Unit N: Marketing Globally

Why identify issues that organizations face and approaches they use when marketing to different countries and cultures?

Suppose you’re in the marketing department for a highly successful snack food company in the U.S. You’re in a brainstorming meeting about expanding into China, and the discussion is starting to get heated. Should you lead with your company’s best-selling nacho-cheese-flavored snacks to take China by storm? Or would it be better to start out with the ranch-dressing-flavored snack instead, because it’s so quintessentially American and it’d be a great way to introduce the Chinese to the tastes Americans love?

Or would something else be a better fit?

It’s time to vote: your manager wants everyone on the team to name the flavor they want to lead with. What are you going to choose?

Set aside your top pick while you watch this short but very interesting video.

You can read a transcript of the video “Chinese Flavors for American Snacks.”

So . . . how did you do? How close did you come to favorite flavors in the video? Were you in the ballpark? Are you ready for a career developing snack foods for global markets?

If you’re like most Americans, your recommendation probably wasn’t very close to the mark, and you’re probably thinking that many of the flavors that are delicious to Chinese consumers sound a bit odd to you. Well, now you know how a lot of Chinese consumers probably feel when presented with Cheetos Crunchy Flamin’ Hot Limon Cheese Flavored Snacks or Zapp’s Spicy Cajun Crawtator potato chips. A little queasy.

Hopefully this scenario helps highlight some of the challenges of global marketing, as companies start selling products in other countries. How should you enter a new market? Are you offering products that consumers in other countries will want to buy? What should you do to make sure your product–and the rest of your marketing mix–is a good fit for the global customers you want to attract?

Global marketing is a complex and fascinating business. In this module, we can’t cover everything about global marketing–not by a long shot. But we will introduce key challenges, opportunities, and factors to consider when marketing to target audiences outside your home country.

Learning Outcomes

• Describe globalization and the major benefits and challenges it poses for multinational organizations penetrating global markets
• Describe common approaches used by organizations to compete successfully on a global scale
• Explain the importance of understanding how demographic, cultural and institutional factors shape the global marketing environment

COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

What you’ll learn to do: describe globalization and the major benefits and challenges it poses for multinational organizations penetrating global markets

We live in an increasingly globalized, interconnected world. There is a strong likelihood that clothes you’re wearing now, some of the food you’ve eaten today, and the device you’re using to read this page are all products of globalization: they come to you via other countries where they were produced and prepared for your consumption.

Globalization is the growing level of interconnection between people, businesses, and countries around the world. And, where businesses and people exist, there is marketing.

This next reading introduces the concept of globalization, the great benefits it can offer, as well as some of the challenges that businesses face when doing business in multiple countries.

The specific things you’ll learn in this section include:

• Define globalization
• Explain key benefits and challenges of globalization

Defining Globalization

Globalization is a term used to describe how countries, people and businesses around the world are becoming more interconnected, as forces like technology, transportation, media, and global finance make it easier for goods, services, ideas and people to cross traditional borders and boundaries. Globalization offers both benefits and challenges. It can provide tremendous opportunity for economic growth to improve the quality of life for many people. It can also lead to challenges with the welfare of workers, economies, and the environment as businesses globalize and shift their operations between countries to take advantage of lower costs of doing business in other world regions.

Watch the following short video for an overview of globalization and its impacts.

Globalization, Economic Growth and Market Opportunity

Usually, the most significant marketing opportunities exist among the industrialized nations, as they have higher levels of income, one of the necessary ingredients for the formation of markets. However, market saturation for many products already exists in these nations.

The developing countries, on the other hand, have growing population bases, and although most import a limited number of goods and services from other countries, longer-term growth potential exists in these nations. Often, marketers in developing nations must be educators, using marketing techniques to education populations about unfamiliar, new products and services and the benefits they provide. As the degree of economic development increases, so does the sophistication of the marketing effort focused on a country.

Figure 1, below, illustrates nations and regions according to their economic growth prospects. Darker green areas indicate where the strongest growth opportunities existed as of 2017.

Figure 1: GDP growth rate by country: Shading indicates real rate of economic growth in 2017.

Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available, and that these developments will have the potential to reach significantly larger customer bases. This means larger volumes of sales and exchange, larger growth rates in GDP, and more empowerment of individuals and political systems through the acquisition of additional resources and capital. These benefits of globalization are viewed as utilitarian, providing the best possible benefits for the largest number of people.

For global companies, often referred to as multinational corporations (MNCs), common benefits of expanding into developing markets include unsaturated demand for new products, lower labor costs, less expensive natural resources, and other inputs to products. Technological developments have made doing business internationally much more convenient than in the past. MNCs seek to benefit from globalism by selling goods in multiple countries, as well as sourcing production in areas that can produce goods more profitably. In other words, organizations choose to operate internationally either because they can achieve higher levels of revenue or because they can achieve a lower cost structure within their operations.

MNCs look for opportunities to realize economies of scale by mass-producing goods in markets that have substantially cheaper costs for labor or other inputs. Or they may look for economies of scope, through horizontal expansion into new geographic markets. If successful, both of these strategies lead to business growth, with stronger margins and/or larger revenues. There is particularly strong opportunity for business growth in markets where strong economic growth is also projected. In these areas, incomes are rising. In many cases, local populations can now afford goods and services that were previously out-of-reach, including many good produced in industrialized countries. Global companies stand to capture stronger growth and profitability if they can make headway into these markets.

At the same time, international operations contain innate risk in developing new opportunities in foreign countries.

Challenges of Globalism for Business

Along with arguments supporting the benefits of a more globally connected economy, critics question the ethics and long-term feasibility of profits captured through global expansion. Some argue that the expansion of global trade creates unfair exchanges between larger and smaller economies. They argue that MNCs and industrialized economies capture significantly more value because they have more financial leverage and can dictate advantageous terms of exchange, which end up victimizing developing nations. Critics also raise concerns about damage to the environment, decreased food safety, unethical labor practices in sweatshops, increased consumerism, and the weakening of traditional cultural values.

As MNCs do business in new global markets, they may encounter several significant challenges:

• Ethical Business Practices: Arguably the most substantial of the challenges faced by MNCs, ethical business practices in areas such as labor, product safety, environmental stewardship, corruption, and regulatory compliance have historically played a dramatic role in the success or failure of global players. For example, Nike’s brand image was hugely damaged by reports that it utilized sweatshops and low-wage workers in developing countries. In some nations, particularly those without a strong rule of law, bribing public officials (e.g., paying them off with gifts or money) is relatively common by those seeking favorable business terms. Although national and international laws exist to crack down on bribery and corruption, some businesspeople and organizations are pressured to go along with locally accepted practices. Maintaining the highest ethical standards while operating in any nation is an important consideration for all MNCs.
• Organizational Structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions within the value chain and corporate structure. International expansion requires enormous capital investments in many cases, along with the development of a specific strategic business unit (SBU) in order to manage these accounts and operations. Finding a way to capture value despite this fixed organizational investment is an important initiative for global corporations.
• Public Relations: Public image and branding are critical components of most businesses. Building this public relations potential in a new geographic region is an enormous challenge, both in effectively localizing the message and in the capital expenditures necessary to create momentum.
• Leadership: It can be difficult for businesses to find effective organizational leadership with the appropriate knowledge and skills to approach a given geographic market successfully. For every geography worldwide, unique sets of strategies and approaches apply to language, culture, business networks, management style, and so forth. Attracting talented managers with high intercultural competence is a critical step in developing an effective global strategy.
• Legal and Regulatory Structure: Every nation has unique laws and regulations governing business. MNCs need access to legal expertise to help them understand in-country laws and comply with applicable regulations. It is important for businesses to understand the legal and regulatory climate for their industry and type of organization before entering a new market, so that this information can be factored into the business case and strategic decisions about where and how to expand globally, as well as strategic and operational planning to ensure profitability.

Potholes in Poland: Poor road infrastructure can be difficult for businesses that rely on road transportation.

For organizations operating in developing and less-developed countries, additional challenges can arise, particularly in the following areas:

• Infrastructure: Infrastructure includes the basic physical and organizational structures needed for a society to operate and for an economy to function. It can be generally defined as the set of interconnected structural elements that provide a framework supporting an entire structure of development, such as roads, bridges, water supply, sewers, electrical grids, telecommunications, and so forth. It also includes organizational structures such as a stable government, property rights, judicial system, banking and financial systems, and basic social services such as schools and hospitals. A country’s infrastructure will help determine the ease of doing business within that nation. For example, a country with poor road conditions and intense traffic may not be the best place to conduct business that requires goods to be transported from city to city by land. Poor infrastructure makes it difficult for businesses to operate effectively because they have to shoulder additional cost and risk to make up for what the country’s society does not provide.

• Technology: The level of technological development of a nation affects the attractiveness of doing business there, as well as the type of operations that are possible. Companies may encounter a variety of technological challenges doing business in foreign countries, such as training workers on unfamiliar equipment; poor transportation systems that increase production and distribution costs; poor communication facilities and infrastructure; challenges with technology literacy; lack of reliable access to broad-band Internet and related technologies that facilitate business planning, implementation, and control.

All of these factors–both benefits and challenges–should go into decisions about whether and how to expand globally. Marketing, along with other business functions, can be affected for better or for worse by the advantages and disadvantages posed by global business. Organizational leaders must consider carefully how to balance costs and risks against the potential for gain and growth.

COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

What you’ll learn to do: describe common approaches used by organizations to compete successfully on a global scale

Most of the basic principles for effective marketing apply equally well to domestic and global marketing activity. However, globalization introduces a number of challenges that are unique to operating simultaneously in different countries and global markets. What is the best way to enter a global market? When should you adjust a product’s features to customize it to consumer needs in a different global market? How do you manage the costs and complexities of product promotion when it must take place in different locations, with different languages, cultural sensitivities and consumer expectations? What considerations should go into product pricing, when a good is offered in different markets using different currencies and exchange rates?

While this next section doesn’t attempt to answer all of these questions definitively, it explains common strategies and approaches used by multinational corporations and their marketing teams to navigate these and many other challenges posed by global marketing.

The specific things you’ll learn in this section include:

• Discuss common strategies businesses use to enter global markets
• Explain the pros and cons of global standardization theory with regard to product marketing and marketing communications
• Explain how the basic principles of marketing apply to global marketing

Choosing a Global Entry Strategy

Firms typically approach international marketing cautiously. They must analyze the market opportunity as well as their internal capabilities to determine which approach will be the best fit. Often businesses start with a lower-risk strategy and progress to other strategies involving additional investment and risk and additional opportunity after they have proven initial success. The most common market entry strategies are outlined below.

Exporting

Exporting means sending goods produced in one country to sell them in another country. Exporting is a low-risk strategy that businesses find attractive for several reasons. First, mature products in a domestic market might find new growth opportunities overseas. Second, some firms find it less risky and more profitable to export existing products, instead of developing new ones. Third, firms that face seasonal domestic demand might choose to market their offerings abroad to balance out seasonal demand in their revenue streams. Finally, some firms might export because there is less competition overseas. Smaller firms often choose exporting over other strategies because it offers a degree of control over risk, cost, and resource commitment. Smaller firms often only export in response to an unsolicited overseas order, which is also perceived as low risk.

Licensing and Franchising

Holiday Inn, London

Under a licensing agreement, a firm (licensor) provides a product to a foreign firm (licensee) by granting that firm the right to use the licensor’s manufacturing process, brand name, patents, or sales knowledge, in return for payment. Since its debut in the late 1970s, Star Wars remains the most lucrative source of licensing in the entertainment business and has generated more than $42 billion from the sale of licensed merchandise. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to a new market. Scarce capital, import restrictions, or government restrictions often make this the only way a firm can market internationally. This method does contain some risks. It’s typically the least profitable method for entering a foreign market, and it entails a long-term commitment. Furthermore, if a licensee fails to successfully reproduce a licensed product, or if the licensee markets licensed products ineffectively, it could tarnish the original product’s brand image.

A longer-term and more comprehensive way to access the global market is through franchising. Under the terms of a franchise agreement, a party (franchisee) acquires access to the knowledge, processes, and trademarks of a business (the franchisor) in order to sell a product or service under the business’s (franchise’s) name. In exchange for the franchise, the franchisee usually pays the franchisor both initial and annual fees. Holiday Inn, Hertz Car Rental, and McDonald’s have all expanded into foreign markets through franchising.

Joint Ventures

A joint venture is a partnership between a domestic and foreign firm. Both partners invest money, share ownership, and share control of the venture. Typically the foreign partner provides expertise about the new market, business connections and networks, and access to other in-country elements of business like real-estate and regulatory compliance. Joint ventures require a greater commitment from firms than other methods, because they are riskier and less flexible. Joint ventures may afford tax advantages in many countries, particularly where foreign-owned businesses are taxed at higher rates than locally owned businesses. Some countries require all business ventures to be at least partially owned by domestic business partners. Joint ventures may also span multiple countries. This is most common when business partners team up to conduct business in a world region.

Direct Investment

Multinational organizations may choose to engage in full-scale production and marketing abroad by directly investing in wholly-owned subsidiaries. As opposed to the previously mentioned methods of entry, this type of entry results in a company directly owning manufacturing or marketing subsidiaries overseas. This enables firms to compete more aggressively abroad, because they are literally “in” the marketplace. However, because the subsidiary is responsible for all the marketing activities in a foreign country, this method requires a much larger investment. It’s also a risky strategy because it requires a complete understanding of business conditions and customs in a foreign country.

U.S. Commercial Centers

These centers provides resources to promote the export of U.S. goods and services abroad. The commercial center does this by familiarizing U.S. firms with industries, markets, and customs in other countries. U.S. commercial centers provide the following services: business facilities; translation and clerical services; a commercial library with legal information; and assistance with contracts and export/import arrangements. They also facilitate contacts between buyers, seller, bankers, distributors, and governmental officials. These resources represent a low-risk way to gain information and familiarity about new overseas markets.

Trade Intermediaries

If a company lacks the resources or expertise to enter a foreign market, it can hire trade intermediaries, who possess the necessary the contacts and relationships in those markets. These entrepreneurial middlemen typically purchase U.S.-produced goods at a rate below a manufacturer’s best discount and then resell them in overseas markets.

Example: Toyota’s Progression into Global Business

Toyota, Greece

Toyota Motors started out as a domestic marketer in Japan. Eventually it began exporting its cars to a few regional markets. As it saw greater success, Toyota became adept as a multinational marketer, and today is a true global marketer. Today Toyota operates manufacturing plants in foreign countries with local labor, using local ad agencies, and pursing marketing strategies that appeal to each country’s market segments and consumer needs. As Toyota progressed through each stage of global expansion, it revised its attitudes and approach to marketing and its underlying philosophy of business.

International Coca-Cola: Like many product companies, Coke has used a mix of standardization and localized marketing. For instance, the classic red and white colors remain the same globally while the flavor profile is adjusted slightly based on region of distribution.

Global Marketing Strategies

U.S. firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program—depending on how much centralized control a firm wishes to maintain over its marketing. If an organization wants to maintain strong centralized control and uniformity in its products and marketing activities, it is choosing a strategy called standardization. If an organization wants to adjust products, messaging, and marketing activities to fit the needs and preferences of local markets around the world, it is choosing a localization strategy. You’ll recall our earlier discussion of the unique flavors of Oreo cookies developed for the Chinese market: that’s an example of a localization strategy.

Global Standardization: The Argument for Standardized Marketing

To the extent that global consumers desire standardized products, companies can pursue a global standardization strategy. Using this approach, a product and the way in which it is marketed are largely uniform across the world, with little variation in the marketing mix from country to country. Advocates of standardization strategy argue that companies can achieve competitive advantage by offering the optimal combination of price, quality, and reliability with products that are identical in design and function throughout the world; they also claim that consumers will prefer this standardized product to a highly localized product that is also more expensive.

Standardization can translate into lower operating costs because there aren’t extra costs associated with developing and marketing unique products tailored to local market needs. It also expands the customer base receptive to a common global product. There is no need to adjust product features, naming, or other attributes for each new market, and marketing materials themselves can be repurposed across different world regions. Below are the primary benefits of a global standardization strategy:

• Marketers can use the same approach for developing, promoting, and delivering products and services worldwide, creating lower operating costs and economies of scale in product development and marketing
• The ability to develop and invest in a unified brand and/or company identity throughout the world, along with the opportunity to develop brand awareness and brand equity that give a competitive advantage
• Product lines that consist of a small number of global brands rather than a plethora of localized product brands and extensions, along with cost savings and improved efficiencies associated with managing a smaller total number of brands

Companies that pursue this approach assume that consumer needs are relatively homogenous around the world and that the same basic marketing mix will work across global markets. These organizations typically have a centralized approach to the marketing function and try to minimize the need for developing localized marketing strategies.

The case for a standardization strategy was made by Harvard marketing professor Theodore Levitt in his 1983 article “The Globalization of Markets.” He argued that technology and worldwide communications have helped trigger the emergence of global consumer markets that are receptive to single, standardized global products. According to Levitt, adopting a standardized global strategy provides a competitive advantage in cost and effectiveness.

Localization: The Argument for Localized Marketing

Global Segmentation Strategies

Closely related to the issue of standardization vs. localization is the question of global segmentation strategy. How marketers segment and market to consumers in global markets is inextricably tied to whether products and marketing are uniform across multiple world regions or whether they are localized to individual countries, regions, or markets.

Global marketers use the same principles and processes outlined in the Segmentation and Targeting module to evaluate where there is greater potential and market opportunity for their products and services. They work to answer the same set of fundamental questions that domestic marketers do, using the broader world as their frame of reference:

1. To whom should I be marketing?
2. Why them?
3. How can I reach them most effectively?

To develop a segmentation and targeting strategy, global marketers may use the common segmentation approaches employed by domestic marketers but with an eye on how these characteristics shape consumers within and beyond national boundaries and world regions. These characteristics include the following:

• Demographics: Gender, age distribution, ethnicity, income, socioeconomic status, family size
• Geography: Geographic location, world region, climate, urban/suburban/rural orientation
• Psychographics: Lifestyle, attitudes, social class
• Behavioral: Purchasing occasions, user status, brand loyalty, readiness to buy and other behavioral patterns that drive consumer decisions
• Decision maker: Who makes buying decisions for which types of goods and services? Who influences these decisions?

Additionally, global marketers also consider the following factors in segmentation and targeting:

• Culture: The interplay between language, religion, education, values, identity, history, and traditions
• Economic status: Stage of economic development, wealthy vs. poor nations, employment, GDP
• Social environment: Conditions and operational stability for business, government, politics, the legal system, health care, education, and other societal support structures

A naive view of global marketing assumes that all consumers within a country or world region are homogenous and can be reached effectively through a uniform approach targeting the entire geographic area. In fact, just as in the U.S., not all consumers within a country or region are the same. While they have some things in common, they also have different characteristics, needs, and preferences that drive their purchasing decisions. It is important to recognize these differences and evaluate what they represent in terms of potential market segments and growth opportunities.

When considering global marketing opportunities, it’s also important for marketers to look for characteristics, interests, needs, and buying behaviors they can use to define segments that transcend national boundaries. For example, some marketing targets a “global youth” segment comprised of young people from around the world who are educated, technologically connected, follow global trends in music and culture, and seek opportunities for travel and cultural exchange.

Because global marketing and expansion carry inherent risk, global segmentation and targeting decisions should also reflect the following factors:

• Market size and growth potential: What is the customer base and revenue potential today? How might this change in the future?
• Competition:  What competitors and alternatives exist in the market? How crowded is the competitive field? Who are the current players, what is their market position, and what would it take to displace them?
• Compatibility: Are the new market and target segments well aligned with the organization’s goals, plans, and strategies? How much of a stretch is it to capture this new market? Does the potential gain justify the added risk, cost, and complexity?

Few would disagree that fast-food chain McDonald’s is a master of global marketing. As you watch this video, look for ways that McDonald’s has blended elements of global standardization strategy with localization strategy to penetrate global markets and offer products that align perfectly with local appetites and preferences.

Read a transcript for the video about McDonald’s “Glocalization” here.

The Marketing Mix in Global Marketing

The same marketing principles that lead to marketing success in domestic marketing can also apply to global marketing. With the rapidly growing force of globalization, the distinction between marketing within an organization’s home country and marketing within external markets is disappearing very quickly. With this in mind, organizations are modifying their marketing strategies to meet the challenges of the global marketplace while trying to sustain their competitiveness within home markets. These changes have also prompted brands to customize their global marketing mix for different markets, based on local languages, needs, wants, and values.

The four Ps of marketing—product, price, placement, and promotion—are all affected as a company moves through the different phases to become and maintain dominance as a global company.

Global Marketing Mix: Product Plus Promotion

For multinational corporations (MNCs), the interplay between product and promotion is important because it can enable a company to make minor adjustments to a single product and its promotion strategy rather than totally revamping the product and promotion for different markets. Coca-Cola is a strong example of this principle. The beverage brand uses two formulas (one with sugar and one with corn syrup) for all markets. The product packaging in every country incorporates Coca-Cola’s contour bottle design and signature ribbon in some shape or form. However, the bottle can also include the country’s native language and appear in identical sizes as other beverage bottles or cans in that country’s market.

Before launching promotional programs, global companies must first define their target markets and determine the products that will resonate most with those consumers and businesses. This research can help inform marketing leaders about what course to take—localization versus standardization strategy—as they learn more about the target market’s receptivity to their goods and services. In addition to pinpointing which price point and distribution channels would best serve a country’s markets, global marketers must decide whether and how to customize their products. Product introductions are also important. Promotional tactics for global audiences can range from television commercials to social-media marketing on Facebook or YouTube. It is the job of global marketers to create and place promotional efforts in settings where local consumers will be most receptive to receiving and acting on those messages. Consumers in each target market have different media habits and preferences, and understanding these behaviors is important for selecting the right promotional mix.

After product research, development, and creation, promotion is generally the largest line item in a global company’s marketing budget. Using integrated marketing communications can significantly increase efficiency and reduce promotional costs, as messages across multiple channels reinforce and amplify one another. For organizations that pursue a standardized approach to promoting products and building brands, promotion is the crucial component of the mix that enables a global company to send the same message worldwide using relevant, engaging, and cost-effective techniques.

While a standardized global promotion strategy enables global brands to engage in uniform marketing practices and promote a consistent brand and image, marketers must also be prepared for the challenge of responding to differences in consumer response to marketing mix elements. Marketers must also fend off the full spectrum of local and global competitors, using promotional strategies, branding, and product development to full competitive effect.

Global Marketing Mix: Promotion

Before a company decides to become global, it must consider social, cultural, economic, political, competitive, and other factors relative to the global expansion it is considering. Creating a worldwide marketing plan is no simple task. It is virtually impossible for a company to communicate one identical message in a unified voice to global markets unless a company holds the same position against its competition in all markets (e.g., market leader, low cost, etc.). This is rarely the case, so most global companies must be open to some level of localization and be nimble enough to adapt to changing local market trends, tastes, and needs.

Global promotion: Language is usually one element that is customized in a global promotional mix.

Global marketers must balance four potentially competing business objectives when developing worldwide advertising: 1) building a brand while speaking with one voice, 2) developing economies of scale in the creative process, 3) maximizing local effectiveness of advertisements, and 4) increasing the company’s speed of implementation. Global marketers can use several approaches when executing global promotional programs: exporting executions, producing local executions, and importing ideas that travel.

To successfully implement these approaches, marketers must ensure that their promotional campaigns take into account how consumer behavior is shaped by internal conditions (e.g., demographics, knowledge, attitude, beliefs) and external influences (e.g., culture, ethnicity, family, lifestyle) in local markets. Areas for attention include:

• Language: Language differences are crucial in global marketing. There are nearly 3,000 languages in the world. Language differences have caused many problems for marketers in designing advertising campaigns and product labels. As discussed in this course’s discussion on naming, language can be problematic in the global naming process, with numerous examples of brand names that work well in some languages but have offensive or unfortunate meanings in other languages. Even countries that use the same language have words with different meanings. Consider the British terms “flat” (apartment in U.S. English), “pants” (underwear in U.S. English), and “lift” (elevator in U.S. English). Marketing messaging and materials could easily go wrong if they are not adjusted to fit in-country dialect and usage. Language becomes even more significant if a country’s population speaks several languages. An additional language consideration for marketers is literacy rates. Depending on the target audience and market, literacy may be a significant issue. Some countries, primarily less-developed countries, still have low literacy rates, such as Afghanistan with just 38 percent adult literacy in 2015, and Haiti with 61 percent. India, with its burgeoning economy, reported a literacy rate of 72 percent in 2015. In many countries, literacy rates can differ widely between men and women in many countries, too.
• Colors: Colors may have different meanings in different cultures. This highlights the importance of careful testing of packaging and other visual elements intended for global audiences. For example, green is a sacred color in the Muslim faith, and it is not considered appropriate for packaging and branding purposes in Middle Eastern countries. In Japan, black and white are colors of mourning and should be avoided on product packaging. Purple is associated with death in some Hispanic nations.
• Values: An individual’s values arise from his or her education, moral or religious beliefs and are learned through experiences. For example, as a consumer market, Americans place a very high value on material well-being and are much more likely to purchase status symbols than people in India. Chinese consumers highly value the sense of honor, dignity, and pride, and in some situations they will pay price premiums to “save face” by spending what is perceived to be an appropriate amount to preserve their honor.
• Business norms: The norms of conducting business also vary from one country to the next. In France, for example, wholesalers do not like to promote products. They are mainly interested in supplying retailers with the products they need.
• Religious beliefs and holidays: In addition to affecting their values, a person’s religious beliefs can affect shopping patterns and products purchased. In the United States and other Christian nations, the Christmas holiday season is a major sales period. In China, the Chinese New Year brings out the shoppers. In India, a string of Hindu festivals including Dussehra and Diwali mark a holiday season that extends over multiple months.

Many other factors, including a country’s political or legal environment, economic status, and technological environment, can impact a brand’s promotional mix. Companies should monitor dynamics in their target markets and be ready to quickly respond and adapt to consumer needs and preferences.

Recommendations for Adjusting the Promotional Mix

When launching global advertising, public relations, or sales campaigns, global companies test promotional ideas using marketing research systems that provide results comparable across countries. These systems help marketers achieve economies of scale in marketing communications, since they reveal which messaging or creative elements contribute to a product’s market success. Marketing-research measures of nonverbal factors such as flow of attention, flow of emotion, and branding moments can provide insight into what is working in an advertisement or other marketing communication piece across multiple countries and languages.

The same recommendations about how to research and understand a target market in domestic settings apply to global settings. Marketing research is essential for marketers to build their understanding of which promotional tactics will be successful in any country or region. Informed experimentation and trial and error are also good teachers. Once marketers and brand managers discover what works (and what doesn’t) in the promotional mix, they can import this knowledge to infuse creative ideas into other markets. Likewise, companies can use this intelligence to modify various elements in their promotional mix that are receiving minimal or unfavorable response from global audiences.

Walmart: Placement, product, and promotion work in concert with pricing in the global marketing mix.

Pricing is the process of determining what a company will receive in exchange for its products. Many pricing considerations in global marketing are similar to domestic marketing. As marketers develop pricing strategy, they should keep the following goals in mind:

• Achieving the financial goals of the company and generating profits
• Matching the realities of the marketplace and consumer buying trends
• Supporting the designated positioning for a product, making it consistent with other elements of the marketing mix, product, promotion and placement

Similar to domestic marketing, in the global marketing mix, factors that affect pricing include manufacturing cost, distribution channels, marketplace, competition, market conditions, and quality of product. For instance, if distribution is exclusive to one channel partner, then prices are likely to be higher. High prices are required to cover high costs of manufacturing, shipping, extensive advertising, and promotional campaigns. If manufacturing costs go up due to the rise in price of some raw material, then prices will need to rise as well.

Global Pricing Considerations

Pricing considerations become more complicated in the global context when it comes to factors affecting global trade. Multinational companies must operate with different currencies, exchange rates, and interest rates. Pricing needs to account for risk associated with fluctuations in the relative value of different currencies in the markets where businesses operate. When the dollar is strong against a foreign currency, for example, imported American goods are more expensive relative to the local competition, so local sales may decrease. When a weak dollar makes product imports more expensive, the final good must carry a higher price tag to cover production costs.

Pricing can be affected by the cost of production (locally or internationally), natural resources (product ingredients or components), and the cost of delivery (e.g., the availability of fuel). For instance, if a country imposes a minimum wage law that forces the company to pay more to its workers, the price of the product is likely to rise to cover some of that cost. Natural resources, such as oil, may also fluctuate in price, changing the price of the final good. Pricing may be affected by government policy, such as trade tariffs and taxes, or costs associated with regulatory compliance and adherence to administrative or legal criteria of specific jurisdictions.

Global marketers must be also prepared to deal with other localized factors affecting pricing. Cultural expectations may dictate what consumers are willing to pay for some products and brands. A product’s positioning in relation to the local competition influences the brand’s ultimate profit margin. Global marketers must carefully consider how to position their products in global markets and decide whether their products are considered high-end, economical, or something in between according to cultural norms.

Global Marketing Mix: Place (Distribution)

Although other elements of the marketing mix are often more visible during the marketing process, place, or distribution, is essential in getting the product distributed to customers. Placement determines the channels used to distribute a product across different countries, taking in factors such as competition and they way similar brands are being offered to the target market. Regardless of its size or visibility, a global brand must adjust its country strategies to take into account placement and distribution in the marketing mix.

Global marketing presents more challenges around distribution, compared to domestic or local marketing. Consequently, brands competing in the global marketplace often conduct extensive research to accurately define the market, as well as the environments where consumers will find, buy, and use the product. A country’s transportation and economic infrastructure, customs, marketplace conditions, and the competitive landscape can all factor into strategic decisions around distribution.  For example, not all cultures use or have access to vending machines to distribute beverages. In the United States, beverages are sold by the pallet via warehouse stores. But warehouse stores do not exist in all markets.

Placement decisions must also consider the product’s positioning in the marketplace. A global luxury brand would not want to be distributed via a discount chain in the United States. Conversely, low-end shoemakers would likely be ignored by shoppers browsing in an Italian boutique store. Global marketers must also consider how their products will be distributed across the different shopping venues unique to a particular country or market. Customizing these placement strategies for national and local markets while retaining a strong and consistent brand image can help companies gain significant competitive advantages.

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This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

Assignment: Marketing Plan Peer Review

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This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

Instructions

Write a post for the Discussion on this topic, 1–2 paragraphs in length.

Part 1: Current Status

What are the global implications for the product or service you are marketing? What are the global implications of your marketing strategy and recommendations?

You should consider whether there are any global factors related to the marketing environment in which you operate, your targeting and segmentation strategy, and any aspect of the marketing mix: product, price, place (distribution), promotion.

Part 2: Respond to Classmates’ Posts

After you have created your own post, look over the discussion posts of your classmates and respond to at least two of them.

Grading Rubric for Discussion Posts

The following grading rubric may be used consistently for evaluating all discussion posts.

Discussion Grading Rubric

Total Points Possible for Discussion Assignment: 10pts.

COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

Global marketing is a demanding field because of the many different factors involved in the success or failure of a business venture in foreign markets. It can be fascinating because of the windows it opens into different peoples, cultures, and places around the world. It can also be fraught with difficulty. Even some of the smartest companies on the planet have a tough time making it work.

To close the discussion about global marketing, we offer two examples that illustrate how things can go very wrong in global marketing, as well as how things can go very right.

Google: Stumbling in China

Take technology giant Google, which has made many smart moves in its growth to become a successful multinational company. But for all its technology and business brilliance, it has struggled in mainland China. The Chinese government is heavy-handed when it comes to censoring the types of information its citizens can find and access–even via the Internet–and it continually monitors the online activities of its citizens for any behaviors it deems inappropriate. China’s government requires technology and media companies to comply with demands to censor search results and block sites that discuss sensitive subjects. Despite back-bending efforts to find solutions that would satisfy government demands as well as Google’s internal policies around free speech, privacy, and freedom of information, on several occasions Google found its mainland China sites completely blocked to users by cyberattacks backed, in all likelihood, by the Chinese government.

In 2010, Google finally pulled its search engine and related services from the Chinese market. It faced a seemingly insurmountable problem around how to make its products fit not only consumer needs and preferences in China, but also the rigorous regulatory environment around digital information. Google is not alone in facing this challenge. According to a 2016 article in The Atlantic,

Google’s move to pull the plug in China is an extreme example of the kinds of decisions Internet companies operating abroad are often up against: If they want to do business, they have to abide by local laws, which can include restrictions on speech. And since the United States has some of the most permissive freedom-of-speech laws in the world, American companies must adapt in order to do business even in parts of the world that are culturally very similar to the U.S.^[1]

After sitting out of mainland China for several years, in 2015 Google signaled its intentions to possibly reenter the market. The question was how. The following video discusses Google’s dilemma and the directions its product strategy may take to gain a new foothold.

How Google might localize its products for Chinese users and the regulatory environment (again) remains a big question. And Google is not alone. Every day, global marketers in companies around the world face questions of where to do business, what to offer, and how to function in the local business environment.

L’Oreal: Success with the Ladies

Tackling a very different set of global marketing challenges is L’Oreal, the world’s largest beauty and cosmetics company. Based in France, it operates globally with a keen focus on understanding what “beauty” means in different nations and cultures and how to serve the beauty needs of women (and increasingly men) around the world. To provide the “inside scoop” on beauty in different world regions, the company has established research and development centers on five continents. Each one is focused on understanding cultural differences in the beauty market, formulating innovative products to fit localized needs, and helping the company adapt its products and marketing activities to what its target customers want.

For example, to address the preferences of women in India for heavy eye makeup, L’Oreal developed an eyeliner “crayon” that holds up for 6+ hours in India’s extreme humidity and heat. It also introduced low-cost, single-use shampoo packaging for distribution in local, traditional shops serving the many consumers in India who, due to economic constraints, purchase products according to their day-to-day needs.

L’Oreal’s nuanced understanding of the global beauty market is apparent in the words of Jean-Paul Agon, the company’s CEO:

For a Brazilian women, hair and body are most important, for a Chinese woman facial skin is the priority, for an Indian woman it’s make-up. Our approach is the “universalisation” of beauty, i.e. globalization without uniformisation.^[2]

Applying this deep and localized customer knowledge about its global markets, L’Oreal’s marketing team members are actively invovled in generating ideas about what’s next. Engaging with consumers, beauty industry bloggers, and influencers in social media is a big part of the company’s marketing strategy and promotion mix because it gives them opportunities to listen and learn, as well as promote. It gives them insight into trends and needs in each global market. Successful localized products may be introduced in other regions where marketers see strong potential. At every step, marketers are keenly aware of each aspect of the marketing mix—product, pricing, distribution, and promotion—and how to match offerings to fit what its target audiences (primarily women) want.

In this video, produced by L’Oreal, a vice president of global brand marketing for the company’s hair-care division describes what it’s like to work across all aspects of the marketing function, striving to deliver products women love so much that they’ll never switch brands.

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This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com

What you’ll learn to do: explain the importance of understanding how demographic, cultural, and institutional factors shape the global marketing environment

While the same basic domestic marketing principles apply to global marketing, there are additional layers of complexity for marketers to consider when working across markets in different countries and world regions. Much of this complexity centers the need to develop a keen understanding of the consumer and the target market—a task essential for effective marketing, whether global or domestic. But in the global environment, there are additional questions to ask and issues to consider in order to fully appreciate the consumer and the marketing opportunities in a target market.

Additional complexity resides in the business environment created by government, regulatory bodies, and other societal institutions that shape the behaviors of individuals and institutions. This business environment is somewhat unique to every country and target market. Understanding these dynamics can help marketers work more effectively to achieve their organizations’ business objectives.

The specific things you’ll learn in this section include:

• Explain the importance of evaluating the demographic profile of a country to determine product demand and acceptance
• Describe how different cultural environments can affect the global marketplace and the marketing mix
• Explain how governmental regulation and available supporting institutions can impact marketing in specific countries or regions

Whether marketing to domestic or international markets, demographic information can provide important insights about a target market and how to address consumer needs. As discussed during this our discussion of consumer behavior, demographics refer to statistical information about the characteristics of a population.

Marketers typically combine several variables to create a demographic profile of a target market. A demographic profile (often shortened to a “demographic”) is a term used in marketing and broadcasting to describe a demographic grouping or a market segment. Common demographic variables to consider for global and domestic marketing purposes include the following:

• Age: Age bands, such as 18–24, 25–34, etc., are great predictors of interest in some types of products. For example, few teenagers wish to purchase denture cream.
• Social class: Social-class bands such as wealthy, middle, and lower classes. The rich, for instance, may want different products than middle and lower classes, and may be willing to pay more.
• Gender: Males and females have different physical attributes that require different hygiene and clothing products. They also tend to have distinctive male/female mindsets and roles in the family and household decision making.
• Religious affiliations: Religion is linked to individual values as well as holiday celebrations, often tied to consumer preferences and spending patterns.
• Income brackets: Indicating level of wealth, disposable income, and quality of life.
• Education: Level of education is often tied to consumer preferences, as well as income.
• Geography: Area of residence, urban vs. rural, and population density can all be important inputs into marketing strategy and decisions about where and how to target advertising and other elements of the promotion mix.

Demographic research may include a variety of other characteristics used to separate a country’s population into groups that fit a company’s target customer profile. A demographic profile also provides enough information about the typical member of this group to create a mental picture of this hypothetical aggregate. For example, a marketer might speak of the single, female, middle-class, aged 18–24, college-educated demographic.

Country of birth of Swedes in 2001: Demographics can be measured in a variety of ways. The map shows an estimation of foreign-born residents in Sweden.

The Immense Impact of Culture in Global Marketing

Culture refers to the influence of religious, family, educational, and social systems on people, how they live their lives, and the choices they make. Marketing always exists in an environment shaped by culture. Organizations that intend to market products in different countries must be sensitive to the cultural factors at work in their target markets. Even cultural differences between different countries–or between different regions in the same country–seem small, marketers who ignore them risk failure in implementing their programs.

Culture is complex, and fully appreciating its influence takes significant time, effort, and expertise. Various features of a culture can create an illusion of similarity, but marketers need to dig deeper to make sure they truly understand the people and environments in which they work. Even a common language does not guarantee similarity of interpretation. For example, in the U.S. we purchase “cans” of various grocery products, but the British purchase “tins.” In India, where English is one of a number of officially recognized languages, “matrimonial” is used as a noun in casual conversation, referring to personal ads in newspapers seeking marriage partners.

Several dimensions of culture that require particular attention from global marketers are listed below.

Language

As suggested above, the importance of language differences cannot be overemphasized, and there are nearly three thousand languages in the world. Language differences can be a challenge for marketers designing IMC campaigns, product labels, brand and product names, tag lines, and so on. Finding a single brand name that works universally in terms of pronunciation, meaning, and “ownability” is a monumental challenge. Of course, correct and grammatical use of language in marketing communication is essential for a product, brand, or company to be viewed as credible, trustworthy, and of high-quality.

Language gains complexity when a country has more than one officially recognized language. To illustrate, in Canada, national law requires that labels include both English and French. In India and China, more than two hundred different dialects are spoken. India has more than twenty officially recognized languages. Mainland China’s official spoken language is Standard Mandarin, and several autonomous regions have designated other additional official languages. Meanwhile in Hong Kong and Macau, Cantonese Chinese, English, and Portuguese are the official languages. Clearly language can become a very complicated issue for marketers very quickly!

Finally, marketers should be attuned to what they communicate when they choose which languages to use–or not use. In Eastern Europe, for example, the long history of Soviet occupation during the Cold War has left many inhabitants with a negative perception of the Russian language. Products that carry Russian labeling may suffer accordingly.

Customs and Taboos

All cultures have their own unique sets of customs and taboos. It is important for marketers to learn about these customs and taboos so that they will know what is acceptable and unacceptable for their marketing programs. For example, in Japan, the number four is considered unlucky, and products packages containing four items are avoided by many consumers. In Middle Eastern countries where Islamic law is strictly observed, images displaying the uncovered arms or legs of the female body are considered offensive. Meanwhile in Egypt, where many women wear the headscarf or hijab in public, an increasing number of younger women are in work and educational settings where gender segregation does not exist. Marketers struggle with whether to portray women with or without the hijab, knowing that they risk offending some of their target audience with either choice. Marketers should seek guidance from native experts familiar with local culture and customers. Marketing research can also help marketers understand and navigate these complex issues.

Values

The role of values in society is to dictate what is acceptable or unacceptable. Values are part of the societal fabric of a culture, and they can also be expressed individually, arising from the influence of family, education, moral, and religious beliefs. Values are also learned through experiences. Not surprisingly, values can influence consumer perceptions and purchasing behavior. For example, consumers in some countries, such as the United States, tend to be individualistic and make many purchasing decisions based on their own personal preferences. In other countries, such as Japan, the well-being of the group is more highly valued, and buying decisions are more influenced by the well-being of the group, such as the family. Based on these differences in values, it is not surprising that ads featuring individuals tend to do better in countries where individualism is an important value, and ads featuring groups do better in countries where the group’s well-being is a higher value.

Time and Punctuality

Different cultures have different sensitivities around time and punctuality. In some countries, being slightly late to a meeting is acceptable, whereas in other countries it is very insulting. For cultures that highly value punctuality, being on time is a sign of good planning, organization, and respect. In cultures where precise punctuality is less important, there is often a greater emphasis on relationships. The fact that a meeting happens is more important than when it happens.

While there are cultural stereotypes about time management (such as the laid-back “island time” many residents of island nations refer to), the best rule of thumb in business is to be punctual and meet deadlines as promised. You will not insult people by following this rule. Also, it is wise not to apply popular stereotypes to individual people for whom the cultural stereotype may or may not be true. You should let a person’s behavior speak for itself, and always treat others with the same level of courtesy you would expect from them.

Business Norms

Business norms vary from one country to the next and may present challenges to foreigners not used to operating according to the particular norms of the host country. In business meetings in Japan, for example, it is expected that the most senior person representing an organization will lead the discussion, and more junior-level colleagues may not speak at all. The role of alcohol in business meetings varies widely by culture: in Middle Eastern cultures where alcohol is forbidden, it may be insulting to serve or even offer an alcoholic beverage. In China, many rounds of toasts are customary as part of formal dinner meetings.

President Barack Obama clasps his hands in the traditional “namaste” greeting in India.

Likewise, business norms around greetings and physical contact also vary. American-style handshakes have become accepted as a business norm in many cultures, but this custom is not universal. In Japan and some other Asian cultures, a respectful bow is the traditional business greeting, although the handshake is becoming more common. In Islamic cultures, contact between men and women is a sensitive issue, even in business settings. In those regions and cultures, it is best to shake hands with a woman only if she extends her hand first. Similarly, Western women may avoid causing embarrassment by shaking hands only if a hand is extended to her. In India, the namaste (a slight bow with hands brought together on the chest) remains a respectful, if traditional business greeting particularly when interacting with women and older people.

Always seek guidance from a trusted colleague or friend who has experience in the local customs and can offer coaching on proper etiquette.

Religious Beliefs and Celebrations

As discussed earlier in this module, religious beliefs and practice can strongly influence what consumers buy (or don’t buy), when they shop, and how they conduct business.  It is important for marketers to understand the influence of religion on consumer culture in the markets where they operate, so that their marketing activities can be appropriately sensitive. Failing to respect religious beliefs or cultures can seriously undermine the reputation of a company or brand. At the same time, marketers who are attuned to the impact of religion on local culture can find great advantage in aligning marketing messages and promotional opportunities to religious practice.

For example, all the major world religions observe holidays that include feasting and gift giving. These festival seasons tend to be prime shopping seasons as well, such as the Christmas season in Western cultures, or Ramadan in Muslim cultures. Religious beliefs lead to sensitivities about certain products: in the Hindu religion, cows are considered sacred and people refrain from eating beef. Observant Jews and Muslims consider pork unclean, and they consume only kosher or halal meats, respectively. Many religions eschew alcohol: for example, devout Sikhs, Muslims, Mormons, Buddhists, and Southern Baptists all refrain from drinking.

Religious beliefs may cause sensitivities around revealing images or sexually suggestive material. Religious beliefs associated with the symbolism of different colors may create either preferences for or rejection of certain products and marketing materials. The link between religious practice and gender roles may affect which members of the family influence which types of buying decisions. It is important, however, for marketers not to oversimplify how decision making happens in these settings. Even if a woman, for example, is not the primary buyer, she may exercise strong influence of many consumer decisions.

Here, as in other areas of cultural impact, is it crucial for marketers to educate themselves about the people and cultures they are targeting for marketing and business in order to use cultural knowledge to advantage.

The Influence of Government and Regulations on Global Marketing

Political Stability

The Haitian National Palace (Presidential Palace) in Port-au-Prince, Haiti, heavily damaged after the earthquake of January 12, 2010. Besides struggling to rebuild the country after the earthquake, Haiti has had to cope with decades of political conflict and instability.

Business activity tends to grow and thrive when a nation is politically stable. When a nation is politically unstable, multinational firms can still conduct business profitably, but there are higher risks and often higher costs associated with business operations. Political instability makes a country less attractive from a business investment perspective, so foreign and domestic companies doing business there frequently must pay higher interest rates on business loans, higher insurance rates, and often higher costs to protect the security of their employees and operations. Alternatively, in countries with stable political environments, the behavior of consumers and markets is more predictable, and organizations can rely on governments enforcing the rule of law, meaning that governments do not exercise power arbitrarily. Instead, they adhere to established, recognized, and well-defined laws.

Domestic and Global Business Law

Governments around the world maintain laws that regulate business practices. In some nations, these laws are more heavy-handed, and in other countries, the environment for business is more freewheeling and self-regulating. Some of these laws and regulations are designed to create a stable environment for business (both domestic and international) with the establishment and enforcement of property rights and contracts. Others are designed to protect consumers and the environment, requiring businesses to adhere to responsible, safe, and ethical practices. Still other laws and regulations privilege domestic businesses and protect or partially shield them from foreign competition. There are even laws and regulations that affect what marketers are allowed to include in marketing communications, although these are far more strict in some countries than in others. And of course, some laws and regulations deal with taxation and other costs of conducting business.

Marketers should become familiar with the political and regulatory environments in the countries and world regions where they operate, and specifically the laws, regulations, and legal processes that may affect business and marketing operations. For example, it is common for countries to maintain laws and regulations in the following areas:

• Contract law governing agreements about the supply and delivery of goods and services
• Trademark registration and enforcement for brand names, logos, tag lines, and so forth
• Labeling for the purposes of consumer safety, protection, and transparency
• Patents to enforce intellectual property rights and business rights associated with unique inventions and “ownable” business ideas
• Decency, censorship, and freedom-of-expression laws to which marketing communications are subject
• Price floors, ceilings, and other regulations regarding the prices organizations can charge for some types of goods and services
• Product safety, testing, and quality control
• Environmental protection, conservation, and the use of permits and other regulatory tools to encourage acceptable and responsible business practices
• Privacy, including laws governing data collection, storage, use, and permissions associated with consumers and their digital identities
• Financial reporting and disclosure to ensure that organizations provide transparency around using sound business and financial practices

In some cases, international laws and regulations also seek to govern these issues, looking out for ways to manage the friction that can surface between national governments, as well as ways to serve the common interests of regional allies and economic partners.

Free Trade and Protectionism

Free trade refers to the free exchange of goods and services across international borders without governmental restrictions such as quotas (which limit amounts of goods that can be traded), tariffs (which are taxes charged for imported or exported goods), and other restrictions. Many nations encourage free trade by inviting foreign firms to invest in and conduct business without severe disadvantages or restrictions compared to domestic businesses. Often these same governments encourage domestic firms to engage in overseas business. When governments have a strong free-trade orientation, they typically prefer not to enact regulations that strictly limit imports and discriminate against foreign firms–at least not in most product and service categories. When countries enact free trade agreements with one another, they agree to allow advantageous terms for the flow of goods and services between designated countries.

Regional trading blocs represent a group of nations that join together and formally agree to reduce trade barriers among themselves. The North American Free Trade Agreement (NAFTA) enacted between Canada, the U.S., and Mexico boosts export sales between these countries by enabling companies to sell goods at lower prices because tariffs are reduced or eliminated. The EU Single Market attempts to guarantee free trade between the twenty-eight member states of the European Union. The Association of Southeast Asian Nations (ASEAN) is an example of a regional trading block. This agreement allows for the free exchange of trade, service, labor, and capital across the ten independent member nations. In addition, ASEAN promotes the regional integration of transportation and energy infrastructure.

Figure 1. The Association of Southeast Asian Nations (ASEAN)

One of the potentially interesting results of trade agreements like ASEAN or NAFTA is that many products previously restricted by dumping laws—which are laws designed to keep out foreign products—would be allowed for sale.

Almost all the countries in the Western hemisphere have entered into one or more regional trade agreements. Such agreements are designed to facilitate trade through the establishment of a free-trade area, customs union, or customs market. Free-trade areas and customs unions eliminate trade barriers between member countries while maintaining trade barriers with nonmember countries. Customs unions maintain common tariffs and rates for non-member countries. A common market provides for harmonious fiscal and monetary policies while free trade areas and customs unions do not.

Governments engage in protectionism when they enact policies that privilege domestic industries and businesses over those based in foreign countries. Protectionist policies may enact quotas that strictly limit the numbers of imported or exported goods allowed. Quotas are designed to prevent foreign imports from meeting all the demand for a product; instead, they carve out room for domestic suppliers to meet some of this demand. Another common protectionist policy is to levy tariffs that restrict trade by placing taxes on imported goods to make them more expensive in the domestic market. The amount of the tariff varies in proportion to the value of the good and the degree to which the government wants to make it prohibitively expensive for foreign businesses to sell products in a domestic market. Protective tariffs are frequently established to protect domestic manufacturers against competitors by raising the prices of imported goods. Not surprisingly, U.S. companies with strong business traditions in foreign countries may support tariffs to discourage entry by other U.S. competitors.

Expropriation

All multinational firms face the risk of expropriation. Expropriation takes place when a government takes ownership of property or business operations such as real estate, manufacturing plants, or other assets, sometimes without compensating the owners. In many expropriations of foreign business property by domestic governments, there have been payments, and it is often equitable. While expropriation is often carried out by a government on behalf of its people, in fact many of these facilities end up in private hands rather than as publicly owned and operated entities. Because of the risk of expropriation, multinational firms are at the mercy of foreign governments, which are sometimes unstable and can change the laws they enforce at any point to meet their needs.

Trade Policy and the World Trade Organization

Countries engage in international trade for two basic reasons, each of which contributes to the country’s gain from trade. First, countries trade because they are different from one another. Nations can benefit from their differences by reaching agreements in which each party contributes its strengths and focuses on producing goods efficiently. Second, countries trade to achieve economies of scale in production. If each country produces only a limited range of goods, it can produce each of these goods at a larger scale and hence more efficiently than if it tried to produce everything. While international trade has been present throughout much of history, its economic, social, and political importance have increased in recent centuries, mainly because of industrialization, advanced transportation, globalization, multinational corporations, and outsourcing.

The World Trade Organization (WTO) was formed to supervise and liberalize international trade on January 1, 1995, under the Marrakech Agreement. The organization deals with the regulation of trade between participating countries. It provides a framework for negotiating and formalizing trade agreements and a dispute resolution process aimed at enforcing participants’ adherence to WTO agreements.

World Trade Organization participation: The WTO was founded in 1995 with 123 member countries. By 2019 it included 164 member states.

Trade Sanctions

Trade sanctions are penalties imposed on one country by one or more other countries. Allied countries may impose sanctions on their enemies. On occasion, the WTO authorizes trade sanctions against a specific country in order to punish that country for some action. An embargo, a severe form of externally imposed isolation, is a blockade of all trade by one country on another. For example, the United States initiated a longstanding commercial, economic, and financial embargo against Cuba in 1960 after Cuba expropriated American-owned oil refineries located in Cuba without compensation.

Trade Barriers

Although there are usually few trade restrictions within countries, international trade is usually regulated by governmental quotas and restrictions and often taxed by tariffs. Tariffs are usually on imports, but sometimes countries may impose export tariffs or subsidies. All of these are called trade barriers, which are established by a government that implements a protectionist policy. If a government removes all trade barriers, a condition of free trade exists. The WTO helps arbitrate and settle disputes about trade barriers between different countries.

Fair Trade

International Fairtrade Certification Mark

The fair trade movement promotes the use of labor, environmental, and social standards for the production of commodities, particularly those exported from developing countries to industrialized nations. Importing firms voluntarily adhere to fair trade standards, or governments may enforce them through a combination of employment and commercial law. Proposed and practiced fair trade policies vary widely, ranging from the common prohibition of goods made using slave labor to minimum-price support schemes such as those for coffee in the 1980s, to industry-focused marketing schemes to boost consumer demand for fair trade products. Nongovernmental organizations (NGOs) also play a role in promoting fair trade standards by serving as independent monitors of compliance with fair trade labeling requirements. Today fair trade certification processes inspect grower and manufacturer facilities to confirm that ethical practices are in place, and participating organizations are authorized to market their products using an increasingly visible “Fairtrade” certification mark.

A CASE IN POINT: CHINA

China offers an interesting and current example of the affects of political, regulatory, and trade policy on economic growth and the business environment. Beginning around 1978, the People’s Republic of China (PRC) began an experiment in economic reform. In contrast to the previous Soviet-style, centrally planned economy, the new measures progressively relaxed restrictions on farming, agricultural distribution, and, several years later, urban enterprises and labor.

China’s more market-oriented approach reduced inefficiencies and stimulated private investment, particularly by farmers, which led to increased productivity and output. The reforms proved successful in terms of increased output, variety, quality, price, and demand. In real terms, the economy doubled in size between 1978 and 1986. By 2008, the economy was 16.7 times the size it was in 1978, and 12.1 times its previous per capita levels.

International trade progressed even more rapidly, doubling every 4.5 years on average. In 1991, the PRC joined the Asia-Pacific Economic Cooperation group, a trade-promotion forum. Total two-way trade in January 1998 exceeded that for all of 1978. In 2001, China joined the World Trade Organization. In 2007, China surpassed the U.S. in exports, and in 2009, China surpassed Germany to become the world’s leading exporter. ^[1] Today, US companies must compete with Chinese imports as a reality of doing business, but also have easier access to China’s labor force and natural resources as an option in sourcing. For many companies manufacturing relationships with China and sales opportunities in China have led to efficiencies and new market opportunities.

COPYRIGHT

This courseware was assembled by Christopher VanOosterhout from a variety of resources copyrighted and openly licensed by multiple individuals and organizations.  See our Copyright and Attribution page for additional details.  For details about permission to use please contact me at c@vanosterhout.com with the phrase  Courseware Usage Inquiry.  If you believe that this courseware violates your copyright, please contact me at c@vanoosterhout.com with the phrase Copyright Inquiry in the subject.  Details about the collector of these resources and Licentia LLC can be found at www.vanoosterhout.com