Figure 1-2 in International Marketing Tenth Edition
Chapter 1: Introduction To Global Marketing
Chapter Objectives
Structure Of The Chapter
The evolution of global marketing
The international economic system
Impetus to global marketing involvement
Planning to meet the opportunities and challenges of global marketing
Framework for international analysis
Product life/market life cycle
Chapter Summary
Key Terms
Review Questions
Review Question Answers
References
A look at the appropriate figures, (for example The World Development Report by the World Bank) will indicate that the world is becoming increasingly interdependent for its economic progress. In 1954, in the USA, for instance, imports were only one percent of GNP, but in 1984 they had risen to 10%. In food crops, while developing countries trade in coffee, cocoa, cotton and sugar actually declined in value during the 1980s, developing countries as a group experienced annual export growth rates of 4 to 11% in categories like processed fruit and vegetables, fresh processed fish products, feed stuffs and oil seeds. High value food product exports in 1990 totalled approximately $144 billion, the same as crude petroleum, representing 5% of world commodity trade. In 1990, more than twenty Less Developed Countries (LDCs) had exports of high value foods exceeding $500 million including countries like Brazil, China, Thailand, India and Senegal.
Terms such as "global village" and "world economy" have become very fashionable. Marketing goods and services on a global scale can happen in an "engineered" way, but often it is as a result of good and meticulous planning. For example, in order to stave off potential famine, the United Nation's World Food Programme (WFP) may purchase maize from Zimbabwe and distribute it in Tanzania, Malawi and Kenya. This "engineered" international marketing transaction may benefit Zimbabwe, without Zimbabwe having to prospect markets. Most international transactions are not like this. Most are clearly planned, involving meticulous attention to global social and economic differences and/or similarities in product, price, promotion, distribution and socio/economic/legal requirements.
Chapter Objectives
The objectives of this chapter are:
· To provide an understanding of the factors which have led to the growth of internationalism and globalisation· To produce a description of the major concepts and themes on which the subject of global marketing is based
· To describe what is involved in planning for global marketing.
Structure Of The Chapter
The chapter starts by looking at the evolution of a firm's orientation from primarily a domestic producer to a global player. It then goes on to describe the major factors that have led to global marketing, including both economic and social. Finally the chapter examines the planning mechanism necessary to take account of important differences and/or similarities when marketing goods and services internationally.
The evolution of global marketing
Whether an organisation markets its goods and services domestically or internationally, the definition of marketing still applies. However, the scope of marketing is broadened when the organisation decides to sell across international boundaries, this being primarily due to the numerous other dimensions which the organisation has to account for. For example, the organisation's language of business may be "English", but it may have to do business in the "French language". This not only requires a translation facility, but the French cultural conditions have to be accounted for as well. Doing business "the French way" may be different from doing it "the English way". This is particularly true when doing business with the Japanese.
Let us, firstly define "Marketing" and then see how, by doing marketing across multinational boundaries, differences, where existing, have to be accounted for.
S. Carter defines marketing as:
"The process of building lasting relationships through planning, executing and controlling the conception, pricing, promotion and distribution of ideas, goods and services to create mutual exchange that satisfy individual and organisational needs and objectives".
The long held tenants of marketing are "customer value", "competitive advantage" and "focus". This means that organisations have to study the market, develop products or services that satisfy customer needs and wants, develop the "correct" marketing mix and satisfy its own objectives as well as giving customer satisfaction on a continuing basis. However, it became clear in the 1980s that this definition of marketing was too narrow. Preoccupation with the tactical workings of the marketing mix led to neglect of long term product development, so "Strategic Marketing" was born. The focus was shifted from knowing everything about the customer, to knowing the customer in a context which includes the competition, government policy and regulations, and the broader economic, social and political macro forces that shape the evolution of markets. In global marketing terms this means forging alliances (relationships) or developing networks, working closely with home country government officials and industry competitors to gain access to a target market. Also the marketing objective has changed from one of satisfying organisational objectives to one of "stakeholder" benefits - including employees, society, government and so on. Profit is still essential but not an end in itself.
Strategic marketing according to Wensley (1982) has been defined as:
"Initiating, negotiating and managing acceptable exchange relationships with key interest groups or constituencies, in the pursuit of sustainable competitive advantage within specific markets, on the basis of long run consumer, channel and other stakeholder franchise".
Whether one takes the definition of "marketing" or "strategic marketing", "marketing" must still be regarded as both a philosophy and a set of functional activities. As a philosophy embracing customer value (or satisfaction), planning and organising activities to meet individual and organisational objectives, marketing must be internalised by all members of an organisation, because without satisfied customers the organisation will eventually die. As a set of operational activities, marketing embraces selling, advertising, transporting, market research and product development activities to name but a few. It is important to note that marketing is not just a philosophy or one or some of the operational activities. It is both. In planning for marketing, the organisation has to basically decide what it is going to sell, to which target market and with what marketing mix (product, place, promotion, price and people). Although these tenents of marketing planning must apply anywhere, when marketing across national boundaries, the difference between domestic and international marketing lies almost entirely in the differences in national environments within which the global programme is conducted and the differences in the organisation and programmes of a firm operating simultaneously in different national markets.
It is recognised that in the "postmodern" era of marketing, even the assumptions and long standing tenents of marketing like the concepts of "consumer needs", "consumer sovereignty", "target markets" and "product/market processes" are being challenged. The emphasis is towards the emergence of the "customising consumer", that is, the customer who takes elements of the market offerings and moulds a customised consumption experience out of these. Even further, post modernisim, posts that the consumer who is the consumed, the ultimate marketable image, is also becoming liberated from the sole role of a consumer and is becoming a producer. This reveals itself in the desire for the consumer to become part of the marketing process and to experience immersion into "thematic settings" rather than merely to encounter products. So in consuming food products for example, it becomes not just a case of satisfying hunger needs, but also can be rendered as an image - producing act. In the post modern market place the product does not project images, it fills images. This is true in some foodstuffs. The consumption of "designer water" or "slimming foods" is a statement of a self image, not just a product consuming act.
Acceptance of postmodern marketing affects discussions of products, pricing, advertising, distribution and planning. However, given the fact that this textbook is primarily written with developing economies in mind, where the environmental conditions, consumer sophistication and systems are not such that allow a quantum leap to postmodernism, it is intended to mention the concept in passing. Further discussion on the topic is available in the accompanying list of readings.
When organisations develop into global marketing organisations, they usually evolve into this from a relatively small export base. Some firms never get any further than the exporting stage. Marketing overseas can, therefore, be anywhere on a continuum of "foreign" to "global". It is well to note at this stage that the words "international", "multinational" or "global" are now rather outdated descriptions. In fact "global" has replaced the other terms to all intents and purposes. "Foreign" marketing means marketing in an environment different from the home base, it's basic form being "exporting". Over time, this may evolve into an operating market rather than a foreign market. One such example is the Preferential Trade Area (PTA) in Eastern and Southern Africa where involved countries can trade inter-regionally under certain common modalities. Another example is the Cold Storage Company of Zimbabwe.
Case 1.1 Cold Storage Company Of Zimbabwe
The Cold Storage Company (CSC) of Zimbabwe, evolved in 1995, out of the Cold Storage Commission. The latter, for many years, had been the parastatal (or nationalised company) with the mandate to market meat in Zimbabwe. However, the CSC lost its monopoly under the Zimbabwean Economic Reform Programme of 1990-95, which saw the introduction of many private abattoirs. During its monopoly years the CSC had built five modern abattoirs, a number of which were up to European Union rating. In addition, and as a driving force to the building of EU rated abattoirs, the CSC had obtained a 9000 tonnes beef quota in the EU. Most of the meat went out under the auspices of the Botswana Meat Commission. For many years, the quota had been a source of volume and revenue, a source which is still continuing. In this way, the CSC's exporting of beef to the EU is such that the EU can no longer be considered as " Foreign" but an "Operating" market.
0 In "global marketing" the modus operandi is very different. Organisations begin to develop and run operations in the targeted country or countries outside of the domestic one. In practice, organisations evolve and Table 1.1 outlines a typology of terms which describes the characteristics of companies at different stages in the process of evolving from domestic to global enterprises.
The four stages are as follows:
1. Stage one: domestic in focus, with all activity concentrated in the home market. Whilst many organisations can survive like this, for example raw milk marketing, solely domestically oriented organisations are probably doomed to long term failure.2. Stage two: home focus, but with exports (ethnocentric). Probably believes only in home values, but creates an export division. Usually ripe for the taking by stage four organisations.
3. Stage three: stage two organisations which realise that they must adapt their marketing mixes to overseas operations. The focus switches to multinational (polycentric) and adaption becomes paramount.
4. Stage four: global organisations which create value by extending products and programmes and focus on serving emerging global markets (geocentric). This involves recognising that markets around the world consist of similarities and differences and that it is possible to develop a global strategy based on similarities to obtain scale economies, but also recognises and responds to cost effective differences. Its strategies are a combination of extension, adaptation and creation. It is unpredictable in behaviour and always alert to opportunities.
There is no time limit on the evolution process. In some industries, like horticulture, the process can be very quick.
Table 1.1 Stages of domestic to global evolution
| Management emphasis | Stage one Domestic | Stage two International | Stage three Multinational | Stage four Global |
| Focus | Domestic | Ethnocentric | Polycentric | Geocentric |
| Marketing strategy | Domestic | Extension | Adaption | Extension |
| Structure | Domestic | International | Worldwide area | Adaption creation matrix/mixed |
| Management style | Domestic | Centralised top down | Decentralised bottom up | Integrated |
| Manufacturing stance | Mainly domestic | Mainly domestic | Host country | Lowest cost worldwide |
| Investment policy | Domestic | Domestic used worldwide | Mainly in each host country | Cross subsidization |
| Performance evaluation | Domestic market share | Against home country market share | Each host country market share | Worldwide |
Factors which have led to internationalisation
There have been many underlying forces, concepts and theories which have emerged as giving political explanation to the development of international trade. Remarkably, despite the trend to world interdependency, some countries have been less involved than others. The USA, for example, has a remarkably poor export record. About 2000 US companies only account for more than 70% of US manufacturer's exports. This has been mainly due to its huge statewide domestic market, which is almost tantamount to "international trade", for example, Californian fruit being sold three thousand kilometres away in New Jersey. Japan has risen fast to dominate the export rankings, with countries of Africa struggling to make a significant mark, mainly because of their emphasis on exporting primary products. This section will briefly examine the forces which have been instrumental in the development of world trade.
Theoretical approaches
These include the theory of comparative advantage described in the book Wealth of Nations (Adam Smith) and David Ricardo), the product trade cycle (Raymond Vernon) and The Business Orientation (Howard Perlmutter).
The theory of comparative advantage:
The theory can be relatively complex and difficult to understand but stated simply this theory is a demonstration (under assumptions) that a country can gain from trade even if it has an absolute disadvantage in the production of all goods, or it can gain from trade even if it has an absolute advantage in the production of all goods. Even though a country has an absolute production advantage it may be better to concentrate on its comparative advantage. To calculate the comparative advantage one has to compare the production ratios, and make the assumption that the one country totally specialises in one product. To maximise the wellbeing of both individuals and countries, countries are better off specialising in their area of competitive advantage and then trading and exchanging with others in the market place. Today there are a variety of spreedsheets that one can use to calculate comparative advantage, one such is that of the Food and Agriculture Organization (FAO). Calculation of comparative advantage is as follows:
Example
It may be assumed that Holland is more efficient in the production of flowers than Kenya. Yet Kenya succeeds in exporting thousands of tonnes of flowers to Europe every year. Kenya flower growers Sulmac and Oserian have achieved legendary reputations, in the supply of fresh cut flowers to Europe, How?
Take the simple two country - two product model of comparative advantage. Europe grows apples and South Africa oranges, these are two products, both undifferentiated and produced with production units which are a mixture of land, labour and capital. To use the same production units South Africa can produce 100 apples and no oranges, and Europe can produce 80 apples and no oranges. At the other extreme South Africa can produce no apples and 50 oranges and Europe no apples and 30 oranges. Now if the two countries specialise and trade the position is as follows:
| Product | South Africa | Europe | ||||
| Production | Imports | Consumers | Production | Imports | Consumers | |
| Apples (000's) | 0 | 30 | 30 | 80 | 30 | 50 |
| Oranges (000's) | 50 | 14 | 36 | 30 | 14 | 44 |
| The trading price is | 30:14 =2.14 apples | = 1 orange |
| 14:30 = 4.67 oranges | = 1 apple |
So in apples, South Africa has an advantage of 1.25 (100/80) but in oranges 1.67 (50/30). So South Africa should concentrate on the production of oranges as its comparative advantage is greatest here. Unfortunately the theory assumes that production costs remain relatively static. However, it is a well known fact that increased volumes result, usually, in lower costs. Indeed, the Boston Consulting Group observed this phenomenon, in the so called "experience curve" effect concept. And it is not only "production" related but "all experience" related; including marketing. The Boston Consulting group observed that as an organisation gains experience in production and marketing the greater the reduction in costs. The theory of comparative advantage also ignores product and programme differentiation. Consumers do not buy products based only on the lowest costs of production. Image, quality, reliability of delivery and other tangible and non tangible factors come into play. Kenyans may well be prepared to pay extra for imported French or South African wines, as the locally produced paw paw wine may be much inferior.
The product trade cycle:
The model describes the relationship between the product life cycle, trade and investment (see figure 1.1) and is attributable to Venon1 (1966)
The international product trade cycle model suggests that many products go through a cycle during which high-income, mass consumption countries which are initial exporters, lose their export markets and finally become importers of the product. At the same time other countries, particularly less developed but not exclusively so, shift from being importers to exporters. These stages are reflected in figure 1.1.
Figure 1.1 International product trade cycle
From a high income country point of view phase 1 involves exporting, based on domestic product strength and surplus-to phase 2, when foreign production begins, to phase 3 when production in the foreign country becomes competitive, to phase 4 when import competition begins. The assumption behind this cycle is that new products are firstly launched in high income markets because a) there is most potential and b) the product can be tested best domestically near its source of production. Thus new products generally emanate from high income countries and, over time, orders begin to be solicited from lower income countries and so a thriving export market develops. High income country entrepreneurs quickly realise that the markets to which they are selling often have lower production costs and so production is initiated abroad for the new products, so starts the second stage.
In the second stage of the cycle, foreign and high income country production begins to supply the same export market. As foreign producers begin to expand and gain more experience, their competition displaces the high income export production source. At this point high income countries often decide to invest in foreign countries to protect their share. As foreign producers expand, their growing economies of scale make them a competitive source for third country markets where they compete with high income exporters. The final phase of the cycle occurs when the foreign producer achieves such a scale and experience that it starts exporting to the original high income producer at a production cost lower than its original high income producer at a production cost lower than its original high income supplier. High income producers, once enjoying a monopoly in their own market, now face competition at home.
The cycle continues as the production capability in the product extends from other advanced countries to less developed countries at home, then in international trade, and finally, in other advanced countries home markets.
Case 1.2 UK Textiles
There are numerous examples of the International product trade cycle in action. Non more than the textiles industry, specially cotton. In the early and mid twentieth century the UK was a major producer of cotton textile materials, primarily based on its access to cheap raw materials from its Commonwealth countries and its relatively cheap labour. However, its former colonies like India, Pakistan and certain African countries, which were sources of cotton in themselves realised that they had the labour and materials on their doorstep conducive to domestic production. They began to do so. Such was their success in supplying their own huge markets that their production costs dropped dramatically with growing economies of scale.
Soon they were able to support cloth and finished good back to the UK, which by now had experienced growing production costs due to rising labour costs and failing market share. Now the UK has little cotton materials production and it served by many countries over the world, including its former colonies and Commonwealth countries.
Whilst the underlying assumption behind the International Product Trade Cycle is that the cycle begins with the export of new product ideas from high income countries to low income importers, then low income countries begin production of the product etc., things do not always turn out as the cycle suggests. Sometimes a high or even low income exporter may put a product into a high/low income country which is simply unable to respond. In this case, the Trade Cycle ceases to be the underpinning concept. This may be due to a number of factors like lack of access to capital to build the facilities to respond to the import, lack of skills or that the costs of local production cannot get down to the level of costs of the imported product. In this case, product substitution between the exporter and importer may also take place. A classic example of this phenomenon is the case of Zimbabwe Sunsplash fruit juice drinks.
Case 1.3 Sunsplash Zimbabwe
Sunsplash, based in Masvingo, Zimbabwe had, since 1984, processed a variety of fruit juices for the Zimbabwean market. When Zimbabwe embarked on its World Bank sponsored structural adjustment programme in 1990, Zimbabwe steadily moved from a command to a market economy, part of which allowed foreign importers.
In a short space of time, market share for Sunsplash fell from 1 million litres annually to a mere 400 000 litres. On this reduced volume, coupled with higher transport costs, the company simply could not compete and closed its doors in January 1995. However reduction in income and transport costs were not the only problems. Expenses like high interest rates were an inhibiting factor. The company needed to make the transition to aseptic packaging which would alleviate the need for chemical preservations and enhance unrefrigerated shelf life. The new packaging would have greatly enhanced the product and generated export potential. However, cashflow constraints within the holding company, (AFDIS), coupled with high interest rates made the $5,8 million investment unviable.
Orientation of management:
Perlmutter1 (1967) identified distinctive "orientations" of management of international organisations. His "EPRG" scheme identified four types of attitudes or orientations associated with successive stages in the evolution of international operations.
· Ethnocentrism - home country orientation - exporting surplus.
· Polycentrism - host country orientation - subsidiary operation.
· Regiocentrism - regional orientation - world market strategies.
· Geocentrism - world orientation - world market strategies.
The latter two are based on similarities and differences in markets, capitalising on similarities to obtain cost benefits, but recognising differences.
Market forces and development
Over the last few decades internationalism has grown because of a number of market factors which have been driving development forward, over and above those factors which have been attempting to restrain it. These include market and marketing related variables.
Many global opportunities have arisen because of the clustering of market opportunities worldwide. Organisations have found that similar basic segments exist worldwide and, therefore, can be met with a global orientation. Cotton, as an ingredient in shirtings, suitings, and curtain material can be globally marketed as natural and fashionable. One can see in the streets of New York, London, Kuala Lumpar or Harare, youth with the same style and brand of basketball shirts or American Football shorts. Coca Cola can be universally advertised as "Adds Life" or appeal to a basic instinct " You can't beat the Feeling" or "Come alive" as with the case of Pepsi. One can question "what feeling?", but that is not the point. The more culturally unbounded the product is, the more a global clustering can take place and the more a standardised approach can be made in the design of marketing programmes.
This standardised approach can be aided and abetted with technology. Technology has been one of the single most powerful driving forces to internationalism. Rarely is technology culturally bound. A new pesticide is available almost globally to any agricultural organisation as long as it has the means to buy it. Computers in agriculture and other applications are used universally with IBM and Macintosh becoming household names. The need to recoup large costs of research and development in new products may force organisations to look at global markets to recoup their investment. This is certainly true of many veterinary products. Global volumes allow continuing investment in R & D, thus helping firms to improve quality. Farm machinery, for example, requires volume to generate profits for the development of new products.
Communications and transport are shrinking the global market place. Value added manufacturers like Cadbury, Nestlè, Kelloggs, Beyer, Norsk Hydro, Massey Ferguson and ICI find themselves "under pressure" from the market place and distributors alike to position their brands globally. In many cases this may mean an adaption in advertising appeals or messages as well as packaging and instructions. Nestle will not be in a hurry to repeat its disastrous experience of the "Infant formula" saga, whereby it failed to realise that the ability to find, boiled water for its preparations, coupled with the literacy level to read the instructions properly, were not universal phenomenon.
Marketing globally also provides the marketer with five types of "leverage" or "advantages", those of experience, scale, resource utilisation and global strategy. A multi-product global giant like Nestle', with over £10 billion turnover annually, operates in so many markets, buys so much raw material from a variety of outgrowers of different sizes, that its international leverage is huge. If it consumes a third of the world's cocoa output annually, then it is in a position to dominate terms. This also has its dangers.
The greatest lift to producers of raw agricultural products has been the almost universal necessity to consume their produce. If one considers the whole range of materials from their raw to value added state there is hardly a market segment which cannot be tapped globally. Take, for example, oranges. Not only are Brazilian, Israeli, South African and Spanish oranges in demand in their raw state worldwide, but their downstream developments are equally in demand. Orange juice, concentrates, segments and orange pigments are globally demanded. In addition the ancillary products and services required to make the orange industry work, find themselves equally in global demand. So insecticides, chemicals, machinery, transport services, financial institutions, warehousing, packaging and a whole range of other production and marketing services are in demand, many provided by global organisations like Beyer, British Airways and Barclays Bank. Of course, many raw materials are at the mercy of world prices, and so many developing countries find themselves at the mercy of supply and demand fluctuations. But this highlights one important global lesson - the need to study markets carefully. Tobacco producing countries of the world are finding this out. With a growing trend away from tobacco products in the west, new markets or increasing volumes into consuming markets have to be prospected and developed. Many agricultural commodities take time to mature. An orange grove will mature after five years. By that time another country may plant or have its trees mature. Unless these developments are picked up by global intelligence the plans for a big profit may be not realised as the extra volume supplied depresses prices. This happened in 1993/94 with the Malawian and Zimbabwean tobacco companies. The unexpected release of Chinese tobacco depressed the tobacco price well below expectations, leaving farms with stock and large interest carrying production loans.
A number of suppliers of agricultural produce can take advantage of "off season" in other countries, or the fact that they produce speciality products. This is the way by which many East African and South American producers established themselves in Europe and the USA respectively. In fact the case of Kenya vegetables to Europe is a classic, covering many of the factors which have just been discussed-improved technology, emerging global segments, shrinking communications gaps and the drive to diversify product ranges.
Case 1.5 Kenya Off Season Vegetables
Kenya's export of off season and speciality vegetables has been such that from 1957 to the early 1990s exports have grown to 26 000 tonnes per annum. Kenya took advantage of:
a) increased health consciousness, increased affluence and foreign travel of West European consumers;
b) improved technologies and distribution arrangements for fresh products in Western Europe;
c) the emergence of large immigrant populations in several European countries:
d) programmes of diversification by agricultural export countries and
e) increased uplift facilities and cold store technologies between Europe and Kenya.
Exports started in 1957, via the Horticultural Cooperation Union, which pioneered the European "off season" trade by sending small consignments of green beans, sweet peppers, chillies and other commodities to a London based broker who sold them to up market hotels, restaurants and department stores. From these beginnings Kenya has continued to give high quality, high value commodities, servicing niche markets. Under the colonialists, production remained small, under the misguided reasoning that Kenya was too far from major markets. So irrigation for production was limited and the markets served were tourists and the settlers in Kenya itseff.
The 1970s saw an increased trade as private investment in irrigation expanded, and air freight space increased, the introduction of wide bodied aircraft, and trading relationships grew with European distributors. Kenya, emerged as a major supplier of high quality sweet peppers, courgettes and French beans and a major supplier of "Asian" vegetables (okra, chillies etc.) to the UK growing immigrant population. Kenya was favoured because of its ability to supply all year round - a competitive edge over other suppliers. Whilst the UK dominated, Kenya began supplying to other European markets.
Kenya's comparative advantage was based on its low labour costs, the country's location and its diverse agro-ecological conditions. These facilitated the development of a diversified product range, all year round supply and better qualities due to labour intensity at harvest time. Kenya's airfreight costs were kept low due to government intervention, but lower costs of production were not its strength.
This lay in its ability for continuance of supply, better quality and Kenyan knowledge of the European immigrant population. Kenya's rapidly growing tourist trade also accelerated its canning industry and was able to take surplus production.
In the 1980's Kenya had its ups and downs. Whilst losing out on temperature vegetables (courgettes etc) to lower cost Mediterranean countries, it increased its share in French beans and other speciality vegetables significantly getting direct entry into the supermarket chains and also Kenya broke into tropical fruits and cut flowers - a major success. With the development and organisation or many small "outgrowers", channelled into the export market and thus widening the export base, the industry now provides an important source of income and employment. It also has a highly developed information system, coordinated though the Kenya Horticultural Crops Development Authority.
Kenya is thus a classic case in its export vegetable industry of taking advantage of global market forces. However, ft has to look to its laurels as Zimbabwe is rapidly beginning to develop as another source of flowers and vegetables, particularly the former.
Whilst the forces, market and otherwise, have been overwhelming in their push to globalisation, there remain a number of negatives. Many organisations have been put off or have not bothered going into global industry due to a variety of factors. Some have found the need to adapt the marketing mix, especially in many culture bound products, too daunting. Similarly brands with a strong local history may not easily transfer to other markets. National Breweries of Zimbabwe, for example, may not find their Chibuku brand of beer (brewed especially for the locals) an easy transboundary traveller. More often than not sheer management myopia may set in and management may fail to seize the export opportunity although products may be likely candidates. Similarly organisations may refuse to devolve activities to local subsidiaries.
Other negative forces may be created by Governments. Simply by creating barriers to entry, local enterprises may be protected from international competition as well as the local market. This is typical of many developing countries, anxious to get their fledging industries off the ground.
The international economic system
Several factors have contributed to the growth of the international economy post World War II. The principal forces have been the development of economic blocs like the European Union (EU) and then the "economic pillars"- the World Bank (or International Bank for Reconstruction and Development to give its full name), the International Monetary Fund (IMF) and the evolution of the World Trade Organisation from the original General Agreement on Tariffs and Trade (GATT).
Until 1969 the world economy traded on a gold and foreign exchange base. This affected liquidity drastically. After 1969 liquidity was eased by the agreement that member nations to the IMF accept the Special Drawing Rights (SDR) in settling reserve transactions. Now an international reserve facility is available. Recently, the World Bank has taken a very active role in the reconstruction and development of developing country economies, a point which will be expanded on later.
Until the General Agreement on Tariffs and Trade (GATT) after World War II, the world trading system had been restricted by discriminating trade practices. GATT had the intention of producing a set of rules and principles to liberalise trade. The most favoured nation concept (MFN), whereby each country agrees to extend to all countries the most favourable terms that it negotiates with any country, helped reduce barriers. The "round" of talks began with Kennedy in the 60s and Tokyo of the 70s. The latest round, Uruguay, was recently concluded in April 1994 and ratified by most countries in early 1995. Despite these trade agreements, non tariff barriers like exclusion deals, standards and administrative delays are more difficult to deal with. A similar system exists with the European Union, - the Lomè convention. Under this deal, African and Caribbean countries enjoy favoured status with EU member countries.
Relative global peace has engendered confidence in world trade. Encouraged by this and the availability of finance, global corporations have been able to expand into many markets. The break up of the former Soviet Union has opened up vast opportunities to investors, aided by the World Bank and the European Development Bank. This atmosphere of peace has also allowed the steady upward trend of domestic growth and again opened up market opportunities domestically to foreign firms. Peace in Mozambique, the "normalisation" of South Africa, and peace in Vietnam as examples have opened up the way for domestic growth and also, therefore, foreign investment. The liberation of economies under World Bank sponsored structural adjustment programmes have also given opportunities. This is very true of countries like Zambia and Zimbabwe, where in the latter, for example, over Z$2.8 billion of foreign investment in the stock exchange and mining projects have occurred in the early 1990s.
Sometimes, market opportunities open up through "Acts of God". The great drought of 1992 in Southern Africa, necessitated a large influx of foreign produce, especially yellow maize from the USA and South America.
Not only did this give a market for maize only, but opened up opportunities for transport businesses and services to serve the drought stricken areas. Speedy communications like air transportation and electronic data transmission and technology have "shrunk" the world. Costs and time have reduced enormously and with the advent of television, people can see what is happening elsewhere and this can cause desire levels to rise dramatically. Only recently has television been introduced into Tanzania, for example, and this has brought the world and its markets, closer to the average Tanzanian.
No doubt a great impetus to global trade was brought about by the development of economic blocs, and, conversely, by the collapse of others. Blocs like the European Union (EU), ASEAN, the North American Free Trade Agreement (NAFTA) with the USA, Canada and Mexico has created market opportunities and challenges. New countries are trying to join these blocs all the time, because of the economic, social and other advantages they bring. Similarly, the collapse of the old communist blocs have given rise to opportunities for organisations as they strive to get into the new market based economies rising from the ruins. This is certainly the case with the former Soviet bloc.
In the late 1980s and early 90s, the United States, along with Japan, have been playing an increasingly influential role in world affairs, especially with the collapse of the former USSR. Whilst on the one hand this is good, as the USA is committed to world welfare development, it can be at a price. The Gulf War coalition of the 90s, primarily put together by the USA as the leading player, was an example of the price.
Impetus to global marketing involvement
Individuals or organisations may get involved in International Marketing in a rather unplanned way which gives the impetus to more formal and larger operations. This may happen in a number of ways:
Foreign customers
Unsolicited enquiries through word of mouth, visits, exhibitions, and experience through others may result in orders. This is often typical of small scale organisations.
Importers
Importers may be looking for products unavailable in domestic markets, for example, mangoes in the UK, or products which can be imported on more favourable terms. An example of these is flowers from Kenya to Holland.
Intermediaries
These may be of four types - domestic based export merchants, domestic based export agents, export management companies or cooperative organisations. These will be expanded on later in this text. Sometimes an intermediary may provide export services in an attempt to reduce their own costs on the export of their own produce by acting as a representative for other organisations. This is called "piggybacking".
Other sources
These may include banks, export organisations like ZIMTRADE, parastatals like the Kenyan Horticultural Crop Development Authority or even individual executives.
Attitudes as precursors to global involvement
Cavusgil3 (1984) developed a three stage model of export involvement, based on the fact that the opportunity to export may arise long before exporting behaviours became manifest. See figure 1.2.
Figure 1.2 Cavusgil's three stage model of export involvement
According to Cavusgil attitudes are determined by the operating style of the organisation and cultural norms which prevail in the domestic market. An organisation's style may be defensive or prospective. The latter type of organisation may systematically, or in an ad hoc manner, search out international opportunities.
Culture plays a vital part in the internationalisation process. Hakansson et al4. (1982) demonstrated that German and Swedish firms internationalise much earlier in their corporate history than do French or British companies. African culture is not littered with international marketers of note. This may be due to colonialisation late into the twentieth century.
Behaviour as a global marketing impetus
We saw earlier in the internationalisation process that organisations may evolve from exporting surplus or serving ad hoc enquiries to a more committed global strategy. This gradual change may involve moving from geographically adjacent markets to another, say, for example from the Southern African Development Conference (SADC) to Europe. However, not all globalisation takes place like this. In the case of fresh cut flowers, these may go to major, developed country consumer centres, for example from Harare to London or Amsterdam and Frankfurt. Lusaka or Nairobi may never see Zimbabwe flowers. In analysing behaviour one has not to generalise. What is certain, is that in all stages, the balance of opportunity and risk is considered.
The context of internationalisation
It is essential to see in what context individual organisations view internationalisation. The existing situation of the firm will affect its interest in and ability to internationalise. Such may be the low domestic quality and organisation that a firm could never export. It may not have the resources or the will.
Internationalisation infrastructure
Johanson and Mattison5 (1984) have explored the notion of differences in tasks facing organisations which internationalise. In low and high infrastructure situations. "Early starters" are likely to experiment or depend on contacts with experienced organisations which know the process. "Late starters" may use existing contacts as a "bridge" to new opportunities. They may also be pressurised by customers, supplies or competitors to get into joint venturing. Joint venturing, with its added infrastructure, may lead to rapid progress. If the organisation faces intense competition then it may be forced to up the pace and scale of foreign investment. Rising protectionism in recent years has given impetus to late starters to establish production facilities in target markets. Infrastructure for foreign operations may also change (firms also reduce their investment as well as invest). When this happens the perceived risk changes also.
This discussion on international infrastructure concludes the factors which have led to internationalisation. It is a complex focus of internal and external factors and looking carefully at risk versus opportunities.
Planning to meet the opportunities and challenges of global marketing
In order to take advantage of global opportunities, as well as meet the challenges presented by so doing a number of concepts can be particularly useful. Every organisation needs an understanding of what is involved in "strategy", or else the hapharzardness involved in chance exporting can be accepted as the norm with all inherent dangers involved. Also potential exporters need to know what is going on in the global "environment". Just as in domestic marketing "Government" "competition", "social" and other factors need to be accounted for, such is the case in international marketing. If one can place products or services at a point on an environmental sensitivity/insensitivity continuum, one can see more clearly the need to account for differences in the marketing mix. By comparing the similarities and differences between domestic and international marketing needs and planning requirements, then the organisation is in a better position to isolate the key factors critical to success. This section examines all these concepts in brief.
Strategy
Whatever business we are in, haphazard organisation often leads to haphazard results. In planning for international marketing organisations need a clear picture of the steps involved. "Strategy" gives such a picture. Strategy is the response of the organisation to the realities of shareholders and the business environment. The phases in the strategy formulation process are given on figure 1.3.
Figure 1.3 Strategy formulation
The global environment
Of all the steps in formulating strategy, no one step is as important as the ability to assess the "environmental" factors in international marketing. Taking account of cultural, economic and political differences is a must when dealing with different markets. More will be said on these factors in later chapters. Environmental analysis allows the organisation to cluster markets according to similarities and differences, based on the environmental "uncontrollable" factors. The international "uncontrollables" are in addition to the organisation's domestic "uncontrollables" so need to be treated with extra care. Figure 1.4 shows the major environmental factors to be considered. It must be noted that according to the "relationship" marketing school of thought, the so called "incontrollables" can be made more "controllable" by building relationships with the influences of these factors. For example, if an exporter of horticultural produce wishes to be able to anticipate changes in the political environment, it may build a relationship with certain politicians who may have intimate knowledge of the political system. This should not, of course, be misconstrued as "insider information". However, having made this caveat, this text will treat the "incontrollables" in the conventional way.
Figure 1.4 Foreign "uncontrollables"-in the global macroenvironment
International environment
An analysis of the environmental uncontrollables allows the potential marketers to place products on a continuum of environmental sensitivity. At the one end are environmentally insensitive products and at the other end, those more sensitive to economic, sociocultural, physical and other factors. The greater the sensitivity, the greater the need for the organisation to learn the way the product interacts with the environment. An example is given below (figure 1.5).
Figure 1.5 Environmental sensitivity
Framework for international analysis
In order to put together the task of finding the differences and similarities in environmental and market analysis, a framework needs to be devised. Where unifying influences are found then the marketer is able to develop more standardised plans. When there are a large number of differences, then plans have to be designed adapted to circumstances. Figure 1.6 gives a framework for the process of identifying similarities and differences.
Figure 1.6 A Conceptual framework for multinational marketing: National market versus other nations
Once having identified the unifying and differentiating influences and answered many questions about where one could or could not standardise the marketing planning process then a conceptual framework for multinational marketing planning can be developed. One such conceptual framework is given in figure 1.7.
Figure 1.7 A conceptual framework for multinational marketing in constraint economies
Key questions for analysis, planning and control of marketing in constraint economies.
a) Principle constraint analysis
i) Government's attitude to employment, foreign intervention, foreign exchange, indebtedness and policies
ii) Government's policy of economic development, foreign exchange, barter deals, equity arrangements, remittance of funds, state intervention, private sector development and import substitution?
iii) Government's social objectives including indegenisation, subsidies, population and socialisation?
iv) Laws, tariffs, duties, trade regulations, balance of payments, licensing and labour laws?
¯
Leading to an economic analysis
¯
Gathering of appropriate data on:
b) Appropriate environmental variable data
i) Market characteristics-physical, cultural, size, growth rate, stage of development?
ii) Market institutions - distribution, media, research, services?
iii) Industry conditions- size, practices, development stage, appropriate technology?
iv) Resources- manpower and money?
Planning
c)Target country experts or generalist staff to plan operations?
d) What are the authorised target markets and the product appropriateness?
e) Market size?
f) What is the stage of development and strenght of competition both state and private?
g) What is the appropriate product/market technology?
h) What is the necessary adaptaton of the marketing mix?
i) How do the goverment and company objectives coincide?
j) What is the trading risk?
k) What goverment/organisation interface is required? How are licencies agreed and obtained? Who are the principle characters?
Structure
l) How does the company have to be structured to meet the government, economic and social objectives as well as company objectives
Plan implementation
m) Given the goverment's policies, attitudes and economic and social objectives how is an effective marketing plan designed, resouced and implemented? what degree of adaptation and cooperation is required at all levels? (Government marketing institutions and function)? Who will be responsible for each level"?
Controlling the market program
n) Who is responsible and how is the plan performance measured and monitored?
o) What controls, other than profit are required? Are employment and other such objectives necessary?
p) Has the company the ability and authority to alter the parameters to bring actual results into line with desired?
q) What are the principal control parameters? Can they be easily adjusted at all?
This framework is particularly relevant to developing economies where government constraints and controls tend to be more intensive than developed economies.
Product life/market life cycle
Just as in domestic marketing the concept of the Product Life Cycle has often been cited as a useful (but often maligned!) planning concept, so it can be useful in international marketing. Figure 1.8 gives an outline of the Market Life Cycle across international boundaries.
Figure 1.8 The product/market life cycle
The traditional four stage life cycle - introduction, growth, maturity, decline - is a well documented phenomenon. Attempts are made in the maturity stage to extend the cycle. The market life cycle is very similar and what global marketers have to be wary of is that not all markets are at the same stage globally. It may be appropriate to have tractor mounted ditchers and diggers in Africa or the UK where labour is not too plentiful, but in India, they may be the last thing required where labour is plentiful and very cheap. So the appropriate marketing strategy will be different for each market.
It would be very easy to discuss the global marketing decision as a case of deciding whether to export or standardise or adapt your product/market offering. This is far from the case. Even the smallest nuance of change in the global environment can ruin a campaign or plan. Whilst the above discussion has tended to be theoretical in nature, most of it, if not all of it, is essential in practice. In food marketing systems many transactions and discussions take place across international boundaries. This involves a close look at all the necessary environmental factors. If one considers food marketing as the physical and economic bridge linking raw materials production and consumer purchases then a whole series of interdependent decisions, institutions, resource flows and physical and business activities take place. Food marketing stimulates and supports raw material production, balances commodity supply and demand and stimulates end demand and enhances consumer welfare. This process often transcends several different industries and markets, many of them crossing international boundaries. The product may change form, be graded, packed, transported and necessitate information flows, financial resources, invoice and retailing or wholesaling functions. In addition, quality standards designed for producers and transporters may apply as may product improvements. In other words, the bridge may involve a whole set of utilities afforded to the end user (time, place and form), and add value at each stage of the transaction. This system involves numerous independent and interdependent players and activities. To shift a perishable like strawberries 7000km from Harare, Zimbabwe to the UK requires an extraordinary complex series of activities, involving perfect timing. The detail involved in this intricate transaction will be explained in later chapters.
With commodities, physical, Government and economic environmental factors playing a major role in international marketing. So does price and quality differentiation. In later years the enormous success of the Brazilian frozen concentrated orange juice industry has been attributable not only to poor climatic conditions prevailing in its competitive countries, but the fact that its investment in large production economies of scale, bulk transport and storage technologies considerably reduced international transport costs and facilitated improved distribution of the juice to, and within, importing countries. From a cottage industry in 1970, it grew to account for 80% of world trade by the early 1990's. Its success, therefore, has been based on price and added value quality differentiation.
International marketing is, therefore, quite a complex operation, involving both an understanding of the theoretical and practical aspects involved. Prescriptions are totally inappropriate.
This concludes the discussion on the reasoning why internationalism has grown and the next chapters' took more closely at the environmental factors which have to be taken into account when considering to market internationally.
Chapter Summary
The development of global marketing has been brought about by a number of variables both exogenous and endogenous. The evolution of global marketing has been in a series of four stages from exporting to truly global operations. These stages have been termed "domestic" in focus to "ethnocentric", "polycentric" and "geocentric". When planning to do global marketing, a number of "environmental" factors have to be considered but generally one is looking for "unifying" or "differentiating" influences which will dictate a "standard or "adapted" planning approach. Finally, a number of concepts and techniques, including the International Product Life Cycle, can give insight and a guide to global planning.
Key Terms
| Absolute advantage | Global environment | Marketing |
| Comparative advantage | Global evolution | Polycentrism |
| Ethnocentrism | Global marketing | Regiocentrism |
| Geocentrism | International product life cycle |
Review Questions
From your knowledge of the material in this chapter, give brief answers to the following questions below.
1. What are the principal differences between marketing domestically and internationally or globally?2. What factors have led to the growth of "Internationalism" since World War II? Discuss which you think are the most important and why.
3. Which concepts and techniques are available to aid marketers isolate differences and similarities in domestic and international marketing in order for them to plan appropriate marketing strategies?
Review Question Answers
1. Essentially there is no difference between the two. Both require the identification of product/market objectives, an analysis of the internal and external environment and the organising, planning, implementation and control of an effective marketing strategy. The differences lie in the degree of market similarities and differences, and the extent to which the product to be marketed is environmentally sensitive or insensitive.
2. Factors include:
· Theoretic - comparative advantage, the Product Trade Cycle and Perlmutter's business orientation.· Market forces - market clusters, technology, cost/volume considerations, shrinking of transport and communication gaps, international leverage.
· The International System - development of economic blocs, growth in domestic economies, the International Monetary Framework, global peace, communication and transport technology, global corporation growth, GATT.
· Others - impetus through global experience, attitudes (Cavusgil), behaviour, context and the international infrastructure.
3. Concepts and techniques available include:
· Strategy formulation
· Global environmental scanning
· Framework for isolating similarities and differences
· Conceptual frameworks
· Product/market life cycles
Students should be encouraged to give examples of the concepts, techniques and factors where appropriate.
Exercise 1.1 Zambezi nuts
Zambezi nuts was a small agricultural cooperative, recently developed in the Zambezi Valley in Zimbabwe. In previous years much time had been spent selecting and clearing a site and putting in cashew nut trees and a service road. The trees had now reached maturity. Although the domestic market was attractive, the cost of production and the quality of the nuts meant that far higher returns could be gained by selling the nuts on the international market.
The cooperative provided employment for about twenty small scale growers with a hectare each. Irrigation was in place. The coop itself had collection, grading and bulk packing facilities but no packaging facilities. It employed ten workers, a supervisor and general manager. It had two one tonne trucks which collected from farms and distributed from the coop. The company had no experience at all in selling its produce overseas.
Task
What should Zambezi nuts consider before deciding on an exporting operation?
References
1. Vernon, R. "International Investment and International Trade in the Product Cycle." Quarterly Journal of Economics, May 1966, pp 190 -207.
2. Perlmutter, H.J. "Social Architectural Problems of the Multinational Firm." Quarterly Journal of AISEC International. Vol. 3, No. 3, August 1967.
3. Cavusgil, S. T. "Differences among Exporting Firms based on Degree of Internationalisation". Journal of Business Research, Vol. 12,1984.
4. Firat A. F., Dholakia N., Venkatesh A., "Marketing in a Postmodern World. European" Journal of Marketing Vol 29 No. 1 1995 pp 40-56
5. Hakansson, H. (ed), "International Marketing and Purchasing of Industrial Goods." IMP Project Group, John Wiley and Sons, 1982.
6. Jaffee S. "Exporting high value food commodities." World Bank Discussion Paper No. 198. The World Bank 1993.
7. Johanson, J and Mattison, L.G. "Internationalisation in Industrial Systems - A Network Approach." Paper prepared for the Prince Bertil Symposium on Strategies in Global Competition. Stockholm School of Economies, 1984.
8. Keegan, W. J. "Global Marketing Management" 4th Edition. Prentice Hall International Edition 1989.
9. Kotler, P." Marketing Management, Analysis, Planning, Implementation and Control", 6th Edition. Prentice Hall International Edition, 1988.
10. Wensley J.R.C. "PIMS and BCG New Horizons" or False Dawns Strategic Management Journal No. 3 April/June 1982.
11. Carter, S. "Multinational and International Marketing in Constraint Economies." The Quarterly Review of Marketing, Summer 1988, pp 13-18.
12. Smith, P. "International Marketing." University of Hull, MBA Notes, 1990.
13. Terpstra, V. "International Marketing", 4th ed. The Dryden Press, 1987.
14. "The Business Herald " (Zimbabwe) January 19, 1995
Figure 1-2 in International Marketing Tenth Edition
Source: https://www.fao.org/3/w5973e/w5973e02.htm