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2 International Marketing and Exporting

3 Globalization The shift towards a more integrated and interdependent world economy. The shift towards a more integrated and interdependent world economy. Two components: Two components: The globalization of markets. The globalization of markets. The globalization of production. The globalization of production.

4 Global Drivers Positive Technology Open Markets Economic Integration Peace Corporate Strategy Global Focus Negative Culture Market Barriers National Barriers War Corporate Strategy Local Focus

5 Globalization of Markets

6 Global Perspective: Global Perspective: Boeing Company example Boeing Company example Peace Works company example Peace Works company example Recent events that have impacted international marketing Recent events that have impacted international marketing High tech and dot.com company bust in early 2000’s High tech and dot.com company bust in early 2000’s September 11 th terrorist attacks in U.S. September 11 th terrorist attacks in U.S. Wars in Afghanistan and Iraq Wars in Afghanistan and Iraq

7 Globalization of Markets 4 Prevailing trends that have the most impact on international business in the future: 4 Prevailing trends that have the most impact on international business in the future: 1. Growth of the World Trade Organization and region free trade areas (NAFTA, European Union..) 1. Growth of the World Trade Organization and region free trade areas (NAFTA, European Union..) 2. Trend of developing countries (such as Asia, Latin America, Eastern Europe) accepting the “free market system” 2. Trend of developing countries (such as Asia, Latin America, Eastern Europe) accepting the “free market system” 3. Impact of the internet and other global media companies (CNN) 3. Impact of the internet and other global media companies (CNN) 4. Mandate for companies to properly manage resources 4. Mandate for companies to properly manage resources

8 Globalization of Markets Why international marketing is so important: Why international marketing is so important: Companies can no longer ignore the effects of internationally marketing Companies can no longer ignore the effects of internationally marketing Competition no longer exists just from domestic companies (exhibit 1.1 pg. 7) Competition no longer exists just from domestic companies (exhibit 1.1 pg. 7) In order to sustain profitability and growth margins of the past, companies have to look for alternative methods of marketing their products and services In order to sustain profitability and growth margins of the past, companies have to look for alternative methods of marketing their products and services “In a study conducted on U.S. manufacturing companies of all sizes, it was found that multinational companies outperformed their strictly domestic U.S. counterparts by more than twice as fast in sales and earned much greater returns on equity and assets..” (exhibit 1.2 pg. 9) “In a study conducted on U.S. manufacturing companies of all sizes, it was found that multinational companies outperformed their strictly domestic U.S. counterparts by more than twice as fast in sales and earned much greater returns on equity and assets..” (exhibit 1.2 pg. 9)

9 Globalization of Markets Definition of International Marketing: Definition of International Marketing: “The performance of business activities designed to plan, price, promote and direct the company’s flow of goods and services to consumers or users in more than one nation for a profit” (4 P’s) “The performance of business activities designed to plan, price, promote and direct the company’s flow of goods and services to consumers or users in more than one nation for a profit” (4 P’s) What is the difference between marketing domestically and internationally What is the difference between marketing domestically and internationally Marketing concepts are universal (goal is to make a profit) Marketing concepts are universal (goal is to make a profit) Difference is that in international marketing ALL environments have to be taken into consideration when the marketing plan is developed and executed Difference is that in international marketing ALL environments have to be taken into consideration when the marketing plan is developed and executed Must consider the legal environment, governmental controls, climate & weather, cultural beliefs, buyer behavior… (uncontrollable elements) Must consider the legal environment, governmental controls, climate & weather, cultural beliefs, buyer behavior… (uncontrollable elements)

10 International vs Domestic Business Countries are different. Countries are different. Range of problems are wider and more complex. Range of problems are wider and more complex. Government intervention in trade and investment creates problems. Government intervention in trade and investment creates problems. International investment is impacted by different currencies. International investment is impacted by different currencies.

11 Levels of Involvement in International Marketing Exporting Contractual Agreements Franchising Foreign Licensing Subcontracting International Direct Investment Acquisitions Joint Ventures Overseas Divisions Low High Degree of Risk and Control

12 International Trade Theories Absolute Advantage Absolute Advantage Comparative Advantage Comparative Advantage Heckscher-Olin Theory (Factor Proportion Theory) Heckscher-Olin Theory (Factor Proportion Theory) Product Life Cycle Theory Product Life Cycle Theory © McGraw Hill Companies, Inc.,2000

13 An Overview of Trade Theory Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country. Free Trade occurs when a government does not attempt to influence, through quotas or duties, what its citizens can buy from another country or what they can produce and sell to another country. The Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. The Benefits of Trade allow a country to specialize in the manufacture and export of products that can be produced most efficiently in that country. The Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Others are not so easy to understand (Japan and cars). The Pattern of International Trade displays patterns that are are easy to understand (Saudi Arabia/oil or Mexico/labor intensive goods). Others are not so easy to understand (Japan and cars). © McGraw Hill Companies, Inc.,2000

14 Theory of Absolute Advantage Capability of one country to produce more of a product with the same amount of input than another country. Capability of one country to produce more of a product with the same amount of input than another country. Produce only goods where you are most efficient, trade for those where you are not efficient. Produce only goods where you are most efficient, trade for those where you are not efficient. Trade between countries is, therefore, beneficial. Trade between countries is, therefore, beneficial. Assumes there is an absolute advantage balance among nations. Assumes there is an absolute advantage balance among nations. © McGraw Hill Companies, Inc.,2000

15 Theory of Comparative Advantage Extends free trade argument Extends free trade argument Efficiency of resource utilization leads to more productivity. Efficiency of resource utilization leads to more productivity. Should import even if country is more efficient in the product’s production than country from which it is buying. Should import even if country is more efficient in the product’s production than country from which it is buying. L ook to see how much more efficient. If only comparatively efficient, than import. L ook to see how much more efficient. If only comparatively efficient, than import. Makes better use of resources Makes better use of resources © McGraw Hill Companies, Inc.,2000

16 Heckscher (1919)-Olin (1933) (Factor Proportion)Theory Export goods that intensively use factor endowments which are locally abundant. Export goods that intensively use factor endowments which are locally abundant. Corollary: import goods made from locally scarce factors. Corollary: import goods made from locally scarce factors. Patterns of trade are determined by differences in factor endowments - not productivity. Patterns of trade are determined by differences in factor endowments - not productivity. Remember, focus on relative advantage, not absolute advantage. Remember, focus on relative advantage, not absolute advantage. © McGraw Hill Companies, Inc.,2000

17 Factor Endowments Taken from Heckscher-Olin Taken from Heckscher-Olin Basic factors: Basic factors: natural resources, natural resources, climate, climate, location. location. Advanced factors: Advanced factors: communications, communications, skilled labor, skilled labor, technology. technology. © McGraw Hill Companies, Inc.,2000

18 Product Life-Cycle Theory ( Raymond Vernon, 1966 ) As products mature, both location of sales and optimal production changes. As products mature, both location of sales and optimal production changes. Affects the direction and flow of imports and exports. Affects the direction and flow of imports and exports. Globalization and integration of the economy makes this theory less valid. Globalization and integration of the economy makes this theory less valid. © McGraw Hill Companies, Inc.,2000

19 Demand. Do foreign consumers need the company’s good or service. Competition. How do supplies currently reach the market? Economic environment. What is the state of the nation’s economic health? Social-cultural environment. How do cultural factors affect business opportunities? Political-legal environment. Do any legal restrictions complicate entering the market? Entering a Foreign Market: Areas of Focus

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