3.5. Globalisation and international marketing

Question 1

Define economic globalisation

Answer 1

the increasing economicintegration and interdependence of national, regional, and local economies across the world through an intensification of cross-border movement of goods, services, technologies and capital.

Question 2

Benefits of economic globalisation (5)

Answer 2

• Greater opportunity for entering new markets, especially when domestic markets are saturated => higher sales, economies of scale
• Pan global marketing strategies can be used to create a global brand identity
• Increased competition gives firms incentives to improve quality
• Wider choice of locations
• Possible cheaper labour costs

Question 3

Limitations of economic globalisation (6)

Answer 3

• The drive for international competitivenes might wipe out some businesses that operate on a local/national level
• Pan globalisation strategies can fail to consider the cultural and taste differences between consumers of different nations
• Communication/legal problems due to language barrier, differencce in cultures and laws/regulations
• Businesses are now increasingly at risk of foreign takeovers
• Increasing activity of anti-globalisation pressure groups may result in bad publicity of multinationals (environmental concerns)
• Governments will have less influence on business decisions

Question 4

Define international marketing

Answer 4

Selling products in markets other than the original domestic market

Question 5

Why sell products in other countries? (5)

Answer 5

• Saturated home markets
• Profits - rapid sales growth may be combined with low costs operation
• Spreading risks - sales and profits of a business are mich less dependent on economic and legal constraints in the home country
• Decrease in trade barriers, more international free trades
• Access to more potential consumers

Question 6

Why international marketing is different?

Answer 6

• Political differences
• Economic and social differences
• Legal differences
• Cultural differences
• Differences in business practices

Question 7

Political differences

Answer 7

Changes of governments can cause instability in some countries and this can increase the risk of doing business there. Acts of terrorism or threats of civil violence, which might lead to destruction of a company’s assets, will all add to the problems of marketing abroad.

Question 8

Cultural differences

Answer 8

• often difficult to define and measure
• can exercise as powerful an impact on people’s behaviour
• failure to recognise cultural and language differences can have a disastrous effect on a firm’s marketing strategy. e.g. use of male and female models in advertisements would not be acceptable in some countries with strong religious traditions

Question 9

Economic and social differences

Answer 9

Location decisions about a firm’s marketing activities will need to take this into account as well as differences in tax rates, interest rates and the age structure of the population.

Question 10

Legal differences

Answer 10

• Some goods, such as guns, can be sold in the USA, but are illegal in other countries.
• It is illegal to advertise directly to children below the age of 12 on Swedish TV – and there are other restrictions in other countries.
• Other countries outlaw the targeting of junk food commercials or pharmaceutical medicines.
• Product safety and product labelling controls are much stricter in the European Union (EU) than in some African states.

Question 11

Differences in business practices

Answer 11

Accounting standards and rules can vary in different parts of the world. The ease of setting up a limited company varies widely – it can take a few days in the UK, yet the formalities and form filling can exceed one year in Sierra Leone.

Question 12

Key methods for entering international markets (8)

Answer 12

• Exporting
• International franchising
• E-commerce
• Joint ventures
• Strategic alliances
• Acquisitions and takeovers
• Licensing
• Direct investment in subsidiaries

Question 13

Exporting

Answer 13

Exporting can be undertaken either by selling the product directly to a foreign customer – perhaps the order has been placed via the company website – or indirectly through an export intermediary, such as an agent or trading company based in the country.

Question 14

Benefits of exporting directly (3)

Answer 14

• Has complete control over the international marketing of the product
• Agents and traders may represent several other companies exporting goods => gives no priority
• No commission is taken by intermediaries

Question 15

Limitations of exporting directly (3)

Answer 15

• Business will have to dedicate sales personnel dealing with foreign buyers and company management may have to travel abroad to meet customers
• Lack important local knowledge due to lack of local agent/trader
• Exporting business has to handle the logistics of transporting and storing the product

Question 16

International franchising

Answer 16

International franchising means that foreign franchisees are used to operate a firm’s activities abroad. This can either take the form of one foreign company being used as a franchisee for all the branches in their own country or individual franchisees are appointed to operate each outlet.

Question 17

Joint ventures/Strategic alliances

Answer 17

These are agreements between at least two companies to own and operate a new business venture. No new business is formed and control is shared.

Question 18

Takeovers

Answer 18

A business will buy a controlling stake in a company that already operates in the country of interest

Question 19

Licensing

Answer 19

• A licensor (i.e. the firm with the technology or brand) can provide their products, services, brand and/or technology to a licensee via an agreement.
• allowing the licensor affordable and low risk entry to a foreign market while the licensee can gain access to the competitive advantages and unique assets of another firm.
• This is potentially a strong win-win arrangement for both parties, and is a relatively common practice in international business.
• e.g. The licensor is a company involved in energy health drinks. Due to food import regulations in Japan, the licensor cannot sell the product at local wholesalers or retailers. In order to circumvent this strategic barrier, the licensor finds a local sports drink manufacturer to license their recipe to. In exchange, the licensee sells the product locally under a local brand name and kicks back 15% of the overall revenues to the licensor.

Question 20

Direct investment in subsidiaries

Answer 20

• A partially or wholly owned company that is part of a larger corporation with headquarters in another country. Foreign subsidiary companies are incorporated under the law’s of the country it is located.
• Company-owned subsidiaries in foreign countries can achieve higher success rates than taking over or merging with locally based companies.
• Business cultures, organisational structures and tech differences between the company and the locally acquired business can often present obstacles too great to be overcome
• e.g. Toyota in the EU and South America

Question 21

Benefits of foreign subsidiaries (3)

Answer 21

• Head office has control of operations and may decide to decentralise this control to allow local manager to take decisions that reflect local decisions
• All profits after tax belong to the company - no commission or sharing of profits
• Foreign gov may be willing to offer some financial support

Question 22

Limitations of foreign subsidiaries (3)

Answer 22

• Expensive to set up operations in foreign countries - senior staff will need to visit and may need to be based in the country, can be more expensive than exporting
• Foreign operations may be subject to changes in government policy
• Decentralised foreign subsidiaries might take decisions that could damage reputation of whole business

Question 23

Define pan-global marketing

Answer 23

adopting a standardised product across the globe as if the entire world were a single market - selling the same goods in the same way everywhere

Question 24

Advantages of pan-global marketing (3)

Answer 24

• A common identity for the product can be established => aids consumer recognition
• Cost reduction can be substantial since there are economies of scale. One marketing strategy to be used for the whole world or region
• Recognises that differences between consumers in different countries are reducing

Question 25

Disadvantages of pan-global marketing (4)

Answer 25

• Might be still necessary to develop different products to suit cultural/religious variations
• Legal restrictions can vary between countries and this does not apply just to product restrictions
• Brand names fo not always translate effectively into other languages
• Setting the same price will fail to take into account different average income levels

Question 26

Define global localisation

Answer 26

adapting the marketing mix, including diffrentiated products, to meet national and regional tastes and cultures

Question 27

Benefits of global localisation (4)

Answer 27

• Local needs, tastes and cultures are reflected in the marketing mix => higher sales and profits
• No attempt to impose foreign brands/products/advertisements on regional markets
• The products are more likely to meet local national legal requirements
• Less local opposition to multinational business activity

Question 28

Limitations of global localisation (3)

Answer 28

• The scope for economies of scale is reduced
• The interational brand could lose its power and identity if locally adapted products become more popular
• Additional costs of adapting products - adverts, store layouts to specific local needs