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Licensed to: iChapters User Licensed to: iChapters User International Marketing Strategy, 5th Edition Isobel Doole and Robin Lowe Publishing Director: John Yates Publisher: Jennifer Pegg Development Editor: Lucy Mills Production Editor: Leonora Dawson-Bowling Manufacturing Manager: Helen Mason Senior Production Controller: Maeve Healy Marketing Manager: Angela Lewis Typesetter: Newgen, India Cover design: Adam Renvoize © 2008, Cengage Learning EMEA ALL RIGHTS RESERVED. 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May not be copied, scanned, or duplicated, in whole or in part. Licensed to: iChapters User CHAPTER 1 AN INTRODUCTION TO INTERNATIONAL MARKETING INTRODUCTION Managers around the globe are recognising the increasing necessity for their companies and organisations to develop the skills, aptitudes and knowledge to compete effectively in international markets. The emergence of a more open world economy, the globalisation of consumer tastes and the unabated expansion of Internet access globally all increase the interdependency and interconnections of nation economies across the globe. The need for managers to develop the skills to respond to these pressures affects companies of all sizes. In this chapter, the reader will be introduced to the concepts of international marketing, enabling them to acquire an appreciation of the complexities of marketing on an international basis and of how this activity differs from operating purely in domestic markets. In the following sections we will define international marketing, examine the important trends in the global marketing environment and introduce the reader to the international marketing strategy development and international marketing planning process. LEARNING OBJECTIVES After reading this chapter you should be able to: I Explain and use the SLEPT factors to assess international markets I Discuss the differences between export marketing, international and global marketing I Understand the criteria required to evaluate a company’s international marketing strategy I Appreciate the key steps in the international marketing planning process 3 Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Licensed to: iChapters User 4 PART 1 ANALYSIS THE STRATEGIC IMPORTANCE OF INTERNATIONAL MARKETING Last year’s international trade in merchandise exceeded US$10.5 trillion and world trade in services is estimated at around US$2.4 trillion. Whilst most of us cannot visualise such huge amounts, it does serve to give some indication of the scale of international trade today. This global marketplace consists of a population of 6.6 billion people which is expected to reach 10 billion by 2050 according to the latest projections prepared by the United Nations. Global wealth is increasing and this is reflected in higher demand. Increasing affluence and commercial dynamism has seen nations across Asia, Central and Eastern Europe emerge as high growth economies. Increasing affluence and demand simply means that consumers will actively seek choice, with the result that globally competition is intensifying as companies compete to win the battle for disposable income. Population growth and increased affluence together have helped create a ‘global youth culture’ – teenagers now account for 30 per cent of the population globally. In many countries, more than half the population is pre-adult, creating one of the world’s biggest single markets, the youth market. Everywhere adolescents project worldwide cultural icons, Nike, Coke, Gap and Sony Walkman, as well as Sega, Nintendo and the Sony Playstation. When ‘virtual reality’ is commonplace, the one-world youth culture market will exceed all others as a premier global market segment. Parochial, local and ethnic growth products may face difficult times. Older consumers are also increasingly non-national in their identity, if not in their personal identity then from the perspective of the consumable fabric of their lives. They drive international cars, take foreign holidays, watch international programmes on television, use international hardware and software. On the supply side, multinational and global corporations are increasing in size and embracing more global power. The top 500 companies in the world now account for 70 per cent of world trade and 80 per cent of international investment. Total sales of multinationals are now in excess of world trade, which gives them a combined gross product of more than some national economies. To strategically position themselves for global competitiveness, companies are consolidating through mergers, acquisitions and alliances to reach the scale considered necessary to compete in the global arena. At the same time, there is a trend towards global standardisation, as companies strive for world standards for efficiency and productivity. In Europe last year mergers and acquisitions were worth US$ 1.59 trillion, in the USA $1.54 trillion. The Indian company Tata took over Corus making them the world’s largest steel producer, overtaking Mittal (Dutch) who in the same year took over Aecelor of Luxembourg. In Germany e.ON bid for Endesa of Spain. GSK have a number of global alliances in the pharmaceutical market, creating the world’s largest research-based pharmaceutical company. Such trends can also be seen in the service sector. In the US, Morgan Stanley and Dean Witter merged to offer global investment as well as global private banking and credit card services. There has also been an increase in the number of joint ventures and international strategic alliances to compete in mature markets. Xerox entered into a joint venture with Fuji to consolidate their global position and the Siemens and Fujitsu joint venture is now the only computer hardware company in Europe following the global consolidation of that sector. The global marketplace is no longer the summation of a large number of independent country markets but much more multilateral and interdependent, economically, culturally and technically. Information moves anywhere in the Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Licensed to: iChapters User CHAPTER 1 AN INTRODUCTION TO INTERNATIONAL MARKETING world at the speed of light, the ease of transmission being facilitated by the convergence of long distance telecoms, cuts in the cost of electronic processing and the exponential growth in Internet access. The combination of all these forces has meant that all companies need to develop a marketing orientation which is international in nature and that companies need managers who have the skills to analyse, plan and implement strategies across the globe. It is for these reasons that international marketing has become such a critical area of study for managers and an important component of the marketing syllabus of business faculties in universities. So perhaps now we should turn our attention to examining exactly what we mean by international marketing. What is international marketing? Many readers of this textbook will have already followed a programme of study in marketing but, before explaining what we mean by international marketing, let us reflect for a few moments on our understanding of what is meant by marketing itself. The Chartered Institute of Marketing defines marketing as the ‘Management process responsible for identifying, anticipating and satisfying customer requirements profitably’. Thus marketing involves: I I I I focusing on the needs and wants of customers identifying the best method of satisfying those needs and wants orienting the company towards the process of providing that satisfaction meeting organisational objectives. In this way, it is argued, the company or organisation best prepares itself to achieve competitive advantage in the marketplace. It then needs to work to maintain this advantage by manipulating the controllable functions of marketing within the largely uncontrollable marketing environment made up of SLEPT factors: i.e. Social, Legal, Economic, Political and Technological. How does the process of international marketing differ? Within the international marketing process the key elements of this framework still apply. The conceptual framework is not going to change to any marked degree when a company moves from a domestic to an international market; however, there are two main differences. First, there are different levels at which international marketing can be approached and, second, the uncontrollable elements of the marketing environment are more complex and multidimensional given the multiplicity of markets that constitute the global marketplace. This means managers have to acquire new skills and abilities to add to the tools and techniques they have developed in marketing to domestic markets. International marketing defined At its simplest level, international marketing involves the firm in making one or more marketing mix decisions across national boundaries. At its most complex, it involves the firm in establishing manufacturing/processing facilities around the world and coordinating marketing strategies across the globe. At one extreme there are firms that opt for ‘international marketing’ simply by signing a distribution agreement with a foreign agent who then takes on the responsibility for pricing, promotion, distribution and market development. At the other extreme, there are huge global companies such as Ford with an integrated network of manufacturing plants worldwide and who operate in some 150 country markets. Thus, at its most complex, international marketing becomes a process of managing on a global Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. 5 Licensed to: iChapters User 6 PART 1 ANALYSIS scale. These different levels of marketing can be expressed in the following terms: I I I Domestic marketing, which involves the company manipulating a series of controllable variables such as price, advertising, distribution and the product/service attributes in a largely uncontrollable external environment that is made up of different economic structures, competitors, cultural values and legal infrastructure within specific political or geographic country boundaries. International marketing, which involves operating across a number of foreign country markets in which not only do the uncontrollable variables differ significantly between one market and another, but the controllable factors in the form of cost and price structures, opportunities for advertising and distributive infrastructure are also likely to differ significantly. It is these sorts of differences that lead to the complexities of international marketing. Global marketing management, which is a larger and more complex international operation. Here a company coordinates, integrates and controls a whole series of marketing programmes into a substantial global effort. Here the primary objective of the company is to achieve a degree of synergy in the overall operation so that by taking advantage of different exchange rates, tax rates, labour rates, skill levels and market opportunities, the organisation as a whole will be greater than the sum of its parts. This type of strategy calls for managers who are capable of operating as international marketing managers in the truest sense, a task which is far broader and more complex than that of operating either in a specific foreign country or in the domestic market. In discussing this, Sarathy et al. (2006) comment that ‘the international marketing manager has a dual responsibility; foreign marketing (marketing within foreign countries) and global marketing (co-ordinating marketing in multiple markets in the face of global competition)’. Thus, how international marketing is defined and interpreted depends on the level of involvement of the company in the international marketplace. International marketing could therefore be: I I I Export marketing, in which case the firm markets its goods and/or services across national/political boundaries. International marketing, where the marketing activities of an organisation include activities, interests or operations in more than one country and where there is some kind of influence or control of marketing activities from outside the country in which the goods or services will actually be sold. Sometimes markets are typically perceived to be independent and a profit centre in their own right, in which case the term multinational or multidomestic marketing is often used. Global marketing, in which the whole organisation focuses on the selection and exploitation of global marketing opportunities and marshals resources around the globe with the objective of achieving a global competitive advantage. The first of these definitions describes relatively straightforward exporting activities, numerous examples of which exist. However, the subsequent definitions are more complex and more formal and indicate not only a revised attitude to marketing but also a very different underlying philosophy. Here the world is seen as a market segmented by social, legal, economic, political and technological (SLEPT) groupings. In this textbook we will incorporate the international marketing issues faced by firms, be they involved in export, international or global marketing. For all these levels the key to successful international marketing is being able to identify and understand the complexities of each of these SLEPT dimensions Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Licensed to: iChapters User CHAPTER 1 AN INTRODUCTION TO INTERNATIONAL MARKETING of the international environment and how they impact on a firm’s marketing strategies across their international markets. As in domestic marketing, the successful marketing company will be the one that is best able to manipulate the controllable tools of the marketing mix within the uncontrollable environment. It follows that the key problem faced by the international marketing manager is that of coming to terms with the details and complexities of the international environment. It is these complexities that we will examine in the following sections. THE INTERNATIONAL MARKETING ENVIRONMENT The key difference between domestic marketing and marketing on an international scale is the multidimensionality and complexity of the many foreign country markets a company may operate in. An international manager needs a knowledge and awareness of these complexities and the implications they have for international marketing management. There are many environmental analysis models which the reader may have come across. For the purposes of this textbook, we will use the SLEPT approach and examine the various aspects and trends in the international marketing environment through the social/cultural, legal, economic, political and technological dimensions, as depicted in Figure 1.1. Social/cultural environment The social and cultural influences on international marketing are immense. Differences in social conditions, religion and material culture all affect consumers’ perceptions and patterns of buying behaviour. It is this area that determines the extent to which consumers across the globe are either similar or different and so determines the potential for global branding and standardisation. A failure to understand the social/cultural dimensions of a market are complex to manage, as McDonald’s found in India. It had to deal with a market that is 40 per cent vegetarian, had an aversion to either beef or pork among meat-eaters FIGURE 1.1 The environmental influences on international marketing Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. 7 Licensed to: iChapters User 8 PART 1 ANALYSIS and a hostility to frozen meat and fish, but with the general Indian fondness for spice with everything. To satisfy such tastes, McDonald’s discovered it needed to do more than provide the right burgers. Customers buying vegetarian burgers wanted to be sure that these were cooked in a separate area in the kitchen using separate utensils and sauces like McMasala and McImli were developed to satisfy the Indian taste for spice. Interestingly however, these are now innovations they have introduced into other markets. Cultural factors Cultural differences and especially language differences have a significant impact on the way a product may be used in a market, its brand name and the advertising campaign. Initially, Coca-Cola had enormous problems in China as Coca-Cola sounded like ‘Kooke Koula’ which translates into ‘A thirsty mouthful of candle wax’. They managed to find a new pronunciation ‘Kee Kou Keele’ which means ‘joyful tastes and happiness’. Other companies who have experienced problems are General Motors whose brand name ‘Nova’ was unsuccessful in Spain (‘no va’ in Spanish means ‘no go’). Pepsi Cola had to change its campaign ‘Come Alive With Pepsi’ in Germany as, literally translated, it means ‘Come Alive Out of the Grave’. In Japan McDonald’s character Ronald McDonald failed because his white face was seen as a death mask. When Apple launched the iMac in France they discovered the brand name mimicked the name of a well established brand of baby laxative – hardly the image they were trying to project. Operating effectively in different countries requires recognition that there may be considerable differences in the different regions. Consider northern Europe versus Latin Europe, the northwest of the USA versus the south or Bejing and Taipei. At the stage of early internationalisation it is not unusual for Western firms to experience what appear to be cultural gaps with their counterparts in Latin America and Asian countries as well as in different regions of those countries. A campaign by Camay soap which showed a husband washing his wife’s back in the bath was a huge success in France but failed in Japan, not because it caused offence, but because Japanese women viewed the prospect of a husband sharing such a time as a huge invasion of privacy. On the other hand, some commentators argue there are visible signs that social and cultural differences are becoming less of a barrier. The dominance of a number of world brands such as Microsoft, Intel, Coca-Cola, McDonald’s, Nike etc., all competing in global markets that transcend national and political boundaries, are testimony to the convergence of consumer needs across the globe. However, it is important not to confuse globalisation of brands with the homogenisation of cultures. There are a large number of global brands but even these have to manage cultural differences between and within national country boundaries. There are also a number of cultural paradoxes which exist. For example, in Asia, the Middle East, Africa and Latin America there is evidence both for the westernisation of tastes and the assertion of ethnic, religious and cultural differences. There are more than 600 000 Avon ladies now in China and a growing number of them in Eastern Europe, Brazil and the Amazon (see Illustration 1.1). In northern Kenya you may find a Sambhuru warrior who owns a cellular telephone. Thus, whilst there is a vast and, sometimes, turbulent mosaic of cultural differences, there are commentators who believe there is evidence that a global village is potentially taking shape which, as Kenichi Ohmae (2005) says, ‘will be a nationless state marked by the convergence of customer needs that transcends political and cultural boundaries’. Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Licensed to: iChapters User CHAPTER 1 AN INTRODUCTION TO INTERNATIONAL MARKETING 9 The social/cultural environment is an important area for international marketing managers and we will return to this subject in a number of chapters where we examine the various aspects of its strategic implications. Chapter 3 is devoted to a full examination of the social and cultural influences in international marketing. In Chapter 5 we will examine the forces driving the global village and its strategic implication to companies across the world. Social factors Growth and movement in populations around the world are important factors heralding social changes. Eighty per cent of the world’s population live in developing countries; by 2025 this is likely to reach 85 per cent. Two out of every five people live in China and India. However, whilst world population is growing dramatically, the growth patterns are not consistent around the world. Over the next half century, Africa’s population will almost treble. China’s population will rise much more slowly from 1.2 billion to 1.5 billion. With a population of 1.53 billion people, India will have more inhabitants than China in 50 years’ time. Europe is the only region where the population is expected to decline; any increase in population in high income countries is entirely due to migration. There are also visible moves in the population within many countries, leading to the formation of huge urban areas where consumers have a growing similarity of needs across the globe. By 2010, 50 per cent of the world’s population will live in urban areas: the world is moving into gigantic conurbations. The population of greater Tokyo is soon to be close to 30 million and Mexico City 20 million. Cities such as Lagos, Buenos Aires and Djakarta will soon outstrip cities such as Paris, London and Rome. In the year 2015, no European city will be in the top ILLUSTRATION 1.1 The beautification of the ageing baby boomers SOURCE: ANTHONY GRIMES, UNIVERSITY OF HULL Analysts at Goldman Sachs estimate that the global beauty industry is worth about 100 billion US dollars a year and is growing at up to 7 per cent a year, more than twice the rate of the developed world’s GDP. This growth is being driven by richer, ageing baby-boomers and increased discretionary income in the West, and by the growing middle classes in developing countries. China, Russia and South Korea and Brazil are turning into huge markets. In India, sales of anti-ageing creams are growing by 40 per cent a year. Avon is expanding rapidly in Eastern Europe and Russia as well as in South America. Brazil now has more than 900 000 Avon ladies. Global competition in the market is becoming increasingly intense. Unilever and Procter and Gamble, facing maturity in many of their traditional businesses, are devoting more resources to developing global beauty brands. Luxury product manufacturers such as Dior, Chanel and Yves St Laurent are moving into mainstream beauty products and many of the global giants are growing by buying up smaller brands. Japan’s Kao have gone into the hair dye market by buying John Frieda while Estée Lauder has acquired Stila, MAC and Bobbi Brown, all of which are innovative and growing make-up brands. The traditional global beauty brands established by such companies as L’Oréal, Elizabeth Arden and Helena Rubenstein are now having to fight hard in a global market where traditionally they have earned huge margins and enjoyed continuous growth for many years. QUESTION Outline the reasons for the changing structure of the global beauty market. Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Licensed to: iChapters User 10 PART 1 ANALYSIS 30 and 17 of the world’s mega cities of 10 million plus will be in emerging markets. This has powerful implications for international marketing. These cities will be markets in themselves. Urban dwellers require similar products (packaged conveniently and easy to carry). Similarly, they demand services, telephones and transportation of all kinds and modern visual communications. It also means, for the incoming company, that customers are accessible. They are identifiable and firms can communicate with them efficiently via supermarkets, advertising and other marketing communication tools. Table 1.1 shows the ten mega cities in the world forecast for 2015. Legal environment Legal systems vary both in content and interpretation. A company is not just bound by the laws of its home country but also by those of its host country and by the growing body of international law. Firms operating in the European Union are facing ever-increasing directives which affect their markets across Europe. This can affect many aspects of a marketing strategy – for instance advertising – in the form of media restrictions and the acceptability of particular creative appeals (see Illustration 1.2). Product acceptability in a country can be affected by minor regulations on such things as packaging and by more major changes in legislation. In the USA, for instance, the MG sports car was withdrawn when the increasing difficulty of complying with safety legislation changes made exporting to that market unprofitable. Kraft Foods sell a product called Lifesavers, which are very similar to the Nestlé Polo brand, in many countries. Using EU law, Nestlé attempted to stop the sale of Lifesavers in the EU purely to protect their market share. It is important, therefore, for the firm to know the legal environment in each of its markets. These laws constitute the ‘rules of the game’ for business activity. The legal environment in international marketing is more complicated than in The world’s ten mega cities in 2015 City Country Population (millions) Tokyo Japan 26.4 Mumbai India 26.1 Lagos Nigeria 23.2 Dhaka Bangladesh 21.1 Sao Paulo Brazil 20.4 Karachi Pakistan 19.2 Mexico City Mexico 19.2 New York USA 17.4 Jakarta Indonesia 17.3 Calcutta India 17.3 Copyright 2008 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. SOURCE: UNITED NATIONS TABLE 1.1