Presentation on theme: "Segmentation, Targeting, and Positioning"— Presentation transcript:
1Segmentation, Targeting, and Positioning Global MarketingChapter 7
2Market SegmentationRepresents an effort to identify and categorize groups of customers and countries according to common characteristics
3TargetingThe process of evaluating segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond Focus on the segments that can be reached most effectively, efficiently, and profitably
4PositioningPositioning is required to differentiate the product or brand in the minds of the target market.
5Global Market Segmentation Defined as the process of identifying specific segments—whether they be country groups or individual consumer groups—of potential customers with homogeneous attributes who are likely to exhibit similar responses to a company’s marketing mix.As noted in earlier chapters, two decades ago Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly seek variety, and that the same new segments are likely to show up in multiple national markets. Thus, ethnic or regional foods such as sushi, falafel, or pizza might be in demand anywhere in the world. Levitt suggested that this trend, known variously as the pluralization of consumption and segment simultaneity, provides an opportunity for marketers to pursue one or more segments on a global scale. Authors John Micklethwait and Adrian Wooldridge sum up the situation this way:The audience for a new recording of a Michael Tippett symphony or for a nature documentary about the mating habits of flamingos may be minuscule in any one country, but round up all the Tippett and flamingo fanatics around the world, and you have attractive commercial propositions. The cheap distribution offered by the Internet will probably make these niches even more attractive financially.Global market segmentation is based on the premise that companies should attempt to identify consumers in different countries who share similar needs and desires. A. Coskun Samli has developed a useful approach to global market segmentation that compares and contrasts “conventional” versus “unconventional” wisdom. This is shown on the next slide.
6Contrasting Views of Global Segmentation Conventional WisdomAssumes heterogeneity between countriesAssumes homogeneity within a countryFocuses on macro level of cultural differencesRelies on clustering of national marketsLess emphasis on within-country segmentsUnconventional WisdomAssumes emergence of segments that transcend national boundariesRecognizes existence of within-country differencesEmphasizes micro-level differencesSegments micro markets within and between countriesFor example, conventional wisdom might assume that consumers in Europe and Latin America are interested in World Cup soccer while those in America are not. Unconventional wisdom would note that the “global jock” segment exists in many countries, including the United States. Similarly, conventional wisdom might assume that, because per capita income in India is about $820, all Indians have low incomes. Unconventional wisdom would note the presence of a higher-income, middle-class segment. As Sapna Nayak, a food analyst at Raobank India, noted recently, "The potential Indian customer base for a McDonald's or a Subway is larger than the size of entire developed countries. The same is true of China; the average annual income of people living in eastern China is approximately $1,200. This is the equivalent to a lower-middle-income country market with 470 million people, larger than every other single country market except India.
7Global Market Segmentation Demographics Psychographics Behavioral characteristics Benefits soughtToday, global companies (and the research and advertising agencies that serve them) use market segmentation to identify, define, understand, and respond to customer wants and needs on a worldwide, rather than strictly local basis. As we have noted many times in this book, global marketers must determine whether a standardized or adapted marketing mix is required to best serve those wants and needs. By performing market segmentation, marketers can generate the insights needed to devise the most effective approach. The process of global market segmentation begins with the choice of one or more variables to use as a basis for grouping customers. This slide shows the most common segmentation categories. The following slides will discuss them more in-depth.
8Demographic Segmentation Income Population Age distribution Gender Education OccupationWhat are the trends?
9Age SegmentationGlobal Teens–young people between the ages of 12 and 19A group of teenagers randomly chosen from different parts of the world will share many of the same tastesGlobal Elite–affluent consumers who are well traveled and have the money to spend on prestigious products with an image of exclusivityYoung consumers may not yet have conformed to cultural norms; indeed, they may be rebelling against them. This fact, combined with shared universal wants, needs, desires, and fantasies (for name brands, novelty, entertainment, trendy, and image-oriented products), make it possible to reach the global teen segment with a unified marketing program. This segment is attractive both in terms of its size (about 1.3 billion) and its multi-billion dollar purchasing power. Coca-Cola, Benetton, Swatch, and Sony are some of the companies pursuing the global teenage segment.The global elite is normally associated with older individuals who have accumulated wealth over the course of a long career, it also includes movie stars, musicians, elite athletes, and others who have achieved great financial success at a relatively young age.
10Gender SegmentationIn focusing on the needs and wants of one gender, do not miss opportunities to serve the otherCompanies may offer product lines for both gendersNike, Levi StraussIn 2000, Nike generated $1.4 billion in global sales of women's shoes and apparel, a figure representing 16 percent of total Nike sales. Nike executives believe its global women's business is poised for big growth. To make it happen, Nike is opening concept shops inside department stores and creating free-standing retail stores devoted exclusively to women. In Europe, Levi Strauss is taking a similar approach. In 2003, the company opened its first boutique for young women, Levi's for Girls, in Paris. As Suzanne Gallacher, associate brand manager for Levi's in Europe, the Middle East, and Africa, noted, "In Europe, denim is for girls.”
11Psychographic Segmentation Grouping people according to attitudes, values, and lifestylesPorsche example from SRI InternationalTop Guns (27%): Ambition, power, controlElitists (24%): Old money, car is just a carProud Patrons (23%): Car is reward for hard workBon Vivants (17%): Car is for excitement, adventureFantasists (9%): Car is form of escapeData are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with a series of statements. Psychographics is primarily associated with SRI International, a market research organization whose original VALS and updated VALS 2 analyses of consumers are widely known.Finland's Nokia relies heavily on psychographic segmentation of mobile phone users; its most important segments are "poseurs," "trendsetters," "social contact seekers," and "highfliers." By carefully studying these segments and tailoring products to each, Nokia has captured 40 percent of the world's market for mobile communication devices.Porsche will use the profiles to develop advertising tailored to each type. As Richard Ford, Porsche vice president of sales and marketing, noted: "We were selling to people whose profiles were diametrically opposed. You wouldn't want to tell an elitist how good he looks in the car or how fast he could go." The results were impressive; Porsche's U.S. sales improved nearly 50 percent after a new advertising campaign was launched.
12Behavior Segmentation Focus on whether people purchase a product or not, how much, and how often they use it User status Law of disproportionality/Pareto’s Law–80% of a company’s revenues are accounted for by 20% of the customersBehavior segmentation focuses on whether or not people buy and use a product, as well as how often, and how much they use or consume. Consumers can be categorized in terms of usage rates: for example, heavy, medium, light, and non-user. Consumers can also be segmented according to user status: potential users, non-users, ex-users, regulars, first-timers, and users of competitors’ products. Nine country markets generate about 80 percent of McDonald's revenues. This situation presents McDonald's executives with strategy alternatives: Should the company pursue growth in the handful of countries where it is already well known and popular? Or, should it focus on expansion and growth opportunities in the scores of countries that, as yet, contribute little to revenues and profits?
13Benefit SegmentationBenefit segmentation focuses on the value equationValue=Benefits/PriceBased on understanding the problem a product solves, the benefit it offers, or the issue it addressesMarketers of health and beauty aids also use benefit segmentation. Many toothpaste brands are straightforward cavity fighters, and as such they reach a very broad market. However, as consumers become more concerned about whitening, sensitive teeth, gum disease, and other oral care issues, marketers are developing new toothpaste brands suited to the different sets of perceived needs.The European pet food market represents $30 billion in annual sales. Nestlé discovered that cat owners' attitudes toward feeding their pets are the same everywhere. In response, a pan-European campaign was created for Friskies Dry Cat Food. The appeal was that dry cat food better suits a cat's universally recognized independent nature. Likewise, many Europeans are concerned with improving the health and longevity of their pets. Accordingly, Procter & Gamble is marketing its Iams brand premium pet food as a way to improve pets' health.
14Ethnic Segmentation Hispanic Americans 40+ million Hispanic Americans (14% of total pop.) with $560 billion annual buying powerCA Mexicans have after-tax income of $100 billionThe number of Hispanic teens will rise from 12 percent of the U.S. teen population to 18 percent in the next decadeThe population of many countries includes ethnic groups of significant sizeFrom a marketing point of view, these groups offer great opportunity. Companies in a variety of industry sectors, including food and beverages, consumer durables, and leisure and financial services are recognizing the need to include these segments when preparing marketing programs for the United States.In the two-year period , new-vehicle registrations by Hispanics in the United States grew 20 percent, twice the overall national growth rate. Honda, Toyota, and other Japanese automakers have been courting U.S. Hispanics for years and have built up a great deal of brand loyalty. Ford and GM are playing catch up, with mixed results; despite large increases in advertising targeting Hispanics, GM's market share is slipping. Sales of Corona Extra beer in the United States have grown dramatically recently, thanks in part to savvy marketing to the Hispanic segment. In lower-income neighborhoods, imported premium beer brands represent “affordable luxuries.” Although a six-pack of Corona typically costs at least a dollar more than Budweiser at a local bodega, it is usually priced lower than Heineken. Marketers must understand, though, that many Hispanic Americans live in two worlds; while they identify strongly with the United States, there is also a sense of pride associated with brands that connect to their heritage.
16Concentrated Marketing The focus is acquiring a large share of one or a few segments of niches. Generally, there are fewer competitors. The Internet is ideal for targeting small niche markets. There is some risk in focusing on only one market.
17Target Market Strategy Options Differentiated global marketingMulti-segment targetingTwo or more distinct marketsWider market coverageEx.: P&G markets Old Spice and Hugo Boss for MenConcentrated global marketingNiche marketingSingle segment of global marketLook for global depth rather than national breadthEx.: Chanel, Body ShopA niche is simply a single segment of the global market. In cosmetics, the House of Lauder, Chanel, and other cosmetics marketers have used this approach successfully to target the upscale, prestige segment of the market. Similarly, Body Shop International PLC caters to consumers in many countries who wish to purchase "natural" beauty aids and cosmetics that have not been tested on animals.Stolichnaya produces three brands of Russian vodka, each targeted at a different market segment: superpremium Stolichnaya Cristal, the premium "base" brand Stolichnaya, and low-priced Privet (the name means "greetings" in Russian).In the cosmetics industry, Unilever NV and Cosmair Inc. pursue differentiated global marketing strategies by targeting both ends of the perfume market. Unilever targets the luxury market with Calvin Klein and Elizabeth Taylor's Passion; Wind Song and Brut are its mass-market brands. Cosmair sells Tresnor and Giorgio Armani Gio to the upper end of the market and Gloria Vanderbilt to the lower end. Mass marketer Procter & Gamble, known for its Old Spice and Incognito brands, also embarked upon this strategy with its 1991 acquisition of Revlon's EuroCos, marketer of Hugo Boss for men and Laura Biagiotti's Roma perfume. In the mid-1990s, P&G launched a new prestige fragrance, Venezia, in the United States and several European countries. Conversely, in 1997 Estee Lauder acquired Sassaby Inc., owner of the mass-market Jane brand. The move marked the first move by Lauder outside the prestige segment.
18Differentiated/ Multi segment Marketing Firm targets several market segments and designs separate offers for each. The goal is to have higher sales and a stronger position with each market segment. This approach increases the costs of doing business.
19PositioningLocating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does and does not offerAttribute or BenefitQuality and PriceUse or UserCompetitionAttribute or benefit: Volvo & safety; Visa is “everywhere you want to be.”Quality and price: super premium vodkas like Stolichnaya Gold.Use or User: Max Factor is the “makeup that makeup artists use.”Competition: Body Shop founder, Anita Roddick, emphasized that her products stood for natural ingredients, no animal testing, and recyclable containers.
21Positioning Strategies Global consumer culture positioningIdentifies the brand as a symbol of a particular global culture or segmentHigh-touch and high-tech productsForeign consumer culture positioningAssociates the brand’s users, use occasions, or product origins with a foreign country or cultureGlobal consumer culture positioning: “United Colors of Benetton” means the unity of humankind.High-tech: MP3 players, cell phones, luxury cars, financial services, Canon cameras, Adidas.High-touch: Nescafe coffee.Foreign consumer culture positioning: Foster’s. Australian for beer.Beer is associated with this German’s culture; the symbol on his shirt is not German!
23Positioning Strategies Local consumer culture positioningIdentifies with local cultural meaningsConsumed by local peopleLocally produced for local peopleUsed frequently for food, personal, and household nondurables
24Importing, Exporting, and Sourcing Global MarketingChapter 8
25Introduction This chapter looks at: Export selling and export marketingOrganizational export activitiesNational policies on imports and exportsTariff systemsKey export participants
26Export Selling vs. Export Marketing Export selling involves selling the same product, at the same price, with the same promotional tools in a different placeExport marketing tailors the marketing mix to international customersAs organizations seek to move operations into other countries they need to make the basic decision regarding their level of involvement in the foreign markets. Two broad areas include export selling and export marketing. Export selling does not involve tailoring the product, the price, or the promotional material to suit the requirements of global markets. The only marketing mix element that differs is the “place;” that is, the country where the product is sold. This selling approach may work for some products or services; for unique products with little or no international competition, such an approach is possible. Similarly, companies new to exporting may initially experience success with selling. Export marketing targets the customer in the context of the total market environment. The export marketer does not simply take the domestic product “as is” and sell it to international customers. To the export marketer, the product offered in the home market represents a starting point. It is modified as needed to meet the preferences of international target markets; this is the approach the Chinese have adopted in the U.S. furniture market. Similarly, the export marketer sets prices to fit the marketing strategy and does not merely extend home country pricing to the target market. Charges incurred in export preparation, transportation, and financing must be taken into account in determining prices. Finally, the export marketer also adjusts strategies and plans for communications and distribution to fit the market. In other words, effective communication about product features or uses to buyers in export markets may require creating brochures with different copy, photographs, or artwork. As the vice president of sales and marketing of one manufacturer noted, “We have to approach the international market with marketing literature as opposed to sales literature.”
27Requirements for Export Marketing An understanding of the target market environmentThe use of market research and identification of market potentialDecisions concerning product design, pricing, distribution and channels, advertising, and communicationsAfter the research effort has zeroed in on potential markets, there is no substitute for a personal visit to size up the market firsthand and begin the development of an actual export marketing program. A market visit should do several things. First, it should confirm (or contradict) assumptions regarding market potential. A second major purpose is to gather the additional data necessary to reach the final go/no-go decision regarding an export marketing program. Certain kinds of information simply cannot be obtained from secondary sources. For example, an export manager or international marketing manager may have a list of potential distributors provided by the U.S. Department of Commerce. He or she may have corresponded with distributors on the list and formed some tentative idea of whether they meet the company's international criteria. It is difficult, however, to negotiate a suitable arrangement with international distributors without actually meeting face to face to allow each side of the contract to appraise the capabilities and character of the other party. A third reason for a visit to the export market is to develop a marketing plan in cooperation with the local agent or distributor. Agreement should be reached on necessary product modifications, pricing, advertising and promotion expenditures, and a distribution plan. If the plan calls for investment, agreement on the allocation of costs must also be reached.One way to visit a potential market is through a trade show or a state- or federally-sponsored trade mission. Each year hundreds of trade fairs, usually organized around a product category or industry, are held in major markets.
28National Policies Governing Exports and Imports Most nations encourage exports and restrict importsGoods and services imported into the U.S. almost doubled in seven yearsIn 2008, the total was $2.5 trillionIn 1997 total imports of goods and services by the United States passed the $1 trillion mark for the first time; in 2008, the combined figure was $2.5 trillion. China’s pace-setting economic growth in the Asia-Pacific region is reflected by trends in both exports and imports. Since 1979, exports from China have grown significantly; they will grow at a faster rate now that China has joined the WTO. Historically, China protected its own producers by imposing double-digit import tariffs. These will gradually be reduced as China complies with WTO regulations.For centuries, nations have combined two opposing policy attitudes toward the movement of goods across national boundaries. On the one hand, nations directly encourage exports; the flow of imports, on the other hand, is generally restricted.
29Government Programs that Support Exports Tax incentivesSubsidiesGovernmental assistanceFree trade zonesGovernments commonly use three activities to support export activities of national firms. First, tax incentives treat earnings from export activities preferentially either by applying a lower rate to earnings from these activities or by refunding taxes already paid on income associated with exporting. The tax benefits offered by export-conscious governments include varying degrees of tax exemption or tax deferral on export income, accelerated depreciation of export-related assets, and generous tax treatment of overseas market development activities.Governments also support export performance by providing outright subsidies, which are direct or indirect financial contributions that benefit producers. Subsidies can severely distort trade patterns when less competitive but subsidized producers displace competitive producers in world markets.The third support area is governmental assistance to exporters. Companies can avail themselves of a great deal of government information concerning the location of markets and credit risks. Assistance may also be oriented toward export promotion.Free trade zones are geographic areas that offer manufacturers simplified customs procedures, operational flexibility, and a general environment of relaxed regulations.
30Governmental Actions to Discourage Imports and Block Market Access Tariffs ( “Three R’s”)Nontariff barriersQuotasDiscriminatory procurement policiesRestrictive customs proceduresArbitrary monetary policiesRestrictive regulationsMeasures such as tariffs, import controls, and a host of nontariff barriers are designed to limit the inward flow of goods. Tariffs can be thought of as the “three R’s” of global business: rules, rate schedules (duties), and regulations of individual countries.A nontariff trade barrier (NTB) is any measure other than a tariff that is a deterrent or obstacle to the sale of products in a foreign market. NTBs are also known as hidden trade barriers. A quota is a government-imposed limit or restriction on the number of units or the total value of a particular product or product category that can be imported. Quotas are designed to protect domestic producers. In 2005, for example, textile producers in Italy and other European countries were granted quotas on 10 categories of textile imports from China. The quotas, which run through the end of 2007, are designed to give European producers an opportunity to prepare for increased competition. Discriminatory procurement policies can take the form of government rules and administrative regulations that give local vendors priority. The Buy American Act of 1993 says federal agencies must buy American products unless a domestic product is not available, the cost is unreasonable, or it would not be in the public’s interest. Customs procedures are considered restrictive if they are administered in a way that makes compliance difficult and expensive.Discriminatory exchange rate policies distort trade in much the same way as selective import duties and export subsidies. As noted earlier, some Western policymakers have argued that China is pursuing policies that ensure an artificially weak currency which results in Chinese goods having competitive price edge in world markets. Restrictive administrative and technical regulations can also create barriers to trade. These may take the form of antidumping regulations, product size regulations, and safety and health regulations. U.S. safety and pollution regulations in the auto industry have forced some auto makers to withdraw certain models and are generally expensive with which to comply.Port Authority of Thailand: Laem Chabang
31Examples of Trade Barriers Table 8.3 p. 277EU- 16.5% antidumping tariffs on Shoes from China10% on shoes from VietnamChina- 28% on foreign made auto parts
32Governmental actions to discourage imports A nontariff trade barrier (NTB) is any measure other than a tariff that is an obstacle to the sale of products in a foreign market. NTBs are also known as hidden trade barriers.A quota is a government-imposed limit or restriction on the number of units or the total value of a particular product or product category that can be imported.In 2005, for example, textile producers in Italy and other European countries were granted quotas on 10 categories of textile imports from China.Discriminatory procurement policies can take the form of government rules and administrative regulations that give local vendors priority.The Buy American Act of 1993
33Tariff Systems Single-column tariff Simplest type of tariff Schedule of duties in which rate applies to imports from all countries on the same basisTwo-column tariffGeneral duties plus special duties applyTariff systems provide either a single rate of duty for each item applicable to all countries or two or more rates, applicable to different countries or groups of countries. Tariffs are usually grouped into two classifications. The single-column tariff is the simplest type of tariff; a schedule of duties in which the rate applies to imports from all countries on the same basis. Under the two-column tariff (Table 8-4), column 1 includes “general” duties plus “special” duties indicating reduced rates determined by tariff negotiations with other countries.
34Sample Rates of Duty for U.S. Imports Tariff SystemsUnder the two-column tariff, column 1 includes “general” duties plus “special” duties indicating reduced rates determined by tariff negotiations with other countries. Rates agreed upon by “convention” are extended to all countries that qualify for normal trade relations (NTR; formerly most-favored nation or MFN) status within the framework of the WTO. Under the WTO, nations agree to apply their most favorable tariff or lowest tariff rate to all nations—subject to some exceptions— that are signatories to the WTO. Column 2 shows rates for countries that do not enjoy NTR status. Rates agreed upon by "convention" are extended to all countries that qualify for normal trade relations (NTR; formerly most-favored nation or MFN) status within the framework of the WTO. Under the WTO, nations agree to apply their most favorable tariff or lowest tariff rate to all nations—subject to some exceptions—that are signatories to the WTO. Column 2 shows rates for countries that do not enjoy NTR status.Sample Rates of Duty for U.S. Imports
35Preferential TariffReduced tariff rate applied to imports from certain countriesGATT prohibits the use, with three exceptions:Historical preference arrangements already existedPreference is part of formal economic integration treatyIndustrial countries are permitted to grant preferential market access to LDCsA preferential tariff is a reduced tariff rate applied to imports from certain countries. GATT prohibits the use of preferential tariffs, with three major exceptions. First are historical preference arrangements such as the British Commonwealth preferences and similar arrangements that existed before GATT. Second, preference schemes that are part of a formal economic integration treaty, such as free trade areas or common markets, are excluded. Third, industrial countries are permitted to grant preferential market access to companies based in less-developed countries.The United States is now a signatory to the GATT customs valuation code. U.S. customs value law was amended in 1980 to conform to the GATT valuation standards. Under the code, the primary basis of customs valuation is "transaction value." As the name implies, transaction value is defined as the actual individual transaction price paid by the buyer to the seller of the goods being valued. In instances where the buyer and seller are related parties (e.g., when Honda's U.S. manufacturing subsidiaries purchase parts from Japan), customs authorities have the right to scrutinize the transfer price to make sure it is a fair reflection of market value. In the late 1980s, the U.S. Treasury Department began a major investigation into the transfer prices charged by the Japanese automakers to their U.S. subsidiaries. It charged that the Japanese paid virtually no U.S. income taxes because of their "losses" on the millions of cars they import into the United States each year.
36Customs Duties Ad valorem duty Specific duty Compound or mixed duties Expressed as percentage of value of goodsSpecific dutyExpressed as specific amount of currency per unit of weight, volume, length, or other unit of measurement$1 per pair of Shoes1000 Baht per ton of the goods importedCompound or mixed dutiesApply both ad valorem and specific on the same itemsDuties on individual products or services are listed in the schedule of rates in the previous slides. As defined by one expert on global trade, duties are “taxes that punish individuals for making choices of which their governments disapprove.”Before World War II, specific duties were widely used and the tariffs of many countries, particularly those in Europe and Latin America, were extremely complex. During the past half century, the trend has been toward the conversion to ad valorem duties; that is, duties expressed as a certain percentage of the value of the goods.Customs duties are divided into two categories. They may be calculated either as a percentage of the value of the goods (ad valorem duty), as a specific amount per unit (specific duty), or as a combination of both of these methods. Before World War II, specific duties were widely used and the tariffs of many countries, particularly those in Europe and Latin America, were extremely complex. Since the war, the trend has been toward the conversion to ad valorem duties; that is, duties expressed as a certain percentage of the value of the goods.
37Other Duties and Import Charges Anti-dumping DutiesDumping is the sale of merchandise in export markets at unfair pricesSpecial import charges equal to the dumping margin48.5% added to tax against Chinese imports of bicycles in EUCountervailing DutiesAdded duties to offset the subsidies granted in the export countriesTemporary SurchargesAntidumping duties are almost invariably applied to products that are also manufactured or grown in the importing country. In the United States, antidumping duties are assessed after the commerce department finds a foreign company guilty of dumping and the International Trade Commission rules that the dumped products injured American companies. Countervailing duties (CVDs) are additional duties levied to offset subsidies granted in the exporting country.Variable import levies applies to certain categories of imported agricultural products. If prices of imported products would undercut those of domestic products, the effect of these levies would be to raise the price of imported products to the domestic price level. In 2001, the ITC and commerce department imposed both countervailing and antidumping duties on Canadian lumber producers. The CVDs were intended to offset subsidies to Canadian sawmills in the form of low fees for cutting trees in forests owned by the Canadian government. The antidumping duties on imports of softwood lumber, flooring, and siding were in response to complaints by American producers that the Canadians were exporting lumber at prices below their production cost.Temporary surcharges have been introduced from time to time by certain countries, such as the United Kingdom and the United States, to provide additional protection for local industry and, in particular, in response to balance-of-payments deficits.
38Key Export Participants (Self Study) Foreign purchasing agentsExport brokersExport merchantsExport management companiesExport distributorExport commission representativeCooperative exporterFreight forwardersManufacturer’s export representativesAnyone with responsibilities for exporting should be familiar with some of the people and organizations who can assist with various tasks. Some of these, including purchasing agents, export brokers, and export merchants, have no assignment of responsibility from the client. Others, including export management companies, manufacturers’ export representatives, export distributors, and freight forwarders, are assigned responsibilities by the exporter.
39Organizing for Exporting in the Market Country Direct market representationAdvantages: control and communicationsRepresentation by independent intermediariesAdvantages: best for situations with small sales volumeIn addition to deciding whether to rely on in-house or external export specialists in the home country, a company must also make arrangements to distribute the product in the target market country. Every exporting organization faces one basic decision: To what extent do we rely on direct market representation as opposed to representation by independent intermediaries?
40Export Financing and Methods of Payment Documentary credits (Letter of Credit)Documentary collections (Bill of Exchange)Cash in advanceSales on open accountThe appropriate method of payment for a given international sale is a basic credit decision. A number of factors must be considered, including currency availability in the buyer’s country, creditworthiness of the buyer, and the seller’s relationship to the buyer. Finance managers at companies that have never exported often express concern regarding payment. Many CFOs with international experience know that there are generally fewer collections problems on international sales than on domestic sales, provided the proper financial instruments are used. The reason is simple: A letter of credit can be used to guarantee payment for a product. The export sale begins when the exporter/seller and the importer/buyer agree to do business. The agreement is formalized when the terms of the deal are set down in a pro forma invoice contract, fax, or some other document. Among other things, the pro forma invoice spells out how much, and by what means, the exporter-seller wants to be paid.
41Flow Chart of Documentary Credit This is a two slide diagram of the documentary credit process.
44SourcingMust emphasize benefits of sourcing from country other than home countryMust assess vision and values of company leadershipAdvantage can be gained byConcentrating some of the marketing activities in a single locationLeveraging company’s know-howTapping opportunities for product development and R&DIn global marketing, the issue of customer value is inextricably tied to the sourcing decision. In today’s competitive marketplace, companies are under intense pressure to lower costs; one way to do this is to locate manufacturing and other activities in China, India, and other low-wage countries. As this discussion suggests, the decision of where to locate key business activities depends on other factors besides cost. There are no simple rules to guide sourcing decisions. Indeed, the sourcing decision is one of the most complex and important decisions faced by a global company. Several factors may figure into the sourcing decision: management vision, factor costs and conditions, customer needs, public opinion, logistics, country infrastructure, political factors, and exchange rates.
46Factors that Affect Sourcing Management visionFactor costs and conditionsCustomer needsLogisticsCountry infrastructurePolitical riskExchange rate, availability, and convertibility of local moneySome chief executives are determined to retain some or all manufacturing in their home country. Swatch watches are manufactured in Switzerland. Canon keeps 60% of manufacturing in Japan and focuses on high value-added products rather than manufacturing location.Factor costs are land, labor, and capital costs. Basic manufacturing direct labor costs today range from less than $1 per hour in an emerging country to $6 to $12 per hour in a developed country. In certain U.S. industries, direct labor costs in manufacturing exceed $20 per hour without benefits. German hourly compensation costs for production workers in manufacturing are 160 percent of those in the U.S. while those in Mexico are only 15 percent of those in the U.S. Labor costs in nonmanufacturing jobs also vary. A software engineer in India may receive an annual salary of $12,000; an American with the same educational credentials might earn $80,000.Customer needs: Although outsourcing can help reduce costs, sometimes customers are seeking something besides the lowest possible price. Dell recently rerouted some of its call center jobs back to the United States after complaints from key business customers that Indian tech support workers were offering scripted responses and having difficulty answering complex problems. In such instances, the need to keep customers satisfied justifies the higher cost of home-country support operations.Logistics: To facilitate global delivery, transportation companies such as CSX Corporation are forming alliances and becoming an important part of industry value systems. Manufacturers can take advantage of intermodal services that allow containers to be transferred between rail, boat, air, and truck carriers. In Europe, Latin America, and elsewhere, the trend toward regional economic integration means fewer border controls, which greatly speeds up delivery times and lowers costs.Infrastructure includes power, transportation and roads, communications, service and component suppliers, a labor pool, civil order, and effective governance.Protectionist laws may cause political risk. Japanese auto makers established production facilities in the U.S. partly out of concern for market access. U.S. produced vehicles are not subject to tariffs or quotas.Change in commodities price and currency fluctuation: If the dollar, the yen, or the mark becomes seriously overvalued, a company with production capacity in other locations can achieve competitive advantage by shifting production among different sites.
47Duty DrawbackRefunds of duties paid on imports that are processed or incorporated into other goods AND re-exportedReduce the price of imported production inputsUsed in the U.S. to encourage exportsAfter NAFTA, U.S. reduced drawbacks on exports to Canada and MexicoChina had to reduce drawbacks in order to join the WTO
48Looking Ahead to Chapter 9 Global Market Entry Strategies: Licensing, Investment, and Strategic Alliances