Chapter 6: International Marketing and Production

Introduction

International marketing practices have a significant role in the formation of global markets and consumer cultures. Globalization establishes interaction and integration in the transnational production networks in which products and brands are created and exchanged through marketing practices. Actors -such as designers, advertising agencies, suppliers, retailers, and consultants- operating within a global commodity chain co-create market value for the global markets. Consumers are also active in co-creating the meanings of market offerings through a variety of global and local interactions.

International Marketing Environment

There are two main tendencies in international marketing strategy identified by similar terms; standardization versus adaptation, or globalization versus localization, or global integration versus global responsiveness. Companies prefer to standardize their market offerings across different international markets in order to achieve economies of scale. This perspective assumes that societies and markets join in terms of their characteristics, such as similar values, tastes, lifestyles, and behavior as a result of globally operating multinational firms and the media.

However, well-known global brands tailor their marketing activities to satisfy the local markets, which are shaped better by their local cultures than by those of the competitors’. For example, although Coca-Cola markets the same product range across the global markets, its advertising campaigns are tailored according to the food culture and rituals of the local markets. The Ramadan and Christmas ad campaigns tailored explicitly for Islamic and Western countries respectively exemplify this adaptation process.

The convergence perspective assumes the center periphery model for the global economy. The Developed countries constitute the center, and they produce and market goods to the developing markets. It was assumed that in the future, markets would converge to unity; and a modern and developed market would emerge at the global level. This assumption has been challenged by the global level developments after the 2000s. The Millennium witnessed that the center of the global economy has been shifting, and multiple centers have been developing throughout the globe. The transfer of products, values, tastes, and lifestyles is not unidirectional.

Although the developed economies continue to dominate the global economy, the East Asian, Russian, and Eastern European economies have been growing in their importance. The BRIC countries (Brazil, Russia, India, and China) were identified as the future major players in the world economy in the early 2000s. Today the convergence perspective seems very limited and reductionist in grasping the global complexity formed through global level interactions. Its repercussions to international and global marketing include the rising importance of globally dispersed market segments which are fragmented.

Appadurai presents a framework involving 5 conditions under which global flows occur, and he explains the complex nature of the global cultural economy, which develops amidst the disjuncture between economy, culture, and politics. These five conditions are ethnoscapes, technoscapes, financescapes, mediascapes, and ideoscapes.

Ethnoscapes are the people mobile throughout the globe, such as immigrants, tourists, and guest workers. So, these mobile people always get in contact with the stable ones. Their mobility influences the politics of and between nations. Technoscapes are the sorts of technology spread among complex relationships between money flows, political possibilities, and the availability of both low and highly skilled labor. Financescapes are the complex movements of global capital in the form of currency markets, national stock exchanges, and speculations. Interactions of ethnoscapes, technoscapes, and financescapes are unpredictable because each of these scapes is subject to different incentives or constraints that are political, informational, and technoenvironmental.

Mediascapes and Ideoscapes have an image and narrativebased nature. Mediascapes are about the production and dissemination of information through different types of media where the boundaries between the real and the fictional blur. Mediascapes create and introduce imagined lives, places, and lifestyles. Ideoscapes are political, and they indicate mainly the spread of the Enlightenment worldview, which consists of notions like democracy, welfare, freedom, rights, and sovereignty. The complexity introduced through global interactions eliminates the formation of a single global market.

While operating in international marketing environments, international marketers need to analyze the complex interacting environmental forces in order to make healthy strategic decisions. Sociocultural, economic, and political and legal environmental forces of the home and host countries should be analyzed before the planning and implementation of marketing strategies.

The Sociocultural Environment

The principles of marketing that have been generated for developed nations and that have mainly adopted the American worldview are utilized in many local contexts as if they were universal. However, the institutional formations and the cultural foundations of local contexts are influential in constituting the local marketing activities. International marketing and consumer researchers have pointed out that a contextually grounded work to advance the understanding of local contexts and markets is necessary to understand the international environments better and to develop locally informed strategies.

Culture is a very important factor for marketers in understanding international markets. It subsumes the whole society, including its economy, education, institutions, government, families, production, ideology, and consumption. Considering values and morals, there exist fundamental cultural assumptions such as religion, ethnic culture, or national identity. A marketer needs to delve into these levels to understand the everyday practices of marketing or consumption.

According to Hofstede’s thought, there are cultural dimensions such as individualism / collectivism, power distance, masculinity / femininity, uncertainty avoidance, long/short-term orientation, and indulgence / restraint. The individualism and collectivism dimension is related to the boundaries between people and groups that they belong to.

In individualistic cultures, the independence of the individual is essential. In collectivist cultures group coherence and cultural harmony are more important than individual freedom. Power distance demonstrates the degree of tolerance toward the unequal distribution of power in a society. A society is identified as masculine when assertiveness, earning money, showing off, and lower levels of care for others are the dominant values. A feminine society is supposed to value nurturing roles, interdependence, and caring for others.

The notion of uncertainty avoidance measures how threatened people feel in certain situations. If uncertainty is high in a society, the level of anxiety and aggressiveness is high, and procedures and rules are encouraged. People of the countries with long-term orientation are more pragmatic, modest, and thrifty. Unlike these, people with short-term orientation put emphasis on consistency, and truth, religious and, nationalistic ideals are prioritized. A great indulgence society values the gratification of human desires, pleasures, and joy unlike a high restraint society that controls the gratification of needs through social norms.

Venkatesh, however, is critical about cross-cultural research, which has a basis in the social psychological paradigm aiming to explore or establish the universal applicability of psychological theories such as Hofstede’s dimensions. Meamber and Venkatesh introduce the ethnoconsumerist methodology to understand international consumer behavior or markets from a cultural standpoint by using the principles of anthropological approach.

Their methodology suggests any marketer who aims to understand a new culture needs to first collect information by using two approaches: text view and field view. The text view utilizes secondary or archival data on the cultural background, such as traditions, values, and histories. The Field view is generated by collecting primary data such as ethnographic observational or interview data. After assembling data from textual and field views, an analysis of the data is conducted to identify information on cultural artifacts or objects, cultural practices (including consumption practices), cultural conceptual structures, and the relevant social histories or memories.

Economic Environment

International marketers need to recognize what type of economic system dominates the potential market to enter. Market capitalism, centrally planned socialism, centrally planned capitalism, and market socialism are the four traditionally defined economic systems. It is hard to identify and categorize any economic system in one of these ideals because economies transformed into hybrid forms as a result of globalization.

International marketers can utilize market development as a criterion in order to segment international markets. Levels of market development are measured according to per capita gross national income (GNI).

Low-Income Countries (LIC) have GNI per capita of $ 1,045 or less. Low industrialization, agriculture oriented population, higher birth rates, short life expectancy, low literacy rates and instability are the common features in these countries. They generally have social, economic, and political problems, and international marketers generally regard them as having minimal opportunities to invest to enter and operate.

Lower Middle-Income Countries (LMIC) are the ones with per capita GNI is between $ 1,046 – $ 4,125. They have growing consumer markets, which make these countries attractive for international marketers. Upper Middle-Income Countries (UMIC) or developing countries have per capita GNI between $ 4,126 – 12,745. Since urbanization is increasing in these countries, the number of people working in the industrial sector is also increasing, while that of those involved in agriculture is decreasing.

High-Income Countries (HIC) are the ones with per capita GNI is above $12,476. Most of the time, they are conceptualized as post-industrial societies. The service sector becomes more dominant in these societies, intellectual technology (scientists and professionals) is more widespread than machine technology (engineers and semiskilled workers). HICs experience sociological changes in everyday life, such as work-home balance. Novelties and new products dominate the market opportunities. Most households possess fundamental household goods. The development level serves as a categorization criterion-guiding marketers on the percentage of potential buyers that possess a particular product.

Exchange rates constitute another significant economic criterion for international marketers to sense the economic environment of the host country. Movement in exchange rates influences their decisions. A marketer selling to a country with a stable currency and manufacturing and paying wages in a country with a weak currency gains high profit. Most of the fashion and high-tech brands of developed nations exploit exchange differences by using contract manufacturers in the countries with lower exchange rates and marketing goods to the affluent global middle classes.

Political and Legal Environment

An international marketer has to consider political and legal environments both in the home and the foreign countries. A political environment involves governmental institutions, political parties, pressure groups, and organizations through which power is exercised over various organizations and people in a society.

Government policies and attitudes toward business are to secure the national interests and the wellbeing of the society and to promote the political philosophy of the country. Business legislations are the laws protecting companies from unfair competition and consumers from unequal business activities, and the interests of the society against unrestrained corporate interests. Trade barriers are the laws that favor local businesses against foreign ones.

Governments establish trade barriers in order to protect domestic producers or generate revenues through import or export tariffs. Tariff and non-tariff are two categories of trade barriers. While tariffs are monetary charges imposed on imports, non-tariff barriers such as quotas, embargoes, and local-content are non-monetary restrictions on imports. Quotas are restrictions on the amount of a product imported to or exported from the country within a specified period. Embargoes prohibit imports or exports of a good entirely. Local-content requirements oblige foreign companies to supply a certain amount of a good or service from the domestic producers.

The stability of government policies makes a country welcoming to international marketers. Instability for businesses occurs due to a change in the political philosophies of the governments; adverse effects of the newly elected parties on trade conditions, nationalism, especially when it creates an anti-foreign business bias, hostility, or fear toward specific countries; and trade disputes between two governments. The World Trade Organization is responsible for resolving these trade disputes between countries.

International Marketing Strategies

Segmentation Strategy

International market selection depends on the size of the company. As small-and-medium-sized enterprises (SMEs) have limited financial and human resources, collecting and analyzing information about international markets in order to decide which market to operate is complex. Therefore, selecting the markets with low psychic, cultural, and geographic distance is recommended for SMEs.

A low psychic distance country is a country that is less different from its counterpart in terms of language, culture, political system, level of education, and level of industrial development. Low cultural distance means perceptions of the home, and the host countries are similar. For example, Romania and Turkey might be different in many aspects, but marketers might perceive them as two very similar countries.

Low geographic distance refers to the closer spatial proximity between the two countries. SMEs can prefer using such a simple guide in selecting which markets to operate in. However, Large-Scale Enterprises (LSE) conduct a systematic analysis in order to identify and assess the segments and decide which ones to target.

In order to identify which market to target, the first step is to segment the international markets. International market segmentation is informed from an analysis of two groups of knowledge: the firm and the environment. The marketer checks; if the firm’s resources are available for sustaining marketing activities abroad, if the firm has experience in internationalization, if the firm has experience on the type of industry, if the aim of the firm is internationalization, and if there are any existing networks that constitute a strength for the company.

Industry structure refers to market competition and the profitability of the industry. Industry structure can be identified by analyzing entry barriers, threats of substitutes that perform the same function, power of the customer, power of the suppliers, and the rivalry among competitors.

The degree of internationalization shows the number and the size of the competitors who are not domestic and operating in the market. Demographic characteristics (e.g. age, class, gender, income, occupation, ethnicity), psychographic characteristics (e.g. personality traits, attitudes, values, lifestyle), behavior (e.g. usage rate or usage status such as user, non-user, light user), and the benefits of the market offered to the customer could all be used as segmentation variables. Sometimes one and sometimes multiple criteria can be used to develop segments.

Targeting Strategy

In order to choose the target market(s), the manager needs to check the current segment size and its growth potential. The size of the segment may be significant, but it may have reached the saturation level and may not have any growth potential. Then, there is no need to choose this segment as a target market because the possibility to sustain profitability will be a problem.

A ‘market selection framework’ is suggested in order to choose the target markets. Market potential is a measure that combines the size of the market and the competitive advantage used to compare markets. Market size is the potential number of buyers in the market and given on page 161 in Table 6.1 in your textbook in a ranked format. Competitive advantage index is calculated by considering the weighted average of differential advantage, cost advantage, and marketing advantage.

Differential advantage refers to the ability to provide better market offerings than the competitor’s offerings.

Product and service quality and brand reputation variables are combined to calculate the differential advantage. Cost advantage means providing the same products at a better cost than the competitors. Marketing advantage refers to providing a better market offering than competitors due to extensive distribution and effective promotion.

The market potential is calculated by multiplying the market size and competitive advantage. Market access is a factor that influences the firm’s ability to serve the market. Among these factors are local laws, import bans due to the balance of payment problems of the host country, or problems in carrying production facilities to the host country. In order to adjust the market potential according to the access levels, a new adjusted market potential value is calculated.

Targeting strategies can be grouped into three at the global level. These are standardization, differentiation, and niche marketing. Standardization is a process of marketing the same marketing mix throughout the globe. In our current global consumer culture, it is hard to find fully standardized, undifferentiated examples.

New technological advancements, like the Internet, and flexible manufacturing processes such as 3D Printing made customization far more efficient than before. Differentiated marketing, which refers to serving multiple market segments with different marketing mix offerings, seems to be a better alternative when serving in contemporary global markets. The third type of targeting strategy is a niche or concentrated marketing. Niche marketers serve a narrowly defined market within an international market or at the global level.

Positioning Strategy

Positioning is a strategy that aims to differentiate the brand in the consumer’s mind from the competitor’s brand in terms of the attributes and benefits offered by that brand. There can be three alternative scales: global consumer culture, foreign consumer culture, and local consumer culture. Global consumer culture positioning means that the brand identifies a specific segment of the global consumer culture. An alternative positioning strategy is foreign consumer culture positioning, where the company associates the brand with a specific foreign country or culture. The final positioning strategy aims to associate the brand with the local consumer culture.

International Marketing Mix Decisions

Developing an international marketing strategy consists of the identification of the segments, making a selection among these segments to determine the target market(s) to operate, defining the positioning of the product or the brand in the consumers’ mind. Marketing mix elements, namely product, price, distribution, and communication, are the tools used to implement the strategies to create value for the global or international markets and capture value from them in return.

Product Decisions

Product is defined as ‘anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need’. Products have tangible and intangible components and can be conceptualized at three levels: core customer value, actual product, and the augmented product. While the core customer value refers to the benefit of the product to the customers, the actual product consists of quality level, features, design, packaging, and brand name. Besides, the augmented product contains services such as delivery and credit, product support, warranty, and after-sale service.

Communication and product decisions are considered together since marketing communications create the position of the product and the intangible elements of the product, such as its symbolic value and the brand name. Four alternative strategies that a company can choose when planning its product for the global markets can be seen on page 164 of your textbook in Table 6.2.

Strategy 1 suggests using the same message in all promotion mix elements and offering the same product in different international markets. Strategy 2 suggests that while extending the product to different international markets, communication about the product can be adapted. Strategy 3 considers adapting the product to the needs of the foreign markets while keeping the communication common all around these different markets. Strategy 4 is the adaption of both the product and the communication. Environmental conditions and the characteristics of the target market may necessitate companies to tailor both their products and communication practices to the new foreign markets. Innovation or creating new products for international markets is the fifth alternative strategy.

Pricing Decisions

Price is the only element of the marketing mix that creates revenues. International pricing is more complicated than pricing in domestic markets due to a variety of external factors such as changes in exchange rates, increasing inflation levels, use of alternative payment methods such as barter or leasing, and government influences such as tariffs or quotas or regulations on pricing.

Besides, the particular market factors such as customers’ perceptions of the value of a product, their economic means, and competition may influence the pricing decision. Costs incurred through the distribution channel such as shipping costs, tariffs, intermediary costs, and other logistical costs increase the cost of marketing the product for international markets. When the distribution channel gets longer, costs increase, and the prices will go up. The price difference resulting from this is called price escalation.

In skimming price, the marketer sets a very high price for the product at first and then gradually decreases the price. The goal of the skimming strategy is to capture the potential customers who are willing to pay such a high price. A value-based pricing approach should be used to identify the level of price when implementing a skimming strategy. In value-based pricing, value perceptions of customers for the product are identified and used for setting the highest price level.

Market pricing or competitive pricing is the strategy that sets the price levels according to the competitors’ prices. Penetration pricing is a strategy designed to offer a product at a low price to increase sales. Captive pricing is another alternative strategy. In captive pricing the profits are not generated by the sales of the product but by the continuous sales of the companion product.

When operating in the global markets, three types of pricing policies are possible; extension or ethnocentric, adaptation or polycentric, and geocentric pricing policies. Extension pricing refers to charging the same price across the world. Polycentric pricing is a price policy that assigns market-specific prices to the product. Geocentric pricing mainly focuses on the local conditions in setting the prices.

Distribution Channel Decisions

Distribution is a process which involves the physical handling and transfer of goods; change in the ownership of goods among the producers; the middleman, the buyer, and negotiations and agreements among these actors. This process takes place in both the home and the foreign country. In the home country, the firm can choose whether to use its team of the sales force or an export management company. For the operations in a foreign country, the company may choose to directly sell to its customers or work with an import management company, an agent merchant middlemen, or foreign retailers.

While deciding on the foreign distribution channels, an international marketer needs to consider the following nine criteria; consumers and their characteristics, culture, the character of the channel, necessary capital, cost, competition, coverage, continuity, and control.

Consumers and their characteristics must be identified in this process. Culture outlines the building of the distribution channel as well as other elements of the marketing mix. The fit between the character of the channel and the image of the product is essential. Necessary capital is another essential criterion to check before entering into a foreign market. Linked with the capital, costs that incur as a result of doing business in a specific channel should also be considered. Competition in distribution channels is an important criterion to check for international marketers. Coverage refers to the extent to which the distribution channel covers the markets that the producers want to have access. Continuity of the distribution channel means if any possible threats that can prevent the sustaining the operation of the channel. Full control can only be achieved if the producer owns the distribution channel.

Also, a hybrid channel strategy can be used: while foreign channel members are responsible for the sales and distribution operations, the manufacturer conducts sales promotions.

Marketing Communications Decisions

In international marketing, product or brand related messages are communicated to buyers in order to provide information for purchasing decisions. In the domestic marketing context, the sender starts by encoding the message and then transfers it to the receiver through a channel, and lastly, the message is interpreted by the receiver. This basic model of communication process explains any communication mix element such as advertising, public relations, sales promotions, direct or Internet marketing, personal selling, and packaging.

Hollensen’s model of effective communication in international markets outlined the factors influencing the communication situation in the foreign markets. This model differs from the original communication model in the sense that there are two contexts belonging to home and foreign countries. In the home country, the firm encodes a message, which enters into the context of the foreign country where the message moves toward the receiver through channels of communication such as personal selling or mass media. The receiver encodes the message. Sometimes the receiver gets a message different from the message sent due to noise.

Noise can be a common distraction in the environment or it may be related to the mood or emotional state of the receiver. Also, noise can be related to the comprehension or decoding of the words and symbols that the message consists of. The possibility of such a semantic noise is higher in international marketing situations because the sender and the receiver do not share the common meaning systems.

In economically less developed countries, the audience may not have access to the necessary channels to receive the message as a result of insufficient infrastructure or technological limitations. The dimensions of culture, such as religion, attitudes, social conditions, education, shape individuals’ perceptions, and interpretations.

Regulations or legislations may also influence the message content or the choice of a channel in foreign contexts. Governments may want to limit the consumption of certain products and ban advertisement or product placement activities. In such situations, alternative ways of communication strategies are generally developed by marketers. Finally, an international marketer must also consider the competition for each market in its communication decisions.