GM Exam Revision (April 2014)

3 - 1

MKTG 1064

Exam Revision

Lecture NotesGlobal

Jan 2014 Semester

Note: this hand-out is provided to

help students with revision. It does

NOT constitute a forecast or

prediction of what will come out in

the exam. You are strongly

advised to read thoroughly the

core chapters taught in class and

be well prepared across all the key

topics.

There is NO guarantee provided

by reading these revision notes on

the outcome of your final exam

grade.

Good Luck

Exam Advice (posted on RMIT BB 4

March 2014)

Posted by: Kathleen Griffiths• Posted to: MKTG1064_1420 Global Marketing• Exam format .Posted on: Tuesday, 4 March 2014 13:45:33 o'clock EST

• Your exam will be held in the official exam period. The format is as follows:

• 30 MC from the whole course from he 4th edition of the prescribed textbook. Worth 20 marks. This might take you up to 60 minutes to read and complete

• 2 short answer essays from as choice of 4. You are expected to answer these in about 30 minutes each and they should therefore be about 2 pages in length each.

• Topics for the exams will come from the folowing list:

• culture, logistics, research, pricing, economy, politics and market entry.

30 MCQ covering the whole book

• Surely no one can read the whole book

• But certain topics from PES , market entry, the 4 Ps will be read in more depth

• Some MC questions you will know the answer because you have learnt the topic well

• There will be around 2-4 that you wont know the answer so you need to “guess” the best possible option

Essay Questions

• There are Seven Topics given

• But only Four Essay Questions to Choose Two

• So there is some element of RISK

• Study very well– Culture

– Market Entry

– Research

– Political

– Economic

Back up topics (contingency) : this means you skim read the materials and have a basic understanding (then you pray that you are not required to answer them!!)- Pricing - Logistics

Note of Caution!

• This set of revision slides is only meant for in-class revision.

• These notes are only a REMINDER of the key points for the different topics

• These are NOT complete revision notes• You are required to refer to the week lecture

notes given by me and discussed in class• Therefore your responsibility is still to read all the

exam assigned chapters from the text and my lecture notes (IN FULL)

Writing your answers

• Make sure you address all the parts. A question may not show sections BUT the punctuation will indicate there are sections.

• Use section headings to clearly indicate the main issues in the answer

• At different intervals use the “previously prepared examples/cases (that you should have already done by now) to illustrate your key points

• Do not write in point form UNLESS you are listing (in the middle of the main answer) some factors or advantages and disadvantages

• Cover around 2-3 pages per question to aim for Distinction!

Starting Point: All must read Chapter One (even if its not tested)

• It is after all the INTRO to GM

• Key concepts and terms :EPRG, Global Marketing

• Definition of the different forms of GM

– Export marketing

– International marketing

– Global marketing

• Why do companies go global (factors/drivers)

Culture

• Elements

• Hosfstede

• SRC

• High and Low context

• How culture affects the marketing mix

Here are some of the key slides from my lecture notes as a reminder of the key issues for this topic.

1

Defining Culture

The A-B-C-D of Culture

Access

Buyer Behavior

Consumption Characteristics

Disposal

3-9

3-10

Elements of Culture

3-11

Elements of Culture

Identity

Material Life

Language

Social Interactions

Aesthetics

Religion

Education

Value Systems

3-12

Read up on each one of the elements from the text/notes and

understand how they are related to decisions on marketing mix

for international marketing

Cross-cultural comparisons

High-context versus low-context cultures

High Context

A culture that communicates mostly

through implicit messages

Chinese – rich in metaphor

Low Context

A culture that communicates mostly

through explicit message

English – rich in depth of language

3-13

Cross-cultural comparisons

Hofstede’s classification scheme

Power Distance

Uncertainty avoidance

Individualism versus Collectivism

Masculinity versus Feminity

Long-term orientation

3-14

A key issue to note: Convergence or

Divergence?

This will have

implications on

the topics of

adaptation and

standardization of

the marketing

programs across

country markets

3-15

Adapting to Cultures

Self Reference Criterion (SRC)

Tendency to resort to one’s own cultural

experiences to interpret a situation

Important (but difficult) for the marketer to

divorce themselves from this

How does an American think

un-American or a Singaporean think

un-Singaporean?

‘out of body’ experience

3-16

Adapting to Cultures

Ethnocentrism

The belief that one’s own culture is superior

Perhaps even more dangerous than SRC

Introducing products with too little

adaptation in the belief that the home

culture will win out

Dr Pepper in Australia

Disney in France

3-17

Self reference criterion (SRC)

(SRC) is the cultural baggage that the business

person takes overseas.

Our perception of the needs of the overseas market is

blocked by our own cultural experience

There is a danger that many marketers try to

superimpose their home marketing strategies into host

country markets (‘what works well back home must

surely work well here”)

Recipe for disaster

‘Ethnocentric approach’ to marketing

3-18

Give examples of how the self-reference

criterion might be manifested.

The self-reference criterion is manifested in marketing strategies that fail to differentiate between the cultures of target countries and the culture from which the exports originate.

We impose our cultural values on the other countries when we assume that they will want to purchase any products that are popular domestically.

SRC often results in product failures or advertising campaigns that are perceived by the local market as being distasteful or failing to appreciate local values and customs

3-19

Culture and the Marketing Mix

Product

Pricing

Distribution

Promotion

3-20

Impact of

Culture in

International

Marketing

Context

What should the

marketer take

careful attention of?

What aspects of the

MM will be impacted

by differences in

culture?

And what changes

need to be made?

Reminder: How culture impacts on Marketing Mix

elements

(source: Kotler, Armstrong and da Silva; 2006)

3-21

Product: culture has a direct or indirect impact

on the Product element of the marketing mix

affecting areas such as

Product design, color and packaging

Brand names and symbols

Adoption behavior (or resistance) to new

product innovations


3-22


Product

Some products are very culturally bound

which can be both good and bad

Vegemite works well in Australia but

nowhere else

Skin whitening cream in Asia but suntan

lotion in the west

Louis Vuitton works well overseas because

it is French

The ‘country effect’

3-23


Price Determined by the interplay of the 4 C’s

1. Customers

2. Company

3. Competition

4. Collaborators

All of which can vary across cultures

High price might emphasize quality in one culture

But emphasize status in another

Implication: don’t assume that all brands carry

the same positioning in all country markets3-24


Distribution

There could be many aspects on the Place

element

Consider impact on retailing

Consider impact on working with distributors

in the channel (personal networking and

relationships)

Cultural implications of certain distribution

models

‘direct to customer’ versus ‘High Street

retailer’ 3-25


Promotion

Promotion has probably the greatest impact

from culture

Promotions involve language, ideas and

symbols

Advertising will be impacted by local

languages and customs

The challenge would be to create global

advertising campaigns

3-26


Promotion

High context versus low context language

based cultures

Inferred versus directly stated

High power distance cultures and

celebrity endorsements

Local taboos

Swearing in commercials

How appropriate is the Australian Tourism

commercial in some parts of Asia?

3-27

Personal contacts and negotiations

Impact of culture on face to face

marketing:

Personal selling in marketing

Developing market entry (partners / JV)

Negotiating with Trade channel members

Personal selling in consumer markets

3-28

When international marketers take their

products or services to overseas markets, they

need to consider all cultural elements when

investigating the new market. Two of the

elements discussed in the text-book are

education and language.

Using examples, discuss how these two

elements would affect the way a company

markets its product or service in a foreign

country.

Specimen Question #1

3-29


Discuss four examples of how

elements of a country's culture

can affect a global marketer's

promotion strategy.

Note: this question reminds us of how a topic can be integrated

across chapters- this covers BOTH culture and its impact on

marketing communications strategies

3-30


What is culture and why is it

important in global marketing?

Use examples to show your

understanding of culture’s

complexities

31


What are some possible issues in

applying the Power-Distance

classification in Hofstede’s

classification scheme in a global

marketing context? Use your own

examples to discuss.

3-32


What is the difference the difference

between high and low context cultures?

Explain how the marketing

communication mix needs to be adapted

to cater for these differences. Provide

examples that illustrate your

understanding.

3-33

Again this question covers BOTH culture and its impact on

international marketing communications strategies


For any 3 elements of culture,

discuss why each is important in

global marketing. Provide examples

that illustrate your understanding

3-34


The self-reference criterion has important

implications for international marketing.

Explain the self-reference criterion and

discuss its implications for each element

of the marketing mix.

3-35

Political

• Types of government systems

• Political Risks

• Legal Systems

• OR this topic could be taken from the chapter on Economic Factors relating to role of government in regulating trade and international business


2

Political environment

individual governments

Structure of government — ideology

Communism

system with strict regulation of private ownership

most enterprises are state owned

Capitalism

system where free enterprise and private

ownership is encouraged

Socialism

encourages ownership where the assets are

considered critical to the nation

Political Environment

Individual Governments

An important role of government is to

promote a country’s national interests

They invest in important industries

Offer incentives to a variety of industries

Restrict or block trade

National security

Develop new industries

Protect declining industries

4-38

Areas in which government policies

affect business operations

Government policy areas

Legal

What level of taxation is required?

Is it different for foreign enterprises?

What are the labor laws?

Can I lay-off staff easily if I have to?

What subsidies will the government provide?

Am I in an industry important enough to attract

government subsidy?

Will subsidies provided to local companies create unfair

advantage to the foreign firm?4-39

Political Environment

Individual Governments

Government policies and regulation

Macroeconomic policies

Macroeconomic policies determine

cost of capital

level of economic growth

rates of inflation

international exchange rates

• Managed through:

― fiscal policy and monetary policy

4-40

Protectionism and Trade Restrictions

Tariffs

Quotas

Orderly marketing arrangements (voluntary

export restrictions)

Non-tariff barriers

2-41

Implications: Marketers who want to send products to foreign

markets must think of strategies on how to overcome tariff and

non-tariff barriers

4-42

Barriers to

Trade

Instituted by

Governments

Government policy areas

and instruments43

Forms of Host Country Controls

• Expropriation

– Taking of private property with compensation.

• Confiscation

– Taking of private property without compensation.

• Domestication

– To gain control over foreign investment through

demanding partial transfer of ownership and

imposed regulations.

– Raise tax rates.

– Price controls.

4-44

Politically Sensitive Products and

Issues

• Products that have or are perceived to have

an effect on the environment, exchange

rates, national and economic security, and

the welfare of people and that are publicly

visible or subject to public debate, are more

likely to be politically sensitive.

• Health is often the subject of public debate,

and products that affect or are affected by

health issues can be sensitive to political

concern.

• The European Union has banned hormone

treated beef for more than a decade.

4-45

5-46

Political Risk

• Risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably

When perceived political risk is high, a country will have

a difficult time attracting foreign direct investment.

5-47

Political Risk

• Some examples of political risk include:– War– Social unrest– Politically-motivated violence– Transparency– Social conditions (population density and wealth

distribution)– Corruption, nepotism– Crime– Labor costs– Tax discrimination

Political environment – social pressures

and political risk

Table 3.2

Political Risks of Global Business

• Confiscation – the seizing of a company’s

assets without payment.

• Expropriation – where the government seizes

an investment but some reimbursement for the

assets is made.

• Domestication – when host countries gradually

cause the transfer of foreign investments to

national control and ownership through a series

of government decrees by mandating local

ownership and greater national involvement in a

company’s management.

4-49

Specimen question #1

For a country of your choice

demonstrating the use of a democratic

political system and a common law

legal system, and using your own

example/s, show how these systems

might affect the marketing mix for your

chosen product/service.Note : this question combines the topics of political and legal factors

and its impact on marketing mix


List and briefly describe the three

main reasons why governments

often want to block or restrict

trade. Describe three actions a

government can take to

encourage international trade.

2-51

Why might a foreign government want

to discourage or block global

marketers, and what actions might

they take to do this?

2-52



Why and how would governments

restrict trade? Use examples to

illustrate.

2-53

Economic

• The different classification of economic development

• What factors would marketers look for when assessing the economic attractiveness of a country market?

• Economic risks

• Types of Regional Cooperation Arrangements


3

ECONOMIC VARIABLES

1. One area that the chapter does not elaborate sufficiently is that relating to discussion of the “economic variables”

2. This is important for your project since you would need to assess market potential and market demand in order to do country market screening and market entry and marketing strategies

3. The economic factors that you would normally do in a typical PEST analysis are the ones you would consider.

Lee and Carter: Global Marketing Management, 3rd edition

The Economic Environment

• Market potential can be gauged by assessing population size, growth, density, distribution, age distribution, disposable income and its distribution

• An Economic Environmental Analysis can involve asking:– How big is the population and at what rate is it

growing?

– Where is the population located and how dense is it?

– What is the population age and distribution?

– What is its disposable income and distribution?

Economic Factors considered in

International Marketing

Size of market- population and demographics

National Income (GNP)

Purchasing Power

Availability of Credit

Importance: it determines the attractiveness of

the market in terms of demand and buying

power of the local population. An international

marketing firm would gravitate towards countries

that have high disposable incomes

Economic Factors in Global Markets

Population demographics

Age distribution, life expectancies,

household size, urbanization.

Income

Distribution of low, medium, and high incomes.

Gross domestic product per capita.

Purchasing power parity.

Consumption patterns

Income spent on necessities and luxuries.

Product saturation or diffusion.

Product form differences.

Economic Factors(continued)

Availability and quality of infrastructure

Rail traffic networks for distribution capabilities.

Communication systems for marketing.

Energy (electrical and fuel) consumption.

Impact of the economic environment on social

development

Urbanization, life expectancy, literacy rates, etc.

Physical Quality of Life Index (PQLI).

Global Marketing

Mix

Product

Promotion

Place

Price

Reminder :Impact of Economic Factors on the

Marketing Mix

Types of Economies

Developed triad Economies

account for 80% of world trade

Emerging Economies

huge and growing consumer demand

government directed economic reforms

‘dual economy’

Less Developed Countries (LDCs)

low GDP, limited manufacturing base

infrastructure weaknesses

heavy reliance on one product/one trading partner

2-62

Marketing Opportunities in LDCs

• Characterized by a shortage of goods and services

• Long-term opportunities must be nurtured in these countries

– Look beyond per capita GNP

– Consider the LDCs collectively rather than individually (regional cluster)

– Consider first mover advantage (get in early)

– Set realistic deadlines

2-63

Mistaken Assumptions about LDCs

1. The poor have no money.2. The poor will not “waste” money on non-

essential goods.3. Entering developing markets is fruitless

because goods there are too cheap to make a profit.

4. People in BOP (bottom of the pyramid) countries cannot use technology.

5. Global companies doing business in BOP countries will be seen as exploiting the poor.

THERE IS MONEY TO BE MADE IN LESS DEVELOPED COUNTRIES

Professor C K Prahalad book on marketing to less developed countries could be as lucrative as more affluent countries

Refer to link for summary:

http://www.12manage.com/methods_prahalad_bottom_of_the_pyramid.html

http://www.12manage.com/methods_prahalad_bottom_of_the_pyramid.html

2-65

High-Income Countries

• GNI per capita: $12,196 or more

• Also known as advanced, developed, industrialized, or postindustrial countries

• Characteristics:

– Sustained economic growth through disciplined innovation

– Service sector is more than 50% of GNI

– Households have high ownership levels of basic products

Tokyo

2-66

High-Income Countries

• Characteristics, continued:– Importance of information processing and

exchange

– Ascendancy of knowledge over capital, intellectual over machine technology, scientists and professionals over engineers and semiskilled workers

– Future oriented

– Importance of interpersonal relationships

Economic Risks

• Exchange controls

– Stem from shortages of foreign exchange held by a

country.

• Local-content laws

– Countries often require a portion of any product sold

within the country to have local content.

• Import restrictions

– Selective restrictions on the import of raw materials to

force foreign industry to purchase more supplies

within the host country and thereby create markets for

local industry

4-67

Economic Risks (continued)

• Tax controls

– A political risk when used as a means of controlling foreign

investments.

• Price controls

– Essential products that command considerable public

interest

• Pharmaceuticals

• Food

• Gasoline

• Labor problems

– Labor unions have strong government support that they

use effectively in obtaining special concessions from

business.

4-68

Forms of Economic Integration

2-69

Regional Economic Integration (summary)

Levels of economic integration

Free Trade Area

Least restrictive.

Goods and services are freely trades among all members. Each

country maintains its own trade barriers for nonmembers.

Customs Union

Members establish a common trade policy with respect to

nonmembers.

Common Market

Factors of production mobility is emphasized. A common external tariff

is adopted.

Economic Union

Integration and harmonization of economic and monetary policies is

achieved leading to political union.2-70

Benefits Trade Creation

Greater Consensus

Political Cooperation

Drawbacks Trade Diversion

Shifts in Employment

Loss of National Sovereignty

The Effects of Economic Integration

2-71

Can you write such an essay with

regards to the current situation

facing the crisis in the EU?

Describe the main forms of regional

economic cooperation. What factors

tend to promote such arrangements?

2-72

Specimen Question # 1

Think about what happens if a marketing company that exists

OUTSIDE the trading bloc wants to enter markets in that bloc; how

would it affect its marketing operations. How would a trading bloc

create opportunities and threats? How would this situation affect

the decision on MARKET ENTRY strategy?

Market Entry

• Learn all the modes of entry; be prepared to answer on any modes given

• Study the advantages and disadvantages of each mode

• The factors affecting the choice of market entry mode


4

Consider various criteria in choosing

the mode of entry

External criteria

market size and growth

risk

government regulations

competitive environment

local infrastructure

Internal criteria

organizational objectives

need for control

internal resources, assets and capabilities

flexibility6(B)- 74

External criteria

Market size and growth

Not just absolute size but also opportunities for

potential growth

Watch out for secondary data when comparing

across country markets- what units do we use

when we measure “size”?

Risk

Political and economic risks faced (see chapter 3)

Risks also include exit risks

6(B)- 75

External criteria (cont’d)

Government regulations

Host country policies

Affects the mode of entry- example foreign equity

participation in joint ventures

Competitive environment

How formidable are the competitors in the

domestic market?

Would acquisition be one way in to eliminate the

competition?

6(B)- 76

External Decision Criteria Market Attractiveness

Countries can be classified into several types

based on their market attractiveness

Platform: gather intelligence/network

Hong Kong and Singapore

Emerging: build presence

Philippines and Vietnam

Growth: offer early mover advantage

China and India

Maturing and Established Countries

South Korea, Taiwan and Japan

6(B)- 77

Internal decision criteria:

Organizational objectives

How aggressive is the international firm in

wanting to gain foreign market entry? What is the

time frame for gaining market penetration?

Need for control

Exporting (less); overseas

subsidiary/manufacturing operations (high

control)

Extent of centralization or decentralization in

managing overseas businesses

6(B)- 78

Internal decision criteria:

Internal resources and constraints

Small firms with limited resources tend to be more

dependent on exporting

Firms that control strong brands or have

proprietary technologies can use franchising or

licensing

Flexibility

As market conditions and the environment

changes, so will the market entry mode

6(B)- 79

The Key Options for Market Entry:

1. Exporting

2. Licensing

3. Franchising

4. Contract Manufacturing

5. Joint Ventures

6. Wholly Owned Subsidiaries

7. Strategic Alliances

6(B)- 80

Choice of Market Entry Strategies

Source: Kotler, Armstrong and da Silva (2006)6(B)- 81

Less Risky Options Greater Control Options

Exporting

Indirect Exporting

The organization uses an intermediary based on

its home market to do the exporting

Cooperative Exporting

The organization enters an agreement with

another local or foreign organization in which the

partner will use its distribution network to sell the

exporter’s goods

6(B)- 82

Exporting

Direct exporting

The company sets up its own export organization

and relies on an intermediary based in a foreign

market (e.g. a foreign distributor)

6(B)- 83

Licensing

A contractual transaction where the

organization, the licensor, offers some

proprietary assets to a foreign organization,

the licensee, in exchange for royalty fees

Giordano, one of Hong Kong’s premier clothing

retailers licenses Disney products

6(B)- 84

Licensing

Benefits

Highly profitable

penetration strategy

Local governments

may favor it

Lower exposure to

economic and

political conditions

Caveats

Revenue may be

dwarfed by potential

income earned

through outright

ownership

Lack of enthusiasm on

the part of the licensee

May own competing

products

6(B)- 85

Franchising

Franchisor

An organization that gives

the franchisee the right to

use its trade names,

business models and

know-how in a given

territory for a specific time

in return for payment

McDonald’s is possibly

the most famous

franchisor of all6(B)- 86

Franchising

Franchisee

Pays a franchisor for the right to use its trade

names, business models and

know-how in a given territory for a specific time

To the franchisee, this mode of operation gives

the business a rapid entry into the marketplace

given the reputation of the brand

6(B)- 87

International Franchise Expansion

• Reasons for the growth

– Market potential

– Financial gain

– Saturated domestic markets

• Problems in franchising

– Needs a high degree of standardization

– Protection of the total business system from copycat competition

– Government intervention

– Selection and training of franchisees

6(B)- 88

Franchising

Benefits

Organization

capitalizes on a

winning formula

Capitalizes on local

knowledge of the

franchisee

Preserves the

capital of the

franchisor

Caveats

Revenue may be

dwarfed by potential

income earned

through outright

ownership

Finding suitable and

experienced

franchisees in

developing markets

could be difficult

6(B)- 89

Contract Manufacturing

The organization arranges with a local

manufacturer to manufacture parts or

even the entire product

Often used in the apparel industry

Nike manufacturing some of its

products in Cambodia via a local

producer

6(B)- 90

Contract Manufacturing

Benefits

Cost saving

Flexibility

Contractor assumes

all infrastructural

investment risk

Caveats

Possibly nurturing a

future competitor

If the contractor

breaks the law it

reflects on the

contract partner as

well

Contract partner

may have little

control over this

6(B)- 91

Foreign Direct Investment (FDI)

• Firms invest to enter markets or assure themselves of sources of supply.

• Foreign direct investment

–An equity investment to create or expand a permanent interest in a foreign enterprise. Protection of the total business system.

• Portfolio investment

–The purchase of stocks and bonds internationally. Selection and training.

6(B)- 92

Types of Ownership

• Ownership patterns may be based on past experiences with similar ownership models.

• Full ownership

– Full control, full assumption of all risks.

– May be desirable, but is not necessary for success internationally.

• Joint ventures

– Shared control, shared investment risks.

– Reasons for joint ventures:

• governmental pressure to join with local partners.

• mutually beneficial commercial considerations in sharing markets, pooling resources, and local suppliers.

6(B)- 93

Joint Ventures

Cooperative joint venture

An agreement between the partners

to collaborate, that does not involve

any equity investment

Monash University and its Malaysian partner

Macquarie Graduate School of management

and its Chinese partners

6(B)- 94

Joint Ventures

Equity Joint Venture

An arrangement where the partners agree to

raise capital in proportion to the equity stakes

agreed upon

GM and the Shanghai government

No 2 car producer in China

SAI Global formed the CQC-SAI Management

Technologies, based in Beijing

6(B)- 95

Joint Ventures

Benefits

Has potential for

higher returns than

either licensing or

franchising

Reflecting the

investment risk

Higher degree of

control

Caveats

Has potential for

greater losses than

either licensing or

franchising

Reflecting the

investment risk

Lack of trust

Developing a future

competitor

6(B)- 96

Wholly Owned Subsidiaries

6(B)- 97

Owning the business outright can be

achieved via two routes

acquisitions

New Zealand based Fletcher Challenge developed

strong Asia Pacific presence through national

acquisition strategies

Greenfield operations

Westfield shopping centers and Village Roadshow

Cinemas

Strategic Alliances

A partnership between businesses with the

purpose of achieving common goals while also

minimizing risk

maximizing leverage

benefiting from those facets of their operations

that complement one another

McDonald’s and Coca Cola worldwide

6(B)- 98

Timing of Entry

6(B)- 99

Timing of entry can be critical

too early means a lost investment

Hong Kong based restaurant chain Café

de Coral’s early investment and

subsequent withdrawal from strategic

locations in China

too late means lost opportunity

Australian based Gloria Jeans Coffee’s

failure to enter the Chinese market has let

many competitors steal a march on them

Starbucks headquartered US

Costa Coffee headquartered UK

Summary of the advantages and

disadvantages of all the entry

modes

6(B)- 100

6(B)- 101

6(B)- 102

Specimen Exam Question #1

Starbucks has expanded globally

through a variety of market entry

modes including joint ventures and

company-owned stores. Explain the

benefits and limitations of each of

these strategies specifically in

relation to a company like Starbucks

6(B)- 103

If short-term profit is a major

consideration for an organisation,

what might be a preferred market

entry strategy? Use examples to

illustrate your understanding.

6(B)- 104



Compare and contrast the following two

market entry strategies – indirect

exporting and franchising, illustrating their

advantages and disadvantages. Use

examples to explain your understanding.


Compare and contrast the following two

market entry strategies – joint ventures

and strategic alliances and discuss their

their advantages and disadvantages. Use

examples to illustrate your understanding.

Research

• Focus on the problems and challenges of conducting research in international marketing

• Problems with Secondary Research

• Problems with Primary Research


5

International Marketing Research

Process – Special problems

Complexity of research design due to

environmental differences

Lack and inaccuracy of secondary data

Time and cost requirements to collect

primary data

5- 108

International Marketing Research

Process – Special problems

Coordination of multi-country research

efforts

Difficulty in establishing comparability

across multi-country studies

Different practical considerations

(example legal aspects, different ethical

practices, etc)

5- 109

5- 110

Figure 6.1

Secondary research

Advantages

Less expensive

Less time consuming

Low level of

commitment

No constraints by

overseas customs

Speed

Disadvantages

Non-availability of

data

Reliability of data

Data classification

Comparability of data

Data privacy concerns

5- 111

Secondary Marketing Research

Problems with secondary data

sources

Accuracy of data

Age of data

Reliability of data over time

Comparability of data

Lumping data

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Primary Marketing Research

Quantitative data

Data that represents an attitude or opinion by

assigning a number that can be statistically

analyzed

Qualitative data

Data that describes attitudes, opinions

and motivations in the words of each respondent

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Collecting Primary Data

Can be collected in 3 ways:

1. Focus Groups

2. Survey Research

3. Test Markets

Covered in New Product Development lecture

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Problems of Gathering Primary Data

• Ability to communicate opinions

– It is difficult for a person to formulate needs, attitudes, and opinions about goods whose use may not be understood, that are not in common use within the community.

• Gerber

• Willingness to respond

– Cultural differences

– The role of the male, the suitability of personal gender-based inquiries, and other gender-related issues can affect willingness to respond.

• Sampling in field surveys

– The greatest problem in sampling stems from the lack of adequate demographic data and available lists from which to draw meaningful samples.

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Problems of Gathering Primary Data (cont’d)

• The kinds of problems encountered in drawing a random sample include the following:

– No officially recognized census of population

– No other listings that can serve as sampling frames

– Incomplete and out-of-date telephone directories

– No accurate maps of population centers

• Language and comprehension

– The most universal survey research problem in foreign countries is the language barrier.

– Literacy poses yet another problem

– Marketers use three different techniques to help ferret out translation errors ahead of time.

• Back Translation

• Parallel Translation

• Decentering

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Primary Market Research

Survey methods for cross-cultural marketing

research

Questionnaire Design

Most popular form of gathering data in

quantitative market research

Cross cultural research does present

problems

Comparability of survey results across

borders could be an issue5- 117



research

Construct Equivalence

The degree to which marketing constructs

have the same meaning and significance

across cultures

Bicycles mean different things in different

countries and this needs to be reflected in

the construction of the research device

Recreation in Australia

Transportation in China5- 118



research

Measure Equivalence

Calibration equivalence

US is imperial (pounds, inches)

Thailand is metric (meters, litres)

Translation equivalence

Translation from one language to another

Embarrassing mistakes can occur

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Survey methods for cross-cultural marketing research

Measure Equivalence (cont’d)

Parallel Translation

A process in which a document is translated

independently by a number of translators and

the translations compared to reconcile

differences

Scalar (metric) equivalence

The degree to which scores from subjects of

different countries have the same meaning

and interpretation

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Exam Topics to prepare for IMR

1. The objectives of undertaking IMR

2. The difficulties of conducting secondary

research in IM

3. The difficulties of conducting primary

research in IM

4. The challenges of conducting focus

groups in IMR

5. The challenges of constructing

questionnaires for IMR

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Logistics

• What is international logistics (IL)?

• Components of IL : MM and PD

• How logistics brings competitive advantage to international marketing

• Modes of transportation


6

Role of International Logistics

Business operations are today globally

dispersed

When organizations start operating

internationally, mangers need to coordinate

sourcing and shipping of raw materials,

components among different manufacturing

sites at the most economical and reliable rates

Additionally they need to ship finished goods

to customers around the world

9-123

Global supply chain and the “global

factory”

9-124

Elements of International Logistics

Like domestic logistics, it encompasses

Materials management

Physical distribution

9-125

International Logistics

Materials Management

Materials Management

The inflow of raw materials, parts and supplies

in and through the organization

Consider that over 1 billion parts are shipped

to GM’s subsidiary (Holden) in Australia every

year

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International Logistics

Physical Distribution

Physical Distribution

The movement of organizations finished

products to its customers

Covers inventory control, warehousing and

storage, materials handling, customer service,

containerization and transportation

Influenced greatly by the concept of JIT;

minimize stock holding (investment in

inventory)

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Physical distribution

Affected by:

Geography

Geographically large countries like US or

Australia- higher transport and inventory costs

Small counties in SEA or Japan- tend to incur

more costs in warehousing, customer service

because a wide variety of products have to be

stored to meet varied needs of customers in

concentrated areas

9-128

Physical distribution factors:

Distance

Obviously greater distances are covered compared to

any domestic logistics situation

Ocean and Air become the only truly global options

Long lead time (see case of Holden on page 395

Long distances means not just higher transport costs

but also storage and insurance

Cultural differences

Storage of some food products in Islamic countries

such as Malaysia

9-129

Why is international logistics

more complex?

Exchange rate fluctuation

The potential for more than one currency to be involved in

the process creates complexity

Foreign Intermediaries

Introducing other supply chain partners into the mix; this

means more parties are involved in the distribution system

Complexity of networks and connections, especially in

Asian countries

Security

Dealing with the unknown in foreign countries

After 9/11, stepped up security at airports and container

terminals (threat of terrorist attacks)9-130

Modes of transportation

Three key factors to consider:

Value- to- volume ratio

How much value is added to the materials used to

make the product

Perishability

Degradation of product quality over time

Costs of transportation

Determined by the first two factors

9-131

International Modes of transportation

available to companies

Ocean Relative low cost to weight and/or

bulk ratio

Good for heavy, bulky and non-perishables

Three options: linear services (regularly scheduled), bulk shipping and irregular runs

Type of cargo vessel also important, most significant are containers ships

But also RORO (‘roll on- roll off)

In some less developed countries, there are problems of port infrastructure; cant handle modern container/RORO vessels

9-132



Air

Only 2% of world trade

But 26% by value

Has the advantage of speed

Used for high value goods such

semiconductor chips, LCD screens,

technology based products

Perishable products such as fresh

food and flowers

9-133

Airfreight

Increases in the carrying

capacities of new jumbo

cargo planes

Modern day logistics- speed

and ease of handling for

airfreight

Market trends like fashion-

short cycle time required in

retailing

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Inter-modal

The seamless transfer of

goods from one mode of

transport to another

without the need for

repacking

Shipping containers are a

standard size

Easy to shift from ocean to rail

upon arrival in a country9-135

Impact of the Internet

The use of the internet has contributed to the rise of 3rd

Party logistics firms. Integration and communication is

facilitated by the role of the IT (‘extranets’ – the

customers operations systems are integrated with the

operations systems of the 3PL provider)

Eli Lilly (Pharmaceuticals) outsources logistics to

Danzas

Danzas’ ‘Market Link’ system manages seamless

logistic services driven by real time flow of data

Mostly web based

9-136

International Sourcing

Six reasons why organizations adopt an

international sourcing strategy:

1. Intense international competition

Computer manufacturers such as Dell establish global

supply chains partly in response to competitive

pressures

2. Pressure to reduce costs

Primary reason for apparel companies to source

offshore

9-137

International Sourcing

3. The need for manufacturing flexibility

Toyota operate a manufacturing plant in Melbourne to

tap into a highly educated workforce

4. Shorter product development cycles

Spreading the development load across countries

9-138

Value Chain Concept (M Porter)

9-139

Figure 12.2 Value chain concept

Applying the Value Chain in a Global Supply Chain Context:

1. Different country markets are selected to carry out key business activities

according to their competitive advantages

2. The VCs are linked (integration) across country markets in order to produce a

global supply chain

9-140

Types of sourcing strategy

Two choices:

Intra-firm sourcing

Supplying from parent firm to its

subsidiaries

Outsourcing

From independent suppliers on a contractual

basis

4 possible types of sourcing strategies can

emerge

See Figure 12.3

9-141

Types of sourcing strategy

9-142Figure 12.3 Types of sourcing strategy

Benefits of outsourcing

Lower operating costs

Enables the company to focus on its core business competences

Access to world-class manufacturing capabilities

Better use of internal resources

Speed to market

Free up capital funds

Reduce tax liabilities

Reduce risks

9-143

Problems of outsourcing services

Negative image to company- loss of

thousands of domestic jobs

Poor service delivery / lack of reliability

Note: service has the unique characteristic of

‘variability’ or ‘heterogeneity’

Qantas has had bad press publicity

Locate cabin crew in London

IT jobs gone to India

Outsource entire maintenance to China

9-144

Sample Essay Question

The global logistics manager must understand

the specific properties of the different modes of

transportation in order to use them optimally.

What are the most important factors in

determining an optimal mode of

transportation? List and briefly describe each

of the factors and use examples to discuss.

145

9-145

Pricing

• Focus on the problems and challenges of conducting research in international marketing

• Problems with Secondary Research

• Problems with Primary Research


7

10- 147

Pricing concepts

Two views of pricing:

Cost plus (mark ups)

In exporting, imagine the number of margin uplifts

added before the product reaches the foreign

customer

Market based pricing

Use marketing research to find out what consumers

are willing to pay for the product and work backwards

down the value chain

10- 148

Complexity of pricing in

international marketing

Pricing is critical to international marketing.

Pricing can make or break international market

expansion plans

Pricing is the only element in the marketing

mix that generates revenue

Many uncontrollable factors impact on prices-

taxes, commission/ fees, local market

competition, etc.

10- 149

Complexity of pricing in

international marketing

Pricing policy is highly cross-functional; interplay of

marketing, finance, tax, logistics and other divisions.

Often objectives could be incompatible

Challenge of how to coordinate pricing policy across

country markets

Price differentials (lack of coordination) will lead to

grey or parallel trading markets

Global (one price policy- often quite difficult to

implement) may lead to too high or too low in different

markets. Profit opportunities might be missed

10- 150

Drivers of foreign market pricing

International prices are affected by the

4 Cs:

Company (costs and goals)

Customers (price sensitivity and

segments)

Competition (nature and intensity)

Channels (distribution)

Government policies are also a major factor

10- 151

Company factors

Organizational Goals

How do we set strategic marketing goals for the

company in the context of global markets?

To achieve satisfactory ROI

To maintain/ increase market share

To meet specific goal target

Goals can change over time

Enter with low price to gain penetration

Use loss leader pricing but sell other higher

margin products across the range

10- 152

Customer (demand)

Customer demand sets the ceiling for prices

Function of buying power, tastes, habits, cultural norms

and substitutes

Targeting low income countries

Target mass market

Adapt the product- lower quality or downsizing the

product (packaging)

Proctor and Gamble selling small sachets of shampoo

in developing markets due to buying power in those

countries

Cigarettes : 5 or 10 sticks a pack in less developed

markets

10- 153

Competitors

Number of competitors varies from country to

country

Differing degrees of intensity

Nature of competition

Global versus local

Competing against the preferred ‘local champion’

Competitive Position

Market leader at home/market follower abroad

10- 154

Channels

Direct

Not possible in all countries due to size of market

and/or geographic distances required

Better control is achieved, but

Makes direct representation extremely costly

Indirect

Length of channel can affect end price of

product/service (additional layers in the channel

increases price)

10- 155

Managing price escalation

The process of covering incremental costs

(e.g. shipping, insurance, tariffs, margins of

various intermediaries)

Makes the final foreign retail price higher than the

domestic retail price

10- 156

Managing Price Escalation

Strategies for lowering export price:

Rearrange the distribution channel

Shortening the channel in Japan by going directly to

the end retailer

Difficult in such a traditional market

Eliminate costly features/make them optional

Offer the ‘no-frills’ version of a Sony Vaio in Cambodia

Give the customer the option to upgrade

10- 157



Downsize the product

Make a smaller version of the product

Assemble or manufacture in foreign markets

BMW assemble cars in South Africa

10- 158



Adapt the product to escape tariffs or tax

levies

Land Rover is heavier in the US so as

to be classified as a truck rather than

car

Escapes the luxury car tax

10- 159


Not all strategies involve lowering the price

Position the product as super premium

Budweiser is costly internationally due to the high

cost of transportation

Entry level beer in its home market

Premium beer in Singapore

10- 160

Pricing in inflationary environments

McDonald’s sells a Big Mac meal in

Moscow for 6 Roubles in 1990

Same meal costs 1100 Roubles in 1993

10- 161


Safeguarding against inflation

Modify components/ingredients

Not all components maybe subject to the same level

of inflation

Source material from low cost suppliers

Import from low inflation countries

10- 162


Safeguarding against inflation

Quote prices in a stable currency

Dollar or Euro

Draw lesson from other countries

Otis Elevators using managers from Latin America to

advise on situation in Russia

Experience in one high inflation country can translate into

another

10- 163


Government price controls sometimes

imposed to deal with inflation

Zimbabwe freezes prices

Panic buying occurs

Stockpiling products for later sale in the black market

Very rarely overcome the inflationary problem

10- 164


Overcoming price controls:

Adapt the product line

To diversify into products that are not part of the price

control

Lobby

Negotiate with the government

Leave the country (exit strategy)

10- 165

International pricing and currency

movements

Exporters and importers are subject to the

whims of currency movements

As currencies strengthen and weaken this has

implications for pricing and margins

A strategic view of the problem should be

undertaken

166166166

10- 167

Currency Gain/Loss pass through

Should exporters pass through gains they

make from currency movements to their

customers?

Help steal business from domestic competitors

Are they more market share (pass it on) or short

term profit oriented (keep it)?

Should they pass through price rises to

customers if they suffer currency losses?

10- 168

Currency Gain/Loss pass through

‘Pricing to market’

Occurs where companies are more responsive to

specific market trends

Make destination specific adjustments of markups in

response to exchange rate movements

German auto makers like BMW more likely to take this

approach than their short-term profit driven rivals at

Toyota

10- 169

Currency Quotation

Which currency should be used in

international business transactions?

Which party should bear the risk?

Quoting a common currency could be a way of

sharing the risk

US dollar across countries with their own

currency

Trading between Australia and New Zealand

10- 170

While many of the reasons for transfer pricing

are legitimate

A primary reason is to shift the tax burden of a

global player to low tax rate regimes

A service provider based in Thailand is ‘billed’ by its

Hong Kong sister company

Profits are transferred to Hong Kong and charged at a

much lower rate

Governments are wary of this and conduct audits

to identify this behavior

Transfer pricing

10- 171

Price coordination

How similar should prices be across markets?

This depends on:

Nature of customers

Apple prices globally to cater for a global segment and

avoid parallel imports

Amount of product differentiation

Identical products probably need to be priced

identically

Nature of channels

How much control over international distributors?

10- 172

Countertrade

Unconventional trade financing transactions

based on trade and not cash

Pepsi swaps cola for vodka in the old Soviet

Union

Lack of ‘hard currency’ forces them to innovate on

price

Pepsi would not take Roubles so took Stolichnya

instead

On-sold in the US market at a profit

10- 173

Countertrade

Motives

Gain access to new or difficult markets

Overcome lack of hard currency

Overcome low country creditworthiness

Shortcomings

Timely and costly negotiations

Uncertainty and lack of information on future

prices

Specimen Essay Question

10- 174

In international marketing price

escalation can be a serious

problem. Discuss ways that

marketers may implement a strategy

to address this problem using your

own examples

Good Luck on your Final Exam

Read the questions carefully

Decide which you want to do first – MCQ or Essay (your

choice)

MCQ can allocate one hour BUT see if you can finish in

45 minutes so that you have a bit longer for essay

Essay questions try to do 2-3 pages. Plan carefully the

flow of your answers. Write definitions and theories as

close as possible to the book/notes content; do not

make up your own definitions.

Examples to be included in between relevant points. A

good answer has about 4-5 examples PER Questions.

Examples should be different for each question.

10- 175