Session:7 Marketing in a Global Environment

7.3 Entering the Global Arena

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 List the strategies used in global competition.
  • 2 Discuss the different forms of global competition.

Ways in Which an Organization Can Enter the Global Arena

After a company has decided to enter the global marketplace, managers must determine which method of international involvement is best for the company’s strategic goals. These methods include exporting, franchising, licensing, joint ventures, strategic alliances, and direct foreign investment (see Figure 7.6). Each method represents a different level of involvement. Let’s look at each of these in more detail.

The global market methods for entering a market place are shown as six right pointing arrows aligned horizontally. Starting at the left, the methods are exporting, franchising, licensing, joint ventures, strategic alliances, and direct foreign investment.
Figure 7.6 Global Market Methods for Entering a Marketplace (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)

Exporting

The most basic and least involved method to enter global markets is through exporting. Exporting is when a company makes a product or service in one country and sells it in others. Many companies choose this method of entry into global markets because it requires the least amount of m risk and allows the firm’s managers to learn the ins and outs of international business. For example, in the UK’s East Midlands, the county of Northampton is home to Alfred Sargent & SonsChurch’sJohn Lobb, and other shoemakers. An increased emphasis on exporting allowed these dying businesses to see new life because people in other countries wanted a piece of traditional “English cobbling.”58

Franchising

Franchising is a business strategy in which the owner (the franchisor) allows another person or entity (the franchisee) to operate a business using the franchisor’s products, branding, and knowledge in exchange for a fee.59 Over 90 percent of the McDonald’s around the world are franchises owned by independent local businesspeople.60 The cost to franchise a business varies. A person interested in opening a McDonald’s franchise will need $500,000 in liquid assets and $45,000 for a franchise fee and should expect to spend between $1.3 million and $2.3 million over time.61 On the other hand, franchising the exercise brand Jazzercise requires a one-time initial fee of $1,250 and liability insurance.62

Franchising rules and commitment vary by company for both home-based and international markets.

Licensing

Licensing is a contract in which one organization permits another to use its name, brand, or trademark on its own items. While licensing and franchising might seem similar, franchising involves all business operations, whereas licensing applies to a specific aspect (usually trademarked) of the business.63 Licensing agreements allow the company to enter other markets without as high of a financial risk. However, with little business involvement in licensing by the licensee (the company licensing its brand), strong business relationships are critical in order to reduce the risk of the licensor damaging the brand’s reputation. With licensing, the licensee loses brand control. Licensing is common in the fashion industry, where well-known apparel brands such as Armani license their names to companies that make eyeglass frames, fragrances, and watches.

Joint Venture

joint venture is a business arrangement whereby two or more companies create one single enterprise or project. The joint venture can last for any length of time but typically is not permanent. The advantage of a joint venture is that the two companies share all the risks associated with the venture.64 In 2012, Kellogg’s and Wilmar International Limited announced a joint venture. Kellogg’s wanted to expand its presence in the Chinese market. Creating a joint venture with Wilmar International provided the company with an extensive distribution network. Both companies benefited from this venture: Wilmar International through its financial incentives and Kellogg’s with a way to penetrate the market.65

Strategic Alliance

strategic alliance occurs when two companies from different countries agree to invest resources in a mutually beneficial way. For example, Microsoft relies heavily on alliances when entering new markets as a way to optimize the knowledge and market identification of local companies. Uber and Spotify entered into a strategic alliance to allow Uber riders to connect to their Spotify account and stream music while catching a ride.66

Direct Foreign Investment

The most involved and riskiest way for a business to get involved in the international arena is through direct foreign investment. Foreign direct investment (FDI) involves establishing operations within a foreign country. Consider automobile manufacturers. Nearly all producers have made significant investments in manufacturing outside of their home countries. For example, Tesla invested in a Shanghai factory to produce electric vehicles (EVs), and in 2022, the company announced it is “taking steps to ramp up output in order to double its original planned annual target to 1 million cars.”67

Forms of Global Competition

Global competition can come from international firms, multinational firms, and transnational firms. Let’s look at each to better understand their impact.

Any firm that operates on a global level is classified as an international firm regardless of the intensity of the involvement. International firms can further be classified as either multinational firms or transnational firms. Often, this classification depends on the business structure and products or services offered.

The most common characteristic of a multinational firm is its centralized business structure. Consider Amazon, whose headquarters are located in Seattle, Washington.68 Amazon operates in over 50 countries across the globe.69 However, the majority of all major decisions are made at its headquarters, making it a multinational firm.

Let’s look at McDonald’s again. The company’s franchise strategy relies heavily on the brand name and similar core menu items across the globe. However, the company also allows for local responsiveness by allowing local menu items to be included in the menu. For this reason, McDonald’s is often referred to as a transnational firm, one that allows for a higher degree of localization.70

Knowledge Check

It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.

1. Janai is considering opening a McDonald’s in her home country of Nicaragua. Which type of market entry strategy would she use?

  1. Franchise
  2. Joint venture
  3. Strategic alliance
  4. Exporting

2. Imagine you are interested in entering the global marketplace. Which would be the easiest way for you to begin?

  1. Franchising
  2. Strategic alliance
  3. Exporting
  4. Joint venture

3. Ryana owns a T-shirt company in Japan. With her T-shirts, she applies Disney characters and pays Disney royalties based on each shirt sold and an agreement the two companies entered into. Which of the following is Ryana most likely involved in?

  1. Licensing
  2. Unethical behavior
  3. Trademark fraud
  4. Franchising

4. A company wants to expand into a particular global market, but local firms are better equipped to handle some business processes, such as logistics. Additionally, it is particularly difficult to enter this market. Which of the following would you recommend to the expanding company?

  1. Franchising
  2. Exporting
  3. Licensing
  4. Joint venture

5. After being hired at ABC Corporation, you realize that all decisions for each facility in the world are made at the headquarters you work at in Pensacola, Florida. Which type of firm best describes the one you are working at?

  1. Exporting firm
  2. International firm
  3. Transnational firm
  4. Importing firm

For example, in 2014, Delta Air Lines, a major US passenger airline carrier (see Figure 7.3), made a big stereotype blunder with its social media marketing. The company sent out a congratulatory tweet to the US team for its win over the Ghanaian team in the World Cup in which it used a photo of a giraffe to represent Ghana.39 Unfortunately, Delta marketers failed to realize that there is not one wild giraffe in Ghana; this is a frequent stereotype about the entire continent of Africa. In fact, there are over 50 countries in Africa, but only around 20 have naturally wild giraffes.40 The Twitter market caught on to this error quickly and proceeded to tease Delta for its stereotype mistake.

An airplane flies over a body of water while the sun is setting.
Figure 7.3 Marketing based on stereotypes can lead to big mistakes, such as when a social media post by Delta Air Lines incorrectly assumed that Ghana was home to wild giraffes, resulting in the market openly teasing the company on Twitter for its blunder. (credit: “Phuket 2018” by un.cloned/flickr, CC BY 2.0)

Law and Politics

Laws and politics have a large impact on a country’s economy and, in turn, how products will (or even can) be marketed. Political and legal decisions made within a country’s system surrounding tariffs, labor laws, the environment, and even an expectation of bribery can impact a business’s decisions. Even politics between two countries can have a big impact on decisions made by marketers.

In 2019, President Donald Trump increased the tariffs on Chinese goods to 25 percent. Several companies subsequently opted to pull their production facilities out of China. For example, Apple and Dell moved some of their production to Vietnam and other parts of Asia to avoid these tariffs.41

Education

Education impacts a consumer’s product and service choices. Generally speaking, the more educated an individual is, the more discretion they use when purchasing products.42 In other words, that person will spend more time researching various products before deciding which to purchase. Levels of education also effect an individual’s choices in magazines, television shows, and other entertainment.43 Therefore, platforms, messages, and even specific words marketers choose for the promotion mix will depend on the level of education that the target market holds. Is the market tech savvy? If not, using technical words and messages may confuse a consumer who doesn’t understand the message.

Technology

The availability of technology within an international market will have several impacts on marketing efforts. First, the ability for consumers to access and use technology will directly impact the goods and services that are being marketed. Second, the company’s access to technology to produce goods and services within the country will also be impacted.

For example, Uganda has the second-youngest population in the world.44 It is also ranks among the poorest countries in the world.45 Because of this, someone may make the mistake of thinking that Uganda would not be a market to enter with technology, but this is far from true. While many citizens of Uganda live without electricity or running water, the country’s population of 45.74 million is estimated to own around 16 million cell phones, but only around 1 million homes have electric lights.46 Due to the young population seeking to be more connected with others, the people of Uganda prioritize and are heavily reliant on their cell phones (see Figure 7.4).

But if there is limited electricity, how do Ugandans charge their cell phones? It has certainly been a challenge for many who have to share solar power with neighbors or travel to a nearby village that has electricity. However, the use of portable charging solutions has become more widespread. One company, Charge Ko Technologies, has turned this into an opportunity and created various portable charging solutions, including solar backpacks and energy generation through bicycle usage.47 While some impoverished Ugandan consumers may not be able to afford these products, the company is hopeful that the wealthier will purchase enough to help bring the price down over time.

An advertisement above a building reads “Switch to Airtel 4 G“. The building is on a dirt road.
Figure 7.4 Cell phone use is widespread in Uganda because people prioritize connecting with other people, resulting in portable charging stations because electricity is a limited resource. (credit: Sarah Shepler, photographer)

Conducting a Cross-Cultural Analysis

When the Walt Disney Company decided to open Disneyland Hong Kong in 2005, the company struggled to gain momentum with its Chinese target market. Among other blunders, such as its high admission price, the company assumed that its Chinese market would love the Disney brand as much as Americans do. The company failed to realize that, unlike Americans, the Chinese did not grow up with the Disney brands and characters. Imagine walking into a fantasy theme park with characters you had never heard of or seen before. Unlike Americans, the Chinese do not view Disney characters as cultural icons. The fantasy aspect of the brand and park was another issue Disney faced. Its closest competitor, Ocean Park, provided visitors with real animals, educational material, and thrilling rides. The Asian market, which values education, found Disney’s high ticket prices with little educational value to be wasteful when the park initially opened.48

Values

Cultural values are often unspoken. They include the aesthetics, socialization, and religious aspects woven throughout a culture. Consider the Disney example. Marketers stumbled with truly understanding the Chinese consumer culture when opening Disney Hong Kong by assuming that Chinese values were similar to those of Americans.

Customs and Cultural Symbols

Like other cultural values, customs are often unspoken. Customs consist of mannerisms or behaviors that are considered characteristics within a social system.49 For example, in Spain, the afternoon siesta is a cultural custom. The siesta is an afternoon nap taken after the midday meal. Businesses will close for extended lunch breaks to allow employees to take their afternoon siesta.50 If you are considering opening a business in Barcelona, you should expect to do the same!

Cultural symbols are physical representations of a culture’s language, values, and traditions. They include items such as flags, gestures, holiday decorations, and many others. For example, in China, the national animal is the giant panda, and it has significant cultural importance as a symbol.51 Similarly, the maple leaf is symbolic of Canada52 (see Figure 7.5).

The Canadian flag has a red maple leaf in the center on a white background. Two red stripes are on the sides of the maple leaf.
Figure 7.5 Cultural symbols, like the Canadian maple leaf, are physical representations of a culture’s language(s), values, and traditions. (credit: “Vancouver B.C. – Canadian Flag ‘Maple Leaf’” by David Paul Ohmer/flickr, CC BY 2.0)

Language, Idioms, and Nuances

It may seem obvious, but even language differences play a large role in the marketer’s job as products and services are rolled out in international markets. Brands and product names may have one meaning in the home country and a completely different meaning in another language. For example, Nestlé had problems when rolling out its Gerber baby food in France because “Gerber” translates to “puke” in French. For obvious reasons, this didn’t appeal to French parents choosing food for their infants.53

Nuances are words, phrases, or beliefs that vary slightly from one culture to another and can cause miscommunication in translation. For example, UK citizens use the word “jelly” to describe what people in the United States would call “Jell-O,” and they use the word “biscuit” for “cookie.”54

Idioms are phrases used in a culture that mean something completely different. For example, if you hear someone say “break a leg” in the United States, it would mean “good luck.” However, using this idiom in another culture may leave the other person quite confused or even offended, thinking it was meant literally to go break their leg.55 In Spanish-speaking cultures, the popular idiom “a lot of noise and no walnuts (mucho ruido y pocas nueces)” means “all talk and no action,” but it would have no meaning in the United States.56

However, even idioms can become problematic within and across languages and cultures. In 2022, Lizzo, a world-renowned pop star, issued an apology and a rerelease of a song because she had used a culturally insensitive word that she was unaware of at the time of recording.57

CAREERS IN MARKETING

Global Marketing Manager

With the increase in companies doing business internationally, global marketing managers’ job roles are becoming more important. Global marketing managers work to understand what international markets need, the competition, rules and regulations, and local cultures and values. They then use this information to develop global marketing strategies that appeal to the local market. Learn more about this role from these sources:

Knowledge Check

It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.

1

During the Russian invasion of Ukraine in 2022, the Russian ruble’s value decreased to less than one United States penny. This conversion from ruble to dollar is known as the ________.
  1. exchange rate
  2. business landscape
  3. purchasing power
  4. consumer income

2. Generally speaking, when a country’s political stability improves, so does its ________.

  1. international business
  2. purchasing power
  3. economy
  4. consumer income

3. The assumption that all Chinese individuals are extremely gifted in mathematics is known as a ________.

  1. stereotype
  2. lifestyle
  3. culture
  4. sociocultural factor

4. During the Russian invasion of Ukraine in 2022, United States President Joe Biden halted all imports of Russian oil. This action is known as a(n) ________.

  1. tariff
  2. quota
  3. trade bloc
  4. embargo

5.The United States, Canada, and Mexico are part of a trade bloc known as ________.

  1. ASEAN
  2. USMCA
  3. tariffs
  4. embargoes

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