Why Go International? 1. Exploiting market potential and growth 2. Gaining scale and scope returns at home 3. Learning from a leading market 4. Pressuring competitors 5. Diversifying markets 6. Learning how to do business abroad 5 5 5

International Business Philosophies Multinational Mentality Focused on marketing to different countries with local adaptation of products and promotions; production localized and technology less advanced Global Mentality Involves more standardization of products and integration across countries; driven by strong foreign competition and growing homogenization of world markets 3 3 3

Rationale for “Global” Mentality Customers & Common customer needs, global Markets: customers, global channels, transferable marketing, leading markets Competition: Common competitors using global strategies Cost Savings: Scale economies, scope economies, sourcing advantages, avoidance of duplication Government Favorable trade policies, acceptance of foreign Policies: investment, compatible technical standards, common marketing regulations 4 4 4

Multidomestic vs. Global Markets: Key Differences 3 3

Major Benefits from Global Business CAPITALIZING ON THE GROWTH POTENTIAL OF THE FOREIGN MARKET AND NEIGHBORING COUNTRIES. TRANSFERRING COMPETITIVE INFORMATION AND NEW PRODUCTS FROM THOSE MARKETS TO OTHER MARKETS. STRETCHING AND BUILDING UP THE FIRM’S MARKETING CAPABILITY.

Global vs. Multinational Marketing Mentality CENTRALIZED AND STANDARD DECENTRALIZED AND CUSTOMIZED R & D, DESIGN LIMITD LOCATAIONS MANY LOCATIONS MANUFACTURING CENTRALIZED AND INTEGRATED INDEPENDENT LOCAL COUNTRY MANAGERS MANAGEMENT SALES & MKTG IN-COUNTRY OR REGION SEGMENTS CUSTOMER GLOBAL SEGMENTS AFTER-SALES SERVICE LOCAL-SUBCONTRACTED LOCAL-COMPANY HANDLED INTERNATIONAL MARKET ENTRY WHOLLY-OWNED OR J.V. LOCAL MANUFACTURING EXPORTING-LICENSING

CUSTOMERS & MARKET REQUIREMENTS GLOBAL MNC HYBRID CONSUMER ELECTRONCS DETERGENTS TELECOMM SONY, DAEWOO & THE EAST KAO & THE EAST NEC Fujitsu & the East GLOBAL P& G, UNILEVER & THE WEST PHILIPS, RCA AND THE WEST ITT & the West CORPORATE MENTALITY MNC ERICSSON Think Global Act Local Not Applicable Not Applicable HYBRID

UPSTREAM ACTIVITIES MANUFACTURING DOWNSTREAM ACTIVITIES LOCAL IDEA GENERATION UPSTREAM ACTIVITIES R & D DESIGN MANUFACTURING MANAGEMENT MARKETING & SALES DOWNSTREAM ACTIVITIES CUSTOMER AFTER SALES CUSTOMER CARE LOCAL ACTIVITIES

Global vs. Multinational Corporate Structures

Ingredients for International Success Does the Company Have what it Takes to Succeed in International Markets: The Internal Corporate Audit Capital To: Cross Subsidize International Product & Market Expansion Attack Competitors Profit Centers Worldwide if Needed Product Core Competency: Important & Different Attribute Risk Taking & First Mover Advantage International Market Knowledge and Ethnocentrism Cross-Culturally Competent Management and Human Resources International Distribution Network Corporate Structure & International Marketing Mentality Long-Term vs.. Short Term Orientation, Human Resources Global vs.. Multinational Mentality

MACROECONOMIC ENVIRONMENT Size GDP, GNP, Trade Population Growth Rates Affordability Per Capita GDP or GNP Personal Income PPP-measures Corporate Capabilities & Objectives Develop The List Of Most Economically Optimum Countries & Regions Need Economic Need social Need Maslow’s Concept Engel’s Law

Cultural Need Satisfaction Priority Percentage of Income Left for Higher Levels of Needs in USA: Super Needs Esteem: Ownership: Direction of Priorities Safety Needs: Basic Needs:

MICROECONOMIC ENVIRONMENT Product New Differentiated Existing Demand Exists & Is Satisfied Exists & Is Unsatisfied Is Expected To Emerge Corporate Capabilities & Objectives Determine The Actual & Desired Product Positioning In Foreign Markets Competition Highly Competitive Niche Competition Non-Existent

Demand Structure in the Foreign Market Microeconomic Environment Demand Structure in the Foreign Market Satisfied Needs Unsatisfied Needs Emerging Needs CDMA-Wireless Telephones in Chine Vaccine for Common Cold New To Them or New To All Innovative Companies Modified for Them- Differentiated High Cash Companies Your Product Common or “Me Too” Chinese Shoes In USA Chinese High-Tech In Vietnam

Types of Political & Financial Risks Multinational Corporations Global Companies Mature Markets Emerging Economies Citizens Actions Government Intervention Economic Rationale Political Reasons Do Not Worry! Long-Term Domestication Nationalization/ Expropriation Confiscation or Seizure of Assets + + Regulation of MNC NOW WORRY!!!

Corporate Safety Factors Low High Low High Natural Time Trend R & D

Political, Economics & the Time Factors Democracy USA Sweden Russia89 Capitalism Time Time 0 Socialism Russia89 Peru Cuba Non-Democracy

HIGH POLITICAL/FINANCIAL RISK RISK-RETURN TRADE OFF HIGH POLITICAL/FINANCIAL RISK DIRECT/INDIRECT EXPORTING LICENSING JOINT VENTURE LOW HIGH RETURN FDI LET ME KNOW WHEN YOU FIND THEM!!! LOW

Attributes of High vs. Low Context Cultures

Hofstede’s Dimensions INDIVIDUALISM VS COLLECTIVISM HIGH/LOW POWER DISTANCE MASCULINE VS FEMININE WEAK/STRONG UNCERTAINTY AVOIDANCE CONFUCIANIST DYNAMICS (LONG RUN ORIENTATION)

Power Distance and Individualism Scales Small Large ARG Argentina BRA Brazil CHL Chile COL Columbia GRE Greece HOK Hong Kong IND India IRA Iran JAP Japan MEX Mexico PAK Pakistan PER Peru PHI Philippines POR Portugal SIN Singapore TAI Taiwan THA Thailand TUR Turkey VEN Venezuela YUG Yugoslavia 12 PAK •COL •VEN Collectivist •TAI •PER •THA •SIN •CHL •POR •HOK •YUG •MEX 30 •PHI •GRE •TUR •BRA •IRA Individualism •ARG •JAP •IND 50 +11 +28 +44 +64 +77 +94 Small power distance collectivist Large power distance collectivist

Power Distance and Individualism Scales Small Large AUL Australia AUT Austria BEL Belgium CAN Canada DEN Denmark FIN Finland FRA France GER Germany GBR Great Britain IRE Ireland ISR Israel ITA Italy NET Netherlands NZL New Zealand NOR Norway SAF South Africa SPA Spain SWE Sweden SWI Switzerland USA United States 53 •AUT •SPA •ISR •FIN Individualist •SAF •GER •NOR •SWI •FRA 71 •IRE •SWE •DEN •BEL •NZL •CAN •ITA Individualism •NET •GBR AUL • USA • 91 +11 +28 +44 +64 +77 +94 Small power distance individualist Large power distance individualist

Uncertainty Avoidance and Masculinity Scales Weak Masculinity Feminine Masculine 8 AUL Australia CAN Canada DEN Denmark FIN Finland GBR Great Britain HOK Hong Kong IND India IRE Ireland NET Netherlands NZL New Zealand NOR Norway PHI Philippines SIN Singapore SAF South Africa SWE Sweden SWI Switzerland USA United States •SIN Uncertainty Avoidance •HOK •DEN 32 •SWE GBR• •IRE •IND USA• •PHI Strong •NOR •CAN •NZL •SAF •NET •AUL FIN • 56 +23 +44 +59 +77 +95 Weak uncertainty avoidance/feminine Weak uncertainty avoidance /masculine

Uncertainty Avoidance and Masculinity Scale Weak Masculinity ARG Argentina AUT Austria BEL Belgium BRA Brazil CHL Chile COL Columbia FRA France GER Germany GRE Greece IRA Iran ISR Israel ITA Italy JAP Japan MEX Mexico PAK Pakistan PER Peru POR Portugal SPA Spain SWI Switzerland TAI Taiwan THA Thailand TUR Turkey VEN Venezuela YUG Yugoslavia Feminine Masculine 59 •FIN SWI• •IRA •GER THA• TAI• •PAK •AUT BRA• Uncertainty Avoidance ITA• ISR• •VEN •SPA 84 FRA• COL• TUR• CHL• •MEX •ARG •PER YUG• •BEL Strong JAP• •POR •GRE 112 +23 +44 +59 +77 +95 Strong uncertainty avoidance/feminine Strong uncertainty avoidance/masculine

Market Attractiveness Low Medium High Competition High Low Risk Med. Low Low Med. High Risk High

International Brand Strategy Global Brand Manager’s Objective: Global Brand Dominance Kleenex, Coke, Hoover, Band Aid, Lee, Jeep, Evian) Branding Standard brand name (imac, Tabasco) or use of company name (IBM, Honda) Brand Name Adaptation (Tide vs.. Ariel) Different Names (Lexus vs.. Toyota) Private Branding Walmart (worldwide) Sears (in NAFTA)

GLOBAL PRODUCT POSITIONING THERE ARE THREE PSYCHOLOGICALLY DIFFERENT EFFECTS ON BUYERS WHEN A GLOBALLY STANDARDIZED PRODUCT OR SERVICE IS INTRODUCED ON A LOCAL MARKET: 1. CUSTOMERS’ EXISTING PERCEPTUAL MAPS OF THE PRODUCT CATEGORY REMAIN INTACT BUT THE NEW BRAND TARGETS ONE UNTAPPED SEGMENT. 2. THE PRODUCT SPACE IS ALTERED, BY ADDING DIMENSIONS OR EXTENDING END-POINTS. 3. BUYER PREFERENCES ARE CHANGED. IN PRACTICE, ALL THREE PROCESSES ARE OFTEN AT WORK SIMULTANEOUSLY.

BRAND IMAGE MISPOSITIONED PRODUCTS CAN BE ATTRACTIVE TO POTENTIAL CUSTOMERS BECAUSE OF BRAND IMAGE AND STATUS. GLOBAL BRANDS OFTEN DO BETTER THAN LOCAL BRANDS THAT MAY BE BETTER SUITED TO CUSTOMER NEEDS FOR THAT AND OTHER REASONS: CONSPICUOUS CONSUMPTION -- LET EVERYONE SEE WHAT YOU BUY AND HOW MUCH YOU BUY. LOWER PERCEIVED RISK.

COUNTRY OF ORIGIN WHERE A PRODUCT OR BRAND COMES FROM OFTEN COUNTS A GREAT DEAL WITH CONSUMERS. COUNTRY-OF-ORIGIN EFFECT DEALS WITH QUALITY PERCEPTIONS OF PRODUCTS. THIS EFFECT DIFFERS BY PRODUCT CATEGORY. ALSO, THE QUALITY LEVEL AT WHICH A COUNTRY PRODUCES IS FACTORED IN. COUNTRY-OF-ORIGIN BIAS CUSTOMERS TEND TO OVERSTATE THE POSITIVE AND NEGATIVES OF PRODUCT ATTRIBUTES ANDTHIS CAN CAUSE A BIAS TOWARDS PRODUCTS FROM A GIVEN COUNTRY.

LOWER PRICE THROUGH A REDUCED PRICE, A CUSTOMER CAN BE INDUCED TO BUY A MISPOSITIONED BRAND BECAUSE THEY FEEL THAT THEY ARE GETTING A “GOOD DEAL.” HOWEVER, THIS CAN BACKFIRE ON THE MARKETER, SINCE THE PRICE PAID GRADUALLY LOSES SALIENCE, WHILE THE PRODUCT STAYS. MARKETER BECOMES VULNERABLE TO LOWER-COST MANUFACTURERES ENTERING THE MARKET (Japanese products vs. Koreans).

International Price Escalation Effects (in $U.S.) 3 3 3

Price quotes (Ex-Factory or Ex-Work) Exchange rates Export Pricing Issues Price quotes (Ex-Factory or Ex-Work) Exchange rates Method of payment (Cash, LOC, Countertrade…) Government regulations (Walmart-Germany) To whom you sell (Government vs. Private Sector). Consumer affordability (per capita income). Competition (domestic or global). Country of origin and local consumer perception. 7 7 7

Transfer Pricing GM USA (Producing cars) Opel division European Union A C Delco USA (Battery, stereo, auto parts) Transfer Pricing Vietnam (export) GM-JV in Shenyang, China Export pricing

The Hamburger Standard 9 9 9

*Prices may vary locally †Purchasing power parity; local price divided by price in the United States **Against dollar ‡Average of New York, Chicago, San Francisco and Atlanta ‡‡Dollars per pound §Market rate 10 10 10

East-West Distribution Mentality Large Wholesaler Medium Wholesaler Small Wholesaler Manufacturer Retailer Import House End Buyer Cost 25%-50% higher for consumers in Japan East: Japan- Basic Marketing Objective: Relationship-permanency-pay per existence Wholesaler Retailer End Buyer Manufacturer West: USA- Basic Marketing Objective: Efficiency-Pay Per Performance

Japanese Import Distribution Alternatives - Distribution Route of Italian Spaghetti Japanese Conventional Route Producer Small wholesaler Processing and packing plant Import agent Primary wholesaler Intermediary wholesaler Retail price: 170yen/300g package Retailer US-Style Restructured Route Producer Importing company A/C Processing and packing plant Depots Distribution Wholesalers Distribution centers Retailer Retail price: 128yen/300g package Savings: 25% 3 3

Size and Number of Retail Outlets in Selected Countries 7 7

East-West International Distribution Mentality Efficient Manufacturer Large Wholesaler Medium Wholesaler Small Wholesaler Retailer Inefficient Domestic Distribution Network Efficient Global Distributors (e.g. JTCs) Import House End Buyer EAST (e. g. JAPAN) Expensive Global Distributors (e.g. EMCs) WEST (e. g. USA Inefficient Manufacturer Wholesaler Retailer End Buyer Efficient Domestic Distribution Network

East-West Distribution Mentality Large Wholesaler Medium Wholesaler Small Wholesaler Manufacturer Retailer Commission Structure (PPP-loyalty) JIT (small apt. small retailers) Multiple Visits Per Day to Retailer by Small Wholesaler Return Policy- 2-way Channel Credit Extension- 150 days at low interest (0.06% now) Employment Buffer-economics environment Natural Import Barrier-trade policy Cultural, Political-Legal End Buyer Wholesaler Retailer End Buyer Manufacturer

Determinants of Choice of Channel 1. Product Requirements (Perishable lettuce, sensitive apples, fine china, scratched cars, beer without freshness, moldy cakes,...) 2. Logistic Feasibility (Equipment by DHL, autos by air, faxes of newsletters, freezer railroad cars, shock-absorbent packaging, vacuum-packed,...) 3. Demand Factors (Importance of speed for repairs, timing of raw materials for inventory, customers’ need for immediate gratification, quality standards of middleman and final user,...) 4. Competitive Factors (How fast is fast? How good is good? What are the alternatives for the buyer? Strategic importance of the market?) 5. Middlemen Resources (Storage capability? Credit or consignment or cash? Motivating with fast delivery? Just-in-time system? Promised supplies? Ability to support the marketing effort?) 6. Own Resources (Financial, manpower, production capacity) 10 10

Seiko’s Authorized and Unauthorized Channels of Distribution Europe Hong Kong Japan North America Importer Importer Importer Distributors Distributors Distributors Distributors Retailers Retailers Retailers Retailers Broken arrows denote the flow of Seiko watches through unauthorized channels of distribution. Solid arrows denote the flow of Seiko watches through authorized channels of distribution. 8 8

Advertising Intensity in Selected Countries 2 2

Media Usage in Various Countries 3 3

Components of Global Advertising Strategy Message (content) and Creative (form- the way the message gets across) Media (radio, TV, outdoor, print, point of purchase, cinema. internet) Target Audience (cross-cultural, provincial, demographic) Product Nature (industrial.consumer, durable, non-durable) Corporate Mentality (global, multinational) Advertising Objective (awareness, understanding, interest, purchase) 4 4

International Communications Process Awareness Understanding Interest Purchase Producer/ marketer/ advertiser Sets objectives and advertising budget(s) worldwide Advertising agency Develops the message (Cultural Encoding) and selects the media Mass Media Carries the message (Available & Acceptable Media In Each Country) Target Market Receives the message and interprets its content from media/ peers (Cultural Decoding) Marketing coordination and control Generate feedback on effects Recipients Think & feel (Cognition & Emotion); act & react to the message (hierarchy of effects) Revisit Ads & Objectives Results Vs. Ad Objectives 6 6

International Product Life Cycle $ Sales $ Trade IPLC Net Revenue From Trade For the First Mover Nation PLC Country Monopoly Over the Industry Individual Monopoly Over The Technology Company Monopoly Over The Product Exports=Imports Line Time