MKTG 1064 Exam Revision Notes: Key Topics for Global Marketing Exam

3 - 1
MKTG 1064
Exam Revision
Lecture Notes
Global
Jan 2014 Semester
Note: this hand-out is provided to
help students with revision. It does
NOT constitute a forecast or
prediction of what will come out in
the exam. You are strongly
advised to read thoroughly the
core chapters taught in class and
be well prepared across all the key
topics.
There is NO guarantee provided
by reading these revision notes on
the outcome of your final exam
grade.
Good Luck

Exam Advice (posted on RMIT BB 4
March 2014)
Posted by: Kathleen Griffiths
• Posted to: MKTG1064_1420 Global Marketing
• Exam format .Posted on: Tuesday, 4 March 2014 13:45:33 o'clock EST
• Your exam will be held in the official exam period. The format is as follows:
• 30 MC from the whole course from he 4th edition of the prescribed textbook.
Worth 20 marks. This might take you up to 60 minutes to read and complete
• 2 short answer essays from as choice of 4. You are expected to answer
these in about 30 minutes each and they should therefore be about 2
pages in length each.
• Topics for the exams will come from the folowing list:
• culture, logistics, research, pricing, economy, politics and
market entry.

30 MCQ covering the whole book
• Surely no one can read the whole book
• But certain topics from PES , market entry, the
4 Ps will be read in more depth
• Some MC questions you will know the answer
because you have learnt the topic well
• There will be around 2-4 that you wont know
the answer so you need to “guess” the best
possible option

Essay Questions
• There are Seven Topics given
• But only Four Essay Questions to Choose Two
• So there is some element of RISK
• Study very well
– Culture
– Market Entry
– Research
– Political
– Economic
Back up topics (contingency) :
this means you skim read the
materials and have a basic
understanding (then you pray
that you are not required to
answer them!!)
- Pricing
- Logistics

Note of Caution!
• This set of revision slides is only meant for in-
class revision.
• These notes are only a REMINDER of the key
points for the different topics
• These are NOT complete revision notes
• You are required to refer to the week lecture
notes given by me and discussed in class
• Therefore your responsibility is still to read all the
exam assigned chapters from the text and my
lecture notes (IN FULL)

Writing your answers
• Make sure you address all the parts. A question may not
show sections BUT the punctuation will indicate there are
sections.
• Use section headings to clearly indicate the main issues in
the answer
• At different intervals use the “previously prepared
examples/cases (that you should have already done by
now) to illustrate your key points
• Do not write in point form UNLESS you are listing (in the
middle of the main answer) some factors or advantages
and disadvantages
• Cover around 2-3 pages per question to aim for Distinction!

Starting Point: All must read Chapter
One (even if its not tested)
• It is after all the INTRO to GM
• Key concepts and terms :EPRG, Global
Marketing
• Definition of the different forms of GM
– Export marketing
– International marketing
– Global marketing
• Why do companies go global (factors/drivers)

Culture
• Elements
• Hosfstede
• SRC
• High and Low context
• How culture affects the marketing mix
Here are some of the key slides from my lecture notes as a
reminder of the key issues for this topic.
1

Defining Culture
 The A-B-C-D of Culture
Access
Buyer Behavior
Consumption Characteristics
Disposal
3-9

Elements of Culture
 Identity
 Material Life
 Language
 Social Interactions
 Aesthetics
 Religion
 Education
 Value Systems
3-12
Read up on each one of the elements from the text/notes and
understand how they are related to decisions on marketing mix
for international marketing

Cross-cultural comparisons
High-context versus low-context cultures
 High Context
 A culture that communicates mostly
through implicit messages
Chinese – rich in metaphor
 Low Context
 A culture that communicates mostly
through explicit message
English – rich in depth of language
3-13

Cross-cultural comparisons
 Hofstede’s classification scheme
 Power Distance
 Uncertainty avoidance
 Individualism versus Collectivism
 Masculinity versus Feminity
 Long-term orientation
3-14

A key issue to note: Convergence or
Divergence?
This will have
implications on
the topics of
adaptation and
standardization of
the marketing
programs across
country markets
3-15

Adapting to Cultures
 Self Reference Criterion (SRC)
 Tendency to resort to one’s own cultural
experiences to interpret a situation
 Important (but difficult) for the marketer to
divorce themselves from this
How does an American think
un-American or a Singaporean think
un-Singaporean?
‘out of body’ experience
3-16

Adapting to Cultures
 Ethnocentrism
 The belief that one’s own culture is superior
 Perhaps even more dangerous than SRC
Introducing products with too little
adaptation in the belief that the home
culture will win out
Dr Pepper in Australia
Disney in France
3-17

Self reference criterion (SRC)
 (SRC) is the cultural baggage that the business
person takes overseas.
 Our perception of the needs of the overseas market is
blocked by our own cultural experience
 There is a danger that many marketers try to
superimpose their home marketing strategies into host
country markets (‘what works well back home must
surely work well here”)
 Recipe for disaster
 ‘Ethnocentric approach’ to marketing
3-18

Give examples of how the self-reference
criterion might be manifested.
 The self-reference criterion is manifested in
marketing strategies that fail to differentiate
between the cultures of target countries and the
culture from which the exports originate.
 We impose our cultural values on the other
countries when we assume that they will want to
purchase any products that are popular
domestically.
 SRC often results in product failures or
advertising campaigns that are perceived by the
local market as being distasteful or failing to
appreciate local values and customs
3-19

Culture and the Marketing Mix
Product
Pricing
Distribution
Promotion
3-20
Impact of
Culture in
International
Marketing
Context
What should the
marketer take
careful attention of?
What aspects of the
MM will be impacted
by differences in
culture?
And what changes
need to be made?

Reminder: How culture impacts on Marketing Mix
elements
(source: Kotler, Armstrong and da Silva; 2006)
3-21

 Product: culture has a direct or indirect impact
on the Product element of the marketing mix
affecting areas such as
 Product design, color and packaging
 Brand names and symbols
 Adoption behavior (or resistance) to new
product innovations
3-22

 Product
 Some products are very culturally bound
which can be both good and bad
Vegemite works well in Australia but
nowhere else
Skin whitening cream in Asia but suntan
lotion in the west
Louis Vuitton works well overseas because
it is French
The ‘country effect’
3-23

 Price
 Determined by the interplay of the 4 C’s
1. Customers
2. Company
3. Competition
4. Collaborators
 All of which can vary across cultures
 High price might emphasize quality in one culture
 But emphasize status in another
 Implication: don’t assume that all brands carry
the same positioning in all country markets
3-24

 Distribution
 There could be many aspects on the Place
element
Consider impact on retailing
Consider impact on working with distributors
in the channel (personal networking and
relationships)
 Cultural implications of certain distribution
models
‘direct to customer’ versus ‘High Street
retailer’ 3-25

 Promotion
 Promotion has probably the greatest impact
from culture
 Promotions involve language, ideas and
symbols
 Advertising will be impacted by local
languages and customs
The challenge would be to create global
advertising campaigns
3-26

 Promotion
 High context versus low context language
based cultures
Inferred versus directly stated
High power distance cultures and
celebrity endorsements
Local taboos
Swearing in commercials
 How appropriate is the Australian Tourism
commercial in some parts of Asia?
3-27

Personal contacts and negotiations
 Impact of culture on face to face
marketing:
Personal selling in marketing
Developing market entry (partners / JV)
Negotiating with Trade channel members
Personal selling in consumer markets
3-28

When international marketers take their
products or services to overseas markets, they
need to consider all cultural elements when
investigating the new market. Two of the
elements discussed in the text-book are
education and language.
Using examples, discuss how these two
elements would affect the way a company
markets its product or service in a foreign
country.
Specimen Question #1
3-29

Discuss four examples of how
elements of a country's culture
can affect a global marketer's
promotion strategy.
Note: this question reminds us of how a topic can be integrated
across chapters- this covers BOTH culture and its impact on
marketing communications strategies
3-30

 What is culture and why is it
important in global marketing?
Use examples to show your
understanding of culture’s
complexities
31

 What are some possible issues in
applying the Power-Distance
classification in Hofstede’s
classification scheme in a global
marketing context? Use your own
examples to discuss.
3-32

 What is the difference the difference
between high and low context cultures?
Explain how the marketing
communication mix needs to be adapted
to cater for these differences. Provide
examples that illustrate your
understanding.
3-33
Again this question covers BOTH culture and its impact on
international marketing communications strategies

 For any 3 elements of culture,
discuss why each is important in
global marketing. Provide examples
that illustrate your understanding
3-34

 The self-reference criterion has important
implications for international marketing.
Explain the self-reference criterion and
discuss its implications for each element
of the marketing mix.
3-35

Political
• Types of government systems
• Political Risks
• Legal Systems
• OR this topic could be taken from the chapter
on Economic Factors relating to role of
government in regulating trade and
international business
2

Political environment
individual governments
Structure of government — ideology
 Communism
 system with strict regulation of private ownership
 most enterprises are state owned
 Capitalism
 system where free enterprise and private
ownership is encouraged
 Socialism
 encourages ownership where the assets are
considered critical to the nation

Political Environment
Individual Governments
 An important role of government is to
promote a country’s national interests
 They invest in important industries
 Offer incentives to a variety of industries
 Restrict or block trade
 National security
 Develop new industries
 Protect declining industries
4-38

Areas in which government policies
affect business operations
Government policy areas
 Legal
 What level of taxation is required?
 Is it different for foreign enterprises?
 What are the labor laws?
 Can I lay-off staff easily if I have to?
 What subsidies will the government provide?
 Am I in an industry important enough to attract
government subsidy?
 Will subsidies provided to local companies create unfair
advantage to the foreign firm?
4-39

Political Environment
Individual Governments
 Government policies and regulation
 Macroeconomic policies
 Macroeconomic policies determine
 cost of capital
 level of economic growth
 rates of inflation
 international exchange rates
• Managed through:
― fiscal policy and monetary policy
4-40

Protectionism and Trade Restrictions
 Tariffs
 Quotas
 Orderly marketing arrangements (voluntary
export restrictions)
 Non-tariff barriers
2-41
Implications: Marketers who want to send products to foreign
markets must think of strategies on how to overcome tariff and
non-tariff barriers

4-42
Barriers to
Trade
Instituted by
Governments

Government policy areas
and instruments43

Forms of Host Country Controls
• Expropriation
– Taking of private property with compensation.
• Confiscation
– Taking of private property without compensation.
• Domestication
– To gain control over foreign investment through
demanding partial transfer of ownership and
imposed regulations.
– Raise tax rates.
– Price controls.
4-44

Politically Sensitive Products and
Issues
• Products that have or are perceived to have
an effect on the environment, exchange
rates, national and economic security, and
the welfare of people and that are publicly
visible or subject to public debate, are more
likely to be politically sensitive.
• Health is often the subject of public debate,
and products that affect or are affected by
health issues can be sensitive to political
concern.
• The European Union has banned hormone
treated beef for more than a decade.
4-45

5-46
Political Risk
• Risk of change in political
environment or
government policy that
would adversely affect a
company’s ability to
operate effectively and
profitably
When perceived political risk is high, a country will have
a difficult time attracting foreign direct investment.

5-47
Political Risk
• Some examples of political risk include:
– War
– Social unrest
– Politically-motivated violence
– Transparency
– Social conditions (population density and wealth
distribution)
– Corruption, nepotism
– Crime
– Labor costs
– Tax discrimination

Political environment – social pressures
and political risk
Table 3.2

Political Risks of Global Business
• Confiscation – the seizing of a company’s
assets without payment.
• Expropriation – where the government seizes
an investment but some reimbursement for the
assets is made.
• Domestication – when host countries gradually
cause the transfer of foreign investments to
national control and ownership through a series
of government decrees by mandating local
ownership and greater national involvement in a
company’s management.
4-49

Specimen question #1
For a country of your choice
demonstrating the use of a democratic
political system and a common law
legal system, and using your own
example/s, show how these systems
might affect the marketing mix for your
chosen product/service.
Note : this question combines the topics of political and legal factors
and its impact on marketing mix

List and briefly describe the three
main reasons why governments
often want to block or restrict
trade. Describe three actions a
government can take to
encourage international trade.
2-51

Why might a foreign government want
to discourage or block global
marketers, and what actions might
they take to do this?
2-52

 Why and how would governments
restrict trade? Use examples to
illustrate.
2-53

Economic
• The different classification of economic
development
• What factors would marketers look for when
assessing the economic attractiveness of a
country market?
• Economic risks
• Types of Regional Cooperation Arrangements
3

ECONOMIC VARIABLES
1. One area that the chapter does not elaborate
sufficiently is that relating to discussion of the
“economic variables”
2. This is important for your project since you would
need to assess market potential and market
demand in order to do country market screening
and market entry and marketing strategies
3. The economic factors that you would normally do
in a typical PEST analysis are the ones you would
consider.

Lee and Carter: Global Marketing Management, 3rd edition
The Economic Environment
• Market potential can be gauged by assessing
population size, growth, density, distribution,
age distribution, disposable income and its
distribution
• An Economic Environmental Analysis can
involve asking:
– How big is the population and at what rate is it
growing?
– Where is the population located and how dense is
it?
– What is the population age and distribution?
– What is its disposable income and distribution?

Economic Factors considered in
International Marketing
 Size of market- population and demographics
 National Income (GNP)
 Purchasing Power
 Availability of Credit
Importance: it determines the attractiveness of
the market in terms of demand and buying
power of the local population. An international
marketing firm would gravitate towards countries
that have high disposable incomes

Economic Factors in Global Markets
 Population demographics
 Age distribution, life expectancies,
household size, urbanization.
 Income
 Distribution of low, medium, and high incomes.
 Gross domestic product per capita.
 Purchasing power parity.
 Consumption patterns
 Income spent on necessities and luxuries.
 Product saturation or diffusion.
 Product form differences.

Economic Factors(continued)
 Availability and quality of infrastructure
 Rail traffic networks for distribution capabilities.
 Communication systems for marketing.
 Energy (electrical and fuel) consumption.
 Impact of the economic environment on social
development
 Urbanization, life expectancy, literacy rates, etc.
 Physical Quality of Life Index (PQLI).

Global
Marketing
Mix
Product
Promotion
Place
Price
Reminder :Impact of Economic Factors on the
Marketing Mix

Types of Economies
 Developed triad Economies
 account for 80% of world trade
 Emerging Economies
 huge and growing consumer demand
 government directed economic reforms
 ‘dual economy’
 Less Developed Countries (LDCs)
 low GDP, limited manufacturing base
 infrastructure weaknesses
 heavy reliance on one product/one trading partner

2-62
Marketing Opportunities in LDCs
• Characterized by a shortage of goods and
services
• Long-term opportunities must be nurtured in
these countries
– Look beyond per capita GNP
– Consider the LDCs collectively rather than
individually (regional cluster)
– Consider first mover advantage (get in early)
– Set realistic deadlines

2-63
Mistaken Assumptions about LDCs
1. The poor have no money.
2. The poor will not “waste” money on non-
essential goods.
3. Entering developing markets is fruitless
because goods there are too cheap to
make a profit.
4. People in BOP (bottom of the pyramid)
countries cannot use technology.
5. Global companies doing business in BOP
countries will be seen as exploiting the
poor.

THERE IS MONEY TO BE MADE IN LESS DEVELOPED
COUNTRIES
Professor C K Prahalad book on
marketing to less developed
countries could be as lucrative
as more affluent countries
Refer to link for summary:
http://www.12manage.com/methods_prahalad
_bottom_of_the_pyramid.html

2-65
High-Income Countries
• GNI per capita: $12,196 or more
• Also known as advanced, developed,
industrialized, or postindustrial countries
• Characteristics:
– Sustained economic growth through
disciplined innovation
– Service sector is more than 50% of GNI
– Households have high ownership levels
of basic products
Tokyo

2-66
High-Income Countries
• Characteristics, continued:
– Importance of information processing and
exchange
– Ascendancy of knowledge over capital, intellectual
over machine technology, scientists and
professionals over engineers and semiskilled
workers
– Future oriented
– Importance of interpersonal relationships

Economic Risks
• Exchange controls
– Stem from shortages of foreign exchange held by a
country.
• Local-content laws
– Countries often require a portion of any product sold
within the country to have local content.
• Import restrictions
– Selective restrictions on the import of raw materials to
force foreign industry to purchase more supplies
within the host country and thereby create markets for
local industry
4-67

Economic Risks (continued)
• Tax controls
– A political risk when used as a means of controlling foreign
investments.
• Price controls
– Essential products that command considerable public
interest
• Pharmaceuticals
• Food
• Gasoline
• Labor problems
– Labor unions have strong government support that they
use effectively in obtaining special concessions from
business.
4-68

Forms of Economic Integration
2-69

Regional Economic Integration (summary)
 Levels of economic integration
 Free Trade Area
 Least restrictive.
 Goods and services are freely trades among all members. Each
country maintains its own trade barriers for nonmembers.
 Customs Union
 Members establish a common trade policy with respect to
nonmembers.
 Common Market
 Factors of production mobility is emphasized. A common external tariff
is adopted.
 Economic Union
 Integration and harmonization of economic and monetary policies is
achieved leading to political union.
2-70

 Benefits
 Trade Creation
 Greater
Consensus
 Political
Cooperation
 Drawbacks
 Trade Diversion
 Shifts in Employment
 Loss of National
Sovereignty
The Effects of Economic Integration
2-71
Can you write such an essay with
regards to the current situation
facing the crisis in the EU?

Describe the main forms of regional
economic cooperation. What factors
tend to promote such arrangements?
2-72
Specimen Question # 1
Think about what happens if a marketing company that exists
OUTSIDE the trading bloc wants to enter markets in that bloc; how
would it affect its marketing operations. How would a trading bloc
create opportunities and threats? How would this situation affect
the decision on MARKET ENTRY strategy?

Market Entry
• Learn all the modes of entry; be prepared to
answer on any modes given
• Study the advantages and disadvantages of
each mode
• The factors affecting the choice of market
entry mode
4

Consider various criteria in choosing
the mode of entry
 External criteria
 market size and growth
 risk
 government regulations
 competitive environment
 local infrastructure
 Internal criteria
 organizational objectives
 need for control
 internal resources, assets and capabilities
 flexibility
6(B)- 74

External criteria
 Market size and growth
 Not just absolute size but also opportunities for
potential growth
 Watch out for secondary data when comparing
across country markets- what units do we use
when we measure “size”?
 Risk
 Political and economic risks faced (see chapter 3)
 Risks also include exit risks
6(B)- 75

External criteria (cont’d)
 Government regulations
 Host country policies
 Affects the mode of entry- example foreign equity
participation in joint ventures
 Competitive environment
 How formidable are the competitors in the
domestic market?
 Would acquisition be one way in to eliminate the
competition?
6(B)- 76

External Decision Criteria
Market Attractiveness
 Countries can be classified into several types
based on their market attractiveness
 Platform: gather intelligence/network
 Hong Kong and Singapore
 Emerging: build presence
 Philippines and Vietnam
 Growth: offer early mover advantage
 China and India
 Maturing and Established Countries
 South Korea, Taiwan and Japan
6(B)- 77

Internal decision criteria:
 Organizational objectives
 How aggressive is the international firm in
wanting to gain foreign market entry? What is the
time frame for gaining market penetration?
 Need for control
 Exporting (less); overseas
subsidiary/manufacturing operations (high
control)
 Extent of centralization or decentralization in
managing overseas businesses
6(B)- 78

Internal decision criteria:
 Internal resources and constraints
 Small firms with limited resources tend to be more
dependent on exporting
 Firms that control strong brands or have
proprietary technologies can use franchising or
licensing
 Flexibility
 As market conditions and the environment
changes, so will the market entry mode
6(B)- 79

The Key Options for Market Entry:
1. Exporting
2. Licensing
3. Franchising
4. Contract Manufacturing
5. Joint Ventures
6. Wholly Owned Subsidiaries
7. Strategic Alliances
6(B)- 80

Choice of Market Entry Strategies
Source: Kotler, Armstrong and da Silva (2006)
6(B)- 81
Less Risky Options Greater Control Options

Exporting
 Indirect Exporting
 The organization uses an intermediary based on
its home market to do the exporting
 Cooperative Exporting
 The organization enters an agreement with
another local or foreign organization in which the
partner will use its distribution network to sell the
exporter’s goods
6(B)- 82

Exporting
 Direct exporting
 The company sets up its own export organization
and relies on an intermediary based in a foreign
market (e.g. a foreign distributor)
6(B)- 83

Licensing
 A contractual transaction where the
organization, the licensor, offers some
proprietary assets to a foreign organization,
the licensee, in exchange for royalty fees
 Giordano, one of Hong Kong’s premier clothing
retailers licenses Disney products
6(B)- 84

Licensing
 Benefits
 Highly profitable
penetration strategy
 Local governments
may favor it
 Lower exposure to
economic and
political conditions
 Caveats
 Revenue may be
dwarfed by potential
income earned
through outright
ownership
 Lack of enthusiasm on
the part of the licensee
 May own competing
products
6(B)- 85

Franchising
 Franchisor
 An organization that gives
the franchisee the right to
use its trade names,
business models and
know-how in a given
territory for a specific time
in return for payment
 McDonald’s is possibly
the most famous
franchisor of all
6(B)- 86

Franchising
 Franchisee
 Pays a franchisor for the right to use its trade
names, business models and
know-how in a given territory for a specific time
 To the franchisee, this mode of operation gives
the business a rapid entry into the marketplace
given the reputation of the brand
6(B)- 87

International Franchise Expansion
• Reasons for the growth
– Market potential
– Financial gain
– Saturated domestic markets
• Problems in franchising
– Needs a high degree of standardization
– Protection of the total business system from
copycat competition
– Government intervention
– Selection and training of franchisees
6(B)- 88

Franchising
 Benefits
 Organization
capitalizes on a
winning formula
 Capitalizes on local
knowledge of the
franchisee
 Preserves the
capital of the
franchisor
 Caveats
 Revenue may be
dwarfed by potential
income earned
through outright
ownership
 Finding suitable and
experienced
franchisees in
developing markets
could be difficult
6(B)- 89

Contract Manufacturing
 The organization arranges with a local
manufacturer to manufacture parts or
even the entire product
Often used in the apparel industry
Nike manufacturing some of its
products in Cambodia via a local
producer
6(B)- 90

Contract Manufacturing
 Benefits
 Cost saving
 Flexibility
 Contractor assumes
all infrastructural
investment risk
 Caveats
 Possibly nurturing a
future competitor
 If the contractor
breaks the law it
reflects on the
contract partner as
well
 Contract partner
may have little
control over this
6(B)- 91

Foreign Direct Investment (FDI)
• Firms invest to enter markets or assure
themselves of sources of supply.
• Foreign direct investment
– An equity investment to create or
expand a permanent interest in a
foreign enterprise. Protection of the
total business system.
• Portfolio investment
– The purchase of stocks and bonds
internationally. Selection and training.
6(B)- 92

Types of Ownership
• Ownership patterns may be based on past
experiences with similar ownership models.
• Full ownership
– Full control, full assumption of all risks.
– May be desirable, but is not necessary for success
internationally.
• Joint ventures
– Shared control, shared investment risks.
– Reasons for joint ventures:
• governmental pressure to join with local partners.
• mutually beneficial commercial considerations in
sharing markets, pooling resources, and local
suppliers.
6(B)- 93

Joint Ventures
Cooperative joint venture
 An agreement between the partners
to collaborate, that does not involve
any equity investment
 Monash University and its Malaysian partner
 Macquarie Graduate School of management
and its Chinese partners
6(B)- 94

Joint Ventures
Equity Joint Venture
 An arrangement where the partners agree to
raise capital in proportion to the equity stakes
agreed upon
 GM and the Shanghai government
 No 2 car producer in China
 SAI Global formed the CQC-SAI Management
Technologies, based in Beijing
6(B)- 95

Joint Ventures
 Benefits
 Has potential for
higher returns than
either licensing or
franchising
 Reflecting the
investment risk
 Higher degree of
control
 Caveats
 Has potential for
greater losses than
either licensing or
franchising
 Reflecting the
investment risk
 Lack of trust
 Developing a future
competitor
6(B)- 96

Wholly Owned Subsidiaries
6(B)- 97
 Owning the business outright can be
achieved via two routes
 acquisitions
 New Zealand based Fletcher Challenge developed
strong Asia Pacific presence through national
acquisition strategies
 Greenfield operations
 Westfield shopping centers and Village Roadshow
Cinemas

Strategic Alliances
 A partnership between businesses with the
purpose of achieving common goals while also
 minimizing risk
 maximizing leverage
 benefiting from those facets of their operations
that complement one another
 McDonald’s and Coca Cola worldwide
6(B)- 98

Timing of Entry
6(B)- 99
 Timing of entry can be critical
 too early means a lost investment
 Hong Kong based restaurant chain Café
de Coral’s early investment and
subsequent withdrawal from strategic
locations in China
 too late means lost opportunity
 Australian based Gloria Jeans Coffee’s
failure to enter the Chinese market has let
many competitors steal a march on them
 Starbucks headquartered US
 Costa Coffee headquartered UK

Summary of the advantages and
disadvantages of all the entry
modes
6(B)- 100

Specimen Exam Question #1
Starbucks has expanded globally
through a variety of market entry
modes including joint ventures and
company-owned stores. Explain the
benefits and limitations of each of
these strategies specifically in
relation to a company like Starbucks
6(B)- 103

If short-term profit is a major
consideration for an organisation,
what might be a preferred market
entry strategy? Use examples to
illustrate your understanding.
6(B)- 104

 Compare and contrast the following two
market entry strategies – indirect
exporting and franchising, illustrating their
advantages and disadvantages. Use
examples to explain your understanding.

 Compare and contrast the following two
market entry strategies – joint ventures
and strategic alliances and discuss their
their advantages and disadvantages. Use
examples to illustrate your understanding.

Research
• Focus on the problems and challenges of
conducting research in international
marketing
• Problems with Secondary Research
• Problems with Primary Research
5

International Marketing Research
Process – Special problems
 Complexity of research design due to
environmental differences
 Lack and inaccuracy of secondary data
 Time and cost requirements to collect
primary data
5- 108

International Marketing Research
Process – Special problems
 Coordination of multi-country research
efforts
 Difficulty in establishing comparability
across multi-country studies
 Different practical considerations
(example legal aspects, different ethical
practices, etc)
5- 109

Secondary research
Advantages
 Less expensive
 Less time consuming
 Low level of
commitment
 No constraints by
overseas customs
 Speed
Disadvantages
 Non-availability of
data
 Reliability of data
 Data classification
 Comparability of data
 Data privacy concerns
5- 111

Secondary Marketing Research
 Problems with secondary data
sources
Accuracy of data
Age of data
Reliability of data over time
Comparability of data
Lumping data
5- 112

Primary Marketing Research
 Quantitative data
 Data that represents an attitude or opinion by
assigning a number that can be statistically
analyzed
 Qualitative data
 Data that describes attitudes, opinions
and motivations in the words of each respondent
5- 113

Collecting Primary Data
 Can be collected in 3 ways:
1. Focus Groups
2. Survey Research
3. Test Markets
 Covered in New Product Development lecture
5- 114

Problems of Gathering Primary Data
• Ability to communicate opinions
– It is difficult for a person to formulate needs, attitudes, and
opinions about goods whose use may not be understood, that
are not in common use within the community.
• Gerber
• Willingness to respond
– Cultural differences
– The role of the male, the suitability of personal gender-based
inquiries, and other gender-related issues can affect willingness
to respond.
• Sampling in field surveys
– The greatest problem in sampling stems from the lack of
adequate demographic data and available lists from which to
draw meaningful samples.
5- 115

Problems of Gathering Primary Data (cont’d)
• The kinds of problems encountered in drawing a random sample
include the following:
– No officially recognized census of population
– No other listings that can serve as sampling frames
– Incomplete and out-of-date telephone directories
– No accurate maps of population centers
• Language and comprehension
– The most universal survey research problem in foreign countries
is the language barrier.
– Literacy poses yet another problem
– Marketers use three different techniques to help ferret out
translation errors ahead of time.
• Back Translation
• Parallel Translation
• Decentering
5- 116

Primary Market Research
 Survey methods for cross-cultural marketing
research
 Questionnaire Design
Most popular form of gathering data in
quantitative market research
Cross cultural research does present
problems
Comparability of survey results across
borders could be an issue 5- 117

research
 Construct Equivalence
The degree to which marketing constructs
have the same meaning and significance
across cultures
Bicycles mean different things in different
countries and this needs to be reflected in
the construction of the research device
 Recreation in Australia
 Transportation in China
5- 118

research
 Measure Equivalence
Calibration equivalence
US is imperial (pounds, inches)
Thailand is metric (meters, litres)
Translation equivalence
Translation from one language to another
 Embarrassing mistakes can occur
5- 119

 Survey methods for cross-cultural marketing research
 Measure Equivalence (cont’d)
 Parallel Translation
 A process in which a document is translated
independently by a number of translators and
the translations compared to reconcile
differences
 Scalar (metric) equivalence
 The degree to which scores from subjects of
different countries have the same meaning
and interpretation
5- 120

Exam Topics to prepare for IMR
1. The objectives of undertaking IMR
2. The difficulties of conducting secondary
research in IM
3. The difficulties of conducting primary
research in IM
4. The challenges of conducting focus
groups in IMR
5. The challenges of constructing
questionnaires for IMR
121

Logistics
• What is international logistics (IL)?
• Components of IL : MM and PD
• How logistics brings competitive advantage to
international marketing
• Modes of transportation
6

Role of International Logistics
 Business operations are today globally
dispersed
 When organizations start operating
internationally, mangers need to coordinate
sourcing and shipping of raw materials,
components among different manufacturing
sites at the most economical and reliable rates
 Additionally they need to ship finished goods
to customers around the world
9-123

Global supply chain and the “global
factory”
9-124

Elements of International Logistics
 Like domestic logistics, it encompasses
Materials management
Physical distribution
9-125

International Logistics
Materials Management
 Materials Management
 The inflow of raw materials, parts and supplies
in and through the organization
 Consider that over 1 billion parts are shipped
to GM’s subsidiary (Holden) in Australia every
year
9-126

International Logistics
Physical Distribution
 Physical Distribution
 The movement of organizations finished
products to its customers
 Covers inventory control, warehousing and
storage, materials handling, customer service,
containerization and transportation
 Influenced greatly by the concept of JIT;
minimize stock holding (investment in
inventory)
9-127

Physical distribution
 Affected by:
 Geography
 Geographically large countries like US or
Australia- higher transport and inventory costs
 Small counties in SEA or Japan- tend to incur
more costs in warehousing, customer service
because a wide variety of products have to be
stored to meet varied needs of customers in
concentrated areas
9-128

Physical distribution factors:
 Distance
 Obviously greater distances are covered compared to
any domestic logistics situation
 Ocean and Air become the only truly global options
 Long lead time (see case of Holden on page 395
 Long distances means not just higher transport costs
but also storage and insurance
 Cultural differences
 Storage of some food products in Islamic countries
such as Malaysia
9-129

Why is international logistics
more complex?
 Exchange rate fluctuation
 The potential for more than one currency to be involved in
the process creates complexity
 Foreign Intermediaries
 Introducing other supply chain partners into the mix; this
means more parties are involved in the distribution system
 Complexity of networks and connections, especially in
Asian countries
 Security
 Dealing with the unknown in foreign countries
 After 9/11, stepped up security at airports and container
terminals (threat of terrorist attacks)
9-130

Modes of transportation
 Three key factors to consider:
 Value- to- volume ratio
 How much value is added to the materials used to
make the product
 Perishability
 Degradation of product quality over time
 Costs of transportation
 Determined by the first two factors
9-131

International Modes of transportation
available to companies
 Ocean
 Relative low cost to weight and/or
bulk ratio
 Good for heavy, bulky and non-
perishables
 Three options: linear services
(regularly scheduled), bulk shipping
and irregular runs
 Type of cargo vessel also important,
most significant are containers ships
 But also RORO (‘roll on- roll off)
 In some less developed countries, there
are problems of port infrastructure; cant
handle modern container/RORO vessels
9-132

 Air
 Only 2% of world trade
 But 26% by value
 Has the advantage of speed
 Used for high value goods such
semiconductor chips, LCD screens,
technology based products
 Perishable products such as fresh
food and flowers
9-133

Airfreight
 Increases in the carrying
capacities of new jumbo
cargo planes
 Modern day logistics- speed
and ease of handling for
airfreight
 Market trends like fashion-
short cycle time required in
retailing
9-134

 Inter-modal
 The seamless transfer of
goods from one mode of
transport to another
without the need for
repacking
 Shipping containers are a
standard size
 Easy to shift from ocean to rail
upon arrival in a country
9-135

Impact of the Internet
 The use of the internet has contributed to the rise of 3rd
Party logistics firms. Integration and communication is
facilitated by the role of the IT (‘extranets’ – the
customers operations systems are integrated with the
operations systems of the 3PL provider)
 Eli Lilly (Pharmaceuticals) outsources logistics to
Danzas
 Danzas’ ‘Market Link’ system manages seamless
logistic services driven by real time flow of data
 Mostly web based
9-136

International Sourcing
 Six reasons why organizations adopt an
international sourcing strategy:
1. Intense international competition
 Computer manufacturers such as Dell establish global
supply chains partly in response to competitive
pressures
2. Pressure to reduce costs
 Primary reason for apparel companies to source
offshore
9-137

International Sourcing
3. The need for manufacturing flexibility
 Toyota operate a manufacturing plant in Melbourne to
tap into a highly educated workforce
4. Shorter product development cycles
 Spreading the development load across countries
9-138

Value Chain Concept (M Porter)
9-139
Figure 12.2 Value chain concept

Applying the Value Chain in a Global Supply Chain Context:
1. Different country markets are selected to carry out key business activities
according to their competitive advantages
2. The VCs are linked (integration) across country markets in order to produce a
global supply chain
9-140

Types of sourcing strategy
 Two choices:
 Intra-firm sourcing
Supplying from parent firm to its
subsidiaries
 Outsourcing
 From independent suppliers on a contractual
basis
 4 possible types of sourcing strategies can
emerge
 See Figure 12.3
9-141

Types of sourcing strategy
9-142
Figure 12.3 Types of sourcing strategy

Benefits of outsourcing
 Lower operating costs
 Enables the company to focus on its core
business competences
 Access to world-class manufacturing
capabilities
 Better use of internal resources
 Speed to market
 Free up capital funds
 Reduce tax liabilities
 Reduce risks
9-143

Problems of outsourcing services
 Negative image to company- loss of
thousands of domestic jobs
 Poor service delivery / lack of reliability
 Note: service has the unique characteristic of
‘variability’ or ‘heterogeneity’
 Qantas has had bad press publicity
 Locate cabin crew in London
 IT jobs gone to India
 Outsource entire maintenance to China
9-144

Sample Essay Question
 The global logistics manager must understand
the specific properties of the different modes of
transportation in order to use them optimally.
What are the most important factors in
determining an optimal mode of
transportation? List and briefly describe each
of the factors and use examples to discuss.
145
9-145

Pricing
• Focus on the problems and challenges of
conducting research in international
marketing
• Problems with Secondary Research
• Problems with Primary Research
7

10- 147
Pricing concepts
 Two views of pricing:
 Cost plus (mark ups)
 In exporting, imagine the number of margin uplifts
added before the product reaches the foreign
customer
 Market based pricing
 Use marketing research to find out what consumers
are willing to pay for the product and work backwards
down the value chain

10- 148
Complexity of pricing in
 Pricing is critical to international marketing.
Pricing can make or break international market
expansion plans
 Pricing is the only element in the marketing
mix that generates revenue
 Many uncontrollable factors impact on prices-
taxes, commission/ fees, local market
competition, etc.

10- 149
Complexity of pricing in
 Pricing policy is highly cross-functional; interplay of
marketing, finance, tax, logistics and other divisions.
Often objectives could be incompatible
 Challenge of how to coordinate pricing policy across
country markets
 Price differentials (lack of coordination) will lead to
grey or parallel trading markets
 Global (one price policy- often quite difficult to
implement) may lead to too high or too low in different
markets. Profit opportunities might be missed

10- 150
Drivers of foreign market pricing
 International prices are affected by the
4 Cs:
 Company (costs and goals)
 Customers (price sensitivity and
segments)
 Competition (nature and intensity)
 Channels (distribution)
Government policies are also a major factor

10- 151
Company factors
 Organizational Goals
 How do we set strategic marketing goals for the
company in the context of global markets?
 To achieve satisfactory ROI
 To maintain/ increase market share
 To meet specific goal target
 Goals can change over time
 Enter with low price to gain penetration
 Use loss leader pricing but sell other higher
margin products across the range

10- 152
Customer (demand)
 Customer demand sets the ceiling for prices
 Function of buying power, tastes, habits, cultural norms
and substitutes
 Targeting low income countries
 Target mass market
 Adapt the product- lower quality or downsizing the
product (packaging)
 Proctor and Gamble selling small sachets of shampoo
in developing markets due to buying power in those
countries
 Cigarettes : 5 or 10 sticks a pack in less developed
markets

10- 153
Competitors
 Number of competitors varies from country to
country
 Differing degrees of intensity
 Nature of competition
 Global versus local
 Competing against the preferred ‘local champion’
 Competitive Position
 Market leader at home/market follower abroad

10- 154
Channels
 Direct
 Not possible in all countries due to size of market
and/or geographic distances required
 Better control is achieved, but
 Makes direct representation extremely costly
 Indirect
 Length of channel can affect end price of
product/service (additional layers in the channel
increases price)

10- 155
Managing price escalation
 The process of covering incremental costs
(e.g. shipping, insurance, tariffs, margins of
various intermediaries)
 Makes the final foreign retail price higher than the
domestic retail price

10- 156
Managing Price Escalation
 Strategies for lowering export price:
 Rearrange the distribution channel
 Shortening the channel in Japan by going directly to
the end retailer
 Difficult in such a traditional market
 Eliminate costly features/make them optional
 Offer the ‘no-frills’ version of a Sony Vaio in Cambodia
 Give the customer the option to upgrade

10- 157
 Downsize the product
 Make a smaller version of the product
 Assemble or manufacture in foreign markets
 BMW assemble cars in South Africa

10- 158
Adapt the product to escape tariffs or tax
levies
Land Rover is heavier in the US so as
to be classified as a truck rather than
car
Escapes the luxury car tax

10- 159
 Not all strategies involve lowering the price
 Position the product as super premium
 Budweiser is costly internationally due to the high
cost of transportation
 Entry level beer in its home market
 Premium beer in Singapore

10- 160
Pricing in inflationary environments
 McDonald’s sells a Big Mac meal in
Moscow for 6 Roubles in 1990
 Same meal costs 1100 Roubles in 1993

10- 161
 Safeguarding against inflation
 Modify components/ingredients
 Not all components maybe subject to the same level
of inflation
 Source material from low cost suppliers
 Import from low inflation countries

10- 162
 Safeguarding against inflation
 Quote prices in a stable currency
 Dollar or Euro
 Draw lesson from other countries
 Otis Elevators using managers from Latin America to
advise on situation in Russia
 Experience in one high inflation country can translate into
another

10- 163
 Government price controls sometimes
imposed to deal with inflation
 Zimbabwe freezes prices
 Panic buying occurs
 Stockpiling products for later sale in the black market
 Very rarely overcome the inflationary problem

10- 164
 Overcoming price controls:
 Adapt the product line
 To diversify into products that are not part of the price
control
 Lobby
 Negotiate with the government
 Leave the country (exit strategy)

10- 165
International pricing and currency
movements
 Exporters and importers are subject to the
whims of currency movements
 As currencies strengthen and weaken this has
implications for pricing and margins
 A strategic view of the problem should be
undertaken

10- 167
Currency Gain/Loss pass through
 Should exporters pass through gains they
make from currency movements to their
customers?
 Help steal business from domestic competitors
 Are they more market share (pass it on) or short
term profit oriented (keep it)?
 Should they pass through price rises to
customers if they suffer currency losses?

10- 168
Currency Gain/Loss pass through
 ‘Pricing to market’
 Occurs where companies are more responsive to
specific market trends
 Make destination specific adjustments of markups in
response to exchange rate movements
 German auto makers like BMW more likely to take this
approach than their short-term profit driven rivals at
Toyota

10- 169
Currency Quotation
 Which currency should be used in
international business transactions?
 Which party should bear the risk?
 Quoting a common currency could be a way of
sharing the risk
 US dollar across countries with their own
currency
 Trading between Australia and New Zealand

10- 170
 While many of the reasons for transfer pricing
are legitimate
 A primary reason is to shift the tax burden of a
global player to low tax rate regimes
 A service provider based in Thailand is ‘billed’ by its
Hong Kong sister company
 Profits are transferred to Hong Kong and charged at a
much lower rate
 Governments are wary of this and conduct audits
to identify this behavior
Transfer pricing

10- 171
Price coordination
 How similar should prices be across markets?
This depends on:
 Nature of customers
 Apple prices globally to cater for a global segment and
avoid parallel imports
 Amount of product differentiation
 Identical products probably need to be priced
identically
 Nature of channels
 How much control over international distributors?

10- 172
Countertrade
 Unconventional trade financing transactions
based on trade and not cash
 Pepsi swaps cola for vodka in the old Soviet
Union
 Lack of ‘hard currency’ forces them to innovate on
price
 Pepsi would not take Roubles so took Stolichnya
instead
 On-sold in the US market at a profit

10- 173
Countertrade
 Motives
 Gain access to new or difficult markets
 Overcome lack of hard currency
 Overcome low country creditworthiness
 Shortcomings
 Timely and costly negotiations
 Uncertainty and lack of information on future
prices

Specimen Essay Question
10- 174
In international marketing price
escalation can be a serious
problem. Discuss ways that
marketers may implement a strategy
to address this problem using your
own examples

Good Luck on your Final Exam
 Read the questions carefully
 Decide which you want to do first – MCQ or Essay (your
choice)
 MCQ can allocate one hour BUT see if you can finish in
45 minutes so that you have a bit longer for essay
 Essay questions try to do 2-3 pages. Plan carefully the
flow of your answers. Write definitions and theories as
close as possible to the book/notes content; do not
make up your own definitions.
 Examples to be included in between relevant points. A
good answer has about 4-5 examples PER Questions.
Examples should be different for each question.
10- 175

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