Why Go International?

1. Exploiting market potential and growth

2. Gaining scale and scope returns at home

3. Learning from a leading market

4. Pressuring competitors

5. Diversifying markets

6. Learning how to do business abroad

International Business Philosophies

Multinational Mentality

– Focused on marketing to different countries with local adaptation of products and promotions; production localized and technology less advanced

Global Mentality

– Involves more standardization of products and integration across countries; driven by strong foreign competition and growing homogenization of world markets

Rationale for “Global” Mentality

Customers & Common customer needs, globalMarkets: customers, global channels, transferable

marketing, leading markets

Competition: Common competitors using global strategies

Cost Savings: Scale economies, scope economies, sourcing advantages, avoidance of duplication

Government Favorable trade policies, acceptance of foreignPolicies: investment, compatible technical standards,

common marketing regulations

Multidomestic vs. Global Markets: Key Differences Multidomestic Markets Global Markets Market boundaries

Markets are defined within country borders. Customers and competitors are of local origin.

Markets transcend country borders. Customers and/or competitors cross frontiers to buy and to sell.

Customers Significant differences exist among customers from different countries; segments are defined locally.

Significant similarities exist among customers from different countries; segments cut across geographic frontiers.

Competition Competition takes place among primarily local firms; even international companies compete on a country-by-country basis.

Competitors are few and present in every major market. Rivalry takes on regional or global scope.

Interdependence Each local market operation in isolation from the rest. Competitive actions in one market have no impact elsewhere.

Local markets operate interdependently. Competitive actions in one market impact other markets.

Strategies Strategies are locally based. Little advantage exists in coordinating activities among markets.

Strategies are regional or global in scope. Great advantage exists in coordinating activities within regions or worldwide.

Major Benefits from Global Business

CAPITALIZING ON THE GROWTH POTENTIAL OF THE FOREIGN MARKET AND NEIGHBORING COUNTRIES.

TRANSFERRING COMPETITIVE INFORMATION AND NEW PRODUCTS FROM THOSE MARKETS TO OTHER MARKETS.

STRETCHING AND BUILDING UP THE FIRM’S MARKETING CAPABILITY.

Global vs. Multinational Marketing Mentality

GLOBAL MULTINATIONAL

R & D, DESIGN

MANUFACTURING

MANAGEMENTSALES & MKTG

CUSTOMER

AFTER-SALES SERVICE

INTERNATIONAL MARKET ENTRY

CENTRALIZED AND STANDARD

DECENTRALIZED ANDCUSTOMIZED

LIMITD LOCATAIONS MANY LOCATIONS

CENTRALIZED ANDINTEGRATED

INDEPENDENT LOCALCOUNTRY MANAGERS

IN-COUNTRY OR REGIONSEGMENTS

GLOBAL SEGMENTS

LOCAL-SUBCONTRACTED LOCAL-COMPANYHANDLED

EXPORTING-LICENSING WHOLLY-OWNED OR J.V.LOCAL MANUFACTURING

CONSUMERELECTRONCS

DETERGENTS TELECOMM

SONY, DAEWOO

& THE EAST

PHILIPS, RCAAND THE

WEST

KAO& THE EAST

P& G, UNILEVER

& THE WEST

Not Applicable

NECFujitsu & the East

ITT & the West

ERICSSONThink

Global Act Local

Not Applicable

MANAGEMENTMARKETING & SALES

CUSTOMER

AFTER SALES CUSTOMER CARE

IDEA GENERATION

R & D

DESIGN

MANUFACTURING

UPSTREAMACTIVITIES

DOWNSTREAMACTIVITIES

LOCALACTIVITIES

Global vs. Multinational Corporate Structures

Marketing Finance Technology Operations

USA

China

UK

Japan

Ingredients for International SuccessDoes the Company Have what it Takes to Succeed in International Markets: The Internal Corporate Audit

Capital To:– Cross Subsidize International Product & Market Expansion

– Attack Competitors Profit Centers Worldwide if Needed

Product Core Competency: Important & Different Attribute Risk Taking & First Mover Advantage International Market Knowledge and Ethnocentrism

– Cross-Culturally Competent Management and Human Resources

International Distribution Network Corporate Structure & International Marketing Mentality

– Long-Term vs.. Short Term Orientation, Human Resources

– Global vs.. Multinational Mentality

MACROECONOMIC ENVIRONMENT

Size– GDP, GNP, Trade

– Population

– Growth Rates

Affordability– Per Capita GDP or GNP

– Personal Income

– PPP-measures

Corporate Capabilities & Objectives– Develop The List Of Most

Economically Optimum Countries & Regions

Need– Economic Need

– social Need

– Maslow’s Concept

– Engel’s Law

Cultural Need Satisfaction Priority

Basic Needs:

Safety Needs:

Ownership:

Esteem:

SuperNeeds

Percentage of Income Left forHigher Levels of Needs in USA:

MICROECONOMIC ENVIRONMENT

Product– New

– Differentiated

– Existing

Demand– Exists & Is Satisfied

– Exists & Is Unsatisfied

– Is Expected To Emerge

Corporate Capabilities & Objectives– Determine The Actual &

Desired Product Positioning In Foreign Markets

Competition– Highly Competitive

– Niche Competition

– Non-Existent

Microeconomic Environment

New To Themor New To All

Modified forThem-Differentiated

Common or“Me Too”

Satisfied Needs

UnsatisfiedNeeds

Emerging Needs

Innovative Companies

ChineseShoesIn USA

ChineseHigh-TechIn Vietnam

Vaccine forCommon Cold

CDMA-WirelessTelephones inChine

Types of Political & Financial Risks

Multinational Corporations

Emerging Economies

Government Intervention

Global Companies

Mature Markets

Citizens Actions

Economic Rationale Political Reasons

Confiscation or Seizure of Assets

Long-TermDomestication

Do Not

Worry!+ + Regulation of MNC

NOW WORRY!!!

Nationalization/Expropriation

Corporate Safety Factors

Low High

Low

High

R & D

Natural Time Trend

Political, Economics & the Time Factors

Socialism

Capitalism

Democracy

Non-Democracy

0

Time 0

Time

USASweden

Cuba PeruRussia89

Russia89

RISK-RETURN TRADE OFF

LOW

LOW

LET ME KNOW WHEN YOU FIND THEM!!!

DIRECT/INDIRECTEXPORTING

LICENSINGJOINT VENTURE

FDI

High Low Verbal Behavior Words chosen have

numerous possible interpretations; meaning is derived from matching words with non-verbal cues and the specific situation

High reliance on verbal communication to convey meaning; words are carefully selected to convey precise, specific meanings.

Nonverbal Behavior

High reliance on nonverbal behavior to convey meaning

Nonverbal aspects play secondary or confirming role

Societal Makeup Homogeneous Diverse

Ability to communicate relies heavily on similarity in communicants' backgrounds

yes no

High Low Verbal Behavior Words chosen have

numerous possible interpretations; meaning is derived from matching words with non-verbal cues and the specific situation

High reliance on verbal communication to convey meaning; words are carefully selected to convey precise, specific meanings.

Nonverbal Behavior

High reliance on nonverbal behavior to convey meaning

Nonverbal aspects play secondary or confirming role

Societal Makeup Homogeneous Diverse

Ability to communicate relies heavily on similarity in communicants' backgrounds

yes no

Attributes of High vs. Low Context Cultures

Hofstede’s Dimensions

INDIVIDUALISM VS COLLECTIVISM HIGH/LOW POWER DISTANCE MASCULINE VS FEMININE WEAK/STRONG UNCERTAINTY

AVOIDANCE CONFUCIANIST DYNAMICS (LONG RUN ORIENTATION)

Power Distance and Individualism ScalesPower Distance and Individualism Scales

ARG ArgentinaBRA BrazilCHL ChileCOL ColumbiaGRE GreeceHOK Hong KongIND IndiaIRA IranJAP JapanMEX MexicoPAK PakistanPER PeruPHI PhilippinesPOR PortugalSIN SingaporeTAI TaiwanTHA ThailandTUR TurkeyVEN VenezuelaYUG Yugoslavia

Small LargePower DistanceIn

divi

dua

lism

Col

lect

ivis

t

12

50

30

Small power distance collectivist

Large power distance

collectivist

•PAK •COL •VEN

•TAI •PER

•THA •SIN

•CHL•POR •HOK

•YUG•MEX •PHI

•GRE

•TUR

•BRA•IRA

•ARG •JAP

•IND+11 +28 +44 +64 +77 +94

Power Distance and Individualism ScalesPower Distance and Individualism Scales

AUL AustraliaAUT AustriaBEL BelgiumCAN CanadaDEN DenmarkFIN FinlandFRA FranceGER GermanyGBR Great BritainIRE IrelandISR IsraelITA ItalyNET NetherlandsNZL New ZealandNOR NorwaySAF South AfricaSPA SpainSWE SwedenSWI SwitzerlandUSA United States

Small LargePower DistanceIn

divi

dua

lism

Indi

vidu

alis

t

53

91

71

Small power distance

individualist

Large power distance

individualist

•SPA

•SAF

•FRA

•BEL•ITA

•AUT•ISR

•FIN

•GER•NOR•SWI

•SWE•IRE

•DEN

•NZL •CAN•NET

•GBR

USA•

AUL•+11 +28 +44 +64 +77 +94

Uncertainty Avoidance and Masculinity ScalesUncertainty Avoidance and Masculinity Scales

Feminine MasculineMasculinity

Un

cert

ain

ty A

void

ance

Str

ong

8

56

32

Weak uncertaintyavoidance/feminine

Weak uncertaintyavoidance /masculine

Wea

k

•SIN

•HOK

•IND

•PHI

AUL AustraliaCAN CanadaDEN DenmarkFIN FinlandGBR Great BritainHOK Hong KongIND IndiaIRE IrelandNET NetherlandsNZL New ZealandNOR NorwayPHI PhilippinesSIN SingaporeSAF South AfricaSWE SwedenSWI SwitzerlandUSA United States

•DEN

•SWE

•NOR

•NETFIN

•

GBR• •IRE

USA•

•SAF

•AUL

•NZL•CAN

+23 +44 +59 +77 +95

Uncertainty Avoidance and Masculinity ScaleUncertainty Avoidance and Masculinity Scale

Feminine MasculineMasculinity

Un

cert

ain

ty A

void

ance

Str

ong

59

112

84

Strong uncertaintyavoidance/feminine

Strong uncertainty avoidance/masculine

Wea

kARG ArgentinaAUT AustriaBEL BelgiumBRA BrazilCHL ChileCOL ColumbiaFRA FranceGER GermanyGRE GreeceIRA IranISR IsraelITA ItalyJAP JapanMEX MexicoPAK PakistanPER PeruPOR PortugalSPA SpainSWI SwitzerlandTAI TaiwanTHA ThailandTUR TurkeyVEN VenezuelaYUG Yugoslavia

JAP•

•GRE

BRA•

THA•

•IRA

•VENCOL•

•MEX•ARG

TUR•

•PER

CHL•

YUG•

•POR

•PAKTAI•

ISR•

•SPAFRA•

•BEL

ITA•

SWI•

•GER

•AUT

•FIN

+23 +44 +59 +77 +95

Luxembourg Denmark, Sweden, Finland United Kingdom, Netherlands

Belgium Austria Germany

Portugal, Greece Ireland

Italy

France

HighMediumLow

Market Attractiveness

Competition

High

Med.

Low

High

Med.

Low

Low Risk

High Risk

International Brand StrategyGlobal Brand Manager’s Objective: Global Brand DominanceKleenex, Coke, Hoover, Band Aid, Lee, Jeep, Evian)

BrandingStandard brand name (imac, Tabasco) or use of company name (IBM, Honda)Brand Name Adaptation (Tide vs.. Ariel)Different Names (Lexus vs.. Toyota)

Private BrandingWalmart (worldwide)Sears (in NAFTA)

GLOBAL PRODUCT POSITIONINGGLOBAL PRODUCT POSITIONING

THERE ARE THREE PSYCHOLOGICALLY DIFFERENT EFFECTS ON BUYERS WHEN A GLOBALLY STANDARDIZED PRODUCT OR SERVICE IS INTRODUCED ON A LOCAL MARKET:

1. CUSTOMERS’ EXISTING PERCEPTUAL MAPS OF THE PRODUCT CATEGORY REMAIN INTACT BUT THE NEW BRAND TARGETS ONE UNTAPPED SEGMENT.

2. THE PRODUCT SPACE IS ALTERED, BY ADDING DIMENSIONS OR EXTENDING END-POINTS.

3. BUYER PREFERENCES ARE CHANGED.

IN PRACTICE, ALL THREE PROCESSES ARE OFTEN AT WORK

SIMULTANEOUSLY.

BRAND IMAGE

MISPOSITIONED PRODUCTS CAN BE ATTRACTIVE TO POTENTIAL CUSTOMERS BECAUSE OF BRAND IMAGE AND STATUS. GLOBAL BRANDS OFTEN DO BETTER THAN LOCAL BRANDS THAT MAY BE BETTER SUITED TO CUSTOMER NEEDS FOR THAT AND OTHER REASONS:

CONSPICUOUS CONSUMPTION -- LET EVERYONE SEE WHAT YOU BUY AND HOW MUCH YOU BUY.

LOWER PERCEIVED RISK.

COUNTRY OF ORIGIN

WHERE A PRODUCT OR BRAND COMES FROM OFTEN COUNTS A GREAT DEAL WITH CONSUMERS.

COUNTRY-OF-ORIGIN EFFECT DEALS WITH QUALITY PERCEPTIONS OF PRODUCTS. THIS EFFECT DIFFERS BY PRODUCT CATEGORY. ALSO, THE QUALITY LEVEL AT WHICH A COUNTRY PRODUCES IS FACTORED IN.

COUNTRY-OF-ORIGIN BIAS CUSTOMERS TEND TO OVERSTATE THE POSITIVE AND NEGATIVES OF PRODUCT ATTRIBUTES ANDTHIS CAN CAUSE A BIAS TOWARDS PRODUCTS FROM A GIVEN COUNTRY.

LOWER PRICE THROUGH A REDUCED PRICE, A CUSTOMER

CAN BE INDUCED TO BUY A MISPOSITIONED BRAND BECAUSE THEY FEEL THAT THEY ARE GETTING A “GOOD DEAL.”

HOWEVER, THIS CAN BACKFIRE ON THE MARKETER, SINCE THE PRICE PAID GRADUALLY LOSES SALIENCE, WHILE THE PRODUCT STAYS. MARKETER BECOMES VULNERABLE TO LOWER-COST MANUFACTURERES ENTERING THE MARKET (Japanese products vs. Koreans).

International Price Escalation Effects (in $U.S.)

International marketing channel elements and cost factors

Domestic wholesale-retail channel

Export Prices Based on a typical distribution Channel

Manufacturer’s net price $ 6.00 $ 6.00 + insurance and shipping costs(c.i.f) 6.00 2.50 =Landed cost (c.i.f.value) 6.00 8.50 +tariff (20% on c.i.f.value) 6.00 1.70 =Importer’s cost (c.i.f.value + tariff) 6.00 10.20 +Importer’s margin (25% on cost) 6.00 2.55 +V.A.T. (16% on full cost plus margin) 6.00 2.40 =Wholesaler’s cost (=Importer’s price) 6.00 14.79

+ wholesaler’s margin (33 1/3% on cost) 2.00 4.93 +V.A.T. (16% on margin) 2.00 .79 =Local foreign jobber’s cost (=wholesale prices) 2.00 20.51 +jobber’s margin (33 1/3% on cost) 2.00 6.84 +V.A.T. (16% on margin) 2.00 1.09 =Retailer’s cost (=Wholesale or jobber price) 8.00 28.44 +retailer’s margin (50% on cost) 4.00 14.22 +V.A.T. (16% on margin) 4.00 2.28 =Retail price (what consumer pays) $12.00 $44.94 Percent price escalation over: Domestic 275% No VAT, Foreign Jobber, Foreign Importer $14.40 120%

Export Pricing Issues

Price quotes (Ex-Factory or Ex-Work)

Exchange rates

Method of payment (Cash, LOC, Countertrade…)

Government regulations (Walmart-Germany)

To whom you sell (Government vs. Private Sector).

Consumer affordability (per capita income).

Competition (domestic or global).

Country of origin and local consumer perception.

Transfer Pricing

A C DelcoUSA

(Battery, stereo, auto parts)

GM USA(Producing

cars)

Vietnam

(export)

Opel division

European Union

GM-JV in Shenyang, ChinaExport pricing

Transfer Pricing

The Hamburger Standard

Big Mac prices

Prices in local currency*

Prices in dollars

Actual exchange rate April-93

Implied purchasing power

parity† of $US

Currency under (-)/ over (+)

valuation**,% USA $2.28 $2.28 Argentina Peso3.60 3.60 1.00 1.58 +58 Australia A$2.45 1.76 1.39 1.07 -23 Belgium BFr109 3.36 32.45 47.81 +47 Brazil Cr77,000 2.80 27,521 33,772 +23 Britain £1.79 2.79 1.56‡ 1.27‡ +23 Canada C$2.76 2.19 1.26 1.21 -4 Denmark Dkr25.75 4.25 6.06 11.29 +86 France Ffr18.50 3.46 5.34 8.11 +52 Germany DM4.60 2.91 1.58 2.02 +28 Holland F15.45 3.07 1.77 2.39 +35 Hong Kong HK$9.00 1.16 7.73 3.95 -49 Hungary Forint157 1.78 88.18 68.86 -22 Ireland I£1.48 2.29 1.54‡ 1.54‡ 0 Italy Lira4,500 2.95 1,523 1.974 +30 Japan ¥391 3.45 113 171 +51

H

*Prices may vary locally†Purchasing power parity; local price divided by price in the United States**Against dollar‡Average of New York, Chicago, San Francisco and Atlanta‡‡Dollars per pound§Market rate

Big Mac prices

Pricesin local

currency*Prices indollars

Actualexchange

rate13/4/93

Impliedpurchasing

powerparity† ofthe dollar

Localcurrencyunder (-)/over (+)

valuation**,%Malaysia Ringgit3.35 1.30 2.58 1.47 -43Mexico Peso3.60 2.29 3.10 3.11 0Russia Rouble780 1.14 686§ 342 -50S. Korea Won2,300 2.89 796 1,009 +27Spain Ptas325 2.85 114 143 +25Sweden SKr25.50 3.43 7.43 11.18 +50Switzerland SwFr5.70 3.94 1.45 2.50 +72Thailand Baht48 1.91 25.16 21.05 -16

H

East-West Distribution Mentality

Import House

Manufacturer

Manufacturer

Large Wholesaler

Medium Wholesaler

Small Wholesaler

Wholesaler

Retailer

Retailer

End Buyer

End Buyer

Cost 25%-50% higher for consumers in Japan

West: USA- Basic Marketing Objective: Efficiency-Pay Per Performance

East: Japan- Basic Marketing Objective: Relationship-permanency-pay per existence

Japanese Import Distribution Alternatives - Distribution Route of Italian Spaghetti

Processing and

packing plant

Import agent

Producer

Primarywholesaler

Intermediary wholesaler

Small wholesaler

RetailerRetail price: 170yen/300g package

Retail price: 128yen/300g package

Depots Distribution Wholesalers Distribution

centers

Retailer

Processing and

packing plant

Importing company

A/C

Producer

Savings: 25%

Japanese Conventional Route

US-Style Restructured Route

Number of enterprises(thousands)

Persons employed(thousands)

Turnover(billions ECU)

Belgium 127.8 274.7 35.0Denmark 48.1 199.7 24.0Greece 175.0 338.2 20.0France 461.8 2,090.0 260.0Ireland 29.3 131.4 11.0Italy 929.7 2,401.0 230.0Luxembourg 3.5 18.1 3.0Netherlands 95.0 637.5 45.0Portugal 173.3 366.3 20.0United Kingdom 348.2 3,030.0 280.0United States 1,503.6 19,085.0 1,350.0Japan 1,619.8 6,851.0 682.0

Size and Number of Retail Outlets in Selected Countries

East-West International Distribution Mentality

Import House

EfficientManufacturer

InefficientManufacturer

Large Wholesaler

Medium Wholesaler

Small Wholesaler

Wholesaler

Retailer

Retailer

End Buyer

End Buyer

Efficient Domestic Distribution Network

Inefficient Domestic Distribution NetworkEfficientGlobal Distributors(e.g. JTCs)

ExpensiveGlobal Distributors(e.g. EMCs)

EAST (e. g. JAPAN)

WEST (e. g. USA

East-West Distribution Mentality

Manufacturer

Manufacturer

Large Wholesaler

Medium Wholesaler

Small Wholesaler

Wholesaler

Retailer

Retailer

End Buyer

End Buyer

Commission Structure (PPP-loyalty)JIT (small apt. small retailers)Multiple Visits Per Day to Retailer by Small WholesalerReturn Policy- 2-way ChannelCredit Extension- 150 days at low interest (0.06% now)Employment Buffer-economics environmentNatural Import Barrier-trade policyCultural, Political-Legal

Determinants of Choice of Channel

1. Product Requirements (Perishable lettuce, sensitive apples, fine china, scratched cars, beer without freshness, moldy cakes,...)

2. Logistic Feasibility (Equipment by DHL, autos by air, faxes of newsletters, freezer railroad cars, shock-absorbent packaging, vacuum-packed,...)

3. Demand Factors (Importance of speed for repairs, timing of raw materials for inventory, customers’ need for immediate gratification, quality standards of middleman and final user,...)

4. Competitive Factors (How fast is fast? How good is good? What are the alternatives for the buyer? Strategic importance of the market?)

5. Middlemen Resources (Storage capability? Credit or consignment or cash? Motivating with fast delivery? Just-in-time system? Promised supplies? Ability to support the marketing effort?)

6. Own Resources (Financial, manpower, production capacity)

Seiko’s Authorized and Unauthorized Channels of Distribution

Distributors Distributors Distributors Distributors

Retailers Retailers Retailers Retailers

Importer Importer Importer

Europe Hong Kong Japan North America

Broken arrows denote the flow of Seiko watches through unauthorized channels of distribution.Solid arrows denote the flow of Seiko watches through authorized channels of distribution.

Advertising Intensity in Selected Countries

CountryAdvertising as

percent of gross domestic productNorth America

Canada 1.17%United States 2.49

Latin AmericaArgentina 1.08Mexico 0.16

AsiaIndia 0.28Indonesia 0.39Japan 0.82Malaysia 0.85South Korea 1.21

Australia 1.20Europe

Belgium 0.54France 0.65Germany 0.82 (1990)Italy 0.57Sweden 0.63United Kingdom 1.35

Media Usage in Various Countries

Nation TV Print Radio Cinema Transit

Argentina 148 155 43 16 47

Brazil 126 77 10 — 4

France 2,712 4,717 611 57 1,108

Germany 2,826 13,423 641 157 550

Japan 133,434 12,900 1,913 — 5,231

South Korea 1,083 1,755 188 — 708

Spain 2,386 4,569 873 62 384

Sweden 143 1,560 — 13 82

United Kingdom 4,621 9,071 287 84 530

United States 45,410 67,536 14,022 — 1,672

Components of Global Advertising Strategy

1. Message (content) and Creative (form- the way the message gets across)

2. Media (radio, TV, outdoor, print, point of purchase, cinema. internet)

3. Target Audience (cross-cultural, provincial, demographic)

4. Product Nature (industrial.consumer, durable, non-durable)

5. Corporate Mentality (global, multinational)

6. Advertising Objective (awareness, understanding, interest, purchase)

Revisit Ads & Objectives

International Communications Process

Producer/marketer/advertiser Sets objectives and advertising budget(s) worldwide

Mass Media Carries themessage (Available & Acceptable Media In Each Country)

Advertisingagency Develops the message(Cultural Encoding)and selectsthe media

Target Market Receives themessage andinterprets its content from media/ peers (Cultural Decoding)

Recipients Think & feel (Cognition & Emotion); act & react to the message (hierarchyof effects)

Marketing coordinationand control

Generatefeedbackon effects

Results Vs. Ad Objectives

Awareness Understanding Interest Purchase

International Product Life Cycle

$ Trade $ Sales

PLC

IPLC

Exports=Imports Line

Time

Country Monopoly Over theIndustry

CompanyMonopolyOver TheProduct

IndividualMonopoly Over TheTechnology

Net Revenue From TradeFor the First Mover Nation