Why Go International?

1. Why Go International? 1. Exploiting market potential and growth 2. Gaining scale and scope returns at home 3. Learning from a leading market 4. Pressuring competitors 5. Diversifying markets 6. Learning how to do business abroad

2. International Business Philosophies • Multinational Mentality • Focused on marketing to different countries with local adaptation of products and promotions; production localized and technology less advanced • Global Mentality • Involves more standardization of products and integration across countries; driven by strong foreign competition and growing homogenization of world markets

3. Rationale for “Global” Mentality Customers &Common customer needs, global Markets: customers, global channels, transferable marketing, leading markets Competition:Common competitors using global strategies Cost Savings:Scale economies, scope economies, sourcing advantages, avoidance of duplication GovernmentFavorable trade policies, acceptance of foreign Policies: investment, compatible technical standards, common marketing regulations

4. Multidomestic vs. Global Markets: Key Differences

5. Major Benefits from Global Business CAPITALIZING ON THE GROWTH POTENTIAL OF THE FOREIGN MARKET AND NEIGHBORING COUNTRIES. TRANSFERRING COMPETITIVE INFORMATION AND NEW PRODUCTS FROM THOSE MARKETS TO OTHER MARKETS. STRETCHING AND BUILDING UP THE FIRM’S MARKETING CAPABILITY.

6. Global vs. Multinational Marketing Mentality GLOBAL MULTINATIONAL CENTRALIZED AND STANDARD DECENTRALIZED AND CUSTOMIZED R & D, DESIGN LIMITD LOCATAIONS MANY LOCATIONS MANUFACTURING CENTRALIZED AND INTEGRATED INDEPENDENT LOCAL COUNTRY MANAGERS MANAGEMENT SALES & MKTG IN-COUNTRY OR REGION SEGMENTS CUSTOMER GLOBAL SEGMENTS AFTER-SALES SERVICE LOCAL-SUBCONTRACTED LOCAL-COMPANY HANDLED INTERNATIONAL MARKET ENTRY WHOLLY-OWNED OR J.V. LOCAL MANUFACTURING EXPORTING-LICENSING

7. CUSTOMERS & MARKET REQUIREMENTS GLOBAL MNC HYBRID CONSUMER ELECTRONCS DETERGENTS TELECOMM KAO & THE EAST NEC Fujitsu & the East SONY, DAEWOO & THE EAST GLOBAL P& G, UNILEVER & THE WEST PHILIPS, RCA AND THE WEST ITT & the West CORPORATE MENTALITY MNC ERICSSON Think Global Act Local Not Applicable Not Applicable HYBRID

8. IDEA GENERATION UPSTREAM ACTIVITIES R & D DESIGN MANUFACTURING MANAGEMENT MARKETING & SALES DOWNSTREAM ACTIVITIES • CUSTOMER AFTER SALES CUSTOMER CARE LOCAL ACTIVITIES

9. Global vs. Multinational Corporate Structures

10. Ingredients for International SuccessDoes the Company Have what it Takes to Succeed in International Markets: The Internal Corporate Audit • Capital To: • Cross Subsidize International Product & Market Expansion • Attack Competitors Profit Centers Worldwide if Needed • Product Core Competency: Important & Different Attribute • Risk Taking & First Mover Advantage • International Market Knowledge and Ethnocentrism • Cross-Culturally Competent Management and Human Resources • International Distribution Network • Corporate Structure & International Marketing Mentality • Long-Term vs.. Short Term Orientation, Human Resources • Global vs.. Multinational Mentality

11. MACROECONOMIC ENVIRONMENT Size • GDP, GNP, Trade • Population • Growth Rates Affordability • Per Capita GDP or GNP • Personal Income • PPP-measures Corporate Capabilities & Objectives • Develop The List Of Most Economically Optimum Countries & Regions Need • Economic Need • social Need • Maslow’s Concept • Engel’s Law

12. Cultural Need Satisfaction Priority Percentage of Income Left for Higher Levels of Needs in USA: Super Needs Esteem: Ownership: Direction of Priorities Safety Needs: Basic Needs:

13. MICROECONOMIC ENVIRONMENT Product • New • Differentiated • Existing Demand • Exists & Is Satisfied • Exists & Is Unsatisfied • Is Expected To Emerge Corporate Capabilities & Objectives • Determine The Actual & Desired Product Positioning In Foreign Markets Competition • Highly Competitive • Niche Competition • Non-Existent

14. Microeconomic Environment Demand Structure in the Foreign Market Satisfied Needs Unsatisfied Needs Emerging Needs CDMA-Wireless Telephones in Chine Vaccine for Common Cold New To Them or New To All Innovative Companies Modified for Them- Differentiated High Cash Companies Your Product Common or “Me Too” Chinese High-Tech In Vietnam Chinese Shoes In USA

15. Types of Political & Financial Risks Multinational Corporations Global Companies Mature Markets Emerging Economies Citizens Actions Government Intervention Economic Rationale Political Reasons Do Not Worry! Long-Term Domestication Nationalization/ Expropriation Confiscation or Seizure of Assets + + Regulation of MNC NOW WORRY!!!

16. Corporate Safety Factors Low High Low High Natural Time Trend R & D

17. Political, Economics & the Time Factors Democracy USA Sweden Russia89 Capitalism 0 Time Time 0 Socialism Russia89 Peru Cuba Non-Democracy

18. RISK-RETURN TRADE OFF HIGH POLITICAL/FINANCIAL RISK DIRECT/INDIRECT EXPORTING LICENSING JOINT VENTURE LOW HIGH RETURN FDI LET ME KNOW WHEN YOU FIND THEM!!! LOW

19. Attributes of High vs. Low Context Cultures

20. Hofstede’s Dimensions • INDIVIDUALISM VS COLLECTIVISM • HIGH/LOW POWER DISTANCE • MASCULINE VS FEMININE • WEAK/STRONG UNCERTAINTY AVOIDANCE • CONFUCIANIST DYNAMICS • (LONG RUN ORIENTATION)

21. Power Distance and Individualism Scales Power Distance ARG ArgentinaBRA BrazilCHL ChileCOL ColumbiaGRE GreeceHOK Hong KongIND IndiaIRA IranJAP JapanMEX MexicoPAK PakistanPER PeruPHI PhilippinesPOR PortugalSIN SingaporeTAI TaiwanTHA ThailandTUR TurkeyVEN VenezuelaYUG Yugoslavia Large Small 12 •VEN • PAK •COL Collectivist •PER •TAI •THA •SIN •CHL •HOK •POR •YUG •MEX •PHI 30 •GRE •TUR •BRA •IRA Individualism •ARG •JAP •IND +11 +28 +44 +64 +77 +94 50 Small power distance collectivist Large power distance collectivist

22. Power Distance and Individualism Scales Power Distance AUL AustraliaAUT AustriaBEL BelgiumCAN CanadaDEN DenmarkFIN FinlandFRA FranceGER GermanyGBR Great BritainIRE IrelandISR IsraelITA ItalyNET NetherlandsNZL New ZealandNOR NorwaySAF South AfricaSPA SpainSWE SwedenSWI SwitzerlandUSA United States Large Small 53 •AUT •SPA •ISR •FIN Individualist •SAF •GER •NOR •SWI •FRA •IRE 71 •SWE •DEN •BEL •NZL •ITA •CAN Individualism •NET •GBR USA• AUL• +11 +28 +44 +64 +77 +94 91 Small power distance individualist Large power distance individualist

23. Uncertainty Avoidance and Masculinity Scales Weak Masculinity Masculine Feminine 8 AUL AustraliaCAN CanadaDEN DenmarkFIN FinlandGBR Great BritainHOK Hong KongIND IndiaIRE IrelandNET NetherlandsNZL New ZealandNOR NorwayPHI PhilippinesSIN SingaporeSAF South AfricaSWE SwedenSWI SwitzerlandUSA United States •SIN Uncertainty Avoidance •HOK •DEN 32 GBR• •IRE •SWE •IND USA• •PHI •NOR •CAN Strong •NZL •SAF •NET •AUL FIN• 56 +23 +44 +59 +77 +95 Weak uncertaintyavoidance /masculine Weak uncertaintyavoidance/feminine

24. Uncertainty Avoidance and Masculinity Scale ARG ArgentinaAUT AustriaBEL BelgiumBRA BrazilCHL ChileCOL ColumbiaFRA FranceGER GermanyGRE GreeceIRA IranISR IsraelITA ItalyJAP JapanMEX MexicoPAK PakistanPER PeruPOR PortugalSPA SpainSWI SwitzerlandTAI TaiwanTHA ThailandTUR TurkeyVEN VenezuelaYUG Yugoslavia Weak Masculinity Masculine Feminine 59 •FIN SWI• •IRA •GER THA• •PAK TAI• •AUT BRA• Uncertainty Avoidance ITA• ISR• •VEN •SPA COL• 84 FRA• TUR• CHL• •MEX •ARG •PER YUG• •BEL Strong JAP• •POR •GRE 112 +23 +44 +59 +77 +95 Strong uncertaintyavoidance/feminine Strong uncertainty avoidance/masculine

25. Market Attractiveness Low Medium High Competition High Low Risk Med. Low Low Med. High Risk High

26. International Brand Strategy Global Brand Manager’s Objective: Global Brand Dominance Kleenex, Coke, Hoover, Band Aid, Lee, Jeep, Evian) Branding Standard brand name (imac, Tabasco) or use of company name (IBM, Honda) Brand Name Adaptation (Tide vs.. Ariel) Different Names (Lexus vs.. Toyota) Private Branding Walmart (worldwide) Sears (in NAFTA)

27. GLOBAL PRODUCT POSITIONING THERE ARE THREE PSYCHOLOGICALLY DIFFERENT EFFECTS ON BUYERS WHEN A GLOBALLY STANDARDIZED PRODUCT OR SERVICE IS INTRODUCED ON A LOCAL MARKET: 1. CUSTOMERS’ EXISTING PERCEPTUAL MAPS OF THE PRODUCT CATEGORY REMAIN INTACT BUT THE NEW BRAND TARGETS ONE UNTAPPED SEGMENT. 2. THE PRODUCT SPACE IS ALTERED, BY ADDING DIMENSIONS OR EXTENDING END-POINTS. 3. BUYER PREFERENCES ARE CHANGED. IN PRACTICE, ALL THREE PROCESSES ARE OFTEN AT WORK SIMULTANEOUSLY.

28. BRAND IMAGE • MISPOSITIONED PRODUCTS CAN BE ATTRACTIVE TO POTENTIAL CUSTOMERS BECAUSE OF BRAND IMAGE AND STATUS. GLOBAL BRANDS OFTEN DO BETTER THAN LOCAL BRANDS THAT MAY BE BETTER SUITED TO CUSTOMER NEEDS FOR THAT AND OTHER REASONS: • CONSPICUOUS CONSUMPTION -- LET EVERYONE SEE WHAT YOU BUY AND HOW MUCH YOU BUY. • LOWER PERCEIVED RISK.

29. COUNTRY OF ORIGIN WHERE A PRODUCT OR BRAND COMES FROM OFTEN COUNTS A GREAT DEAL WITH CONSUMERS. • COUNTRY-OF-ORIGIN EFFECTDEALS WITH QUALITY PERCEPTIONS OF PRODUCTS. THIS EFFECT DIFFERS BY PRODUCT CATEGORY. ALSO, THE QUALITY LEVEL AT WHICH A COUNTRY PRODUCES IS FACTORED IN. • COUNTRY-OF-ORIGIN BIASCUSTOMERS TEND TO OVERSTATE THE POSITIVE AND NEGATIVES OF PRODUCT ATTRIBUTES ANDTHIS CAN CAUSE A BIAS TOWARDS PRODUCTS FROM A GIVEN COUNTRY.

30. LOWER PRICE • THROUGH A REDUCED PRICE, A CUSTOMER CAN BE INDUCED TO BUY A MISPOSITIONED BRAND BECAUSE THEY FEEL THAT THEY ARE GETTING A “GOOD DEAL.” • HOWEVER, THIS CAN BACKFIRE ON THE MARKETER, SINCE THE PRICE PAID GRADUALLY LOSES SALIENCE, WHILE THE PRODUCT STAYS. MARKETER BECOMES VULNERABLE TO LOWER-COST MANUFACTURERES ENTERING THE MARKET (Japanese products vs. Koreans).

31. International Price Escalation Effects (in $U.S.)

32. Export Pricing Issues Price quotes (Ex-Factory or Ex-Work) Exchange rates Method of payment (Cash, LOC, Countertrade…) Government regulations (Walmart-Germany) To whom you sell (Government vs. Private Sector). Consumer affordability (per capita income). Competition (domestic or global). Country of origin and local consumer perception.

33. Transfer Pricing GM USA (Producing cars) Opel division European Union A C Delco USA (Battery, stereo, auto parts) Transfer Pricing Vietnam (export) GM-JV in Shenyang, China Export pricing

34. The Hamburger Standard

35. *Prices may vary locally†Purchasing power parity; local price divided by price in the United States**Against dollar‡Average of New York, Chicago, San Francisco and Atlanta‡‡Dollars per pound§Market rate

36. East-West Distribution Mentality Large Wholesaler Medium Wholesaler Small Wholesaler Manufacturer Retailer Import House End Buyer Cost 25%-50% higher for consumers in Japan East: Japan- Basic Marketing Objective: Relationship-permanency-pay per existence Wholesaler Retailer End Buyer Manufacturer West: USA- Basic Marketing Objective: Efficiency-Pay Per Performance

37. Japanese Import Distribution Alternatives - Distribution Route of Italian Spaghetti Japanese Conventional Route Small wholesaler Producer Processing and packing plant Import agent Primarywholesaler Intermediary wholesaler Retail price: 170yen/300g package Retailer US-Style Restructured Route Depots Distribution Wholesalers Distribution centers Processing and packing plant Importing company A/C Producer Retailer Retail price: 128yen/300g package Savings: 25%

38. Size and Number of Retail Outlets in Selected Countries

39. East-West International Distribution Mentality Efficient Manufacturer Large Wholesaler Medium Wholesaler Small Wholesaler Retailer Inefficient Domestic Distribution Network Efficient Global Distributors (e.g. JTCs) Import House End Buyer EAST (e. g. JAPAN) Expensive Global Distributors (e.g. EMCs) WEST (e. g. USA Inefficient Manufacturer Wholesaler Retailer End Buyer Efficient Domestic Distribution Network

40. East-West Distribution Mentality Large Wholesaler Medium Wholesaler Small Wholesaler Manufacturer Retailer Commission Structure (PPP-loyalty) JIT (small apt. small retailers) Multiple Visits Per Day to Retailer by Small Wholesaler Return Policy- 2-way Channel Credit Extension- 150 days at low interest (0.06% now) Employment Buffer-economics environment Natural Import Barrier-trade policy Cultural, Political-Legal End Buyer Wholesaler Retailer End Buyer Manufacturer

41. Determinants of Choice of Channel 1. Product Requirements (Perishable lettuce, sensitive apples, fine china, scratched cars, beer without freshness, moldy cakes,...) 2. Logistic Feasibility (Equipment by DHL, autos by air, faxes of newsletters, freezer railroad cars, shock-absorbent packaging, vacuum-packed,...) 3. Demand Factors (Importance of speed for repairs, timing of raw materials for inventory, customers’ need for immediate gratification, quality standards of middleman and final user,...) 4. Competitive Factors (How fast is fast? How good is good? What are the alternatives for the buyer? Strategic importance of the market?) 5. Middlemen Resources (Storage capability? Credit or consignment or cash? Motivating with fast delivery? Just-in-time system? Promised supplies? Ability to support the marketing effort?) 6. Own Resources (Financial, manpower, production capacity)

42. Seiko’s Authorized and Unauthorized Channels of Distribution Europe Hong Kong Japan North America Importer Importer Importer Distributors Distributors Distributors Distributors Retailers Retailers Retailers Retailers Broken arrows denote the flow of Seiko watches through unauthorized channels of distribution.Solid arrows denote the flow of Seiko watches through authorized channels of distribution.

43. Advertising Intensity in Selected Countries

44. Media Usage in Various Countries

45. Components of Global Advertising Strategy • Message (content) and Creative (form- the way the message gets across) • Media (radio, TV, outdoor, print, point of purchase, cinema. internet) • Target Audience (cross-cultural, provincial, demographic) • Product Nature (industrial.consumer, durable, non-durable) • Corporate Mentality (global, multinational) • Advertising Objective (awareness, understanding, interest, purchase)

46. International Communications Process Awareness Understanding Interest Purchase Producer/marketer/advertiser Sets objectives and advertising budget(s) worldwide Advertisingagency Develops the message(Cultural Encoding)and selectsthe media Mass Media Carries themessage (Available & Acceptable Media In Each Country) Target Market Receives themessage andinterprets its content from media/ peers (Cultural Decoding) Recipients Think & feel (Cognition & Emotion); act & react to the message (hierarchyof effects) Marketing coordinationand control Generatefeedbackon effects Revisit Ads & Objectives Results Vs. Ad Objectives

47. International Product Life Cycle $ Sales $ Trade IPLC Net Revenue From Trade For the First Mover Nation PLC Country Monopoly Over the Industry Individual Monopoly Over The Technology Company Monopoly Over The Product Exports=Imports Line Time