MARKETING MATERIAL
This is a specialist chapter, though it obviously may be important for those students involved in international operations. For the rest it is probably of general, background interest only. The chapter generally breaks down into two parts. The first, and main, part deals with the globalized operations of the multinationals, which typically approach it on a divisional basis. The second deals with the entry decisions required of a smaller organization going into 'exporting'. Objectives are:
1. To understand the way in which transnationals and multinationals operate across national boundaries.
2. To appreciate the implications of globalization, the forces working for and against it, and the differences between standardization and adaptation.
3. To understand the processes needed to enter overseas markets effectively, together with the options open to an organization in marketing to these.
4. Specifically to appreciate the tasks facing a smaller organization moving into export marketing.
This is definitely a specialist topic. Unless you have students specifically interested in the subject (in which case you will do what is necessary to meet their needs) it is probably best to persuade the students to skim the material, treating it as background material, or perhaps even to ignore the chapter altogether.
[Acetate 12.01]
This is a specialized area, and the chapter accordingly looks at the two extremes in order to illustrate what is involved. Thus globalization is explored in some detail, as are those activities relating to multinational operations.
The basic market entry decision is, though, the focus of the central part of the chapter; using, in this case, a screening-based approach. The detailed product and price decisions are then investigated, before the main tactical approaches are developed in some depth.
The latter part of the chapter moves to the other end of the spectrum, dominated by agents - supporting small and medium-sized exporting organizations.
For many students this chapter will be irrelevant; they will be working in the domestic market, and operations in other countries do not enter their lives (and may not even exist for their organisation - most organizations do not export). For others such international operations may not, in any case, be seen as marketing.
At one extreme, the smaller organizations may just export or use overseas agents; and this part of their business is seen just as overseas operations - an administrative function rather than a marketing one. At the other extreme, to the multinationals 'overseas' operations are effectively seen as just belonging to other (internal) divisions within their own organization, which simply undertake their own marketing - and country boundaries are almost ignored.
Even so, this chapter in the student text attempts to describe those features of international marketing (or international business) which set it apart from the rest of marketing.
The main differences will in practice, though, depend upon the structure of the particular organization (something which is not always spelled out in student texts):
[Acetates 12.02 and 12.02A]
TRANSNATIONALS - despite the vociferous debates about globalization, these are, as yet, a rarity. They are interesting, however, in that they largely ignore national boundaries. They do recognise local marketing variations - but only in much the same way that they would deal with important regional differences within a national market. They put production facilities and laboratories where best suits their needs - rather than as dictated by national boundaries. The marketing process is global.
MULTINATIONALS - these are one level down, but together with transnationals they probably account for more than half the world's traded goods and services. They typically have American or European parents. They tend, though, to be organized country by country - each country being, at least, a separate marketing operation (and probably also having its own self-contained production facilities). The marketing process is, therefore, national.
INTERNATIONAL TRADERS - these typically produce in one country, but sell these wares in a number of other countries, where they have marketing subsidiaries (and sometimes also small-scale assembly operations). Until recently most of the Japanese corporations fell into this category. They are, thus, mainly exporters, but the local country operations run their own marketing activities; so they may be viewed as national marketing organizations in their own right.
EXPORTERS - their home base is very much their own domestic market. Exporting is often a hobby rather than a business. They represent, though, the largest number of organizations in the field (albeit a minor part of the trading value involved).
DOMESTIC PRODUCERS - the largest number of all are these, who wisely limit their ambitions to their own domestic market.
activity
To give a flavour of these divisions get your students to suggest some examples. You will find, however, that the divisions are not as clear cut as you might imagine. KEEP THE LIST YOU PRODUCE FOR USE LATER IN THE CHAPTER. To provide some suggestions I offer my own list below:
TRANSNATIONAL ORGANIZATIONS
IBM Koda+ Boeing PanAm
British Airways Ford Sony Nestlé
Citibank
TRANSNATIONAL BRANDS
Coca-Cola McDonald's Pepsi Disney
INTERNATIONAL BRANDS (in certain language/culture markets)
Heinz Kellogg's Lux Panasonic
Honda Timotei Kentucky Fried Chicken Sarah Lee
Canon Green Giant BIC Pens Gillette
Kleenex Xerox 7 Eleven Convenience Stores
Atari Hitachi Nautilus Texas Instruments
Computerland Quaker Oats Club Méditerranée Apple
Levis Fisher-Price Miller Lite Beer Marlboro
Toyota
NATIONAL EXPORTS
Johnny Walker Perrier Nissan Mercedes-Benz
Volkswagen Porsche Playboy Boeing
Avon Benetton Zenith Intel
Perrier Seiko Rolls-Royce
There has been much earnest debate about this topic. Certainly, as reported in the student text, there do appear to be a number of forces moving marketing in this direction:
[Acetates 12.03 and 12.03A]
Many ideas and philosophies now seem to become accepted at a global level. Glasnost, perestroika and then the wholesale dismantling of the communist system seem to indicate that the West has triumphed; that only one model, Western capitalism, works. But this may well be a mirage. The world may once again turn out to be a more complex place, with many models needed - to suit as many different markets.
One of the long-held beliefs of economics has been that countries will come to specialize in those industries where they have an advantage. This concept is simple, and should be powerful - but it doesn't seem to work. Random fluctuations in the international financial markets now make it difficult to establish any such trends. Perhaps even more important, the global organizations (transnational and multinational) seem to be able to take such comparative advantage with them wherever they go.
In any case, international accounting is a black hole. If domestic accounting is obscured by 'creative accounting', international accounting seems to be dominated by it (and sometimes disappears out of sight, as exemplified by the global publishing empires of Maxwell and Murdoch). How international 'overheads' are allocated is almost totally hidden in transfer prices determined by much more pragmatic considerations.
Another factor supposedly leading to internationalization (at least of production) is economies of scale. One plant can serve a number of countries, and gain such economies in the process. Unilever and P & G both reduced the number of their detergent plants for this very reason.
In practice, however, it is quite difficult to find any clear justification (or indeed many examples of its successful application) for such internationalization to achieve economies of scale. The situation is usually much more complex than this simplification allows for.
Gogel and Lareche's matrix, covering product strength and geography, is interesting (but not definitive).
At the end of all this debate it is interesting to note, once again, how few genuinely global brands (as opposed to organizations) there are.
activity
This can be illustrated by referring back to the list you and the students constructed at the beginning of the chapter - and seeing how many global brands there are on it, and how many (or few) more they can add.
At the anecdotal level globalization seems to have been facilitated by a number of factors:
[Acetate 12.04]
These represent the two extremes of approach (which may still be complementary in some circumstances). The first two involve advances which can give the organizations making them significant competitive advantage. At the same time their uniqueness and newness set their own 'language' which transcends cultural barriers. The last two factors overwhelm local culture by introducing their own, stronger culture (albeit usually on a relatively narrow front - McDonalds Hamburger University teaches you how to cook a hamburger not how to live a better life).
The debate about globalization concerns only the global corporations. It is also about corporate strategy rather than just marketing. Even so, it has relevance on a marketing course, because the most important issues are marketing based.
[Acetate 12.05]
The debate is complicated only by the use of academic terms for simple concepts. Standardization simply means that a global organization standardizes its products (and policies, including marketing strategies) across all markets. Adaptation is the opposite extreme, where each (national) market is run separately - to meet differing local needs.
Marketing theory would favour the second of these; it is after all only a grander form of segmentation - and consumer needs should be paramount. The former should become important only when the product or service imposes special requirements (which, arguably, IBM's large - globalized - mainframes do).
In practice the situation is, as usual, much more complex. Some services are standardized because of values arising out of conviction (such as those of McDonald's) and yet vendors of many complex products (such as cars) follow adaptation policies.
A further complication (or simplification, depending upon your view) comes from Kenichi Ohmae, who - quite correctly - notes that almost all the trade (and wealth) of the world is held within three blocks of developed countries:
[Acetate 12.06]
Each of these blocks has around 200 million (relatively rich) consumers, and it is easy to see why we should focus on their needs (after all, it is a classical application of the 80:20 Rule).
[Acetate 12.07]
On the other hand, this approach (which is adopted by most of the multinationals) does ignore something like three billion consumers in the Third World. Although their purchasing power is low as yet, it could be massive - but who will tap it (such an investment is beyond even the multinationals)?
The associated discussion about 'trickle-down' describes a theory which apparently used to be true, but is less evidently so now. The US, for instance, once had a 10-20 year lead in technology - which was one often-quoted example - but this lead (often now for Japan rather then the US) has perhaps reduced to as many months and - as suggested in the text - many new products are now launched almost simultaneously across the world.
In all this debate what is often forgotten, or conveniently ignored, is that most successful global corporations owe their beginnings to very strong positions in their very large domestic markets; and, in many cases (including Toyota), these home markets still generate large proportions of their revenue (and not infrequently the major part of their profits). Thus, their true success lies in successful domestic marketing.
The chapter in the student text then leaps to the other end of the spectrum, the smaller business which is as yet still firmly based in its domestic market. You should recognize that the students needing, and wanting, this section may be limited (they tend not to indulge in MBA courses); so you will need to decide how you handle it - probably it should be seen as very optional indeed for most students.
For the organization in this position there are basically three questions:
[Acetates 12.08 and 12.08A]
INTERNATIONAL OR NOT? WHAT COUNTRY? WHAT MEANS?
The first question is by far the most important. Moving into international marketing (by whatever route) absorbs significant resources - and may become a bottomless pit. There have to be very convincing, very positive, reasons for saying yes to this question. If there is any doubt the answer must be 'no'.
Some further points, which may need to be taken into account but are not included in the student text, are included in Appendix B to this chapter.
It is likely, indeed inevitable, that entry into (or expansion in) international markets will initially focus upon a relatively few countries (probably just one in the first instance). The second question, therefore, is 'which one?' - and this leads to a further question: 'How do you select this one?'
There are two opposite extremes.
[Acetate 12.09]
The first (expansive) approach starts with the 'cluster' of countries to which your own domestic market belongs. These include your neighbours, which are easy (and relatively cheap) to reach and which to a degree share similar cultures. This is probably the approach favoured by most organisations; justifiably so since it usually represents the smallest (least risky) step into the unknown.
The second (contractible) approach starts with all countries worldwide, and gradually eliminates the most unsuitable - until the final one (presumably the most suitable) emerges. It seems an excellent theory, but in practice much of the data for this is not available to most organizations (at least not without great effort and expense). On the other hand, it is a useful check if done in parallel with the first (expansive) approach - and may throw up some interesting options which might otherwise be ignored. A trivial example, but perhaps important to British motor manufacturers: did you know that Japan is (with Britain) one of the very few countries which drives on the left.
The following sections in the text are 'nested' lists of categories - each narrowing the focus to eliminate ever more countries. They are self-explanatory (or at least are explained in the text) so I will not lengthen this chapter by explaining them further (except to note that the first of them, 'commonsense', is usually by far the most important).
[Acetates 12.10, 12.11and 12.12]
If you teach any of these elements you should probably choose just one or two topics within each, to give a flavour of some of the considerations involved. Probably the best approach is to choose the types of most interest to your students.
country portfoilo
This section is a diversion, to expand the background material in advance of the country entry decision itself. Thus it looks at the pattern where some countries have already been entered. So, having made these earlier decisions and entered markets in a number of countries, there then emerges the decision as to the best, optimal portfolio of countries to market to; in much the same way as a 'product portfolio' is decided upon. Two alternative approaches are illustrated in the student text.
Returning to the basic decision-making process, this section details the major differences from domestic research. The sources will, in particular, be different:
[Acetate 12.13]
Of these, the government sources are usually the most fruitful.
If you choose to do ad-hoc research there are a number of possible approaches:
[Acetate 12.14]
Of these only the last two are, generally speaking, suitable approaches.
Having finally completed all the above screening processes and chosen the market(s) to be entered, a number of further decisions remain. The first of these is the priority to be given to each:
[Acetates 12.15 and 12.15A]
One further step not spelled out in the student text should be to revisit the original decision. In the light of the lessons learned during the screening process do you still believe that entering international markets is a wise decision?
A further step is to consider the risks involved;
[Acetate 12.16]
Of thes%, you (and your students) should be aware that 'country risk' is the one most often researched (and quoted) by specialist agencies. This may be of considerable interest to banks offering loans to governments (though, in v)ew of their bad debts in this area perhaps this has not always been sufficiently taken into account), but it is the 'project risk' (which is rarely quoted) which is of greatest importance to individual organizations.
The next question to ask is 'What product?' This will tend to be the dominant product(s) from the domestic market - it is foolish to believe you can develop totally new products at the same time as entering a new country (though many organizations do just that). Even so, the exact formulation/specification of the product or service may need to be changed for each new market - it is arrogant, and foolish, to believe that all consumers are the same (though supporters of standardization/globalization might argue almost that).
Indeed, all the 4 Ps need to be considered - price being one of them.
The one unusual factor which may enter into the price decision is what you are paid with!
Fortunately this does not apply to the main markets, but where it does it may represent a major factor in calculations. Just how do you sell several thousand tons of jam (especially if your expertise is in making tractors)? The best solution is probably to employ an agent to do this (though that eats into profit margins - but probably not as much as trying to do it, very inexpertly, yourself).
[Acetate 12.17]
This is not an important section, but students usually find it offers welcome light relief!
This is an important section (for those studying the chapter), not least because it illustrates a range of alternatives which is much greater in number than students expect - and they should realize that the traditional 'agent' option is not the only one open to them:
[Acetate 12.18]
This tends to be the choice where the export operation is expected to be small scale, and of relatively low importance to the organization.
These are alternatives which are not often considered, yet they can be very productive (though the long-term implications, should you expect considerable expansion in future, need to be taken into account).
If the size of market justifies it then this has to be the preferred solution. Even then, as the student text shows, there may be a number of alternative approaches:
[Acetate 12.19]
This is a topic which dominates a number of texts. What tends not to be emphasized, though, is just how 'political' the relationship often tends to be. The assumption is that both sides are working for a common cause. In practice the hidden agendas may be much more complex. The 'agent's balance' is one illustration of this:
[Acetate 12.20]
The important distinction between agents and distributors is that the latter are totally free to sell however they want, while the former (agents) act in their clients' names (and offer their clients' terms and conditions). To the customer they are, in effect, the original vendor;
The steps in appointing agents and distributors are deliberately not included in the student text (since they will be useful to very few students). They are, however, included as Appendix C to this (instructor manual) chapter for handing out to those who need them.
The point to make here is that these are more prevalent than most students, and managers, realize.
Indeed, much of international marketing revolves around the complex relationships with partners in various countries (even if the partners are your own, fully owned, branches). The dominant elements in international marketing tend, therefore, to be political relationships.
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