion
South Korea and technology
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
30/60
Related and Supporting Industries
Support from various other companies thatprovide inputs, support production, or facilitateother aspects of an industry together count as
related and supporting industries.
Nations with this type of support network exhibit
one of the conditions needed to have a nationalcompetitive advantage in that industry.
Nokia in Finland is surrounded by needed related andsupporting industries.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
31/60
Firm Strategy, Structure, and Rivalry
Nations differ in terms of how thegovernment allows companies to be formed,maintained, and structured, including controlof domestic and potentially foreigncompetitors.
This results in differences in firm strategy,structure, and rivalry
In Italy, companies tend to be smaller, familyowned, and privately held.
In Germany companies tend to be large andhighly structured, and employ managers withtechnical backgrounds.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
32/60
Factor Conditions
Factor conditions include components needed for production ofgoods or services, such as labor and infrastructure.
Each industry has specific factors associated with success in that field.
Traditionally, these factors were natural endowments that nationspossessed without effort.
Labour or land or various natural resources such as oil or minerals
Increasingly, resources are created such as trained human resources.
Factor conditions most clearly lead to national competitiveadvantage when specialization exists.
The American film industry has the various directors, actors,producers, and cinematographers needed.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
33/60
Government
Government, and how government interacts with the freemarket, plays a role in creating national competitiveadvantage.
Industry innovation results from competition andgovernmental activities can assist this. Support for education
Encouraging cooperation between related industries
Assisting in the development of new technologies and emerging
industries
Policies that increase competition while supportinginnovation help create national competitive advantage.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
34/60
Learning Objective #4
4. How do the five forces (another Porters
Model) that increase competitive rivalries
relate to industry-level competitive
advantage?
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
35/60
Industry-Level Competitive Advantage
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
36/60
Threat of New Entrants
The threat of new entrants affects the nature of local,national, and international competition.
The large size of the markets in Big EmergingMarkets alone sparks interest and increases the chance ofnew entrants.
Barriers to entry can be used by companies to prevent or
limit new entrants. Potential barriers include brand equity, large initial cost
requirements, regulations, monopolies over distribution orneeded resources, and/or lack of specific, hard-to-learnknowledge.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
37/60
Threat of Substitute Products
The existence of substitute products increasescompetitive intensity. Different substitute products exist in international markets.
When consumers can switch from product to product,companies face stronger pressure from competitors toget consumers to make the switch. Switching costs increase
Consumer loyalty increase
Brand loyalty, unique product benefits, and repeatpurchase rewards all decrease switching.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
38/60
Bargaining Power of Suppliers
Companies within an industry typically use the samesupplier or a small group of suppliers for the resourcesneeded, including labour and raw materials. Suppliers of these resources with strong bargaining power
increase the competition within the industry.
Supplier bargaining power increases when only one ora small number of companies serve as supplier.
Steps to lower the bargaining power of suppliers: Buy the supplier.
Supply the resource internally.
Find substitutes for the resource, often by lookinginternationally.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
39/60
Bargaining Power of Consumers Consumers possess bargaining power.
When only a few individuals purchase a product, such ascan be the case in business-to-business marketing, thosebuyers hold more power.
Small numbers of consumers increase competition.
Price sensitivity increases consumer power due to theincreased likelihood of a customer switching to a lower-priced competitor.
Methods to decrease consumer bargaining power: Brand loyalty
Opening new markets or increasing market share
Growth in market size
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
40/60
Rivalry Among Competitors
Together, the four forces above work to increase rivalryamong competitors.
Company-specific factors also increase rivalries amongcompetitors. Widely accessible knowledge and processes result in more
rivalry than does specialized, difficult-to-imitate knowledge.
Innovation, especially when legally protected, can reduce
competition within an industry.
When every company in an industry competes based onsimilar, duplicable factors, rivalry becomes intense.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
41/60
Economic Forces and
International Marketing Economic forces affect culture.
Development increases materialism.
Economic forces affect language. New terms for new technologies
Economic forces affect political and legal systems. Laws governing property rights and commerce
Laws can speed up or slow down development.
Economic forces affect infrastructure. Growth leads to more complex and developed infrastructure.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
42/60
Sustainability and
International Marketing As countries develop economically, sustainability
becomes an increasing concern.
How can economic development be donesustainably?
Economic development increases globalconsumption of resources. Energy
Water
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
43/60
Learning Objective #5
5. How do the various modes of entry
balance a companys level of control with its
level of risk?
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
44/60
Modes of Entry
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
45/60
Exporting
The product is shipped in one manner oranother into a foreign market. Typical initial method to enter a market
Little control after products leaves home country
Two broad methods: Direct sales
Use of an intermediary
The Internet has led to a growth in direct sales.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
46/60
Licensing
A contract that grants a company (the licensee) the legalright to use another companys brand, image, and othermarketing components
Can provide a quick, low-cost method for entering aforeign market The licensee holds additional knowledge about the local
market that increases the chance for success.
Primary concern is lack of control. Local partner behavior may detract from the image of the
company.
May make poor marketing choices.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
47/60
Franchising
The contractual agreement to implement a business model McDonalds, KFC, 7-Eleven, Supercuts, and Jani-King
In return for an up-front fee, signees obtain access to the
companys colors, images, and products, which offersgreater control over the marketing process by the parentcompany.
The risk is a poor franchisee. Signee may ignore contract or make decisions that hurt the
company.
Costs accrue to control signees.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
48/60
Joint Ventures
Some companies choose to partner with local businesseswhen entering a country.
When these legal partnerships involve an investment, adivision of ownership, and the creation of a new legalentity, the newly created business is joint venture.
The categories of joint ventures include: Majority owned, where the foreign company owns 51% or more
of the joint venture;
Minority owned, where the foreign company owns 49% or lessof the joint venture;
50% / 50%, or an equal split of ownership.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
49/60
Joint Venture
Advantages and Disadvantages Advantages:
Local partners provide access to local connections.
Local partners understand the local business environment.
Sharing of risk lessens potential losses.
Costs may be lowered.
Disadvantages:
Lost or leaked proprietary knowledge. Partners may misappropriate company assets and may
even break the joint venture and then use that knowledgeto succeed in separate, independent business ventures.
Conflicts between partners can also occur.Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
50/60
Strategic Alliances
A formal agreement between companies to work together to achieve acommon goal. In contrast to joint ventures, a separate legal entity does not get created.
Resource sharing, project funding, and knowledge transfer all happen withinmost strategic alliances.
Many strategic alliances investigate problems that affect all or mostmembers of an industry. Sharing research on a new technological breakthrough or combining resources
to enter a new market are two common goals for strategic alliances.
Advantage
Limited financial commitment and fewer formal legal lessens risk.
Disadvantage Exposure to a potential partners leaving or stealing technology.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
51/60
Wholly Owned Subsidiary
A 100% ownership stake in a business in that country
Must comply with local regulations, adjust to local culturalstandards and mores, operate in the native language, fitwith local economic conditions, and be supportable
through the local infrastructure.
Company is able to use its own brand, logo, and colorscheme, and maintains control over both managerial
operations and marketing decisions. Primary advantage is complete control.
Primary disadvantage is lack of shared risk and high cost.Also, fail to have a local contact to facilitate entry success.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
52/60
Types of Wholly Owned Subsidiaries
Acquisitions, the company purchases a local businessthat is then transformed into the subsidiary.
Greenfieldinvestment, the company builds thesubsidiary from the ground up.
China has a unique type the wholly foreign-ownedenterprise The subsidiary maintains special economic status within
China.
These businesses typically manufacture goods solely forexport to foreign markets.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
53/60
Entry Mode Failure and Exit
Put a plan in place regarding market exit pre-entry.
Set clear, measurable goals regarding entry success with set deadlines.
Failure may result from many things.
Poor planning
External, unpredictable forces
When leaving, focus on maintaining the relationships built. Settle contracts fairly.
Focus on maintaining company reputation.
The partner in the country being exited might also be a potentialpartner in a separate country.
It is always possible that the firm will choose to enter the market againat a later date.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
54/60
Theories of Entry Mode Selection
Explaining entry mode choices is a dominant
area of international business academic
theory.
The three dominant theories:
Internationalization Theory
Internalization Theory
Eclectic or OLI Theory
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
55/60
Internationalization Theory
Companies go through four stages during the move to becoming a completelyglobal company: (1) no regular export activities,
(2) export via independent representatives,
(3) establishment of an overseas sales subsidiary, and
(4) foreign production.
The model views global entry as an incremental process. A companys marketers begin by exporting to close, familiar markets.
Through these exporting activities, the company leaders gain the knowledge needed to exportto other close similar markets .
Eventually enough knowledge is gained to expand globally.
Key concept is psychic distance or the differences between managers fromdifferent countries. It includes differences in language, communication styles, legal and political structures,
education, and overall cultural values.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
56/60
Internalization Theory
Focuses on advantages to each entry mode type.
Exporting represents the default, efficient choice for market entry. Supply and demand guide the process.
The company exerts little control and less cost is involved.
The lack of control is acceptable if no unusual risks or uncertainties andtrusted partners.
In many cases, uncertainty and risks exists making exporting too risky. Managers choose to internalize the entry hence the name of the theory.
Internalization refers to taking some degree of ownership. Choosing a non exporting entry mode such a wholly owned subsidiary or a
joint venture
The high costs are offset by the level of control resulting from ownership.
Greater control allows for better response to risk and uncertainty.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
57/60
Eclectic or OLI Theory
Assumes that exporting will be the mostefficient and preferred form of entry but thatinefficiencies or problems in the market mean
that in many cases the best decision isanother form of entry. These best decisionsare based on three factors:
1. Ownership advantages
2. Location advantages
3. Internalization advantages
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
58/60
Ownership Advantages Ownership advantages can be thought of as the
why for multinational corporation foreignactivities and represent the reasons marketersspend the time and effort to enter a foreigncountry.
Two types of ownership advantages: Asset advantages represent anything the company
does well that competitors cannot do.
Transaction ownership advantages relate to the abilityto capture transactional benefits, such as lower costs,from the common governance of a network ofownership assets.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
59/60
Location Advantages
Location advantages explains the where
of entry location advantages.
Some markets are more attractive than
others and are entered first due to:
Local resources, natural and human;
Governmental activities;
Market potential; and
Lower political risk.
Copyright 2012, SAGE Publications, Inc.
-
7/30/2019 Lecture 2RJ
60/60
Internalization Advantages
Internalization advantages are the how of marketentry, and the advantages that come from making thecorrect entry decision.
While exporting is the default option, when companiesare considering entering an attractive market (locationadvantages) and have unique assets that will generatesufficient profit (ownership advantages), the correctselection of entry mode type leads to internalizationadvantages.
To select the right type of entry mode, companiesneed to balance risk, uncertainty, the ability to exploiteconomies of scale, and cost.