Chapter1-12.docx - Chapter 1 The Scope and Challenge of International Marketing CHAPTER LEARNING OBJECTIVES CHAPTER OUTLINE What you should learn from

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Unformatted text preview: Chapter 1 The Scope and Challenge of International Marketing CHAPTER LEARNING OBJECTIVES CHAPTER OUTLINE What you should learn from Chapter 1: Global Perspective: Global Commerce Causes Peace The benefits of international markets The changing The Internationalization of U.S. Business face of U.S. business International Marketing Defined The scope of the international marketing task The International Marketing Task The importance of the self-reference criterion (SRC) in international marketing Marketing Decision Factors Aspects of the Domestic Environment Aspects of the Foreign Environment Environmental Adaptation Needed The Self-Reference Criterion and Ethnocentrism: Major Obstacles Developing a Global Awareness Stages of International Marketing Involvement No Direct Foreign Marketing Infrequent Foreign Marketing Regular Foreign Marketing International Marketing Global Marketing The Orientation of International Marketing The increasing importance of global awareness The progression of becoming a global marketer PART ONE Gl ob al Pe rs pe cti ve GL OB AL CO MM ER CE CA US ES PEA CE Globa l comm erce thrive s durin g peace time. The econo mic boom in North Amer ica durin g the late 1990s was in large part due to the end of the Cold War and the openi ng of the forme rly comm unist countr ies to the world tradin g syste m. Howe ver, we shoul d also under stand the impor tant role that trade and intern ationa l marke ting play in produ cing peace. Bo eing Comp any, Ameri ca’s largest export er, is perha ps the most promi nent examp le. Altho ugh many would argue that Boein g’s militar y sales (aircra ft and missil es) do not exactl y promo te peace, over most of the compa ny’s histor y, that busine ss has constit uted only about 20 percen t of the compa ny’s comm ercial activit y. Up until 2002, of Boein g’s some $60 billion in annual reven ues, about 65 percen t came from sales of comm ercial jets aroun d the world and anothe r 15 percen t from space and comm unicat ions techno logies. Unfort unatel y, these histori cal numb ers are being skewe d by U.S. militar y spendi ng and the damag e done to touris m by terrori sm.1 Even so, the compa ny still counts custo m-ers in more than 90 countr ies, and its 158,0 00 emplo yees work in 70 countr ies. The new 787 Drea mliner includ es parts from aroun d the world, includ ing Austra lia, Franc e, India, Italy, Japan, Russia , and Swede n.2 Its more than 12,00 0 comm ercial jets in servic e world wide carry about one billion travel ers per year. Its NASA Servic es divisi on is the lead contra ctor in the constr uction and operat ion of the 16countr y Intern ationa l Space Statio n, first manne d by an Ameri can and two Russia ns in the fall of 2000. The Space and Intelli gence Syste ms Divisi on also produ ces and launch es comm unicat ions satellit es affecti ng people in every countr y. All the activit y associ ated with the devel opme nt, productio n, and marke ting of comm ercial aircra ft and space vehicl es requir es millio ns of peopl e from aroun d the world to work togeth er. More over, no comp any does more 3 to enabl e peopl e from all countr ies to meet facetoface for both recrea tion and comm erce. All this intera ction yields not just the mutua l gain associ ated with busin ess relati onships but also perso nal relati onshi ps and mutua l under standi ng. The latter are the found ation of global peace and prosp erity. An other class of comp anies that prom otes global dialogue and theref ore peace is the mobil e phone indust ry. Durin g 2007 the numb er of mobil e phone subsc ribers exceede d 3.0 billio n, and this numb er is expec ted to grow beyon d 4.5 billio n by 2012. Nokia (Finla nd), the marke t leader , is well ahead of the Amer ican manu factur ers Motorola and Apple , Sams ung (S. Korea ), LG (S. Korea ), and Sony Ericss on (Japa n/Swe den). Ind ividua ls and small comp anies also make a differ ence — perha ps a subtle r one than large multi national comp anies, but one just as impor tant in the aggre -gate. Our favori te exam ple is Danie l Lubet zky’s comp any, Peace Work s. Mr. Lubet zky used a fellow ship at Stanf ord Law Schoo l to study how to foster joint ventur es betwe en Arabs and Israeli s. Then, follo wing his own advic e, he created a comp any that combi ned basil pesto from Israel with other raw mater ials and glass jars suppli ed by an Arab partner to produ ce the first produ ct in a line he called Mosh e & Ali’s Gour met Foods . The comp any now sells four different produ ct lines in 5,000 stores in the Unite d States and has its headq uarter s on Park Aven ue in New York, as well as busin ess operat ions in Israel, Egypt , Indon esia, Turke y, and Sri Lanka . Again , beyon d the measu rable comm er-cial benefi ts of coope ration betwe en the involv ed Arabs , Israeli s, and others is the longer lastin g and more funda menta l appre ciatio n for one anoth er’s circu mstan ces and chara cter. Int ernati onal marke ting is hard work. Makin g sales calls is no vacati on, even in Paris, especi ally when you’v e been there 10 1 times before . But intern ationa l marke ting is impor -tant work. It can enrich you, your family , your compa ny, and Circa 2011, approximately half of Boeing’s business is defense related ( . com). 2 W.J. Hennigan, “Dreamliner is Causing Nightmares for Boeing,” Los Angeles Times, October, 15, 2009, pp. B1–2. 3 The European commercial aircraft manufacturer Airbus is beginning to catch up, employing 57,000 people around the world ( . com, 2010). 4 Part 1 An Overview h D u r i n g t h e p a s t a n d i s e a n d c o m m e r 5 c 0 i a y l e a s r e s r , v i w o r l c e s ) d h t r a s a d d e e c ( e x p o l i n e d r t t s h r o f m e r c e e t i m e s : 1 9 i 8 n 2 1 b 9 y 7 3 . 3 b y p e 3 r . c 1 e n p e t , r c a e n n d t i a n f t e r 2 0 0 9 t h e O P E C o i l b y 1 2 . 0 p e r c c e r n i t s i s , f o l l i o n w i n s g f t a h s e t e f i s t n a r n a c t i e a , l 1 d 2 e . b 5 a c l e p e r c o e f n t 2 , 0 0 i 8 n . 2 W 0 o 0 r 0 l . d E t v r e a n d e a f g t r e e r w t a h t e i t t e r g r r o o r w i s t u n t a i t l t a c k s o n t h e g l o b S e p a l t e f m i b n e a r n c 1 1 , 2 0 0 1 , t r a d e c o n i a l c r i s i s b e g a n i n t i 2 n 0 u 0 e 8 d . t W o e e c t h o u g l i p s e h t o v t h e r e M t e m p o a n i l a r a B r a y y c i i n r c u m s t a n c J a n u a r y e 2 o f a 0 0 9 w a p s a r t i a l s o l a r a p t l y s y m b o l i i c n e o r f t t h e r a f f i t c i m e s — e s p d u r i n g e c 2 i 0 a 0 l 9 l – y 2 , 0 1 o f t h e h u g e d e c l i n e i n c o n t a 0 . 4 your country. And ultimately, when international marketing is done well, by large companies or small, the needs and wants of customers in other lands are well understood, and prosperity and peace are promoted along the way.5 Sources: and — both are worth a visit; mobile phone sales data are available at .gartner.com (all accessed in 2010). LO1 The benefi ts of intern ationa l marke ts Never before in American history have U.S. businesses, large and small, been so deeply in-volved in and affected by international business. A global economic boom, unprecedented in modern economic history, has been under way as the drive for efficiency, productivity, and open, unregulated markets sweeps the world. Powerful economic, technological, industrial, political, and demographic forces are converging to build the foundation of a new global economic order on which the structure of a one-world economic and market system will be built. When we wrote those words ten years ago to open the eleventh edition of this book, the world was a very different place. The nation was still mesmerized by the information tech-nology boom of the late 1990s. Most did not visualize the high-tech bust of 2001 or the Enron and WorldCom scandals. No one could have imagined the September 11, 2001, disasters, not even the perpetrators. The wars in Afghanistan and Iraq were not on the horizon. The major international conflict grabbing headlines then was the series of diplomatic dustups among China, Taiwan, and the United States. Who could have predicted the disruptions associated with the 2003 SARS outbreak in Asia? The great Indian Ocean tsunami of 2004 was perhaps impossible to anticipate. Oil priced at more than $100 per barrel was also unthinkable then—the price seemed to have peaked at about $40 per bar-rel in late 2000.6 We wrote about the promise of the space as a fundamental cause of peace. For a variety of such arguments, see Jagdish Bhabwati, In Defense of Globalization (Oxford: Oxford University Press, 2004); Thomas L. Friedman, The World Is Flat (New York: Farrar, Straus, and Giroux, 2005); Clifford J. Schultz III, Timothy J. Burkink, Bruno Grbac, and Natasa Renko, “When Policies and Marketing Systems Explode: An Assessment of Food Marketing in the War-Ravaged Balkans and Implications for Recovery, Sustainable Peace, and Prosperity,” Journal of Public Policy & Marketing 24, no. 1 (2005), pp. 24– 37; William Hernandez Requejo and John L. Graham, Global Negotiation: The New Rules (New York: Palgrave Macmillan, 2008), Chapter 13. progra m and the intern ationa l 4 Ronald D. White, “Shippi ng Industry in Deep Water,” Los Angeles Times, July 8, 2009, pp. B1– 2. 5 In res po ns e to cri tic is ms of gl ob ali zat io n cat al yz ed by th e rio ts in Se att le in 19 99 , a gr o wi ng lit er at ur e ar gu es for tra de 6 Niel King Jr., Chip Cummings, and Russell Gold, “Oil Hits $100, Jolting Markets,” The Wall Street Journal, January 3, 2008, pp. A1, A6. Chapter 1 The Scope and Challenge of International Marketing 5 space station, whose future is now clouded by the demise of the space shuttle program and NASA budget cuts. Through all these major events, American consumers had continued to spend, keep-ing the world economy afloat. Layoffs at industrial icons such as United Airlines and Boeing and a generally tough job market did not slow the booming American housing market until the fall of 2007. Lower government interest rates had yielded a refinancing stampede, distributing the cash that fueled the consumer spending, which finally began flagging in early 2008. Then in September and October of that year, the housing bubble burst, and the world financial system teetered on collapse. The ever faithful American consumer stopped buying, and world trade experienced its deepest decline in more than 50 years, a drop of 12.0 percent. And seeing into the future is harder now than ever. Most experts expect global terrorism to increase, and the carnage in Bali, Madrid, London, and Mumbai seem to prove the point. Finally, as the global economy tries to recover, international trade tensions take on new importance. Competition from new Chinese companies continues to raise concerns in the United States. Brazilian and Indian multinationals are stepping up competitive pressures as well, particularly as their and other emerging economies fared better during the most recent global downturn. 7 Perhaps the best news in these rather glum times is that we have not experienced a dramatic nationalistic rise of trade protectionism, as in the 1930s. 8 Additionally, the steady growth of the U.S. trade and balance of payments deficits dramatically abated during 2009, along with American consumer spending. International marketing is affected by and affects all these things. For the first time in history, McDonald’s has pulled out of international markets in both Latin America and the Middle East.9 Slow economies, increasing competition, and anti-Americanism have Trade also is easing tensions between Taiwan and China10 and among North Korea,11 its close neighbors, and the United States. Here a rail link between North and South Korea has opened for the first time in nearly 60 years to provide transportation of raw materials and managers from the South, bound for a special economic development zone at Kaesong in the North.12 7 “Counting Their Blessings,” The Economist, January 2, 2010, pp. 25–28. 8 Moises Naim, “It Didn’t Happen,” Foreign Policy, January/February 2010, pp. 95–96. 9 Richard Gibson, “McDonald’s Swings to Loss on Sale of Restaurants,” The Wall Street Journal, July 24, 2007. 10 Patrick Smith, “Taiwan and China Dance Ever Closer,” BusinessWeek, November 10, 2008, p. 58; “Reunification by Trade,” The Economist, August 8, 2009, pp. 37–38. 11 “North Korea Fully Opens Border Crossing,” Associated Press, March 17, 2009. 12 Bruce Wallace, “2 Trains Cross Korean Border,” Los Angeles Times, May 17, 2007, p. A4; Moon Ihlwan, “A Capitalist Toehold in North Korea,” BusinessWeek, June 11, 2007, p. 45; Associated Press, “North Korea Says It Gave Nuclear-Program List to U.S.,” January 4, 2008. 6 Part 1 An Overview LO2 The changing face of U.S. business impacted sales in both regions. Indeed, the salient lesson for those involved in international commerce is to expect the unexpected. Any executive experienced in international business will verify that things never go as planned in global commerce. You still have to plan and forecast, but markets, particularly international ones, are ultimately unpredictable. The natural fluctuations in markets are best managed through building strong interpersonal and commercial relationships and broad portfolios of businesses. Flexibility means survival. Perhaps now, more than ever, whether or not a U.S. company wants to participate directly in international business, it cannot escape the effects of the ever-increasing number of North American firms exporting, importing, and manufacturing abroad. Nor can it ignore the number of foreign-based firms operating in U.S. markets, the growth of regional trade areas, the rapid growth of world markets, and the increasing number of competitors for global markets. Of all the events and trends affecting global business today, four stand out as the most dynamic, the ones that will influence the shape of international business beyond today’s “bumpy roads” and far into the future: (1) the rapid growth of the World Trade Organization and re-gional free trade areas such as the North American Free Trade Area and the European Union; (2) the trend to-ward the acceptance of the free market system among developing countries in Latin America, Asia, and eastern Europe; (3) the burgeoning impact of the Internet, mo-bile phones, and other global media on the dissolution of national borders; and (4) the mandate to manage the resources and global environment properly for the gen-erations to come. Today most business activities are global in scope. Technology, research, capital investment, and production, as well as marketing, distribution, and communications networks, all have global dimensions. Every business must be prepared to compete in an increasingly interde-pendent global economic and physical environment, and all businesspeople must be aware of the effects of these trends when managing either a domestic company that exports or a multinational conglomerate. As one interna-tional expert noted, every American company is interna-tional, at least to the extent that its business performance is conditioned in part by events that occur abroad. Even companies that do not operate in the international arena are affected to some degree by the success of the Euro-pean Union, the exportled growth in South Korea, the revitalized Mexican economy, the economic changes tak-ing place in China, military conflicts in the Middle East, and climate change. Nations grow a little closer together. The European Parliament votes to start discussions with Turkey about joining the European Union. Trade is beginning to bridge the religious divide between Christian Europe and Muslim Asia Minor. Despite this positive vote, European equivocation is pushing Turkey toward building stronger trade links with its Arab neighbors. Ultimately, this may be a positive turn of events if Turkey is finally invited to join the European Union. 13 13 “Looking East and South,” The Economist, October 31, 2009, pp. 57–58. The challenge of international marketing is to develop strategic plans that are competitive in these intensifying global markets. For a growing number of companies, being international is no longer a luxury but a necessity for economic survival. These and other issues affecting the world economy, trade, markets, and competition are discussed throughout this text. Chapter 1 The Scope and Challenge of International Marketing 7 What Do French Farmers, Chinese Fishermen, CROSSING BORDERS 1.1 and Russian Hackers Have in Common? They can all disrupt American firms’ international marketing efforts. Thousands of supporters and activists gathered recently to show support for a French sheep farmer on trial for vandalizing a local McDonald’s. Jose Bove has become an international legend of antiglobalization. Leader of the French Peasant Confederation, he has demonized the fast-food chain as the symbol of American trade “hegemony” and economic globalization. He and nine other farmers served six weeks in jail and paid fines for partially destroying the restaurant. Most recently, Bove has been thrown in jail again, this time for 10 months, for damaging fields of genetically modifi ed rice and corn. Local fishermen demanded suspension of the reclamation and dredging of a bay near Hong Kong, where Disney has built Hong Kong Disneyland. The fishermen claimed that the work has plunged water quality near the site to levels much worse than predicted, killing huge numbers of fish. The spokesman for the fi shermen claims they have lost some $30 million because of depleted and diseased fish stocks. St. Petersburg has, in a decade, become the capital of Russian computer hackers. These are the same folks that are reputed to have invaded Microsoft’s internal network. Russia’s science city has become the natural hub for high-tech computer crime. Dozens of students, teachers, and computer specialists hack into computers, seeing themselves as members of an exciting subcul-ture that has flourished since the fall of communism. Programs are copied on the black market; the latest Windows pirate always arrives in Russia months before it appears in the West. Yes, fines and prison terms are consequences if caught. But computers are readily accessible at universities and increasingly in homes. Sources: Agnes Lam, “Disney Dredging Killing Fish,” South China Morning Post, November 5, 2000, p. 4; John Tagliabue, “Activist Jailed in Attack on Modified Crops,” The New York Times, February 27, 2003, p. 6; “Citi Expands Denial of Summer Breach,” American Banker, December 28, 2009, p. 8; Ben Worthen, “Private Sector Keeps Mum on Cyber Attacks,” The Wall Street Journal, January 19, 2010, p. B4. nationalization of U.S. Business Current interest in international marketing can be explained by changing competitive structures, coupled with shifts in demand characteristics in markets throughout the world. With the increasing globalization of markets, companies find they are unavoidably enmeshed with foreign customers, competitors, and suppliers, even within their own borders. They face competition on all fronts—from do-mestic firms and from foreign firms. A huge portion of all consumer products—from CD players to dinnerware—sold in the United States is foreign made. Sony, Norelco, Samsung, Toyota, and Nescafé are familiar brands in the United States, and for U.S. industry, they are formidable opponents in a competitive struggle for U.S. and world markets. Many familiar U.S. companies are now foreign controlled or headed in that direction. When you drop in at a 7Eleven convenience store or buy Firestone tires, you are buying di-rectly from Japanese companies. Some well-known brands no longer owned by U.S. com-panies are Carnation (Swiss), The Wall Street Journal (Australian), and the allAmerican Smith & Wesson handgun that won the U.S. West, which is owned by a British firm. The last U.S.-...
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