lecture 2rj

7/30/2019 Lecture 2RJ

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GLOBAL MARKETING

Lecture 1: an introduction


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Global Marketing

BUS603Lecture 2

Dr Rosalind Jones

[email protected]


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Country Selection and Entry

Strategies- chapter 2 core text

Copyright 2012, SAGE Publications, Inc.


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Learning Objectives- To explore the following 1. What two factors drive market economies, and how are these

factors different in command economies?

2. How do Rostows five stages of economic development applyto the concepts of most-, less-, and least-developed economies,emerging markets, newly industrialized countries, and transitioneconomies?

3. What factors help create a national competitive advantage foran economy?

4. How do the five forces that increase competitive rivalriesrelate to industry-level competitive advantage?

5. How do the various modes of entry balance a companys levelof control with its level of risk?



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Learning Objective #1

1. What two factors drive marketeconomies, and how are these factors

different in command economies?



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Economic Systems



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Market Economy

An economy in which most economic decisions aremade in the marketplace is a market economy.

The marketplace may be found anywhere moneychanges hands in a capitalist economic system.

Supply and Demand

Supplyis the amount of goods and services thatproducers will provide at various prices.

Demandis the amount or quantity of goods andservices the consumers are willing to buy at variousprices.

The market price, or equilibrium price, represents themeeting place between supply and demand.



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Components of Market Economies Profit

Revenue exceeds costs

Personal and business

Private Property Rights

Allow individuals to buy land, machinery, and othergoods

Competitive Marketplace

Government does not interfere with prices or sales



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Most Economically Free Countries



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Command Economy

A central authority makes all key economicdecisions in acommand economy. Socialism refers to economic systems where the

state owns at least some parts of industry.

Strong command economy Heavy governmental control will be present.

Communism is an extreme form of socialism that

bans private ownership of property. Moderate command economies

A degree of private enterprise operates.

The state owns all of the major resources.



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Mixed Economy

The marketplace guides part of theeconomic system and the governmentruns the other part.

Government may oversee defense, education,building and repairing roads, and/or fireprotection.

Marketplace vends other items, including

necessities, sundries, and luxuries. Most countries have mixed economies.

One force, marketplace or government, tendsto be more dominant.



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2. How do Rostows five stages of economicdevelopment apply to the concepts of

most-, less-, and least-developed

economies, emerging markets, newly

industrialized countries, and transition

economies?



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Economic Development

Degree of economic development in aregion or country drives manyinternational marketing decisions.

Development can be controversial androoted in politics and conflicts between

countries.

Different levels of economic development



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Stages of Economic Development



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Initial Stages of Development

Traditional Society

Subsistence economy

Agricultural primary occupation and means of

production Limited technology and capital

Preconditions for Takeoff Technology begins to develop

Rudimentary transportation to encourage trade



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Rapid Development

Takeoff Manufacturing industries grow rapidly

Airports, roads, and railways built

A few leading industries support high levels ofeconomic growth

The Drive to Maturity Growth has spread to all parts of the economy and is

self-sustaining Modern transportation systems embedded

Rapid urbanization

Traditional industries may start to decline



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Final Stage and Application

The Age of Mass Consumption

Rapid rise of tertiary, third-wave support

industries Decline in manufacturing

Citizens enjoy abundance, prosperity, and avariety of purchasing choices

At each stage, the presence and growth ofpotential target markets changes.



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Emerging Markets

Emerging markets are countries that are movingthrough the transformation from developing to

developed. Mexico, South Africa, and several countries in Asia

Big Emerging Markets (BEMs)

Emerging markets with a large population

BRIC countries Brazil, Russia, India, and China

Large regional (and increasing global) economic andpolitical footprint



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Newly Industrialized Countries (NICs)

For NICs, rapid economic development placesthem between less- and more-developedstages.

China, Taiwan, South Korea, Mexico, Brazil

NICs are always emerging markets, but

emerging markets are not always NICs Government plays a clear role in NICs and less so

in some emerging markets



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Characteristics of NICs



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Transition Economies

Occur in formerly communist countries withcentrally planned economies as the countrytransitions to a free market economy.

Eastern Europe, China

Opportunity for growth

Increased standard of living

Increased purchasing power

Gaps in market may be filled by foreign companies



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Features of Transition Economies



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Struggles for Transition Economies

Split population Younger consumers more comfortable with the

change

Older consumers may desire return to old system Economic growth more beneficial for urban than for

rural consumers

Corruption a large problem limiting growth

The task may be difficult, but the resources arescarce.



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Transparency International

Corruption Index



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Bottom-of-the-Pyramid

Low-income, bottom-of-the-pyramid customersare most likely to reside in least-developedeconomies or in Rostows traditional societies.

The potential does exist for products that aretailored to these consumers.

As an economy moves forward and infrastructureemerges, the opportunities tend to grow andexpand impressively.



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3. What factors help create a nationalcompetitive advantage for an economy?



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National Competitive Advantage The basis of global economic leadership

Michael Porters Diamond- National CompetitiveAdvantage Model-

This model moves beyond traditional ideas of cost of

labour, currency differences or availability of naturalresources and looks at what drives a country toinnovate. Demand conditions

Related and supporting industries Firm strategy, structure, and rivalry

Factor conditions

Government (can encourage the other 4 factors)



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Demand Conditions

The unique features of demand in a nation make upthat countrys demand conditions.

Domestic consumers may be more or lessrepresentative of the global consumers.

Consumers who move the global taste in a category orindustry help a nation become global leaders in thatcategory. France and fashion

South Korea and technology



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Related and Supporting Industries

Support from various other companies thatprovide inputs, support production, or facilitateother aspects of an industry together count as

related and supporting industries.

Nations with this type of support network exhibit

one of the conditions needed to have a nationalcompetitive advantage in that industry.

Nokia in Finland is surrounded by needed related andsupporting industries.



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Firm Strategy, Structure, and Rivalry

Nations differ in terms of how thegovernment allows companies to be formed,maintained, and structured, including controlof domestic and potentially foreigncompetitors.

This results in differences in firm strategy,structure, and rivalry

In Italy, companies tend to be smaller, familyowned, and privately held.

In Germany companies tend to be large andhighly structured, and employ managers withtechnical backgrounds.



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Factor Conditions

Factor conditions include components needed for production ofgoods or services, such as labor and infrastructure.

Each industry has specific factors associated with success in that field.

Traditionally, these factors were natural endowments that nationspossessed without effort.

Labour or land or various natural resources such as oil or minerals

Increasingly, resources are created such as trained human resources.

Factor conditions most clearly lead to national competitiveadvantage when specialization exists.

The American film industry has the various directors, actors,producers, and cinematographers needed.



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Government

Government, and how government interacts with the freemarket, plays a role in creating national competitiveadvantage.

Industry innovation results from competition andgovernmental activities can assist this. Support for education

Encouraging cooperation between related industries

Assisting in the development of new technologies and emerging

industries

Policies that increase competition while supportinginnovation help create national competitive advantage.



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4. How do the five forces (another Porters

Model) that increase competitive rivalries

relate to industry-level competitive

advantage?



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Industry-Level Competitive Advantage



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Threat of New Entrants

The threat of new entrants affects the nature of local,national, and international competition.

The large size of the markets in Big EmergingMarkets alone sparks interest and increases the chance ofnew entrants.

Barriers to entry can be used by companies to prevent or

limit new entrants. Potential barriers include brand equity, large initial cost

requirements, regulations, monopolies over distribution orneeded resources, and/or lack of specific, hard-to-learnknowledge.



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Threat of Substitute Products

The existence of substitute products increasescompetitive intensity. Different substitute products exist in international markets.

When consumers can switch from product to product,companies face stronger pressure from competitors toget consumers to make the switch. Switching costs increase

Consumer loyalty increase

Brand loyalty, unique product benefits, and repeatpurchase rewards all decrease switching.



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Bargaining Power of Suppliers

Companies within an industry typically use the samesupplier or a small group of suppliers for the resourcesneeded, including labour and raw materials. Suppliers of these resources with strong bargaining power

increase the competition within the industry.

Supplier bargaining power increases when only one ora small number of companies serve as supplier.

Steps to lower the bargaining power of suppliers: Buy the supplier.

Supply the resource internally.

Find substitutes for the resource, often by lookinginternationally.



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Bargaining Power of Consumers Consumers possess bargaining power.

When only a few individuals purchase a product, such ascan be the case in business-to-business marketing, thosebuyers hold more power.

Small numbers of consumers increase competition.

Price sensitivity increases consumer power due to theincreased likelihood of a customer switching to a lower-priced competitor.

Methods to decrease consumer bargaining power: Brand loyalty

Opening new markets or increasing market share

Growth in market size



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Rivalry Among Competitors

Together, the four forces above work to increase rivalryamong competitors.

Company-specific factors also increase rivalries amongcompetitors. Widely accessible knowledge and processes result in more

rivalry than does specialized, difficult-to-imitate knowledge.

Innovation, especially when legally protected, can reduce

competition within an industry.

When every company in an industry competes based onsimilar, duplicable factors, rivalry becomes intense.



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Economic Forces and

International Marketing Economic forces affect culture.

Development increases materialism.

Economic forces affect language. New terms for new technologies

Economic forces affect political and legal systems. Laws governing property rights and commerce

Laws can speed up or slow down development.

Economic forces affect infrastructure. Growth leads to more complex and developed infrastructure.



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Sustainability and

International Marketing As countries develop economically, sustainability

becomes an increasing concern.

How can economic development be donesustainably?

Economic development increases globalconsumption of resources. Energy

Water



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5. How do the various modes of entry

balance a companys level of control with its

level of risk?



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Modes of Entry



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Exporting

The product is shipped in one manner oranother into a foreign market. Typical initial method to enter a market

Little control after products leaves home country

Two broad methods: Direct sales

Use of an intermediary

The Internet has led to a growth in direct sales.



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Licensing

A contract that grants a company (the licensee) the legalright to use another companys brand, image, and othermarketing components

Can provide a quick, low-cost method for entering aforeign market The licensee holds additional knowledge about the local

market that increases the chance for success.

Primary concern is lack of control. Local partner behavior may detract from the image of the

company.

May make poor marketing choices.



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Franchising

The contractual agreement to implement a business model McDonalds, KFC, 7-Eleven, Supercuts, and Jani-King

In return for an up-front fee, signees obtain access to the

companys colors, images, and products, which offersgreater control over the marketing process by the parentcompany.

The risk is a poor franchisee. Signee may ignore contract or make decisions that hurt the

company.

Costs accrue to control signees.



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Joint Ventures

Some companies choose to partner with local businesseswhen entering a country.

When these legal partnerships involve an investment, adivision of ownership, and the creation of a new legalentity, the newly created business is joint venture.

The categories of joint ventures include: Majority owned, where the foreign company owns 51% or more

of the joint venture;

Minority owned, where the foreign company owns 49% or lessof the joint venture;

50% / 50%, or an equal split of ownership.



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Joint Venture

Advantages and Disadvantages Advantages:

Local partners provide access to local connections.

Local partners understand the local business environment.

Sharing of risk lessens potential losses.

Costs may be lowered.

Disadvantages:

Lost or leaked proprietary knowledge. Partners may misappropriate company assets and may

even break the joint venture and then use that knowledgeto succeed in separate, independent business ventures.

Conflicts between partners can also occur.Copyright 2012, SAGE Publications, Inc.


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Strategic Alliances

A formal agreement between companies to work together to achieve acommon goal. In contrast to joint ventures, a separate legal entity does not get created.

Resource sharing, project funding, and knowledge transfer all happen withinmost strategic alliances.

Many strategic alliances investigate problems that affect all or mostmembers of an industry. Sharing research on a new technological breakthrough or combining resources

to enter a new market are two common goals for strategic alliances.

Advantage

Limited financial commitment and fewer formal legal lessens risk.

Disadvantage Exposure to a potential partners leaving or stealing technology.



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Wholly Owned Subsidiary

A 100% ownership stake in a business in that country

Must comply with local regulations, adjust to local culturalstandards and mores, operate in the native language, fitwith local economic conditions, and be supportable

through the local infrastructure.

Company is able to use its own brand, logo, and colorscheme, and maintains control over both managerial

operations and marketing decisions. Primary advantage is complete control.

Primary disadvantage is lack of shared risk and high cost.Also, fail to have a local contact to facilitate entry success.



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Types of Wholly Owned Subsidiaries

Acquisitions, the company purchases a local businessthat is then transformed into the subsidiary.

Greenfieldinvestment, the company builds thesubsidiary from the ground up.

China has a unique type the wholly foreign-ownedenterprise The subsidiary maintains special economic status within

China.

These businesses typically manufacture goods solely forexport to foreign markets.



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Entry Mode Failure and Exit

Put a plan in place regarding market exit pre-entry.

Set clear, measurable goals regarding entry success with set deadlines.

Failure may result from many things.

Poor planning

External, unpredictable forces

When leaving, focus on maintaining the relationships built. Settle contracts fairly.

Focus on maintaining company reputation.

The partner in the country being exited might also be a potentialpartner in a separate country.

It is always possible that the firm will choose to enter the market againat a later date.



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Theories of Entry Mode Selection

Explaining entry mode choices is a dominant

area of international business academic

theory.

The three dominant theories:

Internationalization Theory

Internalization Theory

Eclectic or OLI Theory



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Internationalization Theory

Companies go through four stages during the move to becoming a completelyglobal company: (1) no regular export activities,

(2) export via independent representatives,

(3) establishment of an overseas sales subsidiary, and

(4) foreign production.

The model views global entry as an incremental process. A companys marketers begin by exporting to close, familiar markets.

Through these exporting activities, the company leaders gain the knowledge needed to exportto other close similar markets .

Eventually enough knowledge is gained to expand globally.

Key concept is psychic distance or the differences between managers fromdifferent countries. It includes differences in language, communication styles, legal and political structures,

education, and overall cultural values.



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Internalization Theory

Focuses on advantages to each entry mode type.

Exporting represents the default, efficient choice for market entry. Supply and demand guide the process.

The company exerts little control and less cost is involved.

The lack of control is acceptable if no unusual risks or uncertainties andtrusted partners.

In many cases, uncertainty and risks exists making exporting too risky. Managers choose to internalize the entry hence the name of the theory.

Internalization refers to taking some degree of ownership. Choosing a non exporting entry mode such a wholly owned subsidiary or a

joint venture

The high costs are offset by the level of control resulting from ownership.

Greater control allows for better response to risk and uncertainty.



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Eclectic or OLI Theory

Assumes that exporting will be the mostefficient and preferred form of entry but thatinefficiencies or problems in the market mean

that in many cases the best decision isanother form of entry. These best decisionsare based on three factors:

1. Ownership advantages

2. Location advantages

3. Internalization advantages



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Ownership Advantages Ownership advantages can be thought of as the

why for multinational corporation foreignactivities and represent the reasons marketersspend the time and effort to enter a foreigncountry.

Two types of ownership advantages: Asset advantages represent anything the company

does well that competitors cannot do.

Transaction ownership advantages relate to the abilityto capture transactional benefits, such as lower costs,from the common governance of a network ofownership assets.



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Location Advantages

Location advantages explains the where

of entry location advantages.

Some markets are more attractive than

others and are entered first due to:

Local resources, natural and human;

Governmental activities;

Market potential; and

Lower political risk.



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Internalization Advantages

Internalization advantages are the how of marketentry, and the advantages that come from making thecorrect entry decision.

While exporting is the default option, when companiesare considering entering an attractive market (locationadvantages) and have unique assets that will generatesufficient profit (ownership advantages), the correctselection of entry mode type leads to internalizationadvantages.

To select the right type of entry mode, companiesneed to balance risk, uncertainty, the ability to exploiteconomies of scale, and cost.

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