Impact of Globalization to International Marketing

Presented by : Ireneo Caete, Jr. Aurora Cendana Marketing Management Dr. Ed Garrovillas

Reference:

Marketing Management, 11th edition by Philip Kotler Out of the Box Marketing Principles that work and make sense, by Dr. E. Garrovillas www.worldbank.org

Kotler on Marketing: Today you have to run faster to stay in place.

Objectives
Focus on the following questions: What factors should a company review before deciding to go abroad? How can companies evaluate and select foreign markets to enter? What are the major ways of entering a foreign market? To what extent must the company adapt its products and marketing program to each foreign country? How should the company manage and organize its international activities?

Globalization
According to Friedman (1999): Globalization is the inexorable integration of markets, nation states, and technologies to a degree never witnessed before- in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than before, the spread of freemarket capitalism to virtually every country around the world.

Pros And Cons Of Globalization

Globalization is a new term that has found a significant place in the lives of the people. By globalization, we mean shedding down the walls of distrust and the barriers of suspicion in between countries, to make a bridge where ideas and beliefs can cross the borders. Though globalization today primarily covers the economical side, the impact is not limited to the economy only. It actually affects every aspect of life, like cultural, social, psychological and of course, political. While globalization is seen as a sign of a hopeful future by some, there are others who believe that it can cause tremendous disaster for the world economy. Read on to find the pros and cons of globalization.

Pros Of Globalization
With globalization, there is a global market for companies to trade their products and a wider range of options for people, to choose from among the products of different nations. Developing countries benefit a lot from globalization, as there is a sound flow of money and thus, a decrease in the currency difference. To meet the increasing demands that follow globalization, there is an increase in the production sector. This gives loads of options to the manufacturers as well. Competition keeps prices relatively low, and as a result, inflation is less likely to occur. The focus is diverted and segregated among all the nations. No country remains the single power head; instead there are compartmentalized power sectors. The decisions at higher levels are meant for the people at large. Communication among the countries is on the rise, which allows for better understanding and broader vision. As communication increases amongst two countries, there is interchange of cultures as well. We get to know more about the other's cultural preferences. As we feed to each other's financial needs, the ecological imbalance is also meted out. Governments of countries show concern about each other.

Cons Of Globalization
Globalization is causing Europeans to lose their jobs as work is being outsourced to the Asian countries. The cost of labor in the Asian countries is low as compared to other countries. The high rate of profit for the companies, in Asia, has resulted in a pressure on the employed Europeans, who are always under the threat of the business being outsourced. Companies are as opening their counterparts in other countries. This results in transferring the quality of their product to other countries, thereby increasing the chances of depreciation in terms of quality. There are experts who believe that globalization is the cause for the invasion of communicable diseases and social degeneration in countries. The threat that the corporates would rule the world is on high, as there is a lot of money invested by them. It is often argued that poor countries are exploited by the richer countries where the work force is taken advantage of and low wages are implemented.

Appraising the Global Marketing Environment

A company has to examine many issues deciding whether and where to sell abroad The company has to acquire a thorough understanding of the international marketing environment Significant changes in past 2 decades: Substantial speedup of international transportation, communication, and financial transactions Increase of strategic alliances b/w major international companies Growth of global brands in autos, food, clothing, electronics and many other categories Rising economic power of Japan and several Far Eastern countries in world markets
Strategies for Global Market Penetration.ppt

Competing on a Global Basis

Global industry Global firm

Deciding whether to go abroad

Deciding which markets to enter

Major Decisions in International Marketing

Deciding how to enter the market

Deciding on the marketing program

Deciding on the marketing organization

Deciding Whether To Go Abroad

Factors drawing companies into the international arena: Global firms offering better products or lower prices can attack the companys domestic market. The company discovers that some foreign markets present higher profit opportunities than the domestic market. The company needs a larger customer base to achieve economies of scale. The company wants to reduce its dependence on any one market. The companys customers are going abroad and need servicing.

Deciding Whether To Go Abroad

Before going abroad, the company must weigh several risk: The company might not understand foreign customer preferences and fail to offer a competitively attractive product. The company might not understand the foreign countrys business culture or know how to deal effectively with foreign nationals. The company might underestimate foreign regulations and incur unexpected costs. The company might realize that it lacks managers with international experience. The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate property.

Blunders in International Marketing

Hallmark cards failed when they were introduced in France. The French dislike syrupy sentiment and prefer writing their own cards.

Philips began to earn a profit in Japan only after it had reduced the size of its coffeemakers to fit into smaller Japanese kitchens and its shavers to fit smaller Japanese hands.
Coca-Cola had to withdraw its two-liter bottle in Spain after discovering that few Spaniards owned refrigerators with large enough compartments to accommodate it. General Foods Tang initially failed in France because it was positioned as a substitute for orange juice at breakfast. The French drink little orange juice and almost none at breakfast. Kelloggs Pop-Tarts failed in Britain because the percentage of British Pop- homes with toasters was significantly lower than in the United States and the product was too sweet for British tastes.

Deciding Which Markets to Enter

How many markets must a company enter The candidate countries should be initially rated on 3 major criteria: Market attractiveness GNP/capita, work force, pop. growth Competitive advantage business dealings Risk stability in political, currency, repatriation rules
Competitive Advantage

High H
Competitive Advantage
China

Med
Czech

Low

M L
H

L
Risk

East Germany Poland

M L

Romania

Deciding Which Markets to Enter

Prepare a financial analysis of top 3 countries; Five steps involved in estimating the probable rate of return on investment:

Estimate of Current Market Potential estimate total

industry sales in each market; task calls for using published data and primary data collected through company surveys

Forecast of Future Market Potential and Risk

forecast future industry sales (difficult task), requires predicting economic and political developments and impact on industry sales

Forecast of Sales Potential estimating the companys sales

requires forecasting its probable market share based on its competitive advantage (another difficult task)

Forecasts of Costs and Profits cost will depend on

companys entry strategy; company subtracts estimated costs from estimated sales to derive company profits
income stream should be related to investment stream to derive implicit rate of return; should be high enough to cover firms normal target return on its investments and the risk of marketing in that country

Estimate of Rate of Return on Investment forecasted

Deciding Which Markets to Enter

Regional free trade zones
The European Union NAFTA MERCOSUL

APEC

Evaluating potential markets

Psychic proximity

Deciding How to Enter the Market

Direct Investment Amount of commitment, risk, control, and profit potential

Joint Ventures

Five Modes of Entry into Foreign Markets

Licensing

Direct Exporting

Indirect Exporting

Deciding How to Enter the Market

Indirect and direct export
Indirect exporting Occasional exporting Active exporting Domestic- Domestic-based export merchants Domestic- Domestic-based export agents Cooperative organizations Export-management companies

Deciding How to Enter the Market

Companies can carry on direct exporting in several ways
Domestic-based export department or division Overseas sales branch or subsidiary Traveling export sales representatives Foreign-based distributors or agents

Deciding How to Enter the Market

Licensing
Management contracts
Contract manufacturing

Franchising

Deciding How to Enter the Market

Joint ventures Direct investment The Internationalization Process
Johanson and Wiedersheim-Paul identified four stages in the internationalization process: No regular export activities Export via independent representatives (agents) Establishment of one or more sales subsidiaries Establishment of production facilities abroad

ASEAN countries
Country Name Brunei Darussalam 2006 87,839,128 2007 257,635,717 2008

Source: World Bank

Foreign Direct Investment, net inflows (current US$)

2009 325,586,827 2010 495,720,000

222,184,549

Cambodia
Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam

483,209,382
4,914,201,435 187,310,641 6,076,119,971 278,634,106 2,921,000,000 29,347,864,395 9,452,928,923 2,400,000,000

867,288,538
6,928,480,000 323,520,000 8,590,185,403 257,686,000 2,916,000,000 37,032,936,287 11,323,987,644 6,700,000,000

815,180,217
9,318,453,649 227,770,000 7,375,907,979 283,454,600 1,544,000,000 8,588,194,480 8,531,083,130 9,579,000,000

530,151,578
4,877,369,178 318,598,209 1,387,393,683 322,975,866 1,963,000,000 15,278,566,655 4,976,284,679 7,600,000,000

782,597,000
13,303,654,878 350,000,000 9,102,974,458 756,323,000 1,713,000,000 38,638,121,023 6,306,251,509 8,000,000,000

Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors.

ASEAN + 3
Country Name China Japan Korea, Dem. Rep. 2006 124,082,036,118 -6,783,580,857 -104,620,000 2007 160,051,835,203 22,180,067,084 66,730,000

Source: World Bank

Foreign Direct Investment, net inflows (current US$)

2008 175,147,650,311 24,551,812,047 43,800,000 2009 114,214,527,413 11,834,116,164 1,970,000 2010 185,080,744,436 -1,358,906,189 37,656,666

Korea, Dem. Rep.

3,586,400,000

1,784,400,000

3,310,700,000

2,249,000,000

-150,100,000

Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors.

Deciding on the Marketing Program

Standardized marketing mix

Adapted marketing mix

Product Straight Extension Product adaptation Product invention
Backward invention Forward invention

Promotion
Communication adaptation Dual adaptation

Deciding on the Marketing Program

Price Price escalation Companies have three choices Set a uniform price everywhere Set a market-based price in each country market Set a cost-based price in each country cost Transfer price Dumping price Arms-length price Gray market

Deciding on the Marketing Program

Seller

Place (distribution channels)

Sellers international marketing headquarters
Channels between nations Channels within foreign nations
Channels within foreign nations Sellers international marketing headquarters

Channels between nations

Whole-Channel Concept for International Marketing

Final buyers

Deciding on the Marketing Organization

Export department International division
Geographical organizations World product groups International subsidiaries

Deciding on the Marketing Organization

Global organization
Bartlett and Ghoshal distinguish three organizational strategies: A global strategy treats the world as a single market. A multinational strategy treats the world as a portfolio of national opportunities. A glocal strategy standardizes certain core elements and localizes other elements

Deciding on the Marketing Organization

Global organization
Bartlett and Ghoshal distinguish three organizational strategies: A global strategy treats the world as a single market. A multinational strategy treats the world as a portfolio of national opportunities. A glocal strategy standardizes certain core elements and localizes other elements

Filipino companies who made global

Jollibee Foods Corp. 1974 - started with 2 branches 1984 - Php 500M Sales mark; Top 500 Phil. Corp. 1987 - Top 1000 Phil. Corp. 1989 - 1st Phil. Fast Food Chain to break Php 1B Sales mark In 32 years, company has 600 local stores and over 50 international stores: USA 25 Vietnam 23 Brunei 11 Saudi Arabia 8 Qatar 1 Hongkong 1 Chowking 1985 - started with 2 branches Company has 400 local stores and 10 international stores in USA, Middle East, Indonesia Revenue (2007) Php 10.1B

Other Companies:
Company Revenue Geographic Region

Toyota Motors

(2011) US $236B
(2009) Y 1,445,616M (2010) US $33.6B (2010) US $21.6B

Japan, North America, Europe, Asia, others

Japan, North America, Phil., Brazil, Thailand, Netherlands North America, Europe, Turkey, China, others S. Korea, North America, Europe, China, Vietnam, etc.

Mitsubishi Motors

Hyundai Motors

Kia Motors