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  • Marketing in the Global Environment

    TEACHER: Hi, Student. Again, we will begin this Module with a basic description of a successful global company with a strong marketing activity.

    Johnson & Johnson has $36.3 billion in sales and is the world's most comprehensive and broadly based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical, and medical devices and diagnostics markets. Johnson & Johnson has approximately 108,300 employees and more than 200 operating companies in 54 countries around the world, selling products in more than 175 countries.
    Around half of Johnson & Johnson's sales are to customers outside the United States. We can see in the picture above that J&J shows a worker with Asian features possibly to stress that the company has employees of diverse races.

    But in contrast we have the following picture taken from the J&J Japanese Website for ACUVUE contact lenses.Student, please tell me what you think about this illustration.

    STUDENT: Well, there is some text written in Japanese, but I notice that the people used as models do not look Japanese, and as far I can see, the packaging is mostly in English.

    TEACHER: Right. We do not know the reason why J&J marketers decided to use non-Japanese looking people as models, but it is intriguing, isn’t it?

    Like Johnson & Johnson, many organizations have found that they can benefit from taking an active role beyond the borders of their home country. Roughly two-thirds of the Coca-Cola Company's revenues come from non-US. operations.

    The major difference between marketing globally and marketing within a company’s home country is the complexity of the environment. We’ll take a look at the many issues marketers must consider when entering a foreign market.

    STUDENT: Interesting, but what about companies that have no plans for marketing outside their home markets?

    TEACHER: When scanning the marketing environment, marketers need to take a global view. Even when the organization does not have immediate plans to do business outside their home country, marketers need to recognize the business opportunities and threats emerging elsewhere.

    The Global Economy

    Today the prevailing view is to think of almost any country as part of a global economy. The actions of consumers and businesses, especially in large economic units, affect other nations.

    This notion of a global economy is not entirely new. In the 1920s economists observed that the Western nations had similar business cycles. In other words, prosperity and recession were occurring at roughly the same time in the United States and in the European countries, and their major trading partners elsewhere in the world.

    STUDENT: Sure. And in the 30s, a series of competitive protectionist measures worsened the world-wide depression; each country "exported" its depression to the rest, in a vicious circle damaging for all trading nations.

    TEACHER: Very good observation. Since then, various trends have linked the nations' economies more tightly than ever. One such trend is advances and improvements in the economic infrastructure in many nations. Economic infrastructure refers to a country's facilities available for conducting business activities, especially the communication, transportation, distribution, and financial systems.

    As a result of the advances in economic infrastructure, businesspeople can move goods, deliver services, transfer funds, and transmit messages faster and more widely than ever before. Distance has become much less of a barrier to doing business.

    Main Trading Blocks And Nations

    North American Free Trade Agreement - Marketing efforts among Canada Mexico, and the United States have grown fast since the three countries signed the North American Free Trade Agreement (NAFTA). This international agreement phases out tariffs and other trade barriers among the three nations, creating what many call the world's largest common market. Besides lifting trade barriers for goods, NAFTA helps service providers serve the three countries by ending requirements that professionals be citizens of the country in which they practice. Professionals must still comply with any laws regulating how they practice; however. U.S. banks and securities firms can operate Mexican subsidiaries, and U.S. trucking firms can carry international cargo to Mexico.

    Critics of NAFTA have warned that the agreement would cause unemployment a U.S. businesses moved their operations to Mexico. Of course, many businesses including such giants as Procter & Gamble, Unilever, Nestlé, PepsiCo, Ford, Chrysler, and General Motors, have already operated in Mexico for decades, a trend that is likely to continue. NAFTA supporters claim that free trade will play a more important role by enhancing Mexico’s prosperity and increasing the demand for US and Canadian products and services.
    The European Union (EU)

    Together, the gross national products of the members of the EU are second only to that of the United States. Thus, the EU is a major force in the worldwide marketplace. In addition, the strengthened trade among EU member nations is likely to make European businesses tougher global competitors.

    STUDENT: I guess that as customers, EU members may be easier to serve, right?

    TEACHER: Correct. Uniform product standards mean that products do not have to be modified to comply with the laws of each member nation. For example, all motor vehicles sold in the EU must meet the same standards for pollution and noise emissions. Also, the elimination of border checks between member nations has made it easier to transport goods throughout Europe.

    In serving the EC, marketers must remember that the union still consists of individual nations. The European Community has over ten mother tongues, two fundamentally incompatible legal systems, and three major variants of the dominant religion, with Islam making major inroads in France and the United Kingdom.


    When Americans and Europeans think of international competitors, they typically think of Japan. In fact, Japan is not only the second largest exporter to the United States, it is also the second largest importer of U.S. products. Thus, U.S. marketers think of the Japanese as not only potential competitors but also potential customers.

    A significant example is the popularity of the Macintosh computer and of Windows software for IBM compatible models, which has stimulated sales of U.S. applications software. The only major segment of the PC software industry dominated by Japanese rather than U.S. firms is Japanese-language word processing -and U.S. vendors have begun to compete there as well.

    Other Nations

    Asia/Pacific Rim - As more and more mass marketers have recognized, the world’s most populous continent is Asia. Besides Japan, the nations with the most potential purchasing power are China and other countries with especially fast-growing economies -Indonesia, Malaysia, Singapore, Taiwan, and South Korea. The size of the Asian markets alone is enough to endear them to mass marketers.

    With more than 20 percent of the world's population, China cannot be ignored by the world's marketers. Not only does this country have well over a billion people, their economic status is accelerating in, according to one report, "one of the biggest improvements in human welfare anywhere at any time".

    While the size and growth of China's economy are breathtaking, other Asian economies are expanding as well. Some countries such as Singapore and South Korea seeks technological leadership. South Korea once did so through such Japanese-style practices as investing massive sums to gain a leading position in particular industries. More recently, Korean businesses are seeking partnerships with foreign companies that can teach them useful technologies.

    Africa - Another region that is significant in terms of population is Africa, the second most populous continent. Many countries of Africa have middle-class residents and large, modem cities.

    Eastern Europe - The nations of the former Soviet Union and its European allies have received much attention in recent years. As these nations have moved toward capitalism, marketers have hoped Eastern Europeans would increasingly demand their goods and services. Many have been pleased to find a welcoming market for their products.

    Central and South America - Political upheaval and slow economic growth have in the past dampened marketers' interest in Central and South America. However, there are some signs that these countries have become more attractive markets. They have lifted many restrictions on business and have privatized many government enterprises. Chile has been one of the most attractive South American nations for foreign businesspeople, thanks to two decades of free-market economics and a decade of economic growth. And Brazil has become one of the largest economies in the world; Brazil joined with Argentina, Uruguay and Paraguay to form the Mercosur trade block.

    STUDENT: I understand that Mercosur is technically a "Customs Union".

    TEACHER: Correct. This means they have a common tariff for all imports from outside the block, obviously higher (or at least equal) than the customs duties for inter-zonal commerce.

    As international developments continue to open up opportunities, marketers must be able to evaluate a number of issues that can make global marketing more challenging than domestic marketing.

    When marketers identify such issues as differences in economic conditions, laws, and culture, they can identify when and how to tailor their marketing mix to serve target markets in other countries.

    Economic Conditions

    As noted earlier, the nations' economies are increasingly intertwined, and business cycles tend to follow similar patterns. However, there are differences, and these may be significant. In learning about particular countries, marketers need to find out such basics as the country’s stage of economic development, the buying power of its people, and the strength of its currency.

    Currencies - Each nation has its own currency -money that is in general use in that nation. The only important exception is the Eurozone; most EU countries have adopted the Euro as their common currency.

    Organizations that handle more than one type of currency must understand and keep up with exchange rates. Exchange rates are continually changing, which creates significant risks for global marketers.

    Political And Legal Considerations

    The international political and legal environment can affect a marketing strategy in several ways. In assessing a country, marketers need to consider whether its political system creates an acceptable climate for operating there. Relevant dimensions of the legal environment include laws limiting international trade, laws of host countries, and the General Agreement on Tariffs and Trade.

    Political Systems - Some political systems favor government control over the freedom of individuals and private organizations. Indonesia, Russia and China are examples of countries with an unfavorable reputation in that aspect.

    Another political issue is the country's stability. In the United States, the presidency can change hands as often as every four years, and as a result, policies regarding international trade can shift frequently. But although political leaders come and go, the U. S. system itself has endured the Civil War and shows no signs of ending. In contrast, other political systems, such as several in Latin America, stand on much shakier ground.

    Laws Limiting International Trade - Nations seek to protect the interests of domestic businesses by limiting the activities of foreign businesses within their borders. An example is antidumping laws, which are designed to prevent foreign businesses from harming local competitors by selling at less than cost.

    STUDENT: Naturally, the problem here is to define "cost". Average cost? Marginal cost? Plant cost?

    TEACHER: Of course, in practice every time this legislation is applied, it is in response to strong lobbies. The US applies an antidumping tariff to South American honey. How can the cost of producing honey be calculated?

    STUDENT: Well, maybe South American bees earn lower wages!

    TEACHER: Very funny indeed. Other common laws related to international trade include import restrictions, exchange controls, limits on who may own or work for the organization, and restrictions based on national security.

    Import restrictions may take the form of tariffs and quotas. A tariff is a set of duties charged on imported goods and services. In this sense, duties are taxes on imports or exports. The government may set duties for a type of product at a single rate for all countries, or it may charge different rates to different countries.

    STUDENT: Is this why countries want to get a "most favored nation" treatment from other countries?

    TEACHER: Correct. Once Country A achieves a "most favorable nation" status, from B, A’s products must always be treated by B as favorably as any other nation’s.

    Import quota is a limit on the amount of a product that may be brought into a country. The intent of import restrictions is to give domestic producers an edge within the country. However, they tend to hurt domestic buyers by leading to higher prices.

    STUDENT: What are the famous "non-tariff barriers"?

    TEACHER: Many countries dodge the trade agreements they have signed by using health and other bureaucratic regulations such as labeling and packaging as excuses to interfere with international commerce, making imports more difficult and expensive.

    Exchange controls are laws that place a ceiling on the amount of money that may be exchanged for other currency.

    Ownership restrictions may require that a majority of the company’s ownership be in the hands of the host country's citizens. Or a majority of the organization's personnel might have to be citizens of the host country. In that case, the organization has to either restrict its operations to countries with enough qualified personnel or arrange to train its employees to make them qualified.

    Some marketers also face restrictions related to national security. If the U.S. government determines that selling a particular product to buyers in certain countries poses a threat to national security, the government may prohibit the sale. This type of restriction particularly affects sales of high-tech products such as computers and communications equipment.

    Laws Of Host Nations - Businesses operating in foreign nations must observe those nations' laws. In some cases, business is more regulated in other countries than in the home country. For example, many European nations specify the days and hours during which businesses may operate. In other cases, multinational companies are challenged by being used to a less regulated environment in their home countries. For instance, many countries allow cartels and unregulated monopolies that are prohibited in the United States. In addition, patents and copyrights are better protected in the United States than in many countries,
    Sometimes an organization finds that a country’s laws make that country's market too inhospitable to serve. Coca-Cola Company pulled out of India for 16 years because of a requirement that the company disclose the formula for its concentrate. Rather than give away this closely guarded secret, Coca-Cola stayed away until the requirement was removed.

    The General Agreement On Tariffs And Trade - The laws and regulations governing international trade can make global marketing more difficult. Yet most governments also recognize that when international trade is easy and widespread, domestic consumers can benefit from wider choices and domestic businesses have access to more customers. These benefits are behind a variety of laws and policies designed to promote free trade.

    One of the most important efforts to make international trade easier is the General Agreement on Tariffs and Trade (GATT). GATT is an international framework of rules and principles for opening up trade between member nations, backed by an agency that serves as a forum for negotiations.


    TEACHER: The World Trade Organization, correct. Over 100 nations are member nations. Since the first GATT treaty was signed after World War II, tariff negotiations have taken place in several "rounds," and the average size of tariffs has plummeted.

    Culture And Language

    Marketers need a basic familiarity with the culture of any nation where they intend to operate. Becoming familiar with a culture is not the same as latching on to a few stereotypes and applying them lightly. Rather, marketers should develop a sense of the values and styles of behavior common in various countries so they can recognize cultural differences and work constructively with people of other cultures. Marketers need to know about customs, etiquette, and the dominant religion. Some potential areas of difference to be aware of include family roles, personal space, perception of time, individuality versus group identity, and the degree to which the culture emphasizes achievement or relationships.

    Knowledge of and sensitivity to cultural differences can smooth relationships with foreign partners and potential customers. This is especially important for marketing services, because the services marketer typically comes into direct contact with the customer. Thus, a business consultant who repeatedly violates a culture’s rules of etiquette is not going to get many referrals or much repeat business.

    Learning about a culture can uncover marketing opportunities. For example, the average German employee gets six weeks of vacation time and more than one holiday a month. This suggests a fertile marketplace for consumer products related to leisure time and for industrial products designed to boost productivity. And German retailers' practice of closing at 1:00 p.m. on Saturdays and all day Sundays has created an opportunity for U.S.-based franchises such as McDonald's, which are open seven days a week.

    Culture And Buying Behavior - Marketers need to learn about cultural influences on consumer behavior. The fact that a product was made in the United States impresses people in some countries, but not French or German consumers. In Asia's fast-food arena, KFC benefits from the fact that chicken is consumed worldwide and is not shunned by certain religions, as are pork (by Muslims) and beef (by Hindus). And when it comes to athletic shoes, Japanese consumers like striking color combinations, such as black and gold.

    Cultural differences apply not only to consumers but to the practices of businesses and businesspeople. Westerners who want to follow proper etiquette in Asia avoid joking around, wearing flashy clothes, giving lavish gifts, and making physical contact (except to shake an extended hand). In making buying decisions, Japanese businesspeople tend to place more importance on their relationship with the vendor than is common in the West.

    Language - An aspect of culture that affects many marketing decisions is language differences. Foreign marketers in Mexico, the U.S. or Japan have to overcome the hurdle of one different language, but other countries make that challenge look simple. China, for example, has a common written language but many different spoken dialects. Indonesia has more than 300 different language groups.

    And even groups who speak the same language have important language differences among them. A Spanish word that is perfectly innocent in Spain or Argentina, may be offending in Mexico or Venezuela.

    Recognizing the extent of language differences helps marketers realize that they must be careful to understand how consumers in other nations are likely to interpret not only their promotional messages but any communications at all, including brand names. No marketer wants to use a brand that sounds odd to potential buyers' ears. Consider, for example, Sweden's Krapp toilet paper, Japan's Homo salami, Italy's Mukk yogurt, and France's Pschitt soft drink.

    Obviously, in general advertisements are written in the local language.

    This is an ad from a Japanese company promoting in Argentina a car made in Brazil; the ad’s copy is in Spanish.But the widespread knowledge of English, and the fact that the language carries a certain prestige, motivates marketers to use it in countries where English is not the local language. The following is an ad written in English to sell a Swiss watch in some Latin America’s Spanish speaking countries.Ethical Considerations

    It seems reasonable to assume that ethics requires fair treatment of employees and customers, whatever their national origin. However, putting this principle into practice can be difficult, in part because different nations may have different standards.

    For many marketers, the ethical approach is to apply abroad the ethical standards they adhere to at home. Levi Strauss sets standards for its foreign contractors, such as requiring them to pay at least the prevailing local wage. Whirlpool finds that foreign consumers are eager to buy energy-efficient, water-saving appliances, so its concern for environmental issues pays off globally.

    Impact Of Marketing - Marketing a product in another culture can sometimes bring about detrimental changes in the targeted group's cultural practices. Asian cultures have been praised for having diets low in fat, but U.S.-based fast-food chains are introducing Asians to the joys of cheeseburgers and fried chicken.

    Producers of infant formulas have been criticized for using promotional practices that have the effect of encouraging new mothers, especially in less developed nations, to opt for bottle-feeding rather than breast-feeding, even though the latter is associated with healthier babies.

    STUDENT: Yes, I heard about a "textbook case" when the World Health Organization accused Nestlé of these practices, especially "motivating" pediatricians to recommend bottle-feeding to new mothers. The company yielded to the pressure and abandoned that marketing strategy.

    TEACHER: Me may also mention that U.S. tobacco companies have been criticized for aggressive marketing tactics in Asia, where cigarette sales had been concentrated in the hands of government monopolies that did little to promote smoking. In many Asian countries, U.S. cigarettes are now seen as glamorous, and there is much less awareness of their health risks than in the United States. From the perspective of quality-driven marketing, one might criticize all these tactics as being based primarily on the business's profit needs rather than on the needs of the customer.


    The least risky way to serve foreign markets, is to export the organization's products. Exporting involves producing the product in the organization's own country, then shipping it to another country for sale. Because this approach involves little change to the organization's way of operating, it is a common mechanism for a first attempt at serving foreign markets.

    A twist on exporting that is becoming more popular is international mail order. Fast door-to-door deliveries by services such as Federal Express and DHL make it

    easy for retailers such as Amazon to have goods shipped worldwide.


    Some organizations often opt for licensing arrangements. Licensing is granting another organization the rights to use a trademark or a patented product or process. In exchange for these rights, the organization that holds the license pays a fee.

    Now, please take a look at this ad, published in Argentina by Grimoldi and Fallabella.

    This add is a good example of global marketing and business.

    Hush Puppies is a division of Wolverine World Wide, the world’s leading maker of casual, work, and outdoor footwear. Hush Puppies is headquartered in Rockford, Michigan. Grimoldi is the licensee of Hush Puppies for Argentina, but the shoes are mostly manufactured in Brazil. Falabella is a Chilean company that owns a large department store in Buenos Aires, the capital city of Argentina.

    A popular form of licensing is franchising, extensively used by large firms like Coca Cola and Pepsi (for bottling and distributing) and McDonald’s (for restaurants). Granting a license carries a risk because the licensor may lose control over how the product is made and how the customer is treated. And when the licensing agreement ends, the licensee may use its newfound expertise to become a tough competitor.

    This is not normally the case of the large franchisers such as McDonald’s, which keep a strong control on all franchisees’ actions.

    STUDENT: But I know an example of the second comment you made above. One of the few markets where Pepsi was very much ahead of Coke in share was Venezuela. When the franchisee of Pepsi in Venezuela, who operated all bottling and distribution, switched to Coke in a surprise move, the situation was suddenly inverted: Coke became the market leader by far from one day to the next.

    TEACHER: Good real life example, another "textbook case". I guess there must be a sign posted now at Pepsi’s headquarters: "Never trust a franchisee!"

    Now, let me tell you about the "Chandon strategy" to segment markets, illustrated by this ad.
    Moët & Chandon is a French company that produces and markets a famous champagne. The company bought wineries in Chile and Argentina and produce "champagne" to be marketed in these countries, where the use of the word champagne is not legally restricted to the produce of the Champagne region of France, as it is in Europe and the US. Naturally, they did not want their cheaper local product to compete in the international market with the French product. On the other hand, using Moët or Chandon as local brand would be much better than using a new, completely different brand name. To solve this problem, Moët & Chandon markets its product in Chile and Argentina under the brand name Chandon, not Moët & Chandon. The company gets the benefit of the well known Chandon name, while preventing that any illegal export of its product could effectively compete with the French produce in third countries.
    Joint Ventures

    A joint venture is a business agreement in which two or more organizations share management of an enterprise. An organization that wants to enter a foreign market would enter into a joint venture with an organization from the targeted country or with experience operating there. Joint ventures can benefit organizations that are strong in some areas but not others. They seek a partner that has the strengths they lack.

    A joint venture gives the organization more control than it would have under a licensing agreement. At the same time, the organization does not have to accumulate as many resources or as much experience as it would without its venture partner. Furthermore, some countries, including India, China and Thailand, encourage the use of joint ventures by requiring that ownership be partly in local hands.

    Joint ventures also have drawbacks. The organization may have to compromise its own objectives when they conflict with those of its partner. Also, the organization may share so much information that its partner can become a formidable competitor. According to one report, the proliferation of alliances between U.S. and Asian companies in the computer industry is allowing Asian organizations to obtain technology that would have required an investment of billions of dollars and many years of research.

    Direct Ownership

    An organization may also own production and/or marketing operations in the foreign countries it serves. Such arrangements, called direct ownership, may involve setting up the necessary facilities or acquiring a foreign firm in the same line of business.

    Direct ownership gives the organization maximum control over foreign activities. Setting up operations close at hand may also be a condition of doing business with customers who want fast service. On the downside, direct ownership is expensive. It also requires an ability to handle language, cultural, and other differences. The normal way to gain this expertise is hiring locals to run its foreign operations. Because of the drawbacks, direct ownership tends to be most attractive for large firms and organizations that already have global experience.

    As a result of such activities, many marketers today work for foreign-based companies-and many more will tomorrow. Consequently, the most successful marketers of the future will be those with the flexibility and sensitivity required to work with and meet the needs of people from throughout the world.


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