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Chapter 11 Global Marketing Management Planning and Organization McGraw-Hill/Irwin International Marketing, 13/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Learning Objectives • How global marketing management differs from international marketing management • The increasing importance of international strategic alliances • The need for planning to achieve company goals • The important factors for each alternative marketentry strategy 11 - 3 Global Perspective Global Gateways • Confronted with increasing global competition for expanding markets, multinational companies are changing their marketing strategies and altering their organizational structure. • A recent study of North American and European corporations indicated that nearly 75% of the companies are revamping their business processes. • The flexibility of a smaller company may enable it to reflect the demands of global markets and redefine its programs more quickly than larger multinationals. 11 - 4 Global Marketing Management • • • • • • • • • 1970s – “standardization versus adaptation” 1980s – “globalization versus localization” 1990s – “global integration versus local responsiveness” COKE& Thump up in India The trend back toward localization is caused by the new efficiencies of customization made possible by the Internet and increasingly flexible manufacturing processes. Dell mass customization – build to order From the marketing perspective customization is always best. Barbie vs. Disney (Mulan and Jasmine) As global markets continue to homogenize and diversify simultaneously, the best companies will avoid the trap of focusing on country as the primary segmentation variable – Climate, Language group, Age, Income, Media Habit ... Gucci & Ferrari sell to the highest income globally- Sale in US greater than in Italy 11 - 5 The Nestle Way: Evolution Not Revolution Poland Story – Milk & Chocolate • International since 1866 – infant formula • 8500 products in 489 factories in 193 countries • Nestle is the world’s biggest marketer of infant formula, powdered milk, instant coffee, chocolate, soups, and mineral water. • Sold in upscale supermarkets in Beverly Hills & huts in Nigeria • Nestle strategy to dominate markets summarized in 4 points: - Think and plan long term. Decentralize. Stick to what you know - Adapt to local tastes • Long-term strategy works for Nestle because the company relies on local ingredients and products that consumers can afford. • Ice cream in Dubai, soups& cereals in KSA, yogurt& water in Egypt, Chocolate in Turkey, and ketchup & noodles in Syria. 11 - 6 Benefits of Global Marketing • When large market segments can be identified, economies of scale in production and marketing can be important competitive advantages for global companies. Black& Decker and Ford (unifying product development, purchasing& supply activities) • Transfer of experience and know-how across countries through improved coordination and integration of marketing activities. • Unilever Impulse body spray RSA & Europe hard water detergent. • Marketing globally also ensures that marketers have access to the toughest customers (Japanese) • Diversity of markets served carries with it more financial benefits. • Firms that market globally are able mitigate financial crisis and to take advantage of changing financial circumstances. 11 - 7 Planning for Global Markets • Planning is the job of making things happen that might not otherwise occur. An attempt to manage internal & external factors. • Planning allows for rapid growth of the international function, changing markets, increasing competition, and the turbulent challenges of different national markets. • Planning relates to the formulation of goals and methods of accomplishing them, so it is both a process and philosophy. - Corporate planning - Strategic planning - Tactical planning • Successful planning is evaluating company objectives, including management’s commitment and philosophical orientation to international business. A primary medium for organization learning. 11 - 8 Planning for Global Markets (cont’d) • Company objectives and resources - Each new market can require a complete evaluation, including existing commitments, relative to the parent company’s objectives and resources. - Defining objectives clarifies the orientation of the domestic and international divisions, permitting consistent policies. • International commitment (Are we up to it?) - Commitment in terms of: • Dollars to be invested • Personnel for managing the international organization • Determination to stay in the market long enough to realize a return in investments. - The degree of commitment to an international marketing cause reflects the extend to a company’s involvement 11 - 9 The Planning Process • Phase 1: Preliminary Analysis and Screening – Matching Company and Country Needs. • Phase 2: Adapting the Marketing Mix to Target Markets. • Phase 3: Developing the Marketing Plan • Phase 4: Implementation and Control • Radio Shack going to Europe - Christmas and St. Nicholas in Holland Citizen-Band radios banned in Europe Flash light giveaways violate German sales law Tax stamp for window sign in Belgium Poorly selected stores’ sites 11 - 10 International Planning Process • Insert Exhibit 11.1 11 - 11 Alternative Market-Entry Strategies • An entry strategy into the international market should reflect on analysis of market characteristics such as: - Potential sales - Strategic importance - Strengths of local resources - Cultural differences - Country restrictions • Company capabilities and characteristics. • A company has four different modes of foreign market entry from which to select: - Exporting - Contractual agreements - Strategic alliances - Direct foreign investments 11 - 12 Alternative Market-Entry Strategies • Insert Exhibit 11.2 11 - 13 Exporting • Exporting accounts for some 10% of global activity. • Direct exporting - the company sells to a customer in another country. • Indirect exporting – the company sells to a buyer (importer or distributor) in the home country, who in turn exports the product. • The Internet - Initially, Internet marketing focused on domestic sales, however, a surprisingly large number of companies started receiving orders from customers in other countries, resulting in the concept of international Internet marketing (IIM). • Direct sales - Particularly for high technology and big ticket industrial products. 11 - 14 Contractual Agreement • Contractual agreements are long-term, nonequity association between a company and another in a foreign market. • Licensing e.g. Pharmaceuticals - A means of establishing a foothold in foreign markets without large capital outlays. - A favorite strategy for small and medium-sized companies. - Legitimate means of capitalizing on intellectual property in a foreign market. - Least profitable but lower risk than DFI - Risk of choosing the wrong partner. 11 - 15 Contractual Agreement (continued) • Franchising - Franchiser provides a standard package of products, systems, and management services, and the franchise provides market knowledge, capital, and personal involvement in management. - Despite temporary setbacks , franchising is still expected to be the fastest-growing market-entry strategy. - A blend of skill centralization and operational decentralization. - Two types of franchise agreements: • Master franchise – gives the franchisee the rights to a specific area with the authority to sell or establish subfranchises.Mcdonald • Licensing a local franchisee for a fee e.g. Coke – car rental 11 - 16 Strategic International Alliances • A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective • SIAs are sought as a way to shore up weaknesses and increase competitive strengths. E.g. Airlines • Firms enter SIAs for several reasons: - Opportunities for rapid expansion into new markets - Access to new technology - More efficient production and innovation - Reduced marketing costs - Strategic competitive moves - Access to additional sources of products and capital • Many companies also are entering SIAs to be in strategic position to be competitive and to benefit from the expected growth in the single European market. 11 - 17 Strategic International Alliances (continued) • International Joint Ventures - A joint venture is a partnership of two or more participating companies that have joined forces to create a separate legal entity. Different from minority holdings by MNC in local firm. - Four Characteristics define joint ventures: • JVs are established, separate, legal entities • The acknowledged intent by the partners to share in the management of the JV • There are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals • Equity positions are held by each of the partners 11 - 18 Strategic International Alliances (continued) • Consortia - Consortia are similar to joint ventures and could be classified as such except for two unique characteristics: • They typically involve a large number of participants • They frequently operate in a country or market in which none of the participants is currently active. - Consortia are developed to pool financial and managerial resources and to lessen risks. - E.g. Airbus four partners : Aerospatiale Matra (France) – Dasa aerospace DM (Germany) – BAE systems (Britain) – Spain’s Constructiones ( Spain) 11 - 19 Building Strategic Alliances • Insert Exhibit 11.3 11 - 20 Direct Foreign Investment • Factors that have been found to influence the structure and performance of direct investments: - Timing The growing complexity and contingencies of contracts Transaction cost structures Technology transfer Degree of product differentiation The previous experiences and cultural diversity of acquired firms - Advertising and reputation barriers 11 - 21 Organizing for Global Competition • Because organizations need to reflect a wide range of companyspecific characteristics, devising a standard organizational structure is difficult. • Companies are usually structured around one of three alternatives: - Global product divisions responsible for product sales throughout the world - Geographical divisions responsible for all products and functions within a given geographical area - A matrix organization consisting of either of these arrangements with centralized sales and marketing run by a centralized functional staff, or a combination of area operations and global product management 11 - 22 Organizing for Global Competition (cont’d) • Locus of decision - Considerations of where decisions will be made, by whom, and by which method constitute a major element of organizational strategy. • Centralized versus decentralized organizations - An infinite number of organizational patterns for the headquarters activities of multinational firms exist, but most fit into one of three categories: • Centralized • Regionalized • Decentralized • No single traditional organizational plan is adequate for today’s global enterprise seeking to combine the economies of scale of a global company with the flexibility and marketing knowledge of a local company. 11 - 23 Schematic Marketing Organization Plan Combining Product, Geographic, and Functional Approaches • Insert Exhibit 11.4 11 - 24 Summary • To keep abreast of the competition and maintain a viable position for increasingly competitive markets, a global perspective is necessary. • Cost containment, customer satisfaction, and a greater number of players mean that every opportunity to refine international business practices must be examined in light of company goals. • Collaborative relationships, strategic international alliances, strategic planning, and alternative market-entry strategies are important avenues to global marketing that must be implemented in the planning and organization of global marketing management. 11 - 25