Session:7 Marketing in a Global Environment
7.2 Assessment of Global Markets for Opportunities
Principles of Marketing | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-marketing
LEARNING OUTCOMES
By the end of this section, you will be able to:
- 1 Identify the different ways marketers can assess opportunity in global markets.
- 2 Discuss effective methods of analyzing global opportunities.
Internal Assessment for Global Readiness
According to Douglas Quackenbos and his coauthors in their Harvard Business Review article “Does Your Company Have What It Takes to Go Global,” “external factors only set the stage for an international opportunity.”21 In other words, even though a global market may represent an opportunity for the company, the organization also must be prepared internally to expand. The factors external to the organization—a country’s economy, for example—is only half of the equation. Company leaders must do a thorough internal assessment of their organization to determine if it has what it will take to expand globally. Managers and marketers who will be working directly in the international market should have fully assessed the other countries’ regulations, business landscape, and cultural differences, for example.
Harvard Business Review has a published list of the seven common characteristics found with companies that have been successful in international expansion.22 The list includes attitude, aptitude, magnitude, latitude, rectitude, exactitude, and fortitude, each of which is defined in Table 7.1.
| Characteristic | Definition |
|---|---|
| Attitude | Global expansion is a priority. |
| Aptitude | The company has the knowledge and skills to expand. |
| Magnitude | The scope of expansion is aligned with capabilities. |
| Latitude | The company has the ability to adapt. |
| Rectitude | The company has the legal and ethical flexibility to adapt to foreign markets. |
| Exactitude | Corporate culture aligns with flexibility and ambiguity of expansion. |
| Fortitude | There is a commitment to long-term expansion despite setbacks. |
Economic Infrastructure
Economic infrastructure refers to the facilities of an economy that benefit the production and distribution of goods and services.23 Infrastructure includes anything that would be required to produce and/or transport goods and services—for example, roads, railways, and high-speed Internet. Imagine that you are starting a lemon tree farm. You would not plan your farm in Michigan, where the temperatures often fall below freezing, because that would wipe out your lemon crops. Or imagine starting an online company where you sell art, but you live in a location where your Internet access is spotty and unreliable. Infrastructure considerations are critical in business needs evaluation.
Consumer Income and Purchasing Power
There are three types of income for you to be aware of:
- Consumer income, the amount of money a household or individual earns. Consumer income is often defined as the amount of money a household has to spend.
- Disposable income, the income available after taxes are paid.
- Discretionary income, the money available once consumers have paid taxes and living expenses such as, rent, food, heat, groceries, etc. This income is the predominant type of income that interests marketers because it’s the money consumers typically have the most flexibility with.
Marketers evaluate discretionary and disposable income differently. It depends on the type of product or service they offer. For example, consider the impact of inflation. With inflation, the cost of goods and services increases but individual income does not also increase, meaning things cost more but there isn’t additional income to cover the additional cost. When this happens, consumers purchase fewer items and prioritize their spending differently because with the increase in the cost of necessities, there is less discretionary income to spend. As a result, consumers will cut back on nonessential items. Due to this, marketers of luxury goods are concerned with discretionary income, while marketers of packaged consumer goods are concerned with disposable income.
Companies are also impacted by inflation. Just as it costs consumers more to purchase the same goods and services during inflation, inflation will increase the cost of production for companies to create the same number of products. Companies have various tactics on addressing environmental influences like inflation. One way in which companies of consumer-packaged goods avoid increasing prices during inflation is to decrease the size of products while not increasing the price, a practice known as shrinkflation. For example, Procter & Gamble’s Charmin ultra-soft toilet paper 18-count mega package was decreased in 2022 from 264 double-ply sheets per roll to 244 two-ply sheets, yet the price either remained the same or was slightly increased.24 Often with shrinkflation, consumers don’t notice that a package is smaller, and they focus on their ability to get as much as they can for the price.
Purchasing Power
Purchasing power is defined as how many goods can be purchased with one unit of currency. As you can imagine, purchasing power varies greatly across the globe and is of great importance when deciding whether to expand into foreign markets. For example, in a country where consumers have very little income and poor purchasing power, it would be difficult to sell expensive, nonessential goods. Consumers simply would not have the money to purchase them.
Currency Exchange Rates
Marketers and other business executives must understand foreign exchange rates and how fluctuations can affect marketing strategies.25 An exchange rate is the rate at which one country’s currency can be exchanged for that of another country. Because currency exchange rates fluctuate daily, the prices of goods and services in global markets will also fluctuate.26 In turn, fluctuations in prices of goods and services will have an impact on the purchasing power of consumers and even larger effects on economic indicators such as jobs and inflation.
Suppose that in 1997, your US-based family imported British pantry items from the UK in order to create and export its own brand of barbecue sauce for sale in the UK. In 1997, it took $1.64 to buy 1 British pound (£).27 So, $1.00 was worth £0.61 in British currency (1/1.6).28 In this situation, the dollar is relatively weak compared to the British pound. One British pound would go a long way toward paying for that barbecue sauce.
Fast-forward 25 years. For the majority of 2021, it only took $1.37 to buy £1.00. So, $1.00 would buy £0.73 worth of British goods in 2021 (1/1.37). As you can see, the dollar had strengthened relative to the pound (which is the same as saying the pound had weakened relative to the dollar). This means that, by 2021, your dollar would buy more in terms of paying for British imports; conversely, consumers in the UK would have to pay more for your barbecue sauce!
LINK TO LEARNING
Exchange Rates
Exchange-Rates.org is a great resource for comparing exchange rates between hundreds of countries. Try it out by indicating countries in the From and To fields and check out the currency value between countries.
Analyzing Governmental Actions
Just as every economy in the world operates differently, so does each country’s government. Businesses are greatly influenced by politics in every country (some more than others). Therefore, understanding how governmental actions impact the ability to be successful in a global market is imperative.
Political Stability
A country’s political stability can impact nearly every facet of the country. Most notably, political stability has been linked to economic conditions in various countries. When there is increased political stability, the country’s economy tends to stabilize or grow.29 This is of keen interest to marketers as they consider new foreign markets to enter. As a country’s stability increases, the opportunities to gain early entry into these markets grows. Conversely, many companies choose to avoid entering markets that lack political stability, not only because of the shaky economy but also because of potential changes in leadership, laws, and regulations.
Consider Russia’s invasion of Ukraine in early 2022. In response, many companies pulled their operations out of Russia in a show of support for Ukraine. McDonald’s, which opened its first Russian location in 1990, was one of the first global companies to cease operations there. The company stated that the activities of the Putin government were not consistent with McDonald’s values, but also that the turbulent operating environment made it untenable to continue operations there.30
Trade Regulations
In an effort to promote (or inhibit) trade with other countries, governments often have some level of trade regulations. These regulations can be within industries or with specific nations or groups of nations. The common trade regulations surrounding imports and exports around the world include tariffs, quotas, trade blocs, and embargoes. Additionally, countries have specific regulations for foreign companies hoping to establish business within their markets.
Tariffs are taxes that governments impose on imports coming into the country. Tariffs can be imposed as a percentage (most common) or dollar amount. Tariffs are generally used by governments to bring more money into a country. Japan, for example, has one of the lowest tariffs in the world at 2.5 percent for nonagricultural products.31 Conversely, the East African nation of Seychelles once had a much higher tariff rate, averaging well over 50 percent prior to joining the World Trade Organization (WTO) in 2015.32 After joining the WTO, tariffs were reduced to under 25 percent.33
Quotas are maximum allowable units to be imported into or exported out of a specific country. Quotas are often used by a country to protect a domestic industry. For example, if the US government limited the number of Japanese automobiles to 2 million imports per year, this would cause lower sales of imported vehicles and, in turn, higher sales of domestically produced vehicles.34
Embargoes are bans on trading a product with a specific country and are imposed between countries that have different political ideologies. The United States, for example, has embargoes against Cuba, Iran, North Korea, and Syria that prohibit all transactions with these countries without a license.35
Trade blocs are intergovernmental agreements that remove barriers of trade within regions of the world. There are currently 10 major trade blocs in the world.36 The United States-Mexico-Canada Agreement (USMCA) and the EU27 are two prominent examples. The USMCA allows free trade among Canada, the United States, and Mexico.
There are a variety of examples of the sorts of approaches countries will take with trade regulations. For example, companies may impose strict laws and regulations on who can own the factors of production. In some instances, there are issues with corrupt governments requiring bribes and kickbacks.
Transparency International publishes an annual survey called the Corruption Perceptions Index (CPI). Marketers use this survey for insights into country dynamics and can evaluate market viability of their product or service offering. This guide helps company leadership determine how much work they may have in understanding a country’s way of operating and what kind of work it would take to make their product or service successful.
LINK TO LEARNING
CPI
The Corruption Perceptions Index (CPI) is an interesting and interactive tool where you can select specific countries to find their CPI rating. One hundred eighty countries are each rated on a scale of 0 to 100, where 100 indicates very clean and 0 means highly corrupt. Interact with the index here and learn more about the CPI rating scale and assessment by watching this video.
If you’d like to learn more about the Transparency International organization and its work, check out this brief summary of its 2021 annual report.
Analyzing Sociocultural Factors
While the economic and political factors of a foreign market will determine a firm’s ability to enter a market, the sociocultural factors may be most important in determining whether goods and services will be successful in a market. Sociocultural factors include values, behaviors, culture, lifestyle, and language that shape a person’s or group’s way of living. As you can imagine, there are hundreds of cultures around the world, and every culture within a country has its own nuances, preferences, and even ways of conducting business. Marketers who want enter foreign markets must have a deep understanding of these factors to establish effective marketing strategies.
Lifestyles
The way a person or group lives is known as their lifestyle. Each person has their own unique lifestyle, while cultures and families share similar traits within their collective lifestyles. Marketers must get to know their consumers to understand their buying behavior and how their lifestyles affect it.
In 2009, toy manufacturer Mattel Inc. opened a huge, three-story, Barbie-inspired flagship store in Shanghai, China. What marketers failed to do before making this market-entry decision was to study the lifestyles of Chinese consumers. In China, the culture stresses educational toys and playtime that builds skills; Barbie was neither of those. The store closed after only two years.37
Marketers must also be careful to avoid stereotypes of other cultures and countries. Stereotypes are oversimplified perceptions, images, or ideas of a person or groups.38 While they can be negative or positive, they are overgeneralized perceptions about an entire group or people. Companies sometimes learn the hard way to avoid stereotypes.