Globalization Imperative Chapter Overview Why Global Marketing is Imperative? Globalization of Markets: Convergence and Divergence Evolution of Global Marketing Theories of International Trade and the Multinational Enterprise

Introduction Products have been traded across borders throughout recorded civilization, extending back beyond the Silk Road that once connected East with West from Xian (China) to Rome (Italy). Total world trade volume in goods and services grew from $7.6 trillion in 2000 to nearly $11 trillion in 2004.

Introduction According to the World Trade Organization (WTO), the world’s five exporting countries were Germany ($912 billion), the United States ($819 billion), China ($593 billion), Japan ($566 billion), and France ($449 billion), collectively accounting for 36 percent of global trade in 2004. The Triad Regions (North America, Western Europe, and Japan) of the world collectively produce over 78 percent of world GDP in 2004.

Introduction Big Emerging Markets (BEMs): In the next ten to twenty years, BEMs such as the Chinese Economic Area (CEA: including China, Hong Kong Region, and Taiwan), India, South Korea, Mexico, Brazil, Argentina, South Africa, Poland, Turkey, and the Association of Southeast Asian Nations (ASEAN: including Indonesia, Brunei, Malaysia, Thailand, the Philippines, and Vietnam) will provide many opportunities in global business.

1. Why Global Marketing is Imperative Saturation of domestic markets: Domestic-market saturation in the industrialized parts of the world and marketing opportunities overseas are evident in global marketing. Global competition: Competition around the world and proliferation of the Internet have been on the rise and are now intensifying. Need for global cooperation: Global competition brings global cooperation.

1. Why Global Marketing is Imperative Internet revolution: The Internet and electronic commerce (e-commerce) are bringing major structural changes to the way companies operate worldwide. The term “global” epitomizes both the competitive pressure and expanding market opportunities. Whether a company operates domestically or across national boundaries, it can no longer avoid competitive pressures from around the world.

Exhibit 1-1

2. Globalization of Markets: Convergence and Divergence Per capita income is an important determinant of consumer buying behavior. When a country’s per capita income is less than $10,000, much of the income is spent on food and other necessities, and very little disposable income remains. As a country’s per capita incomes reaches $20,000, the disposable portion of income increases dramatically. This increased disposable income level results in increased convergent pressures on consumer buying behavior.

2. Globalization of Markets: Convergence and Divergence People with higher incomes tend to enjoy similar educational levels, desires for material positions, ways of spending leisure time, and aspirations for the future. Globalization does not suffocate local cultures, but rather liberates them from the ideological conformity of nationalism, with consumers becoming more receptive to new things. Consumers also have a wider, more divergent “choice set” of goods and services to choose from. In other words, the divergence of consumer needs is taking place at the same time.

2. Globalization of Markets: Convergence and Divergence International trade consists of exports and imports. International business includes international trade and foreign production. Extensive international penetration of companies is called global reach. International trade and foreign production activities are managed on a global basis. Growth of Multinational Corporations (MNCs) and intra-firm trade is a major aspect of global markets.

2. Globalization of Markets: Convergence and Divergence Who manages international trade? Intrafirm trade: Trade between MNCs and their foreign affiliates. Comprises 34 percent of world trade. An additional 33 percent of world trade was exports between MNCs and their affiliates. In other words, two-thirds of world trade is managed one way or another by MNCs.

3. Evolution of Global Marketing What is marketing? Marketing involves the planning and execution of the conception, pricing, promotion, and distribution of ideas, products, and services. Marketing involves customer satisfaction and their current and future needs. Marketing is much more than selling and involves the entire company. Within marketing strategies, companies are always under competitive pressure to move forward both reactively and proactively.

3. Evolution of Global Marketing (contd.) Five stages in the evolution of global marketing (see Exhibit 1-2): 1. Domestic Marketing (domestic focus; home country customers; ethnocentric orientation). 2. Export Marketing (indirect vs. direct exporting; country choice, exports; ethnocentric orientation; home country customers). 3. International Marketing (markets in many countries; polycentric orientation; use of multidomestic marketing when customer needs are different across national markets).

3. Evolution of Global Marketing 4. Multinational Marketing (many markets; consolidation on regional basis; regiocentric orientation; standardization within regions). 5. Global Marketing (international, multinational & geocentric orientation; company’s willingness to adopt a global perspective; global products with local variations).

Exhibit 1-2

3. Evolution of Global Marketing Global Marketing: Global marketing refers to marketing activities that emphasize the following: Standardization efforts. Coordination across markets. Global integration.

3. Evolution of Global Marketing Global marketing does not necessarily mean that products can be developed anywhere on a global scale. The economic geography, climate, and culture affect how companies develop certain products. The Internet adds a new dimension to global marketing. E-commerce retailers gain substantial savings by selling online.

4. Appendix: Theories of International Trade & the Multinational Enterprise Comparative Advantage Theory (see Exhibit 1-3) Absolute Advantage Comparative Advantage Commodity Terms of Trade Principles of International Trade Factor Endowment Theory International Product Cycle Theory (see Exhibit 1-4) Economies of Scale

Exhibit 1-3

4. Appendix: Theories of International Trade & the Multinational Enterprise Economies of Scope Technological Gap Preference Similarity Stages of International Product Cycle Theory: Introduction Stage A U.S. company innovates on a new product in its home country.

4. Appendix: Theories of International Trade & the Multinational Enterprise Growth Stage Product standards emerge and mass production becomes feasible. Maturity Stage Many U.S. and foreign companies vie for market share in the international markets. Decline Stage Companies in the developing countries also begin producing the product and marketing it in the rest of the world.

Exhibit 1-4

4. Appendix: Theories of International Trade & the Multinational Enterprise Internalization/Transaction Cost Theory Appropriability Regime Dominant Design Manufacturing and Marketing Ability