Transitioning to a Global Marketing Mindset

Introduction

The globalization of markets is one of the major forces impacting companies worldwide.  As the world progresses toward global economic trade, companies seek opportunities to expand their presence around the world.  Strategic Managers must gain knowledge of global marketing strategies in the event that their company elects to enter the global market.  Marketers must also be prepared to educate themselves on the transition from domestic to global marketing to protect themselves from global companies abroad.  A presentation on the fundamentals of global marketing management will be discussed.

Understanding Global Marketing

Overview

The term “Global Marketing” was coined in 1983 with the publication of “The Globalization of Markets” in the Harvard Business Review written by Ted Levitt.  Prior to this time, the terms international or multinational marketing were used to describe trade between nations.  Global marketing is often misinterpreted to be completely identical with international marketing.  However, global marketing is used to describe a new phenomenon.  The global marketing concept can be distinguished from other analogous terms by examining the history of international exchange terms.  In order to differentiate the scope of global marketing from other terms, a global strategic manager must understand these differences (Jeannet and Hennessey, 2002).

Domestic Marketing

Domestic marketing concentrates a company’s efforts solely at its own national market.  Although the company management decides to market a given product domestically, they may also choose to span across many segments within their particular market.  Management using domestic marketing strategies may be choosing to market domestically because of a local advantage or because they have a limited product line that would not be feasibly promoted outside of their home territory (Jeannet and Hennessey, 2002).

Export Marketing

Export marketing is when a firm decides to venture out and ship, or export their products beyond their domestic borders.  The company’s specific product may be in demand by distributors in a different country that will cause a need for exportation.  A company may also decide to enter another countries market by exporting byproducts that can not be produced easily in the target country.  The exporting firm must carefully price their products to remain profitable but yet continue to be competitive.  Shipping costs and import fees at the destination country are some of the costs associated with exporting.  Government regulations in both countries must be taken into consideration as well as strategic financing terms with the importers (Jeannet and Hennessey, 2002).

International Marketing

International marketing is when a company moves beyond the extent of exporting and becomes more concerned with the local marketing environment in the importing country.  International marketers are to be expected to have their own sales subsidiaries that will concentrate on marketing tactics in the importing country.  International marketing will bring about the need to develop exclusively distinct marketing strategies for each market.  Companies would have to include local cultural and environmental in consideration in order to successfully develop their products (Jeannet and Hennessey, 2002).

Multinational Marketing

Multinational marketing is where a company extensively develops subsidiary assets in a number of foreign countries as if the developed firms were local companies.  The company creates a multi-domestic strategy where each subsidiary competes with unique marketing tactics in their respective local markets.  This has the advantage of making the local companies to appear as a local company instead of a foreign based company (Jeannet and Hennessey, 2002).

Horizontal integration involves the subsidiary companies not only to market the product locally, but to also locally produce the product or service.  This approach eliminates the need to have the product imported from outside the subsidiaries country.  This avoids the costs of shipping the product from country to country and any associated tariffs and restrictions that might apply.  Subsidiaries may be governed by the parent country but may be operated independently (Jeannet and Hennessey, 2002).

Pan-Regional Marketing

Pan-regional marketing is where a group of nations form a trade agreement that eliminates tariffs and other trade barriers within the group (Jeannet and Hennessey, 2002).  Effective in 1994, the North American Free Trade Agreement (NAFTA) is an example of a pan-regional marketing area.  The NAFTA agreement includes the United States of America, Mexico and Canada (Spurge, 1997).  Many firms in the United States have been forced to alter their multi-domestic strategies to take advantage of the benefits entailed in NAFTA (Jeannet and Hennessey, 2002).

Global Marketing

A global marketing strategy involves the creation of a single strategy for a product, service, or company for the global market.  This contrasts with the multi-international marketing concepts that create separate strategies for each country.  A Strategic Manager will need to have an extensive knowledge of multi-national marketing to produce a successful single global marketing plan.  Although a single strategy is developed, global marketing may require some local tailoring (Jeannet and Hennessey, 2002).

Selecting Potential Markets

The world marketplace is vast and complicated.  A company choosing enter the global market must thoroughly appraise the entire world market on a repeated basis.  A global company must evaluate and screen countries to determine if that country is feasible to market in (Jeannet and Hennessey, 2002).

Advanced nations, such as the United States, Canada, United Kingdom and Japan can be analyzed for profitability to using fairly stable indicators associated with that country.  Marketing strategies can be developed with reasonably long term plans.  Developing nations that may be located in areas like Africa and the Middle East may involve much greater risks and foster unstable and undesirable markets (Carbaugh, 2002).

In order to identify nations favorable to market in, global managers must screen out countries that would not produce profitable results.  There are four stages that global marketers use to screen and identify promising markets (Jeannet and Hennessey, 2002).  They are as follows:

• The first stage is for a company to use macrovariables associated within a given country to determine if the country is marketable.  Macrovariables describe the entire market using statistics or indicators that contain economic, social, geographic, and political aspects.  This can indicate if a country is large enough economically to be marketed.  This process may indicate that a country may not maintain a high enough per household income to purchase certain products.    Political instability can be a motivating factor in which to screen and identify a disadvantageous market (Jeannet and Hennessey, 2002).
• In the second stage, variables are utilized to capture the potential market size.  Additionally, the analysis must take into consideration if a product will be accepted into the local market.  A company that retails hockey equipment would have to avoid using resources to market their products in warm climates where no indoor hockey rinks are available (Jeannet and Hennessey, 2002).
• The third stage of this screening process is attentive on the local market conditions in the proposed country.  Concerns such as local competition, ease of entry, cost of import and profit potential come into examination.  It is crucial that the company uses comprehensive and the latest information possible for this stage (Jeannet and Hennessey, 2002).
• The fourth and final stage of the screening process is to perform an evaluation and generate a ranking system of the potential target countries.  These rankings are based on corporate resources, objectives and strategies.   One country may be given a higher priority than another country due to one possessing a higher market aptitude for profitability (Jeannet and Hennessey, 2002).

It is important for a successful company to perform continuing market screenings.  Political and economic events can abruptly raise a nations potential for marketing prosperity, therefore raising its priority.  In the same respect, a country may become less desirable and risky in response to negative economic or political events.  A global company must always be aware of such events and be ready to position themselves as opportunities arise or new risks are identified (Jeannet and Hennessey, 2002).

Global Market Entry Strategy

After a company has selected a desirable country in which to perform marketing activities in, the company must develop an entry strategy that is customized for that country.  A successful entry strategy can produce a flourishing financial return.  In contrast, results could be disastrous if the wrong entry is utilized or executed improperly (Jeannet and Hennessey, 2002).

There are two major categories of global entry strategies that a company can engage in.  They can use exporting strategies or foreign production strategies.  Each strategy contains its own set of benefits and risks.  A global manager must understand the various global entry options available along with their advantages and disadvantages and therefore select the correct strategy with paramount precision (Jeannet and Hennessey, 2002).

Exporting

The favorable entry strategy for most globally minded companies is to export.  Exporting is where a company manufactures a product outside the intended destination country and then transports it there for sale.  This strategy may be selected if the company does not wish to invest in manufacturing operations in the host country.  The company may also elect to initially export to use it to learn the characteristics and nature of the market and economy before making any major investments (Peter and Donnelly, 2001).  A company may also have concluded that the country does not have a considerable enough market to justify local production strategies.  A company that desires to export may export indirectly or directly (Jeannet and Hennessey, 2002).

A business that is new or inefficient to exporting may choose to indirectly export their products.  Indirect exporting uses a domestic intermediary such as a broker, combination export manager, or a manufacturer’s export agent.  These intermediaries readily provide the company with the expertise they need to be successful in that country (Jeannet and Hennessey, 2002).

Company’s that may have had previously been successfully with exporting strategies and do not require the services of an intermediary may decide to directly export to the country.  This requires the exporter to have a vast knowledge of the local economy and be able to communicate with a large number of foreign contacts.  The company will need to establish a relationship with local distributors and merchants in order to open a distribution channel within the country.  Local distributors will sell their products and may be in the form of independent distributors or sales subsidiaries such as car dealerships (Jeannet and Hennessey, 2002).

There are disadvantages of using exporting as an entry strategy.  The process of exporting may be more costly and timely than expected.  The cost of import duties and other trade barriers to the target country may fluctuate unexpectedly.  Foreign agents may not be dependable and dedicated to the exporter (Peter and Donnelly, 2001).

Foreign Production

A global company that aspires to make a stronger commitment than exporting may decide that it wants a product or service to be produced locally in that country.  Producing a product in a foreign country to sell locally is referred to as foreign production.  Foreign production has a number of different strategies to choose from.  These strategies include licensing, franchising, and local manufacturing.  Global strategic managers will select the foreign production method based on the company’s resources and the length and depth of commitment in the foreign country (Jeannet and Hennessey, 2002).

Licensing arises when a company permits the usage of patent rights, trademark rights and/or technological processes to foreign companies (Peter and Donnelly, 2001).  Licensees are in effect for specific time periods.  These time periods are dependant on the investment made by the foreign company (Jeannet and Hennessey, 2002).

Licensing can generate advantages to the company who issues the licenses.  The company does not need to use a large investment in assets or managerial staff to start production. The licensee may have a competent team already in place and provide a quick production start.   Finally, the licensee has the responsibility of dealing with all local and political risks (Jeannet and Hennessey, 2002).

There are various disadvantages of licensing for a global company also.  The company does not have much control over operations within a licensed foreign company.  Quality issues may become a concern that would damage the company’s reputation (Peter and Donnelly, 2001).  Another disadvantage is that a licensee may become a viable competitor upon expiration of the license.  The possibility can be intensified if the licensee becomes efficient with the technology and processes that was licensed to them.

Another option similar to licensing is identified as franchising.   In franchising, the franchiser is the international company that provides an entire marketing scheme to the franchisee, or the foreign firm.  The franchiser supplies to the franchisee the necessary benefits such as use of logo, brand name, products, and processes as prescribed by the global company (Jeannet and Hennessey, 2002).

Franchising further separates itself from licensing by requiring the foreign company to agree to conduct operations under strict procedures.  Franchisers may require a lump sum and a share of all future profits.  This strategy has been highly successful in the fast food industry (Peter and Donnelly, 2001).

The last major form of foreign production is dubbed local manufacturing.  Local manufacturing is where a company elects to produce the product locally under ownership of the global company.  There are three prevalent levels of local manufacturing that a global marketer must understand.  There are contract manufacturing, assembly production and full scale integrated production (Jeannet and Hennessey, 2002).

Contract manufacturing is described as a company that arranges to have products manufactured by a local company on a contractual basis.  The global company leases production capacity from the local firm.  The local firm produces the product as the global company issues production orders (Jeannet and Hennessey, 2002).  A good example of a contract manufacturing company is found in Jabil Circuit.  The company provides the worldwide manufacture of electronics products (Jabil, 2003).

Assembly production is where an international company manufacturers a portion of the product in the destination country.  This is typically during the final stages of production where labor is traditionally heavy.  High labor costs can be avoided if the destination is in a labor intensive country (Jeannet and Hennessey, 2002).

Not only does this strategy avoid an extensive capital investment in the ensuing country, it also avoids any trade barriers as well.  The downside of assembly operations is that supply interruptions can occur from imported parts.  The company would have to have a successful inventory operation to avoid delays in manufacturing (Jeannet and Hennessey, 2002).

Full scale integrated production is a fully established local production unit.  This represents the greatest commitment a company can make for a foreign market.  Full scale integrated production may be chosen to take advantage of lower production costs in the foreign country in order to remain competitive in the local market (Jeannet and Hennessey, 2002).

A corporation that elects to engage in assembly or full scale integrated production will also need to establish ownership in the selected foreign market.  A global manager must also be aware of the various options of ownership that are available.  A company can fulfill ownership in any of the one following ways (Jeannet and Hennessey, 2002).

• Joint ventures are where a company resolves to share management with one or more foreign firms (Peter and Donnelly, 2001).  Joint ventures can only be successful if all partners have the same goals (Jeannet and Hennessey, 2002).
• Strategic alliances are similar to joint ventures but differ in that in strategic alliances, the firms pool their resources together that goes beyond the limits of joint ventures. Typically they may share a combination of sharing distribution access, product technology or technology transfers (Jeannet and Hennessey, 2002).
• Direct ownership is where a company wholly owns a subsidiary through development or the acquisition of resources (Peter and Donnelly, 2001).  Recently, corporations have been successful in their attempts in executing hostile takeovers to acquire assets.

Global Pricing Strategy

A marketer will have the same pricing challenges in global markets that transpire in domestic market.  On the other hand, foreign markets produce even a greater challenge due to various elements that do not exist in domestic markets.  These additional issues are concerned with inflation rates, exchange rate fluctuations, inflation, antidumping laws, taxes and tariffs (Peter and Donnelly, 2001).

Exchange rate fluctuations are often cited as one of the most erratic factors that affect foreign prices.  As the exchange rate between two countries change, all international producers are affected.  Most corporations base their costs on their own domestic currency.  As the exchange rate suddenly changes between the two countries, the company would need to adjust market prices to remain competitive in that foreign market. The failure to monitor the exchange rates may cause a firm to jeopardize their foreign market share (Jeannet and Hennessey, 2002).

Inflation rates in the foreign economy can fluctuate and affect product cost.  In some countries, inflation rates have increased by several hundred percent.  As this happens, the local foreign currency would have a swift shortfall of purchasing power.  In order to avoid the traps of inflation rate changes, a company can use a first-in, first-out (FIFO) or a last-in, first out (LIFO) policy to protect itself from a decaying purchasing power.  A company can also attempt to preserve constant operating margins where price adjustments are made on a periodical basis (Jeannet and Hennessey, 2002).

Dumping is when a product is sold to foreign buyers at a price lower than the price charged for the same product on the domestic market (Kreinin, 2002).  This is usually done at below actual production costs.  Dumping can cause harm to domestic companies where they are unable to compete with larger foreign companies that can afford to take a short-term loss to penetrate the market share.  In order to prevent antidumping, countries have initiated antidumping laws to protect their domestic companies.  A global marketer would need to be aware of antidumping laws in the foreign country (Jeannet and Hennessey, 2002).

Taxes that are imposed within local foreign economies can affect the cost of products. A popular form of taxes is value added taxes (VAT).  A VAT is used mostly in the European Union (EU) and is comparable to sales tax in the United States.  This tax is applied at all stages of manufacture, or when value is added (Poddar, 2003).

Tariffs are taxes that are charged on a product when it crosses an international border.  It is intended to raise the price of imports and helping domestic companies continue to be competitive (Kreinin, 2002).  Tariffs are absorbed by the end user and can increase prices considerably.  In order to reduce the costs of tariffs, the company may need to examine their foreign production options (Jeannet and Hennessey, 2002).

In addition to identifying the environmental factors listed above, companies must determine if they will choose to use the global single-price strategy or the individual market strategy.  A single global pricing strategy dictates that prices are the same everywhere around the world.  Prices are transformed to a base currency and match to the countries exchange rate.  This can be a difficult task when dealing with countries with fluctuating environmental costs.  A company uses the individual market strategy to place a different price on each market depending on the costs associated with that market.  While this strategy may yield higher profits, it is susceptible to independent companies taking advantage of goods that are high costs for an importer to distribute (Jeannet and Hennessey, 2002).

Global Advertising and Promotion Strategy

As the company expands into foreign countries, there are many additional factors that a company needs to be aware of when designing their advertising campaigns.  Global companies must ensure that they correctly translate into the language of the country targeted.  Blunders in translation can make a company appear inferior or insensitive to the community.  Therefore, overcoming the language barrier is essential (Jeannet and Hennessey, 2002).

Another critical element in advertising is to prevail over the cultural barrier.  Failing to understand the local culture and their values can distance the company from the community.  Global firms can not assume that what is culturally acceptable in one country will be acceptable in another.  Local advertising firms can be contracted to help with the essential knowledge needed (Jeannet and Hennessey, 2002).

Conclusion

As countries open their borders to trade, the world markets will become increasingly globalized.   Companies in the United States have just begun to realize importance in actively participating in the transition to a global market.  In order for a company to be successful in this transition on both the home front and overseas, their ability to understand and execute global marketing skills is essential.   Strategic managers that fail to gain competence in global marketing concepts will find themselves vulnerable to those corporations that have developed these skills.

References

Carbaugh, R.J. (2002). International economics (8th ed.).  Cincinnati, OH: South-Western Thomas Learning.
Jabil Circuit (2003).  EMS opportunity.  Retrieved August 2, 2003, from http://www.jabil.com/company/emsopportunity.htm
Jeannet, J. & Hennessey, H. D. (2001). Global Marketing Strategies (5th ed.).  Boston: Houghton Mifflin Company.
Kreinin, M.E. (2002). International economics: A policy approach (9th ed.).  Cincinnati, OH: South-Western Thomas Learning.
Spurge, L. (ed.). (1997). Knowledge exchange business encyclopedia illustrated.  Santa Monica, CA: Knowledge Exchange.
Peter, J. P. & Donnelly, J. H. (2001). Marketing management: Knowledge and skills (6th Ed.).  Boston: Irwin McGraw-Hill.
Poddar, S. (2003).  Consumption taxes: The role of the value-added tax.  Retrieved August 2, 2003, from http://econ.worldbank.org/files/23662_chap_12_taxation.pdf