SUPPLEMENTARY TEXTS







INTERNATIONAL MARKETS
OFFER NEW OPPORTUNITIES
In the clothing business Shibuya is the place to be. The downtown Tokyo shopping neighborhood generates retail cash flows higher than anywhere else in the world. Club Monaco, Canada’s first major retailing venture in Japan, is now located in the heart of Shibuya and customers are streaming in.
Founded in 1985, the Toronto-based fashion «concept retailer» sells a line of brand label men’s and women’s casual wear and accessories. The Japanese deal called for Club Monaco’s Japanese partner, a subsidiary of the Seibu Saison Group, to open at least 10 Club Monaco stores in Japan.
The key to Club Monaco’s success in Japan—at least the first few days out— wasn’t hard to find. Customers can’t believe the prices. While Club Monaco’s $80 pair of jeans and $69 cotton-knit shirt may not seem like a bargain to the average Canadian shopper, in Japan such prices would be a great bargain.
The Japanese first became interested in the Club Monaco concept after visiting the store in San Francisco. Part of the store’s success lies in the Japanese attraction to things that are European or North American. But while the store carries much of the same mix of casual basics that Canadian Club Monaco stores offer, Japanese stylists may be added to produce certain products specific to the Japanese Market.
As this case shows, a marketing manager may find exciting opportunities in international markets. Moreover, the same ideas we’ve been discussing throughout this book apply to international markets. But planning strategies for international markets can be even harder than for domestic markets. Cultural differences are more important and the other uncontrollable variables may vary more. Each foreign market may need to be treated as a separate market with its own
sub-markets. Simply lumping together all people outside Canada
as «foreigners» or assuming they’re just like Canadian customers
almost guarantees failure of countries and the policies of governments. The new catchword used to describe these changes is globalization. Accompanying this globalization of markets is a restructuring of the world’s economic activities. Other countries have emerged to challenge U.S. dominance in foreign trade. Many other changes have also occurred. Implementation of a Canada-U.S. Free Trade Agreement, the possibility of a North American free trade zone that includes Mexico, the integration of Europe, the liberalization of Eastern Europe, and the continued rise of the Asia-Pacific region all point to a continuation of global interdependence.
Globalization means increased opportunities for business as well as fiercer global competition. Businesses now have to be poised to take advantage of opportunities in places with which they’re unfamiliar. Doing business abroad means dealing with different cultural norms, reacting to different economic systems, and being exposed to greater political and financial risks.
The would-be global marketer has to acquire new skills to exploit opportunities abroad. Even on their «home turf» marketers may lose the «home field» advantage if they’re unprepared for foreign entry. The truly successful firms will be those capable of facing the new challenges globalization presents.
For Canada, major changes in the global economy and the newly introduced Free Trade Agreement with the United States spell new opportunities and challenges for Canadian businesses. Before looking at decision factors in international marketing, we’ll first examine the nature of Canada’s foreign trade.
Canada relies heavily on foreign trade. Approximately 27 percent of its GNP is accounted for by exports. Canada’s economy is among the most reliant on exports of the major world economies. Canada is overwhelmingly dependent on the United States for both exports and imports, although this dependence is declining somewhat. The United States in recent years has received just under two thirds of all Canadian exports. Canada’s exports to the Pacific Rim and the European Economic Community (EEC) are each now running in excess of 10 percent. These changes are even more dramatic in some provinces such as British Columbia, whose exports to the Asia-Pacific region (40 percent) about equal exports to the United States (41 percent).
Canada is still basically an exporter of natural resources and an importer of finished products. On the other hand, our large trading partners are big importers of primary products and large exporters of manufactured goods. Motor vehicles and parts now account for about two thirds of Canada’s exports of manufactured end products. Other sales of end products have averaged between 10 and 12 percent of
total exports. Why are motor vehicle exports so high? A duty-free market in automotive and related products was created by the Canada-U.S. Automotive Agreement of 1965.
What kinds of multinational factors make it difficult for Canadian manufacturers to compete in world markets? What products can Canadian manufacturers successfully produce? What items cannot be profitably manufactured because of foreign competition? Here’s what one observer considers «significant Canadian conditions and circumstances» affecting new product development.
The Canadian market is a relatively small one stretching for
3,500 miles. Often, large parts of that total market can be reached more cheaply by foreign manufacturers than they can by firms producing elsewhere in Canada. This nation has high labor costs and its productivity relative to other countries has steadily declined.
A more recent study cited higher wages, diseconomies of small scale, difficulties in obtaining adequate financing, tax costs and administrative burdens of big government as problems confronting Canadian manufacturers. Despite these problems, the study showed that Canadian producers could succeed by meeting one or more of the following conditions: (1) product superiority either in terms of technical product leadership or high quality; (2) process or manufacturing superiority, either technical process superiority or a unique combination of two or more processes within the same firm; (3) management philosophy and style, leading to the ability to compete economically in cost-sensitive markets despite Canada’s disadvantages cited previously; (4) customizing the product package, which generally involved a unique combination of product, process, and engineering skill, though not necessarily technological superiority.
Carefully engineered, well-designed Canadian products that meet the needs of specific customer segments are being successfully marketed both in Canada and abroad. Some examples include most of Northern Telecom’s electronic equipment, hockey equipment from Cooper Canada, Ltd., and sailboats from Performance Sailcraft, Inc.
Many Canadian manufacturers are subsidiaries of foreign-owned corporations. Such organizations could compete successfully abroad if they were allowed to market certain products internationally.
In other words, the Canadian subsidiary might be given a «world product mandate» for certain items. The Canadian firm with such
a mandate would design, engineer, and manufacture in Canada.
A worldwide marketing effort would also be directed from this country. Such mandates are, in fact, beginning to be assigned to Canadian subsidiaries.
World product mandating is an exciting new development that may significantly increase Canada’s exports of manufactured goods. It may mean that more Canadian subsidiaries will advance beyond the stage of branch manufacturing plant.
NEW DEVELOPMENTS IN INTERNATIONAL TRADE
The XXI century will present new challenges for Canadian business. Canada’s participation in the Free Trade Agreement with the United States will create new opportunities with its most important business partner. At the same time, the agreement will open the Canadian economy to greater foreign competition. There’s fear that Canada will be relegated to low value added industries, such as primary resources, while losing manufacturing capacity as it migrates to the United States. The potential for a North American economic integration that includes Mexico should open new opportunities for the export of value added and primary products. However Mexico’s lower wage rates could put pressure on Canada’s labor-intensive industries.
The Canada-U.S. Free Trade Agreement, which came into effect on January 1, 1989, is the largest such agreement ever concluded between two countries. The agreement reflects the commitment of both Canada and the United States to the liberalization of trade. Its supporters say the agreement will improve economic efficiency in both countries, thereby increasing our citizens’ well-being and better preparing our economies for global competition. The agreement means that Canadian business is now assured access to the world’s most affluent market and Canada’s most important trading partner.
The Canada-U.S. Free Trade Agreement is phased in over a 10-year period. The agreement’s main objectives are:
To eliminate tariff and nontariff barriers to trade in goods and services.
To facilitate fair competition in the Free Trade area.
To liberalize cross-border investments.
To establish the institutional and legal bases for joint administration of the agreement and resolution of disputes.
To provide a continuing monitoring and adjustment system to enhance benefits of the agreement.
To allow citizens of either country to trade some professional services across the border.
Canada is expected to benefit greatly over the long term, the agreement’s supporters say although short-term adjustments in the economy may be painful. The agreement allows for Canadian firms’ unimpeded access to most areas of the U.S. economy and consumers. This increases Canada’s free trade area by over 250 million consumers.
Canada’s Department of Finance estimates the overall economic benefit to consumers and industry that’s likely to result from the Free Trade Agreement as follows;
Canada’s real income should increase by 2.5 percent over the long term, representing an increase in real income of $450 per year for every Canadian.
Output should rise in many sectors of the economy. The estimate is for a 10.6 percent increase in manufacturing output, 2.1 percent in the resource sector, and approximately 1 percent in services.
For Western Canadians the agreement is expected to yield gains in the expansion of the petrochemical industry; more open markets for oil, gas, uranium, potash, forest products, fish, and cattle exports; and better access to U.S. manufactured goods. In Central Canada, the agreement is expected to benefit the uranium industry, potash producers, oil industry, beef producers, hydroelectricity, and urban and intercity sectors as well as the aerospace industry.
Ontario, with its already strong trade with the United States, is also expected to post significant gains. Over 90 percent of Ontario’s exports go to the United States. Manufacturers in Ontario are expected to benefit from free access to the U.S. market. The agreement also secures current markets in the United States for products such as coal, steel, electricity, and uranium. Ontario’s financial services sector is also likely to benefit from the agreement.
For Quebec, the hydroelectricity industry should be a big winner as access to the U.S. market is assured, while technical regulations that have hindered pork exports to the United States will be eased allowing greater access to the U.S. market.
For Canada’s Atlantic provinces, the export-dependent fish, forest products, minerals, and energy industries are expected to benefit from secure access to the U.S. markets and from the more equitable dispute-settling mechanism established under the act.
Many Canadians fear the migration of jobs and capital to south of the border. They expect that free trade with the United States will relegate Canadians to low value added primary resources extraction industries. The risk from this perspective is that U.S. and other manufacturers will no longer need to establish plants in Canada. Rather, these manufacturers will find it more efficient to consolidate manufacturing in the United States and ship to Canada from this region. Others fear that Canada will need to weaken its social welfare programs and its universal Medicare program in order to compete with U.S. business. Loss of Canadian cultural identity is another often cited objection to the Free Trade Agreement.
Beyond North America, the integration of the European Community into a market of 320 million consumers accounting for 22 percent of the world’s GNP (compared to 20 percent in the United States) is expected to present new global competition for Canadian firms. As European firms seek to take advantage of this larger market, they’re likely to increase their efficiency while erecting barriers to firms not operating within Europe.
Growth in trade between Canada and the Asia-Pacific region will open new markets for Canadian goods and provide access to new sources of supply. However, Canadian firms will face stiff competition from Japan and some of the newly industrialized countries in this region.
Given exports’ importance to the Canadian economy, various government and nongovernment agencies provide assistance and offer programs to help foster efficient export activities by Canadian firms.
Both the federal and provincial governments attempt to help Canadian companies wishing to sell their products in foreign markets. The Department of External Affairs has a number of geographic divisions, each specializing in a specific area of the world. These divisions assist companies with developing capital projects and export promotions in their areas of interest. The department also helps coordinate export activities of other federal departments and agencies.
WHY BOTHER WITH INTERNATIONAL MARKETS?
All countries trade to some extent—we live in an interdependent world. In general, trade expands as a country develops and industrializes. The largest traders are highly developed nations. For example, the United States, Japan, and West Germany are the largest exporters. In combination, exports from these three countries account for about 40 percent of world trade in manufactured goods. The United States exports about 20 percent of all its manufactured goods and 40 percent of all agricultural output. In addition, the United States imports about 18 percent of the goods traded among countries.
The largest changes in world trade are usually seen in rapidly developing economies. Over the past decade, for example, exports from Hong Kong, Taiwan, and Singapore have risen dramatically.
It’s easy for a marketing manager to fall into the trap of forgetting about international markets. After all, Canada is one of the most prosperous markets in the world. Why go to the trouble of looking elsewhere for opportunities?
Program for Export Market Development assists Canadian firms in the area of export promotion.
Canada-U.S. Defense Production Sharing Program and the Canada-U.S. Defense Development Sharing Program allow Canadian firms to compete alongside U.S. firms to provide defense supplies.
The Grains and Oilseeds Program offers assistance with producing and marketing oilseeds and their products.
Export Financing program assists with export financing.
Export Permits and Controls is a program designed to make exporters aware of the requirements of the export/import acts.
WIN Exports program operates a world information network designed to help Canadian trade development officers around the world match Canadian suppliers with market opportunities in their region.
Technology Development department helps to promote the export of Canadian high-tech products.
Trade Commissioner Services Abroad operates a worldwide network of trade commissions to aid companies seeking export markets. They help identify agents and provide information on market and financial conditions among other services.
Info Export provides an overall guide to all export programs and services of the federal government.
International Trade Centers provide a wide range of trade services from locations all across Canada.
Other government departments that provide export assistance include:
The Department of Regional and Industrial Expansion has marketing branches in Ottawa and regional branches throughout the country.
Export Development Corporation provides financial services to Canadian exporters and foreign buyers to develop Canadian export trade.
Canadian Commercial Corporation acts as a prime contractor when purchases of Canadian goods are made on a government-to-government basis.
Canadian International Development Agency administers and operates Canadian development assistance in over 80 countries.
Provincial governments directly assist exporters in their provinces.
Nongovernment support is available from the Canadian Exporters Association, chartered banks, the Canadian Manufacturers Association, the Canadian Chamber of Commerce, bilateral trade associations, and centers for international business studies.
The answer to that question is important. The world is getting smaller. Advances in communications and transportation are making it easier to reach international customers. Product-market opportunities are often no more limited by national boundaries than they are by provincial boundaries in Canada. Around the world there are potential customers with needs and money to spend. Ignoring those customers doesn’t make any more sense than ignoring potential customers in the same town. The real question is whether the firm can effectively use its resources to meet customers’ needs at a profit.
International expansion sometimes offers the firm a way to extend its product life cycle. You already know that profits from a product-market ultimately decline as growth slows. But the same product may be at different life cycle stages in different markets. That’s good motivation to consider potential markets in other countries, especially if the product life cycle isn’t as far along and the marketing manager can «transfer» marketing know-how—or some other competitive advantage—it has already developed. The marketing manager who carefully looks for those opportunities overseas often finds them. Different countries are at different stages of economic and technological development, and their consumers have different needs at different times.
Regardless of the life-cycle stage, if overseas customers are interested in the products a firm offers (or could offer), serving them may make it possible to lower costs by achieving better economies of scale. And that may give a firm a competitive advantage both in its home markets and abroad. This sort of competitive pressure may actually force a marketing manager to expand into international markets. A marketing manager who’s only interested in the «convenient» customers in her own backyard may be rudely surprised to find that an aggressive, low-cost foreign producer is willing to pursue those customers even if doing it isn’t convenient. Many companies that thought they could avoid the struggles of international competition have learned this lesson the hard way.
Unfavorable trends in the uncontrollable variables at home—or favorable trends in other countries—may make international marketing particularly attractive. For example, Canada’s population growth has slowed and income is also leveling off.
In most other places in the world, population is increasing rapidly and income is increasing. Marketing managers won’t be able to rely on the constant market growth that drove Canadian sales since World War II. For many firms, growth—and perhaps even survival—will come only by taking aim at more distant customers.
Our point here is basic. In today’s world, it doesn’t make sense to ignore international markets and casually assume that all of the best opportunities are at home. Careful analysis of all of the facts may lead to that conclusion. But not stopping to consider international opportunities can be a costly mistake.
DEGREES OF INVOLVEMENT
IN INTERNATIONAL MARKETING
Attractive opportunities in foreign countries have led many firms into international marketing, and varying degrees of involvement are possible. We’ll discuss six basic kinds of involvement: exporting, licensing, contract manufacturing, management contracting, joint venturing, and wholly-owned subsidiaries. Let’s look at these possibilities.
Many companies get into international marketing just by exporting (selling some of what the firm is producing to foreign markets). Some firms start exporting just to get rid of surplus output. For others, exporting comes from a real effort to look for new opportunities.
Some firms try exporting without changing the product—or even the service or instruction manuals! As a result, some early efforts aren’t very satisfying to either buyers or sellers. When Toyota first exported cars to the United States, the effort was a failure. Americans weren’t at all interested in the Toyota model that sold well in Japan. Toyota tried again three years later with a new design and a new marketing mix. This second effort was a real success.
SPECIALISTS CAN CUT THROUGH RED TAPE
Exporting does involve some government red tape, but firms can learn to handle it fairly quickly. Or that job can be turned over to middleman specialists. Export agents can handle the paperwork as the products are shipped outside the country. Then agents or merchant wholesalers can handle the importing details. Even large producers with many foreign operations use international middlemen for some products or markets. Such middlemen know how to handle the sometimes confusing formalities and specialized functions. Even a small mistake can tie products up at national borders for days or even months.
Exporting doesn’t have to involve permanent relationships. Of course, channel relationships take time to build and shouldn’t be treated lightly—sales reps’ contacts in foreign countries are «investments.» But it’s relatively easy to cut back on I these relationships or even drop them. Some firms, on the other hand, develop more formal and permanent relationships with nationals in foreign countries, including licensing, contract manufacturing, management contracting, and joint venturing.
Licensing is a relatively easy way to enter foreign markets. Licensing means selling the right to use some process, trademark, patent, or other right for a fee or royalty. The licensee takes most of the risk because it must invest some capital to use the right.
This can be an effective way of entering a market if good partners are available. Gerber entered the Japanese baby food market this way but still exports to other countries.
Contract manufacturing means turning over production to others while retaining the marketing process. Sears used this approach as it opened stores in Latin America and Spain.
This approach can be especially desirable where labor relations are difficult or where there are problems obtaining supplies and «buying» government cooperation. Growing nationalistic feelings may make this approach more attractive in the future.
Management contracting means the seller provides only management skills; others own the production facilities. Some mines and oil refineries are operated this way—and Hilton operates hotels all over the world for local owners. This is a relatively low-risk approach to international marketing. The company makes no commitment to fixed facilities, which can be taken over or damaged in riots or wars.
If conditions get too bad, key management people can fly off on the next plane and leave the nationals to manage the operation.
Joint venturing means a domestic firm entering into a partnership with a foreign firm. As with any partnership, there can be honest disagreements over objectives (for example, about how much profit is desired and how fast it should be paid out) as well as operating policies. Where a close working relationship can be developed—perhaps based on a Canadian firm’s technical and marketing know-how and the foreign partner’s knowledge of the market and political connections — this approach can be very attractive to both parties.
In some situations, a joint venture is the only type of involvement that’s possible. For example, IBM wanted to increase its 2 percent share of the $1 billion a year that industrial customers in Brazil spend on data processing services. But Brazilian law severely limited expansion by foreign computer companies. To be able to grow, IBM had to develop a joint venture with a Brazilian firm. Because of Brazilian laws, IBM could own only a 30 percent interest in the joint venture. But IBM decided it was better to have a 30 percent share of a business and be able to pursue new market opportunities than to stand by and watch competitors take the market.
A joint venture usually requires a big commitment from both parties. When the relationship doesn’t work out well, it can be a nightmare that causes the Canadian firm to want to go into a wholly-owned operation. But the terms of the joint venture may block this for years.
When a firm feels that a foreign market looks really promising, it may want to take the final step. A wholly-owned subsidiary is a separate firm owned by a parent company. This gives complete control and helps a foreign branch work more easily with the rest of the company.
Some multinational companies have gone this way. It gives them a great deal of freedom to move products from one country to another. If a firm has too much capacity in a country with low production costs, for example, it can move some production there from other plants and then export to countries with higher production costs. This is the same way that large Canadian firms ship products from one area to another, depending on costs and local needs.
MULTINATIONAL CORPORATIONS EVOLVE
TO MEET INTERNATIONAL CHALLENGE
Multinational corporations have a direct investment in several countries and run their businesses depending on the choices available anywhere in the world. Well-known U.S.-based multinational firms include Coca-Cola, Eastman Kodak, Warner-Lambert, Pfizer, Anaconda, Goodyear, Ford, IBM, ITT, Corn Products, 3M, National Cash Register, H. J. Heinz, and Gillette. They regularly earn over a third of their total sales or profits abroad.
Many multinational companies are American. But there are also many well-known other companies such as Nestle, Shell (Royal Dutch Shell), Lever Brothers (Unilever), Sony, and Honda. They have well-accepted «foreign» brands not only in Canada, but also around the world. Such Canadian organizations as Alcan, Canron, CIL, Consolidated Bathurst, and Seagrams have a controlling or complete interest in U.S. firms.
Indeed Canadian-owned firms are far more multinational than most of us realize. Some 22 Canadian-controlled firms appear in a recent Fortune magazine list of «500 Largest Non-U.S. Industrial Corporations.» (Another eight Canadian-based but foreign-owned firms — the largest being General Motors of Canada — also appear on that list.)
Foreign firms are beginning to see that it may be attractive to operate in this large—if competitive—market. The Japanese entry into the field of electronic products is well known. The Japanese are now building plants abroad. Sony has had a TV plant in southern California since 1972. And Honda makes cars in Ohio. Kagome, the leading brand of ketchup in Japan, has even set up a factory in California to produce ketchup for export to consumers back in Japan.
One reason for the movement of some multinational firms into North America is that labor costs in their own countries (including Japan) are rising. Considering the total cost—including transportation costs—it may be more economical to produce products in the United States and Canada.
From an international view, multinational firms do — as a GM manager said — «transcend national boundaries.» They see world market opportunities and locate their production and distribution facilities for greatest effectiveness. This has upset some nationalistic business managers and politicians. But these multinational operations may be hard to stop. They are no longer just exporting or importing. They hire local workers and build local plants. They have business relationships with local business managers and politicians. These are powerful organizations. And they have learned to deal with nationalistic feelings and typical border barriers, treating them simply as uncontrollable variables.
We don’t have one world politically yet, but business is moving in that direction. We may have to develop new kinds of corporations and laws to govern multinational operations. In the future, it will make less and less sense for business and politics to be limited by national boundaries.
IDENTIFYING DIFFERENT KINDS
OF INTERNATIONAL OPPORTUNITIES
A multinational firm that has accepted the marketing concept looks for opportunities in the same way we’ve been discussing throughout the text. That is, it looks for unsatisfied needs that it might be able to satisfy given its resources and objectives.
The typical approach is to start with the firm’s current products and the needs it knows how to satisfy, and then try to find new markets—wherever they may be—for the same or similar unsatisfied needs. Next the firm might adapt the Promotion, and then the Product. Later the firm might think about developing new products and new promotion policies. Here the emphasis is on Product and Promotion. But Place obviously has to be changed for new markets, and Price adjustments probably would be needed too.
The «Same-Same» box can be illustrated with fast-food chain McDonald’s entry into European markets. As McDonald’s director of international marketing said, «Our target audience is the same worldwide—young families with children—and our advertising is designed to appeal to them.» The basic promotion messages must be translated, of course. But the company applies the same strategy decisions that it made for the North American market. McDonald’s has adapted its Product in Germany, Russia and Ukraine however, by adding beer to appeal to adults who prefer beer to soft drinks. Its efforts have been extremely successful so far.
McDonald’s and other firms expanding into international markets usually move first into markets with good economic potential such as Western Europe and Japan. But if McDonald’s or some other fast-food company wanted to move into much lower-income areas, it might have to develop a whole new Product—perhaps a traveling street vendor with «hamburgers» made from soybean products.
Let us now consider the different kinds of Promotion needed for a simple bicycle. In some parts of the world, bicycles provide basic transportation, while in North America people use them mainly for recreation. So a different Promotion emphasis is needed in these different target markets.
Both Product and Promotion changes are needed. Such moves increase the risk and obviously require more market knowledge.
International marketing often means going into unfamiliar markets. This can increase risk. The farther you go from familiar territory, the greater the chance of making big mistakes. But not all products offer the same risk. Think of the risks running along a «continuum of environmental sensitivity». Some products are relatively insensitive to the economic or cultural environment they’re placed in. These products may be accepted as is or they may require just a little adaptation to make them suitable for local use. Most industrial products are near the insensitive end of this continuum.
At the other end of the continuum, we find highly sensitive products that may be difficult or impossible to adapt to all international situations. At this end are ladylike or high-style consumer products. It’s sometimes difficult to understand why a particular product is well accepted in a home market. This, in turn, makes it even more difficult to predict how it might be received in a different environment.
This continuum helps explain why many of the early successes in international marketing were basic commodities such as gasoline, soap, transportation vehicles, mining equipment, and agricultural machinery. It also helps explain why some consumer products firms have been successful with the same promotion and products in different parts of the globe.
Yet some managers don’t understand the reason for these successes. They think that a global marketing mix can be developed for just about any product. They fail to see that firms producing and/or selling products near the sensitive end of the continuum should carefully analyze how their products will be seen and used in new environments—and plan their strategies accordingly. American-made blue jeans, for example, have been status symbols in Western and Eastern Europe, and producers have been able to sell them at premium prices through the best middlemen. On the other hand, Gillette is trying to standardize its international marketing in westernized countries.
Judging opportunities in international markets uses the same ideas we’ve been discussing throughout this text. Basically, each opportunity must be evaluated considering the uncontrollable variables. But in international markets there may be more of these—and they may be harder to evaluate. Estimating the risk involved in particular opportunities may be very difficult. Some countries are not as politically stable as the U.S. and Canada. Their governments and constitutions come and go. An investment that was safe under one government might become the target for a takeover under another. Further, the possibility of foreign exchange controls and tax rate changes can reduce the chance of getting profits and capital back to the home country.
Because the risks are hard to judge, it may be wise to enter
international marketing by exporting first, building know-how and confidence over time. Experience and judgment are even more important in unfamiliar areas. Allowing time to develop these skills among a firm’s top management as well as its international managers makes sense. Then the firm will be in a better position to judge the prospects and risks of going further into international mar-
keting.
INTERNATIONAL MARKETING REQUIRES
EVEN MORE SEGMENTING
Success in international marketing requires even more attention to segmenting. There are over 140 nations with their own unique differences! There can be big differences in language, customs, beliefs, religions, race, and income distribution patterns from one country to another. This obviously complicates the segmenting process. But what makes it even worse is that there’s less dependable data as firms move into international markets. While the number of variables increases, the quantity and quality of data go down. This is one reason why some multinational firms insist that local operations be handled by natives. They at least have a feel for their markets.
In the rest of this text we’ll emphasize final consumer differences, because they’re likely to be greater than intermediate customer differences. Also we’ll consider regional groupings and stages of economic development, which can aid your segmenting.
REGIONAL GROUPINGS MAY MEAN MORE
THAN NATIONAL BOUNDARIES
Consumers in the same country often share a common culture, and other uncontrollable variables may be homogeneous. For this reason it may be logical to treat consumers’ countries as a dimension for segmenting markets. But sometimes it makes more sense to treat several nearby countries with similar cultures as one region (Central America or Latin America, for example). Or several nations that have banded together to have common economic boundaries can be treated as a unit. The outstanding example is the movement toward economic unification of the European Community (EC) countries.
The countries that form the European Community have dared to abandon old squabbles and nationalistic prejudices in favor of cooperative efforts to reduce taxes and other controls commonly applied at national boundaries.
In the past, each country has had its own trade rules and regulations. These differences made it difficult to move products from one country to the other or to develop economies of scale. Now a commission with representatives from each nation has developed a plan to reshape the individual countries into a unified economic superpower that some have called the «United States of Europe.»
The plan will eliminate nearly 300 separate barriers to inter-European trade. Trucks are able to move from Denmark to Belgium and dentists from Belgium to Greece. Products spill across the European continent and Britain. The increased efficiency that comes from eliminating these barriers is expected to cut consumer prices in Europe by 6 percent and create 5 million new jobs.
What’s more, with 320 million prospering consumers, Europe will become the world’s richest market. Of course, centuries of cultural differences won’t instantly disappear, and they may never disappear. So removal of economic barriers won’t eliminate the need to adjust strategies to reach submarkets of European consumers. Yet the cooperative arrangement will give firms that operate in Europe easier access to larger markets, and the European countries will have a more powerful voice in protecting their own interests.
These cooperative arrangements are very important. Taxes and restrictions at national or regional borders aren’t only annoying but also can greatly reduce marketing opportunities. Tariffs (taxes on imported products) vary, depending on whether the country is trying to raise revenue or limit trade. Restrictive tariffs often block all movement. But even revenue-producing tariffs cause red tape and discourage free movement of products.
Quotas act like restrictive tariffs. Quotas set the specific quantities of products that can move into or out of a country. Great market opportunities may exist in a unified Europe, for example, but import quotas (or export controls applied against a specific country) may discourage outsiders from entering. The Canadian government, for example, has controlled Japan’s export of shoes, textiles, and TVs to Canada. Otherwise even more Japanese products would have entered Canada.
STAGES OF ECONOMIC DEVELOPMENT
HELP DEFINE MARKETS
International markets vary widely within and between countries. Some markets are more advanced and/or growing more rapidly than others. And some countries or parts of a country are at different stages of economic development. This means their demands and even their marketing systems vary.
To get some idea of the many possible differences in potential markets and how they affect strategy planning, we’ll discuss six stages of economic development. These stages are helpful, but they greatly oversimplify the real world for two reasons. First, different parts of the same country may be at different stages of development so it isn’t possible to identify a single country or region with only one stage. Second, some countries skip one or two stages due to investment from multinational companies or from their own eager governments. For example, the building of uneconomical steel mills to boost national pride—or the arrival of multinational car producers—might lead to a big jump in stages. This stage-jumping doesn’t destroy the six-stage process, it just explains why more rapid movements take place in some situations.
In this stage, most people are subsistence farmers. There may be a simple marketing system (perhaps weekly markets) but most of the people aren’t even in a money economy. Some parts of Africa and New Guinea are in this stage. In a practical marketing sense, these people aren’t a market because they have no money to buy products.
Some countries in sub-Saharan Africa and the Middle East are in this second stage. During this stage, we see more market-oriented activity. Raw materials such as oil, tin, and copper are extracted and exported. Agricultural and forest crops such as sugar, rubber, and timber are grown and exported. Often this is done with the help of foreign technical skills and capital. A commercial economy may develop along with—but unrelated to—the subsistence economy. These activities may require the beginnings of a transportation system to tie the extracting or growing areas to shipping points. A money economy operates in this stage.
Industrial machinery and equipment are imported. And huge construction projects may import component materials and supplies. Such countries also need imports—including luxury products—to meet the living standards of technical and supervisory people. These items may be handled by company stores rather than local retailers.
The few large landowners and those who benefit by this new business activity may develop expensive tastes. The few natives employed by these larger firms and the small business managers who serve them may form a small, middle-income class. But most of the population is still in the first stage; for practical purposes, they aren’t in the market. The total market in Stage 2 may be so small that local importers can easily handle the demand. There’s little reason for local producers to try to supply it.
In this third stage, there’s some processing of the metal ores or agricultural products that once were shipped out of the country in raw form. Sugar and rubber, for example, are both produced and processed in Indonesia. The same is true for oil in the Persian Gulf. Multinational companies may set up factories to take advantage of low-cost labor. They may export most of the output, but they do stimulate local development. More local labor becomes involved in this stage. A domestic market develops. Small local businesses start to handle some of the raw material processing.
Even though the local market expands in this third stage, a large part of the population is still at the subsistence level, almost entirely outside the money economy. But a large foreign population of professionals and technicians may still be needed to run the developing agricultural-industrial complex. The demands of this group and of the growing number of wealthy natives are still quite different from the needs of the lower class and the growing middle class. A domestic market among the local people begins to develop. But local producers still may have trouble finding enough demand to keep them in business.
At this stage, small local manufacturing begins, especially in those lines that need only a small investment to get started. Often these industries grow out of small firms that developed to supply the processors dominating the last stage. For example, plants making sulfuric acid and explosives for extracting mineral resources might expand into soap manufacturing. Recently multinational firms have speeded development of countries in this stage by investing in promising opportunities.
Paint, drug, food and beverage, and textile industries develop in this stage. Because clothing is a necessity, the textile industry is usually one of the first to develop. This early emphasis on the textile industry in developing nations is one reason the world textile market is so competitive.
Some of the small producers become members of the middle- or even upper-income class. They help to expand demand for imported products. As this market grows, local businesses begin to see enough volume to operate profitably. So there’s less need for imports to supply nondurable and semidurable products. But consumer durables and capital equipment are still imported.
In this stage, the production of capital equipment and consumer durable products begins, including cars, refrigerators and machinery for local industries. Such manufacturing creates other demands: raw materials for the local factories, and food and fibers for clothing for the rural population entering the industrial labor force.
Industrialization has begun. But the economy still depends on exports of raw materials, either wholly unprocessed or slightly processed.
The country may still have to import special heavy machinery and equipment in this stage. Imports of consumer durables may still compete with local products. The foreign community and the status-conscious wealthy may prefer these imports.
Countries that haven’t gone beyond the fifth stage are mainly exporters of raw materials. They import manufactured products to build their industrial base. In the sixth stage, exporting manufactured products becomes most important. The country specializes in certain types of manufactured products such as iron and steel, watches, cameras, electronic equipment, and processed food.
Many opportunities for importing and exporting exist at this stage. These countries have grown richer and have both needs and purchasing power for a wide variety of products. In fact, countries in this stage often carry on a great deal of trade with each other. Each trades those products in which it has production advantages. In this stage, almost all consumers are in the money economy. And there may be a large middle-income class. Canada, the United States, most of the Western European countries, and Japan are at this last stage.
It’s important to see that it’s not necessary to label a whole country or geographic region as being in one stage. In fact, different parts of Canada have developed differently and are in different stages.
HOW THESE STAGES CAN BE USEFUL
IN FINDING MARKET OPPORTUNITIES
A good starting point for estimating present and future market potentials in a country or part of a country is to estimate its present stage of economic development and how fast it’s moving to another stage. The speed of movement, if any, and the possibility that stages may be skipped may suggest whether market opportunities exist or are likely to open. But just naming the present stage can be very useful in deciding what to look at and whether there are prospects for the firm’s products.
Producers of cars, expensive cameras, or other consumer durables, for example, shouldn’t plan to set up a mass distribution system in an area in Stage 2 (pre-industrial) or even Stage 3 (primary manufacturing). Widespread selling of these consumer items requires a large base of cash or credit customers, but as yet too few people are part of the money economy.
On the other hand, a market in the nondurable products manufacturing stage (Stage 4) has more potential, especially for durable products producers. Incomes and the number of potential customers are growing. There’s no local competition yet.
Opportunities might still be good for durable products imports in Stage 5 even though domestic producers are trying to get started. But more likely, the local government will raise some controls to aid local industry. Then the foreign producer has to license local producers or build a local plant.
Areas or countries in the final stage often are the biggest and most profitable markets. While there may be more competition, many more customers have higher incomes. We’ve already seen how income distribution shifted in Canada, leading to more families with middle and upper incomes. This should be expected during the latter stages when a mass market develops.
OTHER MARKET DIMENSIONS
MAY SUGGES TOPPORTUNITIES TOO
Considering country or regional differences—including stages of economic development—can be useful as a first step in segmenting international markets. After finding some possible areas (and eliminating consideration of unattractive ones), we must look at more specific market characteristics.
We discussed potential dimensions in the Canadian market. It’s impossible to cover all possible dimensions in all world markets. But many of the ideas discussed for Canada certainly apply in other countries too. So here we’ll outline some dimensions of international markets and we’ll show some examples to emphasize that depending on half-truths about «foreigners» won’t work in increasingly competitive international markets.
Although the cities may seem crowded with people, the Canadian population of over 25 million is only one half of one percent of the world’s population, which is over 5 billion.
In terms of proportion and population Canada looks unimportant because of its small population in relation to land area. This is also true of Latin America and Africa. In contrast, Western Europe is much larger, and the Eastern countries are even bigger.
People everywhere are moving off the farm and into industrial and urban areas. Shifts in population combined with already dense populations have led to extreme crowding in some parts of the world. And the crowding is likely to get worse. It’s expected that more than 50 percent of the world’s population will live in urban areas by the year 2010.
In addition, birth rates in most parts of the world are high—higher in Africa, Latin America, Asia, Australia, and New Zealand than in Canada. And death rates are declining as modem medicine is more widely accepted. Generally, population growth is expected in most countries. But the big questions are: How rapidly and will output increase faster than population? This is important to marketers. It affects how rapidly these countries move to higher stages of development and become new markets for different kinds of products.
Developing inter-urbias in Canada show up as densely populated areas. Similar areas are found in Europe, along the Nile River Valley in Egypt, and in many parts of Asia. In contrast, many parts of the world have few people.
Profitable markets require income as well as people. The best available measure of income in most countries is gross national product (GNP) (the total market value of goods and services produced in a year). Unfortunately, this may not give a true picture of consumer well-being in many countries because the method commonly used for figuring GNP may not be accurate for very different cultures and economies. For instance, do-it-yourself activities, household services, and the growing of produce or meat by family members for their own use aren’t usually figured as part of GNP. Since self-sufficient family units’ activities aren’t included, GNP can give a false picture of economic well-being in less-developed countries. At the other extreme, GNP may not do a good job measuring service-oriented output in highly developed economies.
But gross national product’s useful—and sometimes it’s the only available measure of market potential. The more developed industrial nations have the biggest share of the world’s GNP. This is why so much trade takes place between these countries—and why many companies see them as the more important markets.
GNP per person is a useful figure because it gives some idea of the income level of people in a country. But GNP per person can be a misleading estimate of market potential. When GNP per person is used for comparison, we assume that each country’s wealth is distributed evenly among all consumers, which is seldom true. In a developing economy, 75 percent of the population may be on farms and receive 25 percent or less of the income. There also may be unequal distribution along class or racial lines.
A BUSINESS AND A HUMAN OPPORTUNITY
It’s important to keep in mind that much of the world’s population lives in extreme poverty. Even among the countries with the largest overall GNPs you see some sign of this. In India, for example, GNP per person is only $354 a year. Many countries are in the early stages of economic development. Most of their people work on farms and live barely within the money economy. At the extreme, in Ethiopia GNP per person per year is only about $132 (in U.S. dollars).
These people, however, have needs. And many are eager to improve themselves. But they may not be able to raise their living standards without outside help. This presents a challenge and an opportunity to the developed nations and to their firms.
Some companies including Canadian firms, are trying to help the people of less-developed countries. Corporations such as Pillsbury, Corn Products, Monsanto, and Coca-Cola have developed nutritious foods that can be sold cheaply but still profitably in poorer countries. One firm sells a milk-based drink (Samson) with 10 grams of protein per serving to the Middle East and Caribbean areas. Such a drink can make an important addition to diets. Poor people in less-developed lands usually get only 8 to 12 grams of protein per day in their normal diet, while 60 to 75 grams per day are considered necessary for an adult.
The ability of a country’s people to read and write has a direct influence on the development of the economy and on marketing strategy planning. The degree of literacy affects the way information is delivered, which in marketing means promotion. Unfortunately, only about two thirds of the world’s population can read and write.
Low literacy sometimes causes difficulties with product labels and instructions for which we normally use words. In highly illiterate countries, some producers found that placing a baby’s picture on food packages is unwise. Natives believed that the product was just that: a ground-up baby! Singer Sewing Machine Company met this lack of literacy with an instruction book that used pictures instead
of words.
Even in Latin America, which has generally higher literacy rates than Africa or Asia, a large number of people can’t read and write. Marketers have to use symbols, colors, and other nonverbal means of communication if they want to reach the masses.
ORGANIZING FOR INTERNATIONAL MARKETING
Until a firm develops a truly worldwide view of its operations, it should have someone in charge of international matters. The basic concern should be to see that the firm transfers its domestic know-how into international operations.
As a firm moves beyond just a few international locations, its managers might want to develop regional groupings, clustering similar countries into groups. This smooths the transfer of know-how among operations in similar environments. Regional groupings may also reduce the cost of supervision.
But regional groups may be less useful than groups based on other relevant dimensions such as the stage of economic development or language. The important thing is to develop an organization that enables local managers to control matters that require «local feel» and, at the same time, to share their accumulating experience with colleagues who face similar problems.
Each national market should be thought of as a separate market. And if they’re really different from each other, top management should delegate a great deal of responsibility for strategy planning to local managers. In extreme cases, local managers may not even be able to fully explain some parts of their plans because they’re based on subtle cultural differences. Then plans must be judged only by their results. The organizational setup should be such that these managers are given a great deal of freedom in their planning but are tightly controlled against their own plans. Top management can simply insist that managers stick to their budgets and meet the plans that they themselves create. When a firm reaches this stage, it’s being managed like a well-organized domestic corporation, which insists that its managers (of divisions and territories) meet their own plans so that the whole company’s program works as intended.
CONCLUSION
The international market is large—and it keeps growing in population and income. More Canadian companies are becoming aware of the opportunities open to alert and aggressive businesses.
Involvement in international marketing usually begins with exporting. Then a firm may become involved in joint ventures or wholly-owned subsidiaries in several countries. Companies that become this involved are called multinational corporations. These corporations have a global outlook and are willing to move across national boundaries as easily as national firms move across provincial boundaries.
But markets in different countries vary greatly in stages of economic development, income, population, culture, and other factors. These differences must be studied and carefully considered in developing marketing strategies. Lumping foreign nations together under the common and vague heading of «foreigners»—or, at the other extreme, assuming that they’re just like Canadian customers—almost guarantees failure. So does treating them like common Hollywood stereotypes.
Much of what we’ve said about marketing strategy planning throughout the text applies directly in international marketing. Sometimes Product changes are needed. Promotion messages must be translated into the local languages. And, of course, new Place arrangements and Prices are needed. But blending the four Ps still requires knowledge of the all-important customer. The major roadblock to success in international marketing is an unwillingness to learn about and adjust to different peoples and cultures. To those who are willing to make these adjustments, the returns can be great.
ROUND-TABLE DISCUSSION
Discuss the typical evolution of corporate involvement in international marketing. What impact would complete acceptance of the marketing concept have on the evolutionary process?
Distinguish between licensing and contract manufacturing in a foreign country.
Distinguish between joint ventures and wholly-owned subsi-
diaries.
Discuss the long-run prospects for: (a) multinational marketing by Ukrainian firms producing in Ukraine only and (b) multinational firms willing to operate anywhere.
How can a producer interested in finding new international marketing opportunities organize its search process? What kinds of opportunities would it look for first, second, and so on?
Discuss how market segmenting might have to be modified when a firm moves into international markets.
Explain why tariffs and quotas affect international marketing opportunities.
Will the elimination of trade barriers between countries in Europe eliminate the need to consider submarkets of European consumers? Why or why not?
Discuss the prospects for a Ukrainian entrepreneur who’s considering building a factory to produce machines that make cans for the food industry. There’s some possibility of establishing sales contacts in a few nearby countries.
Discuss the value of gross national product per capita as a measure of market potential. Refer to specific data in your answer.
Discuss the possibility of a multinational marketer using the same promotion campaign in Ukraine and in many international markets.
Describe an effective organization for a multinational firm.