1. Khon Kaen University International College International Product and Pricing Strategy Course number 052 201 - First semester 2013 Mondays at 9:00 in room 822 Lecturer: Michael Cooke office room 817 E-mail: Michco@kku.ac.th Web: KKU.AC.TH/Michco

3. Wacoal – A Global Firm

5. May, 2013 News – Associated Press

6. News CNN

7. Al Jazeera – May 10 th 2013 The death toll in Bangladesh's worst industrial disaster has soared past 1,000 after more bodies were found in the rubble of a collapsed building outside the capital, Dhaka. The death toll now stands at 1,006 as the recovery operation entered its 17th day since the building collapsed. Some of the bodies could be identified by mobile phones in their pockets or factory identity cards around their neck. Most of the dead are female garment workers. Of the bodies recovered so far, at least 150 bodies were buried in unmarked graves in a state graveyard after they could not be identified. Authorities are taking DNA samples from all the victims for future compensation claims. More than 3,000 garment workers were in the building's five garment factories which made clothing for Western retailers such as Benetton, Mango and Primark when the structure collapsed after a loud bang, trapping them. At least 2,437 people have been rescued, around 1,000 suffering serious injuries, including scores whose limbs had to be cut off to free them from the rubble.

10. Retailers and Brands Damage to Image

11. Risk Events or factors that may have a negative impact on the profitability or success of a company Probability or likelihood of an occurrence The impact if the event occurs Business is built on risk Loss of physical assets Political action Natural disaster Loss of intellectual property Reputational risk Financial or economic risk Competition or changing markets Operational risks (loss of suppliers, loss of key employees, etc) In this International Product and Pricing Strategy course a recurring theme will be how to assess and manage the risks that come with international operations, and balance those against opportunities

12. Why Do Garment Factories Locate Near Dhaka? NY Times graphic, 15 May, 2013

13. Companies Seek New Locations The relentless search for new locations has more urgency after the factory collapse in Bangladesh that left 1,127 people dead last May. Western garment executives are looking at potential new suppliers in southern Vietnam, central Cambodia and the hinterlands of Java in Indonesia. Indonesian executives have seen a steady procession of arrivals in recent months, always asking the same questions about political stability, labor laws, safety compliance and wages. Many poor countries make very basic clothing. Only China, Bangladesh, Vietnam, Indonesia and to some extent Cambodia and Pakistan have developed complex systems for producing and shipping tens of thousands or even hundreds of thousands of identical, high-quality shirts, blouses or trousers to a global retailer within several weeks of receiving an order. All of the very large-scale garment factories are in Asia. Africa does not have enough workers with the right skills for high-volume labeling and shipping, and Latin America does not have enough workers interested in operating sewing machines. Most Southeast Asian factories are already fully booked with orders from multinationals fleeing China’s ever-rising costs. “This year, it’s impossible — we’re already full,” said the president of the Indonesian subsidiary of Wacoal, a big Japanese garment manufacturer. http://www.nytimes.com/2013/05/16/business/global/after-bangladesh-seeking-new- sources.html http://www.nytimes.com/2013/05/16/business/global/after-bangladesh-seeking-new- sources.html

14. Wacoal http://www.wacoal.com/brand_info/global_wacoal.html In Europe, Wacoal France is characterized by the fashion image and unique position of the capital of the fashion world. Wacoal(UK)Ltd., having its office and showroom in London, is introducing selected collections from Wacoal America to the UK consumer through prestigious department stores. In America, Wacoal America located in New York, finding loyal customers in that country through the department and specialty store Chanel. Wacoal Sports Science Corp., located in New York, markets a new concept of sports wear, CW- X**, for athletes and people who want to live a Healthy and Active Lifestyle. In Asia, Wacoal Corp., located in Kyoto, Japan, along with the other group companies, makes up the center of R&D and business development and caters to Asian consumers. Please note that Wacoal Brand Products are marketed mainly through authorized Retail Partners country by country and shop by shop. EUROPE Wacoal France S.A. Wacoal (UK) Ltd. AMERICA Wacoal America, Inc. Wacoal Sports Science Corp. ASIA Wacoal Holdings Corp. Wacoal Corp. Wacoal China Co., Ltd. Guangdong Wacoal Inc. Dalian Wacoal Co., Ltd. Wacoal Hong Kong Co., Ltd. Wacoal Malaysia Sdn Bhd Wacoal Singapore Pte. Ltd. Indonesia Wacoal Co., Ltd. Philippine Wacoal Corp. Shinyoung Wacoal Inc. Thai Wacoal Public Co., Ltd. Taiwan Wacoal Co., Ltd. Vietnam Wacoal Corp.

15. Training Garment Workers – Semarang Indonesia’s national training center for seamstresses in Semarang produces 12,000 graduates a year. But even that isn’t enough. Four factories with a combined employment of 30,000 are to open in the next year in Semarang, and many more factories are being built nearby. http://www.nytimes.com/2013/05/16/business/global/after-bangladesh-seeking-new-sources.html

17. Hutchinson MN, population 14,000

18.  Why are most Apple products assembled in China?  Why not Bangladesh?  Why not in the USA?  How do Apple and Samsung product strategies differ?  Ford is leaving Australia.  They have produced cars in Australia since 1925.  Why would they leave now?  How (and why) does CP Group expand overseas?  How would you set the price of a B 787?  What are the risks of different product strategies?

20. No. Course Grading Criteria% 1 Midterm Examination20 2 Final Examination30 3 Country study20 4 Quizzes, and participation30 Total 100 Each student will participate in a country study, researching and analyzing aspects relevant to marketing a specific product in that country. Students are expected to attend classes and to actively participate. Participation is graded on a scale of 0 – 1 per week. Speaking up with at least one relevant comment or actively participating in teamwork brings 1 point per week. Students with a valid medical or administrative excuse may be permitted to take a quiz outside of normal class hours. Students must be punctual to take a quiz. Early exit is scored as no participation. Disrupting the class (such as use of a mobile telephone in class) will be marked as absent.

21.  Why does Apple choose to assemble iPhones in China? ◦ Scale of operations ◦ Supply chains  Skilled technical workforce, including engineers  Clusters of excellence  Response times  Think of how 2011 floods in Thailand affected other manufacturers ◦ Labor is not a big component of the total cost  Apple employs 43,000 in the USA (and about 33,000 of those are low-wage retail or call-center)  Apple’s contractors employ 700,000 outside of the USA  Apple’s profits accrue to shareholders across the world  Apple is a true global company ◦ Sales span the globe ◦ Software created in USA ◦ Marketing created and managed in USA ◦ Supply chains span the globe  iPhones assembled in China by a subsidiary of a Taiwanese company  Some components made in USA by S. Korean company (Samsung)  Glass made in Japanese factories by an American company (Corning)

22. Why are rice prices high in Japan? In2008 domestic rice in Tokyo cost $2.48/kg In 2008 rice cost $0.55/kg in USA Japanese consumers pay about $600 extra per person per year for rice because of prices

23. Tariff and Non-tariff Barriers 2010 tariffs on imported rice estimated at 800% Quotas on imports Direct subsidies to Japanese rice farmers

24. Effect of Tariffs and Import Barriers Higher consumer prices and taxes  Japanese farms’ high costs passed to consumers  Imports not allowed to compete with local farms  Subsidies from taxpayers to farmers Protection of Japanese rice industry  Estimated 3.4mm farm jobs lost if tariffs removed  90% of rice production would be replaced by imports  Loss of self sufficiency in rice production  Loss of traditional way of life

25. A Recurring Theme Free trade brings wider selection and lower prices to consumers Domestic industries have political power  Japanese farmers  American shrimp industry International marking takes place in a dynamic political context  Protectionism in certain industries, at certain times -US shrimp imports from SE Asia -US sugar industry -most automobile industries worldwide  Even WTO agreements are subject to political influence  For now, free trade is the dominant paradigm in many countries

26. Theory of Comparative Advantage Often used to justify free trade (David Ricardo) Countries specialize in what they do best even if one has an absolute disadvantage Worldwide production increases by specialization  Typically helps contain inflation  More goods available

27. Exhibit 1-3: Comparative Advantage at Work Copyright (c) 2009 John Wiley & Sons, Inc. 27

28. The Scope of Globalization International business includes trade and foreign production by domestic companies Intra-firm trade Manufacture in foreign country for sale in that country and for export from that country to third countries Typically involves exporting from the foreign factory to nearby countries Biggest trading partners are typically neighbor countries (such as Germany to other EU) Export from that foreign country back to the home country Much Chinese production began as a way for companies to gain access to the Chinese market Three ways a company can market products abroad Export from home country Firms typically begin international operations as exporters from home country Potential total cost disadvantage Often face tariff or non-tariff barriers Foreign exchange risks Invest in foreign production of their product Contract out manufacturing to a foreign company The last two do not show up in trade statistics Japanese or American subsidiaries have several times more foreign sales than each country’s total exports Global reach of firms

29. Evolution of Global Marketing Copyright (c) 2009 John Wiley & Sons, Inc.

30. ◦ Above a subsistence threshold people have disposable income  Cost of living varies among countries  Cost of living varies within countries  Typically lower in rural areas  Typically highest where land values are highest, such as in major urban centers ◦ Can not consider a country’s average per-capita income in isolation ◦ Purchasing power parity (PPP)  Nominal income versus PPP  PPP adjust for goods and services not traded across country borders  Real estate  Many services  Most country comparisons offer both ◦ Intra-country income variation  Average income in China is still low  High disposable income and demand for luxury goods in Chinese urban centers  Similar story with Bangkok versus rural Thailand

31. A Premium Disposable Baby Diaper Suppose you want to market a high price per use baby diaper in a developing country Suppose birthrates decline while income grows – does this affect strategy? Rural families are typically large Large potential market Low discretionary income Urban families small Overall urban market for baby products is small Discretionary income is high Return to this when we cover Segmentation

32. Next Week Skim chapters 3 and 4 (Financial and Cultural Environments) Review slides from this week (home.kku.ac.th/michco)home.kku.ac.th/michco Be prepared for a brief quiz (pass/fail)