INTERNATIONAL MARKETING

WONKWANG UNIVERSITY

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Professor In Woo Jun / Bcom, MBA, Ph.D.2015

GLOBAL MARKET ENVIRONMENTS

I. GLOBAL MARKET ENVIRONMENTS 1. The Environments at a Glance 2. Global Business Environment 3. Reasons Analyzing Environmental Factors

II. MACRO ENVIRONMENTS 1. Macro Environments 2. Types of Macro Environments

III. MICRO ENVIRONMENTS 1. Micro Environments 2. Micro Environmental Factors to be Analyzed 3. Five-force Model

CONTENTS

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1. The Environments at a Glance

GLOBAL MARKET ENVIRONMENTS

External Environment

Internal Environment

Task (Micro/Industry/ Competitive) Environment

Societal (Macro) Environment

PESTELAnalysis

FiveForces

- Structure- Culture- Resource- Capabilities

Business environments normally can be divided into two : Externalenvironments and internal environments.

Source : Developed by In Woo, Jun (2012)3

2. Global Business Environment

Internal Environment- Strategy/Structure- Culture- Resources- Capabilities

Task (Micro) Environment(Industry)

Stockholders

Government

Special InterestGroups

Customers

Creditors

Communities

Suppliers

Employees

Labor Union

Competitors

Societal (Macro) Environment

Socio-culturalForces

PoliticalForces

LegalForces

EconomicForcesEnvironmental

Forces

TechnologicalForces

Source: Re-designed from by In Woo, Jun (2012) from Lee, K. and Carter, S. (2009), “Global Marketing Management”, Oxford University Press, p. 40.

The Physical Environment(Ecological Factors)

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GLOBAL MARKET ENVIRONMENTS

3. Reasons Analyzing Environmental Factors

Reduction of Risk

There are numerous reasons for taking the marketing environmentalfactors into account.

Aid to Decision-making

Market Risk Assessment

Choice of Market &Marketing Mix

Prioritize Variables

Source: Lee, K. and Carter, S. (2009), “Global Marketing Management”, Oxford University Press, p. 38

Analysis of Global Business Environment

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GLOBAL MARKET ENVIRONMENTS

1. Macro Environments

International firms are confronted with various kinds of environmental obstacles to overcome in order to succeed in theirbusinesses.

The Macro Environments are those factors which are generally uncontrollable by the firm itself with its own efforts (e.g. culturaland economic factors)

A Macro Environmental analysis tool : PEST, PESTEL, or SLEPT.

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MACRO ENVIRONMENTS

2.1) Political System

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A nation’s political system is closely related to its history, culture, and economic situation.

A political system greatly impacts on human lives, attitudes and even a firm’s business activities.

MACRO ENVIRONMENTS

2. Types of Macro Environments

2.1.1) Democracy & Totalitarianism

Democracy : A political system in which government is by the people, exercised either directly or through elected representatives.

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Totalitarianism (e.g. Communism) : An individual governs the nation, tightly control people’s lives and do not tolerate opposing viewpoints.

MACRO ENVIRONMENTS

Doing business in totalitarian countries

- On the plus(positive) side : International firms can be less concerned with local political risks or opposition.

- On the negative side : i) They might need to pay bribes and kickbacks to the government officials, ii) The laws can be either vague or non-existent, and powerful person can interpret the laws as they want.

2.1.2) Political Risks

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MACRO ENVIRONMENTS

Governments sometimes seize the assets of foreign companies who is doing business within their borders.

- Confiscation : The government forces a company to transfer its assets from a company to the government without compensation.

- Expropriation : The government forces a company to transfer its assets from a company to the government with compensation.

- Nationalization : The government takeovers of an entire industry. (e.g. Cuba, North Korea)

a) Property Seizure

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b) Conflict and Violence

Local conflict strongly discourages international firms’ investment.

Violence also hinders a company’s overall management ; Manufacturing and selling the products, obtaining raw materials, and recruiting talented personnel.

The reasons of arising conflict and violence are many.

- Labour union’s strike, demonstration, etc.

- Korea is one of the countries that has the most strong power of labour union. (It disrupts MNEs’ investment in Korea)

MACRO ENVIRONMENTS

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c) Policy Change

The government’s policy can be changed anytime or frequently.

Ownership restrict : Indian government restricted PepsiCo’s ownership of local company up to 49% when it first entered India.

d) Local Content Requirements

Laws stipulating that a specified amount of a good or service should be supplied by producers in the domestic market.

MACRO ENVIRONMENTS

2.2) Economic System

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An economic system in which the business activities take place on the basis of supply and demand of the products.

The business activities are not planned by anyone or the government, but they are determined by the interaction of supply and demand.

If demand for a product exceeds supply, prices will rise, signalling producers to produce more. If supply exceeds demand, prices will fall, signalling producers to produce less.

MACRO ENVIRONMENTS

2.2.1) Types of Economic System

a) Market Economy

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An economic system in which the government plans the productions of the goods and services.

The state also plans the quantity of the products in which they are produced and the prices at which they are sold.

- East European countries adopted Command Economy until 1980.

- Since the demise of communism in the late 1980s, the number of Command Economy has fallen dramatically.

MACRO ENVIRONMENTS

b) Command Economy (Planned Economy)

c) Mixed Economy

2.3) Legal System

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There are a number of sets of laws and regulations: Common law, Civil law, Commercial law, Intellectual property Protection, Contract law, Industrial law, etc.

MACRO ENVIRONMENTS

a) Intellectual Property Protection

It is property that resu1ts from people’s intellectual talent and abilities.

The protection of intellectual property becomes increasinglyimportant.

[ Types of Intellectual Property ]

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Property Rights Legal rights to resources and any income they generate

Patent Property rights granted to the inventor of aproduct or process

Trademark Words or symbols that distinguish a product and its manufacturer

Copyright Property rights granted creators of original works (e.g. artist, author, painter, software developer, etc.)

MACRO ENVIRONMENTS

b) Contract Law

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When contract disputes arise in international business/trade, there is always the question of which country’s laws to apply.

To resolve this issue, a number of countries have ratified the United Nations Convention on Contracts for the International Sale of Goods (CISG)

CISG : A sets of rules that govern commercial contracts between seller and buyers

MACRO ENVIRONMENTS

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MACRO ENVIRONMENTS

[ A Sample of Commercial Contract ]

Source : In Woo Jun (2013), “Business English for International Trade”, 무역경영사, p.126

c) Anti-trust Laws (Competition Law)

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Laws designed to prevent companies from gaining unfair monopoly advantages. This Law encourages free competition between/among companies with fair trade. (Korea : Fair Trade Laws - Fair Trade Commission)

MACRO ENVIRONMENTS

d) Foreign Corrupt Practice Act

It is a USA law regulating international businessmen’s behavior in connection with bribes and unethical actions.

e) Anti-corruption Law

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MACRO ENVIRONMENTS

Corruption can be defined as ‘the abuse of public office for private gain’ (Lasserre, 2003).

Corruption includes bribery, fraud, money laundering, cronyism, extortion, and embezzlement.

One of the major sources of information on corruption : The Index of Transparency International (TI) – A non-governmental organization (NGO)

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MACRO ENVIRONMENTS

[ Ranking of Corruption by Country in 2009 ]

Source : Global Corruption Report (2009)

2.4) Financial Factors

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MACRO ENVIRONMENTS

The world financial environment has already become one of themost important factors which affect a firm’s global business.

For instance, foreign exchange fluctuations are unpredictable.

Variations in exchange rates can easily escalate costs (e.g. foreign exchange hedging cost), erode profit margin, and make investment less-predictable.

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MACRO ENVIRONMENTS

0200400600800

10001200140016001800

01/97 3 5 7 9 11 01/98 3 5 7 9 11

Exchange rates Stock market index

[ The Movement of Exchange Rate and Stock Market Index ]

Source : Korea Stock Exchange

Foreign Exchange Rates : KRW848/USD1 (1997.1) KRW1,715/USD1(1998.1)

Stock Exchange Index : 699 (1997.1) 310 (1998.9)

a) Example - Korea’s Financial Crisis

< The Movement of Exchange Rate > < The Stock Market Index: KOSPI >

Foreign Exchange Rates (KRW/USD) Korean Stock Market Index (KOSPI)

- 2011.7.19 : KRW1,050/USD1 - 2011.6.29 : 2,080

- 2011.9.21 : KRW1,180/USD1 - 2011.9.20 : 1,700

Source: Korea Exchange (2011)

[ Korean Financial Market Index ]

MACRO ENVIRONMENTS

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MACRO ENVIRONMENTS

It estimated that loses could be as much as GBP250billion

JP Morgan-Chase took over Bear Stearns at a bargain price.

It was the just beginning of the great global financial collapse of late2008, pushing countries into recession and companies into bankruptcy.

b) Example : USA’s Sub-prime Mortgages Crisis

OECD Deutsche Bank

Bear Stearns Pimco Japan Research Institute

2,000~3,000 3,000~4,000 1,500~2,500 2,500 4,600Source : International Finance Center (2008), and SERI (2008)

< Estimated Losses due to Sub-prime Mortgage Crisis >Unit : : USD in One hundred million

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MACRO ENVIRONMENTS

Source : The Wall Street Journal (2008.1.18), “Hit Hard, Merrill and Others Pull Back from Riskier Businesses”

[ Estimated Losses of USA Major Financial Institutions ]Unit : : USD in billion

1. Micro Environments

MICRO ENVIRONMENTS

After Macro Environmental analysis, it is crucially important toexamine the Micro or Industry Environmental variables.

Micro environment is also called Industry, Competitive and Task environments

Industry : A group of firms producing the same principal products.

From a strategic management perspective, it is necessary formanagers to understand the competitive forces arising within thesame industry or sector.

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2. Micro Environmental Factors to be Analyzed

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MICRO ENVIRONMENTS

Factors Contents

Competitors - Existing competitors’ movements within same industry

- Their marketing strategy- Their product, price & promotion policy, etc.

Potential Entrants &Substitutes

-The expected potential entrants - Potential entrants’ scale, strategy, target segments,

etc.- Expected substitute products

Suppliers & Buyers

- Consumers’ buying behavior- Suppliers’ strategy, policy, behavior, etc. - Changes in consumers’ needs, wants and satisfaction

Market Situation

- General market situation (within same industry & sector)

- Expected changes in current market, etc.

Source: Porter, M.E. (1985), “Competitive Advantage”, The Free Press, p. 5

Industry Competitors

Rivalry among Existing Firms

Suppliers

Substitutes

Potential Entrants

Buyers

Threats of New Entrants

Threats of Substitute Productsor Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

The ‘Five Forces’ helps identify the sources of competition in an same industry or sector.

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3. Five-force Model

MICRO ENVIRONMENTS