Marketing Management of International Trade

Session 1

What is marketing?

The process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return.

--Kotler and Armstrong (2010).

Marketing is the management process for identifying, anticipating and satisfying customer requirements profitably.

--The Chartered Institute of Marketing. Accessed 2012.

In other words…

‘There will always be need for some selling. But the aim of marketing is to

make selling superfluous. The aim of marketing is to know and understand the

customer so well that the product or service fits him and sells itself. Ideally,

marketing should result in a customer who is ready to buy. All that should be needed is to make the product or service available’.

Peter Drucker

What is marketing management?

Marketing management is theart and science

of choosing target markets and getting, keeping and growing

customers throughcreating, delivering and communicating

superior customer value.

The 7Ps of the marketing mix

Figure 1.4 The 7Ps components of the marketing mix

Motivations for Internationalization Efficiency

Economies of scale – access to a large number of new customers/markets

Exploit another country’s resources – labor raw materials, etc.

Extend the product life cycle Operational flexibility – shift production to other countries

as costs, exchange rates, etc., change over time

Strategic First mover in a product – favorable access to customers Cross-subsidization – use position in one country to

subsidize position in another country Leverage ownership advantages

Motivations for Internationalization Risk

Diversify macroeconomic risks – economic growth and recessions vary across countries

Diversify operational risk – labor problems, earthquakes, wars

Learning Acquire new capabilities in diverse competitive

environments Reputation

Crossover customers from one market to another

Sources of Growth

Ansoff’s Matrix

Current Products New Products

Current MarketsMarket penetration strategy

Product development strategy

New MarketsMarket development strategy

Diversification strategy

International vs. DomesticRISKS1. Cross-cultural risk: a situation or event

where a cultural miscommunication puts some human value at stake

2. Country risk: potentially adverse effects on company operations and profitability holes by developments in the political, legal, and economic environment in a foreign country

3. Currency risk: risk of adverse unexpected fluctuations in exchange rates

4. Commercial risk: firms potential loss or failure from poorly developed or executed business strategies, tactics, or procedures

The marketing environment

Company Suppliers Distributors Dealers Target customers

Demographic Economic Physical Technological Political-legal Social-cultural

Task environment Broad environment

International Strategy Forms

GlobalStrategyGlobal

StrategyTransnational

StrategyTransnational

Strategy

MultidomesticStrategy

MultidomesticStrategy

Home Replication

Home Replication

Pressures for Local Responsiveness

Low High

High

Low

Pre

ssure

s fo

r G

lob

al

Effi

cien

cies

Pressures for Global Integration

Economies of Scale. Concentrating manufacturing in a few select locations to achieve economies of mass production.

Capitalize on converging consumer trends and universal needs. Companies such as Nike, Dell, ING, and Coca-Cola offer products that appeal to customers everywhere.

Uniform service to global customers. Services are easiest to standardize when firms can centralize their creation and delivery.

Global sourcing of raw materials, components, energy, and labor. Sourcing of inputs from large-scale, centralized suppliers provides benefits from economies of scale and consistent performance.

Global competitors. Global coordination is necessary to monitor and respond to competitive threats in foreign and domestic markets.

Availability of media that reaches customers in multiple markets. Firms now take advantage of the Internet and cross-national television to advertise their offerings in numerous countries simultaneously.

International Business: Strategy, Management, and the New Realities

13

Pressures for Local Responsiveness

Unique resources and capabilities available to the firm. Each country has national endowments that the foreign firm should access.

Diversity of local customer needs. Businesses, such as clothing and food, require significant adaptation to local customer needs.

Differences in distribution channels. Small retailers in Japan understand local customs and needs, so locally responsive MNEs use them.

Local competition. When competing against numerous local rivals, centrally-controlled MNEs will have difficulty gaining market share with global products that are not adapted to local needs.

Cultural differences. For those products where cultural differences are important, such as clothing and furniture, local managers require considerable freedom from HQ to adapt the product and marketing.

Host government requirements and regulations. When governments impose trade barriers or complex business regulations, it can halt or reverse the competitive threat of foreign firms.

International Business: Strategy, Management, and the New Realities

14

Corollary Approach

Director Sales and Marketing

Director Finance and Administration

Director Manufacturing and Operations

Export Operations

CEO

Export Department

Director Sales and Marketing

Director Finance and Administration

Director Manufacturing and Operations

Director Export Operations

CEO

International Division

Industrial Automotive Aerospace

Brake Company (Mexico)

Electronics company (France)

International

CEO

Diesel Company (France)

Figure 14.1 Shougang Corp.’s Global Product Design

Chief Executive Officer

Real Estate

Financial Services

Steel Products

New Ventures

InsuranceBanking

Mining

Semiconductors

Figure 14.2 Cadbury Schweppes PLC’s Global Area Design

Chairman and Chief Executive Officer

Executive VP, United Kingdom

Executive VP,North and South

America

Executive VP,Europe

Executive VP, Pacific Rim

Executive VP,Other Countries

Figure 14.3 British Airways’ Global Functional Design

Figure 14.4 Eastman Kodak’s Global Customer Design

Figure 14.5 A Global Matrix Design

Figure 14.6 Nissan USA’s Hybrid Design

GMOA (Global Market Opportunity Assessment) Six Steps

Basic Tools

PEST 5 Forces SWOT

Understanding and Analyzing Markets

Political - includes (L)egal, (E)nvironmental law/policy

Economic - includes (E)nvironmental climate and weather

Social/Cultural - includes (D)emographic, (E)thical, (E)ducational, (E)nvironmental attitudes

Technological

P

E

S

T

And many variants…

PEEST PESTEL PESTLE SLEPT STEEPLED PEST LIED

Where PEST fits in

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment Microenvironment

|

PEST

Political - Legal

Tax policy Employment laws Environmental regulations Consumer protection Special interest groups Government trade restriction and

support Licensing requirements Political Stability

Economic

Income levels and PPP Economic growth rates and Business

cycles Inflation rate Price levels Consumer confidence Savings rate Debt and credit availability Exchange rates

Sociocultural

Social values (Others, Environment, Health)

Trends and Fads Demographics Education Class structure and mobility Household patterns Religion

Technological

Rate of technological adoption and change

Infrastructure ICT level Cost of energy R&D activity Supply chain efficiency Automation

Where 5 Forces fits in

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment Microenvironment

| |

PEST Five Forces

5 Forces Industry Analysis

Threat of New Entrants

Barriers to entry1. Supply-side economies of scale (Intel)2. Demand-side economies of scale (ebay)3. Customer Switching costs (SAP software)4. Capital requirements5. Incumbency advantages regardless of

size6. Unequal access to distribution channels7. Restrictive government policies

Power of Suppliers

Power increases if: Is more concentrated than the industry it

sells to (Microsoft) Supplier group does not depend heavily on

the industry for its profits Switching costs are high (Bloomberg

terminals) Suppliers offer differentiated products

(Drugs) Suppliers can threaten to forward integrate

Power of Buyers

Power increases if: Few buyers and larger purchase volumes Industry products are standardized Buyers face few switching costs Buyers can threaten to integrate

backward

Power of Buyers (2)

Price sensitivity is found when: Purchased product is a significant

percentage of procurement Buyers earn low profits Quality of buyers product isn’t

influenced by industries product Industry product has little effect on

buyer’s other costs

Threat of Substitutes

It offers an attractive price-performance trade-off

Cost of switching is low

Rivalry Among Competitors

Rivalry is greatest when: Competitors are numersous or are

roughly the same size Industry growth is slow Exit barriers are high Rivals are highly committed to business

and have leadership aspirations Firms cannot read each others signals

Rivalry Among Competitors (2)Price competition most likely if: Products or services are nearly identical

and there are few switching costs Fixed costs are high and marginal costs

low Capacity must be expanded in large

increments to be efficient Product is perishable

Industry Analysis (1)

Industry Analysis (2)

Pitfalls

Defining the industry too broadly or narrowly

Making lists instead of rigorous analysis Paying equal attention to all forces Confusing cyclical changes with

structural changes Using the analysis to declare an industry

attractive or unattractive rather than to guide strategic choices

Where SWOT fits in

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment Microenvironment

| |

PEST Five Forces

OT SW

SWOT

Summary for strategic purpose Clearly focused on a business objective Specific, unique, and detailed Complete ideas = multiple sentences

NOT single words Limited = two or three points in each area Organized = most important first (can be

weighted) SW = internal / OT = External

Perform a SWOT analysis on Highly Brill Sports and Community Center, based upon the following issues:

1. The Center is located within a two-minute walk of the main bus station, and is a fifteen-minute ride away from the local railway station.

2. There is a competition size standard swimming pool; although it has no wave machines or whirlpool equipment as do competing local facilities.

3. It is located next to one of the largest shopping centers in Britain.

4. It is one of the oldest centers in the area and needs some cosmetic attention.

5. Due to an increase in disposable income over the last six years, local residents have more money to spend on leisure activities.

6. There has been a substantial decrease in the birth rate over the last ten years.

7. In general people are living longer and there are more local residents aged over fifty-five now than ever before.

8. After a heated argument with the manager of a competing leisure center, the leader of a respected local scuba club is looking for a new venue.

9. The local authority is considering privatizing all local community centers by the year 2000.

10. Press releases have just been issued to confirm that Highly Brill Center is the first center in the area to be awarded quality assurance standard BS EN ISO 9002.

11. A private joke between staff states that if you want a day-off from work that you should order a curry from the Center's canteen, which has never made a profit.

12. The Center has been offered the latest sporting craze.

13. Highly Brill Center has received a grant to fit special ramps and changing rooms to accommodate the local disabled.

14. It is widely acknowledged that Highly Brill has the best-trained and most respected staff of all of the centers in the locality.

Dada Sky

Background Vijay Shivalingu is the Marketing Director for Dada Sky Inc,

based in Western India. He is beginning his marketing plan which will form the basis of a new and exciting satellite based digital TV and Internet experience.

Personal experience. Vijay has many years experience in the motor industry, and in

fact began his career at Dada Motors Inc after graduating from university with a degree in engineering. He has no formal marketing qualifications, but has lots of valuable real-world experience.

Strengths. Dada has one of three new 25 -year government licenses to

supply satellite services across India. Dada will be the first to launch its new services in the

summer. Dada is a well-known brand in India for cars. It is not renowned for its technology brands.

Weaknesses. The company is 3 months behind schedule with its launch

programme.Opportunities. Huge expansion of TV and Internet access in India. The

expansion is growing by 100% per annum. The potential value of such a business could be huge.

Education will soon be delivered to remote Indian villages via the Internet and laptops. This is a government funded programme worth $1 billion US.

Threats. A large European competitor brand has also entered the

market. A large Australian competitor brand has announced a joint-

venture with a national terrestrial TV Indian brand.

Strengths. Dada has one of three new 25 -year government licenses to

supply satellite services across India. Dada will be the first to launch its new services in the

summer. Dada is a well-known brand in India for cars. It is not renowned for its technology brands.

Strengths. REV Dada will be the first to launch its new services in the

summer. Being first to market will help it to land grab early customers. Competitors will need to work hard to get them to swap brands especially if they are satisfied with Dada's offering. 75%

Dada has one of three new 25 -year government licenses to supply satellite service across India. It is the only Indian national company to win this prestigious contract and this fact will undoubtedly help the company attract important early adopters keen to support their flag carrier brand. 25%

Weaknesses. The company is 3 months behind schedule with its launch

programme.

Weaknesses. REV Dada is a well-known brand in India for cars. It is not

renowned for its technology brands. A rebranding exercise needs to be undertaken. It should emphasize the innovative nature of the brand. A large investment must be considered here. 60%

Dada is a well-known brand in India for industrial products. The company is 3 months behind schedule with its launch programme. This could mean that a competitor could launch before Dada. 40%

Opportunities. Huge expansion of TV and Internet access in India. The

expansion is growing by 100% per annum. The potential value of such a business could be huge.

Education will soon be delivered to remote Indian villages via the Internet and laptops. This is a government funded programme worth $1 billion US.

Opportunities. REV Huge expansion of TV and Internet access in India. The

expansion is growing by 100% per annum. The potential value of such a business could be huge. Services will include telephone, mobile devices, pay-per-view TV, all sorts of channels supplying services such as Bollywood movies to Test Cricket. 80%

Education will soon be delivered to remote Indian villages via the Internet and laptops. This is a government funded programme worth $1 billion US. This opportunity will see regular income from the winning provider. As the national brand, this is vital business for Dada. 20%

Threats. A large European competitor brand has also entered the

market. A large Australian competitor brand has announced a joint-

venture with a national terrestrial TV Indian brand.

Threats. REV A large Australian competitor brand has announced a joint-

venture with a national terrestrial TV Indian brand. The Indian TV brand is the most popular independent TV company in the country. This will help the consortium to seamlessly enter the market. 60%

A large European competitor brand has also entered the market. The company has years of international satellite experience and can build upon the synergy with its expanding British business. 40%