1. McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

2. LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 7, YOU SHOULD BE ABLE TO:
Describe the nature and scope of world trade from a global perspective and its implications for the United States.
LO2
Identify the major trends that have influenced the landscape of global marketing in the past decade.
LO3
Identify the environmental factors that shape global marketing efforts.
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3. LEARNING OBJECTIVES (LO) AFTER READING CHAPTER 7, YOU SHOULD BE ABLE TO:
Name and describe the alternative approaches companies use to enter global markets.
LO5
Explain the distinction between standardization and customization when companies craft worldwide marketing programs.
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4. MATTEL’S GLOBAL MARKETING IS MORE THAN CHILD’S PLAY
Slide 7-5

5. DYNAMICS OF WORLD TRADE
WORLD TRADE FLOWS
LO1
Global Perspective
Countertrade
Trade Feedback Effect
United States Perspective
Gross Domestic Product (GDP)
Balance of Trade
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6. DYNAMICS OF WORLD TRADE
World Trade Flows
Dollar value of world trade has more than doubled in past decade and will exceed $12.5 trillion in 2009
Manufactured gods and commodities account for 75 percent of world trade
Service industries represent the other 25 percent
Slide 7-6

7. DYNAMICS OF WORLD TRADE
World Trade Flows
Reflects interdependencies among industries, countries, and regions
Manifests in country, industry, and regional exports and imports
Slide 7-6

8. DYNAMICS OF WORLD TRADE
Global Perspective
U.S., Europe, Canada, China, and Japan account for more than two-thirds of world trade
Approximately 15 – 20 percent of world trade involves countertrade
A country’s imports affect its exports, and vise versa – trade feedback effect
Slide 7-6

9. DYNAMICS OF WORLD TRADE
United States Perspective
Gross domestic Product (GDP)
Balance of Trade
Exports vs. Imports
Three largest importers of U.S. goods and services are Canada, Mexico, and Japan
The four largest exporters to U.S. are Canada, China, Mexico, and Japan
Slide 7-6

10. FIGURE 7-1 World trade flows for goods and commodities within and between geographic regions ($ billions U.S.)
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11. DYNAMICS OF WORLD TRADE COMPETITIVE ADVANTAGE OF NATIONS
LO1
Porter’s “Diamond”
Factor Conditions
Demand Conditions
Related and Supporting Industries
Company Strategy, Structure, and Rivalry
Economic Espionage Act (1996)
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12. DYNAMICS OF WORLD TRADE
Competitive Advantage of Nations – Porter’s “Diamond”
Factor Conditions
Reflect a nation’s ability to turn its natural resources, education, and infrastructure into a competitive advantage
Demand conditions
Include both the number and sophistication of domestic customers for an industry’s product
Slide 7-6

13. DYNAMICS OF WORLD TRADE
Competitive Advantage of Nations – Porter’s “Diamond”
Related and Supporting Industries
Firms and industries seeking leadership in global markets need clusters of world-class suppliers that accelerate innovation
Company Strategy, Structure, and Rivalry
Factors include conditions governing the way a nation’s businesses are organized and managed, along with the intensity of domestic competition
Slide 7-6

14. FIGURE 7-2 Porter’s diamond of national competitive advantage: 4 key elements on why some countries become world leaders
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15. DYNAMICS OF WORLD TRADE
Competitive Advantage of Nations – “The Dark Side”
Economic Espionage
Clandestine collection of trade secrets or proprietary information about competitors
Economic Espionage Act (1996)
Theft of trade secrets by foreign entities a federal crime in the U.S.
Slide 7-6

16. 1. What is the trade feedback effect?
Concept Check
1. What is the trade feedback effect?
A: The phenomenon in which a country’s imports affect its exports and vice versa.
Slide 7-11

17. Concept Check
2. What variables influence why some companies and industries in a country succeed globally while others lose ground or fail?
A: (1) factor conditions; (2) demand conditions; (3) related and supporting industries; and (4) company strategy, structure, and rivalry.
Slide 7-12

18. MARKETING IN A BORDERLESS ECONOMIC WORLD
Decline of Economic Protectionism
(Trends)
Gradual decline of economic protectionism by individual countries
Formal economic integration and free trade among nations
Global competition among global companies for global customers
Development of networked global marketplace
Slide 7-13

19. Decline of Economic Protectionism
MARKETING IN A BORDERLESS ECONOMIC WORLD
TREND 1—DECLINE OF ECONOMIC PROTECTIONISM
Decline of Economic Protectionism
Practice of shielding one or more industries within a country’s economy from foreign competition, usually through tariffs and quotas
Slide 7-13

20. General Agreement on Tariffs and Trade (GATT)
MARKETING IN A BORDERLESS ECONOMIC WORLD
TREND 1—DECLINE OF ECONOMIC PROTECTIONISM
LO3
Protectionism
Tariffs
Quotas
General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)
7-20

21. FIGURE 7-3 Protectionism hinders world trade through tariffs and quotas policies of countries, raising prices and limiting supply
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22. North American Free Trade Agreement (NAFTA)
MARKETING IN A BORDERLESS ECONOMIC WORLD
TREND 2—RISE OF ECONOMIC INTEGRATION
LO3
European Union
Euro
Three country flag image attributed to Alex Covarrubias. See
North American Free Trade Agreement (NAFTA)
Asian Free Trade Agreements
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23. Euro Launch TV Ad What are the benefits of economic integration?
Three country flag image attributed to Alex Covarrubias. See
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24. FIGURE 7-4 The European Union in 2007 consists of 27 countries with more than 500 million consumers
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25. MARKETING IN A BORDERLESS ECONOMIC WORLD TREND 3—GLOBAL COMPETITION
A New Reality: Global Competition among Global Companies for Global Consumers
Global Competition
Divisions or Subsidiaries
Strategic Alliances
7-25

26. MARKETING IN A BORDERLESS ECONOMIC WORLD TREND 3—GLOBAL COMPANIES
A New Reality: Global Competition among Global Companies for Global Consumers
Global Companies
Transnational Firms
International Firms
Extention of domestic
Marketing Strategy
World is one market
Global Marketing Strategy
Global Brand
Multinational Firms
Multidomestic Marketing Strategy
Slide 7-21

27. FIGURE 7-A Global companies and marketing strategy
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28. MARKETING IN A BORDERLESS ECONOMIC WORLD TREND 3—GLOBAL CONSUMERS
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29. MARKETING MATTERS The Global Teenager—A Market of 500 Million Voracious Consumers with $100 Billion to Spend
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30. MARKETING IN A BORDERLESS ECONOMIC WORLD
Emergence of a Networked Global Marketspace (Internet-based Technology)
Over ten percent of world trade
From companies anywhere to customers anywhere at anytime at a lower cost
Ninety percent of revenue is from B2B transactions among a dozen countries in North America, Western Europe, and Asia/Pacific Rim
Slide 7-23

31. Nestlé Website for Peru What is a global marketspace?
Slide 7-25

32. Concept Check
1. What is protectionism?
A: Protectionism is the practice of shielding one or more industries within a country’s economy from foreign competition, using through the use of tariffs or quotas.
Slide 7-26

33. Concept Check
2. The North American Free Trade Agreement was designed to promote free trade among which countries?
A: United States; Canada; and Mexico
Slide 7-27

34. Concept Check
3. What is the difference between a multidomestic and a global marketing strategy?
A: A multidomestic marketing strategy means that firms have as many different product variations, brand names, and advertising programs as countries in which they do business. A global marketing strategy standardizes marketing activities when there are cultural similarities and adapts them when cultures differ.
Slide 7-28

35. A GLOBAL ENVIRONMENTAL SCAN
CULTURAL DIVERSITY
LO3
Cross-Cultural Analysis
Values
Customs
Foreign Corrupt Practices Act (1977)
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36. FIGURE 7-B Cultural appreciation
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37. A GLOBAL ENVIRONMENTAL SCAN
Cultural Diversity
Customs
What is considered normal and
expected about the way people
do things
Foreign Corrupt Practices Act (1977)
Slide 7-29

38. A GLOBAL ENVIRONMENTAL SCAN
Cultural Diversity
Cultural Symbols
Things that represent ideas and
concepts
Semiotics – study of the correspondence between
symbols and their role in the assignment
of meaning to people
Slide 7-29

39. A GLOBAL ENVIRONMENTAL SCAN
CULTURAL DIVERSITY
LO3
Cultural Symbols
#13
Semiotics
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40. A GLOBAL ENVIRONMENTAL SCAN
Cultural Diversity
Cross-Cultural Analysis
Study of similarities and differences
Values
Personally or socially preferable
modes of conduct
Slide 7-29

41. A GLOBAL ENVIRONMENTAL SCAN
CULTURAL DIVERSITY
LO3
Language
Unintended Meanings
Back Translation
7-41

42. McDonald’s in Hong Kong and Kuwait
What global market-entry strategy and why?
Slide 7-46

43. Hewlett-Packard Why use multilingual ads in a single country?
Slide 7-33

44. A GLOBAL ENVIRONMENTAL SCAN Consumer Ethnocentrism
CULTURAL DIVERSITY
LO3
Consumer Ethnocentrism
7-44

45. A GLOBAL ENVIRONMENTAL SCAN
Economic Considerations
Stage of Economic Development
Developed Countries – mixed economies
Developing Countries – in process
of moving from agricultural to
industrial economy
Slide 7-34

46. A GLOBAL ENVIRONMENTAL SCAN ECONOMIC CONSIDERATIONS
Stage of Economic Development
Developed Countries: Japan
Developing Countries:
Made the Move: Brazil
Remain Locked: Tanzania
Bottom of the Pyramid
7-46

47. A GLOBAL ENVIRONMENTAL SCAN Economic Considerations
Measurement of Consumer Income and
Purchasing Power
Recognition of Currency Exchange Rates
Price of one country’s currency expressed
in terms of another country’s currency
Foreign currencies versus the U.S. dollar
Slide 7-36

48. A GLOBAL ENVIRONMENTAL SCAN ECONOMIC CONSIDERATIONS
Economic Infrastructure
Consumer Income and Purchasing Power
Microfinance: India
Currency Exchange Rate
7-48

49. FIGURE 7-5 A comparison of the purchasing power differences around the world
7-49

50. A GLOBAL ENVIRONMENTAL SCAN POLITICAL-REGULATORY CLIMATE
Political Stability
Trade Regulations
7-50

51. Concept Check
Q: When foreign currencies buy more U.S. dollars, are U.S. products more or less expensive for a foreign consumer?
A: less expensive
Slide 7-41

52. FIGURE 7-6 Alternative global market-entry strategies
7-52

53. GLOBAL MARKET-ENTRY STRATEGIES
Exporting
Licensing
Joint Venture
Direct Investment
The amount of financial commitment, risk, marketing control, and potential profit increases as firm moves from exporting to direct investment
Slide 7-42

54. GLOBAL MARKET-ENTRY STRATEGIES
Exporting – producing goods in one country and selling them in another
Indirect – selling domestically produced goods in a foreign country through an intermediary
Least commitment, risk, and profit
Direct – selling domestically produced goods in a foreign country without intermediaries
More risk, but more profit potential
Slide 7-42

55. GLOBAL MARKET-ENTRY STRATEGIES
Licensing – company offers right to a trademark, patent, trade secret, or other similarly valued items of intellectual property in return for a royalty or a fee
Advantages
Low risk, allowing licensee to gain information that allows it to start with a competitive Advantage
Chance to enter a foreign market at virtually no cost
Foreign country gains employment by having the product manufactured locally
Disadvantages
Gives up control of its product and reduces potential profits
May be creating own competition
If licensee is poor choice, the name or reputation of the company may be harmed
Slide 7-42

56. GLOBAL MARKET-ENTRY STRATEGIES
Licensing, cont. – two variations of licensing represent alternative ways to produce a product in a foreign country
Contract Manufacturing
Contract assembly
Third variation of licensing:
Franchising
Fastest growing market entry strategy
More than 35,000 franchises of U.S. firms in foreign countries
McDonald's is premier global franchisor – more than 70% of stores are franchised and over 70% of sales come from non-U.S. operations
Slide 7-42

57. GLOBAL MARKET-ENTRY STRATEGIES
Joint Venture – foreign company and local firm invest together to create a local business. Share ownership, control, and profits of the new company.
Advantages
One company may not have financial, physical, or managerial resources to enter foreign market alone
Government may require, or strongly encourage a joint venture before it allows a foreign company to enter its market
Disadvantages
Two companies may disagree about policies or courses of action
Government bureaucracy may bog down the effort
Slide 7-42

58. GLOBAL MARKET-ENTRY STRATEGIES
Direct Investment – domestic firm investing in, and owning, a foreign subsidiary or division. Often follows one of the other three market-entry strategies.
Advantages
Cost savings, better understanding of local market conditions, and fewer local restrictions
Disadvantages
Financial commitments and risks (political, currency, etc.) involved
Slide 7-42

59. Levels of Involvement in International Marketing

60. FIGURE 7-6 How purchasing power differs around the world
Slide 7-43

61. A: Indirect exporting through intermediaries
Concept Check
1. What mode of entry could a company follow if it has no previous experience in global marketing?
A: Indirect exporting through intermediaries
Slide 7-49

62. 2. How does licensing differ from a joint venture?
Concept Check
2. How does licensing differ from a joint venture?
A: In licensing, the firm offers the right to a trademark, patent, or trade secret in return for a royalty or fee. In a joint venture, a foreign and a local firm invest together to produce some product or service. The two companies share ownership, control, and profits of the new entity.
Slide 7-50

63. CRAFTING A WORLDWIDE MARKETING PROGRAM
PRODUCT and PROMOTION STRATEGIES
LO5
Product Extension
Product Adaptation
Product Invention
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64. CRAFTING A WORLDWIDE MARKETING PROGRAM
Product and Promotion Strategies
Product Extension
Selling virtually same product in other countries
Product Adaptation
Changing product to make more appropriate for country’s climate or consumer preferences
Product Invention
Inventing totally new products designed to satisfy common needs across countries
Slide 7-51

65. CRAFTING A WORLDWIDE MARKETING PROGRAM
PROMOTION STRATEGIES
LO5
Identical Message
Same product
Adapted product
Communication Adaptation
Adapt promotion
Dual Adaptation
Adapt product
Adapt promotion
7-65

66. FIGURE 7-7 Five product and promotion strategies for global marketing
Slide 7-52

67. FIGURE 7-7 Five product and promotion strategies for global marketing
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68. CRAFTING A WORLDWIDE MARKETING PROGRAM
Distribution Strategy
Availability and quality of retailers and wholesalers as well as transportation, communication, and warehousing facilities are determined by a country’s economic development.
The sophistication of a country’s distribution channels increase as its economic structure increases
Slide 7-51

69. FIGURE 7-8 Channels of distribution in global marketing
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70. CRAFTING A WORLDWIDE MARKETING PROGRAM
DISTRIBUTION AND PRICING STRATEGIES
LO5
Channels Usually Long and Complex
Countries Impose Pricing Constraints
Prices May Be Too High or Too Low
Dumping
Gray Market
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71. CRAFTING A WORLDWIDE MARKETING PROGRAM
Pricing Strategy
Dumping – firm sells product in a foreign country below its domestic price or below its actual cost (low pricing)
Gray market – products sold through unauthorized channels of distribution (high prices)
Slide 7-51

72. 1. Products may be sold in three ways. What are they?
Concept Check
1. Products may be sold in three ways. What are they?
A: (1) in the same form as in its home market (product extension); (2) with some changes (product adaptation); and (3) as a totally new product (product invention).
Slide 7-56

73. Concept Check
2. What is dumping?
A: Dumping is when a firm sells a product in a foreign country below its domestic price or below its actual cost.
Slide 7-57

74. Countertrade
Countertrade is the practice of using barter rather than money for making global sales.
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75. Gross Domestic Product (GDP)
Gross domestic product (GDP) is the monetary value of all goods and services produced in a country during one year.
7-75

76. Balance of Trade
Balance of trade is the practice of exchanging goods and services for other goods and services rather than for money.
7-76

77. Economic Espionage Act (1996)
The Economic Espionage Act (1996) is a law that makes the theft of trade secrets by foreign entities a federal crime in the United States.
7-77

78. Protectionism
Protectionism is the practice of shielding one or more industries within a country’s economy from foreign competition through the use of tariffs or quotas.
7-78

79. Tariffs
Tariffs are a government tax on goods or services entering a country, primarily serving to raise prices on imports.
7-79

80. Quota
A quota is a restriction placed on the amount of a product allowed to enter or leave a country.
7-80

81. World Trade Organization (WTO)
The World Trade Organization (WTO) is a permanent institution that sets rules governing trade between its members through panels of trade experts who decide on trade disputes between members and issue binding decisions.
7-81

82. Global Competition
Global competition exists when firms originate, produce, and market their products and services worldwide.
7-82

83. Strategic Alliances
Strategic alliances are agreements among two or more independent firms to cooperate for the purpose of achieving common goals.
7-83

84. Multidomestic Marketing Strategy
A multidomestic marketing strategy involves multinational firms that have as many different product variations, brand names, and advertising programs as countries in which they do business.
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85. Global Marketing Strategy
A global marketing strategy involves transnational firms that employ the practice of standardizing marketing activities when there are cultural similarities and adapting them when cultures differ.
7-85

86. Global Brand
A global brand is a brand marketed under the same name in multiple countries with similar and centrally coordinated marketing programs.
7-86

87. Global Consumers
Global consumers are consumer groups living in many countries or regions of the world who have similar needs or seek similar features and benefits from products or services.
7-87

88. Cross-Cultural Analysis
Cross-cultural analysis involves the study of similarities and differences among consumers in two or more nations or societies.
7-88

89. Values
Values are a society’s personally or socially preferable modes of conduct or states of existence that tend to persist over time.
7-89

90. Customs
Customs are what is considered normal and expected about the way people do things in a specific country.
7-90

91. Foreign Corrupt Practices Act (1977)
The Foreign Corrupt Practices Act (1977) is a law, amended by the International Anti-Dumping and Fair Competition Act (1998), that makes it a crime for U.S. corporations to bribe an official of a foreign government or political party to obtain or retain business in a foreign country.
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92. Cultural symbols are things that represent ideas and concepts.
7-92

93. Semiotics
Semiotics is a field of study that examines the correspondence between symbols and their role in the assignment of meaning for people.
7-93

94. Back Translation
Back translation is the practice where a translated word or phrase is retranslated into the original language by a different interpreter to catch errors.
7-94

95. Consumer Ethnocentrism
Consumer ethnocentrism is the tendency to believe that it is inappropriate, indeed immoral, to purchase foreign-made products.
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96. Bottom of the Pyramid
Bottom of the pyramid is the largest but poorest socioeconomic group in the world consisting of 4 billion people who reside in developing countries and live on less than $2 per day.
7-96

97. Microfinance
Microfinance is the practice of offering small, collateral-free loans to individuals who otherwise would not have access to the capital necessary to begin small businesses or other income-generation activities.
7-97

98. Currency Exchange Rate
A currency exchange rate is the price of one country’s currency expressed in terms of another country’s currency.
7-98

99. Exporting
Exporting is a global market-entry strategy in which a company produces goods in one country and sells them in another country.
7-99

100. Joint Venture
Joint venture is a global market-entry strategy in which a foreign company and a local firm invest together to create a local business in order to share ownership, control, and profits of the new company.
7-100

101. Direct Investment
Direct investment is a global market-entry strategy that entails a domestic firm actually investing in and owning a foreign subsidiary or division.
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102. Dumping
Dumping occurs when a firm sells a product in a foreign country below its domestic price or below its actual cost.
7-102

103. Gray Market
A gray market is a situation where products are sold through unauthorized channels of distribution. Also called parallel importing.
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