UNIT TEN (10) Marketing in the Global Firm

UNIT TEN (10) Marketing in the Global Firm

Learning Objectives In this chapter, you ll learn about: 1. Global marketing strategy 2. Standardization and adaptation of international marketing 3. Global branding and product development 4. International pricing 5. International marketing communications 6. International distribution

Organizing Framework for Marketing in the International Firm

Market Segmentation Process of dividing the firm s customer base into clusters, allowing management to formulate unique marketing strategies for each group Within each market segment, customers exhibit similar features, including income level, lifestyle, demographic profile, or desired product benefits Internationally, common market segment variables include income level, culture, legal system, etc.

Global Market Segment A group of customers that share common characteristics across many national markets Firms target these buyers with relatively uniform marketing programs, regarding product, pricing, communications, and distribution Such segments often follow global media, embrace new fashions or trends, and have much disposable income

Global Market Segment One global market segment, with considerable buying power is business people. They and their firms spend considerable money in many of the same ways and can be targeted as a market segment, in this case with a good deal of standardization. Other cases, however, while still segmented, may require unique approaches within each segment.

Adaptation: Modifying elements of the marketing program to accommodate specific customer requirements in individual foreign markets - E.g., industries in automaking, publishing, furniture Standardization: Efforts to make marketing program elements uniform, so as to target entire regions of countries, or even the global marketplace, with a similar product or service -

Standardization and Adaptation Targeting the same product everywhere not usually feasible Goal: To strike some ideal balance between adaptation and standardization

Tradeoffs Between Standardization and Adaptation

Standardization & Adaptation: A Balancing Act Adaptation is costly and may require substantial changes to the marketing mix, especially when many national markets are involved Thus, managers err on the side of standardization, adapting marketing mix only when necessary Or, firms pursue a regional strategy, in which marketing elements are formulated across a geographic region

Standardization & Adaptation: A Balancing Act Dell strikes a balance between standardization and adaptation. The basic machines are identical worldwide, while the keyboards and software are varied to suit local conditions

Global Branding Well-known global brands include: electronics (i-pod), personal care products (Gillette), toys (Wii), food (Cadbury), beverages (Heineken), credit cards (Visa), movies (e.g., Mission Impossible), pop stars (Shakira), and sports stars (David Beckham) A strong global brand enhances: Efficiency and effectiveness of marketing programs The ability to charge premium prices The firm s leverage with resellers Brand loyalty Trust and confidence in the product

Top Global Brands by Region

Global Product Development In developing international products, managers emphasize their commonalities across countries rather than the differences between them A basic product incorporates only core features that are then varied at the margins for individual markets A global new-product planning team is a group within a firm that determines which product elements will be standardized and which will be adapted locally, and how products will be launched

International Pricing Pricing is complex in international business, due to multiple currencies, trade barriers, added costs, and typically longer distribution channels Prices affect sales and profits. An inverse relationship often exists between profits and market share Firms face pressure to lower prices abroad, mainly due to lower income levels

International Pricing Conversely, prices can escalate due to tariffs, taxes, transportation, intermediary markups, and after-sales service

Factors that affect International Pricing Nature of the market: Local purchasing power and distribution infrastructure are important factors Nature of the product or industry: A specialized or highly advanced product, or an industry with few competitors, may necessitate charging a higher price Type of distribution system: Channels are complex in some countries, which pushes prices up Location of the production facility: Locating manufacturing near customers or in countries with low-cost labor facilitates lower prices

Factors that affect International Pricing

Steps in Setting the Price of a Product Abroad

Three Pricing Strategies Rigid cost-plus pricing: Set a fixed price for all export markets by adding a flat percentage to the domestic price to compensate for the added costs of doing business abroad Flexible cost-plus pricing: Set price to accommodate local market conditions, such as customer purchasing power, demand, and competitor prices

Three Pricing Strategies Incremental pricing: Set price to cover only variable (not fixed) costs. This assumes that fixed costs are already paid from sales in the home or other countries (carried to extreme can lead to dumping)

International Price Escalation The problem of end-user prices reaching high levels in the export market Caused by multilayered distribution channels, intermediary margins, tariffs, and other added costs associated with the foreign market May result in an excessively high retail price in the target market, creating a competitive disadvantage for the exporter Various strategies to reduce price escalation

Strategies to Combat International Price Escalation 1. Shorten the distribution channel: That is, bypass some intermediaries in the channel 2. Redesign product to remove costly features: Whirlpool, for example, developed a no-frills washing machine 3. Ship products unassembled, as parts and components, qualifying for lower import tariffs: Do final assembly in the foreign market, using low-cost labor, or in Foreign Trade Zones

Strategies to Combat International Price Escalation 4. Have product reclassified using a different tariff classification to qualify for lower tariffs 5. Move production or sourcing to another country to take advantage of lower labor costs or favorable currency rates

Strategies for Dealing With Varying Currency Conditions

Transfer Pricing The pricing of intermediate or finished goods exchanged among the subsidiaries and affiliates of the same corporate family located in different countries May be used to repatriate profits from countries that restrict MNEs from taking their earnings out of the country May be used to shift profits out of a high corporate tax country into a low corporate tax one, thereby increasing companywide profits

Possible Effects of Transfer Pricing Manipulating transfer pricing makes it tough to determine true profit Morale problems at subsidiary could result from profit performance looking worse that it should Legal problems could arise if this practice is not accepted by local governments

Gray Marketing Legal importation of genuine products into a country by those other than authorized intermediaries Buy the product at a low price in one country, import it into another country, and sell it there at a higher price Causes: Large difference in pricing of same product between two countries, often the result of company/government strategy - e.g., Canada s price controls on drugs Exchange rate differences of products priced in two different currencies

Manufacturer Concerns Over Gray Markets Risk of tarnished image when customers realize the product is available at a lower price through alternative channels Strained relations between the manufacturer and its distributors, as the latter lose sales Disrupted company planning, forecasting, and marketing Legislation has not prevented parallel markets; firms often must act on their own

Firm Strategies to Cope With Gray Markets 1. Aggressively cut prices in countries and regions targeted by gray market brokers 2. Hinder the flow of products into markets where gray market brokers procure the product 3. Design products with exclusive features that strongly appeal to customers 4. Publicize the limitations of gray market channels

International Advertising Firms conduct advertising via media, which includes direct mail, radio, television, cinema, billboards, transit, print media, and the Internet Advertising spending on major media amounted to $100 billion in both Western Europe & Asia in 2009 In the United States, advertising expenditures totaled over $160 billion Advertising is influenced by local factors, such as availability of media, literacy, regulations, culture, and local customs, as well as the goals of the firm

Media Characteristics in Selected Countries

The Largest Global Ad Agencies

International Distribution Distribution is the most inflexible of the marketing program elements once chosen by a firm, it may be difficult to change The most common international distribution approaches are via independent intermediaries (for exporters) and establishing a subsidiary directly in the market (FDI) Both types of channels must perform a range of downstream marketing activities The firm should seek to minimize channel length in order to minimize final prices and decrease complexity

Bypassing Traditional Distribution Channels Direct marketing selling directly to end users Reducing channel length decreasing the number of distributors or intermediaries it takes to get a product to market Japan is an example of a country with long distribution channels; increased costs to pay intermediaries escalates prices

Global Account Management (GAM) Under globalization, foreign customers seek uniform and consistent prices, quality, and customer service GAM means serving a key global customer in a consistent and standardized manner, regardless of where in the world it operates. For example, Walmart is a key global account for Procter & Gamble, purchasing many P&G products

Global Account Management (GAM) Each global customer is assigned a global account manager, or team, which provides the customer with coordinated marketing support and service across various countries

Human Resource Management in the Global Firm

Learning Objectives In this unit, you ll learn about: 1. The strategic role of human resources in international business 2. International staffing policy 3. Preparation and training of international employees 4. International performance appraisal 5. Compensating employees 6. International labor relations 7. Diversity in the international workforce

Challenges of International Human Resource Management Recruiting, managing, and retaining human resources at a firm with extensive global operations is especially challenging For example, German firm Siemens has more than 400,000 employees in some 190 countries: 230,000 throughout Europe, 90,000 in the Americas, 70,000 in the Asia-Pacific region, and 12,000 in Africa, the Middle East, and Russia Volkswagen, Nestle, IBM, Unilever, Walmart, McDonald s, & Matsushita each have more than 150,000 employees outside the firm s home country

International Human Resource Management The planning, selection, training, employment, and evaluation of employees for international operations How a firm recruits, trains, and places skilled personnel in its worldwide value chains sets it apart from its competition The combined knowledge, skills, and experiences of employees are distinctive & provide many pluses for the firm s operations worldwide.

Three Employee Categories in the MNE Parent-country nationals (PCNs): Also known as homecountry nationals, PCNs are citizens of the country where the MNE is headquartered Host-country nationals (HCNs): Citizens of the country where the subsidiary or affiliate is located. HCNs make up largest proportion of employees that the firm hires abroad - Examples: The labor force in manufacturing, assembly, basic service activities, clerical work, and other non-managerial functions

Three Employee Categories in the MNE Third-country nationals (TCNs): Employees who are citizens of countries other than the home or host country. Most work in management and have unique skills

Differences Between Domestic and International IHRM 1. New HR responsibilities, such as international taxation, international relocation and orientation, services for expatriates, host government relations, and language translation services 2. Need for a broader perspective, such as establishing fair, comparable compensation, when there is a mix of PCNs, HCNs, and TCNs

Differences Between Domestic and International IHRM 3. Greater involvement in employees personal lives, such as housing arrangements, health care, children s education, safety, security, appropriate compensation, and higher living costs

Differences Between Domestic and International IHRM 4. Managing the mix of expatriates versus locals. Each location may be staffed with a mix of HCNs, PCNs, and TCNs, depending on firm s international experience, cost of living abroad, local laws, and availability of qualified local staff 5. Greater risk exposure, such as political risk and terrorism 6. External influences of government and culture, such as taxes, local work regulations, traditional work practices, and cultural conditions

Key Tasks of IHRM 1. International staffing policy: Activities directed at recruiting, selecting, and placing employees 2. Preparation and training of international employees 3. International performance appraisal: Providing feedback for employees professional development 4. Compensation of employees: Includes formulation of benefit packages that vary greatly from country to country

Key Tasks of IHRM 5. International labor relations: Managing relationships with unions; collective bargaining processes, known as industrial relations 6. Diversity in the international workforce especially as it may relate to women and minorities

Key Tasks & Challenges of IHRM

Criteria for Selecting Employees for Foreign Operations

Staffing: Searching for Talent Recruitment: Searching for and locating potential job candidates to fill the firm s needs Selection: Gathering information to evaluate and decide who to employ in particular jobs These two key HR processes require good interaction and communication between HR and upper management a true collaboration

Developing Talent HR & Management must: Align firm strategy with roles needed to achieve that strategy Define desired skills, behaviors, and experience for those roles Assess current talent pool and plan for future needs Develop talent inside firm or obtain it from market Assess current talent levels and develop that further from inside

Employee Characteristics That Facilitate International Effectiveness Technical competence: Must have adequate managerial and technical capabilities Self-reliance: Entrepreneurial, proactive mindset; ability to function with considerable independence and limited support from headquarters Adaptability: Ability to adjust to foreign cultures, cultural empathy, flexibility, diplomacy, and a positive attitude

Characteristics That Facilitate International Effectiveness (cont.) Interpersonal skills: Ability to build relationships is key Leadership ability: Must view change positively, and proactively manage threats and opportunities Physical and emotional health: Must handle stresses of life abroad Spouse/dependents prepared for living abroad

Expatriate An employee who goes to work abroad for an extended period, usually years Expatriate assignment failure: The premature return of an expatriate, due to an inability to perform well abroad - Costly to the firm (lost productivity and relocation costs) and to expatriates themselves (family stress and career disruption) - As many as 1/3 of foreign assignments end early, many because of culture shock

Culture Shock The confusion and anxiety, often akin to mental depression, that can result from living in a foreign culture for an extended period; often affects family members most Especially a factor for those assigned to culturally dissimilar countries, such as China and South Korea Can be reduced via advance preparation, training, language skills, deep interest in the new country Helpful activities: Regular exercise, relaxation techniques, or keeping a detailed journal of experiences

Key Features of Preparation and Training for International Employees

Three Components of Training Personnel for International Assignments 1. Area studies: Factual knowledge of the historical, political, & economic environment of the host country 2. Practical information: Knowledge and skills necessary to function effectively in a country, including housing, health care, education, and daily living 3. Cross-cultural awareness: Ability to interact effectively and appropriately with people from different language and cultural backgrounds

Training In order of increasing rigor, training methods include: videos, lectures, assigned readings, case studies, books, Web-based instruction, critical incident analyses, simulations, role-playing, language training, field experience, and long-term immersion Role-playing and simulations involve the employee acting out typical encounters with foreigners Long-term immersion places the employee in the country for several months or more, often for language and cultural training

Training Repatriation: Return of the expatriate to the home country - Requires advance preparation - Unless managed well, returning expatriate may encounter problems, such as career disruptions and reverse culture shock Many of the best companies train and prepare expatriates for their return to the home country/culture HR managers can provide counseling and other help (e.g., financial assistance if needed upon return for down payments, family issues, etc.)

Performance Appraisal Performance appraisal: Formal process of assessing how effectively employees perform their jobs Helps identify problem areas where an employee needs to improve and additional training is warranted Determines compensation and firm performance MNEs devise procedures to assess the performance of individual employees; ascertain if any problems are attributable to inadequate skill levels; provide additional training and resources; and terminate employees who consistently fail to achieve goals

Performance Appraisal Often very challenging in international business Reasons include: Problem of non-comparable outcomes if worker productivity in subsidiary is half the domestic average, it could be due to conditions in foreign country, sub-standard factory equipment, or more Incomplete information because of geographic and time separation, difficult to observe employees working in foreign location and therefore must also rely on evaluators in that location Performance outcome differences new subsidiaries do not achieve same level of operation/results until they reach a certain level of maturity

Compensation of Personnel Compensation varies internationally due to differences in legally mandated benefits, tax laws, cost of living, local tradition, and culture Employees posted abroad expect to be compensated at a level that allows them to maintain their usual standard of living, which can make compensating expatriates very costly Compensation includes base remuneration, benefits (e.g., health care plans), allowance (e.g., for housing, children s education, travel), and incentives

International Labor Relations Management and workers determine the job relationships that will be in effect at the workplace Collective bargaining involves negotiations between management & workers regarding wages and working conditions Labor regulations vary substantially, from minimum regulations in Africa and India to very detailed regulations in Northern Europe

International Labor Relations Union membership has declined in most countries, but remains high in several European countries Strikes can disrupt international operations & could require a arbitrator/mediator to end dispute; time lost from work though varies greatly across country Wages and productivity also vary considerably During recent economic downturn, labor has been laid off (made redundant) in great numbers

Trends in International Labor Mobility of labor across national borders has increased substantially Reasons include: - Growing interconnectedness of national economies - Rapid expansion of multinational firms - Rise of international collaborative ventures - Greater emphasis on global teams

Trends in International Labor Many countries are coping with an influx of immigrants, both legal and illegal, who compete with established workers by providing low-cost labor - Trend significant in Europe, Persian Gulf, & the U.S. (not Japan) Increasing global labor alliances

Women in International Business Women currently occupy relatively few top management positions (in Europe, women occupy only 15% of senior executive posts) Reasons for scarcity of women in international jobs include: - Senior managers often assume women do not make suitable leaders abroad (e.g., due to cultural challenges) - Some female managers prefer to remain in the home country to fulfill family obligations or avoid disrupting partner s career - Most companies do not accommodate child-rearing or other family responsibilities - There are fewer women with sufficient experience to be sent abroad for senior jobs

Recent Positive Trends Many more women are obtaining university degrees in business (about 1/3 of MBA students worldwide are women) Female graduates account for some 50% of recruits joining European firms Businesswomen increasingly form their own networks, such as Women Directors on Boards in Britain and The International Alliance for Women Overall trend is positive

Success Strategies for Women in IB In many countries, being a foreign woman can be an advantage. Women stand out more, and competent women earn respect Smart women leverage their gender to their advantage Women overcome biases abroad by acquiring managerial, language, and international skills Over time, managerial competence wins out over bias.

Success Strategies for Women in IB Gaining substantial experience as a domestic manager or in short international assignments can greatly improve prospects for working abroad Once abroad, women report the reaction of surprise is often replaced by professionalism and respect