Global Marketing

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GLOBAL MARKETING

INTRODUCTION

The Oxford University Press defines global marketing as “Marketing on a worldwide scale
reconciling or taking commercial advantage of global operational differences, similarities and
opportunities in order to meet global objectives.”

Global marketing is not a revolutionary shift, it is an evolutionary process. While the following does
not apply to all companies, it does apply to most companies that begin as domestic-only
companies.When a company becomes a global marketer, it views the world as one market and creates
products that will only require weeks to fit into any regional marketplace. Marketing decisions are
made by consulting with marketers in all the countries that will be affected. The goal is to sell the
same thing the same way everywhere.

THE EVOLUTION OF GLOBAL MARKETING

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.

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stage that the words "international", "multinational" or "global" are now rather outdated descriptions.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". In
practice, an organisation evolve and in the following table outlines a typology of terms which
describes the characteristics of companies at different stages in the process of evolving from domestic
to global enterprises.

Table1:

Management Stage one Stage two International Stage three Stage four Global
emphasis Domestic Multinational
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 Integrated
up
Manufacturing Mainly domestic Mainly domestic Host country Lowest cost worldwide
stance
Investment policy Domestic Domestic used Mainly in each host Cross subsidization
worldwide country
Performance Domestic market Against home country Each host country Worldwide
evaluation share market share market share
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.

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.

The “Four P’s” of marketing: product, price, placement, and promotion are all affected as a company
moves through the five evolutionary phases to become a global company. Ultimately, at the global
marketing level, a company trying to speak with one voice is faced with many challenges when
creating a worldwide marketing plan. Unless a company holds the same position against its
competition in all markets (market leader, low cost, etc.) it is impossible to launch identical marketing
plans worldwide.

Product

A global company is one that can create a single product and only have to tweak elements for
different markets. For example, Coca Cola uses two formulas (one with sugar, one with corn syrup)
for all markets. The product packaging in every country incorporates the contour bottle design and the
dynamic ribbon in some way, shapes, or form. However, the bottle or can also includes the country’s
native language and is the same size as other beverage bottles or cans in that country.

Price

Price will always vary from market to market. Price is affected by many variables: cost of product
development (produced locally or imported), cost of ingredients, cost of delivery (transportation,
tariffs, etc.), and much more. Additionally, the product’s position in relation to the competition
influences the ultimate profit margin. Whether this product is considered the high-end, expensive
choice, the economical, low-cost choice, or something in-between helps determine the price point.

Placement

How the product is distributed is also a country-by-country decision influenced by how the
competition is being offered to the target market. Using Coca-Cola as an example again, not all
cultures use vending machines. In the United States, beverages are sold by the pallet via warehouse
stores. In India, this is not an option. Placement decisions must also consider the product’s position in
the market place. For example, a high-end product would not want to be distributed via a “dollar
store” in the United States. Conversely, a product promoted as the low-cost option in France would
find limited success in a pricey boutique.

Promotion

After product research, development and creation, promotion (specifically advertising) is generally
the largest line item in a global company’s marketing budget. At this stage of a company’s
development, integrated marketing is the goal. The global corporation seeks to reduce costs, minimize
redundancies in personnel and work, maximize speed of implementation, and to speak with one voice.
Effective global advertising techniques do exist. The key is testing advertising ideas using a marketing
research system proven to provide results that can be compared across countries.

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 state wide 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).

A) 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 spread sheets that one can use to calculate
comparative advantage

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.

B) The product trade cycle:

The model describes the relationship between the product life cycle, trade and investment (Table 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
table 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. 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.

C) 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.

A) 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.. 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.

B) There is standardised approach which is 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.

C) 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.

D) 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.

E) Global marketing has given greatest lift to producers of raw agricultural products that has 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. 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.

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.

LIMITATION OF GLOBAL MARKETING

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.

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