GLOBAL MARKETING MANAGEMENT

QP 6V0 K fr (zj GLOBAL MARKETING MANAGEMENT SECOND EDITION Masaaki Kotabe Temple University Kristiaan Helsen Hong Kong University of …...

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QP 6V0 K fr (zj

GLOBAL MARKETING MANAGEMENT SECOND E D I T I O N

Masaaki Kotabe Temple University

Kristiaan Helsen Hong Kong University of Science and Technology

JOHN WILEY & SONS, INC. NEW YORK / CHICHESTER BRISBANE / SINGAPORE /

/ WEINHEIM TORONTO

CONTENTS

U.S. Position in Foreign Direct Investment and Trade 46 U.S. Direct Investment Overseas 46 Foreign Direct Investment in the United States 47 Balance of Payments Position 48 Information Technology and the Changing Nature of Competition 49 Value of Intellectual Property in Information Age 50 Proliferation of e-commerce and regulations 51 Regional Economic Arrangements 53 Free Trade Area 54 Customs Union 55 Common Market 56 Monetary Union 56 Political Union 56 Multinational Corporations 57

PART ONE: GLOBALIZATION l l • GLOBALIZATION IMPERATIVE

l

Why Global Marketing is Imperative 2 Globalization of Markets and Competition 6 International Trade versus International Business 7 Who Manages International Trade? 8 Evolution of Global Marketing 9 What is Marketing? 9 Domestic Marketing 11 -^Export Marketing 13 International Marketing - 14 Multinational Marketing 14 Global Marketing 15 The Impact of Economic Geography and Climate on Global Marketing 16 The Impact of the Internet on Global Marketing 17

3 • GLOBAL FINANCIAL ENVIRONMENT

PART TWO: GLOBAL MARKETING ENVIRONMENT 29 2 • GLOBAL ECONOMIC ENVIRONMENT

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Intertwined World Economy 30 Foreign Direct Investment 33 Portfolio Investment 34 Country Competitiveness 36 Changing Country Competitiveness 36 Human Resources and Technology 36 Evolution of Cooperative Global Trade Agreements 38 General Agreements on Tariffs and Trade 38 World Trade Organization 39 Financial Services in WTO/GATT 44 WTO and E-Commerce 45

62

Historical Role of the U.S. Dollar 63 Development of Today's International Monetary System 64 The Bretton Woods Conference 64 The International Monetary Fund 65 The International Bank for Reconstruction and Development 67 Fixed Versus Floating Exchange Rates 67 Currency Blocs 68 Foreign Exchange and Foreign Exchange Rates 70 Purchasing Power Parity 70 Forecasting Exchange Rate Fluctuation 70 Coping with Exchange Rate Fluctuations 73 Spot versus Forward Foreign Exchange 74 Exchange Rate Pass-Through 77 Balance of Payments 78 The Internal and External Adjustments 82 The Asian Financial Crisis 85 The Nature of the Asian Financial Crisis 85

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Contents

The Southeast Asian Countries Scenario 88 The Japan Scenario 88 The Korea Scenario 90 The China Scenario 90 The Asian Financial Crisis in Perspective 91 Responses to the Asian Financial Crisis 91 Consumer Response to the Recession 92 Corporate Response to the Recession 92 Marketing in Euro-Land 96 What is the "Euro"? 96 Historical Background 98 Ramifications of the "Euro" for Marketers 99 4 • GLOBAL CULTURAL ENVIRONMENT

;

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Defining Culture 107 Elements of Culture 109 Material Life 109 Language 110 Social Interactions 112 Aesthetics 114 Religion 114 Education 118 Value systems 119 Cross-Cultural Comparisons 122 High- versus Low-Context Cultures 122 Polychronic versus Monochronic Cultures 123 Cultural Homogeneity 123 Hofstede's Classification Scheme 123 Adapting to Foreign Cultures 126 Culture and the Marketing Mix 130 Product Policy 130 Pricing 131 Distribution 132 Promotion 132 Organizational Cultures 133 Cross-Cultural Negotiations 135 Stages of Negotiation Process 135 Cross-Cultural Negotiation Strategies 136

5 • POLITICAL AND LEGAL ENVIRONMENT 142 Political Environment—Individual Governments 143 Home Country versus Host Country 143 Structure of Government 145 Ideology 1.45 Political Parties 146 Government Policies and Regulations 147 Incentives and Government Programs 148 Government Procurement 150

Trade Laws 150 "^Investment Regulations 153 Ownership Controls 153 Financial Controls 154 Macroeconomic Policies 154 Political Environment—Social Pressures and Political Risk 155 Social Pressures and Special Interests 157 Managing the Political Environment 158 International Agreements 162 G7 (Group of Seven) and G8 (Group of Eight) 163 COCOM (The Coordinating Committee \ for Multilateral Controls) 163 International Law and Local Legal Environment 164 International Law 165 Local Legal Systems and Laws 165 Business Practices and the Legal System 166 Regulations on E-Commerce 168 Types of Legal Systems 168 Cultural Values and Legal Systems 169 Jurisdiction 169 Planning Ahead 170 Arbitration and Enforcement 170 Issues Transcending National Boundaries 170 ISO 9000 and 14000 170 Intellectual Property Protection 171 Patent 172 Copyright 174 Trademark 174 Trade Secret 174 Paris Convention 175 Berne Convention 176 European Patent Convention 176 Antitrust Laws of the United States 177 U.S. Foreign Corrupt Practices Act of 1977 179

PART THREE: DEVELOPMENT OF COMPETITIVE MARKETING STRATEGY 186 6 • GLOBAL MARKETING RESEARCH

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Research Problem Formulation 188 Secondary Global Marketing Research 189 ' Secondary Data Sources 191 Problems with Secondary Data Research 193 Accuracy of Data 193 Age of Data 194

Contents Reliability over Time 194 Comparability of Data 194 Lumping of Data 195 Primary Global Marketing Research 195 Focus Groups 195 Survey Methods for Cross-Cultural Marketing Research 196 Questionnaire Design 197 Sampling 198 Contact Method 200 Collecting the Information 201 Market Size Assessment 202 Analogy Method 203 Trade Audit 204 Chain Ratio Method 205 Cross-Sectional Regression Analysis 206 New Market Information Technologies 208 Point-of-Sale (POS) Store Scanner Data 208 Consumer Panel Data 208 Single-Source Data 209 Managing Global Marketing Research 211 Selecting a Research Agency 211 Coordination of Multi-Country Research 214 ; / 7 • GLOBAL SEGMENTATION AND POSITIONING 2 1 8 Reasons for International Market Segmentation 219 Country Screening 220 Global Market Research 220 Entry Decisions 221 Positioning Strategy 221 Marketing Mix Policy 221 International Market Segmentation Approaches 223 Segmentation Scenarios 225 Bases for Country Segmentation 227 Demographics 228 Socioeconomic Variables 230 Monetization of Transactions within a Country 230 Gray and Black sectors of the economy 231 Income Disparities 231 Behavior-Based Segmentation 231 Lifestyle 233 International Positioning Strategies 235 Uniform versus Localized Positioning Strategies 236 Universal Positioning Appeals 238 Global, Foreign, and Local Consumer Culture Positioning 240

8 • GLOBAL MARKETING STRATEGIES

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Information Technology and Global Competition 248 Electronic Commerce (E-Commerce) 248 Real-Time Management 249 On Line Communication 250 "Internet" Organization 250 Faster Product Diffusion 251 Global Citizenship 251 Global Strategy 252 Global Industry 252 Competitive Structure 253 Hypercompetition 258 Cost and Quality 259 Timing and Know-how 259 Strongholds 260 Financial Resources 260 Interdependency 263 Global Marketing Strategy 263 Benefits of Global Marketing 265 Cost Reduction 265 Improved Products and Program Effectiveness 265 Enhanced Customer Preference 267 Increased Competitive Advantage 267 Limits to Global Marketing 268 Regionalization of Global Marketing Strategy 269 Cross-Subsidization of Markets 273 Identification of Weak Market Segments 273 Use of "Lead Market" Concept 274 Marketing Strategies for Emerging Markets 275 Competitive Analysis 277 9 • GLOBAL MARKET ENTRY STRATEGIES 2 8 1 Target Market Selection 282 Choosing the Mode of Entry 285 Decision Criteria for Mode of Entry 285 Market Size and Growth 286 Risk 286 Government Regulations 287 Competitive Environment 287 Local Infrastructure 287 Company Objectives 288 Need for Control 289 Internal Resources, Assets and Capabilities 289 Flexibility 289 Mode-of-Entry Choice: A Transaction Cost Explanation 289

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xx • Contents Exporting 290 Indirect Exporting 291 Cooperative Exporting 291 Direct Exporting 292 Licensing 292 Benefits 292 Caveats 293 Franchising 294 Benefits 295 Caveats 296 Contract Manufacturing 297 Benefits 297 Caveats 297 Joint Ventures 298 Benefits 299 Caveats 299 Drivers Behind Successful International Joint Ventures 300 Pick the Right Partner 300 Establish Clear Objectives from the Beginning 301 Bridge Cultural Gaps 301 Gain Top Managerial Commitment and Respect 301 Use Incremental Approach 301 Wholly Owned Subsidiaries 302 Benefits 302 Caveats 303 Acquisitions and Mergers 304 Greenfield Operations 305 Strategic Alliances 305 Types of Strategic Alliances 306 The Logic behind Strategic Alliances 306 Cross-Border Alliances that Succeed 307 10 • GLOBAL SOURCING STRATEGY: R&D, MANUFACTURING, AND MARKETING INTERFACES 313 Extent and Complexity of Global Sourcing Strategy 315 Trends in Global Sourcing Strategy 318 Trend 1: The Decline of Exchange Rate Determinism of Sourcing 319 Trend 2: New Competitive Environment Caused by Excess Worldwide Capacity 320 Trend 3: Innovations in and Restructuring of International Trade Infrastructure 320 Trend 4: Enhanced Role of Purchasing Managers 321 Trend 5: Trend Toward Global Manufacturing 322

Value Chain and Functional Interfaces 322 >'R & D/Manufacturing Interface 325 Manufacturing/Marketing Interface 328 Core Components Standardization 328 Product Design Families 328 Universal Product with All Features 329 Universal Product with Different Positioning 329 Marketing/R & D Interface 330 Procurement: Types of Sourcing Strategy 331 Intra-Firm Sourcing 332 Outsourcing 333 Costs and Consequences of Global Sourcing 334 Need for Coordination 334 Functional Mismatch 336 Sustainable Core Competence vs. Transitory Core Competence 338 Strategic Alliances 338 Dependence 339 Gradual Loss of Design and Manufacturing Abilities 340 Outsourcing of Service Activities 340

PART FOUR: GLOBAL MARKETING STRATEGY DEVELOPMENT 346 ll • GLOBAL PRODUCT POLICY DECISIONS L. DEVELOPING NEW PRODUCTS FOR GLOBAL MARKETS 346 Global Product Strategies 347 Strategic Option 1: Product and Communication Extension - Dual Extension 348 Strategic Option 2: Product Extension Communications Adaptation 350 Strategic Option 3: Product Adaptation Communications Extension 350 Strategic Option 4: Product and Communications Adaptation - Dual Adaptation 350 Strategic Option 5: Product Invention 351 Standardization Versus Customization 351 Common Customer Needs 352 Global Customers 354 Scale Economics 354 Time to Market 355 Regional Market Agreements 355 Modular Approach 355 Core-Product (Platform) Approach 355 Multinational Diffusion 357 Developing New Products for Global Markets 359

Contents Identifying New Product Ideas 360 Screening 361 Concept Testing 363 To standardize or not to standardize 364 Test Marketing 367 Timing of Entry: Waterfall versus Sprinkler Strategies 368 Global New Product Development and Culture' 370 12 • GLOBAL PRODUCT POLICY DECISIONS I: MARKETING PRODUCTS AND SERVICES 376 Global Branding Strategies 377 Global Brands 378 Local Branding 382 Global or Local Brands? 383 Brand Name Changeover Strategies 386 Private Label Branding ("Store Brands") 389 Umbrella (Corporate) Branding 391 Protecting Brand Names 392 Managing Multinational Product Lines 394 f Customer Preferences 397 Price Spectrum 397 Competitive Climate 397 Organizational Structure 398 History 398 Product Piracy 400 Strategic Options Against Product Piracy 401 Lobbying Activities 401 LegalAction 401 Customs 401 Product Policy Options 401 Communication Options 402 Country of Origin Stereotypes 402 Country-of-Origin (COO) Influences on Consumers 402 Strategies to Cope with COO-Stereotypes 404 Product Policy 405 Pricing 405 Distribution 405 Communication 405 Global Marketing of Services 406 Challenges in Marketing Services Internationally 406 Protectionism 406 Immediate Face-to-Face Contacts with Service Transactions 407 Difficulties in Measuring Customer Satisfaction Overseas 407

I

Opportunities in the Global Service Industries 407 Deregulation of Service Industries 407 Increasing Demand for Premium Services 408 Increased Value Consciousness 409 Global Service Marketing Strategies 409 Capitalize on Cultural Forces in the Host Market 409 Standardize and Customize 409 Central Role of Information Technologies 410 Add Value by Differentiation 410 Establish Global Service Networks 410 13 • GLOBAL PRICING

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Drivers of Foreign Market Pricing 415 Company Goals 415 Company Costs 416 Customer Demand 417 Competition 418 Distribution Channels 419 Government Policies 420 Managing Price Escalation 420 Pricing in Inflationary Environments 422 Global Pricing and Currency Movements 424 Currency Gain/Loss Pass Through 424 Currency Quotation 428 Transfer Pricing 428 Determinants of Transfer Prices 428 Setting Transfer Prices 430 Minimizing the Risk of Transfer Pricing Tax Audits 431 Global Pricing and Anti-Dumping Regulation 431 Price Coordination 433 Aligning Pan-Regional Prices 435 Implementing Price Coordination 437 Pricing Policies and the Euro 437 Harmonization of Prices 438 Dual Pricing 438 Transfer Pricing 438 Price Points 439 Countertrade 440 Forms of Countertrade 440 Motives Behind Countertrade 442 Shortcomings of Countertrade 443 14 • COMMUNICATING WITH THE WORLD CUSTOMER 447 Global Advertising and Culture 448 Language Barriers 448 Other Cultural Barriers 450

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Contents

Structural Barriers to Global E-Commerce 611 Language Barriers 611 Cultural Barriers 611 Personal Computers Ownership 613 Knowledge Barrier 614 Access Charges 614 Legal Constraints and Government / Regulations 615 Using the Internet for Understanding Global Buyers 616 Competitive Advantage and Cyberspace 617 Ramifications of the Internet for Global Marketing Strategies 618 One-to-One Marketing 618 Product Policy 619 Global Branding 619 Internet-Based New Products 619 Marketing of Services 619 Global Pricing 620 Distribution 622 Role of Existing Channels 622 Retailing Landscape 624 Global Promotion and the Web 625 CASES

631 Club Med Starbucks Dowbrands Ziploc Nova Incorporated Shiseido, Ltd.: Facing Global Competition Texas Instruments

SMS Pacs Sanex Anheuser Busch International AOL Goes Far East WEB RESOURCES WWW.WILEY. COM/COLLEGE/KOTABE Online Cases Gap, Inc. Daimler-Benz Ag: The A-Class and the "Moose-Test" Baxter International Pepsi One Unisys Ford Motor Company and Die Development Citibank in Japan Kao Corporation: Direction for the 21st Century Planet Hollywood: The Plate is Empty Hoechst Marion Roussel: Rabipur Rabies Vaccine Ceras Deserticas and Mitsuba Trading Company Wal-Mart Operations in Brazil Docomo's Quest to Go Global SUBJECT INDEX AUTHOR INDEX COMPANY INDEX PHOTO CREDITS