Transcript Khon Kaen University International College International

Khon Kaen University International College
International Product and Pricing Strategy
Course number 052 201 - First semester 2013
Mondays at 9:00 in room 822
Lecturer: Michael Cooke
office room 817
E-mail: [email protected]
Web: KKU.AC.TH/Michco
Top 10 Exporters and Importers in
World Merchandise Trade, 2008
Copyright (c) 2009 John Wiley & Sons, Inc.
Merchandise trade: leading exporters and importers, 2011 (WTO)
Rank
Exports
Value
Rank
Imports
Value
1
China
1,899
1
USA
2,265
2
USA
1,481
2
China
1,743
3
Germany
1,474
3
Germany
1,254
4
Japan
823
4
Japan
854
5
Netherlands
660
5
France
715
6
France
597
6
United Kingdom
636
7
South Korea
555
7
Netherlands
597
8
Italy
523
8
Italy
557
9
Russia
522
9
South Korea
524
10
Belgium
476
10
Hong Kong (with re-exports)
511
11
United Kingdom
473
11
Canada
462
12
Hong Kong (with re-export)
456
12
Belgium
461
13
Canada
452
13
India
451
14
Singapore (with re-export)
410
14
Singapore (with re-exports)
366
15
Saudi Arabia
365
15
Spain
362
16
Mexico
350
16
Mexico
361
17
Taiwan
308
17
Russia
323
18
Spain
297
18
Taiwan
281
19
India
297
19
Australia
244
20
UAE
285
20
Turkey
241
21
Australia
271
21
Brazil
237
22
Brazil
256
22
Thailand
228
World
18,215
World
18,380
Financial Environments
Trade data from: https://www.cia.gov/library/publications/the-world-factbook/rankorder/rankorderguide.html
 Intra-company trade far exceeds international trade
 Multinationals often produce in the local country
 Close to markets, fewer import barriers, less currency risk
 Exports and imports are very important to some economies
 Singapore 2012 exports (14) $410bb=$77K/person ($224bb domestic
exports in 2011=$42K/person)
 Thailand 2012 exports (26) $226bb=$3.4K per capita
 Differing economic strategies among countries
 For USA and Japan international trade smaller % of GDP
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Role of overseas subsidiaries
Global reach versus exports – the Japanese have long been investors
 China and Germany have export driven economies
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German mid-sized companies drive exports (high skill)
China’s exports evolving to higher skills content
 India ($0.25K per capita, < 1% gdp) and Brazil ($1.2K per capita, < 1%
gdp) rely relatively little on exports or overseas subsidiaries
Foreign Direct Investment (FDI)
 A firm invests in facilities in a foreign country
 Locate production within a market
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Alternative to exporting
Global reach of firms - does not show in trade statistics
 Often with incentives from local or national governments
 Foreign direct investment may be reciprocal or contingent on sales
 We will return to FDI in the political context
 Foreign direct investment has been rapidly increasing and in 2007,
the inflow of FDI peaked at over $1.83 (note Japanese
manufacturing investment in Thailand since 1985)
 As populations age in some developed countries, FDI is a means of
investing in abundant working age labor
 Scarce labor and high wages in the home country
 Large working age populations in developing countries
 Japan has been the largest direct investor since the late 1980s
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The US dollar is the most common reserve
currency
◦ Oil and many other commodities are traded in dollars
◦ Easily converted nearly anywhere in the world
◦ An artifact from post WWII when US dollar was the only
strong currency
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Euro is relatively new, sometimes considered an
alternative to the dollar
Japanese yen is important because of Japan’s role
in the world economy
Chinese yuan is not widely used outside China
due to restrictions - this could quickly change
◦ In a fixed exchange system the local currency is pegged to
another currency
 Hong Kong Dollar pegged to US dollar
 No exchange risk in trade between the two countries
 Requires financial intervention by the Hong Kong government
◦ Basket of currencies approach
 Singapore Dollar managed against several currencies
 Chinese Yuan thought to be managed against a basket
 Not tied to the fortunes of one foreign currency
◦ Variable (floating) exchange rates
 Pose exchange risks for importers and exporters
 Rates are an extremely important factor for international trade
 Difficult or impossible to predict in the short term
 Governments may intervene in the float without warning to
protect exports or guard against inflation
 Marketing coordinates with finance to manage the trade risks
◦ Barter might be used where countries impose rigid FX controls
(USSR) or where local currencies are worthless
Implications of variable exchange rates
When US dollar weakens versus the Japanese yen
 Goods exported from Japan to USA become more
expensive in USA
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Company purchasing equipment made in Japan would pay more
in US dollars for the same product
Banks will agree to a forward rate, locking in the current rate to a
future period
 Japanese companies might choose to relocate
manufacturing facilities to USA as the yen rises
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Wages and locally sourced materials in same currency as sales
Profits from US subsidiaries lower in yen terms
Foreign exchange losses on parts imported from Japan
May borrow local currency for the investment
The Thailand example, 1997-1998
Nominal Exchange Rate (to the US Dollar). Period average
Korea
Indonesia
Malaysia
Phillippines
Singapore
Thailand
Hong Kong
China
Taiwan
1994
1995
1996
1997
803
2160.8
2.62
26.42
1.53
25.15
7.73
8.62
26.46
771
2248.6
2.5
25.71
1.42
24.91
7.74
8.35
26.49
804
2342.3
2.52
26.22
1.41
25.34
7.73
8.31
27.46
951
2909.4
2.81
29.47
1.48
31.36
7.74
8.29
28.7
Sources: Columbia University and IMF
1997f
1695
4650
3.89
39.98
1.68
47.25
7.75
8.28
32.64
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Exports became cost competitive in world markets
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Imports and foreign travel for Thai people became more expensive
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Thailand’s tourism industry gained
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Multinational in-country company response to the crisis
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As exports grow, the inflow of foreign currencies caused baht to
gain over time
◦ How would a Japanese manufacturer with operations in Thailand and Japan
respond to a 50% devaluation of the baht?
◦ Thai products became cheaper relative to countries that did not devalue
◦ Note: Some commodities such as rubber and oil are traded worldwide in $US
◦ Airlines chose to base fares to and from BKK in Thai baht
◦ Tourists perceived ‘value for money’ in Thailand, with services and local
products in Thai baht
◦ Emphasize product value as cost of imported products rise
◦ Change the product mix or package size (cheaper, smaller)
◦ Increase local procurement (use Thai goods rather than use imports)
PPP (Purchasing Power Parity)
 Currency can be under or overvalued relative to another
 Much of what people buy is not sold between countries
 Services and real property usually are not traded across
borders
 PPP is an estimate of real purchasing power
 When Thai baht were officially 55-1 dollar
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Currency undervalued
Thai economy looked small in dollar terms
But Thai people could buy Thai products and services
In PPP terms the Thai economy was larger than in $ terms
 In theory, currency nominal value will eventually = PPP
 Currently, W Europe overvalued, many Asian currencies
(excl Japan) undervalued
Worlds largest economies (2011)
Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/rankorderguide.html
GDP (purchasing power parity)
GDP (nominal exchange rates)
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1 European Union$ 15,390,000,000,000
2 United States $ 15,040,000,000,000
3 China
$ 11,290,000,000,000
4 India
$ 4,463,000,000,000
5 Japan
$ 4,389,000,000,000
6 Germany
$ 3,085,000,000,000
7 Russia
$ 2,380,000,000,000
8 Brazil
$ 2,282,000,000,000
9 United Kingdom $ 2,250,000,000,000
10 France
$ 2,214,000,000,000
11 Italy
$ 1,822,000,000,000
12 Mexico
$1,761,000,000,000
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1 European Union
2 United States
3 China
4 Japan
5 Germany
6 France
7 Brazil
8 UK
9 Italy
10 India
11 Russia
12 Canada
$ 17,720,000,000,000
$ 15,040,000,000,000
$ 6,989,000,000,000
$ 5,855,000,000,000
$ 3,629,000,000,000
$ 2,808,000,000,000
$ 2,517,000,000,000
$ 2,481,000,000,000
$ 2,246,000,000,000
$ 1,843,000,000,000
$ 1,791,000,000,000
$ 1,735,000,000,000
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25 Thailand
26 South Africa
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30 South Africa
33Thailand
$
$
$ 601,400,000,000
$ 554,600,000,000
422,000,000,000
339,000,000,000
Leading Emerging Economies in 2008
Chapter 2
Copyright (c) 2009 John Wiley & Sons,
Inc.
BRICS Countries
 Acronym BRIC is a recent term
 Developing countries Brazil, Russia, India, China
 Economist at Goldman Sacs invented the term in 2001
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Prediction that the BRIC countries would overtake Western
economies by 2032
Based on relatively high GDP and growth rates at the time
 South Africa added in 2010 to create BRICS
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BRIC summit meeting in 2009
SA lobbied to join the grouping
Far smaller GDP and population than the others
Why not Turkey?
 High GDP (17th in the world) and 17th biggest population
 High GDP growth rate (5% in 2011) and growing population
 GDP growth rates can vary over short periods of time
 Brazil’s fell from 7.5% to 1.3% between 2010 and 2012
 China’s growth rate remains high at 7.8% (10.4% in 2010)
Will the BRICS Idea become Irrelevant?
 Russia has a natural resources economy and declining population (low birthrates and low male
life expectancy)
 South Africa has low GDP growth rate, declining population, and very high income inequality
(2nd highest in the world)
 Brazil’s GDP and population growth rates are slowing, roughly equal to developed countries
 China’s working age population will start to decline in 2015
 Currently world’s largest labor force, by far
 Thailand’s labor force 40MM equal Philippines in 2012 but Philippines population is 38MM higher.
How is this possible? Implications for the future? We will cover this in segmentation.
 Assume future opportunities will differ from today
 Japan’s economy looked invincible in 1989
 Working age population peaked around 1991
 Japan’s lost 2 decades largely due to demographics (fewer workers relative to total population)
 When China joined the WTO in 2001, the economy was smaller than UK, Germany, or Japan
 SE Asian countries have 620MM people
 More people than Russia, Brazil, and SA combined and faster growth
 ASEAN has two of the world’s wealthiest per capita countries as well as several of the poorest
 Indonesia has the fourth largest labor force and the 15th biggest economy. The economy has steady
6% growth.
 Will political stability last?
 Mexico and Turkey each have large GDP (at PPP)
Cultural Issues and Buying Behavior
 Cultures are learned and shared perceptions
 Buyer behavior and consumer needs are largely driven by cultural
norms.
 How people process information differs among cultures
 Purchase motivations are influenced by culture
 Global business means dealing with consumers, strategic partners,
distributors, and competitors with different cultural mindsets.
 Culture is a main factor in choosing marketing programs
 Failure to identify cultural issues can be costly (thin diapers in Japan)
 Opportunities may reside where competitors ignore cultural norms
 Changes in cultural indicators may offer marketing opportunities
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Material life
◦ Production, distribution, and consumption of goods and services
◦ Distribution and technology differences affect marketing
 Companies seek innovative ways to reach rural customers
 Lack of electricity, bandwidth (Nokia) or refrigeration in some parts of the world
◦ Technology transfer is often requested by host countries (and often refused)
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Language
◦ Spoken (sounds and symbols)
◦ Silent communication
 Non-verbal signals, such as space and time
 Spirit of a contract versus explicit wording
◦ Differences may exist within a language
 American English versus British English (Snickers and knickers)
 A country may have several languages and more dialects (Philippines)
◦ Ways to communicate among non-native English speakers:
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Use simple words
Avoid idioms
Express one idea in each sentence
Avoid cultural references (such as to popular entertainment)
Try to understand the other person’s accent
Blunders of translation are common either direction
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Back-translation can help avoid problems (ask the listener to repeat back what was said)
This is useful even among native speakers, such as when giving instructions to tech staff.
◦ Marketers often adapt brands and company names to local markets
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Social Interaction
◦ Family structure
 nuclear family typical in western countries = parents and children
 extended family - role in major purchase decisions
◦ Attitudes toward marriage and role expectations differ
◦ Role of reference groups
 Especially important for status goods
 Dissociative groups (want to avoid associating product with certain groups)
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Aesthetics (ideas and perceptions of beauty and good taste)
◦ Food preferences – such as balut (regional within Philippines)
◦ Aesthetics role in product visuals (even human models differ)
Religion – can affect buying motives (taboos and rituals)
Education – a way of transmitting culture across generations
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Level and quality of education affects marketing decisions
Literacy affects ads and labels
Does education meet business needs?
Asians tend to see multiple perspectives
Value System (norms influence attitudes behaviors)
◦ Cultures differ in attitudes toward change
◦ Values resist change
◦ Dentsu is a Japanese advertising agency (Figure 4-2)
Exhibit 4-2: Dentsu Lifestyle Survey
Chapter 4
Copyright (c) 2007 John Wiley & Sons, Inc.
Cross-Cultural Comparisons 1
 Cultures share certain characteristics.
Differences may exist within a nation or a
region while similarities might be regional
in nature.
 Classifications of culture help marketing
identify where programs need to differ.
 When entering a new market, a global
company will typically engage or hire a
local marketing specialist.
 Two cultural classification schemes follow.
Cross-Cultural Comparisons 2
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High and low context culture refers to how messages are interpreted (Edward Hall)
 For high-low context as it applies to marketing see Kawpong Polyorat’s article in KKU
Research Journal 2011; 10(2):173-183
 In high-context cultures people look at the context of a thing or a message. Context
can include the nature of the relationship (balance of power, etc) between sender and
receiver, time, and location. Relationships are important.
 In low-context cultures people focus on the object or on the explicit words. Context of
communication has little value. (Can rotate sales staff in a low context culture.)
 Members of high and low context cultures differ in how they process information
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High context (Far East) individuals look at the background of an object
Low context (West) tend to focus on an object and ignore the background
Products characteristics may moderate cultural influence
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Hedonic or value-expressive products (consumed for pleasure) require context (for feelings)
Utilitarian products (consumed for functional use) require clear and specific messages
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The use of ambiguous, emotional and visual communication is consistent with high-context
communication (Polyorat)
Thailand has high context culture (emotional and cultural themes in advertising)
Hofstede’s classification schemes – unlikely to predict buyer behavior
 Power distance – high power distance societies tolerate social inequality, value status symbols
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Low power distance countries include the USA. High includes India.
Power distance as expressed through status symbols may differ with time and within a society
Power distance may have implications within a global company (management styles)
Uncertainty avoidance – rules and formality help avoid uncertainty (JPN high, HKG low)
Adapting to Cultures
 Global marketers need to become sensitive to cultural
biases that influence their thinking, behavior, and decision
making.
 Self-reference criterion (SRC) is an often unconscious
tendency interpret a business situation in the context of
one’s own culture and experience.
 Ethnocentrism refers a feeling of cultural superiority.
 Means for global companies to overcome ethnocentrism:
 Put local people in local markets (Non-natives have cultural habits
they can not overcome)
 Choose managers willing to accept they will not be as competent as
in their own environment
Chapter 4
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Local culture can present barriers or opportunities for success of
international marketing.
Product Policy:
Food, beverages, and clothing products tend to be limited to a specific
culture
Electronics products tend to be less culture-bound
Some products (and advertisements) might be banned within a culture
Product names take different meanings (Kit Kats before exams in Japan)
Product opportunities may come from cultural differences (skin whitener)
Pricing:
Willingness to pay varies across cultures, depending on product category
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High price may signal quality
High price may signal gouging
Prices ending in 8 are often the norm in Chinese culture
Distribution strategies:
Face to face contact sought in some countries works against internet sales
Cultural norms around retailing (German men interpret sales staff smiles as flirting –
what happens when they come to the Land of Smiles?))
Availability of cheap labor in some congested cities makes home delivery an option
Promotion:
Cultures influences communication strategy
High context cultures respond better to indirect communication
Low context advertising tends to use facts and reasoning
Cultural events, such as religious holidays, present opportunities
Problem avoidance or benefits to be gained from the product? Approach varies by culture
Country of origin appeals vary by culture and product
World Trade Agreements
 Post WWII General Agreement on Tariffs and Trade (GATT)
 Nations met to discuss mutually reductions in trade barriers
 Normal Trade Relations (MFN) status countries would extend trade agreements to all
members of GATT
 Many nations used non-trade barriers to limit imports
 Intellectual property was not addressed
 World Trade Organization (WTO) 1995 came out of GATT talks in the early 1990s.
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Functions to ensure trade flows freely and predictably
Textiles and many agricultural products included
Provisions for services and intellectual property
Emerging economies are generally allowed higher tariffs than developed countries
Violations frequently occur due to country politics
Formal dispute settlement mechanism (unlike GATT)
WTO continues to evolve
 China admitted in Dec 2001
China won favored treatment (asymmetric trade protection) as an emerging economy
 Intent was to protect certain industries in a poor economy, allowed higher maximum tariffs
 China imposes taxes on imported autos such that a Jeep Grand Cherokee that begins at $28,120 at
dealerships in the United States costs $85,000 or more in China
 Now the world’s largest auto manufacturer
 Foreign firms are no longer required to hand over technology in exchange for entry to China's market
 China becomes world’s biggest recipient of FDI
 Intellectual property treatment evolves with TRIPS (protects access to medicine)
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WTO and Emerging Economies
 Many foreigners prospered from
access to Chinese markets. An
academic study found American
foreign direct investment reaps
returns of 13.5% in China,
versus 9.7% worldwide.
 China imposes lower tariffs on
average than Brazil or India. The
gap between what it can charge,
under WTO rules, and what it
does charge is also small.
 Unlike its peers, China could
not raise tariffs much even if it
wanted to (see chart). *
* http://www.economist.com/node/21541448
Regional Trade Agreements
 Free Trade Areas operate under agreements to reduce tariff and non-
tariff barriers between member countries
 Usually include local content rules to prevent gaming of different tariff
rates to external countries
 Local content laws require a certain percentage of a product must be
sourced locally for the product to be considered domestic
 Local content encourages manufacturers to set up operations within area
 Without local content laws goods would flow into the country with the lowest
external tariff rate
 NAFTA (Canada, Mexico, USA)
 Common Market – eliminates all tariffs and other barriers to trade
between member states
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Restrictions on the flow of capital and labor are removed
All member states have common external tariffs
European Economic Community
Eventually ASEAN
For next session
 Skim M&H chapter 5
 Read at least one of the articles cited in the syllabus