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LESSON 30
MANAGING GLOBAL MARKETING-MARKET FACTORS
pronounced in English-Mucos (from Japan), Pipi (from Cornish hens, have become generic-available for anyone to use.
Serbia), Pshitt (from France), and Zit (from Greece). In this context, companies sometimes face substantial differ-
Different alphabets present still other problems. For example, ences among countries that may either stimulate or frustrate
consumers judge English brand names by whether the name their sales. For example, aspirin and Swiss army knives are
sounds appealing, whereas brand names in Mandarin and proprietary names in Europe but generic in the United States, a
Cantonese need to have visual appeal as well because the situation that impairs European export sales of those products
Mandarin and Cantonese alphabets are pictograms. Such to the United States because U.S. companies can produce aspirin
companies as Coca-Cola, Mercedes-Benz, and Boeing have taken and Swiss army knives.
great pains to assure not only that the translation of their
Distribution
names is pronounced roughly the same as in English but also
A company may accurately assess market potential, design
that the brand name is meaningful. For example, Coca-Cola is
goods or services for that market, price them appropriately, and
pronounced Ke-kou-ke-le in Mandarin and means tasty and
promote them to probable consumers. However, it’s unlikely
happy. Further, companies have sought names that are consid-
the company will reach its sales potential if it does1ft make the
ered lucky in China, such as a name with eight strokes in it and
goods or services conveniently available to customers. Compa-
displayed in red rather than blue.
nies need to place their goods where people want to buy them.
Brand Acquisitions For example, does a man prefer to buy shampoo in a grocery
Much international expansion takes place through the acquisi- store, barbershop, drugstore, or some other type of outlet?
tion of companies in foreign countries that already have Distribution is the course-physical path or legal tide-that goods
branded products. For example, when Avon acquired Justine in take between production and consumption. In interna1rional
South Africa, it kept the Justine name because the brand was marketing, a company must decide on the method of distribu-
well known and respected. However, Sara Lee acquired various tion among countries as well as the method within the country
Brazilian coffee roasters and is now trying to consolidate them where final sale occurs.
into Brazil’s first national brand because stretching the promo-
Companies may limit early distribution in given foreign
tional budget over so many brands means that promotions are
countries by attempting to sell regionally before moving
not as effective as they might be given that less “” spent on
nationally. Many products and markets lend themselves to this
anyone brand to build significant positive recognition.
sort of gradual development. In many cases, geographic barriers
Country-of-Origin Image and poor internal transportation systems divide countries into
Companies should consider whether to create a local or a very distinct markets. In other countries, very little wealth or few
foreign image for their products. The products of some potential sales may lie outside the large metropolitan areas. In
countries, particularly developed countries, tend to have a higher still others, advertising and distribution may be handled
quality image than do those from other countries. For example, effectively on a regional basis.
Czechs associate locally made products with poor quality, so
Difficulty of Standardization
P&G has added German words to the labels of detergents it
Within the marketing mix, MNEs find distribution one of the
makes in the Czech Republic.41 There are also image differences
most difficult functions to standardize internationally for
concerning specific products from specific countries. For
several reasons. Each country has its own distribution system,
example, the British have a positive image of Australian wine;
which an MNE finds difficult to modify because it is entwined
thus, a young Australian winery sought a very Australian name,
with the country’s cultural economic, and legal environments.
Barramundi, for its wine exports to the United Kingdom.
Nevertheless, many retailers are successfully moving internation-
But images can change. Consider that for many years, various ally.
Korean companies sold abroad under private labels or under
Some of the factors that influence how goods will be distrib-
contract with well-known companies. Some of these Korean
uted in a given country are citizens’ attitudes toward owning
companies, such as Samsung, now emphasize their own trade
their own store, the cost of paying retail workers, labor
names and the quality of Korean products.
legislation differentially affecting chain stores and individually
In an’ innovative effort to create a British ice cream flavor along owned stores, legislation restricting the operating hours and
the lines of its American Cherry Garcia, Ben & Jerry’s ran a size of stores, the trust that owners have in their employees, the
contest for the best name and flavor. The flavor name Cool efficacy of the postal system, and the financial ability to carry
Britannia won out over such entrants as Minty Python, Grape large inventories. For example in comparison to those in the
Expectations, Choc Ness Monster, and The Rolling Scones. United States, Hong Kong supermarkets carry a higher propor-
Generic and Near-Generic Names tion of fresh goods, are smaller, sell smaller quantities per
Companies want their product names to become household customer, and are located closer to each other. This means that
words, but not so much that competitors can use trademarked companies selling canned, boxed, or frozen foods will encoun-
brand names to describe their similar products. In the United ter less per capita demand in Hong Kong than in the United
States, the brand names Xerox and Kleenex are nearly synony- States. They would also have to make smaller deliveries because
mous with copiers and paper tissues, but they have, of store sizes and would have a harder time fighting for shelf
nevertheless, remained proprietary brands. Some other names space.
and offer assistance in order to gain their loyalty. Companies (mainly industrialized) countries have equipment that improves
alternatively may offer other incentives, such as higher profit the efficiency of handling customers and reports-for example,
margins, after-sales servicing, and promotional support-any of electronic scanners, cash registers linked to inventory control
which may be offered on either a permanent or introductory records, and machines connecting purchases to credit-card
basis. The type of incentive should also depend on the companies.
comparative costs within each market. In the final analysis, Restrictions Many countries, such as France, Germany, and
however, incentives will be of little help unless the distributors Japan, have laws to protect small retailers. These laws effectively
believe a company’s products are viable. The company must sell limit the number of large retail establishments and the
the distributors on its products as well as on itself as a reliable efficiencies they bring to sales. Many countries also limit
company. operating hours as a means of protecting employees from
Hidden Cost in Foreign Distribution having to work late at night or on weekends. At the same time,
When companies consider launching products in foreign the limit keeps retailers from covering the fixed cost of their
markets, they must determine what final consumer prices will space over more hours, so these costs are passed on to consum-
be in order to estimate sales potential. Because of different ers. In Sweden, 7-Eleven stores cannot use longer
national distribution systems, the cost of getting products to open-for-business hours as a competitive advantage because
consumers varies widely from one country to another. Five Swedish law prohibits sales of a full range of goods between
factors that often contribute to cost differences in distribution midnight and 6 A.M.
are (1) infrastructure conditions, (2) the number of levels in the Stock-outs Where retailers are small, as is true of grocers in
distribution system, (3) retail inefficiencies, (4) size and many developing countries, there is little space for storing
operating-hours restrictions, and (5) inventory stock-outs. inventory. Wholesalers must incur the cost of making small
Infrastructure In many countries, the roads and warehousing deliveries to many more establishments and sometimes may
facilities are so poor that getting goods to consumers quickly, at have to visit each retailer more frequently because of stock
a low cost, and with minimum damage or loss en route is outages.
problematic. In Nigeria, for example Nestle has had to build The Internet and Electronic Commerce
small warehouses across the country because it could not Estimates vary widely on the current and future number of
depend on a central warehouse that one would normally expect worldwide online households and the electronic commerce
based on the country’s area. Roads are in such poor condition generated through online sales. Nevertheless, they all indicate
that travel is slow and trucks are prone to breakdowns. Further, substantial growth. Table 8.3 shows some comparative
because of crime, Nestle uses armed guards on its trucks and estimates of growth. As electronic commerce increases, custom-
allows them to travel only during daylight hours. ers worldwide can quickly compare prices from different
Levels in distribution system Many countries have multitiered distributors, and this development should drive prices down.
wholesalers that sell to each other before the product reaches the Electronic commerce offers companies an opportunity to
retail level. For example, national wholesalers sell to regional promote their products globally. It also permits suppliers to
ones, who sell to local ones, and so on. This sometimes occurs deal more quickly with their customers. For example, Lee Hung
because wholesalers are too small to cover more than a small Fat Garment Factory of Hong Kong supplies apparel to about
geographic area. Japan typifies such a market. There are, on 60 companies in
average, 2.21 wholesale steps between producer and retailer in
Europe and now flashes picture samples of merchandise to
Japan, compared with 1.0 in the United States and 0.73 in
them over the Web. Customers such as Kingfisher of the
France. Because each intermediary adds a markup, product prices
United Kingdom, can tinker with the samples and transmit
are driven up. However, such overall figures obscure differences
new versions back to Hong Kong so that Lee Hung Fat
by product. For example, fresh food passes through much
produces exactly what the distributors want.
longer and complex channels than such products as electronic
goods. Global Internet sales are not without problems. Many house-
holds, especially in emerging economies, lack access to Internet
Retail inefficiencies In some countries, particularly developing
connections. Therefore, if a company wants to read mass global
countries, low labor costs and a basic distrust by owners of all
markets, it will need to supplement its Internet sales with sales
but family members result in retail practices that raise consumer
that use other means of promotion and distribution. A
prices. This distrust is evident in companies’ preference for
company also needs to set up and promote in Internet sales,
counter service rather than self-service. In the former case,
which can be very expensive. Royal Bank of Canada is spending
customers wait to be served and shown merchandise. A
about $75 million up-front to promote Internet sales in the
customer who decides to purchase something gets an invoice
United States.
which is taken to a cashier’s line for payment. Once the invoice is
stamped as paid, the customer must go to another line to pick A company cannot easily differentiate its marketing program for
up the merchandise after presenting the stamped invoice. Some each country where it operates. The same Web advertisements
retailers have counter service for purchases as small as a pencil. and prices reach customers everywhere, even though different
The additional personnel add to retailing costs, and the added appeals and prices for different countries might yield more sales
time people must be in the store means fewer people can be and profits. If the company makes international sales over the
Internet, it must deliver what it sells expeditiously. This may lines. Rather, companies will identify consumer niches that cut
necessitate placing warehouses and service facilities abroad, across country lines.
which the company mayor may not own and manage itself. At the other extreme, because of growing numbers of poor
Note:* eMarketer’s year 2000 baseline is from the international people with little disposable income, companies will have
Telecommunication Union’s estimate of internet users aged opportunities to develop low-cost standardized products to fit
two years and older, who have accessed the Internet within the the needs of the have-nots. Thus, companies will have
previous 30 days. conflicting opportunities-to develop luxury items to serve the
Source: Marketer’s, “ Charting the Future of the Business.” haves and to cut costs to serve the have-nots.
(January 22, 2003): www.emarketer.com/products/ Despite the growing proportions of haves and have-nots,
report.php?eglobal/welcome.html.Reprinted by permission of demographers project that the actual numbers of people
eMarketer, Inc. moving out of poverty levels and into middle-income levels
Finally, the company’s Internet ads and prices must comply with will increase. This is largely because of population and income
the laws of each country where the company makes sales. This growth in many developing countries, especially in Asia. Such a
is a challenge because a company’s Web page reaches Internet shift will likely mean that companies’ sales growth in develop-
users everywhere. For example, Land’s End, a U.S. merchan- ing countries will mainly be for products that are mature in
diser, has long depended on its unconditional lifetime industrial countries, such as telephones and household
guarantee to help sell its merchandise. But German law appliances. Further, with increased access to the Internet and
prohibits such a guarantee on the grounds that it is a gimmick lower barriers to trade, customers will be able to purchase goods
hidden in the sales price. Land’! End may have to exclude from anywhere in the world. In the process, companies will find
Germany from its Internet sales. Clearly, although the Internal it more difficult to charge different prices in different countries.
creates new opportunities for companies to sell internationally, But they will more effectively be able to cut out middlemen in
it also creates new challenges for them. the distribution of their products.
Looking To The Future What products and services are likely to enjoy the major growth
markets? It is probable that data generation and storage will
Will the “Haves” and the “Have-Nots” continue to be a major growth area during the next few decades.
Meet the “Have-Somes”? It also is probable that among the market-growth leaders will
Most projections are that disparities between the “haves” and be companies making breakthroughs in process technologies
“have-nots” will grow in the foreseeable future, both within that improve productivity (e.g., lasers, optics, and robotics) and
and among countries. Further, because the “haves” will have those making breakthroughs in energy conservation (e.g., solar
greater access to the Internet, they will be better able to search photovoltaics, fuel cells, and coal conversion).
globally for lower prices for what they buy. Therefore, globally, Ethical Dilemma
the affluent segment will have more purchasing power and will
not likely forgo buying because of antimaterialistic sentiments. What Products Should Companies
As people’s discretionary income increases, what are now luxury Market Internationally?
products become more commonplace (partly because it takes Critics complain MNEs pay too little attention to the needs of
fewer hours of work to purchase them), and seemingly developing countries. For example, they chide pharmaceutical
dissimilar products and services (such as cars, travel, jewelry, and companies for spending less on antimalarial research than on
furniture) compete with each other for the same discretionary research for diseases more prevalent in industrial countries, even
spending. Because of better communications and rising though malaria results in more fatalities. At the same time these
educational levels of the haves, they will want more choices. critics have encouraged developing countries not to use DDT,
However, these choices may not fall primarily along national although malaria deaths increased with the nonuse. They