Globalization and

International Marketing
Chapter 21
Globalisation & International Marketing
• Globalization:
“The growing trend towards worldwide markets in products, capital and
labor, unrestricted by barriers.”

Benefits and Opportunities

1 Selling in other countries - opportunity to extend product life & increase sales

2 International competition breeds efficiency - can’t hide behind tariffs & quotas

3 Creation of global brands - allows running of global marketing strategies

4 Multinational businesses - penetrate new markets to achieve economies of scale

5 Opportunity for external growth - mergers and take overs

Globalisation & International Marketing

Limitations & Threats

Freer access to domestic markets - local industries / businesses may

1
suffer

2 Insensitivity of global marketing - will need to localise the products

3 Increased costs - transport costs and communication problems

4 Increased risk of foreign take-overs

 International Marketing/Trade
• International marketing: can be defined as:

Selling products in markets other than the

original domestic market.

• Companies that trade internationally are often

referred to as Multinationals
• A multinational business can be defined as:

“A Business that has

operations in more than one country”
 Why Trade Internationally?

• It obviously offers more opportunities to sell

• Which in turn provides an opportunity to make more profit

• However, there are also other reasons why a firm may

choose to trade internationally.
 To Benefit
From Global
Sourcing
Saturated Legal
home market differences

To Overcome
Domestic
Limitations

To Achieve
Business
Objectives
Spreading
Risks

To Extend
Product Life
Cycles
 Extending The Product Life-Cycle
A typical product’s life-cycle would have the following sales
pattern:
Selling old innovations in new markets may extend their life:
Sales

Development Introduction Growth Maturity Decline Extension

Time
 Domestic Limitations

single
Trading in a Foreign imports may
tricts
country res provide higher quality
wt h
business gro products at lower
prices

Specialised
Government products will only
pe t it ion policies
com have a small
n r es t r ict growth
ca domestic market
 Global Sourcing
• It is increasingly easy for a business to source materials and
services abroad due to:

Improved Communication More Comprehensive

Technologies Transport Networks

• Essentially it means businesses can take advantage of global

efficiencies
• Skilled workers may be cheaper in less developed countries
• This lowers production costs and helps to improve profits
 Assessing Markets in Different Countries
• Once a firm decides to trade internationally it must choose where
to start trading.

• There are a number of factors that may be considered when

choosing where to trade:

Geographical Proximity Political & Legal Systems

Government Policies Economic Development

Natural Resources Potential Labour Force

Commodity Prices Level of Technology

Exchange Rates Return on Investment

Cultural differences
 Geographical Proximity
• This will directly affect a firm’s transport costs
• Particularly important for secondary sector businesses as they
need to transport large, heavy products

• Since tertiary sector businesses don’t produce tangible

products geographical proximity is less important to them

• However, it’s not always true that closer markets have

lower transport costs

• E.g. road transport is relatively more expensive than sea

transport
• But it is slower, making it unsuitable for perishable goods
 Government Policies
Government policies in the following areas may affect a firm’s
trading decisions:

Tariffs & Grants &

Taxation Bureaucracy
Quotas Subsidies
High levels of tax Tariffs and quotas High levels of “red Governments may
will discourage may also affect tape” can cause offer grants and
firms from trading market decisions problems subsidies to
in a country encourage firms to
A firm may be It takes 28 days to set locate in their
Firms will use encouraged to set up up a company in countries
‘window dressing’ to in a country that Pakistan compared to
avoid them. restricts imports 13 in the UK Reducing their costs
 Natural Resources
• A “natural resource” can be defined as:
“Materials that are naturally present within the
environment; they are not man-made. They can be
biotic (living) or abiotic (non-living) materials”
• This will include, amongst many others:

Oil Gold Land Wind

• The availability of these resources can determine whether a

business locates within a country
 Commodity Prices
• A “commodity” can be defined as:

“A good that is supplied and interchanged without any

• noticeable differentiation across the market”

Sugar Coffee Beans Aluminium Iron Ore Petroleum

Commodity prices can have a large impact on businesses

Prices vary on a daily basis, and are determined by the interaction of
supply and demand
 Exchange Rate Impact
Undervalued exchange rates make foreign goods more
expensive
The overall impact will depends upon whether a firm buys from, or
sells to, foreign firms:

Increase in the value Decrease in the

of the pound value of the pound

Imports into the UK cheaper so will more expensive so

will become… increase will fall

Exports from the UK more expensive so cheaper so will

will become… will fall increase
 Legal Systems
• Countries often have important legal differences
• E.g. China doesn't criminalise copyright infringement

• In addition laws may be applied more rigorously in some countries

than others
• E.g. counterfeit software is illegal in China
• But the Chinese authorities do not see it as a priority
or even a concern

• Businesses may be reluctant to operate in countries if

• They feel that the legal constraints are too harsh
• Or they feel that their assets are not properly protected
Level of Economic Development
This can be measured in two different ways:

Human Development
GDP Per Capita
Index (HDI)

This calculates the value of This tries to consider more

production per person than just wealth by
It includes: including:
Personal consumption Life expectancy
Investment expenditure Education
Government Spending (including adult literacy
levels)
Net Exports
(Exports – Imports) Per Capita Income
 Potential Labour Force
Businesses will need to consider their labour requirements when assessing
different countries
• This will vary according to whether the business requires mainly:

Unskilled Workers Semi-skilled Workers Skilled Workers

May be able to May need to May gain access

pay lower wages provide additional to a wider pool of
Leading to training skilled workers
higher returns But may be Salary effect
But may have offset by lower may vary
ethical wages
consequences
 The Level of Technology
The availability of technology is an increasingly important
factor
Clearly it is more important for some businesses than others

Depending upon the activities of the business, it will be

important to consider:
Technological Internet Availability Ease of
Infrastructure and Speeds Communication
 Return on Investment
• Ultimately, the decision to enter another country is an investment
decision

• As such a business will consider the viability (i.e. profitability) of the

project in the same way as any other investment

• This can be calculated using the following formula:

Return on (Gain from Investment – Cost of Investment)

= x 100
Investment (ROI) Cost of Investment

The business will then need to judge whether or not the

expected return is acceptable
 International Market Entry Points

Different methods of entry:

1. Exporting (Mangoes)
2. International franchising (Pizza hut)
3. Joint venture (Sony-Ericsson)
4. Licensing / Agents (Colgate, Palmolive)
5. Direct investment in subsidiaries (Toyota in EU)
 Exporting

Exporting can take place by selling the product in two broad

ways.

1. Directly to a foreign customer

2. Indirectly through an export intermediary such as an agent
 Exporting Directly

Benefits Limitations

Complete control over marketing decisions Will require dedicated staff in the country

Management of transport and logistics of the

No payments made to intermediaries
goods

Lack of local knowledge

Benefits & Limitations: Exporting Indirectly
 Direct investment
These are company owned subsidiary in foreign countries such as: Toyota in EU, Tesco in Thailand
and China
 Licensing
Licensing:
“Allows a business a produce branded goods or patented products under
license”

Advantages to parent firm:

• Avoids capital cost of setting up operating bases abroad

Limitations:
• Possible lapse in quality
• Unethical production method to cut costs
• Risks to the reputation of the parent firm
The Dangers of International Marketing
• It is all too easy to make mistakes when branding
• Even the biggest names have made unbelievable howlers!

• Dangers can appear in a number of forms:

SOCIAL & CULTURAL LEGAL

DIFFERENCES DIFFERENCES

LANGUAGE HAVING LOCAL

BARRIERS KNOWLEDGE

POLITICAL DIFFERENCES IN
DIFFERENCES BUSINESS PRACTICES
 Social and Cultural Differences
• There can be enormous differences in culture between countries,
including:
Different Interpretations
E.g. The hand gesture used to
signify “OK” is considered to be
insulting in some countries

So few businesses will be able to operate in the same way in all countries
Even those that try to, usually have to make some changes

Generally speaking Ikea keeps costs low by selling identical

products in all markets. However, some products have been
adapted:
• In US stores glasses have been made bigger
• In Chinese stores furniture is smaller
 Language Barriers
• Language differences are the most common cause of mistakes when
trading internationally
• Consider some of the issues even between the UK and US:

ATM Cash
Chips Crisps (Automatic Teller Machine* Check Bill Pants Trousers
Machine)

• Start adding more and more languages, and it becomes obvious that
problems are inevitable
The Importance of Local Knowledge
• Many problems can be avoided if a business knows the area
it is operating in

• The easiest way to do this is to work with people who know

the area
• This can be done by through:

e s Agen
e nt ur ts
Joint V n two An in
e
m e
we
nt bet o carry who dividual o
gr e e is r
Is an a businesses oject
t the b authorise business
re r ehalf d
or mo particular p of an to act on
other
out a party
 Dealing With The Dangers
• As a result of these factors businesses will often:

Create Different
Charge Different Prices
Promotional Materials
In Different Regions
For Different Regions

This will allow a business to: This will allow a business to:
Avoid embarrassing and Maximise revenue
potentially costly mistakes Reflect different costs and
Adapt to specific markets economic conditions
E.g. the use of famous
personalities to promote
products
 Protectionism
• Governments may try to protect domestic companies from
foreign competition

• This can be done using protectionist policies, or by erecting

trade barriers, such as:

Tariffs Laws Quotas

The Advantages of Protectionism
To Protect To Protect Infant Industries
Domestic Industries
Domestic firm shouldn’t see sales falls This gives new industries a chance
This may lead to: to establish themselves
Lower unemployment Before facing foreign
competition
Less leakage from the economy

To Increase Tax Revenues To Prevent Dumping

Tariffs raise revenue “Dumping” is where foreign firms

From foreign firms sell at very low prices to force
Quotas may increase tax domestic producers out of
revenues business
Since domestic sales increase
 Consequences of Protectionism
• Protectionism can also cause problems
• These include:

Higher Political Lack of

Prices Problems Competition

Tariffs and quotas Other countries are A lack of foreign

make goods more likely to retaliate with competition may
expensive for their own protectionist encourage domestic
domestic consumers measures firms to:
Extreme price hikes, or Become inefficient
shortages can cause: Produce lower
This leads to inflation
Demonstrations quality products
Which reduces real
spending power Civil unrest
 Approaches to International Marketing

Pan-global marketing:
Adopting a standardized product across the globe – selling the same
goods in the same way everywhere.”
e.g. Coca Cola

Global localization:
Adapting the marketing mix, including differentiated products, to
meet national and regional tastes and cultures.”
e.g. Pizza Hut
 Pan Global Marketing
• Product standardisation is especially common in areas
involving technology
• Since development time and costs can be
minimised

It provides a number of economies of scale, including:

Reduced investment in market research
Average production costs can be lowered
Marketing costs are lowered
Since the same promotional materials and message can be used

However, it can be risky since the marketing mix has not

been tailored to the individual market
Advantages and Disadvantages of a Pan-Global Marketing
Strategies
 Global localisation
• This involves either:
• Creating new products for specific countries
• Adapting existing products to meet the needs of a particular country

It is common in the food

industry, e.g.:
Pringles produces a
range of flavours
Some are only available Roast
in specific countries Pizza Seaweed
Turkey
(USA) (Asia)
(UK)

In some cases a business may combine both the approaches

E.g. Mc Donalds, Pizza hut
Benefits and Limitations of Global
Localization