INTERNATIONAL MARKETING

The Global Market Place

Globalization of Markets and Competition: Trade is increasingly global in scope
today. There are several reasons for this. One significant reason is technological—
because of improved transportation and communication opportunities today, trade is
now more practical. Thus, consumers and businesses now have access to the very best
products from many different countries. Increasingly rapid technology lifecycles also
increases the competition among countries as to who can produce the newest in
technology. In part to accommodate these realities, countries in the last several
decades have taken increasing steps to promote global trade through agreements such
as the General Treaty on Trade and Tariffs, and trade organizations such as the World
Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the
European Union (EU).

Stages in the International Involvement of a Firm. We discussed several stages

through which a firm may go as it becomes increasingly involved across borders. A
purely domestic firm focuses only on its home market, has no current ambitions of
expanding abroad, and does not perceive any significant competitive threat from
abroad. Such a firm may eventually get some orders from abroad, which are seen
either as an irritation (for small orders, there may be a great deal of effort and cost
involved in obtaining relatively modest revenue) or as "icing on the cake." As the firm
begins to export more, it enters the export stage, where little effort is made to
market the product abroad, although an increasing number of foreign orders are
filled. In the international stage, as certain country markets begin to appear
especially attractive with more foreign orders originating there, the firm may go into
countries on an ad hoc basis—that is, each country may be entered sequentially, but
with relatively little learning and marketing efforts being shared across countries. In
the multi-national stage, some efficiencies are pursued by standardizing across a
region (e.g., Central America, West Africa, or Northern Europe). Finally, in the global
stage, the focus centers on the entire World market, with decisions made optimize
the product’s position across markets—the home country is no longer the center of
the product. An example of a truly global company is Coca Cola.
Note that these stages represent points on a continuum from a purely domestic
orientation to a truly global one; companies may fall in between these discrete
stages, and different parts of the firm may have characteristics of various stages—for
example, the pickup truck division of an auto-manufacturer may be largely
domestically focused, while the passenger car division is globally focused. Although a
global focus is generally appropriate for most large firms, note that it may not be
ideal for all companies to pursue the global stage. For example, manufacturers of ice
cubes may do well as domestic, or even locally centered, firms.

Some forces in international trade. The text contains a rather long-winded appendix
discussing some relatively simple ideas. Comparative advantage, discussed in more
detail in the economics notes, suggests trade between countries is beneficial because
these countries differ in their relative economic strengths—some have more advanced
technology and some have lower costs. The International Product Life Cycle suggests
that countries will differ in their timing of the demand for various products. Products
tend to be adopted more quickly in the United States and Japan, for example, so once
the demand for a product (say, VCRs) is in the decline in these markets, an increasing
market potential might exist in other countries (e.g., Europe and the rest of Asia).
Internalization/transaction costs refers to the fact that developing certain very large
scale projects, such as an automobile intended for the World market, may entail such
large costs that these must be spread over several countries.

Economics of International Trade

Exchange rates come in two forms:

 “Floating”—here, currencies are set on the open market based on the supply of
and demand for each currency.  For example, all other things being equal, if
the U.S. imports more from Japan than it exports there, there will be less
demand for U.S. dollars (they are not desired for purchasing goods) and more
demand for Japanese yen—thus, the price of the yen, in dollars, will increase,
so you will get fewer yen for a dollar.
 “Fixed”—currencies may be “pegged” to another currency (e.g., the Argentine
currency is guaranteed in terms of a dollar value), to a composite of currencies
(i.e., to avoid making the currency dependent entirely on the U.S. dollar, the
value might be 0.25*U.S. dollar+4*Mexican peso+50*Japanese yen+0.2*German
mark+0.1*British pound), or to some other valuable such as gold.  Note that it
is very difficult to maintain these fixed exchange rates—governments must buy
or sell currency on the open market when currencies go outside the accepted
ranges.  Fixed exchange rates, although they produce stability and
predictability, tend to get in the way of market forces—if a currency is kept
artificially low, a country will tend to export too much and import too little. 

Trade balances and exchange rates.  When exchange rates are allowed to fluctuate,
the currency of a country that tends to run a trade deficit will tend to decline over
time, since there will be less demand for that currency.  This reduced exchange rate
will then tend to make exports more attractive in other countries, and imports less
attractive at home.

Measuring country wealth.  There are two ways to measure the wealth of a country. 
The nominal per capita gross domestic product (GDP) refers to the value of goods and
services produced per person in a country if this value in local currency were to be
exchanged into dollars.  Suppose, for example, that the per capita GDP of Japan is
3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is
(3,500,000/100)=$35,000.  However, that $35,000 will not buy as much in Japan—food
and housing are much more expensive there.  Therefore, we introduce the idea
of purchase parity adjusted  per capita GDP, which reflects what this money can buy
in the country.  This is typically based on the relative costs of a weighted “basket” of
goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost
of clothing, and 15% cost of other items).  If it turns out that this measure of cost of
living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then
be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National
Product (GNP) are almost identical figures.  The GNP, for example, includes income
made by citizens working abroad, and does not include the income of foreigners
working in the country.  Traditionally, the GNP was more prevalent; today the GPD is
more commonly used—in practice, the two measures fall within a few percent of each
other.)

In general, the nominal per capita GPD is more useful for determining local
consumers’ ability to buy imported goods, the cost of which are determined in large
measure by the costs in the home market, while the purchase parity adjusted
measure is more useful when products are produced, at local costs, in the country of
purchase.  For example, the ability of Argentinians to purchase micro computer chips,
which are produced mostly in the U.S. and Japan, is better predicted by nominal
income, while the ability to purchase toothpaste made by a U.S. firm in a factory in
Argentina is better predicted by purchase parity adjusted income.
It should be noted that, in some countries, income is quite unevenly distributed so
that these average measures may not be very meaningful.  In Brazil, for example,
there is a very large underclass making significantly less than the national average,
and thus, the national figure is not a good indicator of the purchase power of the
mass market.  Similarly, great regional differences exist within some countries—
income is much higher in northern Germany than it is in the former East Germany,
and income in southern Italy is much lower than in northern Italy.

Political and Legal Influences

The political situation.  The political relations between a firm’s country of
headquarters (or other significant operations) and another one may, through no fault
of the firm’s, become a major issue.  For example, oil companies which invested in
Iraq or Libya became victims of these countries’ misconduct that led to bans on
trade.  Similarly, American firms may be disliked in parts of Latin America or Iran
where the U.S. either had a colonial history or supported unpopular leaders such as
the former shah.

Certain issues in the political environment are particularly significant.  Some

countries, such as Russia, have relatively unstable governments, whose policies may
change dramatically if new leaders come to power by democratic or other means. 
Some countries have little tradition of democracy, and thus it may be difficult to
implement.  For example, even though Russia is supposed to become a democratic
country, the history of dictatorships by the communists and the czars has left country
of corruption and strong influence of criminal elements.

Laws across borders.  When laws of two countries differ, it may be possible in a
contract to specify in advance which laws will apply, although this agreement may not
be consistently enforceable.  Alternatively, jurisdiction may be settled by treaties,
and some governments, such as that of the U.S., often apply their laws to actions,
such as anti-competitive behavior, perpetrated outside their borders (extra-
territorial application).  By the doctrine known ascompulsion, a firm that violates
U.S. law abroad may be able to claim as a defense that it was forced to do so by the
local government; such violations must, however, be compelled—that they are merely
legal or accepted in the host country is not sufficient.

The reality of legal systems.  Some legal systems, such as that of the U.S., are
relatively “transparent”—that is, the law tends to be what its plain meaning would
suggest.  In some countries, however, there are laws on the books which are not
enforced (e.g., although Japan has antitrust laws similar to those of the U.S.,
collusion is openly tolerated).  Further, the amount of discretion left to government
officials tends to vary.  In Japan, through the doctrine ofadministrative guidance,
great latitude is left to government officials, who effectively make up the laws.

One serious problem in some countries is a limited access to the legal systems as a
means to redress grievances against other parties.  While the U.S. may rely
excessively on lawsuits, the inability to effectively hold contractual partners to their
agreement tends to inhibit business deals.  In many jurisdictions, pre-trial discovery is
limited, making it difficult to make a case against a firm whose internal documents
would reveal guilt.  This is one reason why personal relationships in some cultures are
considered more significant than in the U.S.—since enforcing contracts may be
difficult, you must be sure in advance that you can trust the other party.

Legal systems of the World.  There are four main approaches to law across the
World, with some differences within each:

 Common law, the system in effect in the U.S., is based on a legal tradition
of precedent.  Each case that raises new issues is considered on its own merits,
and then becomes a precedent for future decisions on that same issue. 
Although the legislature can override judicial decisions by changing the law or
passing specific standards through legislation, reasonable court decisions tend
to stand by default.
 Code law, which is common in Europe, gives considerably shorter leeway to
judges, who are charged with “matching” specific laws to situations—they
cannot come up with innovative solutions when new issues such as patentability
of biotechnology come up.  There are also certain differences in standards.  For
example, in the U.S. a supplier whose factory is hit with a strike is expected to
deliver on provisions of a contract, while in code law this responsibility may be
nullified by such an “act of God.”
 Islamic law is based on the teachings of the Koran, which puts forward
mandates such as a prohibition of usury, or excessive interest rates.  This has
led some Islamic countries to ban interest entirely; in others, it may be
tolerated within reason.  Islamic law is ultimately based on the need to please
God, so “getting around” the law is generally not acceptable.  Attorneys may
be consulted about what might please God rather than what is an explicit
requirements of the government.
 Socialist law is based on the premise that “the government is always right” and
typically has not developed a sophisticated framework of contracts (you do
what the governments tells you to do) or intellectual property protection
(royalties are unwarranted since the government ultimately owns everything). 
Former communist countries such as those of Eastern Europe and Russia are
trying to advance their legal systems to accommodate issues in a free market.
 

U.S. laws of particular interest to firms doing business abroad.

Anti-trust.  U.S. antitrust laws are generally enforced in U.S. courts even if the
alleged transgression occurred outside U.S. jurisdiction.  For example, if two
Japanese firms collude to limit the World supply of VCRs, they may be sued by the
U.S. government (or injured third parties) in U.S. courts, and may have their U.S.
assets seized.
  The Foreign Corrupt Influences Act came about as Congress was upset with
U.S. firms’ bribery of foreign officials.  Although most if not all countries ban
the payment of bribes, such laws are widely flaunted in many countries, and it
is often useful to pay a bribe to get foreign government officials to act
favorably.  Firms engaging in this behavior, even if it takes place entirely
outside the U.S., can be prosecuted in U.S. courts, and many executives have
served long prison sentences for giving in to temptation.  In contrast, in the
past some European firms could actually deduct the cost of foreign bribes from
their taxes!  There are some gray areas here—it may be legal to pay certain
“tips” –known as “facilitating payments”—to low level government workers in
some countries who rely on such payments as part of their salary so long as
these payments are intended only to speed up actions that would be taken
anyway. For example, it may be acceptable to give a reasonable (not large)
facilitating payment to get customs workers to process a shipment faster, but
it would not be legal to pay these individuals to change the classification of a
product into one that carries a lower tariff.
 Anti-boycott laws.  Many Arab countries maintain a boycott of Israel, and
foreigners that want to do business with them may be asked to join in this
boycott by stopping any deals they do with Israel and certifying that they do
not trade with that country.  It is illegal for U.S. firms to make this
certification even if they have not dropped any actual deals with Israel to get a
deal with boycotters.
 Trading With the Enemy.  It is illegal for U.S. firms to trade with certain
countries that are viewed to be hostile to the U.S.—e.g., Libya and Iraq.

Culture
Culture is part of the external influences that impact the consumer. That is, culture
represents influences that are imposed on the consumer by other individuals.

The definition of culture offered one text is “That complex whole which includes
knowledge, belief, art, morals, custom, and any other capabilities and habits
acquired by man person as a member of society.”  From this definition, we make the
following observations:

 Culture, as a “complex whole,” is a system of interdependent components.

 Knowledge and beliefs are important parts.  In the U.S., we know and believe
that a person who is skilled and works hard will get ahead. In other countries,
it may be believed that differences in outcome result more from luck. 
“Chunking,” the name for China in Chinese, literally means “The Middle
Kingdom.”  The belief among ancient Chinese that they were in the center of
the universe greatly influenced their thinking.
 Other issues are relevant.  Art, for example, may be reflected in the rather
arbitrary practice of wearing ties in some countries and wearing turbans in
 others.  Morality may be exhibited in the view in the United States that one
should not be naked in public.  In Japan, on the other hand, groups of men and
women may take steam baths together without perceived as improper.  On the
other extreme, women in some Arab countries are not even allowed to reveal
their faces.  Notice, by the way, that what at least some countries view as
moral may in fact be highly immoral by the standards of another country. 

Culture has several important characteristics:  (1)  Culture is comprehensive.  This

means that all parts must fit together in some logical fashion.  For example, bowing
and a strong desire to avoid the loss of face are unified in their manifestation of the
importance of respect.  (2)  Culture is learned rather than being something we are
born with.  We will consider the mechanics of learning later in the course.  (3) 
Culture is manifested within boundaries of acceptable behavior.  For example, in
American society, one cannot show up to class naked, but wearing anything from a
suit and tie to shorts and a T-shirt would usually be acceptable.  Failure to behave
within the prescribed norms may lead to sanctions, ranging from being hauled off by
the police for indecent exposure to being laughed at by others for wearing a suit at
the beach.  (4)  Conscious awareness of cultural standards is limited.  One American
spy was intercepted by the Germans during World War II simply because of the way he
held his knife and fork while eating.  (5)  Cultures fall somewhere on a continuum
between static and dynamic depending on how quickly they accept change.  For
example, American culture has changed a great deal since the 1950s, while the
culture of Saudi Arabia has changed much less.

Dealing with culture.  Culture is a problematic issue for many marketers since it is
inherently nebulous and often difficult to understand.  One may violate the cultural
norms of another country without being informed of this, and people from different
cultures may feel uncomfortable in each other’s presence without knowing exactly
why (for example, two speakers may unconsciously continue to attempt to adjust to
reach an incompatible preferred interpersonal distance).

Warning about stereotyping.  When observing a culture, one must be careful not to
over-generalize about traits that one sees.  Research in social psychology has
suggested a strong tendency for people to perceive an “outgroup” as more
homogenous than an “ingroup,” even when they knew what members had been
assigned to each group purely by chance.  When there is often a “grain of truth” to
some of the perceived differences, the temptation to over-generalize is often strong. 
Note that there are often significant individual differenceswithin cultures.

Cultural lessons.  We considered several cultural lessons in class; the important thing
here is the big picture.  For example, within the Muslim tradition, the dog is
considered a “dirty” animal, so portraying it as “man’s best friend” in an
advertisement is counter-productive.  Packaging, seen as a reflection of the quality of
the “real” product, is considerably more important in Asia than in the U.S., where
there is a tendency to focus on the contents which “really count.”  Many cultures
observe significantly greater levels of formality than that typical in the U.S., and
Japanese negotiator tend to observe long silent pauses as a speaker’s point is
considered.
  
Cultural characteristics as a continuum.  There is a tendency to stereotype cultures
as being one way or another (e.g., individualistic rather than collectivistic).  Note,
however, countries fall on a continuum of cultural traits.  Hofstede’s research
demonstrates a wide range between the most individualistic and collectivistic
countries, for example—some fall in the middle.

Hofstede’s Dimensions.  Gert Hofstede, a Dutch researcher, was able to interview a

large number of IBM executives in various countries, and found that cultural
differences tended to center around four key dimensions:

 Individualism vs. collectivism:  To what extent do people believe in individual

responsibility and reward rather than having these measures aimed at the
larger group?  Contrary to the stereotype, Japan actually ranks in the middle of
this dimension, while Indonesia and West Africa rank toward the collectivistic
side.  The U.S., Britain, and the Netherlands rate toward individualism.
 Power distance:  To what extent is there a strong separation of individuals
based on rank?  Power distance tends to be particularly high in Arab countries
and some Latin American ones, while it is more modest in Northern Europe and
the U.S.
 Masculinity vs. femininity involves a somewhat more nebulous concept.  
“Masculine”  values involve competition and “conquering” nature by means
such as large construction projects, while “feminine” values involve harmony
and environmental protection.   Japan is one of the more masculine countries,
while the Netherlands rank relatively low.  The U.S. is close to the middle,
slightly toward the masculine side. ( The fact that these values are thought of
as “masculine” or “feminine” does not mean that they are consistently held by
members of each respective gender—there are very large “within-group”
differences.  There is, however, often a large correlation of these cultural
values with the status of women.)
 Uncertainty avoidance involves the extent to which a “structured” situation
with clear rules is preferred to a more ambiguous one; in general, countries
with lower uncertainty avoidance tend to be more tolerant of risk.  Japan ranks
very high.  Few countries are very low in any absolute sense, but relatively
speaking, Britain and Hong Kong are lower, and the U.S. is in the lower range
of the distribution.

Although Hofstede’s original work did not address this, a fifth dimension of long term
vs. short term orientation has been proposed.  In the U.S., managers like to see quick
results, while Japanese managers are known for take a long term view, often
accepting long periods before profitability is obtained.

High vs. low context cultures:  In some cultures, “what you see is what you get”—the
speaker is expected to make his or her points clear and limit ambiguity.  This is the
case in the U.S.—if you have something on your mind, you are expected to say it
directly, subject to some reasonable standards of diplomacy.  In Japan, in contrast,
facial expressions and what is not said may be an important clue to understanding a
speaker’s meaning.  Thus, it may be very difficult for Japanese speakers to
understand another’s written communication.  The nature of languages may
exacerbate this phenomenon—while the German language is very precise, Chinese
lacks many grammatical features, and the meaning of words may be somewhat less
precise.  English ranks somewhere in the middle of this continuum.

Ethnocentrism and the self-reference criterion.  The self-reference criterionrefers

to the tendency of individuals, often unconsciously, to use the standards of one’s own
culture to evaluate others.  For example, Americans may perceive more traditional
societies to be “backward” and “unmotivated” because they fail to adopt new
technologies or social customs, seeking instead to preserve traditional values.  In the
1960s, a supposedly well read American psychology professor referred to India’s
culture of “sick” because, despite severe food shortages, the Hindu religion did not
allow the eating of cows.  The psychologist expressed disgust that the cows were
allowed to roam free in villages, although it turns out that they provided valuable
functions by offering milk and fertilizing fields.  Ethnocentrism is the tendency to
view one’s culture to be superior to others.  The important thing here is to consider
how these biases may come in the way in dealing with members of other cultures.

It should be noted that there is a tendency of outsiders to a culture to overstate the

similarity of members of that culture to each other.  In the United States, we are well
aware that there is a great deal of heterogeneity within our culture; however, we
often underestimate the diversity within other cultures.  For example, in Latin
America, there are great differences between people who live in coastal and
mountainous areas; there are also great differences between social classes.

Language issues.  Language is an important element of culture.  It should be realized

that regional differences may be subtle.  For example, one word may mean one thing
in one Latin American country, but something off-color in another.  It should also be
kept in mind that much information is carried in non-verbal communication.  In some
cultures, we nod to signify “yes” and shake our heads to signify “no;” in other
cultures, the practice is reversed.  Within the context of language:

 There are often large variations in regional dialects of a given language.  The
differences between U.S., Australian, and British English are actually modest
compared to differences between dialects of Spanish and German.
 Idioms involve “figures of speech” that may not be used, literally translated, in
other languages.  For example, baseball is a predominantly North and South
American sport, so the notion of “in the ball park” makes sense here, but the
term does not carry the same meaning in cultures where the sport is less
popular.
 Neologisms involve terms that have come into language relatively recently as
technology or society involved.  With the proliferation of computer technology,
 for example, the idea of an “add-on” became widely known.  It may take
longer for such terms to “diffuse” into other regions of the world.  In parts of
the World where English is heavily studied in schools, the emphasis is often on
grammar and traditional language rather than on current terminology, so
neologisms have a wide potential not to be understood.
 Slang exists within most languages.  Again, regional variations are common and
not all people in a region where slang is used will necessarily understand this. 
There are often significant generation gaps in the use of slang.

Writing patterns, or the socially accepted ways of writing, will differs significantly
between cultures. 

In English and Northern European languages, there is an emphasis on organization and

conciseness.  Here, a point is made by building up to it through background.  An
introduction will often foreshadow what is to be said.  In Romance languages such as
Spanish, French, and Portuguese, this style is often considered “boring” and
“inelegant.”  Detours are expected and are considered a sign of class, not of poor
organization.  In Asian languages, there is often a great deal of circularity.  Because
of concerns about potential loss of face, opinions may not be expressed directly. 
Instead, speakers may hint at ideas or indicate what others have said, waiting for
feedback from the other speaker before committing to a point of view.

Because of differences in values, assumptions, and language structure, it is not

possible to meaningfully translate “word-for-word” from one language to another.  A
translator must keep “unspoken understandings” and assumptions in mind in
translating.  The intended meaning of a word may also differ from its literal
translation.  For example, the Japanese word hai  is literally translated as “yes.”  To
Americans, that would imply “Yes, I agree.”  To the Japanese speaker, however, the
word may mean “Yes, I hear what you are saying” (without any agreement expressed)
or even “Yes, I hear you are saying something even though I am not sure
exactly what you are saying.”
Differences in cultural values result in different preferred methods of speech.  In
American English, where the individual is assumed to be more in control of his or her
destiny than is the case in many other cultures, there is a preference for the “active”
tense (e.g., “I wrote the marketing plan”) as opposed to the passive (e.g., “The
marketing plan was written by me.”)

Because of the potential for misunderstandings in translations, it is dangerous to rely

on a translation from one language to another made by one person.  In the
“decentering” method, multiple translators are used.  The text is first translated by
one translator—say, from German to Mandarin Chinese.  A second translator, who does
not know what the original German text said, will then translate back to German from
Mandarin Chinese translation.  The text is then compared.  If the meaning is not
similar, a third translator, keeping in mind this feedback, will then translate from
German to Mandarin.  The process is continued until the translated meaning appears
to be satisfactory.

Different perspectives exist in different cultures on several issues; e.g.:

 Monochronic cultures tend to value precise scheduling and doing one thing at a

time; in polychronic cultures, in contrast, promptness is valued less, and
multiple tasks may be performed simultaneously.  (See text for more detail).
 Space is perceived differently.  Americans will feel crowded where people from
more densely populated countries will be comfortable.
 Symbols differ in meaning.  For example, while white symbols purity in the
U.S., it is a symbol of death in China.  Colors that are considered masculine and
feminine also differ by culture.
 Americans have a lot of quite shallow friends toward whom little obligation is
felt; people in European and some Asian cultures have fewer, but more
significant friends.  For example, one Ph.D. student from India, with limited
income, felt obligated to try buy an airline ticket for a friend to go back to
India when a relative had died.
 In the U.S. and much of Europe, agreements are typically rather precise and
contractual in nature; in Asia, there is a greater tendency to settle issues as
they come up.  As a result, building a relationship of trust is more important in
Asia, since you must be able to count on your partner being reasonable.
 In terms of etiquette, some cultures have more rigid procedures than others. 
In some countries, for example, there are explicit standards as to how a gift
should be presented.  In some cultures, gifts should be presented in private to
avoid embarrassing the recipient; in others, the gift should be made publicly to
ensure that no perception of secret bribery could be made.

Cross-Cultural Market Research

Primary vs. secondary research.  There are two kinds of market
research: Primary research refers to the research that a firm conducts for its own
needs (e.g., focus groups, surveys, interviews, or observation)
while secondaryresearch involves finding information compiled by someone else.  In
general, secondary research is less expensive and is faster to conduct, but it may not
answer the specific questions the firm seeks to have answered (e.g., how do
consumers perceive our product?), and its reliability may be in question.

Secondary sources.  A number of secondary sources of country information are

available.  One of the most convenient sources is an almanac, containing a great deal
of country information.  Almanacs can typically be bought for $10.00 or less.  The
U.S. government also publishes a guide to each country, and the
handbook International Business Information:  How to Find It, How to Use It(HF
54.5.P33 [1998] in the Reference Department of the Gelman Library), provides leads
on numerous sources by topic.  Stat-USA, a database compiled by the U.S.
Department of Commerce and available through the Gelman Library (you can access it
through the “Links” section of my web-site), contains a great deal of statistical
information online.  Excellent full text searchable indices to periodicals include Lexis-
Nexis and RDS Business and Industry, also available through Gelman.

Several experts may be available.  Anthropologists and economists in universities may

have built up a great deal of knowledge and may be available for consulting. 
Consultants specializing in various regions or industries are typically considerably
more expensive.  One should be careful about relying on the opinions
of expatriates (whose views may be biased or outdated) or one’s own experience
(which may relate to only part of a country or a certain subsegment) and may also
suffer from the limitation of being a sample of size 1.

Hard vs. soft data.  “Hard” data refers to relatively quantifiable measures such as a
country’s GDP, number of telephones per thousand residents, and birth rates
(although even these supposedly “objective” factors may be subject to some
controversy due to differing definitions and measurement approaches across
countries).  In contrast, “soft” data refers to more subjective issues such as country
history or culture.  It should be noted that while the “hard” data is often more
convenient and seemingly objective, the “soft” data is frequently as important, if not
more so, in understanding a market.

Data reliability.  The accuracy and objectivity of data depend on several factors. 
One significant one is the motivation of the entity that releases it.  For example,
some countries may want to exaggerate their citizens’ literacy rates owing to national
pride, and an organization promoting economic development may paint an overly rosy
picture in order to attract investment.  Some data may be dated (e.g., a census may
be conducted rarely in some regions), and some countries may lack the ability to
collect data (it is difficult to reach people in the interior regions of Latin America, for
example).  Differences in how constructs are defined in different countries (e.g., is
military personnel counted in people who are employed?) may make figures of
different jurisdictions non-comparable.

Cost of data.  Much government data, or data released by organizations such as the
World Bank or the United Nations, is free or inexpensive, while consultants may
charge very high rates. 

Issues in primary research.  Cultural factors often influence how people respond to
research.  While Americans are used to market research and tend to find this
relatively un-threatening, consumers in other countries may fear that the data will be
reported to the government, and may thus not give accurate responses.  In some
cultures, criticism or confrontation are considered rude, so consumers may not
respond honestly when they dislike a product. Technology such as scanner data is not
as widely available outside the United States.  Local customs and geography may
make it difficult to interview desired respondents; for example, in some countries,
women may not be allowed to talk to strangers.

Country Entry: Decisions and Strategies

Segmentation, Targeting, and Positioning.  Segmentation, in marketing, is usually
done at the customer level.  However, in international marketing, it may sometimes
be useful to see countries as segments.  This allows the decision maker to focus on
common aspects of countries and avoid information overload.  It should be noted that
variations within some countries (e.g., Brazil) are very large and therefore, averages
may not be meaningful.   Country level segmentation may be done on levels such as
geography—based on the belief that neighboring countries and countries with a
particular type of climate or terrain tend to share similarities, demographics (e.g.,
population growth, educational attainment, population age distribution), or income. 
Segmenting on income is tricky since the relative prices between countries may differ
significantly (based, in part, on purchasing power parity measures that greatly affect
the relative cost of imported and domestically produced products).

The importance of STP. Segmentation is the cornerstone of marketing—almost all

marketing efforts in some way relate to decisions on who to serve or how to
implement positioning through the different parts of the marketing mix. For example,
one’s distribution strategy should consider where one’s target market is most likely to
buy the product, and a promotional strategy should consider the target’s media habits
and which kinds of messages will be most persuasive. Although it is often tempting,
when observing large markets, to try to be "all things to all people," this is a
dangerous strategy because the firm may lose its distinctive appeal to its chosen
segments.

In terms of the "big picture," members of a segment should generally be as similar as

possible to each other on a relevant dimension (e.g., preference for quality vs. low
price) and as different as possible from members of other segments. That is, members
should respond in similar ways to various treatments (such as discounts or high
service) so that common campaigns can be aimed at segment members, but in order
to justify a different treatment of other segments, their members should have their
own unique response behavior.

Approaches to global segmentation. There are two main approaches to global

segmentation. At the macro level, countries are seen as segments, given that country
aggregate characteristics and statistics tend to differ significantly. For example, there
will only be a large market for expensive pharmaceuticals in countries with certain
income levels, and entry opportunities into infant clothing will be significantly greater
in countries with large and growing birthrates (in countries with smaller birthrates or
stable to declining birthrates, entrenched competitors will fight hard to keep the
market share).

There are, however, significant differences within countries. For example, although it
was thought that the Italian market would demand "no frills" inexpensive washing
machines while German consumers would insist on high quality, very reliable ones, it
was found that more units of the inexpensive kind were sold in Germany than in Italy
—although many German consumers fit the predicted profile, there were large
segment differences within that country. At the micro level, where one looks at
segments within countries. Two approaches exist, and their use often parallels the
firm’s stage of international involvement. Intramarket segmentation involves
segmenting each country’s markets from scratch—i.e., an American firm going into
the Brazilian market would do research to segment Brazilian consumers without
incorporating knowledge of U.S. buyers. In contrast, intermarket segmentation
involves the detection of segments that exist across borders. Note that not all
segments that exist in one country will exist in another and that the sizes of the
segments may differ significantly. For example, there is a huge small car segment in
Europe, while it is considerably smaller in the U.S.

Intermarket segmentation entails several benefits. The fact that products and
promotional campaigns may be used across markets introduces economies of scale,
and learning that has been acquired in one market may be used in another—e.g., a
firm that has been serving a segment of premium quality cellular phone buyers in one
country can put its experience to use in another country that features that same
segment. (Even though segments may be similar across the cultures, it should be
noted that it is still necessary to learn about the local market. For example, although
a segment common across two countries may seek the same benefits, the cultures of
each country may cause people to respond differently to the "hard sell" advertising
that has been successful in one).

The international product life cycle suggests that product adoption and spread in
some markets may lag significantly behind those of others. Often, then, a segment
that has existed for some time in an "early adopter" country such as the U.S. or Japan
will emerge after several years (or even decades) in a "late adopter" country such as
Britain or most developing countries. (We will discuss this issue in more detail when
we cover the product mix in the second half of the term).

Positioning across markets. Firms often have to make a tradeoff between adapting
their products to the unique demands of a country market or gaining benefits of
standardization such as cost savings and the maintenance of a consistent global brand
image. There are no easy answers here. On the one hand, McDonald’s has spent a
great deal of resources to promote its global image; on the other hand, significant
accommodations are made to local tastes and preferences—for example, while serving
alcohol in U.S. restaurants would go against the family image of the restaurant
carefully nurtured over several decades, McDonald’s has accommodated this demand
of European patrons.

The Japanese Keiretsu Structure.  In Japan, many firms are part of a keiretsu,or a

conglomerate that ties together businesses that can aid each other. For example,
a keiretsu might contain an auto division that buys from a steel division. Both of these
might then buy from a iron mining division, which in turns buys from a chemical
division that also sells to an agricultural division. The agricultural division then sells
to the restaurant division, and an electronics division sells to all others, including the
auto division. Since the steel division may not have opportunities for reinvestment, it
puts its profits in a bank in the center, which in turns lends it out to the electronics
division that is experiencing rapid growth. 
This practice insulates the businesses to some extent against the business cycle,
guaranteeing an outlet for at least some product in bad times, but this structure has
caused problems in Japan as it has failed to "root out" inefficient keiretsumembers
which have not had to "shape up" to the rigors of the market.

Methods of entry. With rare exceptions, products just don’t emerge in foreign

markets overnight—a firm has to build up a market over time. Several strategies,
which differ in aggressiveness, risk, and the amount of control that the firm is able to
maintain, are available:

 Exporting is a relatively low risk strategy in which few investments are made in
the new country. A drawback is that, because the firm makes few if any
marketing investments in the new country, market share may be below
potential. Further, the firm, by not operating in the country, learns less about
the market (What do consumers really want? Which kinds of advertising
campaigns are most successful? What are the most effective methods of
distribution?) If an importer is willing to do a good job of marketing, this
arrangement may represent a "win-win" situation, but it may be more difficult
for the firm to enter on its own later if it decides that larger profits can be
made within the country.
 Licensing and franchising are also low exposure methods of entry—you allow
someone else to use your trademarks and accumulated expertise. Your partner
puts up the money and assumes the risk. Problems here involve the fact that
you are training a potential competitor and that you have little control over
how the business is operated. For example, American fast food restaurants
have found that foreign franchisers often fail to maintain American standards
of cleanliness. Similarly, a foreign manufacturer may use lower quality
 ingredients in manufacturing a brand based on premium contents in the home
country.
 Contract manufacturing involves having someone else manufacture products
while you take on some of the marketing efforts yourself. This saves
investment, but again you may be training a competitor.
 Direct entry strategies, where the firm either acquires a firm or builds
operations "from scratch" involve the highest exposure, but also the greatest
opportunities for profits. The firm gains more knowledge about the local
market and maintains greater control, but now has a huge investment. In some
countries, the government may expropriate assets without compensation, so
direct investment entails an additional risk. A variation involves a joint
venture, where a local firm puts up some of the money and knowledge about
the local market.

Entry Strategies

Methods of entry. With rare exceptions, products just don’t emerge in foreign

markets overnight—a firm has to build up a market over time. Several strategies,
which differ in aggressiveness, risk, and the amount of control that the firm is able to
maintain, are available:

 Exporting is a relatively low risk strategy in which few investments are made in
the new country. A drawback is that, because the firm makes few if any
marketing investments in the new country, market share may be below
potential. Further, the firm, by not operating in the country, learns less about
the market (What do consumers really want? Which kinds of advertising
campaigns are most successful? What are the most effective methods of
distribution?) If an importer is willing to do a good job of marketing, this
arrangement may represent a "win-win" situation, but it may be more difficult
for the firm to enter on its own later if it decides that larger profits can be
made within the country.
 Licensing and franchising are also low exposure methods of entry—you allow
someone else to use your trademarks and accumulated expertise. Your partner
puts up the money and assumes the risk. Problems here involve the fact that
you are training a potential competitor and that you have little control over
how the business is operated. For example, American fast food restaurants
have found that foreign franchisers often fail to maintain American standards
of cleanliness. Similarly, a foreign manufacturer may use lower quality
ingredients in manufacturing a brand based on premium contents in the home
country.
 Turnkey Projects.  A firm uses knowledge and expertise it has gained in one or
more markets to provide a working project—e.g.,  a factory, building, bridge,
or other structure—to a buyer in a new country.  The firm can take advantage
of investments already made in technology and/or development and may be
able to receive greater profits since these investments do not have to be
started from scratch again.  However, getting the technology to work in a new
 country may be challenging for a firm that does not have experience with the
infrastructure, culture, and legal environment.
 Management Contracts.  A firm agrees to manage a facility—e.g., a factory,
port, or airport—in a foreign country, using knowledge gained in other
markets.  Again, one thing is to be able to transfer technology—another is to be
able to work in a new country with a different infrastructure, culture, and
political/legal environment.
 Contract manufacturing involves having someone else manufacture products
while you take on some of the marketing efforts yourself. This saves
investment, but again you may be training a competitor.
 Direct entry strategies, where the firm either acquires a firm or builds
operations "from scratch" involve the highest exposure, but also the greatest
opportunities for profits. The firm gains more knowledge about the local
market and maintains greater control, but now has a huge investment. In some
countries, the government may expropriate assets without compensation, so
direct investment entails an additional risk. A variation involves a joint
venture, where a local firm puts up some of the money and knowledge about
the local market.

Product Issues in International Marketing

Products and Services.  Some marketing scholars and professionals tend to draw a
strong distinction between conventional products and services, emphasizing service
characteristics such as heterogeneity (variation in standards among providers,
frequently even among different locations of the same firm), inseperability from
consumption, intangibility, and, in some cases, perishability—the idea that a service
cannot generally be created during times of slack and be “stored” for use later.  
However, almost all products have at least some service component—e.g., a
warranty, documentation, and distribution—and this service component is an integral
part of the product and its positioning.  Thus, it may be more useful to look at the
product-service continuum as one between very low and very high levels of tangibility
of the service.  Income tax preparation, for example, is almost entirely intangible—
the client may receive a few printouts, but most of the value is in the service.  On the
other hand, a customer who picks up rocks for construction from a landowner gets a
tangible product with very little value added for service.  Firms that offer highly
tangible products often seek to add an intangible component to improve perception. 
Conversely, adding a tangible element to a service—e.g., a binder with information—
may address many consumers’ psychological need to get something to show for their
money.

On the topic of services, cultural issues may be even more prominent than they are
for tangible goods. There are large variations in willingness to pay for quality, and
often very large differences in expectations.  In some countries, it may be more
difficult to entice employees to embrace a firm’s customer service philosophy.  Labor
regulations in some countries make it difficult to terminate employees whose
treatment of customers is substandard.  Speed of service is typically important in the
U.S. and western countries but personal interaction may seem more important in
other countries.

Product Need Satisfaction.  We often take for granted the “obvious” need that
products seem to fill in our own culture; however, functions served may be very
different in others—for example, while cars have a large transportation role in the
U.S., they are impractical to drive in Japan, and thus cars there serve more of a role
of being a status symbol or providing for individual indulgence.  In the U.S., fast food
and instant drinks such as Tang are intended for convenience; elsewhere, they may
represent more of a treat.  Thus, it is important to examine through marketing
research consumers’ true motives, desires, and expectations in buying a product.

Approaches to Product Introduction.  Firms face a choice of alternatives in

marketing their products across markets.  An extreme strategy involvescustomization,
whereby the firm introduces a unique product in each country, usually with the belief
tastes differ so much between countries that it is necessary more or less to start from
“scratch” in creating a product for each market.  On the other
extreme, standardization involves making one global product in the belief the same
product can be sold across markets without significant modification—e.g., Intel
microprocessors are the same regardless of the country in which they are sold. 
Finally, in most cases firms will resort to some kind of adaptation, whereby a common
product is modified to some extent when moved between some markets—e.g., in the
United States, where fuel is relatively less expensive, many cars have larger engines
than their comparable models in Europe and Asia; however, much of the design is
similar or identical, so some economies are achieved.  Similarly, while Kentucky Fried
Chicken serves much the same chicken with the eleven herbs and spices in Japan, a
lesser amount of sugar is used in the potato salad, and fries are substituted for
mashed potatoes.

There are certain benefits to standardization.  Firms that produce a global product
can obtain economies of scale in manufacturing, and higher quantities produced also
lead to a faster advancement along the experience curve.  Further, it is more
feasible to establish a global brand as less confusion will occur when consumers
travel across countries and see the same product.  On the down side, there may be
significant differences in desires between cultures and physical environments—e.g.,
software sold in the U.S. and Europe will often utter a “beep” to alert the user when
a mistake has been made; however, in Asia, where office workers are often seated
closely together, this could cause embarrassment.

Adaptations come in several forms.  Mandatory adaptations involve changes that have

to be made before the product can be used—e.g., appliances made for the U.S. and
Europe must run on different voltages, and a major problem was experienced in the
European Union when hoses for restaurant frying machines could not simultaneously
meet the legal requirements of different countries.  “Discretionary” changes are
changes that do not have to be made before a product can be introduced (e.g., there
is nothing to prevent an American firm from introducing an overly sweet soft drink
into the Japanese market), although products may face poor sales if such changes are
not made.  Discretionary changes may also involve cultural adaptations—e.g.,
in Sesame Street, the Big Bird became the Big Camel in Saudi Arabia.

Another distinction involves physical product vs. communication adaptations.  In

order for gasoline to be effective in high altitude regions, its octane must be higher,
but it can be promoted much the same way.  On the other hand, while the same
bicycle might be sold in China and the U.S., it might be positioned as a serious means
of transportation in the former and as a recreational tool in the latter.  In some cases,
products may not need to be adapted in either way (e.g., industrial equipment),
while in other cases, it might have to be adapted in both (e.g., greeting cards, where
the both occasions, language, and motivations for sending differ).   Finally, a market
may exist abroad for a product which has no analogue at home—e.g., hand-powered
washing machines.

Branding.  While Americans seem to be comfortable with category specific brands,

this is not the case for Asian consumers.  American firms observed that their products
would be closely examined by Japanese consumers who could not find a major brand
name on the packages, which was required as a sign of quality.  Note that
Japanese keiretsus span and use their brand name across multiple industries—e.g.,
Mitsubishi, among other things, sells food, automobiles, electronics, and heavy
construction equipment.
The International Product Life Cycle (PLC).  Consumers in different countries differ
in the speed with which they adopt new products, in part for economic reasons (fewer
Malaysian than American consumers can afford to buy VCRs) and in part because of
attitudes toward new products (pharmaceuticals upset the power afforded to
traditional faith healers, for example).  Thus, it may be possible, when one market
has been saturated, to continue growth in another market—e.g., while somewhere
between one third and one half of American homes now contain a computer, the
corresponding figures for even Europe and Japan are much lower and thus, many
computer manufacturers see greater growth potential there.  Note that expensive
capital equipment may also cycle between countries—e.g., airlines in economically
developed countries will often buy the newest and most desired aircraft and sell off
older ones to their counterparts in developing countries.  While in developed
countries, “three part” canning machines that solder on the bottom with lead are
unacceptable for health reasons, they have found a market in developing countries.

Diffusion of innovation.  Good new innovations often do not spread as quickly as one

might expect—e.g., although the technology for microwave ovens has existed since
the 1950s, they really did not take off in the United States until the late seventies or
early eighties, and their penetration is much lower in most other countries.  The
typewriter, telephone answering machines, and cellular phones also existed for a long
time before they were widely adopted.

Certain characteristics of products make them more or less likely to spread.  One
factor is relative advantage.  While a computer offers a huge advantage over a
typewriter, for example, the added gain from having an electric typewriter over a
manual one was much smaller.  Another issue iscompatibility, both in the social and
physical sense.   A major problem with the personal computer was that it could not
read the manual files that firms had maintained, and birth control programs are
resisted in many countries due to conflicts with religious values.  Complexity refers to
how difficult a new product is to use—e.g., some people have resisted getting
computers because learning to use them takes time.  Trialability refers to the extent
to which one can examine the merits of a new product without having to commit a
huge financial or personal investment—e.g., it is relatively easy to try a restaurant
with a new ethnic cuisine, but investing in a global positioning navigation system is
riskier since this has to be bought and installed in one’s car before the consumer can
determine whether it is worthwhile in practice.  Finally,observability refers to the
extent to which consumers can readily see others using the product—e.g., people who
do not have ATM cards or cellular phones can easily see the convenience that other
people experience using them; on the other hand, VCRs are mostly used in people’s
homes, and thus only an owner’s close friends would be likely to see it.

At the societal level, several factors influence the spread of an innovation.  Not
surprisingly, cosmopolitanism, the extent to which a country is connected to other
cultures, is useful.  Innovations are more likely to spread where there is a higher
percentage of women in the work force; these women both have more economic
power and are able to see other people use the products and/or discuss
them.  Modernity refers to the extent to which a culture values “progress.”  In the
U.S., “new and improved” is considered highly attractive; in more traditional
countries, their potential for disruption cause new products to be seen with more
skepticism.  Although U.S. consumers appear to adopt new products more quickly
than those of other countries, we actually score lower onhomiphily, the extent to
which consumers are relatively similar to each other, and physical distance, where
consumers who are more spread out are less likely to interact with other users of the
product.  Japan, which ranks second only to the U.S., on the other hand, scores very
well on these latter two factors.

International Promotion
Promotional tools.  Numerous tools can be used to influence consumer purchases:

 Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or

the Internet.
 Price promotions—products are being made available temporarily as at a lower
price, or some premium (e.g., toothbrush with a package of toothpaste) is
being offered for free.
 Sponsorships
 Point-of-purchase—the manufacturer pays for extra display space in the store
or puts a coupon right by the product
 Other method of getting the consumer’s attention—all the Gap stores in France
may benefit from the prominence of the new store located on the Champs-
Elysees
Promotional objectives.  Promotional objectives involve the question of what the
firm hopes to achieve with a campaign—“increasing profits” is too vague an objective,
since this has to be achieved through some intermediate outcome (such as increasing
market share, which in turn is achieved by some change in consumers which cause
them to buy more).  Some common objectives that firms may hold:

 Awareness.  Many French consumers do not know that the Gap even exists, so
they cannot decide to go shopping there.  This objective is often achieved
through advertising, but could also be achieved through favorable point-of-
purchase displays.  Note that since advertising and promotional stimuli are
often afforded very little attention by consumers, potential buyers may have to
be exposed to the promotional stimulus numerous times before it “registers.”
 Trial.  Even when consumers know that a product exists and could possibly
satisfy some of their desires, it may take a while before they get around to
trying the product—especially when there are so many other products that
compete for their attention and wallets.  Thus, the next step is often to try get
consumer to try the product at least once, with the hope that they will make
repeat purchases.  Coupons are often an effective way of achieving trial, but
these are illegal in some countries and in some others, the infrastructure to
readily accept coupons  (e.g., clearing houses) does not exist.  Continued
advertising and point-of-purchase displays may be effective.  Although Coca
Cola is widely known in China, a large part of the population has not yet tried
the product.
 Attitude toward the product.  A high percentage of people in the U.S. and
Europe has tried Coca Cola, so a more reasonable objective is to get people to
believe positive things about the product—e.g., that it has a superior taste and
is better than generics or store brands.  This is often achieved through
advertising.
  Temporary sales increases.  For mature products and categories, attitudes may
be fairly well established and not subject to cost-effective change.  Thus, it
may be more useful to work on getting temporary increases in sales (which are
likely to go away the incentives are removed).  In the U.S. and Japan, for
example, fast food restaurants may run temporary price promotions to get
people to eat out more or switch from competitors, but when these promotions
end, sales are likely to move back down again (in developing countries, in
contrast, trial may be a more appropriate objective in this category). 

Note that in new or emerging markets, the first objectives are more likely to be
useful while, for established products, the latter objectives may be more useful in
mature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies.  Although firms that seek

standardized positions may seek globally unified campaigns, there are several
constraints:

 Language barriers:  The advertising will have to be translated, not just into the
generic language category (e.g., Portuguese) but also into the specific version
spoken in the region (e.g., Brazilian Portuguese).  (Occasionally, foreign
language ads are deliberately run to add mystique to a product, but this is the
exception rather than the rule).
 Cultural barriers.  Subtle cultural differences may make an ad that tested well
in one country unsuitable in another—e.g., an ad that featured a man walking
in to join his wife in the bathroom was considered an inappropriate invasion in
Japan.  Symbolism often differs between cultures, and humor, which is based
on the contrast to people’s experiences, tends not to travel well.  Values also
tend to differ between cultures—in the U.S. and Australia, excelling above the
group is often desirable, while in Japan, “The nail that sticks out gets
hammered down.”  In the U.S., “The early bird gets the worm” while in China
“The first bird in the flock gets shot down.”
  Local attitudes toward advertising.  People in some countries are more
receptive to advertising than others.  While advertising is accepted as a fact of
life in the U.S., some Europeans find it too crass and commercial.
 Media infrastructure.  Cable TV is not well developed in some countries and
regions, and not all media in all countries accept advertising.  Consumer media
habits also differ dramatically; newspapers appear to have a higher reach than
television and radio in parts of Latin America.
 Advertising regulations.  Countries often have arbitrary rules on what can be
advertised and what can be claimed.  Comparative advertising is banned almost
everywhere outside the U.S.  Holland requires that a toothbrush be displayed in
advertisements for sweets, and some countries require that advertising to be
shown there be produced in the country.

Some cultural dimensions:

 Directness vs. indirectness:  U.S. advertising tends to emphasize directly why

someone would benefit from buying the product.   This, however,  is
considered too pushy for Japanese consumers, where it is felt to be arrogant of
the seller to presume to know what the consumer would like.
 Comparison:  Comparative advertising is banned in most countries and would
probably be very counterproductive, as an insulting instance of confrontation
and bragging, in Asia even if it were allowed.  In the U.S., comparison
advertising has proven somewhat effective (although its implementation is
tricky) as a way to persuade consumers what to buy.
 Humor.  Although humor is a relatively universal phenomenon, what is
considered funny between countries differs greatly, so pre-testing is essential.
 Gender roles.  A study found that women in U.S. advertising tended to be
shown in more traditional roles in the U.S. than in Europe or Australia.  On the
other hand, some countries are even more traditional—e.g., a Japanese ad that
claimed a camera to be “so simple that even a woman can use it” was not
found to be unusually insulting.
 Explicitness.  Europeans tend to allow for considerably more explicit
advertisements, often with sexual overtones, than Americans.
  Sophistication.  Europeans, particularly the French, demand considerably more
sophistication than Americans who may react more favorably to emotional
appeals—e.g., an ad showing a mentally retarded young man succeeding in a
job at McDonald’s was very favorably received in the U.S. but was booed at the
Cannes film festival in France.
 Popular vs. traditional culture.  U.S. ads tend to employ contemporary,
popular culture, often including current music while those in more traditional
cultures tend to refer more to classical culture.
 Information content vs. fluff.  American ads contain a great deal of “puffery,”
which was found to be very ineffective in Eastern European countries because
it resembled communist propaganda too much.  The Eastern European
consumers instead wanted hard, cold facts.

Advertising standardization.  Issues surrounding advertising standardization tend to

parallel issues surrounding product and positioning standardization.  On the plus
side, economies of scale are achieved, a consistent image can be established across
markets, creative talent can be utilized across markets, andgood ideas can be
transplanted from one market to others.  On the down side,cultural differences,
peculiar country regulations, and differences in product life cycle stages make this
approach difficult.  Further, local advertising professionals may resist campaigns
imposed from the outside—sometimes with good reasons and sometimes merely to
preserve their own creative autonomy.

Legal issues.  Countries differ in their regulations of advertising, and some products
are banned from advertising on certain media (large supermarket chains are not
allowed to advertise on TV in France, for example).  Other forms of promotion may
also be banned or regulated.  In some European countries, for example, it is illegal to
price discriminate between consumers, and thus coupons are banned and in some, it
is illegal to offer products on sale outside a very narrow seasonal and percentage
range.

Pricing Issues in International Marketing

Price can best be defined in ratio terms, giving the equation

resources given up
price  =     ———————————————                
goods received

This implies that there are several ways that the price can be changed:

 "Sticker" price changes—the most obvious way to change the price is the price
tag— you get the same thing, but for a different (usually larger) amount of
money.
 Change quantity. Often, consumers respond unfavorably to an increased sticker
price, and changes in quantity are sometimes noticed less—e.g., in the 1970s,
the wholesale cost of chocolate increased dramatically, and candy
manufacturers responded by making smaller candy bars. Note that, for cash
flow reasons, consumers in less affluent countries may need to buy smaller
packages at any one time (e.g., forking out the money for a large tube of
toothpaste is no big deal for most American families, but it introduces a
greater strain on the budget of a family closer to the subsistence level).
 Change quality. Another way candy manufacturers have effectively increased
prices is through a reduction in quality. In a candy bar, the "gooey" stuff is
much cheaper than chocolate. It is frequently tempting for foreign licensees of
a major brand name to use inferior ingredients.
 Change terms. In the old days, most software manufacturers provided free
support for their programs—it used to be possible to call the WordPerfect
Corporation on an 800 number to get free help. Nowadays, you either have to
call a 900 number or have a credit card handy to get help from many software
makers. Another way to change terms is to do away with favorable financing
terms.

Reference Prices. Consumers often develop internal reference prices, or

expectations about what something should cost, based mostly on their experience.
Most drivers with long commutes develop a good feeling of what gasoline should cost,
and can tell a bargain or a ripoff.

Reference prices are more likely to be more precise for frequently purchased and
highly visible products. Therefore, retailers very often promote soft drinks, since
consumers tend to have a good idea of prices and these products are quite visible.
The trick, then, is to be more expensive on products where price expectations are
muddier.

Marketers often try to influence people's price perceptions through the use
ofexternal reference prices—indicators given to the consumer as to how much
something should cost. Examples include:
  Manufacturer's Suggested Retail Price (MSRP). This is often pure fiction. The
suggested retail prices in certain categories are deliberately set so high that
even full service retailers can sell at a "discount." Thus, although the consumer
may contrast the offering price against the MSRP, this latter figure is quite
misleading.
 "SALE! Now $2.99; Regular Price $5.00." For this strategy to be used legally in
most countries, the claim must be true (consistency of enforcement in some
countries is, of course, another matter). However, certain products are put on
sale so frequently that the "regular" price is meaningless. In the early 1990s,
Sears was reported to sell some 55% of its merchandise on sale.
 "WAS $10.00, now $6.99."
 "Sold elsewhere for $150.00; our price: $99.99."

Reference prices have significant international implications. While marketers may

choose to introduce a product at a low price in order to induce trial, which is useful in
a new market where the penetration of a product is low, this may have serious
repercussions as consumers may develop a low reference price and may thus resist
paying higher prices in the future.
Selected International Pricing Issues. In some cultures, particularly where retail stores
are smaller and the buyer has the opportunity to interact with the owner, bargaining
may be more common, and it may thus be more difficult for the manufacturer to
influence retail level pricing.

Two phenomena may occur when products are sold in disparate markets. When a
product is exported, price escalation, whereby the product dramatically increases in
price in the export market, is likely to take place. This usually occurs because a
longer distribution chain is necessary and because smaller quantities sold through this
route will usually not allow for economies of scale. "Gray" markets occur when
products are diverted from one market in which they are cheaper to another one
where prices are higher—e.g., Luis Vuitton bags were significantly more expensive in
Japan than in France, since the profit maximizing price in Japan was higher and thus
bags would be bought in France and shipped to Japan for resale. The manufacturer
therefore imposed quantity limits on buyers. Since these quantity limits were
circumvented by enterprising exchange students who were recruited to buy their
quota on a daily basis, prices eventually had to be lowered in Japan to make the
practice of diversion unattractive. Where the local government imposes price
controls, a firm may find the market profitable to enter nevertheless since revenues
from the new market only have to cover marginal costs. However, products may then
be attractive to divert to countries without such controls.

Transfer pricing involves what one subsidiary will charge another for products or
components supplied for use in another country. Firms will often try to charge high
prices to subsidiaries in countries with high taxes so that the income earned there will
be minimized.
Antitrust laws are relevant in pricing decisions, and anti-dumping regulations are
especially noteworthy. In general, it is illegal to sell a product below your cost of
production, which may make a penetration pricing entry strategy infeasible. Japan
has actively lobbied the World Trade Organization (WTO) to relax its regulations,
which generally require firms to price no lower than their average fully absorbed cost
(which incorporates both variable and fixed costs).
Alternatives to "hard" currency deals. Buyers in some countries do not have ready
access to convertible currency, and governments will often try limit firms’ ability to
spend money abroad. Thus, some firms have been forced into non-cash deals. In
barter, the seller takes payment in some product produced in the buying country—
e.g., Lockheed (back when it was an independent firm) took Spanish wine in return
for aircraft, and sellers to Eastern Europe have taken their payment in ham. An offset
contract is somewhat more flexible in that the buyer can get paid but instead has to
buy, or cause others to buy, products for a certain value within a specified period of
time.

Psychological issues: Most pricing research has been done on North Americans, and
this raises serious problems of generalizability. Americans are used to sales, for
example, while consumers in countries where goods are more scarce may attribute a
sale to low quality rather than a desire to gain market share. There is some evidence
that perceived price quality relationships are quite high in Britain and Japan (thus,
discount stores have had difficulty there), while in developing countries, there is less
trust in the market. Cultural differences may influence the extent of effort put into
evaluating deals (potentially impacting the effectiveness of odd-even pricing and
promotion signaling). The fact that consumers in some economies are usually paid
weekly, as opposed to biweekly or monthly, may influence the effectiveness of
framing attempts—"a dollar a day" is a much bigger chunk from a weekly than a
monthly paycheck.

International Distribution
Promotional tools.  Numerous tools can be used to influence consumer purchases:

 Advertising—in or on newspapers, radio, television, billboards, busses, taxis, or

the Internet.
 Price promotions—products are being made available temporarily as at a lower
price, or some premium (e.g., toothbrush with a package of toothpaste) is
being offered for free.
 Sponsorships
 Point-of-purchase—the manufacturer pays for extra display space in the store
or puts a coupon right by the product
 Other method of getting the consumer’s attention—all the Gap stores in France
may benefit from the prominence of the new store located on the Champs-
Elysees. 

Promotional objectives.  Promotional objectives involve the question of what the

firm hopes to achieve with a campaign—“increasing profits” is too vague an objective,
since this has to be achieved through some intermediate outcome (such as increasing
market share, which in turn is achieved by some change in consumers which cause
them to buy more).  Some common objectives that firms may hold:

 Awareness.  Many French consumers do not know that the Gap even exists, so
they cannot decide to go shopping there.  This objective is often achieved
through advertising, but could also be achieved through favorable point-of-
purchase displays.  Note that since advertising and promotional stimuli are
often afforded very little attention by consumers, potential buyers may have to
be exposed to the promotional stimulus numerous times before it “registers.”
 Trial.  Even when consumers know that a product exists and could possibly
satisfy some of their desires, it may take a while before they get around to
trying the product—especially when there are so many other products that
compete for their attention and wallets.  Thus, the next step is often to try get
consumer to try the product at least once, with the hope that they will make
 repeat purchases.  Coupons are often an effective way of achieving trial, but
these are illegal in some countries and in some others, the infrastructure to
readily accept coupons  (e.g., clearing houses) does not exist.  Continued
advertising and point-of-purchase displays may be effective.  Although Coca
Cola is widely known in China, a large part of the population has not yet tried
the product.
 Attitude toward the product.  A high percentage of people in the U.S. and
Europe has tried Coca Cola, so a more reasonable objective is to get people to
believe positive things about the product—e.g., that it has a superior taste and
is better than generics or store brands.  This is often achieved through
advertising.
 Temporary sales increases.  For mature products and categories, attitudes may
be fairly well established and not subject to cost-effective change.  Thus, it
may be more useful to work on getting temporary increases in sales (which are
likely to go away the incentives are removed).  In the U.S. and Japan, for
example, fast food restaurants may run temporary price promotions to get
people to eat out more or switch from competitors, but when these promotions
end, sales are likely to move back down again (in developing countries, in
contrast, trial may be a more appropriate objective in this category). 

Note that in new or emerging markets, the first objectives are more likely to be
useful while, for established products, the latter objectives may be more useful in
mature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies.  Although firms that seek

standardized positions may seek globally unified campaigns, there are several
constraints:

 Language barriers:  The advertising will have to be translated, not just into the
generic language category (e.g., Portuguese) but also into the specific version
spoken in the region (e.g., Brazilian Portuguese).  (Occasionally, foreign
language ads are deliberately run to add mystique to a product, but this is the
exception rather than the rule).
 Cultural barriers.  Subtle cultural differences may make an ad that tested well
in one country unsuitable in another—e.g., an ad that featured a man walking
in to join his wife in the bathroom was considered an inappropriate invasion in
Japan.  Symbolism often differs between cultures, and humor, which is based
on the contrast to people’s experiences, tends not to travel well.  Values also
tend to differ between cultures—in the U.S. and Australia, excelling above the
group is often desirable, while in Japan, “The nail that sticks out gets
hammered down.”  In the U.S., “The early bird gets the worm” while in China
“The first bird in the flock gets shot down.”
 Local attitudes toward advertising.  People in some countries are more
receptive to advertising than others.  While advertising is accepted as a fact of
life in the U.S., some Europeans find it too crass and commercial.
  Media infrastructure.  Cable TV is not well developed in some countries and
regions, and not all media in all countries accept advertising.  Consumer media
habits also differ dramatically; newspapers appear to have a higher reach than
television and radio in parts of Latin America.
 Advertising regulations.  Countries often have arbitrary rules on what can be
advertised and what can be claimed.  Comparative advertising is banned almost
everywhere outside the U.S.  Holland requires that a toothbrush be displayed in
advertisements for sweets, and some countries require that advertising to be
shown there be produced in the country. 

Some cultural dimensions:

 Directness vs. indirectness:  U.S. advertising tends to emphasize directly why

someone would benefit from buying the product.   This, however,  is
considered too pushy for Japanese consumers, where it is felt to be arrogant of
the seller to presume to know what the consumer would like.
 Comparison:  Comparative advertising is banned in most countries and would
probably be very counterproductive, as an insulting instance of confrontation
and bragging, in Asia even if it were allowed.  In the U.S., comparison
advertising has proven somewhat effective (although its implementation is
tricky) as a way to persuade consumers what to buy.
 Humor.  Although humor is a relatively universal phenomenon, what is
considered funny between countries differs greatly, so pre-testing is essential.
 Gender roles.  A study found that women in U.S. advertising tended to be
shown in more traditional roles in the U.S. than in Europe or Australia.  On the
other hand, some countries are even more traditional—e.g., a Japanese ad that
claimed a camera to be “so simple that even a woman can use it” was not
found to be unusually insulting.
 Explicitness.  Europeans tend to allow for considerably more explicit
advertisements, often with sexual overtones, than Americans.
 Sophistication.  Europeans, particularly the French, demand considerably more
sophistication than Americans who may react more favorably to emotional
appeals—e.g., an ad showing a mentally retarded young man succeeding in a
job at McDonald’s was very favorably received in the U.S. but was booed at the
Cannes film festival in France.
 Popular vs. traditional culture.  U.S. ads tend to employ contemporary,
popular culture, often including current music while those in more traditional
cultures tend to refer more to classical culture.
 Information content vs. fluff.  American ads contain a great deal of “puffery,”
which was found to be very ineffective in Eastern European countries because
it resembled communist propaganda too much.  The Eastern European
consumers instead wanted hard, cold facts.

Advertising standardization.  Issues surrounding advertising standardization tend to

parallel issues surrounding product and positioning standardization.  On the plus
side, economies of scale are achieved, a consistent image can be established across
markets, creative talent can be utilized across markets, andgood ideas can be
transplanted from one market to others.  On the down side,cultural differences,
peculiar country regulations, and differences in product life cycle stages make this
approach difficult.  Further, local advertising professionals may resist campaigns
imposed from the outside—sometimes with good reasons and sometimes merely to
preserve their own creative autonomy.

Legal issues.  Countries differ in their regulations of advertising, and some products
are banned from advertising on certain media (large supermarket chains are not
allowed to advertise on TV in France, for example).  Other forms of promotion may
also be banned or regulated.  In some European countries, for example, it is illegal to
price discriminate between consumers, and thus coupons are banned and in some, it
is illegal to offer products on sale outside a very narrow seasonal and percentage
range