Global MKT Final Exam

What are the market entry strategies?*

- Licensing - Contract manufacturing - Franchising - Foreign Direct Investment - Joint Venture - Global Strategic Partnership

Government programs that support exporting*

o Any government concerned with economic development should focus on educating firms about the potential gains from exporting o Policy makers should remove bureaucratic obstacles that hinder company exports at national, regional, and local government levels - Tax incentives - Subsidies - Government assistance to exporters - FTZ

Success factors of global strategic partnerships

o Mission: create win-win situations, where participants pursue objectives on the basis of mutual need or advantage o Strategy: a company may establish separate GSPs with different partners; strategy must be thought out upfront to avoid conflicts o Governance: discussion and consensus must be the norms, partners must be viewed as equals o Culture: personal chemistry is important, as is the successful development of a shared set of values o Organization: innovative structures and designs may be needed to offset the complexity of multicountry management o Management: GSPs invariably involve a different type of decision making—potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners

Single-column tariff

(Simplest type) a schedule of duties in which the rate applies to imports from all countries on the same basis

Brand strategies:

- Combination/tiered branding - Co-branding - Brand extensions

Strategic alternatives in global marketing

- Extension strategy: offering a product virtually unchanged (extending it) in markets outside of the home country - Adaptation strategy: changing elements of design, function, or packaging in response to needs or conditions in particular country markets - Product invention: developing new products "from the ground up" with the world market in mind

Benefits of a strong brand

- Greater loyalty - Less vulnerability to marketing actions - Less vulnerability to marketing crises - Larger margins - More inelastic consumer response to price increases - More elastic consumer response to price decreases - Increased marketing communications effectiveness

Countervailing Duties (CVDs)*

Additional duties levied to offset subsidies granted in the exporting country—in the US, very similar to procedures about dumpings

Franchising*

A contract between a parent company/franchiser and a franchisee that allows the franchisee to operate a business developed by the franchiser in return for a fee and adherence to franchise-wide policies and practices • Franchisers can gain a more realistic understanding of global opportunities, but is typically executed with less localization than is licensing

Licensing*

A contractual agreement whereby one company (the licensor) makes a legally protected asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation - Licensed asset may be a brand name, company name, patent, trade secret, or product formulation - Widely used in the fashion industry→ many namesake companies generate more revenue from licensing deals than from actual high-priced couture sales

Combination/tiered branding

A corporate name is combined with a product name, and marketers can leverage a company's reputation while developing distinct brand identity for a line of products o i.e. Sony Walkman

Quota

A government-imposed limit or restriction on the number of units or the total value of a particular product or product category that can be imported

Countertrade

A sale results in product flowing in one direction to a buyer; a separate stream of products and services, often flowing in the opposite direction, is also created o Generally involves a seller from the west and a buyer in a developing country Includes: barter, counterpurchase, offset, compensation trading, and switch trading

Joint Ventures (JV)*

An entry strategy for a single target country in which the partners share ownership of a newly created business entity

Subsidies*

Any direct or indirect financial contributions or incentives that benefit producers. Subsidies can severely distort trade patterns when less competitive but subsidized producers displace competitive producers in world markets. - The US has the highest subsidies of any country, with approx. 40 billion in annual support

Non tariff barriers (NTB)

Any measure other than a tariff that is a deterrent or obstacle to the sale of products in a foreign market. Include: - Quotas - Discriminatory Procurement Policies - Restrictive administration and technical regulation

Cost-based/plus pricing*

Based on an analysis of internal (materials, labor, testing) and external costs • Full absorption cost method • Rigid cost-plus pricing • Flexible cost-plus pricing • Estimated future cost method

Extension/ethnocentric pricing*

Calls for the per-unit price of an item to be the same no matter where in the world the buyer is located • Advantage: extreme simplicity • Disadvantage: does not respond to the competitive and market conditions of each national market and, therefore, does not maximize the company's profits in each national market or globally

Discriminatory procurement policies

Can take the form of government rules, laws, or administrative regulations requiring that goods or services be purchased from domestic companies o Ex: Buy American Act of 1933 US federal agencies and government programs must buy goods produced in the US

Customs duties*

Divided into two categories—calculated either as a percentage of the value of the goods (ad valorem duty), as a specific amount per unit (specific duty) or as a combination of both

Dumping*

Dumping is defined as the sale of an imported product at a price lower than that normally charged in a domestic market or country of origin. Most countries have legislation that imposes antidumping duties if injury is caused to domestic producers (special additional import charges equal to the dumping margins)

Ad Valorem duty*

Expressed as a percentage of the value of goods, but value varies from country to country—GATT conventions, custom value is the value of cost, insurance, and freight (CIF) at the port of importation

Specific duty*

Expressed as a specific amount of currency per unit of weight, volume, length, or other unit of measure—usually expressed in the currency of the importing country, but there are exceptions

Three global pricing policy alternatives*

Extension/ethnocentric Adaptation/polycentric Geocentric

Foreign direct investment (FDI)*

FDI figures reflect investment flows out of the home country as companies invest in or acquire plants, equipment, or other assets→ allows companies to produce, sell, and compete locally in key markets

Free Trade Zones*

Geographic areas that offer manufacturers simplified customs procedures, operational flexibility, and general environment of relaxed regulations. Typical in airport and seaport areas that would benefit from trade.

Global products and brands

Global product: meets the wants and needs of a global market, offered in all world regions Global brand: has the same name and similar image and positioning throughout the world Ex: Nestle, BMW, Gillette

Local products and brands

Have achieved success in a single national market - Sometimes created in effort to cater to needs and preferences of a specific country market - Represent the lifeblood of domestic companies Example: Coca-cola's "Sokenbicha" brand in Japan

Temporary surcharges*

Have been introduced to provide additional protection for local industry, and particularly in response to balance of payments deficits

Variable import levies*

If prices of imported products were to undercut those of domestic products, these levies would raise the price of imported products to the domestic price level

Special licensing arrangements

Include contract manufacturing and franchising

Other duties and import charges*

Include dumping, CVDs, and variable import levies, and temporary surcharges

Two-column tariff

Includes general duties plus special duties indicating reduced rates determined by tariff negotiations with other countries

International products and brands

Offered in several markets in a particular region (i.e. euro products/brands)

Brand image

Perceptions about a brand as reflected by brand associations that consumers hold in their memories

Country of Origin*

Perceptions about and attitudes toward particular countries often extend to products and brands known to originate in those countries - Become part of a brand's image and contribute to brand equity

Adaptation/polycentric pricing*

Permits subsidiary or affiliate managers or independent distributors to establish whatever price they feel is most appropriate in their market environment (no requirement that prices be coordinated from one country to the next)

Restrictive administrative and technical regulations

Take the form of antidumping regulations, product size regulations, and safety and food regulations

Companion products: captive pricing (razors and blades)*

Pricing strategy in which the biggest profits come from sales of one item which must be paired with another to have value

Target costing*

Pricing strategy in which the company reasons backwards from some customers' needs and willingness to pay, then setting the cost to ensure profitable products that will have only the right level of quantity and functionality to meet this goal o Target costing process begins with market mapping, product definition, and positioning--> designed to meet specific needs at specific cost

Penetration pricing*

Pricing strategy that sets price levels low enough to quickly build market share or other sales based goals (non financial objectives) - Pacific rim - First time exporters won't want to do

Market skimming*

Pricing strategy which attempts to reach a market segment that is willing to pay a premium price for a particular brand or for a specialized or unique product (financial objectives) - Luxury/premium goods - Introductory phase/new-to-the-world products

Export marketing

Targets the customer in the context of the total market environment, modifying various product and marketing mix strategies - Tailors the product, price, and promotional material

Tariff systems*

Tariffs: the three R's of global business—rules, rate schedules (duties), and regulations of individual countries. Usually grouped into two classifications (single-column and two-column)

Contact manufacturing*

Provide technical specifications to a subcontractor or local manufacturer, and the subcontractor then oversees production

Government assistance to exporters*

Providing companies with government information such as location of markets and credit risks. Also, government agencies can assist companies in promoting their export products

Geocentric pricing*

Represents an intermediate course of action, based on the realization that unique local market factors should be recognized when arriving at pricing decisions • Takes into account local costs, income levels, competition, and the local marketing strategy, and integrates price with other elements of the marketing program

Maslow's hierarchy of needs

Staple of sociology and psychology, providing useful framework for understanding how and why local products and brands can be extended beyond home-country borders. People's desired are arranged into a hierarchy of five needs, and an individual must fill the first need to progress to the next o Physiological o Safety o Social o External and internal esteem o Self-actualization

Brand extension

Strategy uses an established brand name as an umbrella when entering new businesses or developing new product lines that represent new categories to the company

Brand extensions

Strategy uses an established brand name as an umbrella when entering new businesses or developing new product lines that represent new categories to the company

Export selling

The only marketing mix element that differs is place (the market)

Sourcing

The sourcing decision is made to determine whether a company makes or buys its products, as well as where it makes or buys its products - Global outsourcing/offshoring: when the outsourced work moves to another country - Call centers: sophisticated telephone operations that provide inbound callers support and other services from around the world, first wave of non-manufacturing outsourcing

Brand equity

The total value that accrues to a product as a result of a company's cumulative investments in the marketing of the brand—grows as a company invests in the brand

Gray market goods

Trademarked products that are exported from one country to another and sold by unauthorized persons or organizations o Gray markets can flourish when a product is in short supply, when producers employ skimming strategies in certain markets, or when the goods are subject to substantial markups o Gray markets impose several costs or consequences on global marketers: • Dilution of exclusivity • Free riding • Damage to channel relationships • Undermining segmented pricing schemes • Reputation and legal liability

Tax incentives*

Treat earnings from export activities preferentially either by applying a lower rate to earnings from these activities or by refunding taxes already paid on income associated with exporting • Foreign sales corporation (FSC): major US tax incentive from 1985-2000, American exporters obtained a 15% exclusion on earnings from international sales • In 2000, the WTO ruled any tax break that was contingent on exports was illegal

Global strategic partnerships*

Two or more firms from different countries working on a team that: 1. Remain independent subsequent to the formation of the alliance 2. Share the benefits of the alliance as well as control over the performance of assigned tasks 3. Make ongoing contributions in technology, products, and other key strategic areas **Key is that it calls for a continuous transfer of technology and skills among partners

Co-branding

Variation on combination branding in which two or more different company or product brands are featured prominently on product packaging or in advertising

Guidelines for global strategic partnerships

o Must remember that they are competitors in other areas o Harmony is not the most important measure of success-some conflict is expected o Employees, engineers, and managers must understand where cooperation ends and competitive compromise begins o Learning from partners is critically important

Disadvantages of global strategic partnerships*

o Partners share control over assigned tasks, creating management challenges o Strengthening a competitor from another country can present many risks

Global product planning strategies

o Strategy 1: Product-Communication Extension (Dual Extension): sell the same product with virtually no adaptation, using the same advertising and promotional appeals used domestically, in two or more country markets or segments • Advertiser's messages must be understood across different cultures • Ex: Apple • Generally extension/standardization strategies are utilized more frequently with industrial (business to business) products than with consumer products because industrial tend to be less deeply routed in culture o Strategy 2: Product Extension, Communication Adaptation: same product or brand is sold in multiple country markets, but with some modification of the communication strategy (product itself is unchanged, low cost of implementation) • Ex: Ben & Jerry's homemade changed color packaging in the UK o Strategy 3: Product Adaptation-Communication Extension: adapting the product to local use or preference conditions, while extending (with minimal change) the basic home-market communications strategy • Ex: Kraft Foods Oreos in China, changed product but same advertising o Strategy 4: Product-Communication Adaptation (Dual Adaptation): both the product and one or more promotional elements are adapted for a particular country or region o Strategy 5: Innovation: when potential customers have limited purchasing power, a company ay need to develop an entirely new product designed to address the market opportunity at a price point that is within the reach of the potential consumer

Requirements for export marketing

• An understanding of the target market environment • The use of market research and identification of market potential • Decisions concerning product design, pricing, distribution channels, advertising, and communications (the marketing mix)

Disadvantages of contract manufacturing*

• Companies may open themselves to public scrutiny and criticism if workers in contract factories are poorly paid or labor inhumane circumstances

Advantages of contract manufacturing*

• Licensing firm can specialize in product design and marketing, while transferring responsibility for ownership or manufacturing facilities to contractors and subcontractors • Limited commitment of financial and managerial resources and quick entry into target countries

Disadvantages of licensing*

• Limited market control • Returns may be lost • The agreement may be short-lived • Licensee may become competitor • Licensee may exploit company resources

Advantages of joint ventures*

• Limits financial risk as well as exposure to political uncertainty (shared risk) • Can be used to learn about a new market environment • Allows partners to achieve synergy by combining different value-chain strengths • May be the only way to enter a country or region if government bid award practices routinely favor local companies, import tariffs are high, or laws prohibit foreign control

Disadvantages of joint ventures*

• Must share rewards as well as risks • Coordination costs arise when working with a partner • Potential conflict between partners—cultural differences • Dynamic joint venture partner can evolve into a strong competitor

Advantages of licensing*

• Provides additional profitability with little initial investment • Provides method of circumventing tariffs, quotas, and other export barriers • Attractive ROI • Low costs to implement • Licensees have autonomy to adapt products to local tastes • License agreements should have cross-technology agreements to share developments and create competitive advantage for each party