Chapter Five Global Markets. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 2 P&G in Japan P&G ignored cultural differences!

Chapter Five

Global Markets

Copyright © Houghton Mifflin Company. All rights reserved. Chapter 5 | Slide 2

P&G in Japan

P&G ignored cultural differences!

• 1972 - P&G is the first company to introduce disposable diapers to Japan– 80% share of market within a year

• 1985 - P&G market share has plunged to 8% and the subsidiary is losing $40 million per year. WHY?


Consumer Markets and Convergence

• Are consumption patterns converging?– The French drink more beer– The Germans drink more wine– The Japanese eat more beef– The Swiss prefer French cheese


But major differences persist…!


Starbucks’ Mexican Dilemma

• Why don’t Mexicans drink coffee?– 5th largest coffee producer– Mexicans - 2 lbs. a year– Americans - 10 lbs. a year– Swedes - 26 lbs. a year

• What should Starbucks do?


Global Marketing Considerations

• Global marketers must consider national differences in:– Ability to buy– Consumer needs– Consumer behavior


Ability to Buy

• Per capita income• Purchasing power parity• Income Distribution


Per Capita Income in Selected Countries (US $)

Market Exchange Rates

Purchasing Power Parity

Brazil 3,570 7,320

Egypt 1,490 3,690

Germany 25,050 25,010

Indonesia 570 2,840

Japan 34,120 26,460

Kenya 360 1,010

Mexico 5,080 8,810

United States 34,260 34,260


Income Distribution

• Government tax policies• Wealth concentration

– Belgium Top 10% = 20% income– Colombia Top 10% = 46% income


The Hidden Economy

• Informal sector = Income not reported to authorities

• Peru’s informal sector =– 42% construction– 45% transportation– 16% manufacturing


Changing Views on Informal Sector

• Assumption:

Economic Development

Informal SectorActivity

• Reality = The bulk of new employment in recent years—particularly in developing and transition economies—has been in the informal economy


• Globalization– Loss of employment in formal sector

• Uncompetitive “formal” firms fold following liberalization• Uncompetitive “formal” firms fold during currency crises

and other global economic shocks– Cost pressures of “formal” FT labor• Core of wage employees and periphery of

informal workers– Information and communications

technology • Makes global coordination of informal firms

and workers possible

Informal Sector Growth: Why?


Informal Sector Growth: Why? (cont’d)

• Institutions– Lack of enforcement against

• Corruption

• Tax evasion

• Labor and health violations

– Red tape of “formal” bureaucratic institutions creates market opportunities for informal players

– Tax-related issues• Complex, unfair tax codes

• Lack of effective tax auditing

– Lack of political will to change institutions!


Consumer Needs

• Is Maslow’s hierarchy of needs applicable cross-

culturally?

Self-actualization

Friendship, Love

Safety, Food, Shelter

Physiological Needs


Consumer Behavior

• Cultural differences revisited – Life Insurance doesn’t sell in Muslim

countries – Processed baby food doesn’t sell in Brazil– Who makes purchase decisions?• More joint husband-wife decisions in the U.S.

than in Venezuela• Power-distance and masculinity/femininity

effects


Global Colors and Color Differences

• The world’s favorite color?– Blue

• But many colors elicit different responses– Purple = Expensive (in Japan, China, South

Korea)– Purple = Cheap in USA

• Orange is sacred in India


Segmentation

• A marketing technique that targets a group of customers with specific characteristics


Characteristics of Viable Segments

1. Homogeneous characteristics

2. Adequate profit potential

3. Ability to measure segment characteristics

4. Ability to efficiently communicate to segment

5. Ability to efficiently distribute to segment


Segmentation

• Key principles:1. Not everyone in a country needs to buy your

product – you just need a large enough segment to be successful

2. How and how much you adapt your marketing mix depends on the characteristics of the segment(s) that you are targeting

– Most segmentation should be done at the local level• Should we target French housewives or French working

women?• Avoid “blanket branding” an entire country’s consumers


Global Segments

• Global segment – transnational consumer segment based on age, social class, lifestyle, behavioral or other segmentation variable– Coca Cola drinkers, teens

• But for most products and segmentation schemes, national differences DO persist


Just-Like-Us Segment

• Just-like-us-segment – segments in international markets that resemble a firm’s domestic buyers (a duplication strategy)– Easier because does not require marketing mix

adaptation– But may result in few consumers worldwide and

limits a firm’s global profit potential– EXAMPLE – If toy manufacturer only targeted

children in China they would miss out on a large segment – adults buying toys for themselves!


Business Markets

• Yes– Cost and performance standards

• No– Relationship-driven nature of B2B

transactions• Culture matters!

Are business markets less culture-specific than consumer markets?


First Meetings

Yes – China and Japan

No! – Latin America and the Arab world

United States???

Should you present a prospective client with a gift?


• Cross-cultural negotiations are a particular challenge

• Russian tactics: – Emotional outburst, falling asleep, unreasonable requests

• Arabic tendencies to mix business and personal discussions (polychronic)

• Americans like to negotiate clear contracts while Chinese prefer to establish personal trust relationships (high vs. low context cultures)

Developing Business Relationships


Labor Cost Indices

0 20 40 60 80 100 120 140

USA

Mexico

Korea

Japan

Ireland

Denmark

Brazil


Labor vs. Capital Intensive Technology

• The cost-performance criterion is a key consideration for business buyers

• Business buyers in developed countries choose capital intensive technologies– Capital is cheaper/ labor is more expensive

• Business buyers in developing countries usually choose labor intensive technologies– Labor is cheaper/ capital is more expensive


• National global buyers– Search the world for products used in a

single market (Williams-Sonoma)• Multinational global buyers

– Search the world for products used throughout their global operations (Wal-Mart)

• Global account management– Marketers assign special executive or

teams to address demanding global buyers

Global Buyer Types & Configurations


Government Markets – Buying Processes

• The buying process– Procurement processes vary by country– With some governments, contracts go to

the lowest bidder– With other governments, the process is

more complex• Requirements for using local labor, joint-

venturing or investing in local production facilities or ramp-up


Marketing to Governments in Developing Countries

• Insert figure 5.2, p. 165 here


Bribery and Government Markets

• Bribery = giving something of value to an individual in a position of trust to influence judgment or behavior

• Government employees are trusted to do what’s best for the public good

• Government corruption is more prevalent in emerging markets– But is also present in industrialized countries (ex:

Italy)


Transparency International

“Corruption is operationally defined as the misuse of entrusted power for private gain.” (TI web site)

http://www.transparency.org/


Transparency International (cont’d)

“Transparency can be defined as a principle that allows those affected by administrative decisions, business transactions or charitable work to know not only the basic facts and figures but also the mechanisms and processes. It is the duty of civil servants, managers and trustees to act visibly, predictably and understandably.” (TI web site)


1. Corruption Perceptions Index (see text)measures “perception” of corruption among

businesses and consumers

2. Bribe Payers Index – (see text)measures actual levels of bribery

Transparency International (cont’d)


Which Country Is the Least Corrupt?

Source: Transparency International

Rank Country 1 Finland 2 Denmark 3 New Zealand 5 Singapore 7 Canada13 United Kingdom16 USA18 Chile29 Italy


Which Country Is the Most Corrupt?


Rank Country51 Mexico54 Egypt59 Ghana69 Romania71 India88 Indonesia91 Bangladesh



Which Country Pays the Least Amount of Bribes?

Rank Country1 Australia2 Sweden2 Switzerland4 Austria5 Canada



Which Country Pays the Most Amount of Bribes?

Rank Country17 Italy18 South Korea19 Taiwan20 China21 Russia


U.S. Foreign Corrupt Practices Act

• Forbids U.S. citizens to bribe foreign government employees or politicians – or to give money to agents that is subsequently used to bribe

• Citizens must report bribery in their organization

• Records must be transparent and well kept• Failure to comply can result in fines and jail

time !– Lockheed Martin Corp. in Egypt


Expediting Payments

• Small sums paid to civil servants to do their jobs– Unilever and BP Amoco do it!– P&G refused to do it! (Brazil)

• Used to avoid delays, not gain an unfair competitive advantage

• Allowed under the U.S. FCPA


Beyond the U.S. FCPA

• Did the U.S. FCPA put U.S. firms at a competitive disadvantage?

• Will an OECD anti-bribery pact level the playing field? (34 nations signed on)

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Chapter Five Global Markets. Copyright © Houghton Mifflin Company. All rights reserved.Chapter 5 | Slide 2 P&G in Japan P&G ignored cultural differences!