1. 1 Global Marketing Chapter 3 Regional Market Characteristics and Preferential Trade Agreements

2. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-2 Many countries seek to lower barriers to trade within their regions PTAs give partners special treatment and may discriminate against others Over 150 PTAs have been notified to the WTO ASEAN- PR CHINA PTA (2005) Thailand- Laos (1991) Preferential Trade Agreements

3. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-3 Free Trade Area Two or more countries agree to abolish tariffs and other barriers to trade amongst themselves. Countries continue independent trade policies with countries outside agreement. Rules of origin requirements restrict transshipment of goods from the country with the lowest tariff to another. (ACFTA), in effect as of 1 January 2010 (AIFTA), in effect as of 1 January 2010 NAFTA Protest in Ottawa

4. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-4 North America—NAFTA Canada, United States, Mexico NAFTA established free trade area –All three nations pledge to promote economic growth through tariff reductions and expanded trade and investment –No common external tariffs –Restrictions on labor and other movements remain U.S.-Mexico Border Crossing

5. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-5 Asia-Pacific: The Association of Southeast Asian Nations (ASEAN) Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam Trading partners U.S., EU, China Geographically close; historically divided “ASEAN plus six” (Japan, China, Korea, Australia, New Zealand, India) working towards an economic community

6. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-6 ASEAN

7. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-7 Customs Union Evolution of Free Trade Area Includes the elimination of internal barriers to trade (as in FTA) AND establishes common external barriers to trade Examples: The EU and Turkey, the Andean Community, etc.

8. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-8 Common Market Includes the elimination of internal barriers to trade (as in free trade area) AND establishes common external barriers to trade (as in customs union) AND allows for the free movement of factors of production, such as labor, capital, and information Mercosur is an example Mercosur member countries -Brazil, Argentina, Venezuela, Paraguay and Uruguay.

9. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-9 Economic Union Includes the elimination of internal barriers to trade (as in free trade area) AND establishes common external barriers to trade (as in customs union) AND allows for the free movement of factors of production, such as labor, capital, and information (as in common market) AND coordinates and harmonizes economic and social policy within the union

10. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-10 European Union 27 countries 491 million people Combined GNI of $14.7 trillion Euro currency, 1999 Harmonization of laws and regulations

11. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-11 European Union Full evolution of economic union –creation of unified central bank –use of single currency –common policies on issues such as agriculture, social policy, transport, competition, mergers, taxation –requires extensive political unity –would lead to a central government in time European Union Flag

12. ©2011 Pearson Education, Inc. publishing as Prentice Hall Assignment -3 Topic for self study: Diffusion Theory in Chapter 4 Read the above topic in chapter 4 and collect more information related to the topic if possible and prepare the assignment and PowerPoint. 3-12

13. 13 Social and Cultural Environments Global Marketing Chapter 4

14. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-14 Introduction This chapter includes: Society, Culture, and Consumer Culture Ethnocentricity and Self-Reference Criterion Hall’s Theory Hofstede’s Cultural Typology Diffusion Theory

15. ©2011 Pearson Education, Inc. publishing as Prentice Hall Culture A basic definition -- Culture is the total accumulation of an identifiable group's beliefs, norms, activities, institutions, and communication patterns. Values, attitudes, standards and beliefs are all embedded in culture

16. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-16 Society, Culture, and Global Consumer Culture Culture is acted out in social institutions Culture is both physical (clothing and tools) and nonphysical (religion, attitudes, beliefs, and values)

17. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-17 Social Institutions Family Education Religion Government Business These institutions function to reinforce cultural norms

18. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-18 Society, Culture, and Global Consumer Culture “Culture is the collective programming of the mind that distinguishes the members of one category of people from those of another.” Geert Hofstede A nation, an ethic group, a gender group, an organization, or a family may be considered as a category.

19. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-19 Attitudes, Beliefs, and Values Attitude–learned tendency to respond in a consistent way to a given object or entity Belief–an organized pattern of knowledge that an individual holds to be true about the world Value–enduring belief or feeling that a specific mode of conduct is personally or socially preferable to another mode of conduct

20. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-20 Religion The world’s major religions include Buddhism, Hinduism, Islam, Judaism, and Christianity and are an important source of beliefs, attitudes, and values. Religious tenets, practices, holidays, and history impact global marketing activities.

21. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-21 Aesthetics The sense of what is beautiful and what is not beautiful What represents good taste as opposed to tastelessness or even obscenity Visual–embodied in the color or shape of a product, label, or package Styles–various degrees of complexity, for example, are perceived differently around the world

22. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-22 The Meaning of Color Red signifies good luck and celebration in China Red is associated with “active,” “hot” and “vibrant”

23. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-23 Dietary Preferences

24. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-24 Language and Communication Speaking English around the Globe –There are more people who speak English as a foreign language than native speakers –85% of European teens study English –Sony, Nokia, Matsushita require managers to speak English Nonverbal Communication –Westerners tend to be verbal; Asians value nonverbal communication –In Japan, bowing has many nuances –In the Mideast, Westerners should not show the soles of shoes or pass documents with the left hand

25. ©2011 Pearson Education, Inc. publishing as Prentice Hall Marketing’s impact on culture 4-25

26. ©2011 Pearson Education, Inc. publishing as Prentice Hall Theoretical perspectives Halls High- Low context culture Hofstede’s Cultural Typology Diffusion Theory Halls High- Low context culture Hofstede’s Cultural Typology Diffusion Theory 4-26

27. Low vs. High Context Treat everyone the same vs. cater to background characteristics

28. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-28 High- and Low-Context Cultures High Context –Information resides in context –Emphasis on background, basic values, societal status –Less emphasis on legal paperwork –Focus on personal reputation Saudi Arabia, Japan Low Context –Messages are explicit and specific –Words carry all information –Reliance on legal paperwork –Focus on non- personal documentation of credibility Switzerland, U.S., Germany

29. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-29 High- and Low-Context Cultures

30. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-30 Hofstede’s Cultural Typology Power Distance Individualism/ Collectivism Masculinity Uncertainty Avoidance Long-term Orientation

31. Low vs. High power distance (shared power vs. power elites)

32. ©2011 Pearson Education, Inc. publishing as Prentice Hall Power Distance –Extent to which the less powerful members of a society accept power to be distributed unequally –Hong Kong, France etc. are high power distance countries –Austria, Denmark, Sweden etc. are lower power distance countries 4-32

33. ©2011 Pearson Education, Inc. publishing as Prentice Hall Individualistic culture: I define myself (not society) United States, Europe are having high individualism Japan, Hong kong, Taiwan are having high collectivism

34. ©2011 Pearson Education, Inc. publishing as Prentice Hall Masculinity/Femininity 4-34 Japan, Austria are ranked highest

35. ©2011 Pearson Education, Inc. publishing as Prentice Hall Uncertainty Avoidance Preparedness of the people to face any uncertainties in society. Members of the uncertainty avoiding cultures may be more aggressive, emotional and have intolerant behavior. Greece, Portugal etc. are outrank others Denmark, Sweden, Ireland, US are uncertainty accepting countries. 4-35

36. ©2011 Pearson Education, Inc. publishing as Prentice Hall Long term orientation The extent to which a society encourages and rewards future oriented behaviors such as planning, investing in the future etc. Most of the Asian countries such as Japan, Hong Kong, Taiwan are examples. 4-36

37. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-37 Diffusion Theory: (SELF STUDY) The Adoption Process The mental stages through which an individual passes from the time of his or her first knowledge of an innovation to the time of product adoption or purchase –Awareness –Interest –Evaluation –Trial –Adoption

38. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-38 Diffusion Theory: Characteristics of Innovations Innovation is something new; five factors that affect the rate at which innovations are adopted include: –Relative advantage –Compatibility –Complexity –Divisibility –Communicability

39. ©2011 Pearson Education, Inc. publishing as Prentice Hall 4-39 Diffusion Theory: Adopter Categories

40. ©2011 Pearson Education, Inc. publishing as Prentice Hall 3-40

41. 41 The Political, Legal, and Regulatory Environments of Global Marketing Global Marketing Chapter 5

42. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-42 Introduction The global marketer must comply with each nation’s laws and regulations with respect to the cross-border movement of services, people, money, and know-how. Be aware of laws and regulations that change frequently or are ambiguous and can hamper the company’s activities.

43. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-43 The Political Environment Made up of governmental institutions, political parties, and organizations that rulers and people use to wield power Each nation’s political culture reflects the importance of the government and legal system sovereignty, political risk, taxes, equity dilution, and expropriationIssues for foreign investors include the governing party’s view on sovereignty, political risk, taxes, equity dilution, and expropriation

44. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-44 Nation-States and Sovereignty Sovereignty can be defined as supreme and independent political authority. Many governments in developing countries exercise control over their nations’ economic development by passing protectionist laws and regulations.

45. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-45 Political Risk Risk of change in political environment or government policy that would adversely affect a company’s ability to operate effectively and profitably When perceived political risk is high, a country will have a difficult time attracting foreign direct investment

46. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-46 Political Risk Some examples of political risk include: –War –Social unrest –Politically-motivated violence –Transparency –Social conditions (population density and wealth distribution) –Corruption –Crime –Labor costs –Tax discrimination

47. ©2011 Pearson Education, Inc. publishing as Prentice Hall Thailand 5-47

48. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-48 Taxes Government taxation policies High taxation can lead to black market growth and cross-border shopping Corporate taxation Companies attempt to limit tax liability by shifting location of income

49. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-49 Seizure of Assets Expropriation–governmental action to dispossess a foreign company or investor –Compensation should be provided in a “prompt, effective, and adequate manner” Confiscation occurs when no compensation is provided

50. ©2011 Pearson Education, Inc. publishing as Prentice Hall Expropriation 5-50 President Hugo Chavez, Venezuala ordered the expropriation

51. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-51 Seizure of Assets Nationalization–a government takes control of some or all of the enterprises in an entire industry –Acceptable according to international law if: satisfies public purpose includes compensation

52. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-52 Seizure of Assets Creeping expropriation– The continual restriction of private property rights gradually over time by a government. –Limits on repatriation of profits, dividends, or royalties –Technical assistance fees –Quotas for hiring local nationals –Price controls –Discriminatory tariff and nontariff barriers –Discriminatory laws on patents and trademarks

53. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-53 International Law The rules and principles that nation-states consider binding among themselves Disputes between nations are issues of public international law –World Court or International Court of Justice (ICJ) –Judicial arm of the United Nations

54. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-54 Common Law vs. Civil Law The Napoleonic Code of 1804 drew on Roman legal system and is the basis for continental European law today. Code law is also known as civil law. U.S. law is rooted in English civil law.

55. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-55 Common Law vs. Civil Law In a common law country, many disputes are decided by reliance on the authority of past judicial decisions or cases A civil law country is one in which the legal system reflects the structural concepts and principles of Roman empire in 16th century

56. ©2011 Pearson Education, Inc. publishing as Prentice Hall Common Law vs Civil Law 3-56 Pros and Cons The benefit of a common law system is that you can be confident of what will happen in your case if a similar case has been heard before. The drawback is that if you have an unusual case, there is nothing to stop a judge creating a new law and applying it to your case. The benefit of a civil law system is that you can only be judged by the laws which were actually written down in front of you at the time. The drawback is that even if previous cases show you should win your case, there is no guarantee a judge will interpret the code in the same way on your case.

57. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-57 Islamic Law Legal system in many Middle Eastern countries Sharia–a comprehensive code governing Muslim conduct in all areas of life, including business –Quran–Holy Book; like code law –Hadith–like common law Based on life, sayings, and practices of Muhammad Identifies forbidden practices “haram”

58. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-58 Important Business Issues Get expert legal help Prevent conflicts –Establish jurisdiction –Protect intellectual property –Protect licenses and trade secrets –Avoid bribery

59. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-59 Jurisdiction Refers to a court’s authority to rule on particular types of issues arising outside of a nation’s borders or to exercise power over individuals or entities from different countries. Employees of foreign companies should understand the extent to which they are subject to jurisdiction of host- country courts Courts have jurisdiction if it can be demonstrated that the company is doing business in the state the court sits

60. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-60 Intellectual Property Intellectual property must be registered in each country where business is conducted Patent–gives an inventor exclusive right to make, use, and sell an invention for a specified period of time Trademark–distinctive mark, motto, device, or emblem used to distinguish it from competing products Copyright–establishes ownership of a written, recorded, performed, or filmed creative work

61. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-61 Infringement of Intellectual Property CounterfeitingCounterfeiting–unauthorized copying and production of a product Associative Counterfeit/ImitationAssociative Counterfeit/Imitation– product name differs slightly from a well-known brand PiracyPiracy–unauthorized publication or reproduction of copyrighted work

62. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-62

63. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-63

64. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-64

65. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-65 Protecting Intellectual Property In the U.S., registration is with the Federal Patent Office In Europe, applicants use the European Patent Office or register country-by- country For Thailand, Thailand Patent and Trademark Office: Department of Intellectual Property (DIP)

66. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-66 Antitrust Laws are designed to combat restrictive business practices and to encourage competition –Enforced by FTC in the U.S., Fair Trade Commission in Japan, European Commission in European Union –The Sherman Act of 1890 prohibits certain restrictive business practices including fixing prices, limiting production, allocating markets, or any other scheme designed to limit or avoid competition. Law applies to U.S. companies outside U.S. borders and to foreign companies operating in the U.S.

67. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-67 Licensing and Trade Secrets Licensing is a contractual agreement in which a licensor allows a licensee to use patents, trademarks, trade secrets, technology, and other intangible assets in return for royalty payments or other forms of compensation Important considerations –What assets may be licensed –How to price assets –The rights granted

68. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-68 Licensing and Trade Secrets Trade secrets are confidential information or knowledge that has commercial value and is not in the public domain and for which steps have been taken to keep it secret To prevent disclosure, use confidentiality contracts The Uniform Trade Secrets Act has been adopted by most U.S. states TRIPS, Trade-Related Aspects of Intellectual Property Rights signed by members of GATT

69. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-69 Bribery and Corruption Foreign Corrupt Practices Act –Requires publicly held companies to institute internal accounting controls that would record all transactions –Makes it a crime for a U.S. corporation to bribe an official of a foreign government or political party to obtain or retain business –Prohibits payments to third parties when there is reason to believe it may be channeled to foreign officials

70. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-70 2008 Corruption Rankings “Cleanest” Countries 1 Denmark 1. New Zealand 1. Sweden 4. Singapore 5. Finland 5. Switzerland 7. Iceland 7. Netherlands 9. Australia 9. Canada Most Corrupt Countries 171. Dem. Rep. Of Congo 171. Equatorial Guinea 173. Chad 173. Guinea 173. Sudan 176. Afghanistan 177. Haiti 178. Iraq 178. Myanmar 180. Somalia

71. ©2011 Pearson Education, Inc. publishing as Prentice Hall 5-71 Conflict Resolution Litigation Formal arbitration –Settles disputes outside of court –Groups agree to abide by panel’s decision