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Global Marketing Test 3

Key Concepts:

Terms in this set (35)

1) Countries benefit a lot based on their facilitating of export and import business. For example, China has attracted increased foreign investment from DaimlerChrysler, Hewlett-Packard, GM, and other similar corporations by accommodating them to set up production facilities that will support local sales as well as exports to world markets. Governments commonly use four activities to support and encourage firms that engage in exporting. These are tax incentives, subsidies, export assistance, and free trade zones. Tax incentives treat earnings from export activities preferentially either by applying a lower rate to earnings or by refunding taxes already paid on income associated with exporting. Also, tax benefits are offered by governments which may include tax exemption or tax deferral on export income, accelerated depreciation of export-related assets, and generous tax treatment of overseas market development activities. Governments also support export performance by providing outright subsidies. Subsidies are direct or indirect financial contributions or incentives that benefit producers. Governments also provide assistance to exporters. Companies can avail themselves of a great deal of governmental information concerning the location of markets and credit risks. Assistance may also be oriented toward export promotion. Various agencies at different levels hold trade fairs and trade missions designed to promote sales to foreign customers. In an effort to facilitate exports, countries are designating certain areas as "free trade zones" and particular "special economic zones." These zones are geographic entities that offer manufacturers simplified customs procedures, operational flexibility, and a general environment of relaxed regulations. Thus, these ways are very helpful and have helped several companies.
3) The stages can be divided as shown in the following points:
1. If the firm is unwilling to export; it will not even fill an unsolicited export order. This may be due to perceived lack of time or to apathy or ignorance.
2. The firm fills unsolicited export orders but does not pursue unsolicited orders. Such a firm is an export seller.
3. The firm explores the feasibility of exporting.
4. The firm exports to one or more markets on a trial basis.
5. The firm is an experienced exporter to one or more markets.
6. After this success, the firm pursues country- or region-focused marketing based on selected criteria.
7. The firm evaluates global market potential before screening for the "best" target markets to include in its marketing strategy and plan. The probability that a firm will advance from one stage to the next depends on different factors. Moving from stage 2 to stage 3 depends on management's attitude toward the attractiveness of exporting and confidence in the firm's ability to compete internationally. However, commitment is the most important aspect of a company's international orientation. Before a firm can reach stage 4, it must receive and respond to unsolicited export orders. The quality
and dynamism of management are important factors that can lead to such orders. Success in stage 4 can lead a firm to stages 5 and 6. A company that reaches stage 7 is a mature, geocentric enterprise that is relating global resources to global opportunity. To reach this stage requires management with vision and commitment.
4) In order to promote domestic industries and agriculture and restrict the inflow of materials from unfavored nations, some governments impose certain barriers. The tariffs, which can be regarded as the three R's of global business: rules, rate schedules, and regulations, are imposed by countries. Duties can be imposed on goods and services, thereby making it difficult for importers to import as well as for consumers to buy. A Harmonized Tariff System (HTS) has been adopted by the majority of trading nations, under which importers and exporters have to determine the correct classification number for a given product or service that will cross borders. This classification helps in the identifying of the product and applicable tariff. A nontariff (NTB) can also be imposed which is any measure other than a tariff that is a deterrent or obstacle to the sale of products in a foreign market. This includes quotas, discriminatory procurement policies, restrictive customs procedures, arbitrary monetary policies, and restrictive regulations. A quota is a government-imposed limit or restriction on the number of units or the total value of a particular product or product category that can be imported. In addition, discriminatory procurement policies can take the form of government rules and administrative regulations specifying that local vendors or suppliers receive priority consideration. Customs procedures are also considered restrictive if they are administered in a way that makes compliance difficult and expensive. Discriminatory exchange rate policies are imposed to distort trade in much the same way as selective import duties and export subsidies. Finally, restrictive administrative and technical regulations can create barriers to trade. These may take the form of antidumping regulations, product size regulations, and safety and health regulations. Some of these regulations are intended to keep out foreign goods; others are directed toward legitimate domestic objectives.
8) Key export entities include purchasing agents, export brokers, and export merchants. They have no responsibility from the client. Others are export management companies, manufacturer's export representatives, export distributors, and freight forwarders. They are assigned responsibilities by the exporter. Foreign purchasing agents operate on behalf of, and are compensated by, an overseas customer known as a "principal." They generally seek out the manufacturer whose price and quality match the specifications of their principal. They often represent governments, utilities, railroads, and other large users of materials. Purchases may be completed as domestic transactions with the purchasing agent handling all export packing and shipping details, or the agent may rely on the manufacturers to handle the shipping arrangements. The export broker receives a fee for bringing together the seller and the overseas buyer. This fee is usually paid by the seller. The broker takes no title to the goods and assumes no financial responsibility. A broker usually specializes in a specific commodity, such as grain or cotton, and is less frequently involved in the export of manufactured goods. Export merchants are sometimes referred to as "jobbers" and they identify market opportunities in one country or region and make purchases in other countries to fill these needs. They typically buy unbranded products directly from the producer or manufacturer. The export merchant then brands the goods and performs all other marketing activities, including distribution. "Export management company" is the term used to designate an independent marketing intermediary that acts as the export department for two or more manufacturers whose product lines do not compete with each other. It may act as an independent distributor, purchasing and reselling goods at an established price or profit margin. It may also act as a commission representative taking no title or financial risk. Manufacturer's export agent acts as an export distributor or as an export commission representative. On the other hand, an export distributor assumes financial risk, whereas the export commission representative assumes no financial risk. The cooperative exporter is an export organization of a manufacturing company retained by other independent manufacturers to sell their products to foreign markets. Freight forwarders are licensed specialists in traffic operations, customs clearance, and shipping tariffs and schedules. A licensed forwarder receives brokerage fees or rebates from shipping companies for booked space.
9) Outsourcing refers to shifting production jobs or work assignments to another company in order to cut costs. When the outsourced work moves to another country it becomes "global outsourcing" or "offshoring." Due to intense competition in the marketplace, more and more companies are under pressure to lower costs. One way to do this is to locate manufacturing or consumer relation activities in China, India, Philippines, or other low-wage countries. In theory, this situation bestows great flexibility on companies and in reality, the consumer is unaware of the country where a product is manufactured or service is delivered. However, in the case of call centers, consumers get in direct contact with the service provider or its representative. Call centers also perform outbound services such as telemarketing. A variety of tasks such as airline reservation, completing tax returns, reading medical charts, and drawing up manufacturing blueprints are done by persons who do the job at a fraction of the cost compared to what it will cost in the home country. The decision to use outsourcing requires careful analysis since saving cost may not be the only factor for success of many products or services. This requires careful consideration of management's vision, costs and conditions, customer needs, logistics, country infrastructure, political factors, and foreign exchange rates. In formulating a sourcing strategy, company managers and executives should also recognize the declining importance of direct manufacturing labor as a percentage of total product cost. For example, Compaq found that the human labor portion in manufacturing a PC is only about 15 minutes. Thus, the cost involved in saving human labor is not as high as one would imagine and outsourcing may not be the best choice for all products or services. Also, the company image and customer loyalty can be adversely affected if outsourced
services are not quality conscious.
13) Many companies have experienced difficulties, some serious, when working with partners under joint venture agreement. Anheuser Busch first entered the Japanese market in order to cross the difficult barrier by entering into a licensing agreement with Suntory, the smallest of the brewers in Japan. Although Budweiser became popular, it had a minuscule share of the market. Anheuser-Busch then created a joint venture with Kirin Brewery, the market leader with a 90 percent stake in the venture. Kirin's distribution channel was very helpful, and Anheuser-Busch was able to use some of Kirin's facilities. On the other hand, Kirin gained a lot of knowledge about the beer market globally. The beer market did not increase substantially for Anheuser-Busch, and the joint venture was losing money. Finally, Anheuser-Busch decided to dissolve the joint venture and reverted to a licensing agreement with Kirin. Thus, joint venture does not work in all circumstances and at times licensing works as well. In order for the joint venture relationship to work well, both partners must share rewards as well as risks. The main disadvantage associated with joint venture is that a company may incur very significant costs associated with control and coordination issues that arise when working with partners in another country. Another disadvantage is that of potential for conflict between partners. These often arise out of cultural differences. Corning Glass and Vitro, Mexico's largest industrial manufacturer had a joint venture. Mexican managers viewed the Americans as too direct and aggressive, whereas the American managers believed Mexicans took too much time to make important decisions. Another disadvantage is that a dynamic joint venture partner can evolve as a stronger competitor. GM and South Korea's Daewoo had joint venture to produce cars for the Korean market. GM developed Daewoo's competitiveness, and finally Daewoo terminated the venture since their cars were not allowed for exportation. Thus, all the disadvantages have to be taken into account when entering into a joint venture agreement.
16) Western companies may find themselves to be at a disadvantage in GSPs with an Asian competitor. To limit transparency, some companies involved in GSPs establish a "collaboration section." This department is designed to serve as a gatekeeper through which requests for access to people and information must be channeled. Unintended transfers are therefore guarded and controlled. A study by McKinsey & Co. identified four common problem areas that have gone wrong in alliances between Japanese and Western firms. The Japanese partner saw itself emerging from the alliance as a leader in its business or building a new basis for the future, whereas the Western partner sought relatively quick and risk-free financial returns. The second area of concern related to the balance between partners. Each must contribute to the alliance and each must depend on the other to a degree that justifies participation in the alliance. Another common cause of problems was found to be due to friction. This mainly stemmed from differences in management philosophy, expectations, and approaches. Lastly, the study found that short-term goals can result in the foreign partner limiting the number of people allocated to the joint venture. The original goals of the venture are lost as each new manager takes their turn. There is little original corporate memory or reminder of the initial intent of the venture. These concerns, if addressed adequately and before any formal agreement is signed, will be helpful in taking care of later concerns, frictions and unnecessary problems.
22) In global marketing, consumer perceptions play a very important role. Such perceptions contribute to what is
referred to as the "country-of-origin" effect. They become part of a brand's image and contribute to its brand equity.
This is particularly true for product categories that are most commonly consumed such as automobiles, electronics,
fashion, recorded music, food, and other products. The country of origin effect can be positive or negative. Of
course, positive ones add to the brand's image and contribute to its brand equity. For example, Swiss watches,
French wines, or Japanese cars are well known. Perceptions are hard to change, and it takes time for perceptions to
set. The manufacturing reputation of a particular country can change over time. Korea's image has improved
greatly in recent years. It is expected that some national brands developing from Asian countries will have an
impact. Sometimes one brand can lead in forming a country of origin affect. Nokia phones, for example, have made
Finland popular, and products coming from there will have the quality impression that has been formed by Nokia.
Also, recently the "Made in Mexico" image has become popular. For some product categories, foreign products have
a substantial advantage for just being foreign. Global marketers should utilize the opportunity to bank on the
special qualities of the products which are well known for their country of origin. If a country's manufacturers
produce high-quality products that are nonetheless perceived to be of low quality then one has to disguise the
foreign origin of the products. In any case, marketers should consider the impact that country of origin has and act
accordingly.
25) Innovations for new products are important for any corporation to maintain a competitive edge. A product's
newness can be assessed in the context of those who buy and use it. An existing product can be new to a market
which was not exposed to it. The product may also be an entirely new invention or innovation. When such products
are successful, they create new markets, new consumption patterns, and new ideas for further innovations.
Innovations that result in creating new markets and new consumption patterns that literally break with the past are
categorized as "discontinuous innovations." For example, the VCR's introduction was revolutionary and changed
the way people watched and recorded movies. Likewise, computers have also brought a revolution in many ways.
Another category of innovation that may be less disruptive or change producing is categorized as dynamically
continuous innovations. Products in this category share certain features with earlier generations while
incorporating new features that often add value to produce substantial changes. For example, Mach3 shaving
systems by Gillette are an innovative development of existing products. Finally, the third category consists of
products that can be truly defined as "new and improved." This category of innovations is referred to as continuous
innovation. Continuous innovations cause minimal disruption of existing consumption patterns and require the
least amount of learning by consumers. Examples of this category will include newer models of computers for those
who are familiar with laptops and personal computers. These often take the form of line extensions such as new
sizes, flavors, and low-fat versions.
26) Since conditions vary in different countries, it is very important to test new products that are designed for
international markets.
There are three primary activities that managers should undertake and carry out on a routine basis. First, they
should ensure that all relevant information sources are continuously tapped for new-product ideas. This can come
from external or internal sources. Secondly, they should carefully screen all ideas to identify potential candidates
for further investigation. Finally, they should ensure that the organization commits adequate resources for the
development of potential ideas. Once there is enough evidence that the idea has good potential, it should be
examined for the following aspects: (a) the size of the market for the product at various prices; (b) the expected
competition; (c) market possibilities through existing structures; (d) changes to be made in order to market the
product; (e) estimates of potential demand; and (f) the compatibility of the idea with the corporations goals and
objectives. Once the answers to the above questions are promising, new products should be tested.
One should realize that new-product introduction outside the home market is subjected to interaction with human,
mechanical, or chemical elements. Incompatibility can be expected from unimaginable sources. Therefore, it is
important to test a product under actual market conditions before proceeding with full scale introduction. Failure to
assess actual use conditions can lead to big surprises.
27) Marketing channels exist in order to create utility for customers. These utilities can be place utility, time utility,
form utility, or information utility. Thus, the selection of a marketing channel depends on the target market which a
manufacturer is planning to reach. Various companies have used innovative channel distribution methods.
Distribution channels are systems that link manufacturers to customers. Although channels for consumer products
and industrial products are similar, there are also some distinct differences. In business-to-consumer marketing
(B2C) consumer channels are designed to put products in the hands of consumers. In the case of business-tobusiness
(B2B), industrial channels deliver products to manufacturers or other types of organizations that use them
as inputs in the production process or in other types of operations. Agents and distributors are commonly used as
intermediaries. With the increased use of technology, peer-to-peer (p-to-p) marketing is becoming popular,
whereby individual consumers market products to other individuals. eBay pioneered a form of online commerce
which has gained popularity, and many companies are using it as a channel for distribution. Door-to-door selling
has been a traditional channel which is also currently in use. For example, in Japan, auto manufacturers use doorto-door
selling. Another direct selling alternative is the manufacturer-owned store or independent franchise store.
In many countries where manufacturers cannot own stores, franchising is a very popular method. Other channel
structure alternatives for consumer products include various combinations of a manufacturer's sales force and
wholesalers calling on independent retail outlets. Piggyback marketing is another channel innovation whereby one
manufacturer obtains product distribution by utilizing another company's distribution channels.
28) Channel innovation can be an essential element of a successful marketing strategy as noted in the case of Dell
computers, which began as a b-to-b marketer. The business model proved to be very successful, that the company
began marketing direct to the home PC market. This strategy may not work for other products, particularly where a
complicated system or mechanism is involved. Before deciding which system to use, marketers must study each
country individually. In general, if the market is large, it is more feasible to use a manufacturer's own sales force.
Piggyback marketing is a good example of another channel innovation that has grown in popularity. In this type of
marketing, one manufacturer obtains product distribution by utilizing another company's distribution. Both parties
can benefit by increasing the total revenue generated by the channel members. Successful piggyback marketing
requires that the combined product lines be complementary. They must appeal to the same customer and must not
compete with each other. Several companies have taken advantage of the opportunity to piggyback with Avon,
which has a network of direct sales representatives in over 100 countries. Several of Mattel's toy lines are being
marketed in China by local Avon representatives. In Australia, New Zealand, Brazil, Canada, and France, Avon
representatives offer Reader's Digest subscriptions along with Avon's health and beauty products. In emerging
markets, Avon offers a second catalog featuring products from Timex, Duracell, Time-Life, and others. Thus,
piggyback products already account for 15% of sales in some emerging markets.
29) Selection of agents is very important in the success of a channel strategy. These agents sometimes engage in what is
called cherry picking, the practice of accepting orders only from manufacturers with established demand for certain
products and brands. Cherry picking can also take the form of selecting only a few choice items from a vendor's
product lines. The cherry picker is not interested in developing a market for a new product, which is a problem for
an expanding international company. Manufacturers should provide leadership and invest resources to build the
relationship with a desired distributor. A manufacturer with a new product or a product with a limited market
share may find it more desirable to set up some arrangement for bypassing the cherry-picking channel member. In
some cases, a manufacturer must incur the costs of direct involvement by setting up its own distribution
organization to obtain a share of the market. When the company's sales finally reach critical mass, management
may decide to shift from direct involvement to a more cost-effective, independent intermediary.
An alternative method of dealing with the cherry-picking problem does not require setting up an expensive direct
sales force. Rather, a company may decide to rely on a distributor's own sales force by subsidizing the cost of the
sales representatives the distributor has assigned to the company's products. This approach has the advantage of
holding down costs by tying in with the distributor's existing sales management team and physical distribution
system.
33) There are four market entry expansion strategies available to retailers that wish to cross borders. These strategies
can be visualized by a matrix that differentiates between (a) markets that are easy to enter versus those that are
difficult to enter; and (b) culturally close markets versus culturally distant ones. The upper half of the matrix
encompasses quadrants A and D and represents markets in which shopping patterns and retail structures are
similar to those in the home country. In the lower half of the matrix, quadrants C and B represent markets that are
significantly different from the home country market in terms of one or more cultural characteristics. The right side
of the matrix, quadrants A and B, represents markets that are difficult to enter because of the presence of strong
competitors, location restrictions, excessively high rent or real estate costs, or other factors. In quadrants C and D,
any barriers that exist are relatively easy to overcome. The four entry strategies indicated by the matrix are organic,
franchise, chain acquisition, and joint venture. Organic growth occurs when a company uses its own resources to
open a store on a greenfield site or to acquire one or more existing retail facilities from another company.
Franchising is the appropriate entry strategy when barriers to entry are low yet the market is culturally distant in
terms of consumer behavior or retailing structures. In global retailing, acquisition is a market-entry strategy that
entails purchasing a company with multiple retail locations in a foreign country. This strategy can provide the
buyer with quick growth as well as access to existing brand suppliers, distributors, and customers. Joint ventures,
the final entry strategy, are advisable when culturally distant, difficult-to-enter markets are targeted. The strategy is
to collaborate with some local company as a joint venture.