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Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127

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Lars Perner
Popovich Hall

Lars Perner, Ph.D.
Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213) 740-7127

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INTERNATIONAL MARKETING

Euro hamburger Great Wall


The Global Market Place

Globalization of Markets and Competition: Trade is increasingly global in scope today. There are several reasons for this. One significant reason is technological—because of improved transportation and communication opportunities today, trade is now more practical. Thus, consumers and businesses now have access to the very best products from many different countries. Increasingly rapid technology lifecycles also increases the competition among countries as to who can produce the newest in technology. In part to accommodate these realities, countries in the last several decades have taken increasing steps to promote global trade through agreements such as the General Treaty on Trade and Tariffs, and trade organizations such as the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and the European Union (EU).

Stages in the International Involvement of a Firm. We discussed several stages through which a firm may go as it becomes increasingly involved across borders. A purely domestic firm focuses only on its home market, has no current ambitions of expanding abroad, and does not perceive any significant competitive threat from abroad. Such a firm may eventually get some orders from abroad, which are seen either as an irritation (for small orders, there may be a great deal of effort and cost involved in obtaining relatively modest revenue) or as "icing on the cake." As the firm begins to export more, it enters the export stage, where little effort is made to market the product abroad, although an increasing number of foreign orders are filled. In the international stage, as certain country markets begin to appear especially attractive with more foreign orders originating there, the firm may go into countries on an ad hoc basis—that is, each country may be entered sequentially, but with relatively little learning and marketing efforts being shared across countries. In the multi-national stage, some efficiencies are pursued by standardizing across a region (e.g., Central America, West Africa, or Northern Europe). Finally, in the global stage, the focus centers on the entire World market, with decisions made optimize the product’s position across markets—the home country is no longer the center of the product. An example of a truly global company is Coca Cola.

Note that these stages represent points on a continuum from a purely domestic orientation to a truly global one; companies may fall in between these discrete stages, and different parts of the firm may have characteristics of various stages—for example, the pickup truck division of an auto-manufacturer may be largely domestically focused, while the passenger car division is globally focused. Although a global focus is generally appropriate for most large firms, note that it may not be ideal for all companies to pursue the global stage. For example, manufacturers of ice cubes may do well as domestic, or even locally centered, firms.

Some forces in international trade. The text contains a rather long-winded appendix discussing some relatively simple ideas. Comparative advantage, discussed in more detail in the economics notes, suggests trade between countries is beneficial because these countries differ in their relative economic strengths—some have more advanced technology and some have lower costs. The International Product Life Cycle suggests that countries will differ in their timing of the demand for various products. Products tend to be adopted more quickly in the United States and Japan, for example, so once the demand for a product (say, VCRs) is in the decline in these markets, an increasing market potential might exist in other countries (e.g., Europe and the rest of Asia). Internalization/transaction costs refers to the fact that developing certain very large scale projects, such as an automobile intended for the World market, may entail such large costs that these must be spread over several countries.

Economics of International Trade

Exchange rates come in two forms:

Trade balances and exchange rates.  When exchange rates are allowed to fluctuate, the currency of a country that tends to run a trade deficit will tend to decline over time, since there will be less demand for that currency.  This reduced exchange rate will then tend to make exports more attractive in other countries, and imports less attractive at home.

Measuring country wealth.  There are two ways to measure the wealth of a country.  The nominal per capita gross domestic product (GDP) refers to the value of goods and services produced per person in a country if this value in local currency were to be exchanged into dollars.  Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000.  However, that $35,000 will not buy as much in Japan—food and housing are much more expensive there.  Therefore, we introduce the idea of purchase parity adjusted  per capita GDP, which reflects what this money can buy in the country.  This is typically based on the relative costs of a weighted “basket” of goods in a country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other items).  If it turns out that this measure of cost of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD) and Gross National Product (GNP) are almost identical figures.  The GNP, for example, includes income made by citizens working abroad, and does not include the income of foreigners working in the country.  Traditionally, the GNP was more prevalent; today the GPD is more commonly used—in practice, the two measures fall within a few percent of each other.)

Purchasing Power Parity

In general, the nominal per capita GPD is more useful for determining local consumers’ ability to buy imported goods, the cost of which are determined in large measure by the costs in the home market, while the purchase parity adjusted measure is more useful when products are produced, at local costs, in the country of purchase.  For example, the ability of Argentinians to purchase micro computer chips, which are produced mostly in the U.S. and Japan, is better predicted by nominal income, while the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed so that these average measures may not be very meaningful.  In Brazil, for example, there is a very large underclass making significantly less than the national average, and thus, the national figure is not a good indicator of the purchase power of the mass market.  Similarly, great regional differences exist within some countries—income is much higher in northern Germany than it is in the former East Germany, and income in southern Italy is much lower than in northern Italy.

Political and Legal Influences

The political situation.  The political relations between a firm’s country of headquarters (or other significant operations) and another one may, through no fault of the firm’s, become a major issue.  For example, oil companies which invested in Iraq or Libya became victims of these countries’ misconduct that led to bans on trade.  Similarly, American firms may be disliked in parts of Latin America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former shah.

Certain issues in the political environment are particularly significant.  Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means.  Some countries have little tradition of democracy, and thus it may be difficult to implement.  For example, even though Russia is supposed to become a democratic country, the history of dictatorships by the communists and the czars has left country of corruption and strong influence of criminal elements.

Laws across borders.  When laws of two countries differ, it may be possible in a contract to specify in advance which laws will apply, although this agreement may not be consistently enforceable.  Alternatively, jurisdiction may be settled by treaties, and some governments, such as that of the U.S., often apply their laws to actions, such as anti-competitive behavior, perpetrated outside their borders (extra-territorial application).  By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able to claim as a defense that it was forced to do so by the local government; such violations must, however, be compelled—that they are merely legal or accepted in the host country is not sufficient.

The reality of legal systems.  Some legal systems, such as that of the U.S., are relatively “transparent”—that is, the law tends to be what its plain meaning would suggest.  In some countries, however, there are laws on the books which are not enforced (e.g., although Japan has antitrust laws similar to those of the U.S., collusion is openly tolerated).  Further, the amount of discretion left to government officials tends to vary.  In Japan, through the doctrine of administrative guidance, great latitude is left to government officials, who effectively make up the laws.

One serious problem in some countries is a limited access to the legal systems as a means to redress grievances against other parties.  While the U.S. may rely excessively on lawsuits, the inability to effectively hold contractual partners to their agreement tends to inhibit business deals.  In many jurisdictions, pre-trial discovery is limited, making it difficult to make a case against a firm whose internal documents would reveal guilt.  This is one reason why personal relationships in some cultures are considered more significant than in the U.S.—since enforcing contracts may be difficult, you must be sure in advance that you can trust the other party.

Legal systems of the World.  There are four main approaches to law across the World, with some differences within each:

U.S. laws of particular interest to firms doing business abroad.

Anti-trust.  U.S. antitrust laws are generally enforced in U.S. courts even if the alleged transgression occurred outside U.S. jurisdiction.  For example, if two Japanese firms collude to limit the World supply of VCRs, they may be sued by the U.S. government (or injured third parties) in U.S. courts, and may have their U.S. assets seized.


Culture

Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals.

The definition of culture offered one text is “That complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man person as a member of society.”  From this definition, we make the following observations:

Culture has several important characteristics:  (1)  Culture is comprehensive.  This means that all parts must fit together in some logical fashion.  For example, bowing and a strong desire to avoid the loss of face are unified in their manifestation of the importance of respect.  (2)  Culture is learned rather than being something we are born with.  We will consider the mechanics of learning later in the course.  (3)  Culture is manifested within boundaries of acceptable behavior.  For example, in American society, one cannot show up to class naked, but wearing anything from a suit and tie to shorts and a T-shirt would usually be acceptable.  Failure to behave within the prescribed norms may lead to sanctions, ranging from being hauled off by the police for indecent exposure to being laughed at by others for wearing a suit at the beach.  (4)  Conscious awareness of cultural standards is limited.  One American spy was intercepted by the Germans during World War II simply because of the way he held his knife and fork while eating.  (5)  Cultures fall somewhere on a continuum between static and dynamic depending on how quickly they accept change.  For example, American culture has changed a great deal since the 1950s, while the culture of Saudi Arabia has changed much less.

Dealing with culture.  Culture is a problematic issue for many marketers since it is inherently nebulous and often difficult to understand.  One may violate the cultural norms of another country without being informed of this, and people from different cultures may feel uncomfortable in each other’s presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance).

Warning about stereotyping.  When observing a culture, one must be careful not to over-generalize about traits that one sees.  Research in social psychology has suggested a strong tendency for people to perceive an “outgroup” as more homogenous than an “ingroup,” even when they knew what members had been assigned to each group purely by chance.  When there is often a “grain of truth” to some of the perceived differences, the temptation to over-generalize is often strong.  Note that there are often significant individual differences within cultures.

Cultural lessons.  We considered several cultural lessons in class; the important thing here is the big picture.  For example, within the Muslim tradition, the dog is considered a “dirty” animal, so portraying it as “man’s best friend” in an advertisement is counter-productive.  Packaging, seen as a reflection of the quality of the “real” product, is considerably more important in Asia than in the U.S., where there is a tendency to focus on the contents which “really count.”  Many cultures observe significantly greater levels of formality than that typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker’s point is considered.
 
Cultural characteristics as a continuum.  There is a tendency to stereotype cultures as being one way or another (e.g., individualistic rather than collectivistic).  Note, however, countries fall on a continuum of cultural traits.  Hofstede’s research demonstrates a wide range between the most individualistic and collectivistic countries, for example—some fall in the middle.

Hofstede’s Dimensions.  Gert Hofstede, a Dutch researcher, was able to interview a large number of IBM executives in various countries, and found that cultural differences tended to center around four key dimensions:

Although Hofstede’s original work did not address this, a fifth dimension of long term vs. short term orientation has been proposed.  In the U.S., managers like to see quick results, while Japanese managers are known for take a long term view, often accepting long periods before profitability is obtained.

High vs. low context cultures:  In some cultures, “what you see is what you get”—the speaker is expected to make his or her points clear and limit ambiguity.  This is the case in the U.S.—if you have something on your mind, you are expected to say it directly, subject to some reasonable standards of diplomacy.  In Japan, in contrast, facial expressions and what is not said may be an important clue to understanding a speaker’s meaning.  Thus, it may be very difficult for Japanese speakers to understand another’s written communication.  The nature of languages may exacerbate this phenomenon—while the German language is very precise, Chinese lacks many grammatical features, and the meaning of words may be somewhat less precise.  English ranks somewhere in the middle of this continuum.

Ethnocentrism and the self-reference criterion.  The self-reference criterion refers to the tendency of individuals, often unconsciously, to use the standards of one’s own culture to evaluate others.  For example, Americans may perceive more traditional societies to be “backward” and “unmotivated” because they fail to adopt new technologies or social customs, seeking instead to preserve traditional values.  In the 1960s, a supposedly well read American psychology professor referred to India’s culture of “sick” because, despite severe food shortages, the Hindu religion did not allow the eating of cows.  The psychologist expressed disgust that the cows were allowed to roam free in villages, although it turns out that they provided valuable functions by offering milk and fertilizing fields.  Ethnocentrism is the tendency to view one’s culture to be superior to others.  The important thing here is to consider how these biases may come in the way in dealing with members of other cultures.

It should be noted that there is a tendency of outsiders to a culture to overstate the similarity of members of that culture to each other.  In the United States, we are well aware that there is a great deal of heterogeneity within our culture; however, we often underestimate the diversity within other cultures.  For example, in Latin America, there are great differences between people who live in coastal and mountainous areas; there are also great differences between social classes.

Language issues.  Language is an important element of culture.  It should be realized that regional differences may be subtle.  For example, one word may mean one thing in one Latin American country, but something off-color in another.  It should also be kept in mind that much information is carried in non-verbal communication.  In some cultures, we nod to signify “yes” and shake our heads to signify “no;” in other cultures, the practice is reversed.  Within the context of language:

Writing patterns, or the socially accepted ways of writing, will differs significantly between cultures. 

writing

In English and Northern European languages, there is an emphasis on organization and conciseness.  Here, a point is made by building up to it through background.  An introduction will often foreshadow what is to be said.  In Romance languages such as Spanish, French, and Portuguese, this style is often considered “boring” and “inelegant.”  Detours are expected and are considered a sign of class, not of poor organization.  In Asian languages, there is often a great deal of circularity.  Because of concerns about potential loss of face, opinions may not be expressed directly.  Instead, speakers may hint at ideas or indicate what others have said, waiting for feedback from the other speaker before committing to a point of view.

Because of differences in values, assumptions, and language structure, it is not possible to meaningfully translate “word-for-word” from one language to another.  A translator must keep “unspoken understandings” and assumptions in mind in translating.  The intended meaning of a word may also differ from its literal translation.  For example, the Japanese word hai  is literally translated as “yes.”  To Americans, that would imply “Yes, I agree.”  To the Japanese speaker, however, the word may mean “Yes, I hear what you are saying” (without any agreement expressed) or even “Yes, I hear you are saying something even though I am not sure exactly what you are saying.”

Differences in cultural values result in different preferred methods of speech.  In American English, where the individual is assumed to be more in control of his or her destiny than is the case in many other cultures, there is a preference for the “active” tense (e.g., “I wrote the marketing plan”) as opposed to the passive (e.g., “The marketing plan was written by me.”)

Because of the potential for misunderstandings in translations, it is dangerous to rely on a translation from one language to another made by one person.  In the “decentering” method, multiple translators are used.  The text is first translated by one translator—say, from German to Mandarin Chinese.  A second translator, who does not know what the original German text said, will then translate back to German from Mandarin Chinese translation.  The text is then compared.  If the meaning is not similar, a third translator, keeping in mind this feedback, will then translate from German to Mandarin.  The process is continued until the translated meaning appears to be satisfactory.

Different perspectives exist in different cultures on several issues; e.g.:


Cross-Cultural Market Research

Primary vs. secondary research.  There are two kinds of market research:  Primary research refers to the research that a firm conducts for its own needs (e.g., focus groups, surveys, interviews, or observation) while secondary research involves finding information compiled by someone else.  In general, secondary research is less expensive and is faster to conduct, but it may not answer the specific questions the firm seeks to have answered (e.g., how do consumers perceive our product?), and its reliability may be in question.

Secondary sources.  A number of secondary sources of country information are available.  One of the most convenient sources is an almanac, containing a great deal of country information.  Almanacs can typically be bought for $10.00 or less.  The U.S. government also publishes a guide to each country, and the handbook International Business Information:  How to Find It, How to Use It (HF 54.5.P33 [1998] in the Reference Department of the Gelman Library), provides leads on numerous sources by topic.  Stat-USA, a database compiled by the U.S. Department of Commerce and available through the Gelman Library (you can access it through the “Links” section of my web-site), contains a great deal of statistical information online.  Excellent full text searchable indices to periodicals include Lexis-Nexis and RDS Business and Industry, also available through Gelman.

Several experts may be available.  Anthropologists and economists in universities may have built up a great deal of knowledge and may be available for consulting.  Consultants specializing in various regions or industries are typically considerably more expensive.  One should be careful about relying on the opinions of expatriates (whose views may be biased or outdated) or one’s own experience (which may relate to only part of a country or a certain subsegment) and may also suffer from the limitation of being a sample of size 1.

Hard vs. soft data.  “Hard” data refers to relatively quantifiable measures such as a country’s GDP, number of telephones per thousand residents, and birth rates (although even these supposedly “objective” factors may be subject to some controversy due to differing definitions and measurement approaches across countries).  In contrast, “soft” data refers to more subjective issues such as country history or culture.  It should be noted that while the “hard” data is often more convenient and seemingly objective, the “soft” data is frequently as important, if not more so, in understanding a market.

Data reliability.  The accuracy and objectivity of data depend on several factors.  One significant one is the motivation of the entity that releases it.  For example, some countries may want to exaggerate their citizens’ literacy rates owing to national pride, and an organization promoting economic development may paint an overly rosy picture in order to attract investment.  Some data may be dated (e.g., a census may be conducted rarely in some regions), and some countries may lack the ability to collect data (it is difficult to reach people in the interior regions of Latin America, for example).  Differences in how constructs are defined in different countries (e.g., is military personnel counted in people who are employed?) may make figures of different jurisdictions non-comparable.

Cost of data.  Much government data, or data released by organizations such as the World Bank or the United Nations, is free or inexpensive, while consultants may charge very high rates. 

Issues in primary research.  Cultural factors often influence how people respond to research.  While Americans are used to market research and tend to find this relatively un-threatening, consumers in other countries may fear that the data will be reported to the government, and may thus not give accurate responses.  In some cultures, criticism or confrontation are considered rude, so consumers may not respond honestly when they dislike a product. Technology such as scanner data is not as widely available outside the United States.  Local customs and geography may make it difficult to interview desired respondents; for example, in some countries, women may not be allowed to talk to strangers.

 

Country Entry: Decisions and Strategies

Segmentation, Targeting, and Positioning.  Segmentation, in marketing, is usually done at the customer level.  However, in international marketing, it may sometimes be useful to see countries as segments.  This allows the decision maker to focus on common aspects of countries and avoid information overload.  It should be noted that variations within some countries (e.g., Brazil) are very large and therefore, averages may not be meaningful.   Country level segmentation may be done on levels such as geography—based on the belief that neighboring countries and countries with a particular type of climate or terrain tend to share similarities, demographics (e.g., population growth, educational attainment, population age distribution), or income.  Segmenting on income is tricky since the relative prices between countries may differ significantly (based, in part, on purchasing power parity measures that greatly affect the relative cost of imported and domestically produced products).

The importance of STP. Segmentation is the cornerstone of marketing—almost all marketing efforts in some way relate to decisions on who to serve or how to implement positioning through the different parts of the marketing mix. For example, one’s distribution strategy should consider where one’s target market is most likely to buy the product, and a promotional strategy should consider the target’s media habits and which kinds of messages will be most persuasive. Although it is often tempting, when observing large markets, to try to be "all things to all people," this is a dangerous strategy because the firm may lose its distinctive appeal to its chosen segments.

In terms of the "big picture," members of a segment should generally be as similar as possible to each other on a relevant dimension (e.g., preference for quality vs. low price) and as different as possible from members of other segments. That is, members should respond in similar ways to various treatments (such as discounts or high service) so that common campaigns can be aimed at segment members, but in order to justify a different treatment of other segments, their members should have their own unique response behavior.

Approaches to global segmentation. There are two main approaches to global segmentation. At the macro level, countries are seen as segments, given that country aggregate characteristics and statistics tend to differ significantly. For example, there will only be a large market for expensive pharmaceuticals in countries with certain income levels, and entry opportunities into infant clothing will be significantly greater in countries with large and growing birthrates (in countries with smaller birthrates or stable to declining birthrates, entrenched competitors will fight hard to keep the market share).

There are, however, significant differences within countries. For example, although it was thought that the Italian market would demand "no frills" inexpensive washing machines while German consumers would insist on high quality, very reliable ones, it was found that more units of the inexpensive kind were sold in Germany than in Italy—although many German consumers fit the predicted profile, there were large segment differences within that country. At the micro level, where one looks at segments within countries. Two approaches exist, and their use often parallels the firm’s stage of international involvement. Intramarket segmentation involves segmenting each country’s markets from scratch—i.e., an American firm going into the Brazilian market would do research to segment Brazilian consumers without incorporating knowledge of U.S. buyers. In contrast, intermarket segmentation involves the detection of segments that exist across borders. Note that not all segments that exist in one country will exist in another and that the sizes of the segments may differ significantly. For example, there is a huge small car segment in Europe, while it is considerably smaller in the U.S.

Inter- vs. intra-market segmentation

Intermarket segmentation entails several benefits. The fact that products and promotional campaigns may be used across markets introduces economies of scale, and learning that has been acquired in one market may be used in another—e.g., a firm that has been serving a segment of premium quality cellular phone buyers in one country can put its experience to use in another country that features that same segment. (Even though segments may be similar across the cultures, it should be noted that it is still necessary to learn about the local market. For example, although a segment common across two countries may seek the same benefits, the cultures of each country may cause people to respond differently to the "hard sell" advertising that has been successful in one).

The international product life cycle suggests that product adoption and spread in some markets may lag significantly behind those of others. Often, then, a segment that has existed for some time in an "early adopter" country such as the U.S. or Japan will emerge after several years (or even decades) in a "late adopter" country such as Britain or most developing countries. (We will discuss this issue in more detail when we cover the product mix in the second half of the term).

Positioning across markets. Firms often have to make a tradeoff between adapting their products to the unique demands of a country market or gaining benefits of standardization such as cost savings and the maintenance of a consistent global brand image. There are no easy answers here. On the one hand, McDonald’s has spent a great deal of resources to promote its global image; on the other hand, significant accommodations are made to local tastes and preferences—for example, while serving alcohol in U.S. restaurants would go against the family image of the restaurant carefully nurtured over several decades, McDonald’s has accommodated this demand of European patrons.

The Japanese Keiretsu Structure.  In Japan, many firms are part of a keiretsu, or a conglomerate that ties together businesses that can aid each other. For example, a keiretsu might contain an auto division that buys from a steel division. Both of these might then buy from a iron mining division, which in turns buys from a chemical division that also sells to an agricultural division. The agricultural division then sells to the restaurant division, and an electronics division sells to all others, including the auto division. Since the steel division may not have opportunities for reinvestment, it puts its profits in a bank in the center, which in turns lends it out to the electronics division that is experiencing rapid growth.

Keiretsu


This practice insulates the businesses to some extent against the business cycle, guaranteeing an outlet for at least some product in bad times, but this structure has caused problems in Japan as it has failed to "root out" inefficient keiretsu members which have not had to "shape up" to the rigors of the market.

Methods of entry. With rare exceptions, products just don’t emerge in foreign markets overnight—a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available:

Entry Strategies

Methods of entry. With rare exceptions, products just don’t emerge in foreign markets overnight—a firm has to build up a market over time. Several strategies, which differ in aggressiveness, risk, and the amount of control that the firm is able to maintain, are available:

 

Product Issues in International Marketing

Products and Services.  Some marketing scholars and professionals tend to draw a strong distinction between conventional products and services, emphasizing service characteristics such as heterogeneity (variation in standards among providers, frequently even among different locations of the same firm), inseperability from consumption, intangibility, and, in some cases, perishability—the idea that a service cannot generally be created during times of slack and be “stored” for use later.   However, almost all products have at least some service component—e.g., a warranty, documentation, and distribution—and this service component is an integral part of the product and its positioning.  Thus, it may be more useful to look at the product-service continuum as one between very low and very high levels of tangibility of the service.  Income tax preparation, for example, is almost entirely intangible—the client may receive a few printouts, but most of the value is in the service.  On the other hand, a customer who picks up rocks for construction from a landowner gets a tangible product with very little value added for service.  Firms that offer highly tangible products often seek to add an intangible component to improve perception.  Conversely, adding a tangible element to a service—e.g., a binder with information—may address many consumers’ psychological need to get something to show for their money.

On the topic of services, cultural issues may be even more prominent than they are for tangible goods. There are large variations in willingness to pay for quality, and often very large differences in expectations.  In some countries, it may be more difficult to entice employees to embrace a firm’s customer service philosophy.  Labor regulations in some countries make it difficult to terminate employees whose treatment of customers is substandard.  Speed of service is typically important in the U.S. and western countries but personal interaction may seem more important in other countries.

Product Need Satisfaction.  We often take for granted the “obvious” need that products seem to fill in our own culture; however, functions served may be very different in others—for example, while cars have a large transportation role in the U.S., they are impractical to drive in Japan, and thus cars there serve more of a role of being a status symbol or providing for individual indulgence.  In the U.S., fast food and instant drinks such as Tang are intended for convenience; elsewhere, they may represent more of a treat.  Thus, it is important to examine through marketing research consumers’ true motives, desires, and expectations in buying a product.

Approaches to Product Introduction.  Firms face a choice of alternatives in marketing their products across markets.  An extreme strategy involves customization, whereby the firm introduces a unique product in each country, usually with the belief tastes differ so much between countries that it is necessary more or less to start from “scratch” in creating a product for each market.  On the other extreme, standardization involves making one global product in the belief the same product can be sold across markets without significant modification—e.g., Intel microprocessors are the same regardless of the country in which they are sold.  Finally, in most cases firms will resort to some kind of adaptation, whereby a common product is modified to some extent when moved between some markets—e.g., in the United States, where fuel is relatively less expensive, many cars have larger engines than their comparable models in Europe and Asia; however, much of the design is similar or identical, so some economies are achieved.  Similarly, while Kentucky Fried Chicken serves much the same chicken with the eleven herbs and spices in Japan, a lesser amount of sugar is used in the potato salad, and fries are substituted for mashed potatoes.

There are certain benefits to standardization.  Firms that produce a global product can obtain economies of scale in manufacturing, and higher quantities produced also lead to a faster advancement along the experience curve.  Further, it is more feasible to establish a global brand as less confusion will occur when consumers travel across countries and see the same product.  On the down side, there may be significant differences in desires between cultures and physical environments—e.g., software sold in the U.S. and Europe will often utter a “beep” to alert the user when a mistake has been made; however, in Asia, where office workers are often seated closely together, this could cause embarrassment.

Adaptations come in several forms.  Mandatory adaptations involve changes that have to be made before the product can be used—e.g., appliances made for the U.S. and Europe must run on different voltages, and a major problem was experienced in the European Union when hoses for restaurant frying machines could not simultaneously meet the legal requirements of different countries.  “Discretionary” changes are changes that do not have to be made before a product can be introduced (e.g., there is nothing to prevent an American firm from introducing an overly sweet soft drink into the Japanese market), although products may face poor sales if such changes are not made.  Discretionary changes may also involve cultural adaptations—e.g., in Sesame Street, the Big Bird became the Big Camel in Saudi Arabia.

Discretionary Adaptations

Another distinction involves physical product vs. communication adaptations.  In order for gasoline to be effective in high altitude regions, its octane must be higher, but it can be promoted much the same way.  On the other hand, while the same bicycle might be sold in China and the U.S., it might be positioned as a serious means of transportation in the former and as a recreational tool in the latter.  In some cases, products may not need to be adapted in either way (e.g., industrial equipment), while in other cases, it might have to be adapted in both (e.g., greeting cards, where the both occasions, language, and motivations for sending differ).   Finally, a market may exist abroad for a product which has no analogue at home—e.g., hand-powered washing machines.

Branding.  While Americans seem to be comfortable with category specific brands, this is not the case for Asian consumers.  American firms observed that their products would be closely examined by Japanese consumers who could not find a major brand name on the packages, which was required as a sign of quality.  Note that Japanese keiretsus span and use their brand name across multiple industries—e.g., Mitsubishi, among other things, sells food, automobiles, electronics, and heavy construction equipment.

Branding

The International Product Life Cycle (PLC).  Consumers in different countries differ in the speed with which they adopt new products, in part for economic reasons (fewer Malaysian than American consumers can afford to buy VCRs) and in part because of attitudes toward new products (pharmaceuticals upset the power afforded to traditional faith healers, for example).  Thus, it may be possible, when one market has been saturated, to continue growth in another market—e.g., while somewhere between one third and one half of American homes now contain a computer, the corresponding figures for even Europe and Japan are much lower and thus, many computer manufacturers see greater growth potential there.  Note that expensive capital equipment may also cycle between countries—e.g., airlines in economically developed countries will often buy the newest and most desired aircraft and sell off older ones to their counterparts in developing countries.  While in developed countries, “three part” canning machines that solder on the bottom with lead are unacceptable for health reasons, they have found a market in developing countries.

Diffusion of innovation.  Good new innovations often do not spread as quickly as one might expect—e.g., although the technology for microwave ovens has existed since the 1950s, they really did not take off in the United States until the late seventies or early eighties, and their penetration is much lower in most other countries.  The typewriter, telephone answering machines, and cellular phones also existed for a long time before they were widely adopted.

Certain characteristics of products make them more or less likely to spread.  One factor is relative advantage.  While a computer offers a huge advantage over a typewriter, for example, the added gain from having an electric typewriter over a manual one was much smaller.  Another issue is compatibility, both in the social and physical sense.   A major problem with the personal computer was that it could not read the manual files that firms had maintained, and birth control programs are resisted in many countries due to conflicts with religious values.  Complexity refers to how difficult a new product is to use—e.g., some people have resisted getting computers because learning to use them takes time.  Trialability refers to the extent to which one can examine the merits of a new product without having to commit a huge financial or personal investment—e.g., it is relatively easy to try a restaurant with a new ethnic cuisine, but investing in a global positioning navigation system is riskier since this has to be bought and installed in one’s car before the consumer can determine whether it is worthwhile in practice.  Finally, observability refers to the extent to which consumers can readily see others using the product—e.g., people who do not have ATM cards or cellular phones can easily see the convenience that other people experience using them; on the other hand, VCRs are mostly used in people’s homes, and thus only an owner’s close friends would be likely to see it.

At the societal level, several factors influence the spread of an innovation.  Not surprisingly, cosmopolitanism, the extent to which a country is connected to other cultures, is useful.  Innovations are more likely to spread where there is a higher percentage of women in the work force; these women both have more economic power and are able to see other people use the products and/or discuss them.  Modernity refers to the extent to which a culture values “progress.”  In the U.S., “new and improved” is considered highly attractive; in more traditional countries, their potential for disruption cause new products to be seen with more skepticism.  Although U.S. consumers appear to adopt new products more quickly than those of other countries, we actually score lower on homiphily, the extent to which consumers are relatively similar to each other, and physical distance, where consumers who are more spread out are less likely to interact with other users of the product.  Japan, which ranks second only to the U.S., on the other hand, scores very well on these latter two factors.

 

International Promotion

Promotional tools.  Numerous tools can be used to influence consumer purchases:

Ad Spending

Promotional objectives.  Promotional objectives involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which cause them to buy more).  Some common objectives that firms may hold:

Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.

Ad Spending vs Economic Growth

Constraints on Global Communications Strategies.  Although firms that seek standardized positions may seek globally unified campaigns, there are several constraints:

Advertising Planning 

Some cultural dimensions:

Advertising standardization.  Issues surrounding advertising standardization tend to parallel issues surrounding product and positioning standardization.  On the plus side, economies of scale are achieved, a consistent image can be established across markets, creative talent can be utilized across markets, and good ideas can be transplanted from one market to others.  On the down side, cultural differences, peculiar country regulations, and differences in product life cycle stages make this approach difficult.  Further, local advertising professionals may resist campaigns imposed from the outside—sometimes with good reasons and sometimes merely to preserve their own creative autonomy.

Country Priority

Legal issues.  Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France, for example).  Other forms of promotion may also be banned or regulated.  In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.

 

Pricing Issues in International Marketing

Price can best be defined in ratio terms, giving the equation


resources given up
price  =     ———————————————               
goods received

This implies that there are several ways that the price can be changed:

Reference Prices. Consumers often develop internal reference prices, or expectations about what something should cost, based mostly on their experience. Most drivers with long commutes develop a good feeling of what gasoline should cost, and can tell a bargain or a ripoff.

Reference prices are more likely to be more precise for frequently purchased and highly visible products. Therefore, retailers very often promote soft drinks, since consumers tend to have a good idea of prices and these products are quite visible. The trick, then, is to be more expensive on products where price expectations are muddier.

Marketers often try to influence people's price perceptions through the use of external reference prices—indicators given to the consumer as to how much something should cost. Examples include:

Reference prices have significant international implications. While marketers may choose to introduce a product at a low price in order to induce trial, which is useful in a new market where the penetration of a product is low, this may have serious repercussions as consumers may develop a low reference price and may thus resist paying higher prices in the future.
Selected International Pricing Issues. In some cultures, particularly where retail stores are smaller and the buyer has the opportunity to interact with the owner, bargaining may be more common, and it may thus be more difficult for the manufacturer to influence retail level pricing.

Two phenomena may occur when products are sold in disparate markets. When a product is exported, price escalation, whereby the product dramatically increases in price in the export market, is likely to take place. This usually occurs because a longer distribution chain is necessary and because smaller quantities sold through this route will usually not allow for economies of scale. "Gray" markets occur when products are diverted from one market in which they are cheaper to another one where prices are higher—e.g., Luis Vuitton bags were significantly more expensive in Japan than in France, since the profit maximizing price in Japan was higher and thus bags would be bought in France and shipped to Japan for resale. The manufacturer therefore imposed quantity limits on buyers. Since these quantity limits were circumvented by enterprising exchange students who were recruited to buy their quota on a daily basis, prices eventually had to be lowered in Japan to make the practice of diversion unattractive. Where the local government imposes price controls, a firm may find the market profitable to enter nevertheless since revenues from the new market only have to cover marginal costs. However, products may then be attractive to divert to countries without such controls.

Transfer pricing involves what one subsidiary will charge another for products or components supplied for use in another country. Firms will often try to charge high prices to subsidiaries in countries with high taxes so that the income earned there will be minimized.

Experience Curves

Antitrust laws are relevant in pricing decisions, and anti-dumping regulations are especially noteworthy. In general, it is illegal to sell a product below your cost of production, which may make a penetration pricing entry strategy infeasible. Japan has actively lobbied the World Trade Organization (WTO) to relax its regulations, which generally require firms to price no lower than their average fully absorbed cost (which incorporates both variable and fixed costs).
Alternatives to "hard" currency deals. Buyers in some countries do not have ready access to convertible currency, and governments will often try limit firms’ ability to spend money abroad. Thus, some firms have been forced into non-cash deals. In barter, the seller takes payment in some product produced in the buying country—e.g., Lockheed (back when it was an independent firm) took Spanish wine in return for aircraft, and sellers to Eastern Europe have taken their payment in ham. An offset contract is somewhat more flexible in that the buyer can get paid but instead has to buy, or cause others to buy, products for a certain value within a specified period of time.

Cost Issues in Pricing

Psychological issues: Most pricing research has been done on North Americans, and this raises serious problems of generalizability. Americans are used to sales, for example, while consumers in countries where goods are more scarce may attribute a sale to low quality rather than a desire to gain market share. There is some evidence that perceived price quality relationships are quite high in Britain and Japan (thus, discount stores have had difficulty there), while in developing countries, there is less trust in the market. Cultural differences may influence the extent of effort put into evaluating deals (potentially impacting the effectiveness of odd-even pricing and promotion signaling). The fact that consumers in some economies are usually paid weekly, as opposed to biweekly or monthly, may influence the effectiveness of framing attempts—"a dollar a day" is a much bigger chunk from a weekly than a monthly paycheck.

 

International Distribution

Promotional tools.  Numerous tools can be used to influence consumer purchases:

Promotional objectives.  Promotional objectives involve the question of what the firm hopes to achieve with a campaign—“increasing profits” is too vague an objective, since this has to be achieved through some intermediate outcome (such as increasing market share, which in turn is achieved by some change in consumers which cause them to buy more).  Some common objectives that firms may hold:

Note that in new or emerging markets, the first objectives are more likely to be useful while, for established products, the latter objectives may be more useful in mature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies.  Although firms that seek standardized positions may seek globally unified campaigns, there are several constraints:

Some cultural dimensions:

Advertising standardization.  Issues surrounding advertising standardization tend to parallel issues surrounding product and positioning standardization.  On the plus side, economies of scale are achieved, a consistent image can be established across markets, creative talent can be utilized across markets, and good ideas can be transplanted from one market to others.  On the down side, cultural differences, peculiar country regulations, and differences in product life cycle stages make this approach difficult.  Further, local advertising professionals may resist campaigns imposed from the outside—sometimes with good reasons and sometimes merely to preserve their own creative autonomy.

Legal issues.  Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France, for example).  Other forms of promotion may also be banned or regulated.  In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.