UNIT TEN (10)

Marketing in the Global Firm

Learning Objectives

In this chapter, you’ll learn about:

1. Global marketing strategy

2. Standardization and adaptation of international

marketing

3. Global branding and product development

4. International pricing

5. International marketing communications

6. International distribution

Organizing Framework for Marketing in the International Firm

Market Segmentation

• Process of dividing the firm’s customer base into

clusters, allowing management to formulate unique

marketing strategies for each group

• Within each market segment, customers exhibit

similar features, including income level, lifestyle,

demographic profile, or desired product benefits

• Internationally, common market segment variables

include income level, culture, legal system, etc.

Global Market Segment

• A group of customers that share common characteristics

across many national markets

• Firms target these buyers with relatively uniform

marketing programs, regarding product, pricing,

communications, and distribution

• Such segments often follow global media, embrace new

fashions or trends, and have much disposable income

Global Market Segment

• One global market segment, with considerable buying

power is business people. They – and their firms –

spend considerable money in many of the same ways

and can be targeted as a market segment, in this case

with a good deal of standardization. Other cases,

however, while still segmented, may require unique

approaches within each segment.

• Adaptation: Modifying elements of the marketing program

to accommodate specific customer requirements in

individual foreign markets

- E.g., industries in automaking, publishing, furniture

• Standardization: Efforts to make marketing program

elements uniform, so as to target entire regions of countries,

or even the global marketplace, with a similar product or

service

-

Standardization and Adaptation

Targeting the same product everywhere not usually feasible

• Goal: To strike some ideal balance between adaptation

and standardization

Tradeoffs Between Standardization and Adaptation

Standardization & Adaptation: A Balancing Act

• Adaptation is costly and may require substantial

changes to the marketing mix, especially when many

national markets are involved

• Thus, managers err on the side of standardization,

adapting marketing mix only when necessary

• Or, firms pursue a regional strategy, in which marketing

elements are formulated across a geographic region

Standardization & Adaptation: A Balancing Act

• Dell strikes a balance between standardization and

adaptation. The

basic machines are identical worldwide, while the

keyboards and software are varied to suit local

conditions

Global Branding • Well-known global brands include: electronics (i-Pod), personal

care products (Gillette), toys (Wii), food (Cadbury), beverages

(Heineken), credit cards (Visa), movies (e.g., Mission Impossible),

pop stars (Shakira), and sports stars (David Beckham)

• A strong global brand enhances:

Efficiency and effectiveness of marketing programs

The ability to charge premium prices

The firm’s leverage with resellers

Brand loyalty

Trust and confidence in the product

Top Global Brands by Region

Global Product Development

• In developing international products, managers

emphasize their commonalities across countries rather

than the differences between them

• A basic product incorporates only core features that are

then varied at the margins for individual markets

• A global new-product planning team is a group within

a firm that determines which product elements will be

standardized and which will be adapted locally, and

how products will be launched

International Pricing

• Pricing is complex in international business, due to

multiple currencies, trade barriers, added costs, and

typically longer distribution channels

• Prices affect sales and profits. An inverse relationship

often exists between profits and market share

• Firms face pressure to lower prices abroad, mainly due

to lower income levels

International Pricing

• Conversely, prices can escalate due to tariffs, taxes,

transportation, intermediary markups, and after-sales

service

Factors that affect International Pricing • Nature of the market: Local purchasing power and

distribution infrastructure are important factors

• Nature of the product or industry: A specialized or highly

advanced product, or an industry with few competitors, may

necessitate charging a higher price

• Type of distribution system: Channels are

complex in some countries, which pushes prices up

• Location of the production facility: Locating manufacturing

near customers or in countries with low-cost labor facilitates

lower prices

Factors that affect International Pricing

Steps in Setting the Price of a Product Abroad

Three Pricing Strategies

• Rigid cost-plus pricing: Set a fixed price for all export

markets by adding a flat percentage to the domestic

price to compensate for the added costs of doing

business abroad

• Flexible cost-plus pricing: Set price to accommodate

local market conditions, such as customer purchasing

power, demand, and competitor prices

Three Pricing Strategies

• Incremental pricing: Set price to cover only

variable (not fixed) costs. This assumes that fixed

costs are already paid from sales in the home or

other countries (carried to extreme can lead to dumping)

International Price Escalation

• The problem of end-user prices reaching high levels in the

export market

• Caused by multilayered distribution channels,

intermediary margins, tariffs, and other added costs

associated with the foreign market

• May result in an excessively high retail price in the target

market, creating a competitive disadvantage for the

exporter

• Various strategies to reduce price escalation

Strategies to Combat International Price Escalation

1. Shorten the distribution channel: That is, bypass some intermediaries in the channel

2. Redesign product to remove costly features: Whirlpool, for example, developed a no-frills washing machine

3. Ship products unassembled, as parts and components, qualifying for lower import tariffs: Do final assembly in the foreign market, using low-cost labor, or in Foreign Trade Zones

Strategies to Combat International Price Escalation

4. Have product reclassified using a different tariff

classification to qualify for lower tariffs

5. Move production or sourcing to another country to take

advantage of lower labor costs or favorable currency rates

Strategies for Dealing With Varying Currency Conditions

Transfer Pricing

• The pricing of intermediate or finished goods exchanged

among the subsidiaries and affiliates of the same corporate

family located in different countries

• May be used to repatriate profits from countries that

restrict MNEs from taking their earnings out of the country

• May be used to shift profits out of a high corporate tax

country into a low corporate tax one, thereby increasing

companywide profits

Possible Effects of Transfer Pricing

• Manipulating transfer pricing makes it tough to

determine true profit

• Morale problems at subsidiary could result from profit

performance looking worse that it should

• Legal problems could arise if this practice is not

accepted by local governments

Gray Marketing • Legal importation of genuine products into a country by

those other than authorized intermediaries

• Buy the product at a low price in one country, import it into

another country, and sell it there at a higher price

• Causes:

• Large difference in pricing of same product between two

countries, often the result of company/government strategy

- e.g., Canada’s price controls on drugs

• Exchange rate differences of products priced in two different

currencies

Manufacturer Concerns Over Gray Markets

• Risk of tarnished image when customers realize the

product is available at a lower price through alternative

channels

• Strained relations between the manufacturer and its

distributors, as the latter lose sales

• Disrupted company planning, forecasting, and marketing

• Legislation has not prevented parallel markets; firms

often must act on their own

Firm Strategies to Cope With Gray Markets

1. Aggressively cut prices in countries and regions targeted

by gray market brokers

2. Hinder the flow of products into markets where gray

market brokers procure the product

3. Design products with exclusive features that strongly

appeal to customers

4. Publicize the limitations of gray market channels

International Advertising

• Firms conduct advertising via media, which includes direct mail,

radio, television, cinema, billboards, transit, print media, and the

Internet

• Advertising spending on major media amounted to $100 billion in

both Western Europe & Asia in 2009

• In the United States, advertising expenditures totaled over $160

billion

• Advertising is influenced by local factors, such as availability of

media, literacy, regulations, culture, and local customs, as well as

the goals of the firm

Media Characteristics in Selected Countries

The Largest Global Ad Agencies

International Distribution

• Distribution is the most inflexible of the marketing program

elements—once chosen by a firm, it may be difficult to change

• The most common international distribution approaches are via

independent intermediaries (for exporters) and establishing a

subsidiary directly in the market (FDI)

• Both types of channels must perform a range of downstream

marketing activities

• The firm should seek to minimize channel length in order to

minimize final prices and decrease complexity

Bypassing Traditional Distribution Channels

• Direct marketing – selling directly to end users

• Reducing channel length – decreasing the number of

distributors or intermediaries it takes to get a product to

market

• Japan is an example of a country with long distribution

channels; increased costs to pay intermediaries escalates

prices

Global Account Management (GAM)

• Under globalization, foreign customers seek uniform and

consistent prices, quality, and customer service

• GAM means serving a key global customer in a consistent

and standardized manner, regardless of where in the world it

operates.

• For example, Walmart is a key global account for Procter &

Gamble, purchasing many P&G products

Global Account Management (GAM)

• Each global customer is assigned a global account

manager, or team, which provides the customer with

coordinated marketing support and service across

various countries

Human Resource Management in the Global Firm

Learning Objectives

In this unit, you’ll learn about:

1. The strategic role of human resources in international business

2. International staffing policy

3. Preparation and training of international employees

4. International performance appraisal

5. Compensating employees

6. International labor relations

7. Diversity in the international workforce

Challenges of International Human Resource Management

• Recruiting, managing, and retaining human resources at a firm

with extensive global operations is especially challenging

• For example, German firm Siemens has more than 400,000

employees in some 190 countries: 230,000 throughout Europe,

90,000 in the Americas, 70,000 in the Asia-Pacific region, and

12,000 in Africa, the Middle East, and Russia

• Volkswagen, Nestle, IBM, Unilever, Walmart, McDonald’s, &

Matsushita each have more than 150,000 employees outside the

firm’s home country

International Human Resource Management

• The planning, selection, training, employment, and

evaluation of employees for international operations

• How a firm recruits, trains, and places skilled personnel

in its worldwide value chains sets it apart from its

competition

• The combined knowledge, skills, and experiences of

employees are distinctive & provide many pluses for

the firm’s operations worldwide.

Three Employee Categories in the MNE

• Parent-country nationals (PCNs): Also known as home-

country nationals, PCNs are citizens of the country where

the MNE is headquartered

• Host-country nationals (HCNs): Citizens of the country

where the subsidiary or affiliate is located. HCNs make up

largest proportion of employees that the firm hires abroad

- Examples: The labor force in manufacturing, assembly, basic

service activities, clerical work, and other non-managerial

functions

Three Employee Categories in the MNE

• Third-country nationals (TCNs): Employees who are

citizens of countries other than the home or host

country. Most work in management and have unique

skills

Differences Between Domestic and International IHRM

1. New HR responsibilities, such as international

taxation, international relocation and orientation,

services for expatriates, host government relations, and

language translation services

2. Need for a broader perspective, such as establishing

fair, comparable compensation, when there is a mix of

PCNs, HCNs, and TCNs

Differences Between Domestic and International IHRM

3. Greater involvement in employees’ personal lives, such

as housing arrangements, health care, children’s education,

safety, security, appropriate compensation, and higher

living costs

Differences Between Domestic and International IHRM

4. Managing the mix of expatriates versus locals. Each

location may be staffed with a mix of HCNs, PCNs, and

TCNs, depending on firm’s international experience, cost of

living abroad, local laws, and availability of qualified local

staff

5. Greater risk exposure, such as political risk and terrorism

6. External influences of government and culture, such as

taxes, local work regulations, traditional work practices, and

cultural conditions

Key Tasks of IHRM

1. International staffing policy: Activities directed at

recruiting, selecting, and placing employees

2. Preparation and training of international employees

3. International performance appraisal: Providing

feedback for employees’ professional development

4. Compensation of employees: Includes formulation of

benefit packages that vary greatly from country to

country

Key Tasks of IHRM

5. International labor relations: Managing relationships

with unions; collective bargaining processes, known as

industrial relations

6. Diversity in the international workforce – especially as

it may relate to women and minorities

Key Tasks & Challenges of IHRM

Criteria for Selecting Employees for Foreign Operations

Staffing: Searching for Talent

• Recruitment: Searching for and locating potential job

candidates to fill the firm’s needs

• Selection: Gathering information to evaluate and

decide who to employ in particular jobs

• These two key HR processes require good interaction

and communication between HR and upper

management – a true collaboration

Developing Talent

HR & Management must:

• Align firm strategy with roles needed to achieve that

strategy

• Define desired skills, behaviors, and experience for those

roles

• Assess current talent pool and plan for future needs

• Develop talent inside firm or obtain it from market

• Assess current talent levels and develop that further from

inside

Employee Characteristics That Facilitate International Effectiveness

• Technical competence: Must have adequate managerial

and technical capabilities

• Self-reliance: Entrepreneurial, proactive mindset;

ability to function with considerable independence and

limited support from headquarters

• Adaptability: Ability to adjust to foreign cultures,

cultural empathy, flexibility, diplomacy, and a positive

attitude

Characteristics That Facilitate International Effectiveness (cont.)

• Interpersonal skills: Ability to build relationships is

key

• Leadership ability: Must view change positively, and

proactively manage threats and opportunities

• Physical and emotional health: Must handle stresses of

life abroad

• Spouse/dependents prepared for living abroad

Expatriate

• An employee who goes to work abroad for an extended

period, usually years

• Expatriate assignment failure: The premature return of

an expatriate, due to an inability to perform well abroad

- Costly to the firm (lost productivity and relocation

costs) and to expatriates themselves (family stress

and career disruption)

- As many as 1/3 of foreign assignments end early,

many because of culture shock

Culture Shock

• The confusion and anxiety, often akin to mental depression,

that can result from living in a foreign culture for an

extended period; often affects family members most

• Especially a factor for those assigned to culturally dissimilar

countries, such as China and South Korea

• Can be reduced via advance preparation, training, language

skills, deep interest in the new country

• Helpful activities: Regular exercise, relaxation techniques, or

keeping a detailed journal of experiences

Key Features of Preparation and Training for International Employees

Three Components of Training Personnel for International Assignments

1. Area studies: Factual knowledge of the historical,

political, & economic environment of the host country

2. Practical information: Knowledge and skills necessary

to function effectively in a country, including housing,

health care, education, and daily living

3. Cross-cultural awareness: Ability to interact effectively

and appropriately with people from different language

and cultural backgrounds

Training • In order of increasing rigor, training methods include: videos,

lectures, assigned readings, case studies, books, Web-based

instruction, critical incident analyses, simulations, role-playing,

language training, field experience, and long-term immersion

• Role-playing and simulations involve the employee acting out

typical encounters with foreigners

• Long-term immersion places the employee in the country for

several months or more, often for language and cultural

training

Training • Repatriation: Return of the expatriate to the home country

- Requires advance preparation

- Unless managed well, returning expatriate may encounter

problems, such as career disruptions and “reverse culture

shock”

• Many of the best companies train and prepare expatriates for their

return to the home country/culture

• HR managers can provide counseling and other help (e.g.,

financial assistance if needed upon return for down payments,

family issues, etc.)

Performance Appraisal

• Performance appraisal: Formal process of assessing how

effectively employees perform their jobs

• Helps identify problem areas where an employee needs to

improve and additional training is warranted

• Determines compensation and firm performance

• MNEs devise procedures to assess the performance of individual

employees; ascertain if any problems are attributable to

inadequate skill levels; provide additional training and resources;

and terminate employees who consistently fail to achieve goals

Performance Appraisal

• Often very challenging in international business

• Reasons include:

– Problem of non-comparable outcomes – if worker productivity in subsidiary is half the domestic average, it could be due to conditions in foreign country, sub-standard factory equipment, or more

– Incomplete information – because of geographic and time separation, difficult to observe employees working in foreign location and therefore must also rely on evaluators in that location

– Performance outcome differences – new subsidiaries do not achieve same level of operation/results until they reach a certain level of maturity

Compensation of Personnel

• Compensation varies internationally due to differences in

legally mandated benefits, tax laws, cost of living, local

tradition, and culture

• Employees posted abroad expect to be compensated at a level

that allows them to maintain their usual standard of living,

which can make compensating expatriates very costly

• Compensation includes base remuneration, benefits (e.g.,

health care plans), allowance (e.g., for housing, children’s

education, travel), and incentives

International Labor Relations

• Management and workers determine the job

relationships that will be in effect at the workplace

• Collective bargaining involves negotiations between

management & workers regarding wages and working

conditions

• Labor regulations vary substantially, from minimum

regulations in Africa and India to very detailed

regulations in Northern Europe

International Labor Relations

• Union membership has declined in most countries, but

remains high in several European countries

• Strikes can disrupt international operations & could

require a arbitrator/mediator to end dispute; time lost

from work though varies greatly across country

• Wages and productivity also vary considerably

• During recent economic downturn, labor has been laid

off (made “redundant)” in great numbers

Trends in International Labor

• Mobility of labor across national borders has increased

substantially

• Reasons include:

- Growing interconnectedness of national economies

- Rapid expansion of multinational firms

- Rise of international collaborative ventures

- Greater emphasis on global teams

Trends in International Labor

• Many countries are coping with an influx of

immigrants, both legal and illegal, who compete with

established workers by providing low-cost labor

- Trend significant in Europe, Persian Gulf, & the U.S. (not

Japan)

• Increasing global labor alliances

Women in International Business

• Women currently occupy relatively few top management positions

(in Europe, women occupy only 15% of senior executive posts)

• Reasons for scarcity of women in international jobs include:

- Senior managers often assume women do not make suitable leaders abroad

(e.g., due to cultural challenges)

- Some female managers prefer to remain in the home country to fulfill family

obligations or avoid disrupting partner’s career

- Most companies do not accommodate child-rearing or other family

responsibilities

- There are fewer women with sufficient experience to be sent abroad for senior

jobs

Recent Positive Trends

• Many more women are obtaining university degrees in

business (about 1/3 of MBA students worldwide are

women)

• Female graduates account for some 50% of recruits joining

European firms

• Businesswomen increasingly form their own networks,

such as Women Directors on Boards in Britain and The

International Alliance for Women

• Overall trend is positive

Success Strategies for Women in IB

• In many countries, being a foreign woman can be an

advantage. Women stand out more, and competent

women earn respect

• Smart women leverage their gender to their advantage

• Women overcome biases abroad by acquiring

managerial, language, and international skills

• Over time, managerial competence wins out over bias.

Success Strategies for Women in IB

• Gaining substantial experience as a domestic manager or

in short international assignments can greatly improve

prospects for working abroad

• Once abroad, women report the reaction of surprise is

often replaced by professionalism and respect