MARKETING

CHAPITRE 1

LIVE TOGETHER LIKE BROTHERS AND DO BUSINESS LIKE

STRANGERS. - ARAB PROVERB
THE WORD MARKET derives from the Latin mercari meaning "to buy or trade" (hence
merchant) and that infinitive finds its roots in merx, which means "goods." The
"market" is anywhere that goods or services may be sold or traded. Nowadays, it can
range in scope from a simple open-air exchange of farm products to a description of an
entire economy (as in the European Market) or a nebulous commercial function (like the
stock market). The term also covers specific ethnic, cultural, religious, national, political, or
social groups. People may purposely group themselves together as a market (e.g.,
NAFTA) or they may come together by circumstantial default (e.g., adults 21 to 30 years
old). As will be seen later, all markets can be subdivided or segmented into smaller and
smaller groups, all the way down to individuals if so desired.
Marketing versus Sales
For some inexplicable reason, marketing is constantly linked to sales in a way that no
other function of management seems to be. Many people, including top executives,
confuse the terms on such a regular basis as to render them interchangeable. This
erroneous matchup is true for both domestic and international companies. To promulgate
the belief that marketing is something that only salespeople do (as in the sales and
marketing department designation) is exceedingly dangerous. The problem seems to stem
from a misunderstanding about the difference between a process and a result, as well as
from the failure to understand the centrality of marketing to all management functions.
Sales occur when goods or services are "given over" to a customer in exchange for money
or another valuable consideration. It's the end result of the marketing process.
Marketing describes the whole commercial process that creates (through promotion) the
interest that the potential customer demonstrates prior to a sale.
The role of sales is to capitalize on that interest to the point where there's a successful
exchange. Once a sale is complete, a company must provide follow-up service in an effort
to maintain satisfaction and promote future sales. Many large companies have begun to
officially demarcate and prioritize these functions by instituting a marketing department,
within which is a subdivision called the sales and service department. Smaller companies
and solo entrepreneurs must have an equally clear distinction and understanding of all the
areas covered by the term marketing.

Effective Marketing: Binding the Buyer and Seller

Sales transactions are the goal of marketing and they serve as the basis for the
relationship between the marketeer and the consumer. No one enters the marketplace,
buying or selling, without the expectation of some type of gain. Even
the briefest transaction creates a relationship, however small, between the buver and
seller. The marketing plan is a detailed scheme of how a company will designate, access,
sell to, and service a specific consumer group. When done properly, it will create the
environment for transacting business in a way that is mutually "gainful" for both sides. The
degree of care that's taken to assure this mutual gain will dictate the length of the
relationship. Taking advantage of a customer on the first go-around makes for a brief, and
often acrimonious, relationship, while the extraction of a reasonable profit and the offer of
follow-
up services results in larger, longer-term relations. Both extremes are regularly planned
and executed, though companies utilizing the former have little staying power. The binding
relationship between the buyer and seller that's created by effective marketing tends to last
longer and to be set up more quickly-as the speed of information in the marketplace
increases. Good reputations can be quickly gained but just as quickly damaged or lost
forever as the pool of informed and demanding consumers grows larger everyday.
Role of the Marketing Plan: The Action Budget
As is true of many activities in life, gain rarely appears without pain or, more precisely,
effort. The burden of this effort is greatest on the selling side and is therefore the
responsibility of the marketeer. Product, price, promotion, distribution, and postal service
must all be thoroughly designed during the market planning process and controlled in
compliance with that plan after its implementation. As hard as it may be for other
management personnel within a company to accept, all of their actions must be directed
by and subservient to the marketing plan. To return to the construction analogy from the
introduction, to build a building the carpenter, the electrician, the bricklayer, and the glazier
must all practice their arts within the confines of an architectural blueprint. In fact, the
ability to produce results within those restraints is the measure of their professionalism.
This is not to suggest that the primacy of marketing acts as a straightjacket on the other
activities of management. The marketing plan is simply an action "budget" and, like its
financial counterpart, is subject to change during the course of the company's lifespan.
Many ongoing internal and external factors (some controllable, some not) affect marketing,
and adjustments must be made accordingly. The marketing audit process (Chapter 16)
analyzes the need for adjustment and is nothing more than the matching of a planned
budget against
"actual" costs. When applied to finance, these planning and auditing processes are
recognized and valued by any professional manager. However, it's rare that marketing is
seen in the same matter-of-fact light.
Marketing is often taken to be some sort of intuitive mechanism that requires a "feel" for a
specific market or product line. The result has been that the number of high tech, telecom,
and financial services marketing specialists are now a legion.
The fact is that marketing is very much akin to accounting in its procedures and equally
universal in its applicability. Just as accountants are "good with numbers," marketeers are
proficient with consumer-related data. Once the methodology of marketing has been
grasped, it can be applied to any business.
WARNING: Whether using internal or external marketing staff, there is no substitute for
current information and recently analyzed approaches. A professional marketeer can
develop profitable strategies for any product.
Marketing Potential: Today and Tomorrow
Market potential--the ultimate size and profitability of a market can vary greatly and will be
affected by factors both within and without of the control of the marketeer.
A good portion of this text will deal with these variants, but at this point the reader should
recognize that marketeers must view all markets in the short-, medium-, and long-term.
Additionally, markets can compete with each other for the attention of the marketeer, and
the relative potential of those markets (international ones in particular) must be weighed
before expensive resources are allocated. After being first entered or penetrated, markets
will move through progressive stages. There's no set period of time for their maturation,
which will occur when demand consistently absorbs allocated supply, with pricing
objectives met.
Companies usually seek to control their own status in any particular market, though there
are an intrepid few that allow the marketplace to dictate their positioning. This position can
remain static or change drastically, up or down, over the course of a market presence.
Positioning a product against its competition is heavily linked to image. The recognizability
of an established brand name can go a long way toward allowing an established company
to pre-position a proven product in a new market or to position a new product in an old
market. A company may labor for decades to establish a brand name (e.g., Volvo in
automotives) or it may become an overnight sensation with worldwide recognition (e.g.,
Google).
It's a matter of timing and consumer demand.
The Role of Marketing in Business: The Rudder of Commerce
Marketing is the targeting, acquisition, and retention of customers over a period dictated by
the life cycle of the product (goods or services) under consideration. In many ways this is a
simple statement, but one that belies extensive research and complex analysis. Marketing
is the initial movement of ideas that results in a saleable product. Surely good ideas are
rampant in the marketplace but customers, flush with money and eager to spend, often go
home empty-handed. Products heralded as the "greatest thing since -
soon find
their way to the rubbish heap. Is this the result of quality problems? ... Sometimes.
Government intervention? ... Occasionally. Hyperbolic advertising? ... Usually.
Consumer fickleness? ... Often. Poorly planned marketing? ... Always The rush to enter
the marketplace is most often quickly followed by rejection; the successful are
begrudgingly described as "lucky" by those who fail. There's little doubt that "being in the
right place at the right time" leads to success in the marketplace. However, luck is no more
involved in business than it is with other complex human undertakings. The trajectory of
the NASA Pathfinder spacecraft led to it being accurately placed within the orbit of Mars
and then successfully landed on its surface. Time and place had been carefully planned
and those plans methodically exercised. Variables and risks were calculated, deemed
reasonable, and then overcome; logic, logistics, and long-term thinking were all brought to
bear.
NASA's success proved the Aristotlean postulate that the educated tend to be
"luckier." Marketing functions under the same rubric.
Marketing Functions: Five Classic Functions and a Forgotten One
After creating or finding a market, a company can exploit it quickly by maximizing profit on
a per-product basis, or it may choose to pursue a process of maximizing market share.
This latter process requires that the company secure the greatest amount of consumer
purchases possible through careful pricing and quality control in an effort to establish a
long-term relationship with the customer.
Over time, prices will be increased and costs reduced with an eye toward taking profit
once competitors have been driven from the field or at least had their share of the market
reduced. The acquisition of market share is subject to the rigors of finance ("Can we wait
this long to make money?"), opportunity ("Are the consumers ready, willing, and able to
buy our product?"), and the competitors' strength ("Will they fight back?").
Traditionally, marketing has been broken down into the following processes.
CONTACT
This is the seeking out of prospective consumers and it may be based on a variety of
determinants. Time, distance, media, and the overriding factor of access to finance can
make this initial function extremelv difficult. No matter how useful and desirable the
product may be, improper handling of the initial contact can keep a company out of the
marketplace indefinitely.
MERCHANDISING
Once potential customers have been located, goods and services must either be
developed from scratch or customized. For the purposes of international marketing,
merchandising is the process of bringing the right product to the right place at the right
time in the right quantity at the right price. Ultimately, the consumer determines what's
"right.
PRICING
The price of a product is often the determining factor when a purchase is made and is
always a key to profit. It's also part of a strategy of seizing market share.
Setting a proper price will determine how long any company will stay in the marketplace.
When a company practices price competition, it consciously uses price as the major
means of attracting consumers. It's not unusual for consumers (at both the wholesale and
retail level) to buy based entirely on price, regardless of the efforts of the marketeer to
promote quality or service.
PROMOTION
Once a product and its price have been developed, customers must still be convinced to
favor it over a competitor's offering. There are four types of promotion used to support
marketing efforts: paid advertising, personal selling (one-to-one), public relations (press
releases, articles), and supplemental efforts (coupons, sweepstakes). All promotion, but
especially advertising promotion, is open to overstatement and misrepresentation.
Successful and ethical marketeers devise advertising that keeps customer perception
closely aligned with product or service reality. Promotion is taken up in detail in Chapter
11.
DISTRIBUTION (A.K.A. DISTRIBUTION CHANNELS)
Although this is often associated with the movement of physical products over distances, it
is, in reality, the process of putting the consumer and the product
whether goods or services) together. In its strictest sense it means the extent to which
consumers have access to a product compared to the total number of possible access
points. In a larger sense, distribution encompasses all of the participants in the delivery of
a product, any product, from the marketeer to the consumer. Participants include retailers,
wholesalers, agents, shippers, customs brokers, manufacturer's representatives,
advertising agencies, media buyers and a plethora of other middlemen who act on the
behalf of the marketeer. And there's
a great deal of overlap among their functions.
To make the above processes truly comprehensive we add human resources.
HUMAN RESOURCES
The internal marketing that occurs at every company when they attract, hire, train and
retain employees is directly reflected in the ability to market externally
to the public. All emplovees. from the mailroom to the conterence room, must be selected
for their ability to contribute to the company's external marketing efforts.
Transactions don't take place between companies and faceless consumers but between
flesh-and-blood human beings. It is essential that sellers understand, communicate with,
and value buyers. This purely human aspect of marketing is the basis of every successful
company, whether they actively acknowledge it or not. While it has been determined that
other animals on the planet can "make" things, only human beings bring their wares to
market.
The Hierarchy of Effects: Why and How Consumers Buy
Every marketing effort has a series of stages it must progress through toward the ultimate
consumer transaction. This "hierarchy of effects" is the same whether the end-user is a
single consumer or a large corporation.
PRODUCT AWARENESS
The potential consumer must be made aware of the existence of a product.
This can be accomplished through promotion, advertising, active research, or the much
ballyhooed "word of mouth." This last source of awareness, where one happy customer
sings a product's praises to other consumers, is always thought of as optimal. It may be
optimal, but it takes a long time for its effects to be felt.
PRODUCT AFFINITY
Awareness doesn't always result in a desire to buy. Marketeers must take great
pains to ensure that a product and the company create a favorable impression on the
consumer. Being useful isn't enough; being useful and attractive is. Keep in mind that the
term useful will be defined by the perceptions of the consumer.
Agreeing with that perception isn't as important as understanding it.
PRODUCT PREFERENCE
A product may be the first of its kind in the marketplace but it will not be alone for very
long. Even strong copyrights and patents don't prevent competition. A marketeer must
make the consumer prefer one product over another once the affinity effect has been
achieved. It might be price, it might be quality, it might be service, or it might just be the
color of the package. Whatever makes the customer
favor a product over its competition must be pursued. Being egual isn't being competitive.
Being better is.
PRODUCT CONFIDENCE
Consumers rarely purchase anything that gives the impression of unreliability.
Although there are many cases of products being purchased that were "too good to be
true," their presence in the marketplace is short-lived. Today's marketeers are very aware
that consumers are increasingly savvy. Beyond the legal ramifications of fraud, marketeers
must realize that "they can't sell water as wine" for very long. Obtaining and retaining the
consumer's confidence in your product not only precedes a successful transaction but also
lays the groundwork for establishing the brand identity.
PRODUCT PURCHASE
Once they know you, like you, prefer you, and believe in you, consumers are ready to
open their wallets. Oddly enough, the transactions don't always occur.
Some companies unconsciously make it difficult for consumers to consume.
Excessive paperwork, lack of credit financing, poor delivery schedules, or slow processing
can all contribute to failure at this point. If you don't make the purchase process easy,
prepare for a return to "square one" and an uphill battle.
Common Marketing Mistakes: Pay Attention or Pay the Price
Customers are the major concern of marketeers; the product being offered can take any
form, commodity or service, without significantly changing the governing rule of the
relationship. The rule is quite simple: the cost to the customer must reflect the customer's
perceived value of the product. All businesspeople (perhaps all people) understand the
primacy of this rule, and yet the failure rate in commerce is staggering. It's the marketeer's
job to understand the perception of cost and value when approaching customers, thereby
avoiding commercial
calamity. Here are some common failings.
UNIVERSALITY
Group A accepted the product readily, therefore Groups B, C, and D will be equally
receptive.
This approach is quite common when moving from a smaller to a larger marketplace or
from a domestic to an international one. While human cultures and sub-cultures have
many things in common, consumer behavior isn't one of them. Marketeers must only find
large enough groups bearing similar behavior to make the effort of the transaction
worthwhile. Even giant companies like Coca-Cola, McDonalds, and Toyota have
recognized that universality is impossible, and they repackage their products accordingly.
PERSONALIZATION
I think my product is great and so will you.
This is similar to universality in wrong-headedness, but on a much smaller scale.
Patent offices are overflowing with ideas that seemed perfectly useful to the inventor but
were savaged in the marketplace--if they got there at all. Services suffer a similar fate, as
can be seen in the reception consultants often receive in the marketplace as they discover
that their services, once highly valued by a previous employer, have little or no open
market value. Similarly, the Internet is awash in unprofitable
products and services that seemed like great ideas to someone, somewhere
PRICE BLINDNESS
People will be willing to pay big money for this.
Many good ideas and products price themselves out of the market or slow down the pace
of their success by entering at too high of a price point. For example, the commercial real
estate market in developing economies chronically suffers from overpricing compounded
by overbuilding. Eventually, though begrudgingly, prices are adjusted downward, but it's
usually too late to salvage the market. Consumers and real estate developers often have
very different ideas about how much "a view" and "location" are worth. The desire for good
products should not be confused with the ability to pay.
QUALITY DEFAULT
For this price, it's the best we will (can) do.
Consumers in the developing, industrialized and technological markets all have very
different views about quality above and beyond cultural requirements. The difference in
hotel service quality between Hong Kong and its close neighbor on the mainland,
Shenzhen, is considerable although the price differential is slight.
Hong Kong leads the world in hospitality, while its neighbor says "good enough" with the
foreseeable effect on sales.
CULTURAL MYOPIA
These people just don't get it.
Marketing books and case histories are rife with examples of marketing blunders, most of
them due to a poor understanding of the targeted culture. Such mistakes are most costly
for the big international firms, but the problem isn't confined to them alone. For every
Chevrolet Nova that didn't sell in Latin America (no va means "doesn't move" in Spanish),
there's an optimistic rancher still trying MARKETING
to figure out why no one wants to buy ostrich meat in Germany (Germans like to eat pork).
Marketing failure and sloppy cultural research walk hand in hand.
PACKAGING PLOYS
The product speaks for itself.
While this may be true, its "language" may be unintelligible to many. Even domestically,
regional differences can cause customers to misinterpret the nature or value of a product.
Communication is the responsibility of the sender, not the receiver.
From the wood-paneled offices of a high-priced lawyer to the size and shape of boxes for
children's toys, the package is often as important as the product.
POOR TIMING
How were we to rnow that the
trend was over?
You can use a product from either the goods or services sectors to fill in the blank of the
preceding sentence. There's always some person or company that gets their product to
the market just as consumer interest wanes. Failure here is the result of being blinded by
your own preparatory activity to the exclusion of the impending realities of the
marketplace.
WARNING: No one is so busy or so destirute that they cannot Dav attention
Found versus Created Markets: Discovering and Inventing
Many people say that markets are found, while others believe they're created. Both are
correct. So-called market-driven businesses regularly find markets-by taking the
commercial pulse of the general public to determine what's desired and then striving to
produce the requisite goods or services. In this case, consumer demand determines what
products will be supplied. This can be best exemplified by the practicality of personal
computer products. Until engineers developed practical software programs (e.g.,
spreadsheets, desktop publishing, word processing), computer sales were minimal. After
marketeers found out what consumers wanted, sales skyrocketed.
At other times (though rarely so nowadays), products are developed first and then
attempts are made to convince the public that it needs them. The new product, at least
initially, may appear to have no practical value. Such a product-driven company (like
deodorant manufacturers in the 1950s and 1960s) creates an artificial demand through
advertising in the hope of supplying the new long-term "need." By equating cleanliness
with lack of body odor in numerous ad campaigns, marketeers caused millions of people
worldwide to believe in the need for deodorants. Created markets such as this (now given
the far more luxurious name of "personal care products") eventually come to demand
"improvements" (e.g., simple deodorants became anti-perspirants), and even found
markets are refined, whether requested or not (e.g., gigabyte-eating software upgrades).
In the late 1980s, marketing managers ceased to refer to product- or market-driven
companies and changed the nomenclature to push and pull, respectively.
Some products had to be pushed through the distribution system toward the consumer
(created), while others were pulled through (found) by demand. As will become clear, all
international markets are a varying mixture of both types.

CHAPITRE 2

FEW COMPANIES enter the international marketplace directly. For the most part, they
move
from domestic markets into exports and then into a full-fledged international presence.
This applies to both goods and services. It may take decades to reach the international
scene or it may be a matter of months. Today, any company that markets itself via the
Internet achieves almost instant global access, even when its wares are directed at a
domestic market. The process of "testing the waters" locally before jumping into
international seas is the same for a small manufacturer as it is for a financial consultancy
or even a high-tech "hyper company." Many of the lessons learned at home will serve the
company abroad.
Elements of Domestic Marketing: Starting at Home
Many companies are quite content to operate on a very local scale. Their active marketing
may not extend beyond a radius of a few miles. Other companies may expand their
horizons to a few cities, a province, or even their entire country. All of this is considered to
be domestic marketing. Every company goes through the same planning process, some
companies more consciously than others, when entering the domestic or international
marketplace. Following is a list of the major elements of marketing.
MARKET ASSESSMENT
This is the part of the process where opportunities are initially assessed. It can be as
simple as observing that groggy commuters have no place to buy coffee before boarding
the morning train or as complex as recognizing the potential demand for satellite TV
dishes in remote farming communities.
MARKET ORIENTATION
After the initial assessment, a company must set its basic objectives by deciding which
products to bring to market at what price and which customers to pursue.
At this stage, the company should also consider how much of the market they wish to
control and over what period of time. Researching and objectively analyzing the
competition is a major part of this process.
STRATEGY DEVELOPMENT
Once objectives are set, a strategy must be developed to attain them by the most cost
effective means available. Strategy has three subprocesses that must be dealt with.

SEGMENTATION
Segmentation is the targeting of specific groups with specific products. A marketeer
realizes that different people and groups of people will require different products or
modifications to products. Recognizing the extent of those requirements will determine the
level of success and longevity available to a company. No matter how good your coffee is,
it will not satisfy someone looking for a cup of tea. (Segmentation will be covered in detail
in Chapter 9.)
PENETRATION
Penetration is the part of planning that deals with a company's ability to get
access to consumers. lust because vou see a market doesn't mean that vou' be permitted
entry. A company may struggle and be rejected or merely be unable to overcome the
regulatory or financial obstacles placed in its way. Penetration requires not only willingness
but also resources
• POSITIONING
Positioning is the way customers perceive a company's product in relation to that of its
competition. It may be based on quality, size, price, brand recognition, packaging, and a
host of other "subjective" features. A company may choose to control their positioning or
only react to the fickleness of the marketplace.
Positioning will determine a company's "share" of the market. A shop offering
"the best cup of coffee in town" could charge a premium price and maintain a small
customer base, or it might offer a wide-range of beverages at lower prices hoping to get as
big a share as possible. The local cafe and Starbucks both must consider positioning or
the consumer will do it for them.
IMPLEMENTATION
Once the strategizing has stopped, the hard task of plan implementation begins.
Here the tactics of packaging, pricing, promotion, sales, advertising, and distribution must
all be activated. The number of perfectly good products that never made it to market is so
large as to be an embarrassment to all who wear the title of marketing manager. As is true
of all management tasks, planning is easier than implementing, and implementation
requires considerable planning of
CONTROI
Many products have reached market, chalked up a few years of sales growth, and then
nosedived into the dustbin of marketing failures (e.g., BetaMax videotape, Atari
computers). The inability to maintain continuous control of product quality, modification,
distribution, and image are the leading factors for such failure. Controls and the ability to
monitor performance must be planned as thoroughly as strategy and, like implementation
plans, be in place before the product is brought to market. Remember, you can't build a
levee in the middle of a flood.
STRATEGY ANALYSIS
As feedback in the form of customer satisfaction, profit tallying, brand recognition, and
market share statistics pour into a company's data collection apparatus (from a filing
cabinet to a computer), proper analysis must be made.

Preplanned strategies must be "tweaked" or totally revised, and tactics continually

evaluated. Even the smallest domestic market has sufficient dynamism to preclude
stagnation. Look behind, plan ahead!
Elements of Export Marketing: Setting Your Sights on New Horizons
There are many reasons to consider exporting to a foreign market. A domestic market may
be saturated (automobiles), a product may have reached the end of its useful cycle in the
domestic market (computer software), a sudden demand from a foreign market may
present itself (foodstuffs), or a company may just be looking for new territories. Whatever
the reason, a certain degree of domestic success has usually preceded the decision.
Beyond the normal market planning procedures listed above, the following elements must
be taken into account when exporting.
REGULATION
All nations regulate their imports. And even when demand is high in the target country,
government regulation can prevent your exports from reaching the
customer. In some cases, restrictions have been put in place to protect product quality and
the safety of the population. Regulation can become protectionist as governments favor
domestic producers. This can be politically or culturally based (e.g., Japan's restrictions on
rice imports) and may require extensive maneuvering to circumvent legally. Also, all
countries put controls on their own exports for many of the same reasons (e.g., the United
States' security restrictions on computer exports). The first area for research when
considering exporting is the thorough investigation of the regulatory atmosphere
LICENSING
Part of the regulatory process may involve the actual licensing of your company for
exporting (or importing). This is above and beyond the regulations regarding the products.
Governments are very sensitive about not only what crosses their borders but also who
will profit from the transactions. Licensing is considered a
form of control and taxation bevond imbort/exort duties
DISTRIBUTION
One of the most difficult parts of exporting is the development of distribution channels. If
you turn your product over to local distributors, you'll have to relinquish a degree of control
over merchandising and quality assurance. If you
maintain your own distributorship, it can be a very expensive learning process to adapt to
the practices of a foreign land. Though many large companies may be able to afford to
operate their own distribution channels, local governments often frown on that possibility
especially in emerging markets, where distribution charges are the only means to add
value to imports. For some markets, the internal movement of products (including legal
and financial services) can be as sensitive an issue as the actual importation. When they
find they can't directly control distribution, many companies will either make frequent trips
to the target country to do quality checks or open a representative office for that purpose.
FINANCING
International transactions often require the extension of credit. Part of the difficulty of
exporting is the degree of trust that must be exhibited between buyer and seller. The buyer
is reluctant to pay in advance because the seller holds the product on distant shores, and
the seller is loathe to extend credit and ship to a stranger. Until a firm relationship between
importer and exporter is developed, most will use letters of credit (L/C) and correspondent
banks as neutral intermediaries in the credit process. In some cultures, importers are quite
upset when a foreign exporter will not accept their word as a bond, but such trust is
unrealistic during the initial phase of long-distance relations. Keep in mind that even with a
correspondent bank as intermediary, governments may short-circuit the process for
reasons that may benefit the importer.
EXCHANGE RISK
Even when financing goes well, there will be a "lag time" between when a trade is
contracted and when the money arrives. During that period, the value of the transaction
currency can change. As the summer and fall of 1997 clearly showed, currencies can
quickly devalue, particularly so in the emerging markets. Both importer and exporter take a
degree of exchange risk, so each tries to ensure use of a payment method that benefits
their position. Exporters like to be paid in the hardest currency available (Japanese yen,
European euros, U.S. dollars), while importers like to pay with weaker currencies.
Exporters must take great care to specify the currency of payment. Simply contracting at
50,000 dollars with an Australian importer can be a very costly mistake, as they can
choose among U.S., Canadian. Hong Kong, or Australian dollars as payment
NOTE:
Some countries e.g., China and Vietnam) have currencies that can't be
converted on the international market, so all payments by their importers must be made in
foreign currency. Exchange rates can be aftected by a whole host of variables and should
be thoroughly investigated before contracts are signed
LEGAL STATUS
For all of the economic unions, tariff treaties, and trading blocs that have come about in
the last to decades, local governments still exert a great deal of power over the
import/export process. When a trade goes wrong, and some do, legal recourse for the
exporter can be as variant as the number of foreign markets. In some major markets, like
China, foreigners have virtually no legal status and will be unable to seek redress for the
illegal activities of importers. Others, like Great Britain, provide substantial protection for
foreign companies. No matter how good the trade looks on paper, research your legal
position in the importer's country before contracting.

Commonality and Conflict: Reading the Target

Like shooting an arrow, wanting to hit the target market is much easier than actually doing
it. What appears to be a simple task turns out to involve great skill and preparation. This is
true of both domestic and international marketing.
Although it shares a great deal in common with its domestic variant, international
marketing takes the archery analogy several steps further.
THE TARGET IS ALWAYS MOVING
The international marketplace is extremely dynamic, some may even say volatile. Just a
brief look at the purchasing power of China or Brazil five years ago should give a good
idea of how quickly a marketeer must react. New products, new competitors, and the
nouveau riche flood the marketplace at various times, all frantically searching for each
other.
NO TWO TARGETS ARE EXACTLY ALIKE
What one culture finds fascinating another finds boring. A popular brand name
in one country is a swear word in another. A fair price here is gouging over there.
'The "bull's eye" isn't always in the center.
EACH TARGET MAY REQUIRE A SPECIFIC ARROW
Cultures may share a desire for a general type of product, such as automobiles or air
conditioners, but the specifics will vary greatly-size, shape, color, voltage, or numerous
other modifications may be required. The change could be as small as a switch from red to
blue or as large as redesigning the chassis. If you want access to the market, you may
have to retool.
THE DISTANCE TO EACH TARGET IS DIFFERENT
Doing business directly across your border has one set of problems. Doing business on
the other side of the world has another set entirely. Communications,
logistics, and quality control all require greater attention as distance increases.
NOTE: Effectiveness decreases in proportion to the distance from the domestic market.
Stronger bowmen and larger companies are better at hitting distant targets.
THE CROSSWINDS CHANGE WITHOUT NOTICE
Besides the changes brought about by consumer volatility, factors such as politics, war,
climate and religion can all wreak havoc on your aim. Because they're all taking stage
outside of your regular physical and cultural boundaries, you're less likely to be able to
predict their arrival.

CHAPITRE 3

MARKET WISDOM is millennia in age and prodigious in size. Like the preceding
aphorism,
the best of this wisdom is the result of clear-headed observation filtered through common
sense. Keeping marketing in perspective requires the practitioner to look both backward at
the forces that shaped today's markets and forward to where those forces are propelling
new prospects. Many marketeers fail to realize that much of the groundwork and research
have already been laid for them; they're best advised to view the future by standing on the
shoulders of those who preceded them. "Don't reinvent the wheel, put new tires on it" is a
common saying in marketing, one that admonishes the listener to learn from history, not
repeat it before moving forward. This chapter will give the reader essential background for
understanding the complexity and scope of international
markets.
Defining Market Conditions: Money Talks
Human beings have always traded among themselves, with each side of a trade believing
they stood to gain by the transaction. Originally goods were traded for other goods (my two
chickens for your pail of milk) in a process called bartering.
Eventually, goods were traded for services (my two chickens in exchange for your medical
recommendations). Much of what went on in the marketplace was (and still is) a matter of
perception. I believe your pail of milk is of greater value to me than my two chickens and
therefore I'm willing to relinquish the chickens. You, of course, believe the opposite.
Money soon came along to replace the barter and it became a medium of exchange.
Money also created a wider range of bargaining options (it's very difficult to make change
with a live chicken). Money originally had some intrinsic value (gold, silver, copper); it
gradually came to serve as a promissory note for the delivery of goods and services. Once
everything was "priced" in terms of money (rather than chickens or milk), a new burden of
proving value was placed firmly on the seller. The buyer had a set value for money and the
seller had to prove that a product was worth that monetary value. Although there were
extreme cases where buyers had to convince sellers that money has value (e.g., war-
ravaged economies), the marketplace demanded (for the most part) that the seller do the
convincing and the buyer the believing. Sellers would bring products to market hoping to
attract buyers equipped with money. This was the birth of marketing,
but it wasn't an equal relationship. The sellers might do a great deal of talking, but money
always had the last word.
The Dawn of Exchange Rates: Money "Walks"
For many centuries, there was no guarantee that a single country would have a single
currency. Localities minted specie or printed their own scrip, thereby complicating both the
concept and practice of the marketplace. When different localities traded, both the value of
the products and the currency were open to discussion. Even the amount of precious
metal in coins was subject to dispute. In many ways, the burden of proving value was
redistributed almost back to the level of bartering. National currencies put an end to this for
internal trade purposes and reburdened the seller with all marketing responsibilities. Once
trade across national borders or among city-states became prevalent, the old questions of
value were resurrected. Since no nation was willing to give up its right to print or mint its
own money, currency exchange rates had to be agreed upon. Gold and silver figured
prominently in international trade due to their seeming universal value but, as happened
before, purity was always in guestion.
Over time there was a movement toward the use ot paper money for international trade.
This made currency supply and transport easier, but without the backing of precious
metals (as is the case today), paper scrip was valued (or backed) only by the "full faith and
credit" of the issuing country. A powerful country could say that its paper money was worth
more than a weaker country's scrip. This led to "strong" and "weak" currencies and onto
the latter day nomenclature of "hard" and "soft" (for use when describing a nation's ability
to back their scrip). The marketing of a nation's goods and services is heavily tied to this
currency valuation. The "power" behind a currency is purely economic as
many of the strongest currencies come from militarily weak but economically vibrant
nations (e.g., Germany and Japan). Having only military power means little in international
trade, as is evidenced by the almost eternal weakness and longtime inconvertibility of
Russia's ruble.
One of the hardest of the "hard" currencies, the U.S. dollar, is issued not just by the only
military superpower but by the world's largest economy. Emerging
markets tend to have the weakest currencies and their markets can suffer enormous
swings of value, as was seen in Southeast Asia at the end of the 20th century. This huge
devaluation greatly affected the ability of Malaysian, Indonesian, Korean, and Thai
companies to sell their products internationally at a profitable price. Sudden drops in their
respective currency value, some as high as 40 percent, made goods from these countries
very attractive to foreign buyers.
However, when paid in foreign hard currencies, these nations' exporters received far less
in payment for products that had been priced in their local currencies, due to exchange
rates. Foreigners with strong currency got a lot more for a lot less.
This eftect unfortunately ricochets to the stronger economies, because their own
products or raw materials are now priced far above the buying power of emerging.
This effect on marketing created by currency fluctuation comes into play among even the
strongest economies. The constant wrangling over trade deficits and surplus between the
top economies, China and the United States, for instance, is a major problem for their
marketeers. Currency rates will determine when,
what. and how companies can bring products to the international marketplace Political and
cultural influences weigh heavy on marketing as well. It's important to understand that the
determination of "value" for both product and currency is the oldest (and most visible) of
the forces still at play in the international marketplace and one that ultimately reflects the
other underlying forces.
International Business: Who's Playing, Who's Winning
International business takes place at many levels of commerce, with success and failure
being distributed throughout the roster. Below is a listing of the types of companies (large,
medium, and small) that have the largest involvement in international trade. The reader
needs to understand the marketing process from both sides of the transaction, as each will
act as both marketeer and target during their time in the marketplace.
EXPORTERS These "sellers" are the backbone of international trade, as they bear the
burden of proving value. Though generally associated with the shipping of goods,
countries also export services, as the "service economies" of the United States and Great
Britain are known to do to great success. Exports can run the gamut from mangoes to
movies, shellfish to software, or coffee to cameras; the scale of operations can be massive
or minuscule. If you're selling on the
international scene, regardless of size, you are an exporter.
IMPORTERS These are the "buyers" at the other end of the transaction, although they
may not be the "end-users." Like exporters, they come in all shapes
and sizes and frequently act as exporters as well. because they hold the money end of the
trade, all marketing efforts are ultimately directed at them. Even if it doesn't say so on your
business card, if you're buving products internationally, you re an importer.
FREIGHT FORWARDERS AND SHIPPERS These very capital-intensive service providers
move products among the globe's nations by land, sea, and air.
Even other services (such as software companies and movie studios) rely on freight
forwarders and shippers to move the physical goods (computers and projectors)
necessary to ultimately deliver the service. This highly competitive business can include
enormous sea shipping lines, shipping brokers, consolidators, couriers. airmail delivery,
railways, trucking companies, or even a cross-border bicycle cart.
If exporters are the backbone of international trade, then freight forwarders and shippers
are its arms and legs.
TRANSPORTATION Whereas some companies move products, the transporta-
tion business moves people. rew doubt that the enormous rise in international trade is due
in great part to the revolution in transportation. Trips that took weeks or months only a few
decades ago now can be measured in hours or days.
Operating abroad is no longer a long-distance affair as foreign companies regularly visit
their representative offices in target markets. Though airlines and airplane manufacturers
are the main beneficiaries, other transporters such as railways have profited as well. Many
emerging markets use international transportation as a welcome source of "hard"
currency, and every country seeks the prestige of having its own national airline.
HOSPITALITY Hospitality and tourism as an overall industry is now the world's largest
employer, with one of every ten people on the planet involved in its operations. Not only
does this new colossus of hotels, airlines, and restaurants supply travelers with diversion,
but it also feeds the demand for international products through exposure. Once sampled
on vacation or business trip, a product can be marketed in the visitor's home economy as
a symbol of sophistication. All nations track their visitors via immigration statistics and
savvy marketeers have a ready supply of new targets. Emerging markets build hotels
before they even put in a telephone system as a means of securing hard currency from
visitors.
Tourism is so important to most nations that it's a primary focus of antigovernment groups:
Kill tourism, kill the economy.
TELECOMMUNICATIONS International business lives and breathes "informa-tion flow,"
and telecommunications is the pipeline. The marketing of "telecom" services and hardware
has exploded in the last decade and yet still seems to be feeding an unquenchable
demand. The internal development level and potential of a market is now measured in
"teledensity" or telephones per 100 people.
Moving information has become just as important as moving freight or people, and
international calls are another source of hard currency for developing nations.
INFRASTRUCTURE Bridges, roads, seaports, airports, waste disposal, potable water,
flood control, and power plants are all key factors in the development of international
business. The companies that market the goods and services necessary for their
acquisition are usually the first ones into emerging markets, as well as key players in the
developed world's effort to remain ahead of the pack.
It's a simple formula: No infrastructure, no access to markets.
ADVERTISING Advertising, along with its related services (such as media buying and
graphic design), has taken on global proportions. Advertising agencies now have
multinational offices and worldwide contracts. Though lucrative and acknowledged as
essential to international business, many countries put severe restrictions on how this
driving force in marketing can ply its trade. Advertising foreign goods in a local market is
not without peril. It's often the unfortunate target of a government's or subculture's wrath
and can be the flashpoint for greater problems.
ENTERTAINMENT Music, videos, movies, theater, games, radio, television, newspapers,
magazines and book publishing all fall under the entertainment industry title. It's one of the
leaders in global marketing and, like advertising, can be the target of considerable
resentment and censorship. Marketeers must take care not to have their entertainment
product viewed as a form of cultural imperialism. Entertainment is a service that helps fill
the coffers of many trade leaders (United States, Great Britain) but is slyly left out of trade
deficit bickering.
Without a doubt, entertainment is big business internationally.
TECHNOLOGY The United States and Japan are the undisputed leaders in this
marketplace. Manufacturing may be done worldwide, but the ideas flow primarily from the
two big players, with the United States dominating in both hardware and software.
Technological advancement is the external yardstick used to measure an economy and
"computer literacy" marks the stature of a national workforce. Every nation wants to get
into this market.
CURRENCY TRADERS Currency trading represents the biggest single market in actual
value in the world. The equivalent of more than two trillion U.S. dollars changes hands
daily worldwide, with the market open twenty-four hours a day, seven days a week. Many
international banks make more from their arbitrage trades (the price differential between
two markets for the same commodity_in this case, currency) than they do from commercial
loans. This trading drives prices, exchange rates, and purchasing power with very little, if
any, government oversight. Though often denounced by the governments of floundering
economies, currency traders operate in the ultimate free market. It's a highly technical
business with large international companies employing their own arbitrage departments to
protect their profits from international sales.
BANKERS With all of the money floating around the globe, someone has to keep track of
it. Beyond just issuing letters of credit, bankers provide both the security and financial
acumen needed for trade and were thus one of the first services offered to cross-border
traders. Banks were the original issuers of paper money, although most currency now
moves across borders electronically.
Government-run national banks (e.g., Bank of Namibia), international banks (e.g., Credit
Suisse), and local banks (e.g., VietCom Bank) all contribute to, and receive profits from,
international business. Money is the blood of commerce and banks are the arteries
through which it flows.
MANUFACTURERS Manufacturers of all nations make the stuff of which marketing sings
the praises, and they make a lot of it. Manufacturers can range in size from major
automotive producers to peasants doing piece-work. Even the marketer of services relies
on manufactured goods to deliver the physical component of the product. From computers
to cosmetics to sunglasses, manufactured goods are still the greatest focus of international
marketing and will be for some time
FOODSTUFFS This group includes agriculture, aquaculture, food processors, food
chemists, and food geneticists. While some nations show declining populations, the world
as a whole is expanding. Subsistence feeding is a concern in China and India (each with
over a billion people), while Africa is constantly plagued with famine. Alarmingly, North
Korea's continual bout with starvation is a major security concern for regional
governments. More developed economies demand increasingly sophisticated foodstuffs,
with no end to demand in sight. As will be seen in Chapter 6, food can be a serious cultural
issue for marketeers, and
no one should doubt its importance to international commerce and world beace.
MEDICAL
"Wealth makes health." There's a clear correlation between a
nation's coffers and its coffins. Medicine production and medical services are one of the
globe's largest businesses (only recently surpassed by hospitality) and they are
concentrated in the high-end economies. Marketing "life" is a fairly easy task. and demand
always outstrips supply. Marketeers need only set the right price.
FINANCIAL SERVICES Like entertainment, many of the world's top economies neglect to
include this in their published trade figures, concentrating on merchandise instead. It
includes such multibillion dollar (yen, mark, pound etc.) industries as credit cards, business
consultancy, "back office" accounting, and securities brokerages. This industry keeps
international business flowing in an orderly fashion. There will be nothing but growth in this
area.
LEGAL SERVICES Some countries are law bound (France), some are overly litigious
(United States), and others find commercial law bothersome (China). The
attractiveness of joining the World Trade Organization (W'TO), as well as sundry
trade treaties (NAFTA, APEC, MercoSur), has given rise to a blossoming of international
legal services. 'The new requirements for standardizing many aspects of international
trade, along with the penalties for noncompliance, will provide decades of work for
barristers, lawyers, and their support staff in Brussels and other centers for international
commercial courts. Law firms are multinationa
now, though many countries restrict the role that foreign practitioners can play
in domestic courts. 'Though potentially evoking somewhat more resentment than financial
services, the legal profession is in an international "bull market.
• INFORMATION SERVICES 'Telecommunications may launch the satellites, lay the optic
fiber, and sell the modems, but other companies supply the information.
Database assemblers, search engines, statistical researchers, and archivists are all
examples of information services. 'The Internet and its service providers (ISPs)
have made databases available internationally, and marketeers were the first to take
advantage of them. This element of the business depends on telecom and sophisticated
infrastructure to function globally, and every economy (even totalitarian ones) realizes
that information is critical to commerce. The old phrase was "No news is good news."
The modern equivalent is "No news is no business."
Believe it.

CHAPITRE 4

ON THE TIME SCALE of human existence, the development of the nation-state is

relatively
new, and international trade probably commenced as soon as national borders were
determined. As cultures (ethnic and political) bound themselves together, it was just a
short additional step to start protecting their possessions and another quick leap to covet
those of their neighbors. Flash ahead a few centuries and you find import tariffs and
currency valuation. This chapter will look at the underlying motivations for international
trade and some of the very human issues that govern those motivations. Marketeers must
understand these larger scale incentives betore approaching a target market.
Growth of International Markets: The Grass is Always Greener
Even the most prosperous countries seek to exchange goods and services with their
neighbors. In fact, the greater the level of prosperity, the greater link to high performance
in the global markets. It could be said that if a nation isn't competitive on the international
stage, that nation is chasing mediocrity. Long gone are the days when self-sufficiency was
measured by the amount of shelter, food, and water a nation could garner within its own
borders. Minerals, fuels. services, technology, manufacturing processes, and education
have been added to the "essentials," with no single nation having enough of what it now
perceives itself to need.
It's an accepted fact that transportation and communication have had a great deal to do
with the increase in cross-border trading. Travel abroad is no longer an experience limited
to a few economic and political elites. Once a general awareness of another nation's
products is in place, demand can be readily sparked.
International marketeers have been this spark and have led the drive toward the
globalization of business. Though feared by many and resented by some, globalization is
an irresistible tide that shows no sign of ebbing. The explosive growth in international trade
that has occurred in recent years has raised millions of people out of poverty, though
millions more wait their chance.
Pride, Prosperity and National Industries
International trade is not without its detractors and many of the nay-sayers have reasons
that aren't completely based in the rationale of economics. Viewing globalization as a
threat to homegrown prosperity is a universal preoccupation of demagogic politicians and
competition-fearing businesses. Foreign companies are portrayed as predatory and
conniving while domestic firms are painted as having the country's best interests at heart.
This ploy can work because most nations (perhaps all) have a sense of national pride
about certain products.
Some industries (such as auto production and steel smelting) are considered benchmarks
in a nation's advancement. These "prestige" industries are sometimes put into production
very early in development as a show of pride to neighbors.
By way of example, Indonesia's attempt at creating a "national car" seemed to analysts as
a bit premature in a country that is primarily agrarian. The move has taken a toll on the
economy, and it's made it difficult for foreign auto manufacturers to market their own wares
here, as the Jakarta government seeks to coddle its infant producer.
Industrial pride isn't restricted to the emerging markets, as can be seen in Great Britain's
intransigence in the face of "mad cow disease" and the effect on its exports. Beyond the
economic loss of destroying thousands of diseased cattle, much time was lost seeking to
assuage the hurt pride of an industry so intrinsic to the country that "John Bull" is a
national symbol. British beef is highly protected by government sanction and is a continual
source of controversy between the United Kingdom and its continental counterparts.
National pride, not dispassionate commercial thought, continues to protect Japan's
farmers, France's vintners, the United States' microchip makers, Brazil's coffee growers,
and virtually everything in China.
NOTE: Marketeers must understand and take advantage of this pride factor when
attempting to enter a market. It can't be eradicated but it can be out-maneuvered. IC
market is completely closed or completely open. A marketeer's job is to find a place to put
"the thin edge of the wedge" that will pry things open.
Absolute and Comparative Advantage
I CAN DO ANYTHING YOU CAN DO
.MAYBE BETTER
An educated and energetic workforce can produce any product if given the raw materials
necessary. Yet most nations buy finished goods and services from each other rather than
the components to produce their own. This is due to the fact that the exporting nation has
an advantage over the importer for a particular product. The exporter may simply do it
better and in greater quantity, as is the case in Vietnam's importation of Danish brewing
equipment for local beer production. Vietnam could produce their own equipment but not
at the same price as Denmark. This is an example of a "comparative advantage." Other
times, as occurs when Sweden imports Indian tea, sometimes a country simply can't
produce a reasonably priced product at all, in this case due to geography, thereby
relinquishing "absolute advantage" to a foreign marketeer.
Absolute advantage can be the result of climatic, educational, or developmental factors but
is usually the result of the economies of scale that the exporter brings to bear. Anyone can
make microprocessor chips if they're willing and able to invest the trillions of yen
necessary, but why not use those resources elsewhere?
Marketeers love to find and exploit absolute advantage, but it's not all that common.
Comparative advantage, on the other hand, is quite common and is at the root of most
international marketing plans. When the United States decided to buy 9mm Italian-made
pistols to supply its military officers, they did so after being convinced by the Beretta
Company that this weapon was better than any U.S.-made product at the same price.
Comparative marketing advantage may take the form of quality, quantity, price, delivery,
warranty, or service and can be maintained as long as the marketeer remains vigilant.
WARNING: Absolute and comparative advantage will get you into a market, but staying
competitive is the only way to survive long-term. The Swedish may never grow tea, but the
Vietnamese can eventually out-brew the Danes.
Coproduction and Trade: Buying Apples with Apples
International marketeers were quick to realize that countries often sell each other the same
products. This is true for automobiles, textiles, shoes, music, foodstuffs, and, in the long-
term, potentially any product. In many ways, this coproduction is the means by which
nations determine comparative advantage as consumers decide which companies
produce the best products for the best price.
As the reader will see in the next chapter, governments (usually at the behest of troubled
producers) often interfere in this "natural selection" process with tariff and trade
restrictions. At this point the reasons but not the reactions to coproduction will be
discussed.
Much coproduction is the result of fine-tuning the demands of consumers (which, as noted
in Chapter 2, is referred to as segmentation). Shrewd marketeers can pinpoint the
demands of consumers right down to the individual buyer or a major sub-group. Hence,
although the United States produced and consumed much of the world's automobile
supply in the 1970s, U.S. consumers were successfully targeted by Japanese
manufacturers during that period as being ripe for market penetration.
The Japanese took advantage of U.S. factories' inability to quickly and cheaply meet the
demand for more fuel-efficient autos in response to OPEC's oil price increases.
The overall U.S. automobile segment was subdivided into luxury, midprice, compact, and
sub-compact, with the Japanese concentrating on the lower end to seize market share. At
first just sold as imports, Japanese cars quickly became a major, if not dominant, feature in
the U.S. car market; eventually, the Japanese built manufacturing plants inside their new
market. Over time, U.S. companies did the same thing in Asia and Europe, while
European manufacturers responded in kind with a concentration on the luxury segment.
Coproduction usually takes place between countries on good political terms and only
involves products that a nation doesn't deem vital to its economic or military security. It
should be stated that the word vital is interpreted against a backdrop of great political
change, as can be seen in many nations' present-day coproduction of military goods.
Culture also plays a big role in deciding which products a nation will reserve for itself, but
this too can change very quickly. In China, for example, the move from Mao suits to
Armani suits was lightning paced. A marketeer should understand that very few markets
are so saturated that another subsegment
Comparative advantage, on the other hand, is quite common and is at the root of most
international marketing plans. When the United States decided to buy 9mm Italian-made
pistols to supply its military officers, they did so after being convinced by the Beretta
Company that this weapon was better than any U.S.-made product at the same price.
Comparative marketing advantage may take the form of quality, quantity, price, delivery,
warranty, or service and can be maintained as long as the marketeer remains vigilant.
WARNING: Absolute and comparative advantage will get you into a market, but staying
competitive is the only way to survive long-term. The Swedish may never grow tea, but the
Vietnamese can eventually out-brew the Danes.
Coproduction and Trade: Buying Apples with Apples
International marketeers were quick to realize that countries often sell each other the same
products. This is true for automobiles, textiles, shoes, music, foodstuffs, and, in the long-
term, potentially any product. In many ways, this coproduction is the means by which
nations determine comparative advantage as consumers decide which companies
produce the best products for the best price.
As the reader will see in the next chapter, governments (usually at the behest of troubled
producers) often interfere in this "natural selection" process with tariff and trade
restrictions. At this point the reasons but not the reactions to coproduction will be
discussed.
Much coproduction is the result of fine-tuning the demands of consumers (which, as noted
in Chapter 2, is referred to as segmentation). Shrewd marketeers can pinpoint the
demands of consumers right down to the individual buyer or a major sub-group. Hence,
although the United States produced and consumed much of the world's automobile
supply in the 1970s, U.S. consumers were successfully targeted by Japanese
manufacturers during that period as being ripe for market penetration.
The Japanese took advantage of U.S. factories' inability to quickly and cheaply meet the
demand for more fuel-efficient autos in response to OPEC's oil price increases.
The overall U.S. automobile segment was subdivided into luxury, midprice, compact, and
sub-compact, with the Japanese concentrating on the lower end to seize market share. At
first just sold as imports, Japanese cars quickly became a major, if not dominant, feature in
the U.S. car market; eventually, the Japanese built manufacturing plants inside their new
market. Over time, U.S. companies did the same thing in Asia and Europe, while
European manufacturers responded in kind with a concentration on the luxury segment.
Coproduction usually takes place between countries on good political terms and only
involves products that a nation doesn't deem vital to its economic or military security. It
should be stated that the word vital is interpreted against a backdrop of great political
change, as can be seen in many nations' present-day coproduction of military goods.
Culture also plays a big role in deciding which products a nation will reserve for itself, but
this too can change very quickly. In China, for example, the move from Mao suits to
Armani suits was lightning paced. A marketeer should understand that very few markets
are so saturated that another subsegment can't be exploited, nor does any market remain
closed forever.
Trade Among Nations: Out of Balance, Out of Sorts
The choice of which products to market abroad will depend a great deal on how your own
nation views its trading partners and how those partners see themselves in relation to your
domestic market. Understanding the "balance of trade" will not only affect your ability to
penetrate a market but determine the long-term viability of your goods or services in the
targeted segment.
Some nations buy more from foreign countries than they sell, some sell more than they
buy from abroad, and a rare few have roughly equal amounts in each category. The United
States regularly runs overall "trade deficits" (buys more) with its partners while its major
rival and trading partner, Japan, continually has
"trade surpluses" (sells more) when matching exports to imports of goods and services.
The disparity between the two largest economies dispels the notion that deficits are always
bad and that surpluses are necessarily good.
The United States spurs its economic growth via internal consumption and is the foremost
"consumer societv" in the world, with its citizens having a very small rate of savings (less
than 15 percent) and a high rate of spending. Japan takes the opposite tack, preferring to
maintain its markets with exports and downplaying consumerism (at least compared to the
United States). Japanese citizens regularly bank upwards of 30 percent of their income.
Because of this differing approach to foreign products, most of the world's marketeers,
especially the Japanese, head straight for the U.S. market because of its ease of entry and
consumer potential.
Japan, meanwhile, continues to protect its producers with formal restrictions and informal
distribution controls, although it has become somewhat more attractive to foreign firms as
these restrictions have subsided. Additionally, while Japan's per capita income is slightly
higher than the United States', the internal purchasing power of its currency is
considerably less. Which market has the greatest long-term potential when viewed by a
foreign firm? It should be clear that the respective governments of the two countries have
made themselves extremely attractive to foreign marketeers through differing
methodologies.
CHAPITRE 5

MARKETEERS MUST UNDERSTAND that the world's markets are overseen by

governments,
and even "free" markets are subject to considerable legislation. Ideally, those governments
set policies based on what they believe will serve the greatest number of their people to
the greatest extent. Trade and its regulation are a source of tax income for governments,
which also recognize that physical security is tied very closely to economic security. Not
only does a strong economy generate funds for military expenditures but it also, via
international trade, creates a bond of codependency that strengthens every nation through
alliance. It's clear from history that trading partners often become military allies in times of
trouble. It's equally clear from history that economic benefits that can't be won at the
conference table are often decided on the battlefield.
Marketeers must understand both the role of governments in trade and the
motivation for that role.
Sovereignty, Prestige and Security: Our Market, Our Rules
The maintenance of national borders is the single-most-important element that separates
international trade from domestic trade. Geography aside, no country applies the same
level of restriction within its borders as it does when dealing with its neighbors. The ability
to maintain, protect, and restrict entry across (or exit from) national borders isn't merely
symbolic; it's a legal requirement of a nation's sovereignty. Failure to do so leaves it open
to claims that it's not a country at all and is therefore subject to control by other parties.
Some countries have very tight control of their borders (Russia, China), making them
military and commercial checkpoints. Others (Canada, the United States) take a far less
stringent approach to the movement of people and products across their borders. The
former examples believe themselves to be in great danger from foreign intervention, while
the latter exhibit an almost recklessly open approach to foreigners. The difference in
approach has a great deal to do with each country's view of their international prestige.
Countries at the top of the economic heap tend to flaunt openness as a challenge to would
be opponents. Lesser economies seek to protect every possible area of vulnerability by
keeping foreign traders at bay.
The formation of the European Union (EU) has essentially consolidated many smaller,
weaker economies with a few strong nations to form a larger "country" with a new
centralized government. This new entity has free-flowing internal state borders and a
restricted periphery facing nonunion members. Beyond simply forming a trading bloc
similar to NAFTA (Mexico, Canada, United States), the EU has formed an entirely new
entity out of dozens of separate (and formerly sovereign) economies that will eventually
(they hope) have a single currency.
Snidely nicknamed "The United States of Europe," it was formed solely to advance its
membership's ability to compete in international trade, as the commercial wellbeing of
almost 500 million people was at stake. Political sovereignty issues within the EU may be
disputed for some time to come.
Populations always hold their governments responsible for the overall economic prosperity
of a nation. So great is this responsibility that most
revolutions have economic dissatistaction at their base. Governments, in their turn, set
customs duties and other cross-border trade restrictions based on their understanding of
domestic and international markets, as well as on their ability to control currency flows.
While there's little disagreement as to the general movement toward "market economies"
throughout the world, each country has its own take on the philosophy.
Each nation's approach to their domestic and foreign markets is dictated by its requirement
for border sovereignty, the belief in its own prestige, and a need to secure its physical and
economic well-being. Marketeers must respect each government's individual responsibility
to its people, both from a legalistic (their country, their rules) and a commercial angle (their
demand, my supply).
NOTE: While no government is perfect, some do a better job than others of promoting
international trade. Individual marketeers will waste a great deal of time and energy on
a moral crusade, attempting to change a governments view on a particular trade topic.
Let the big corporations and trade organizations handle these problems. Your job is to
find out where vour product fits into the current scheme and to exploit that segment.
Host Government Trade Barriers: You Can't Do That Here
The host government of your target market can throw up a vast number of roadblocks to
your success-some of them quite arbitrary in appearance. Here
are some government-formulated obstructions to look out for when researching a new
foreign market.
TARIFFS
Import tariffs are the means by which a government, in the form of a customs office,
controls the in-flow of foreign goods across its borders. It's a form of taxation and a source
of revenue for the state. Rather than banning a certain product outright or letting it
outcompete local producers, a nation makes its import prohibitively expensive, thus
eliminating widespread acceptance. All nations have a sliding scale of tariffs for various
categories of products and trading partners, with its "normal" rates often being referred to
as Most-Favored-Nation (MFN) status. Imports from foreign countries held in disfavor pay
in multiples of MN rates proportional to that disfavor. Many emerging markets have rather
arbitrary tariff rates, which they blame on the fluid nature of their economic development.
Tariffs are subject to much political influence and favoritism. This aspect must be
calculated into the total pricing portion of a marketing plan.
INSPECTIONS
No one disputes a government's right and duty to protect its citizens' healch and welfare.
This is certainly the case with foodstuffs, medical equipment, and farm animals. However,
some inspections are performed with an eye toward delaying your product from reaching
the marketplace. This can be a very important factor when it comes to perishable goods or
those that are particularly time sensitive (e.g., publications). By slowing down the import
process, governments protect their home producers without actually having a formal trade
restriction. This tactic, like other nontariff barriers, is usually put into practice by economies
seeking to diminish domestic consumption levels of foreign products until homegrown
producers feel the playing field is level.
IMPORT LICENSING
Like inspections, import licensing is a legitimate function of government, whereby the
product must be formally licensed by the importer's government and a fee paid by the
importer. Where inspections control the product quality, licensing is used to control those
involved on both sides of the transaction. It's a process subject to arbitrary rulings, and
licenses are withheld (or "reconsidered") at the first sign of disgruntlement by local
producers or bureaucrats. When used as a barrier, the granting of licenses is such an
expensive and potentially corrupt practice that some goods in great demand end up being
smuggled.
DISTRIBUTION
Distribution will be considered at length in Chapter 10 but warrants some consideration
here. In a larger sense, distribution is every aspect of the network that exists between the
original seller and the end-user. Many marketeers have found that all of their plans came
to naught simply because local governments placed inordinate restrictions on distribution
or because local distributors are inefficient. Often, the distribution layers are so thick that
consumers can't afford the product once it has passed through the sundry middlemen and
their add-on charges. Many international marketeers have found this to be a common
problem in Asia, especially in highly developed Japan.
ENVIRONMENTAL CONTROLS
Increasingly, governments are protecting the environment within their borders, and much
of that control takes place at those borders. Restrictions on packaging (amount, size,
recyclability), product content labeling (chemical proportions), and pollution controls can be
placed on foreign exporters before licensing will be granted. While every country has
environmental standards, strictness is in direct proportion to wealth. Advanced economies
(like Great Britain and Germany) are famous for their concern about their domestic well-
being, as much of their
environments were polluted by their former industrial emphasis.
Their
environmental "impact studies" and "green" product packaging requirements can drive a
product from market as easily as bad pricing. Research and preparation are the keys to
avoiding this problem, which often occurs after a product is in the marketplace, when
lawsuits are filed by environmental activists. Emerging economies, eager to attract
investment, are far more lax, but "environmental colonialism" is fast becoming a rallying
cry in the developing world.
TECHNOLOGY TRANSFERS
A target company can insist that any joint venture, product importation or manufacture
under license with a foreign marketeer must ultimately involve a transfer of technology
(physical, process design, managerial, or otherwise). It's a way to "catch up" with
competitors without expensive research or investment.
Most developing markets insist on technology transfers if a product is to be sold within
their national boundaries. There may be a "grace period" of several years while the
transfer takes place. These same markets have the least stringent patent and copyright
protection so theft or domestication is inevitable.
NOTE: Coca Cola's refusal to reveal its recipe to its local partner in India kept che
beverage giant barred from that gigantic market for many years. As is true of business
travel, if you can't afford to lose it, don't bring it with you.
CUSTOMS DELAYS
Even once a product is licensed it can be held at customs without a stated cause for
extended periods. Software, music and videos are usually a target of this practice, and you
can rest assured that illegal copying is rampant. Customs may also hold perishables for
the purpose of bribery or to protect local markets. The only way to combat this is to solicit
the involvement of embassy personnel in advance of the importation.
LOCAL PARTNERSHIPS
It's not unusual for a government to require the use of a local partner to represent your
product or to "invest" in your business. At times, the local is declared to be the majority
partner, regardless of the size of their investment. By mandating that a local receive a
piece of the action, the government maintains local control of the business and hopes to
gain a management education for its population as a form of technology transter. Part of a
solid marketing plan in such an environment requires the studied selection of the right
partner. Keep in mind that in some countries (Indonesia, China, Vietnam), the government
will assign a partner for certain industries.
LOCAL CONTENT REQUIREMENTS
If your plans include the construction or purchase of manufacturing plants overseas, you'll
find that most governments require that you use some local companies as parts suppliers.
No matter how efficient it may be for your business, you will not be allowed to simply
import all the parts from your headquarters. While this requirement can be planned for,
little can be done if local suppliers raise prices.
This can occur when they're ready to push you out of the market and take over your
facility, so vigilance and good government connections are required.
CONTRACT LANGUAGE
Contracts with foreign firms are typically binding in the dialect of the locality in which the
contract will be executed. (Although you may have signed a translation as well, it's
meaningless and unenforceable.) Before you sign anything make sure your own
translators have gone through the document thoroughly. From one end of the economic
scale to the other, local courts favor local businesses.
QUARANTINE
This process applies mostly to goods (such as live animals or foodstuffs) that are
suspected of carrying disease or infestation. The goods are held at a controlled location
until inspectors can determine whether they pose a health threat.
Although the word quarantine literally means "40 days," there's no set time limit for the
holding process on an international level. Some countries may use the quarantine process
to hold materials they believe have deleterious cultural ramifications. Books, movies,
tapes, periodicals, and CDs are some notable targets, with religious fundamentalist and
politically isolated nations being the most regular practitioners of such quarantines.
QUOTAS
An import quota is a non-tariff barrier imposed by a government to restrict the quantity of
imports it will take from certain national markets or exporters. It is also a means of keeping
all of its trading partners happy. For instance, Government A will allot 20 percent of its
entire importation of a product to each of five trading partners. This process can also be
used to protect local producers from foreign trading practices (lower the quota of the most
competitive exporter) or as a punishment for political problems between rival powers
(lower or eliminate an entire nation's quota). Even the best marketeers can expect to suffer
if their home government conflicts with the host ofticials
NOTE: Poor economies see absolutely no advantage in granting foreign companies the
same trading rights they're reserving for themselves. Marketeers from these foreign
markets must realize that the quotas set by their home governments can be used as a
countermeasure to pry open a target foreign market. Having good political connections at
home is as important as havine them abroad.
ANTI-DUMPING LAWS
These laws were instituted to prevent foreigners from selling products at extremely low
prices into a market to drive out competition. This is called
"dumping." Local competitors are the first to cry "foul," hoping to tie up a foreign firm in
court, and the tactic usually works quite effectively. Only countries with sophisticated
commercial law can use this type of legislation. The remainder resort to any and all of the
tactics listed above to protect market share.
WARNING: It's surprisingly easy to prove "dumping," due to the widespread access to
trade information. Your overseas competitors are well aware of what it costs you to
produce and distribute a product. Selling "under cost" is a dangerous tactic in an
information society.
Home Government Intervention: You Can't Do That There
It's rare for a country to attempt to stop its local companies from exporting.
Even when they permit a steady outtlow, governments maintain oversight and taxing
rights. Marketeers, however, may have just as difficult a time handling their own
government as they will the overseas variety. As is true of import laws. not all export
requirements are written down in all countries and are therefore subject to "negotiation"
and arbitrary enforcement. Research and good governmental relations are keys to keeping
your product in the export pipeline.
EMBARGO
While there's much debate as to whether embargoes accomplish their political goals,
there's little doubt that they have a disastrous effect on exporters. Blockade running is
rarely part of anyone's marketing plan and long-term risk is high. Some (like the U.S.
embargo of Cuba) are ignored after several years while others (the U.N. embargo of Iraq)
are more stringently, though not completely, enforced.
NOTE: Marketeers must be aware of the political environment they work in and be
prepared to calculate, as well as manage, risk.
NATIONAL SECURITY ISSUES
Some goods are considered too strategic militarily and economically to be freely marketed
to other nations, regardless of the profit potential. 'These may include nuclear materials,
strategic minerals, chemicals, computer chips, technical manuals, or military surplus.
Countries that have these restrictions delineate them quite clearly, and violation is a
criminal offense.
EXPORT TARIFFS
Governments tax exports primarily as a source of revenue and use the process as a
means of promoting or punishing particular industries. These tariffs are, like import duties,
a means of controlling flow and controlling businesses. Export duties can be highly
negotiable in some countries and should be thoroughly investigated during the market
planning stage. Many countries have set up export processing zones for foreign
manufacturers, so that goods produced domestically for export will not be tariffed. These
zones promote investment and job creation while protecting domestic manufacturers from
direct competition.
EXPORT LICENSING
Like export tariffs, licensing is a flow control. It's often used as a means of denying a rival
economy access to both raw and finished products without instituting a full embargo. Keep
your eyes open and avoid political crossfire.
ANTI-REROUTING MEASURES
When embargoes and quotas are in place, exporters often try to reroute their products
through less controversial areas and have the "country of origin" changed in the
paperwork. Getting caught practicing this tactic can get an exporter in serious trouble with
his home government.
JOB PROTECTION SENTIMENTS
Governments will often clamp down on their exporters when they detect that the products
being exported will result in job losses for the domestic market.
Heavy machinery and high-tech manufacturing equipment can be targeted. If export tariffs
on your products don't exceed the gain from taxes derived from the potentially lost jobs,
expect government intervention.
Formal and Informal Restrictions: Protecting Prosperity
Discussed above are the very formal and, for the most part, straightforward means by
which governments control the marketing of their domestic producers, as well as that of
foreign companies. Beyond these codified restrictions, there are a host of constraints--
neither codified nor necessarily government enforced- that can affect the marketing of your
product in foreign lands. These informal barriers (listed below) are more difficult to detect
and, in many cases, harder to overcome than their more official counterparts.
PUBLIC RELATIONS
The number of public relations fiascoes committed by international companies is large,
legendary, and the subject of several books. From poorly translated brand names to the
lack of locally hired management personnel, bad public relations (and even worse, press
relations) can sidetrack the best of products. Often these public relations disasters are
engineered (or at least exacerbated) by market competitors, who make appeals to some or
all of the other issues listed in this section.
NATIONALISTIC
Competitors, host government officials, and political activists are not beyond raising the cry
that your marketing efforts are "bad for the nation," that they threaten its continued survival
or strength. This barrier was used to restrict Australian wines in France, British movies in
Argentina, and virtually any major Japanese product in the United States during the 1980s.
It's a very powerful force and a difficult one to control.
RELIGIOUS
Religion plays a greater factor in business every year, with much of it centering around
Islamic beliefs regarding profit taking and interest rates. However, many Christian
fundamentalist groups have flexed their muscles as of late (e.g., the Disney boycott), with
marked results. Because religion carries such an emotional impact, pure reasoning and
factual presentation will do little to get your product
back on track
ETHNIC
As can readily be seen in Bosnia or Burundi, ethnic conflicts that are centuries old still burn
hot. Belief that your product is ethnically dangerous or inferior can stymie your marketing
efforts whether the accusations are true or not. Nestlé faced cries of racism over its sales
of baby formula in Africa while many of the marketing problems faced by the makers of the
Yugo were based on the fact that few people believed the Yugoslavians were capable of
building a proper automobile.
Overcoming ethnic stereotypes takes years of work and enormous amounts of money.
SOCIETAL
Some societies have a structure that simply will not accept certain products-at least right
away. It may be a matter of taste (light beer in Germany) or social restriction ("adult"
movies in Iran). Marketeers must often approach a market several times before they're
permitted entry. Some industries are bound by edict not to promote foreign products.
Canada's radio broadcasters, for example, are required by law to limit the playing of
foreign-produced music as a means to
promote Canadian culture.
SCIENTIFIC
Product lines that are radically innovative may have a difficult time overcoming the
skepticism of the target market. Medicines, therapies, business software, securities, and
the like suffer intense scrutiny (mostly justified) when entering foreign markets. It's best to
assemble your proof beforehand and tailor its delivery to the target market.
ETHICAL
"End Apartheid" and "Remember Tiananmen Square" were both used as rallying cries to
affect the marketing and profit generation of many products from South Africa and China
as well as from companies that traded with them.
Although both eventually resulted in some formal legislation, the ethical
considerations started as grassroots. informal restrictions
WARNING: It's a series of quick leaps from ethical concerns to political rancor to restrictive
legislation. If a marketeer waits to take action at the end of the process, it may
be too late.
ENVIRONMENTAL
Water pollution, endangered species, and alleged man-made global warming are very
emotional concerns of very vocal groups, who often look for international companies to
pillory. They are well-organized and zealous. If your product has any potential ill effect on
the environment, you can expect major market resistance, even without restrictive
legislation, once such effects are brought to light. Environmental action groups enlist
anyone they can in their effort and are unabashed when it comes to emotionalizing an
issue.
NOTE: Nine-year-olds wearing "Save the Dolphins"
buttons did as much to reform
tuna fisheries (and affect buying habits) as any law. Beware, and be aware of, self-
righteous consumers. They carry their wallets next to their hearts.
EDUCATIONAL
Sometimes the greatest informal barrier is the educational level of large sectors of the
target market's population. Massive sections of the globe are still illiterate and many more
are innumerate. It's not unusual for a controlling government to wish the situation to remain
in stasis. Even when educational levels aren't this low, many products, from cars to
computers, have their own particular "learning curve." Training must be part of your
marketing plan when educational levels are key to a product's acceptance.
Trading Blocs: The Invisible Handcuff
In the last few decades, nations have bound themselves together in non-military regional
alliances that are designed (at least ostensibly) to promote trade.
However, those that join such trading blocs have recognized the interdependence of trade
among their immediate neighbors and use the blocs to prevent outside marketeers from
having regional free-flow. Blocs essentially restrain foreign traders from assailing the
weaker members by protecting them with numerical strength. Deal with one, deal with all.
Unlike Adam Smith's famous natural market forces, which act as the "invisible hand" to
move all markets to eventual equilibrium, blocs work as regional handcuffs to control and
sometimes eliminate
trade in certain products.
International marketeers need to be aware of the membership and goals of such trading
blocs, so that their plans can be tailored not just to a single country but perhaps to an
entire region. Listed below are some of the major trade
orsanizacions
APEC (Asia-Pacific Economic Cooperation)
ASEAN (Association of Southeast Asian Nations)
NAFTA (North American Free Trade Agreement)
MERCOSUR (Argentina, Brazil, Paraguay, Uruguay, Chile, Bolivia)
FTAA (Free Trade Area of the Americas)
OPEC (Organization of Petroleum Exporting Countries)
EU (European Union)
SAARC (South Asian Association for Regional Cooperation)
SAPTA (South Asian Pacific Trade Association)
CIS (Congress of Independent States)
AFTA (ASEAN Free Trade Association)
The WTO and International Intervention: One World, One Court
One of the most influential international governmental bodies to affect marketing has been
the World Trade Organization. As an outgrowth of the General Agreement on Tariffs and
Trade (GATT), the WTO and its enforcement arm, the World Court, have been set up as
an oversight body to rule on international trade disputes. Countries and companies
accused of unfair trading practices can be brought before the court for trial and potential
punishment (usually fines).
Membership in the WTO isn't open to every nation, as there are certain guidelines that
must be met prior to acceptance. The greatest benefit is the low (if any) tariffs on trade
among association members. The goal of the organization is the eventual removal of all
import/export tariffs. The membership and their companies must also conform to Generally
Accepted Accounting Principles (GAAP) as laid out by the WTO, so that each nation's
"books" may be accurately compared with those of other members. Many countries have
been denied membership over this issue, as it greatly affects the valuation of national
assets.
The effect on marketeers is that they can no longer just be concerned with local court
rulings in the targeted markets (though such courts usually have little enforcement
capability over foreign nationals). The stakes are much higher nowadays and the WTO
has a very wide reach. Market or membership banning is a possibility for egregious
violators, and business deals can easily become international political problems (as
happened with France's Total oil venture in Iran). Commerce usually comes out on the
short end when politicians become involved; marketeers are forewarned to steer clear of
WTO violations. The organization is still nascent, so it's best to keep current with their
rulings and legislation.
Overseas Risk Management: Read The Map and Heed It

Marketing abroad can be a very risky pursuit as the legal landscape in some countries is
extremely fluid. Laws are sometimes uncodified and even when they
are, interpretation can be arbitrary. Governments certainly have the right, and in many
cases the duty, to intervene in businesses or trade being conducted by foreign nationals.
However, there are some other governmental activities that go beyond the law (or at least
blur it) for which the international marketeer must be prepared.
DOMESTICATION
Entering a new market with a new product can often perplex local authorities who, not
seeing the potential, may initially grant a marketeer carte blanche to operate. Success
does attract attention, so it's not unusual, especially in the emerging markets, for
successful foreign companies to suddenly discover that they have a new partner. The
partner may know absolutely nothing about your business and may bring nothing in the
way of investment. Regardless, the government may insist that as much as 51 percent of
the company be put under
the control of the new associate or that the associate at least be given veto power
over company decisions.
It can be the result of government greed, pressure by competitors who feel you were given
a "sweetheart" deal, or sudden xenophobia with accompanying fears of exploitation.
Multimillion dollar projects can be forced into renegotiation well after a project has been
active, as happened to the Enron hydroelectric project in India; antiforeigner sentiments
forced the American company to shut down construction while the deal was restructured to
favor local partners. Local governments usually wait until a company is too committed to
walk away before using the domestication ploy.
TAXATION
Governments of all sizes and economic standings view business as a source of tax
revenue. Unlike the tactic of domestication, taxation allows the government to receive a
portion of a foreign company's operation directly, without the sham of a proxy. Some
authorities lure foreign businesses with initially low tax rates or
"grace periods," with the full intention that once the company has been committed and is
operating successfully, tax rates will soar almost to the point of being confiscatory.
EXPROPRIATION
During periods of extreme political stress or due to inordinate levels of greed, governments
will take over a foreign company outright. The former motivation still occurs quite regularly
in war-torn countries (such as those in eastern Europe or central Africa). The potential is
always there for any company operating in foreign territory, war-torn or not, when internal
or international political tempers rise. The latter cause for expropriation has rarely been
seen since the early 1980s and has been usurped by the somewhat more subtle
domestication
SPONSORED COMPETITION
Like domestication, sponsored competition puts a favored local company or person under
a government aegis. These "competitors" are given substantial financial and distribution
aid in the hope that they'll unseat the foreign firm that first brought the product to market.
Often, these sponsorships are further aided by technology transfers that were mandated
by the government as part of allowing the foreign company to operate within its borders.
Transfers are handed over directly to local companies that will exploit them without paying
fees or royalties.
In a variation on this tactic, local partners have also been known to siphon off funds and
materials from a joint venture with a foreign firm, in order to set up a competing company.
Local government officials then turn a deaf ear to the complaints or lawsuits brought by the
foreigners.
BRIBERY
Government officials seeking bribes from foreign firms is a worldwide problem.
It can take the form of a storefront shakedown by the local police, special
"processing fees" by customs officials, or "requests" for campaign donations for incumbent
politicians. Bribery in some economies becomes the grease that makes the wheels of
commerce turn more easily. Anyone engaged in international
marketing must be prepared to deal with both the seemly and unseemly versions of such
requests.
RISK MANAGEMENT
In all of the cases stated above, marketeers have to learn how to manage risk.
The first step is recognizing potential risk through proper pre-entry research (Chapter 8).
Once the level of risk has been determined in a particular market (it exists to some degree
in all markets), the best possible preventative is engendering and maintaining good
"relations" with the pertinent government officials.
Marketeers should realize that realpolitik can become machtpolitik very quickly if a foreign
company falls into disfavor with a host government. Risk management is an ongoing
process and requires eternal vigilance.

CHAPITRE 6

THE MOST IMPORTANT factor in determining whether your product, be it goods or

services,
is compatible with a particular market is the proper and thorough understanding of the
target culture. Cultures can be painted with very broad strokes or minutely dissected. The
more layers that are peeled away, the greater the market segmentation available. It's truly
a case in which knowledge is power--marketing power. Because this book deals with
international marketing, "culture" will be viewed as the total pattern of human behavior
embodied in a nation-state and its internal subdivisions.
Language: The Importance of Communication
VERBAL
Most of the world's national boundaries are set along linguistic perimeters.
Often, these perimeters have a physical form a mountain range, a river, an ocean) that
permitted the language to develop in solitude and kept it separate from neighboring
tongues. Once travel over those boundaries became possible and desirable, so did trade,
and the first marketing problem was confronted almost immediatelv: communication.
A loaf of bread may be pan, bahn mi, brot, or mianbao depending on where one travels.
Once the name is settled upon, trying to trade for a loaf of bread brings on a whole host of
other problems and nomenclature. Establishing a common value for goods is best served
by speaking a common language. Though pointing and pantomiming may work when
exchanging milk for bread in the short run, modern marketeers have neither the time nor
the inclination for such activity.
While English has become a default language for doing global business, it's just that-
something used in the absence of a better tool. Wise marketeers learned early on in their
careers that speaking the local language, to some degree, gave them a marked advantage
over less polyglot competitors and provided genuine insight into their target market.
Besides enabling the foreign businessperson to present products and establish value,
language opens the door to the interior of the target culture. First-hand assessment of all
the motivational factors present (including those that trigger purchases) in any given
society can only come about after the language has been mastered
Social interaction can take place on a more intimate level (once translators are taken out
of the loop), and foreign marketeers can be introduced to all of the nuances that make up
a social fabric. Festivals, parties, art, literature, music, and even food take on greater
meaning and, most importantly for our purposes, marketing significance. For some nations
(e.g., France, China, Brazil,) language is seen as the essence of the culture without which
no other aspect of that culture can be truly understood. This is true to a large degree for all
cultures.
A great deal about interpersonal relationships is revealed by language. For instance,
egalitarian cultures like the United States make no linguistic distinction between intimate
and formal relationships in matters of address. You are you, whether I've known you for
five minutes or five decades. In Spanish, the formal usted is used until familiarity permits
the use of tu. The rule in French and German is equally stringent. This speaks volumes
about these four societies and about how they'll accept strangers--or their products. Asian
languages reveal similar relationship undertones with their vast number of honorifics
involving extensive reference to gender, age, family relationship, and rank ("esteemed
older sister,"
"number one son"
Names are, of course, important in every language and for marketeers, brand names are
paramount (see Chapter 9). Arriving in a new market with a great new product that's
saddled with a bad brand name could spell disaster. Even established international
companies have problems with their names: Siemens is rarely spelled correctly anywhere
but Germany, and few people in east Asia can pronounce Nestlé properly, nor can
Westerners pronounce Hyundai.
Understanding the importance of language was surely key in naming the Bic Pen.
Luckily its inventor, Mr. Bich, had some savvy marketeers.
PHYSICAL
Gestures, carriage, proximity of speakers, eye contact, and smiling all play key roles in a
culture's use of language. Like the words themselves, the physical aspects of
communication all play a big part in negotiations and advertising for an international
marketeer. What passes for acceptable movements in one culture may be considered
uncouth in another or even overtures to physical violence.
GESTURES Cultures around the globe have gained the reputation for "speaking with their
hands" as well as their tongues. These gestures may emphasize particular points of the
conversation as well as show the emotional intensity of the speaker. And the same
gestures often have different meanings within different cultures. In France, for example,
the shoulder shrug expresses a lack of interest in or disgust with the subject matter at
hand. That same gesture in the United States means the person doesn't understand or
has no comment. In China, a shoulder shrug is almost never seen as a linguistic nuance
and is considered a form of chiropractic therapy. Finger pointing is another gesture
common to many cultures and spurned by others. In France, the gesture is emphatic and
the digit is often poked into the chest of the opposing speaker or alternately pointed
skyward in an allusion to high-mindedness. In the United States, finger pointing is either a
beckoning or the prelude to an accusation. In China, as in most of Asia, it's considered the
height of rudeness, as people rarely wish to be singled out in public.
CARRIAGE Marketeers (like everyone else) will be judged by their posture when
negotiating or selling, as "carriage" is a physical representation of a person's self-esteem.
Carriage also plays a large role in product advertising if the depiction of consumers is
involved. As with gestures, carriage may be interpreted differently by different cultures. A
casually dressed, unshaven male slumped in a chair may indicate a Silicon Valley
millionaire programmer in the United States or a top-flight artist in France. In China, that
same carriage means poverty and spiritual disharmony. Marketeers are "on" all the time
when they're working overseas. It's best to present an image that's most favorable to the
target market.
PROXIMITY Each culture has its own rules about "personal space."
Understanding that space is essential to a full understanding of a culture. Russians, for
instance, are an outgoing people who tend to stand very close to business counterparts,
often touching them lightly during conversations and exchanging hugs during greetings.
The Japanese are far more reserved; they keep business conversations quite formal and
counterparts at some distance. Argentinians begin with very formal and distant posturing
but quickly warm, reducing distance as the conversation (or negotiation) progresses. The
Russians will be offended if you're standoffish, the Japanese will go into shock if you hug
them, and the Argentinians will think you presumptuous if you're too informal at first.
NOTE: Marketeers must be able to change styles as easily as they change time zones if
they wish to compete internationally. Betore a market accepts your product, they have to
accept you.
EYE CONTACT Eye contact, or the lack thereof, can greatly affect a marketing effort when
face-to-face meetings are involved. In advertising as well, the eyes of the pictured subject,
and where those eyes look, can make or break a product.
(One reason the Marlboro Man is so universally recognized is that diverse cultures all read
positive, but different, messages into the cowboy's distant stare. Some see serenity, others
ambition, and still others independence.) In some cultures,
"looking someone in the eye" is a sign of honesty and disclosure; in others, it may provoke
a fight or be interpreted as an invitation for intimate relations. Steady, direct eye contact
early in a relationship (business or otherwise) is considered disrespecttul in many cultures,
especially when elders are involved
NOTE: "Looking" and "seeing" are separate functions when conversing. Often, vou'll be
shown more by not looking.
SMILING Businesspeople from the United States are always being derided for their
constant smiling and cheery faces, while the Japanese have been saddled with the image
of frowning inscrutability. The former aren't universally chipper, nor are the latter solidly
glum. Smiles are an expression of business and cultural traditions. Americans, who have
had great success with few setbacks, believe that work should be fun. The equally
successful Japanese, having brought their nation back from near destruction, see
business as a very serious matter.
LESSON: Products advertised with smiling faces or humor may produce the wrong
reaction in the targeted market. Every culture has specitic topics that it feels warrant a
serious tone
TRANSLATION
Marketeers can't master every language needed to operate on the international scene; at
some time or another, they'll have to use translators. This will be a key issue during
negotiations. (Greater detail on this topic can be found in a related text, International
Negotiating, World Trade Press, 2009). Here are a few tips for choosing the right translator
and for handling translated materials.
Translators should either be natives of or highly experienced in the target market.
They must act as both cultural and linguistic interpreters and can be essential in filling in
the gaps of your cultural research.
During negotiations, hire your own translators rather than using those supplied by
counterparts. You have to be able to trust the translators' insights and recommendations
above and beyond their actual translations.
Brief translators thoroughly on your marketing goals and any technical terms necessary for
getting your points across. Translators are an extension of your marketing plan and must
be well-informed.
All written materials (letters, faxes, emails, business cards, presentation charts) and
advertising collateral should be translated and then reviewed by a native speaker other
than the original translator. Poorly translated materials can cause irreparable harm to your
marketing effort--by making it appear sloppy or by insulting your target market.
A FINAL NOTE ON LANGUAGE: Every culture appreciates an attempt to learn some of
their language. Even when a counterpart speaks vour language well, vou (as a smart
marketeer) should learn a few phrases of a counterpart's language to emphasize your
interest in the culture. Don't worry about making a few mistakes. All the current trade
"experts" have made lots of them.
Local Customs: Faux Pas, Vrai Pas (False Step, True Step)
Long ago, successful marketing people saw the close connection between custom and
customers: The way to turn people into customers is to make your product part of their
customary actions. Sometimes whole industries are created around a custom (Halloween
costumes) and at other times, customs are created around a product (Valentine's Day
cards). In both cases, marketeers took advantage of the basic human need for ritual.
Cultures distinguish themselves by their rituals, even when they share a common
language. By no stretch of the imagination would anyone believe that a product that was
successful in Spain would automatically be a hit in Mexico. The markets are as distinct as
Germany and Italy.
Gathering knowledge about local custom is best done up close and first hand.
(More about research will be discussed in Chapter 8.) Getting "on the ground" information
is well worth the cost that it may entail. If your first trip to a new country is for the purpose
of selling a product rather than investigating the potential to sell one, you may be
disappointed. Unless you arrive with the cure for cancer, your chances of success are
quite minimal. You have to learn how, why, and when the target market goes about its
business in order to make your product fit.
Traditional holidays, vacation periods, mythology, work schedules, use of color, purchase
decision makers, gender roles, standard buying patterns, age demographics, views on
foreign merchandise, and family structure all dictate to some degree how goods and
services are consumed. Marketeers must also be informed about customary behaviors, as
such knowledge will be vital during negotiations. Understanding the motivations of
counterparts when cutting a deal may well be the key factor in a successful contract
negotiation. Knowing when to bow, shake hands, or make a toast may not change the
quality of your product, but it will keep you on good terms with
the marketplace until you have a chance to sell.
EXAMPLE: When first-hand information would have helped: "Nine Lives Cat Food"
has never sold well in Hispanic cultures. They believe their cats have only seven lives!
History: Bearing the Burdens of the Past
Every country and culture, whether it's as ancient as India or as young as the Czech
Republic, has a history that will greatly affect both the market and the marketeer. A market
that has been heavily exploited in the past by foreigners (or even colonized) will turn a
predictably skeptical eye toward any overseas company seeking new sales territory. It may
even refuse products that could greatly benefit the society. Understanding that history will
enable a marketeer to approach the culture in a more subtle manner, and it will certainly
cause an adjustment of schedule. On the other end of the spectrum, a culture that has
been marked by independence for some time will have few fears of foreign operations and
may find the subtle approach far too lackluster and slow.
Marketeers may bring their own burdens to the process and should take care to separate
themselves, at least emotionally, from their personal and cultural history.
Oftentimes, this includes racial prejudices that are difficult to shake, earlier political
disagreements that have never been fully settled, or old, unhealed war wounds.
Let's look at the race issue first. Companies with Caucasian marketing personnel returning
to postapartheid South Africa are generally plagued with a feeling that they "owe"
something to the new black majority government. It's a completely self-generated debt as
the government is, in reality, overjoyed that investment has returned after the long
embargo. However, this joy doesn't prevent South African companies from taking
advantage of their counterparts' guilt feelings when it's time to cut a deal.
On the political front, the relationship between Vietnam and the United States is a prime
example of two sets of marketeers misinterpreting each other's history and culture when it
came time to do business. Following in the wake of the bloody two-decade war that ended
in 1975, the United States and Vietnam finally reopened trade in 1994. The Vietnamese
assumed that the American business community would heap investment on them to make
up for past wrongs, while the Americans thought they would be welcomed as the saviors of
Vietnam's floundering economy. Most of America's marketeers sent to Vietnam were small
children during the war, and the conflict had little bearing on their lives. Vietnam's decision
makers, on the other hand were primarily veterans of the conflict and saw it as the key
element of the relationship. Neither side paid attention to the other's view of history and the
results were decidedly disappointing for almost
veronen
LESSON: Marketing success and failure are much like history. 'They keep repeating
themselves.
Education: Getting the Market Ready for Your Product
Certain goods and services require that the end-user has attained a specific level of
education. One of the factors that continues to perplex (especially those marketeers from
Western, developed economies) is that so many countries place restrictions on who and
how many people can be educated. In some cases, it runs along gender lines, with women
receiving little more than basic reading, writing, and math skills; many orthodox Islamic
and Confucian countries follow this path.
Other nations distribute education via a class or caste system and make it absolutely
taboo for lower social echelons. Still others (as is true in many parts of Africa) mandate
that education be portioned out on the basis of tribal ethnicity.
Marketeers should recognize that beyond these clear-cut examples, nations of all stripes
have educational disparities. It may be the result of unequal opportunity, interest, or
outcome, but the effect on marketing will be the same: not everyone will be able to fully
utilize or understand your product, at least initially.
Acknowledge that fact and plan accordingly.
Religion: God and the Marketplace
Though fundamentalist governments use religion as a tool to keep supposedly corrupting
products out of their marketplaces, religious feelings among individual consumers and
groupings must also be a consideration. Movies and books are regular targets of religious
controversy, but services like banking and childcare can also cause rancor. Islam views
banking, at least the standard loan/interest-cost type, as a form of usury forbidden by the
Koran, while strict Christian sects see commercial childcare as an assault on family life.
Goods also can suffer from either religious backlash or simple neglect. Jewish
communities, with hygiene concerns about pig products, will be unlikely pork barbecue
consumers. Nor will Hindus, prone to cremating their dead, find much use for hermetically
sealed metal caskets. Buddhism, though more philosophy than religion, has few serious
practitioners who flock to meat-intensive fast-food dining. Selling chrome polish to the
Amish, dance lessons to Baptists, or electric shavers to the Sikhs will be similarly
disastrous.
RELIGIOUS SEGMENTATION
Some religious groups hold enormous sway within a culture even when their numbers put
them in a minority nationwide. Catholics in the United States, for example, influenced
restaurant menus with their strictures on eating meat on Fridays; fried fish and clam
chowder are still standard Friday features on many menus, decades after the Vatican lifted
the restrictions. Similarly, Jewish holidays regularly affect buying patterns in major
European and North American cities, and Islam's Ramadan is showing signs of similar
influence. Chinese and Vietnamese communities dispersed around the globe have similar
economic influence with the celebration of the Lunar (Tet) New Year. Lastly, the worldwide
celebration of Christmas has become, for many Christians and non-Christians alike, much
more of a marketing event than a holiday of religious significance.
International marketeers may find that moving into a new country with a proven product
will require a great deal of customization to avoid religious turmoil. This will be true for both
small operators and global giants. When McDonald's set its sights on breaking into the
Indian market in the mid-1990s, the corporation soon realized that the Hindu interdict
against eating beef would make most of the fast-food giant's menu untenable. In place of
the famous Big Mac, the company created a new item--the Maharajah Mac, made with
religiously acceptable mutton. In another major bow to religion, Turner Broadcasting
(founders of the global CNN) made concessions to the Indonesian government when
attempting to market the twenty-four-hour-a-day Cartoon Channel. Because the nation is
primarily Islamic, the company wisely agreed to eliminate all Porky Pig cartoons from its
Indonesian satellite broadcast.
HOLIDAY MARKETS
Entering any market will require some adjustment to religious activity, if only from the
viewpoint of buying patterns. Religious holidays can greatly promote spending, as is the
case with Christmas, or cause a slowdown, as happens during Ramadan's fasting periods.
Some holidays and practices can promote the purchase of specific items (Easter flowers,
Lunar New Year cakes) or just a sudden increase in the purchase of general products
(new clothing for parties, fuel for traveling).
The hospitality and tourism industries are greatly affected by religious holidays and
marketeers with products related to those industries need to be highly sensitive
NUMEROLOGY
The proper timing for entering a market may also be dictated by religious beliefs or
holidays. Numerology still plays a large role in the developing world; the day
or the week or month or even the vear can be viewed as being particularly auspicious, or
not, for starting a new venture. If your company or product line has numbers in its name,
you may find that local acceptance is based on those numerals. The widespread
acceptance of 555 cigarettes in China or 333 beer in Vietnam has much to do with the luck
associated with these numbers in their respective cultures. Numbers chosen for price can
have similar influence. Large ticket items (e.g., real estate sales) can be affected by
something as seemingly innocuous as the numerical composition of a building's address;
petitions to change them are received regularly. Even the supposedly high-tech and
unsuperstitious United States has numerous buildings in which the "unlucky" number 13 is
skipped as a floor designation.
LESSON: Think long and hard about the local implications of your brand name.
DATES
Lunar and seasonal considerations have religious underpinnings in all societies, with
greater than average influence in Asia-China and Southeast Asia having the highest.
Dates for signing contracts, holding negotiations, and opening businesses are as much
dictated by the lunar calendar as they are by business necessity. Shintoism in Japan has a
similar influence. Year designations (year of the rat, year of the ox, etc.) hold particular
significance for business, as do the addition of certain words in company names (gold,
luck, tiger, harmony). Sub-Saharan African cultures place a great deal of emphasis on
animal references in brands or company names (Elephant Beer, Golden Lion Corporation),
as these words have ceremonial significance. The world's auto industry has done the
same for many years (Jaguar, Cougar, Viper, Lynx), although the religious connection is
long suppressed. International marketeers may find that their joint venture partner will be
very insistent on choosing just the right name and opening date for a project.
Wise marketeers may also decide to enlist the aid of local priests, monks, and holymen for
the purposes of "blessing" their new operation or product line. A hallowing by a group of
lion dancers, a feng shui practitioner, a rabbi, the local mullah, a respected bonze, or the
regional monsignor may be the best piece of promotion available. This bit of public
relations will not only keep your product or service in good stead with the local consumers
(many of whom may avoid an unconsecrated business) but also hedge your bet for
success.
LESSON: International businesspeople need all the help they can get.
Marketeers should be careful not to let their own religious beliefs overly influence their
actions or marketing decisions. This is true even when working within the same general
religious idiom as the targeted local market. Catholics in Colombo are far more devout
than the average Catholic in Boston, and Jakarta's Islam is far more secular than that of
Kabul. Religion is a very personal and emotionally laden thought process; treat it with
trepidation.
WARNING: If your product has any potential religious ramifications, and few products
don't, make sure that you ve thoroughly researched your target market ahead of time from
a spiritual aspect. Failure to do so may keep you out of a market for a very long
time to come--bernaos vermanent.
Family: Hierarchies and Decision Makers
Family units are the basis of a culture, and much valuable marketing information can be
drawn from observing their hierarchies. Marketeers should see which face the family
presents in public and which it preserves for "internal" purposes, as these will determine
the buying patterns within a community for each type of product.
PATRIARCHAL SOCIETIES
Some cultures have uniformly male-dominated households. Men (usually fathers, but
sometimes elder siblings in the absence of a father) will make virtually all purchasing
decisions beyond basic household foodstuffs. They control all of the money, regardless of
who earns it. Marriage is usually ironclad in such societies, with little divorce. Children
remain at home well into their twenties, or longer if they are single females, but
households rarely extend beyond two generations. They're usually agrarian-based cultures
with primogeniture (eldest son is given the lion's share of the property). Although these
cultures are globally dispersed, they're most common in Central and South America.
Marketing in such cultures tends to have a universally male theme.
MATRIARCHAL SOCIETIES
On the opposite side of the coin are the female-dominated societies, like those of sub-
Saharan Africa, where inheritance is matrilinear and women hold the greatest power in
both village life and individual households. Matrimony can be readily dissolved (usually by
the wife) and fidelity is on a case-by-case basis. Most of the entrepreneurship and finance
is controlled by women, although this isn't reflected at the national level of politics, where
the "warrior" aspect of male culture tends to hold sway. The segmentation is fairly clear,
depending on what product a marketeer is promoting. Consumer goods should be directed
at women; big ticket items (cars, maybe the occasional tank) will be male-oriented.
THE EXTENDED FAMILY
In between these extremes of dominance is a large spectrum of compromise.
Much of Asia uses a family system of "extension." Up to four generations may live in the
same household, and elders remain influential well past their earning years. In public, men
take the lead and wives have little say. Companies are male controlled and very few
females reach the boardroom. In the home, however, the situation is very much reversed,
with wives making all decisions with regard to the household and children. Men earn the
money and women control its dispersal-big ticket or small ticket, consumer goods or long-
term securities investments. Divorce is growing in Asia but is still an uncommon practice.
The family is a tight economic unit that extends well beyond the front door, as many of
Asia's largest companies are family owned; it's not unusual to find several layers of
management sharing the same family name. Because bloodlines are such an important
factor in these cultures, initial failure or success will follow a marketeer for a long time and
over a wide area. Having the right "connections" is very important here, and those
connections revolve around families.
FAMILY-OWNED BUSINESSES
Europe has a traditional, family-oriented society (mother, father, children),
though not nearly as traditional as Asia: many companies remain under private family
ownership. Divorce is quite common, however, and some prominent nations (France and
Germany, most notably) are facing flat or negative population growth as the size of
families declines. A few women hold prominent positions in government and business.
Most of Europe's traditional families are dual-income, allowing for increased purchasing
power and "discretionary income"
usage.
There's an upswing in single-parent families and its concomitant drop in the purchasing of
nonessentials. Marketeers will find that European cultures tend toward consumerism but
with a Old World regard for quality.
WHOSE FAMILY VALUES?
At the top of the consumer heap sits the economic giant, the United States, whose cultural
icons are globally pervasive. Most other societies look to the United States not only as a
commercial role model but also as a harbinger of future problems--with emphatic fears on
the family front. Its hallmarks: a high (and rising) divorce rate, single-parent homes
becoming a social norm, poverty-ridden teenage mothers forcing up welfare roles, and
violent young males who've had little (if any) contact with their fathers. And all of this is
occurring as the economy booms, personal spending skyrockets, and unemployment
lessens. Plainly, consumerism is best served by a society wherein freedom to do as one
pleases is considered a cultural imperative. Marketeers will find a ready audience for
virtually any product in the wealthy, I-need-it-right-now American culture.
Nations on the commercial rise find the U.S. template troubling. Even stodgy apan has
seen a close connection between its own economic prowess and declining family values.
Asian leaders
are tond of citing
«Asian values"
(Confucian, mostly) as an antidote, while Europe's governments rely mostly on centuries of
being at the cultural center to protect them. Sociological considerations aside, marketeers
should be forewarned that the recent emerging market attitude of "investment, not
investors" is the first volley in the war against economic colonization. If your product
smacks of cultural influence (videos, books, clothing), be prepared for some social
backlash usually delivered under the banner of protecting the family. More of this will be
considered during the discussion of xenophobia, where people, rather than products, are
eschewed.
Climate: Don't Carry Coals to Calcutta
It's no secret that climate influences the tone of a nation's culture. Hot, humid climates
tend to produce gregarious, outgoing people just as cold, pristine climes result in
introspective, self-sufficient populations. Temperate zones are conducive to year-round
labor and less subsistence-type living, with the result being high productivity and a general
sense of well-being. Even within a single country, such as China, where extremes of
weather and geography can be found in microcosm, the results are the same. Wealth,
productivity and stability aren't evenly dispersed, but instead follow climatic and resource
(e.g., water) lines dictated by nature.
Marketeers often follow these same geographic patterns as they attempt to have a nation
adopt their products. Finding a locale that can afford a product is just as important as
finding a group that has a use for it. Sometimes it is a matter of introducing a product to
one portion of a population with the knowledge that it will spread throughout a culture in
due course. This is called "coastline" marketing (although an actual physical coast is
unnecessary) and relies on the fact that some segments of a population adopt products
sooner than others.
Large urban populations have a tendency to consider and adopt goods or services far
more readily than their less urban, and less urbane, countrymen. Such cities have become
major centers usually due to their geographic location (coastline or waterway
concentration is a norm when such geography has dictated trade routes), and they have
attracted risk-takers in droves over decades and centuries. Because cities are viewed as
centers of culture as well as commerce, suburban and country folk tend to adopt the
lifestyles of their urban counterparts, but there are some signs of the reverse. Television
and telecommunication in the form of the Internet have shortened this urban-to-rural flow
from months to days and extended it far beyond national borders. The latest baggy logo-
parkas of chilly New York's street youth can be found in balmy Missouri within a week and
in muggy Manila by the end of the month. Meanwhile, another product, the British four-
wheel-drive Range Rover, made the move from English country moors to London to the
sands of Africa and on to the hilly streets of San Francisco at a somewhat slower speed.
LESSON: Unless a product has a specific agrarian use, goods and services will probably
find a quicker reception in urban areas. Only the very wealthy tend to look on bucolic life
with any sense of longing mostly because they're generations away from the mandatory
physical labor it requires.
Xenophobia: The Trojan Horse Effect
Earlier there was discussion of how cultures often wish to protect themselves from
products they deem culturally subversive. The French RU-486 abortion pill was thought to
be culturally dangerous to the United States, just as the English language laden Internet
continues to be controversial in France. There's a rising chorus of cultures that wants
access to the globe's goods and services while shunning the marketeers who accompany
them. Most of this stems from the fact that marketeers also bring along ideas and lifestyles
that, in the target market's view, may "contaminate" local values. When marketeers set up
representative offices or settle in to oversee joint ventures, the possibilities of cultural
crossover grow exponentially.
FOREIGN INFLUENCE
Developing economies suffer the greatest effect of this xenophobia as they become torn
between advancing into the future (largely dictated by foreign technology,) and leaving
behind a past that formed their present. They also feel financially and educationally
outmatched by the industrial and technical powers that roam the commercial seas. These
developing countries make a point of assuring that locals maintain control over any inroads
made by foreigners by legislating ownership percentages. Countries like Vietnam make it
virtually impossible for foreigners to own land thus physically and symbolically excluding
them from becoming part of the country. Others, as is the case with China, prevent
foreigners from ever attaining citizenship for the same reasons. To right the wrongs of past
foreign exploitation, Malaysia and Indonesia have instituted pri bumi and bumi putra
legislation that calls for "native born" citizens to be part of all major commercial
undertakings. Naturalized citizens are considered on a par with foreigners, even when
their families have been members of the community for decades.
Many South American countries, Brazil for one, have made similar steps to ensure that
native tribal subcultures receive mandates to be part of any exploitation of the resources
contained in their traditional landholdings. In many of the more volatile central African
states, tribal affiliations determine commercial and political rights, when the government
changes hands so do all of the contractual agreements. The new leaders want to ensure
that "their people" get a suitable piece of the pie. In all of these cases, the motivation is to
make sure that the citizenry (at least a designated cultural elite) remains in control of the
great modern cultural engine: commerce. Nowadays, a culture that is out of money is
extinct.
FIRST WORLD PROBLEMS
Xenophobic feelings aren't exclusive to undeveloped economies and obscure native tribes.
The purchase of many British properties and companies by newly enriched Arab sheiks
caused more than just eyebrow raising, just as Ford Corporation's buyout of Mazda sent
shock waves throughout Japanese society.
United States' paranoia about Japanese real estate peaked during the Japanese buying
sprees in the Hawaiian market; this resulted in legislation that restricted the purchase of
golf courses, out of fear that the new landlords would bar locals.
(When the Japanese bought New York's Rockefeller Center, it was viewed as a grave
insult. This imagined transgression was salved some years later when the bankrupt
Japanese owner had to put the building back on the auction block.)
Canada's relationship with the United States is heavily tinged with a fear of simply
becoming known as the "fifty-first state," and the Canadians react by regulating the
amount of American music and TV shows to be broadcast. Virtually any major deal in
France, from trucking to aerospace, that gives foreigners a decided advantage is roundly
(and sometimes violently) protested, even when the venture and its jobs will remain in situ.
Plainly, the developed world isn't just concerned about the "hollowing out" of its industrial
base but of its cultural base as well.
WARNING: Marketeers should take measures to assure that their dealings have a
minimum of cultural impact on their target market. Whether it's a simple trade or a
substantial investment, keeping a "low profile" is recommended. Soliciting the direct and
indirect aid of local government officials and business leaders prior to market entry is
essential. Cultural imperialism is a very real and expansive concern in the global
marketplace. It has sunk just as many deals as bad financing.
Cultural Adaptation: Understanding Isn't Agreement
Not every potential market is looking for reasons to reject products and producers. Much of
the cultural interplay is unconscious and is virtually invisible until conflicts arise. It's not
unusual for the conflict to be caused by the marketeer rather than the targeted culture.
Both sides of a deal will need to be aware of each other's cultural baggage.
However, when it comes to cultural differences and international business, there's no such
thing as "meeting the customer halfway." It's more like 95 percent of the way. Successful
marketeers play by other people's rules, eat other people's food, speak other people's
languages, and meet other people's standards of quality. Very few companies are alone in
an entire marketplace, and competition can be fierce.
If one company doesn't cater to the demands of international customers, there's another
that's ready, willing, and able to answer the call. Remember: Only
customers can attord to be intolerant.
International marketing can be very demanding on many levels, not the least of which
involves cultural interplay. You'll be called upon to participate in unusual activities, eat
strange foods, sleep in uncomfortable rooms, endure awkward social situations, and
witness business practices that are a great departure from your home culture. Many
activities may be in direct conflict with your religious or philosophical beliefs. Professional
marketeers must continually remind themselves of the first rule
of cultural tolerance: understanding isn't acreement
Guidelines for Cultural Analysis: A Checklist
Not everyone is cut out to work in the arena of international business, and a lack of
marketing skills will be very costly. Regardless of how much commercial law governs a
deal or how tight the contract is, international business is still a relationship between and
among people. Often, those people have conflicting philosophies and will never completely
share a perspective. The following is a simple checklist that the reader should review in
order to determine whether or not international marketing is a viable career choice. If you
answer "yes" to all of the questions, you're over the first and most basic hurdle of
business- the capability of understanding your customer. If you answer "no" to more than a
few of the questions, a change of heart or change of career may be in order.
YES
NO
Do I find other cultures interesting?
Do I believe all societies have positive and negative aspects?
O
Do I believe all nations have the potential for economic success?
Am I comfortable meeting people who speak a language other than my own?
.
Am I willing to take the time to learn another language?
Am I comfortable with people of different races?
Am I comfortable with people whose educational level is different than mine?
Am I comfortable with people of different economic levels?
Am I well schooled in the history of my own society?
Am I well schooled in world history?
Do I attach great value to my own culture?
Can I look at issues from several perspectives?
Do I believe that any two people will have some common ground? &
Am I considered an "understanding person" by my peers?
Am I capable of subjugating my own beliefs in order to achieve greater goals?
Profile of an International Marketeer
There is, of course, more to choosing a career in international marketing than just the
ability to understand other cultures. Some of the regurements are
physical, but most are intellectual talents that can be developed and used in most cases)
to overcome any of the physical problems, should they be present. The following is a
profile containing the twelve attributes that characterize the type of person most suitable
for this dynamic and demanding career.
ORGANIZED
Marketing can be an extremely complex issue on the domestic front and doubly so at the
international level. It must be meticulously planned and meticulously executed. The stakes
are very high and competition is fast and furious. Thorough organization at the macro- and
micro-levels will make the difference between a long-term success and a short-term
failure. Beyond just the planning of the marketing scheme, one must add in the demands
presented by international travel.
Flight schedules, hotel stays, and negotiation agendas can take a disastrous toll on the
best laid marketing plans. Many domestic marketing personnel find out quickly that
international work is far more demanding than the domestic variety.
People who are incapable of looking at the "big picture" while juggling all of the
concomitant details should remain on the home front.
ENERGETIC
International business places extraordinary time demands on its participants
Because so much can happen in a relatively short period of time, marketeers should be
prepared and able to work long hours for many days running. While this pace isn't
constant, when it does occur everyone involved must be ready to give their undivided
attention. Business meetings may be scheduled after a restful weekend or the morning
after a fifteen-hour, multi-time-zone flight. Global work also requires that you work to a
customer's schedule on the other side of the world- which may find you on the telephone
or at the shipping pier at four in the morning. Travel and jet lag are very real adversaries.
Many deals have been lost or poorly negotiated by tired, worn-out marketeers, and some
foreign companies will use your fatigue to their advantage. If you require eight hours of
sleep every night and a forty-hour workweek, international marketing is best left to others.
DURABLE
Physically and emotionally frail types will be devoured by the rigors of global business.
Long hours, strange food, water of dubious quality, extreme climates. and poor
accommodations are common problems. Change is tough on the human body, and just as
many people get sick traveling from the emerging markets to the developed world as the
reverse. The ability to avoid physical problems, as well as to endure them when they do
occur, is a necessary attribute of the marketeer.
When opportunities arise they must be seized, and that can't be done from a hospital bed
or a hotel bathroom. Staying in good health is part of a marketeer's job description.
Travel can take an emotional toll on the ill prepared. Smaller companies may be sending
just one person overseas to make their proposal, and that solo
marketeer may find himselt feeling quite isolated. Loneliness, homesickness, and
sometimes actual fear (many emerging markets are as dangerous as they are potentially
lucrative) can greatly influence one's judgment and actions, in spite of solid advanced
planning. There have been numerous cases of marketeers rushing their research or
closing deals early just so they can get home or at least out of the target country.
Marketeers (and to some degree, their loved ones) must steel
themselves acainst these emotional influences.
NOTE: Business moves at its own pace. be prepared to see every deal through to the end
CALM
Marketeers will be part of the planning, as well as the negotiation and execution, of the
deal. Marketing isn't only a "paper skill," it's a people skill also While negotiating is a topic
unto itself (see A Short Course in International Negotiating, World Trade Press, 2009), the
reader should note here that maintaining a cool, calm demeanor is necessary when
dealing with tough or indecisive customers. Additionally, international travel will present
you with numerous opportunities to lose your temper with bungling customs personnel,
snail paced immigration officials, and other officious government types. A wrong word, or
for that matter any sign of impatience, may scuttle your entire business trip. It may even
result in some legal problems for your host. It should also be noted that some cultures
view emotional outbursts as a sign of mental problems rather than as an expression of
resentment or arrogance. Regardless of what culture you may be operating in, cooler
heads usually carry the day.
GREGARIOUS
People everywhere prefer to do business with someone they like, and repeat
business can turn solely on this issue. Friendly, outgoing marketeers make business
contacts more easily and they're more capable of the interaction necessary for cutting
deals. Though stern measures may occasionally be called for around the conference table,
the old adage that "you catch more flies with honey than with vinegar" is still very true.
International marketing makes social demands of its participants. Many long lasting and
profitable deals have been sealed over the dinner table or at the golf course. The vast
majority of top businesspeople worldwide put as much stock in the character of their
counterparts as they do in their balance sheets. Getting to know people and the ability to
let others know you is an important business skill for the domestic as well as the global
market. Regardless of contract law, trust among individuals is still the underpinning of
commerce, and a gregarious nature permits that confidence to grow.
OPTIMISTIC
Many things can and do go wrong with an international deal, as well as with the travel
necessary to make it work. The last thing any company needs is a pessimist in the
marketing department. Even when planning is ideal and travel is effortless, enthusiasm
and a strong belief in ultimate success must buoy the weary marketeer. Customers will
hardly consider buying a product about which the seller has little fervor. A positive outlook
tends to breed the same in those that come in contact with it; the opposite is true as well.
NOTE: Complainers, whiners, and doom-and-gloom practitioners make very poor
marketeers (or anything else for that matter), so leave such negative attitudes behind it
you plan on pursuing a career in international business.
EDUCATED
If ever there was a venue that could be aptly described as in a state of flux, it's the global
marketplace. Marketeers must become informed and stay informed.
Even once the initial research is complete on a target market the information gathering is
far from over. Companies that do the best in international business continuously "take the
pulse" of the marketplace. Everytime someone in the global marketplace loses, someone
else wins, with little doubt as to which of the two sides had the best information.
While academic degrees are very useful for marketeers, they're no guarantee of success.
Commerce isn't an academic exercise, but it can be the harshest of realities. Many an
MBA have met their match in an experienced marketeer who had no formal education
beyond grammar school. The camel traders of the world are just as savvy in their
marketplace as the best traders on Wall Street or in Hong Kong. Experience is always the
best teacher.
Never, under any circumstances, should marketeers fool themselves into believing that
they're
"experts" on a particular market. The ground is shifting
constantly and far too quickly for anyone to know everything, even in the supposedly
stable markets of the West. The best anyone can hope for is to know
the most at any given time.
WARNING: Global market information is very time sensitive. News that's more than a
week old is doubtful, and when it's more than a month old, consider it useless.
Marketeers should guard their lines
or communication and intormation sources as
closely as they do their passports. They can't go very far without them.
AGILE
A sharp and decisive mind is essential during the implementation of a marketing scheme.
While the use of consensus may be of high importance during the planning phase,
implementation is best done by the nimble. Negotiations, sales presentations, and deal
closing require that thought processes, information sorting, and decision making be put in
high gear as marketeers respond to the demands of buyers. Pausing for lengthy
deliberation only gives the customer time to consider the competition.
The ability to "think on your feet" will serve you equally well at the conference table and
during social interludes. The right word here, the generous gesture there, or the judicious
timing of a business proposal may all work to advance your plans and stave off failure
NOTE: There are few more formidable combinations in commerce than the coupling
of good information and a quick mind, but one without the other is of little use
PERSPECTIVE
The travails and intensity of international marketing often cloud the real issues.
As there's little doubt that stress takes both a physical and mental toll, the ability to
maintain perspective is a desirable virtue in a marketeer. Keeping priorities straight and
the marketing plan on track isn't always an easy process, especially when success seems
distant. Even without the wisdom that comes with experience, marketeers new to the
global scene have to be able to see the whole picture from all perspectives.
Keeping a clear head and an even clearer eye will allow you to take in all of the available
information (your own and that of the target) without becoming emotionally involved with
the outcome. This can be very difficult when a marketeer is also the owner of the company
or the inventor of the product. Being too closely tied to the product reduces your ability to
see things from the consumer's point of view ("How could they not want this?") and
resistance is taken as a personal affront.
Maintain a professional perspective about both the product and the marketing process. It
may be what vou do for a living. but it's not your life.
NOTE: Being enthusiastic about a product and having a personal attachment to it are two
very ditterent things.
VERSATILE
A marketing effort may require the assembly of a large team, with each member assigned
to perform very specific tasks. Such an assemblage may be then broken into planning and
implementation subgroups. 'This is usually the mark of a large company with sufficient
finances to support a large effort. Smaller companies may use only a group of three or
four; traders and entrepreneurs are more likely to handle the entire process as a solo act.
From large to small to solo, the need is the same: versatility.
Professional marketeers should be skilled in all aspects of the marketing effort so that they
can operate and provide input for any level of the scheme. Information shouldn't be
"hoarded." nor should the ability to analyze it be a talent reserved for only a few
specialists. Overseas travel can present teams with problems that may require the
substitution of regular members; versatility permits this. Solo acts, by their nature, must be
able to handle any and all aspects of the marketing process from initial research through
implementation.
Although specific national markets and geographic regions may interest a company,
marketing department, or trader, there's great danger in too much specialization. The
connectivity among nations and regions is now so great that a new joint venture set up by
a French company in Cambodia may suddenly find itself providing goods and services to a
Venezuelan end-user. All markets are worthy of a marketeer's attention but no market
should be focused on to the total exclusion of others. It's been many decades since any
market could operate in isolation; failure to see this will greatly limit your effectiveness.
NOTE: Versatility combined with perspective will keep you in the world marketplace for a
long time
FARSIGHTED
Even the most meticulously planned marketing scheme can result in failure when
conditions beyond a company's control take effect. However, such failure is only short-
term. Success can be equally fleeting if implementers lack followthrough. Adopt a long-
term approach--view failure as merely a lost battle
and success as a truce in need of constant management.
NOTE: Co
eternal. It's just
A MATTer
of how long you will be part of it.
ACCOMMODATING
Domestic customers need to be wooed but internationa cusromers need to be seduced.
An international marketeer will be viewed both as an unknown quantity and as a foreigner.
This will make the job of selling much more difficult, but being accommodating in the
word's original sense--will offset this difficulty.
Accommodating derives from the Latin infinitive commodare meaning "to make fit "or "to
measure," and that's exactly what marketeers must do to succeed.
After taking the measure of their targeted market segment, the product (no matter how
successful it may have been elsewhere) must now be tailored to fit the new customer.
Rarely does a new market buy something "ready made" or "off the rack." It may be size,
color, quantity, or delivery time, but the product will require alteration. Heading overseas
without a specifically tailored plan or with one that's identical to your domestic effort will
rarely, if ever, meet with success.
WARNING: You must treat every new market as if you were starting from zero. If you
don't, that's where you'll end up.
NOTE: A detailed outline for the information needed to conduct a cultural analysis is
included at the end of Chapter 8 on the research process.

CHAPITRE 7

EVERY NATION (and its various market segments) has its own way of viewing the goods
and
services offered to it by international marketeers. Even in domestic markets, a
product could do very well in one region and get a middling reception by another
less than 100 miles away. When marketing entails a movement across national
borders, the differences will be more dramatic (even when the nations share a
language, climate, or geography). A good example of this disparity can be seen
in national cuisine. Why are the Belgians beer drinkers and the French wine
fanatics? Why does China have a long history of complex cooking while Russia
makes do with much plainer fare? While neighbors Argentina and Chile both
have lengthy coastlines, large fishing fleets, and thriving cattle industries, why
is it that the former's menus concentrate on beef while the latter favors seafood
and chicken? If these examples of cuisine are any indication, crossing a border
with a product is almost like cooking from scratch.
Carrying an Established Product Across Borders
There are many reasons to consider breaking out of your domestic market and
selling across borders. The following section discusses many of the possible
SATURATION
Finding that the home market has peaked and is now saturated with your
product is the most common reason for focusing a marketing ettort overseas.
Although true saturation is rarely achieved, it's sometimes easier to penetrate
foreign markets than new domestic ones, especially if you operate in a large
country. Moscow businesses find it easier, and more lucrative, to sell products in
eastern Europe than they do in far-flung Vladivostok.
DECLINING INTEREST
Every product has a life span in a particular market before it's overtaken by
new or improved products, which are often developed internally (e.g, Windows
superseded by Vista). The original product, whose development costs have long
since been recouped, may still be useful in markets untouched by the original
product line. Much of the West's technology was given just such a new "product
cycle" in the emerging markets, some of which are decades behind in technical matters.
When you're used to plowing your field behind a water buffalo, a 1980s-vintage tractor is a
welcome addition, even when it arrives in 2010.
FOREIGN DEMAND
It's not a rarity for a company that's doing quite well in their domestic market, with
rocketing sales, to receive an unsolicited demand from a foreign buyer. This happens
repeatedly in technology and consumer goods but also increasingly so in many capital-
intensive businesses (such as auto production or hotel construction).
If you have a very high quality product or are an industry leader, the foreign market may
come looking for you.
SHARE ENLARGEMENT
Many companies move into foreign markets simply because they can. Flush with cash or
energized with curiosity, they wish to increase their sales by increasing their exposure.
High-end consumer goods or specialist services (e.g., yachts or investment banking) often
go hunting overseas, not out of need but simple drive.
COMPETITION
Once one company markets abroad, even just to test the waters, the competition is quick
to follow. Often, it's a move made with great reluctance and out of fear that allowing a
competitor to reap riches in foreign lands may have future domestic ramifications. It's fast
becoming a reality that if you're not an international player, you're not a player at all-big
business means global business. Rushing onto the international stage, maybe even
feeling pushed, can be costly if planning is sacrificed for speed. A prime example is the
failed attempt by Apple Computer to duplicate its domestic success to overseas markets
with personal computers, particularly in Asia. The young company self-inflicted serious
brand-name damage in the 1990s because its products demanded a price that was not
seen as adding significant benefit. Only the move into the realm of music (iPod) saved its
reputation outside of the American market.
NOTE: It's better to arrive a little late, but prepared, than to leave early without a map.
EXCHANGE VALUE
The value of national currencies can fluctuate wildly, often with deleterious effects on
domestic companies. 'The effect is even worse when the company must buy foreign
materials for production. When production costs rise and domestic buying power declines,
the marketeer may have no choice but to look offshore for customers. High-ticket items are
the most affected, though consumer goods occasionally are as well.
On occasion, a company may find that foreign markets are ready, willing, and able to pay
a higher price for a product. Barring the intervention of customs
officials. products normally earmarked for domestic production are diverted overseas. If
domestic consumption remains stable, then local prices will rise to buy up the now-
diminished supply. 'The producer now has the best of both worlds if the wrath of the local
government can be avoided. Commodities such as beef and coffee are often subject to
such surges in foreign demand.
PREPRODUCTION PENETRATION
Prior to setting up full-scale offshore production, a company will sell to the targeted market
as a way of testing demand, observing price elasticity, or educating the population about a
product. The last reason keeps the price of the
"learning curve" low, in advance of producing inside of the new market. The computer
hardware business has done this repeatedly in emerging markets around the globe.
Knowing full well that most of their foreign production will be exported out of the producing
country, hardware manufacturers often "dumped" cheap computers into the target market
as a means of spurring interest and building future demand. (Singapore and Malaysia,
once only makers of computer
hardware, are now a major users.)
GOVERNMENT REQUEST
Many developing countries finance their growth through exports, since domestic buying
power is limited. Even some economic giants, Japan being the
most famous practitioner, greatly restrict imports and encourage exports to finance growth.
In both cases, domestic producers are protected from foreign (and often more efficient)
producers, while hard currency pours back through the busy port system. In extreme
cases, export quotas may be rigidly set and marketeers are sent abroad with do-or-die
marketing plans. Some countries purposely weaken their currency so as to encourage
foreign companies to buy their products (e.g.. the United States is often accused of using
this tactic by Japan, and vice versa).
NOTE: When governments start to see rising trade deticits or droopy foreign currency
reserves, overseas marketing may no longer be an option but a mandate.
When to Make New Products
As stated in Chapter 6, even a proven product may have to be altered slightly to succeed
in a foreign market. Sometimes, however, research or unsolicited demand requires that a
company devise a whole new product line for overseas consumption. While a lucrative
opportunity may be presenting itself, a marketeer should be careful to view the long-term
potential and future problems that may result. Here are ten basic questions that should be
posed before taking on the task of creating a new product line for a foreign market.
Will the new product cause brand-name confusion in the target market?
Will the new product cause brand-name confusion in the domestic market?
Is the company financially able to enter a new product development phase?
Will the new development divert resources away from domestic activity?
Will the new product line adversely affect domestic marketing efforts?
Will the current employee base be capable of developing and handling the new product
line?
Does the company management team fully and enthusiastically endorse the product
development:
Will the new product and company brand name have legal protection overseas?
Does the new market have the potential to accept the company's current product line
along with the new developments?
Has a marketing plan been thoroughly researched and formulated for the new market?
The vast majority of companies attempt to remarket their current product line overseas
prior to offering completely new developments. Obviously, going into an unknown market
with an unproven product is the apex of risk, but it can pay off if demand is high and brand
recognition isn't too rigid. For example, when U.S. pizza giant Domino's Pizza entered the
Taiwanese market, its standard line of pizzas wasn't well received, although quite
successful elsewhere. Local buyers wanted seafood-based products in their stead.
Because the company had no real brand recognition established on the island, it could
easily break free of the pepperoni-mushroom-cheese image it promulgated elsewhere.
The result:
Domino's stores have a big presence in Taiwan, making the company the pizza industry
leader on the island, with sales upwards of US$50 million annually. The biggest selling
item: the Seafood Pizza with squid, shrimp, crab, and peas.
The Product Cycle: Expanding the Average Lifespan
The product cycle is more easily defined than it is predictable. It's the sum total of the
stages in the marketing existence (or "life") of a product. The stages are: development,
introduction, growth, maturity, and decline. Products don't stay in the market forever; the
wastebasket of history is chockablock with instant failures and multidecade market leaders
alike. The length of the cycle is indefinite, as growth may be steep or gradual and maturity
a sharp peak or a long plateau that might be followed by a precipitous decline or a barely
perceptible crawl toward the final sale.
There's not a single rise or single fall but a series of each throughout the cycle that can be
controlled, to some extent, by observant management. Sometimes the speed of growth is
far in excess of forecast and can overwhelm an inexperienced or undisciplined marketeer.
That same marketeer will be unable to halt the spiraling decline of a poorly adapted
product in an unforgiving marketplace.
Marketing personnel at all levels of experience must be prepared to accept the fact that
while commerce may be eternal, their products are decidedly mortal.
Much like human beings, those products that are actively cared for and subjected to the
right preventive measures have a statistically longer lifespan than those left exposed to the
unchecked vagaries of the marketplace. Also like humans, products are subject to
anomalies that defy explanation by the keenest observer or the planning of the most astute
marketeer. The meteoric and global success of the Tamagotchi virtual pet and the
resounding mediocrity of Java programming are two cases in point.
The first is a widely owned piece of useless gadgetry, and the second, a revolutionary
piece of software technology unable to live up to its promise.
Resistance to Old Products: Both Sides of the "Cutting Edge"
The life cycle of a product depends on the market segment. When an established product
is introduced or adapted for a new foreign market, care should be taken to understand how
it will be perceived there. The perceived newness of the product line, rather than its actual
age or applicability, will determine its success. Consider the selling of technology in
emerging markets. Much of the developing world is severely lacking in the
telecommunications infrastructure needed for modern business. Vietnam in the early
1990s had a teledensity of one telephone for every one hundred people in a nation of
seventy-two million. The telephone system was a mish-mash of French colonial, 1970s
Warsaw Pact, and mid-1950s U.S. technologies cobbled together
• no one's satisfaction. Payphones were
nonexistent, as the country had no coinage. This was going to severely limit the country's
growth, and any improvements would be major ones.
RELATIVE AGE
Telephone companies from Britain, Canada, Germany, France, Australia, Japan, Italy,
Sweden, and the United States all saw Vietnam as a chance to extend the life cycle of
products now being replaced in their home markets by fiber optics, cellular, and fixed-
wireless technologies. Surely warehouses bulging with 1980s* switches, handsets, and
PBX panels would draw a handsome (though now discounted) price to fill Vietnam's we-
can-use-anything needs. Unfortunately for these telecom companies, it never happened.
What would have been a marked improvement for Vietnam was viewed by its government
as an insulting
"colonial" gesture. Vietnam was not about to accept technological cast-offs, no matter how
"cutting edge" those cast-offs would be for the local market. Like China, Vietnam wanted to
skip over decades and even centuries of development and head straight for the 21st
century. By skillfully pitting the British, French, Japanese, and Australians against each
other in a fight for market share, the Hanoi government held out for and received the real
"cutting edge" technology at considerable discount.
TOO MUCH, TOO LATE
But not all life cycle problems involve whiz-bang technology, nor do they always result in
the customer thinking they're getting out-of-date products.
Sometimes an old and established product can appear too revolutionary for a new market.
Such was the case when Campbell Soup attempted to move its time-tested product into
Brazil. After investing U.S.$6 million and conducting a marketing effort that won two
national awards, the company found that its canned, readymade soups offended the
Brazilian housewives concept of their duty to cook for the family. Rather than being seen
as a time-saving measure, canned soup was seen as a piece of unwanted modernity and
a threat to family life.
Much preferred by Brazil's mothers were the dehydrated products of a competitor, Knorr.
Rather than a completed soup, the dried concentrate served as a base upon which cooks
could add their own ingredients. Knorr was modern but not perceived as being too
modern, like Campbell--which lost U.S.$1.2 million and eventually shut down its soup
operation. Most of the blame for this fiasco was laid at the feet of the company's marketing
staff, which had confined its research to the climatically mild city of Curitaba, neglecting
the more traditional, sub-tropical zones of this vast country.
BONA FIDE EFFORTS
Several lessons can be drawn from these examples. In the case of the Vietnamese
telecom system, never assume that a new market will accept old products simply because
they're better than what's currently being used. Offering only your second-rate products
first is hardly a way to build a customer base. It's much better to price the older product
line so as to make it more attractive than the new one. Let the customer believe that
they're getting a bargain and making the choice for themselves. Remember, most
consumers make decisions with their wallets, their hearts and their brains- in that order.
Another lesson to be taken from the Vietnam example is that foreign markets may be new
to your product line but they're experienced bargainers nonetheless.
Furthermore, poor people are better at bargaining than rich ones because they have to
bargain for everything to make ends meet. If you approach a market with the idea that you
can outwit it rather than service it, your stay will be brief. Acting in good faith is good
business sense and, to my knowledge, no one has ever refused to do business with an
honest person
KNOW YOUR TERRITORY
The Brazilian example points up two deficiencies in Campbell's approach: Poor cultural
understanding and lack of comprehensive research. Large companies have long since
gotten out of the habit of assuming that everyone in the world wants their products.
However, it's unlikely that Campbell sought local input or utilized Brazilian management in
starting up its operation. They assumed that Brazilian mothers would appreciate the value
of the soup's convenience, just as U.S. mothers had for decades. Many U.S. women were
more worried about corporate advancement than family-style cooking; meanwhile,
Brazilian mothers were still housebound and devoted to raising children. Even a modicum
of cultural insight
would have revealed this discrepancv.
What research was conducted was hardly sufficient for a market of Brazil's size. A nation
with 8.5 million square kilometers of geography and 190 million people deserves decidedly
more than the study of a single, secondary city. Few national markets can be understood
by looking at a single city. France isn't Paris, China isn't Shanghai, Egypt isn't Cairo, and
Canada isn't Montreal. Although Singapore is Singapore. Though research will be taken up
in detail in Chapter 8, it should be clear that when attempting to move any product -
whether old or
new- across borders, comprehensive research will determine success.
Meeting the New Demands for Quality: What is the "ISO"?
One of the many areas where cultures collide is on the topic of quality. What is top quality
for one nation can be shoddy goods for the next. The use of terms such as "high grade,"
"precision," and "top quality" leave much room for interpretation by seller and buyer alike.
Increased competition in international markets has led to increased demands for quality
and a yardstick to judge it by that would be universally recognized.
Formed just after WWII under the auspices of the United Nations, the International
Organization for Standardization (a.k.a. ISO, it's not an abbreviation but from the Greek
word for equal) was designed to be just such a tool. Originally used to control industrial
products, the Switzerland-based organization now provides guidelines for goods and
services of all types. From foodstuffs to ships, bolts to books, wrenches to walnuts the ISO
sets the process standards for its voluntary membership. These members control more
than 95 percent of the world's output and many refuse to do business with companies that
don't meet ISO standards, whether they're members or not.
Marketeers must maintain quality to stay in the marketplace, and many have turned to ISO
ratings in order to avoid arbitrary, fluctuating, or self-serving standards set by ever-
demanding clients. Attaining an ISO rating is not easy and those that do proudly display it
as part of their promotional effort. It isn't unusual to be asked to present ISO certification
(a.k.a. registration) in order to even be allowed to bid on some international projects.
ISO ratings don't guarantee the actual product but document the processes and systems
by which those products (goods and services of all types) are developed.
The idea is that high-quality processes result in high-quality products. The ISO9000
certification and its subdivisions (9001, 9002, 9003, 9001-1, 9004-1) are the common
certifications, with ISO9001 being requested most often.
ISO14000 standards are utilized by companies whose goods or services have
environmental impact, these are often used as a trade barrier against countries and
companies unable to meet "green" requirements. All ISO standards are voluntary, but
member countries are permitted to insist on compliance for imported goods or services.
The ISO14000 standards cover packaging and shipping as well as the actual product and
usage, and they're increasing yearly.
Of course, marketeers will have their own quality standards, which may meet or exceed
those of the ISO variety. But even in the latter case, it's advisable to seek ISO certification
because of its international recognition. Because most large companies have already
sought such certification, the author has included the names of two texts in the
"Resources" chapter at the end of this book that are specifically geared to small
companies seeking ISO9000 and ISO14000 certification. Readers are advised to consider
ISO participation, as commercial competition may hinge not just on quality but which
company can certify that quality
Financing & Product Development: How Much Speed Can You Afford?
Products, regardless of quality, are expensive to develop. A marketeer may have a very
savvy concept and a well-thought-out plan, but money will be required if a new product, or
a revamped one, is going to succeed in the marketplace. Lack of development-phase
financing is probably the leading cause of a product never becoming available to
consumers. Some products may require enormous amounts of capital investment just to
develop a prototype, to which expensive alterations will then be made before attaining a
"marketable" end-product. High-tech hardware, heavy industry (e.g., steel, automotive),
and transportation all fit this category. Other industries (e.g., some processed foods,
software, and financial services) may have very fairly low development costs, but costs
nonetheless.
Development costs also include the marketing research phase, which many times is the
greatest portion of the expenditure.
Here is a brief listing of ways in which marketeers, especially novices, can obtain financing
for product research and development. (Some of these sources can be used for financing
international transactions as well. See Chapter 9):
JOINT VENTURE
Small companies, entrepreneurs in particular, have found that partnering with a larger
company for a project provides both needed capital and managerial depth.
This type of partnering can be of set length and easy to dissolve, as it will only cover very
specific projects and not other parts of a company's operation. The partner may be located
in the marketeer's domestic market, from the targeted nation, or even from a third country.
If a domestic market partner is utilized, consideration should be given to the recognition
their brand name has in the international economy. There's no harm in riding the coattails
of an established firm. The same is true if a partner is to be located in the target market.
Here,
there's an additional consideration of political connections that may become the
determining factor in success or failure. Choosing a partner from a third country should be
based almost entirely on their experience in either the target market or international
business in general. By no means should another novice entrepreneur be chosen,
regardless of their funding.
VENTURE CAPITAL (VC)
Development money is the specialty of venture capitalists and high risk is their stock-in-
trade. Though they're most famous for technology projects, their influence is felt in all
sectors. Unlike joint venturing, these capitalists take a large (often upward of 40 percent)
and long-term equity stake in a company in return for providing financing and direct
managerial input. Their plan is to guide the entrepreneur through the early stages of
success and then take the company
"public" at which time they sell their original stake at many times the price of their original
investment. Many big companies, including Intel and Microsoft, had their humble
beginnings financed by venture capital. This American invention has spread around the
globe as a financial tool for all sorts of products. Some VC companies subspecialize in
various forms, from early, high-risk "seed money" through the subsequent and
progressively less risky injections of money known as "rounds" that are needed as
business prospects increase. Entrepreneur/ marketeers who are prepared to give up a
portion of their company would be wise to consider this path.
INVESTMENT BANKS
Another American invention, but this one from the 19th century, is the investment bank.
Not to be confused with your check-cashing, Christmas Club, commercial-type institution,
I-banks (as they're known) raise funds by acting as the intermediary for selling a
company's securities (usually debt-creating bonds) to pools of investors in order to finance
businesses. I-banks don't take an active role in the operation of the marketeer's business,
but they often oversee the reselling of the original bonds as well as profiting from the initial
sale. Many I-banks are famous and enormous institutions (e.g., Goldman Sachs), but the
process is also open to smaller operators around the world. The selling of bonds is
considerably cheaper than VC but it does create debt, which is paid regardless of the
success of the marketeer's plan.
COMMERCIAL BANKS
Commercial banks are notoriously risk-adverse and demand collateral for most loans. This
keeps their risk low and a borrower's interest rate down. This type of financing, which may
be used in conjunction with joint venturing, is really only open to marketeers if they wish to
incur debt.
INTERNATIONAL AGENCIES
If a marketeer's product has the potential to serve infrastructural, educational or
humanitarian purposes, financing for its development can be sought through agencies set
up to promote international economic progress (see Chapter 3).
Agencies such as the International Monetary Fund (World Bank) and the Asian
Development Bank can also provide financing for projects that will significantly
increase employment in developing markets. Interest rates are very low and payment
schedules generous.
CORPORATE EQUITY
For marketeers that already operate established companies, the issuance of corporate
stock may serve to finance the development of a new product or the extensive revamping
of the current line. Incorporating in the target market is also a consideration. Rules of
incorporation and stock issuance vary greatly from nation to nation, and many countries
have strict laws regarding a company's responsibility to shareholders. The corporation may
be held privately or publicly, depending on the local law and degree of oversight desired by
the marketeer.
While this is a common means of raising capital, the reader is advised that it can become
a legal quagmire if not properly structured.
PRIVATE FINANCE
Contrary to popular postulate, rich people don't sit around their mansions counting their
money all day. They invest it. Many of these folks are entrepreneurs who like to plow their
money into other people's projects and thereby do well by doing good. These "angels" (as
they're called) keep a significant part of their investment portfolio available for "staking" the
projects of other entrepreneurs and marketeers in fields usually related to the donor's
original success. Angels can be found in a marketeer's domestic market, the target market,
or virtually anywhere on the globe. The Internet is brimming with sites that specialize in
putting private investors together with promising marketeers.
AN INVESTMENT WARNING: As is true with any attempt to seek outside investment, take
care with the selection of your future partners or creditors. Bad political choices can be just
as devastating to a project as choosing someone who fails to produce the promised
financing. Measures should be taken to determine just how the investor's riches were
earned. Marketeers may also find that certain types of projects will attract direct
government intervention and the "appointing" of qualified investors Research: Insight Over
Intuition
Product development and the financing that makes it possible require a great deal of
research into the vast number of possibilities and configurations that present themselves.
The move into an overseas market will be expensive from several perspectives: Time,
money and energy. It's not an intuitive process.
Rushing into a market simply because a "feeling about it" presages success will rarely (if
ever) bring about the desired result.
It's very difficult for a company to be objective about its product and especially so when the
product has been a money-maker in the domestic market. However, marketeers can't
afford to be subjective in a global commercial environment, where brand and company
loyalty is fast becoming ruled by a what-have-you-done-lately attitude. A consumer's
emotional attachment to goods and services is short-lived and so should be a marketeer's.
A company must ask itself, "Does a product have what it takes to please the target market
or not?" Research, when properly done, will give a marketeer the needed insight.

CHAPITRE 8

PROPER RESEARCH in a new market always brings about a surprising result-you find
out
how little you really knew before you started. Even the globe's tiniest markets are complex
commercial carpets with thousands of tasseled ends. Methodical research allows the
marketeer to understand how each carpet is woven and what binds that weave together.
No two carpets are exactly alike, and each contains a variety of subpatterns that can be
revealed as the market is continuously segmented and products refined.
Research has its roots in education, but it's not an academic exercise for those involved in
international business. It's a very real, vital, and costly process without which business
decisions must be made on conjecture alone. Derived from the Anglo-French sercher by
way of the late Latin circare (to go around), research
demands that the practitioner gain a total perspective before drawing a conclusion.
Marketeers who fail to conduct a thorough survey of a nation's commercial carpet before
stepping onto it run the risk of having the rug pulled
out from under them.
Defining Research Objectives: Plan Your Work
Marketing research is often associated with lengthy questionnaires and complex formulas
more akin to calculus than customers. For multi-billion dollar or trillion yen companies,
such elaboration is standard and affordable. Small- and medium-size companies have
trimmer budgets and marketing departments with fewer personnel to be assigned calculus
problems. Be assured that regardless of
the size of a company or its vearly gross sales, the process for doing market research is
the same
ESTABLISHING OBJECTIVES
The first part of the research process is to establish objectives, which aren't to be confused
with outcomes. Objectives should be about gathering information, outcomes will be the
result of analysis. Marketeers must start off the research process by avoiding the
possibility of self-fulfilling prophesies--you can't be subjective about objectives. A proper
initial objective would be: Determine the level of demand for Product X in the Hulinese
market. An improper overall objective for entering a new market would be: Determine the
best distributor for Product X in the Hulinese market. The former assumes nothing, while
the latter presupposes demand. The basic questions must be answered first if the
research is to have value, as there are no "givens when entering a new market.
An objective is a precise statement of the research's purpose. In its fullest form, it will have
three vital components.
RESEARCH QUESTION The first is the research question that asks what information will
be specifically required for the research. Since the ultimate goal of research is to aid
decision makers, achieving an answer to this question is the measurement of thorough
research. In the example above, the research question leading to the objective statement
would have been "What is the level of demand for Product X in the Hulinese market at this
time?" A follow-up question might be "Can demand be created through promotions?" "If
so, what type of promotion would be suitable in the Hulinese market?"
RESEARCH PROPOSITION The second component is the research proposition, in which
the marketeer anticipates possible answers to the research questions posed. These
hypothetical answers can be as general as "Demand will be high in the Hulinese market"
to the more specific "Hulinese acceptance of the product will be the result of a strong local
economy and increased consumer purchasing power coupled with a growing awareness of
international brands." It should be obvious that the more detailed the proposal, the more
specificities the research will have to cover. Additionally, because this is meant to be an
aid to decision makers, negative proposals should also be offered. Marketeers must
always be prepared to accept less-than-stellar results when viewing new territories, with
the knowledge that neither good nor bad results are permanent.
NOTE: If the first time you looked at the downside of a marketing scheme was after the
research had been completed, you wasted a good deal of time and money.
RESEARCH LIMITS The third component that must be put in place to formulate
an obiective is a determination of the research limits. Some of the limitations will be set by
the propositions, some by the budgetary restrictions placed upon the research process,
and still others will be the result of the availability of the desired information. In the first and
second cases, limits should be in direct proportion to the size of the potential investment. A
simple trade for a container load of foodstuffs will require a few days worth of investigation,
whereas investment in a multibillion Deutsche-mark seafood packaging plant may require
enormous expenditures and years of time to get the proper answers. Marketeers are
advised never to skimp on the research budget, as money well spent at this stage can
save potential losses or ensure future profits. Even if you decide to use outside contractors
to secure information, make sure you secure the best that money (and your budget) can
buy.
AVAILABILITY OF INFORMATION
The major limiting factor is the availability of information. Western marketeers, especially
the U.S. variety, are often shocked at the secrecy many cultures maintain regarding
consumer activity and commercial statistics. This is widespread in, but not limited to, the
emerging markets. Asian markets are particularly sensitive about having their economic
futures reduced to a series of statistics open to interpretation by what they view as hostile
foreign forces. China has jailed journalists for the reporting of national commercial
statistics in advance of the formal governmental announcement, and Vietnam has
declared its commercial statistics to be state secrets. Sub-Saharan African markets, where
accurate accounting can lead to mortal accountability, have a ditterent spin on information
protection. Few, if any, statistics are kept and new regimes are quick to rework what
information is available to justify new policies. South America, where varying degrees of
openness exist, prefers a very judicious approach to foreign information gathering.
Countries that are having economic problems, even developed nations, can
suddenly and decisively drop a curtain around the type of information market researchers
need. All nations want to paint the rosiest picture possible about the value of their country
in the global marketplace and individual companies within those nations will be doing the
same. These very real stumbling blocks reinforce the value of deliberate research and the
need for setting suitable objectives. As
much research as possible should be conducted on-the-ground in the targeted country.
WARNING: Research is a very serious and necessary part of any overseas marketing
effort. A common mistake made by smal companies and entrepreneurs is to combine their
in-country commercia research with vacation time in an effort to "kil two birds with one
stone." The standard result of this unsuitable mixture of business and pleasure is
inadequate research and an unrelaxing vacation. Besides the eftect on research. it may
also damage your future business relationships in the target country. The same types of
countries that clamp down on commercial information are also the ones that trown on
visitors conducting business activities while traveling on tourist visas. Fines, expulsion, and
"blackballing" can result- for individuals or entire companies. Vacations are fine for soaking
up casual cultural ambience, but hard-core marketing research demands full-
rime arrention
Designing Your Research Process: Work Your Plan
Once the objective (or objectives) for research is set, a marketeer needs to plan the
method by which each will be obtained. The objective serves as the driving why of the
research process, and now the marketeer/researcher will need to determine the what,
where, when, and how necessary for completion. Devising a blueprint for conducting
research will enable the marketeer to attain the original goal and avoid the myriad
diversions that will present themselves during information gathering. 'The research plan
also assures that everything has been taken into account before the real investigative work
begins.
WHAT
Under ideal circumstances, all information could be laid before a researcher and quickly
sorted into nice, neat, relevant piles. The reality is that information is scattered, sometimes
hidden, often completely unavailable, located in far-flung
corners of the earth. written in other languages and many times hopelessly out of date.
Access to it may be restricted by governmental, proprietary, budgetary and temporal
constraints. A detailed list is presented in chart form at the end of this chapter of the areas
that need to be covered when planning research, but marketeers are advised at this point
to plan the content of this process from a very realistic viewpoint. The research should be
divided into two main sections: Cultural information and commercial information.
Researchers may find a good deal of overlap but both areas should receive equal
emphasis and planning, Research depth and content usually hinge on the financial
constraints inherent in the following three categories.
WHERE
Cultural research should always be conducted inside the target nation by the marketeer or
trusted staff. Do not, under any circumstances, use second-hand cultural information.
Reading tour-guide books and national histories should be preparation for a research trip,
not a substitute. Even when consultants or research contractors (see Sources for
International Commercial Research, below) are used, cultural information should be
secured by the marketeer for everything but simple trade projects. Commercial research
may be partially conducted in the marketeer's domestic market if the target nation has a
history of economic openness. The Internet and governmental databases are good
sources of statistical information. but surveys and product testing must be conducted
within the target market for obvious reasons. Wherever possible, use vour own personnel.
Keep a keen eve on expenses but don't pinch pesetas good research costs money.
WHEN
Global business moves quickly, but research and access to information sources can be
time consuming. These should be conducted as soon as possible and within
the shortest beriod deemed prudent. A research prosect that takes a vear to complete may
contain information that's quite out of date at the time of the final report. It can be very
expensive to travel on short notice, but ideally good planning will have preceded any
necessary research trips. Research and planning should trigger sudden moves made by a
skilled marketeer, not the other way around.
HOW
A company may choose from a variety of means for conducting research. It may gather its
own information or use that produced by government agencies or consulting companies. It
may conduct face-to-tace surveys among consumers or observe their behavior from a
distance. It may use raw statistical data to build elaborate mathematical models of how a
market will perform, or rely on experiential evidence and cultural history. Successful
international products have been launched by all of these methods, by companies from
large to small.
Methodology provides usable information that in its turn provides insight and the
international market favors insight over intuition.
Sources for International Commercial Research
Since information will serve as the marketeer's education about the marketplace, research
should have a logical structure to its plan. Much in the way scholastic education proceeds,
the marketeer must move from general study to specifics, as the target goes from a distant
overview to pinpoint inspection. From an informational standpoint, this is a movement from
indirect sources to those derived directly from the targeted market. These are called
primary and secondary sources by many researchers (commercial and academic), but for
marketing purposes, that type of nomenclature tends to confuse the order in which the
information gathering takes place. Marketeers should move from the more general
(indirect) to the specific direct sources, in that order. Indirect sources allow the researcher
to determine which direct sources will be of the greatest benefit.
INDIRECT SOURCES
• GOVERNMENTS Governmental agencies are the first source that small- and
medium size companies turn to when seeking international marketing information. Each
nation (and sometimes their major cities) has a governmental department devoted to
promoting trade. They compile statistics and formulate profiles on all of their current and
potential trading partners but are greatly restricted by budget and the talent of their
operatives. Politics also comes into play and data tends to be more comprehensive
between nations that are on good
terms.
Marketeers in the research mode may seek out data from their own government or from
the target market's agencies. Most of the larger industrial and
technological powers make their data available to all researchers so marketeers from
smaller nations may consider using them in lieu of their own government agencies.
WARNING: All governments are in the habit of promoting their own trade, often to
the detriment of their neighbors and competitors. Government statistics shouldn't be
accepted as infallible pronouncements. If important data (governmental or private) can't be
corroborated by at least one other source. disregard it.
TRADE ORGANIZATIONS Private agencies and trade associations abound in
international business (e.g., Chambers of Commerce) and often their sole purpose is to
gather trade statistics and analysis. While they may duplicate some of the biases of
governmental groups, trade associations can be a source of quality information about
potential competitors, as well as about the market in general.
Rarely will such groups provide information to nonmembers without a fee. If this is the
case, check the quality of a small amount of information before making a final decision to
sign on for what may prove to be a good deal of self-promotion or very shallow fact finding.
LOCAL PARTNERS AND AGENTS When utilizing a joint venture, a strategic partnership,
or even a distribution agent, don't overlook their ability to provide insights into the new
market, even when their business experience may be minimal.
As mentioned earlier, these partners may not be of your own choosing but they're partners
nonetheless, and the best should be made of a less-than-ideal situation.
Besides being able to provide commercial statistics and competition profiles, local partners
can provide roadmaps for the political and licensing landscapes; in fact, this may prove to
be their greatest contribution. Some markets are quite clannish, literally, so some care
ought to be taken regarding a local partner's recommendations and situational analysis.
The partner may be under great pressure (governmental or familial) to influence the
direction of your venture.
CONSULTANTS Market research consultancy firms are burgeoning throughout the
developed and undeveloped world at an unchecked rate. The reason is quite simple: Even
small companies expanding overseas have recognized the need for professionally
assembled information. But few of these small companies, even some large ones, see the
need to maintain a full-time staff for what's viewed as either a one-time effort or, at best, a
part-time vocation. Enter the consultant to fill in the gaps. Most consultancy firms or single
operators will not only gather the information but also formulate a marketing plan-usually
for a very stiff price.
Quality varies immensely, as there's no licensing requirement for calling yourselt a
"marketing consultant," and few practitioners put much stock in academic certification.
Marketeers that decide to utilize a consultancy firm for research should insist on being able
to contact that firm's former clients. If the firm won't provide any names (usually claiming
client confidentiality), drop them from consideration.
When a list is provided, find out how in-depth the research was and if it's related to the
market you're targeting. Most firms will only give you the names of satisfied customers so
you may want to do some background checking of your own if the fees stand to be large
(Internet forums are a useful tool for this exercise).
WARNING: While most consultancies are reputable, the least reputable ones tend to go
after contracts with smaller companies, knowing that the demands will be less stringent.
Consultants may be using readily available resources that you could access yourself at far
less expense. Don't sign any contracts until they've proven themselves with a small
assignment. Many consultants are guilty of "boiler plating," which is the reselling of
standard information to multiple clients as it it were recently and expensively) unearthed.
(The "find and replace" capabilities of word processing software have taken this practice to
new heights, or lows, as the case may be. Insist upon detailed billing statements, along
with daily activity records, and avoid signing a consultancy's
"standard contract" unless you can amend it to your benefit. Providing your own
contract is the best method
CONTRACTORS Marketeers with sufficient resources may decide to keep the information
gathering under closer scrutiny by hiring contractors, as opposed to consultancy firms. The
contractor acts as a temporary employee and is more subject to the direction of the
company's management. This maintains control over the process without making a long-
term hiring commitment. Contractors should be given detailed instructions and their
interaction with the manager/ marketeer should be as frequent as possible. Since
marketing research isn't dissimilar to academic research, a good source of eager and
reasonably priced contractors is available on every university campus. Marketeers may
also uncover other talents (e.g., linguistic, accounting, engineering) in these researchers
that can be of longer term use to the company. Your company may be small now, but that
can change quickly, and the need for a full-time marketing department may present itself
sooner than you thought.
NOTE: Since these contractors can be hired in either the domestic or target market, take
care to abide by the applicable laws for their hiring, remuneration, and termination. In
some countries, there's no such thing as a "temporary" employee.
DATABASES AND THE INTERNET Computer databases and the Internet have very
rarely lived up to the hype that has preceded every new advance; still, they can be very
useful tools for marketing researchers. CD-ROM and database
technology has allowed libraries and data companies to store enormous amounts of
information in an easy-access format, with quick search capabilities.
Information that once took months to collate can now be assembled in a matter of minutes.
Free or near-free access, on disk or on-line, to national demographics, industry statistics,
cultural profiles, company quarterly reports, business forums and even on-line trade shows
makes database searches a great starting point for any researcher. Email is also an
economical way for marketeers to make initial contact with potential partners and
customers
NOTE: Very few companies, other than Internet service providers, have actually made
money while transacting business over the Internet. Once contact is made. a more
personal follow-up will be required. Computers are tools and all tools have limitations
• MEDIA Publications, from books to magazines to newsletters to newspapers, are awash
with useful business and cultural information. Astute marketeers will read as many sources
as possible to overcome the various biases inherent in news publishing. Most publications
maintain archives, while libraries assemble their own in microfiche for ready access to
historical data. Some publications and publishers that specialize in business (e.g., the
Economist, the Wall Street Journal, World Trade Press) have also established an Internet
presence.
WARNING: There can be a great deal of overlap among government and media sources.
In countries with totalitarian governments, they're one in the same. Determining the
"source of the source" will help marketeers analyze the information gathered.
DIRECT SOURCES
DIPLOMATIC If your country permits you to do business with the target market,
then the chances are good that vour government maintains a diplomatic office there
staffed with a number of commercial attachés. Their job is to provide information drawn
directly from the target market for use in promoting import/ export projects. They're also a
good source of information regarding the true nature of local investment policies. In
countries where "connections" are needed to do business, diplomatic staff can set the
marketeer on the right path toward the right people.
NOTE:
During the Cold War, the title of "commercial attaché"
designation among the major powers for intelligence agents. While that practice has
greatly subsided, such personnel may be considered suspect by the target market
government. If there's any diplomatic rancor between your government and that of the
target market, keep your contact with such attachés discreet. It's no surprise that many of
the world's former security intelligence personnel have switched their attention to
commercial research. Conflict has gone from the war room to the boardroom
INDIGENOUS STAFF When the budget permits, a company may wish to tap into a
storehouse of market information by employing personnel recruited directly from the target
market. Management personnel, in particular, are quality sources of cultural, linguistic,
commercial, and legal information that would take months, even years, to acquire. This
type of information shouldn't be confused with that obtained from local partners who may
be very self-serving (especially when the partner was not of a marketeer's choosing).
Indigenous personnel are employees of the marketeer's company-not the joint venture and
may be hired as immigrants to the marketeer's country or in the targeted local market
itself. Their loyalty should be firmly established, especially when hired locally, as industrial
espionage is a growing concern for all international companies. Even when they're not
hired from the ranks of management, these employees are excellent sources of the
cultural information necessary for working in the new marketplace.
RESEARCH BY WANDERING AROUND (RBWA)
By far and away, the best information that can be acquired by a researcher is that which is
obtained in-person and in-country. Also known as "on the ground" research, RBWA is the
only way to actually observe the consumer and the marketplace in action. While much
commercial information can be reduced to a series of statistics in a database, cultural
nuance and consumer behavior is best assessed in the environment where it's applied.
The wandering part of this terminology is meant to suggest the expansive nature of the
research, not aimlessness. R WBA, like all good research, should start with the general
and move to the specific. It's a common mistake in international business to move in the
other direction.
NOTE: A good example of this is the continued failure of foreign companies in China that
have confused the thriving coastal cities with the nature of the market as a whole.
If you want to market your product exclusively in Shanghai, fine, but if it requires
"Chinese" acceptance, get thee to the countryside.
Extensive RWBA can be an expensive proposition, as it uses up both a marketeer's time
and money. The return-on-investment, however, is quite sizeable. No one in the history of
international business has ever regretted attaining the insights that come from extensive
travel in a foreign market. Those that have come to regret a lack of RWBA are generally
explayers in the global marketplace.
Because of the expense, R WBA should be well planned and timed for maximum effect
(e.g., don't plan a research trip to Rio that coincides with Carnival or try to schedule
meetings a week before Christmas in Edinburgh). Larger companies may send teams to
spread out over assigned areas but they, like smaller operators, should allow several
weeks (three minimum) to get the job done properly. A few days simply will not do; two
months is ideal, even when spread over a year's time.
It's important for any company, large or small, to take an organized approach to RWBA in
order to avoid failing to produce results or turning research into an unscheduled vacation.
Collecting Information:
Statistical, Qualitative and Observational Methods
There are three tpes of information that researchers must secure in order to be able to
apply the word "thorough" to their information gathering process.
They're known as the statistical. gualitative. and observational methods. Al marketing
research contains these three elements. They don't necessarily receive equal emphasis as
much depends on the goods or services under consideration.
STATISTICAL METHOD
The statistical method (for the purposes of this book) will refer to the data that researchers
obtam from any of the indirect sources delineated above. These can be of a demographic,
climatic, economic, political, and geographic nature. While much of this can be accessed
from databases and archives, it's to be stressed that even this type of information is highly
susceptible to bias in its scope and reportage. All statistical information should be
corroborated and never taken at
race value.
NOTE: Benjamin Disraeli once said: "There are lies, damned lies, and then there are
statistics."
QUALITATIVE METHODS
Qualitative information is that which is derived from surveys and interviews conducted
directly in the targeted market. Some of this information may be
acquired from the actual consumer base or from the diplomatic and indigenous staff
mentioned above. When consumers are surveyed, this should be done in a formal manner
with standardized questions and interview situations.
WARNING: Marketeers in the research mode are advised to check with the local
authorities before conducting surveys or interviews. Many emerging markets, and even
some developed ones, have governments that are very sensitive to political or economic
Inquiries made by foreigners. Don't be surprised it a person is assigned to "assist" vou
wIth your interviews
OBSERVATIONAL METHODS
Observational information gathering takes place during the all important
RBWA period. The information can be acquired randomly or according to a set plan. The
latter method is the most advisable, but the marketeer/researcher should be prepared to
take notes on the marketplace wherever and whenever valuable information presents
itself. Unlike conducting surveys, observation requires some subtlety and researchers
must not give the appearance that they're gathering
information. or the subiects wil tend to act in an uncharacteristic manner.
NOTE: Another reason to be discreet with your observations is to avoid the attention of
local authorities. Foreigners who jot down copious notes or speak into cassette recorders
may be perceived as something other than harmless commercial researchers. Effective
Competition Studies: Keeping a Clear Head
All businesses have competition of some kind. Even when products aren't in direct
competition, they always compete for the spending patterns of the consumer. Competition
can be located in the target market, in the marketeer's domestic market or in another
foreign economy. Information should be gathered on all forms of competition during the
research phase of market planning. Market segmentation, total demand, and market share
must be considered simultaneously if the marketeer is to obtain a clear picture of the
foreign marketplace. Oftentimes the local government, its state-owned companies, or
businesses conducted as fronts for officials will be the major (or sole) competitors. This
may make research somewhat more difficult, but not impossible.
When conducting competitor research, it's essential to remain objective about a rival's
capabilities actual or potential. This is particularly difficult for entrepreneur marketeers who
conduct their own research. It's also difficult for subordinate managers who, placed in the
role of researchers, don't want to be the ones to present their home office with bad news.
In either case, appearing to be a "defeatist" shouldn't be the issue. If a competitor has a
better product, a lower price or even a government sponsored "lock" on the market, that
information must be passed along. Withholding the information or "sugar coating" it will
only serve to create an incorrect analysis of market conditions. Researchers, whether
they're a solo act or part of a massive team from an international commercial giant, must
be honest about the realities of the marketplace; let the analysts deal with the fallout.
The Value of Objectivity: Sometimes the Answer is "Not Now"
All information gathered by researchers, not just that concerning competitors, must be
sought out and looked at objectively before inclusion in the final report.
Much of what's collected will reflect the biases of the provider to some extent, and these
must either be filtered out or offset by other viewpoints. No opinion is absolute and no fact
tells the entire story. The assembling of cultural information is far more prone to
subjectivity, although commercial information can be equally tainted when big money is at
stake.
Emotions can run high when attempting to enter a new market; researchers
must maintain a cool heart when making decisions about information. Much of the emotion
stems from a marketeer's fear of missing a great opportunity in a foreign economy. It's
important to realize that some opportunities are best forgone, at least for the time being.
Marketeers and their researchers need to understand that while the answer provided by
market information is never "no," it can be "not now." Only objective information and
dispassionate analysis will give the marketeer a true reading of a target's potential and the
timing necessary to tap it.
Interpretation of Research: Good Idea, Good Product, Good Timing
In many ways, the gathering of information can be far easier than deciding what to do with
it. This is where good interpretation and analytical skills come into play. It's important not to
confuse the two, which are very different.
INTERPRETATION OF RESEARCH FINDINGS
Interpretation of factual material is the rendering of information into a form that can be
understood and digested by the end-user (the marketeer). Much like the job of a translator
of languages, a good interpreter knows that communication, even between two markets, is
full of nuance. Parsing information can be properly done by consultant, staff, or contract
researchers only when they have a clear idea of the end-user's goal. Though disregarding
useless information is as important as highlighting the productive, interpreters must wait
until set portions of the research are complete to make these distinctions. Even when
marketeers act as their own interpreters, they must take great care to select material after
all parts of the research plan have been satisfied
WARNING: Don't attempt to interpret information as the research is in progress.
Seemingly useless information uncovered early on may not have any bearing until it'
associated with data acquired later in the process. Research interpretation is really a
process of setting up connections
ANALYSIS OF RESEARCH FINDINGS
Analysis follows on the heels of interpretation and is the process whereby translated
information is applied to the problem at hand. Having good information and knowing what
to do with it can be very separate things. Evidence of this can be seen everyday in the
world's stock markets. A buyer and a seller
may look at the same information about a stock and vet one sees an opportunity to enter
the marketplace while the other believes it's the best time to get out. One of them is right,
one is wrong. Both may also be right for entirely different reasons.
The one with the proper analysis wins, while the other loses. The same is true in
international marketing. Comprehensive research and quality interpretation can provide
the marketeer with a detailed map, but only proper analysis will determine if it's a
propitious time to start the trip to market.
It's said that good analytical skills can't be learned, and that experience may serve to hone
talent already present. Successful marketeers have the inherent analytical skills necessary
to make profitable decisions and they never, ever, rely on luck. Marketeers may hire others
to collect information and even interpret it, but analysis must eventually be done by the
marketeer. As is true with information gathering and interpretation, egos must be put on
hold during the analytical phase.
The only emotion that should affect the process is an enthusiasm for getting the job done
right. Personal attachments to products, packaging, and advertising will only cloud the
analysis. Marketing research is first and foremost a discipline, not
an intuitive process Guidelines for Cultural Research: Past, Present and Future
Cultural information will provide the marketeer with the knowledge about how people in the
target market live and their views of the marketplace. Besides providing a basis for product
development or redesign, cultural information will also give insights into how business is
conducted and the population's sentiments about foreign products. The following is a list of
topics that need to be covered to obtain a thorough profile of a culture:
HISTORICAL
Political
Historical ruling factions
Foreign invasion or colonization
Wars and international disputes
Economic progress
Legal development
Religious groups
Ethnic groups
Linguistic roots
GEOGRAPHICAL
Continental location
Boundary demarcation
Weather patterns
Natural resources
Topography
Population dispersal
Population projections
FAMILIAL
Basic family unit
Role of extended families
Birth and death rates
Marriage and divorce rates
Parental roles
Male/female roles
Effect of kinship groups
Role of age
Role of government in families
POLITICAL/GOVERNMENTAL
Current national structure
Departments/ministries
Budget as percentage of GDP
Major political parties
Local governments
Voting restrictions
Stability assessment
Internal security
Taxation policy
Trade policies
Role of military in politics
Role of government in business
Risk assessment
International relations and treaties
EDUCATIONAL
Primary and secondary
Tertiary levels available
Literacy rates by gender by locale by ethnic group by economic class
Role of government in education
Private industry support
Areas of emphasis (e.g., engineering)
Role of overseas education
Language education
Technological instruction
Educational forecasts
LEGAL
Strength of judiciary
Basis for legal code
Police (national and local)
Role of bribery
Protection for foreign nationals
Patent, trademark, and copyright laws
International agreements (e.g., WTO)
Ethnic participation
Expropriation laws
Profit repatriation laws
PHILOSOPHICAL
Cultural philosophies
Religious groups
Secular and ecclesiastical influence
Symbology and icons
Religion and government
Inter-religious conflicts
Role of cults
ARTISTIC
Ethnic folklore
Foreign influences
Level of development
Music
Drama
Visuals
Government support
Private support
Role in daily life
LINGUISTIC
National language(s)
Dialects
Ethnic influences
Foreign languages spoken
RECREATION
National sport
eisure activities
Attitudes toward leisure
Income devoted to recreation
National holidays
Festivals
CULINARY
Cuisine style and background
Nutrition levels
Foreign influence
National dishes
Class distinctions
Ethnic distinctions
Sanitation concerns
Dining protocol
Alcohol consumption
Gender roles
HOUSING
Rural versus urban dwellings
Population densities
Cost of housing
Taxation
Rate of ownership
Non-citizen ownership rights
Sanitary conditions
Size of average household
Inheritance policies
Treatment of poor
Employer role
Government role
Housing projections
WORK
Labor relations
Average wage
National
Rural
Urban
Workweek
income taxes
Percent of industrial versus agricultural
Training programs
Mandated benefits
Holidays and vacation policies
Payment methods
Industrial forecasts
HEALTH
Average lifespan
Doctors per capita
Major health concerns
Government coverage
Hospitals per capita
Health care for foreigners
Health and lifespan projections
Commercial Research: A Decision-Making Checklist
In many ways, economic research is more straightforward and easily accessed than
cultural information, as much of it is readily available in databases. There can be little
doubt that all of the topics covered under cultural research have a great effect on the
economy (and vice versa). It's virtually impossible to do a thorough job of researching one
without becoming involved with the other. The guidelines have been separated to show the
differences in concentration, not to clarify any exclusivity. The following is a list of topics
that require research when attempting to get an accurate picture of a nation's commercial
sector.
DEVELOPMENT
Historical economic growth patterns
Changes in economic philosophy
Gross domestic product (GDP)
Total
Per capita and per family
Growth rate
International standing
POPULATION
Total
Distribution
Geographic
Ethnic
Racial
Religious
Age
Growth rate
Gender percentages
Rural/urban densities
Immigration rates and policies
WEALTH
Income distribution by:
Class
Ethnicity
Racial group
Religion
Gender
Geographic region
AGRICULTURAL
Major crops
Distribution of crops
Total foodstufts consumed
Climatic factors
Percentage of total workforce
Ratio of imports to exports
Contribution to the economy
Growth projections
INDUSTRIAL
Major industries
Major categories
Resources available
Percentage of total workforce
Ratio of imports to exports
Contribution to the economy
Growth projections
International rating
TECHNOLOGICAL
Major companies
Major categories
Resources available
Percentage of total workforce
Ratio of imports to exports
Contribution to the economy
Growth projections
Level of development
Research and development funding
INFRASTRUCTURE
Transportation
Roadways
Waterways
Seaports
Airports
Rail System
Energy
Petroleum/natural gas sector
Import/export ratios
Gasoline sources
Local refineries
Electrical power plants
Power consumption
Household
Industrial
Growth projections
Communications
Television
Sets per capita
Number of private stations Number of public stations
Satellite capability
Foreign involvement
Radio
Sets per capita
Number of private stations
Number of public stations
Foreign involvement
Telephone
Teledensity
Government ownership percent
Foreign ownership percent
Cellular capability
International long-distance
Internet access
Service providers
End users
Restrictions on use
Postal System
Public versus private
Foreign carriers
Postal rates
Newspapers/Magazines/Publishing
Total nationwide
Major publications
Censorship concerns
GOVERNMENT
Budget as percentage of GDP
Total national debt
Budget deficit
Inflation rates
Balance of payments
Currency
Rate(s) of exchange
Pegging
Stability
Foreign currency reserves
Role in domestic commerce
Internal tariffs
State-owned enterprises
Role in foreign trade
Import/export controls
Tariffs
Quotas
Customs process
Licensing process
Embargo restrictions
Foreign aid
Public and private sources
Usage rates
International bond rating
Economic policy
Foreign investment policy Property ownership rights
Business ownership rights
Entry/exit visa policies
Permanent resident policies
Taxation rates
Personal
Corporate
Foreign-owned businesses
Expatriate workers
Profit repatriation laws
Expropriation and domestication risks
LABOR
National productivity
Applicable sector productivity
Hiring practices
Training needs
Minimum wage requirements
Mandatory benefits
Work week length
Overtime requirements
Religious restrictions
Dismissal policies
Union activity and strength
Local management percentage
requirements
Linguistic concerns
Local labor attitudes
ADVERTISING AND PROMOTION
Government oversight
Cultural concerns
Available advertising modes
Pricing
Reach and impact projections
Local familiarity
Available promotion formats
Use of local agencies
Logo and brand recognition
DISTRIBUTION
Potential for foreign involvement
Availability of locally run distribution
Services offered
Product experience
Financial status
Extent of retail operations
Quality of agents
Quality of retail outlets
Ability to store and transport goods
Credit requirements
Quality control systems
Local
Self-administered
ENVIRONMENTAL
Pollution concerns
Industrial guidelines
Government controls
Environmental treaties
Competition Profiles: When to Compare Apples to Oranges
Competitors in the target market may not always be immediately visible. It's even possible
that they'll only spring into view when they find out you're researching their domestic
market. Any product (goods or services) that can be duplicated will be duplicated. The
ease of duplication and the laxity of legal protection will determine the speed at which the
duplication takes place. Competition can't ever be completely eliminated, but it can always
be forecasted by analyzing astute research. Competition profiles will help the marketeer
determine what competitors are already in the marketplace and the potential for other
rivals in the near or distant future. The following is a list of the types of information that
should be kept on file (and regularly updated) regarding competitors:
Competitor name
Country of origin
Presence in target market
Presence in neighboring markets
International presence
Total number ot operations
Estimated revenues
Domestic presence
'Total number of operations
Estimated revenues
Directly competitive products
Pricing
rearres
Packaging
Indirectly competitive products
Advertising
Promotional efforts
Local distribution channels
International distribution channels
Governmental connections
Strategic partnerships
Joint ventures
Importer relationships
Estimate of current market share
Potential for future competition
NOTE: Bear in mind that if you've found a new market interesting, someone else has
probably found it equally enticing and is researching it as well.

CHAPITRE 9

Preparing for Market Entry

SEIZE OPPORTUNITY BY THE BEARD, FOR IT IS BALD BEHIND. - BULGARIAN
PROVERB
MARKETS ARE NEVER completely open or completely closed. Every market presents
would-
be entrants with an enormous number of possible doors through which to pass.
Some of the doors are unlocked and as clear as glass, while others may be as solid as
steel, equally opaque, and tightly bolted. Ease of entry doesn't guarantee profitability and
often, the gatekeeper government is keeping its most lucrative markets well-secured for
itself and local business. Other times, doors are left open and unguarded in an attempt to
lure unsuspecting investors or traders to a pitiable and profitless fate. Lucrative doors may
suddenly swing wide for just a moment, while others must be cajoled for years, even
chivied, into opening.
Many portals need only to have the name of the right person dropped on their threshold to
gain entry. In all cases, a marketeer's ability to properly analyze the information available
will determine which door to approach and what product to present when the door opens.
Segmentation: How to Subdivide Opportunity
The procedure whereby marketeers determine how large or how small of a group to
approach with their products is called market segmentation.
Opportunities for segmentation in international marketing may seem endless. The world
can be treated as a single marketplace, or it may be seen as composed of billions of
single-member markets in the form of individual human beings. Any groupings in between
these two extremes can be considered a market segment.
The degree of segmentation is determined by the appeal of a product to a general market
and by the ease with which that product can be adapted to increasingly specific markets.
For this reason, most companies start off with as broad an appeal as possible, then
sharpen their focus as more insights are gained.
Initially targeting an entire country can be risky, especially when the geography is
expansive and the population diverse. Marketeers must determine how consumers in any
particular group respond to the marketing mix-that is, the product, its price, promotional
efforts, and the means of distribution. Information gathered during research will be used to
make this initial determination, which over time will be increasingly refined. This doesn't
necessarily mean that a company will change its focus from the market segment it
originally targeted.
Even when the segment remains the same (e.g., Hulinese executives between the ages of
thirty-five and fifty with large disposable incomes), in time it will be further dissected into
smaller and smaller niche groups as consumer tastes are perceived more precisely, or as
they change.
Differentiation: Engaging the Competition
Differentiation is the conscious effort by a company to distinguish itself from its
competition. Even when a segment has been selected, it must be understood that a
competitor has already made the same selection or will shortly. This is where
differentiation comes into play as a means of reaching the consumer. Every consumer has
a reason for buying a particular product-necessity, convenience, status, impulse, emotion,
color preference, or a host of other motivations. Starting at the macrolevel of marketing,
marketeers will have only a general understanding of such motivations upon entering a
new national market. Time and familiarity will bring about microlevel marketing approaches
as consumer buying patterns (and their underlying motivations) make themselves evident.
Continued differentiation from competitors can lead to an expanded market, a further
segmentation of a current market, or both.
The athletic footwear industry is a fine example of ongoing marketing that utilizes
segmentation and differentiation to expand and subdivide. Initially just purveyors of
running shoes, they've progressively marketed designs for specific sports and even cross-
training footwear for those that can't make up their minds about which sport to play. The
manufacturers have refined the segmentation, all the while seeking to differentiate
themselves in the consumer's mind by seeking the endorsements of famous athletes and
the addition of technological gimmicks (e.g., airpumps, quasi-scientific designs). The
original target group, athletes, has been "niched" into its various fields of sport, while the
shoes themselves have left the athletic context and entered the realm of fashion. Only by
paying attention to what consumers want (since, in this case, very few actually use the
product for the design purpose could the manufacturers move with equal success through
the macro- and microlevels. Some shoe companies, like Nike, have logos that have
become cultural icons, as their focus moved from shoes to clothing to luggage and
eventually to their own retail outlets.
Positioning
Positioning is the means by which a marketeer establishes the product as a distinct image
or brand in the consumer's mind. Simply put, it's the management of perception and it
goes beyond consumers' general beliefs about a product.
Products are seen as part of a larger category, but a marketeer seeks to hold a separate
and singular position in the consumer's mind (e.g., before positioning:
Heineken is just beer, after positioning: Heineken is that imported Dutch beer in the green
bottle that costs a little more but shows sophistication). There are six main steps that you
can use (as did Heineken on its way to becoming a world leader) to prepare a positioning
strategy
SEGMENT THE MARKET
Deciding which group to go after in the foreign market is usually based on similarities
found with successful marketing efforts at home. The wants and needs of consumers in
this new market must be researched (surveyed) to not only fine tune the targeting but also
to determine whether or not the original product will require modification.
LIST COMPETITORS
Competitors may be very evident or you may have to do some searching. Even if your
product is the market prototype, likely competitors can be profiled from related industries.
For details, see Competition Profiles in Chapter 8.
DETERMINE HOW COMPETITORS ARE POSITIONED
You must determine where the competition stands, as your position will only have meaning
relative to theirs. If they're a local company, then chances are good that they're already
well-established in the marketplace (even if it's just a related field) and consumer
perceptions of them are readily available. If your competition is another foreign company,
information may not be as forthcoming.
IDENTIFY OPEN POSITIONS
Since no market is completely closed, suitable openings are to be assessed.
Competition may be met "head to head." as is the case with pan-Asian transporters like
Cathay Pacific and Singapore Airlines. Each attempts to out-service the other in the exact
same segment of luxurv travel over almost duplicate routes. Both realize there are other
segments (business commuter routes) and other positions (economy flights), but each
refuses to relinquish the luxury field to the other. Airlines have made fortunes by exploiting
various positions (fast, sophisticated, economical, luxurious, comfortable, professional,
sexy, etc.) and each consciously chose the image to be implanted in the consumer's mind.
Openings may be found in that "mind" or, as is more often the case, openings can be
expanded and exploited. Either way, they must be identified.
DETERMINE HOW CONSUMERS MAKE DECISIONS
Once a position has been identified, marketeers must now find out how consumers reach
decisions to act on that positioning at the purchase point. For instance, in the preceding
example, do consumers choose Singapore Airlines for luxury, convenient scheduling,
newness of its aircraft, multiclass ticketing, or the perceived sexuality of the
"Singapore Girl" prominently featured in the
advertisement? Whatever the answer is (and it may be all five of them at different times),
new competition should position itself accordingly. Finding out how consumers think can
only be determined by direct contact.
DIFFERENTIATE YOUR PRODUCT
The final stage of positioning strategy will be to differentiate your product so as to
maximize its appeal. This should only be done after consulting directly with consumers; do
not attempt to guess how they think. You may decide to position yourself as a higher
quality alternative to a competitor or as a more economical one. It's even possible to
succeed as a duplicator of goods and services already present in the marketplace. Product
"clones" often surpass the original in some markets (computers, beverages, clothing).
Public Relations: Image is Everything
Public relations (PR) is any of the activities a company performs in order to maintain its
image while promoting goodwill toward its products and personnel. Positioning is part of
this image maintenance, and images in today's information society require constant
protection. Marketeers realize that a company's image can, oftentimes must. be changed
in the consumer's mind but that too much change or too drastic a change may result in
damage. When an image is altered it should be done so deliberately and by degrees.
Unfortunately, the image of a company isn't entirely under its own control.
The media can be a very powerful tool both for building an image and destroying it.
Good relations with the media in all of its forms (print, radio, television, Internet services)
are the goal of a public relations effort (decades ago, PR stood for press relations, but the
subsequent non-print media emphasis inspired the name change).
International companies have enormous PR concerns, as they must contend with a wide
variety of overseas media cultures as well as with their own domestic news outlets.
Abroad, virtually everything a foreign company does, both prior to and after entering a new
country, will be scrutinized; the larger the company, the greater the scrutiny. Back at
home, their actions and associations overseas will be used as a measuring stick for
acceptability in the local marketplace. Two very good examples of this double-edged
sword can be seen in the recent problems created for Swiss banks and companies doing
business in Myanmar (Burma).
Swiss banks had a century-old image of discretion and legitimacy that suddenly came to
an end as news of their involvement (at first denied) in Nazi financial deals from more than
50 years prior gained attention. Major companies of all stripes in Britain and the United
States were quick to distance themselves by withdrawing funds from Swiss financial
institutions. In Myanmar, where human rights concerns have made headlines, numerous
foreign firms from around the globe have ceased investment activity to avoid a consumer
backlash in their domestic markets. In both instances, companies found that their image,
so deftly cared for, was now out of their control and they could only respond to consumer
perceptions, not manipulate them.
Good public relations are essential, even when the brand name is well known and well-
thought-of before a product enters the target market, and that PR effort must start prior to
actual entry. When a company already has an international presence, its reputation for fair
dealing and for sensitivity to local cultures may already be locked into the local psyche,
long before market entry is even considered. The use of goodwill gestures (e.g, art
patronage, education programs, sports team sponsorship) is a common way for foreign
companies of all sizes to ingratiate themselves. Creating employment opportunities for
local personnel (at both the managerial and staff levels) is another way for foreign firms to
counteract the impression that they're goal is simply to profit from the new market.
NOTE: PR. like product positioning. requires that the practitioners have a firm
understanding of local culture and methodology. When a small company is trying to
establish a foothold, they may be judged by the actions of the personnel sent out to
research that market. Arrogant attitudes, missed meetings, professional slights, and lack of
preparation all add up to bad PR betore the product ever reaches the market. PR ISn't just
for the big players, and it doesn't always appear in the newspapers.
Problems to Avoid in New Markets
There are some pitfalls to avoid when attempting to segment the market and differentiate
the product. Most problems occur when assumptions are made. The following
assumptions are some of the most common.
PRODUCT IS PRODUCT
There's always a service component for goods sold, and services sold usually include the
use of some physical goods. However, goods and services can't be marketed in the same
way. Although there's a section of this chapter devoted to this difference, it should be
noted now that consumers have a less demanding view of service when goods are the
focus of the sale. Consumers buying a service, in turn, have a less stringent requirement
of the goods that are often needed to perform that service. Marketeers should understand
this when selling goods or services as their main product.
BIGGER IS BETTER
When segmenting, start with a size that your company can handle even when the potential
for sales may be countrywide. Putting your company in a position in which it can't handle
solicited demand is a surefire way to attract competition.
When dealing with differentiation, major differences may not be what the consumer is
looking for at the point of purchase. Adding table service in a fast-food restaurant, for
example, tends to confuse rather than please. Differentiation can be any size, from subtle
to blatantly obvious, as long as it's in keeping with
consumer expeclacions.
ALL CHANGE IS GOOD
Consumers aren't stupid. They want improved products, not merely changed ones. If
you're going to alter your product to differentiate it in the marketplace, make sure that the
changes are of benefit (real or perceived) to the consumer.
Most of the time, changes can be simple and not necessarily costly. They're always costly
if made without seeking the direct input of consumers.
NOBODY CAN RESIST A BARGAIN
When the phrase "priced themselves out of the market" is used to describe a company's
product line, it usually refers to overpricing. However, many companies, from airlines to
fast-food restaurants, have actually underpriced themselves into failure. This can occur
even when large discounts keep the product potentially profitable. This results because
customers tend to believe that low prices equate with low quality. When this occurs,
people become highly suspicious rather than appreciative of cheaply priced products. This
is especially apparent in goods that are physically consumed (food, beverages, medicine)
or services that apply to security or health (e.g., how many people would trust a doctor
who worked for minimum wage?). Discounting can also lead consumers to believe that
they were gouged for past purchases, the logic being that if a company can afford to offer
a 50 percent discount today, then yesterday's price was overstated by 100 percent. It price
reductions are to be the point of ditterentiation, take care not to
"cheapen" the consumer's opinion of your product.
PEOPLE LOVE LUXURY
Most people do prefer luxury, but very few are willing or able to pay for it. If your products
are luxury oriented and presumably demand high prices to cover high cost, care must be
taken to direct them at consumers who can afford (or at least will not resent) paying for
them. Airlines recognized some time ago that "first class" has limited appeal and went on
to subdivide luxury into affordable bites; various forms of "business class" are now
standard. Hotels have taken a similar route with "concierge club" and a wide variety of
suite-style lodgings. It should be noted that consumers always expect more than they pay
for but rarely accept less. Creating an atmosphere or appearance of luxury is problematic
if the product doesn't live up to the created expectation. Keep in mind that luxury isn't a
universal concept; one person's pampering may be another's standard mode of living.
PEOPLE BUY WHAT'S GOOD FOR THEM
If this were true, the use of motorcycle helmets and seatbelts would never have to have
been made a legal requirement. Likewise, the widespread popularity of cigarettes, alcohol,
fatty foods, and even heroin all speak of humanity's desire to forsake health for pleasure.
Making improvements to a product to advance its health or safety aspects may actually
decrease sales, as happened in the auto industry prior to safety regulation. It was also the
case with "low alcohol" beers, which had a decidedly brief appearance in the 1980s. Other
times, as was the case with "light" beer, the health aspects were underplayed and other
more attractive attributes touted (less filling) to make consumers believe the change
(mostly lower alcohol content) was adding to enjoyment. Marlboro cigarettes for their part
marketed "regular" and "light" versions, so that consumers could choose their own level of
nicotine and tar reduction. In recent years, they've even added
"medium" as a new niche
EVERYBODY WANTS CUTTING-EDGE PRODUCTS
Marketing texts designate the people who buy new products, regardless of dependability,
as being early adopters. Having the "latest thing" is more important to these people than if
the product actually works or is useful. The computer industry regularly depends on these
types to pay for the privilege of field-testing new products. Sometimes this is a function of
brand loyalty (as is the case with Apple products like the Newton PDA), or it may be due to
the desirability of a technical advance (as occurs every time the size of cellular phones
decreases). High-tech industries may be rife with early adopters, but few other sectors are
so lucky. Most industries (banking, textiles, construction) change incrementally; major
technical advances (ATMs, polycarbonates, modular homes) may take years to reach
widespread usage after their original introduction.
In other sectors (such as medicine and food processing), it may take decades, excluding
governmental approval, to gain enough public trust for technical advances (laser surgery,
freeze drying) to find general acceptance. Even more
"creative" industries (fashion, music) regularly suffer the consequences of assuming that
most people like to be avant-garde
CONSUMERS WILL KNOW OUR PRODUCT IS BETTER
Just as it's unwise to make your differentiation too dramatic, it is equally foolish to make it
too subtle. If the differentiation is small, and sometimes it may be, it must be brought to the
consumer's attention via advertising or packaging.
Long-distance telephone companies worldwide regularly do battle over a few pennies
difference in by-the-minute rates. Wisely, they always couch the amount of money saved
in terms of monthly or yearly totals. Otherwise, the consumer would have little impetus to
change carriers.
THE COMPETITION MAKES A BETTER PRODUCT
Somebody has to make the best product on the market, and it isn't always your company.
But this is no reason to throw in the towel. There are two approaches a company can take
when facing a better-positioned competitor. The first is to exploit the rest of the market not
occupied by the competitor. Industry leaders are often loathe to take on the lower end of
the market sector, for fear of decreasing the value of their brand name, but carving a niche
in an area not used to much attention can be very lucrative. Japan's conquest of the U.S.
auto market resulted from exploiting the low-cost, compact market neglected by Detroit
companies that had made their name with gas-guzzling, four-door sedans. Remember,
there may always be room at the top, but there's more in the middle. The second approach
is to build on your competitor's success by making improvements to their product line. This
was the method taken by computer-clone manufacturers who broke IBM's stranglehold on
the market. By taking advantage of the groundwork laid by "Big Blue," companies like
Compag and Dell have seen their fortunes rise. In turn, their progress has been exploited
by Acer and Gateway.
EVERYBODY WILL WANT OUR PRODUCT
On rare occasion, consumers will accept a product "as is," with zero alteration to the form
in which the company originally intended it. Inexplicably, some companies resist the
changes regularly requested by the marketplace in an effort to bend consumers to their
will. This we-know-best attitude is oft repeated in the television industry, where "knock
offs" of successful programs are shoved down viewers' throats long after consumer tastes
have changed. Swimming against the
tide of clearly stated consumer desires is not the way to ditterentiate vourself in the
marketplace.
NOTE: You don't have to pander to every consumer whim, but you'll have to address
enough of them to keep consumers interested.
PEOPLE ARE DIFFERENT, BUT NOT THAT DIFFERENT
MTV (Music Television) is one of the great international marketing successes in recent
years. From humble New York City beginnings in the early 1980s, MTV went on to
become a global arbiter of music, fashion, and even morality. So powerful is its influence
that it's regularly denounced by parents, religious leaders and governments worldwide
(much to the glee of its marketing department). Such planetary success can be attributed
to their realization that the only thing their viewers really have in common is that they
watch television. Beyond that commonality, MTV has become as diverse as prudence and
finances will allow.
Multilingual, multicultural, multiracial, multigenerational, multinational, multicontinental,
multimedia and multifaceted are the hallmarks of this entertainment giant that has
outniched competitors right off the map.
Differentiation isn't just a marketing tool for MTV, it's a mission statement.
NOTE: Product preferences are as different as they are permitted to be and there's profit.
big profit. in giving consumers that permission. It vou can attord to microsegment. do it.
OUR BRAND NAME CAN SELL ANYTHING
Brand names can indeed be very strong (their development will be discussed in detail later
in this chapter). In many ways, brands are what companies use to stake their claim in a
market segment. A marketeer must take care to protect the image that's bound up with the
brand, while maintaining a differentiation from competitors. There's little value and
potentially great harm in confusing the consumer with a product line that's too diverse.
Using the previous example, MTV can diversify almost indefinitely in the entertainment
industry, and they've already begun with expansion into movies and casinos. However, if
they suddenly attempted to market a line of securities brokerage houses, success would
be very improbable. The key word in the previous sentence is suddenly. Over time,
consumers can be convinced that a company (and its brand name) stand for much more
than their original product. Long-term planning and segmentation will help a marketeer
protect the brand while diversifying.
NOTE: MTV Securities may not be so far-fetched. In 1997, brokers Fahnestock & Co. sold
over US$50 million worth of "futures" in rock star David Bowie's recording rovalties. Similar
offerings regarding artistic copyrights are now referred to a "Bowie Bonds."
THIS MARKET IS STABLE
Markets do stabilize, but not forever. Marketeers must be ever watchful, not
just for a market to open but for them to expand and contract as well. Inside each market,
new segments can present themselves through technical developments (e.g., laptop
computers gave birth to a plethora of new specialized accessories) or legislation (e.g., in
Thailand, sales of motorcycle helmets soared as soon as they became mandatory
equipment) or environmental conditions (e.g., respirator masks are de rigueur throughout
Southeast Asia during Indonesia's regular forest-fire season. The dwindling or eradication
of opportunities must be considered as well.
WARNING: No opportunity or its demise should ever be "sudden" for the professional
marketeer. In this case, "sudden" is a euphemism for "not paying attention." There are no
surprises in marketing, only missed observations. Never be so busy that you can't
Dav attention. or vou won't be busy for very long
THIS MARKET IS PLAYED OUT
Markets are never played out; it's only the products offered to them that have an expiration
date. Failed marketeers who blame the marketplace for their woes are only revealing their
own inadequacy. As in the case of stability, awareness is the key to staying in the eternally
evolving international markets. Goods and services can outlive their usefulness (e.g.,
mimeograph machines, mimeograph repairs), and a marketeer must be prepared for the
rejection that will eventually take place. Preparing new product-lines (e.g., photocopiers,
computer repair) and reorganizing market segments will keep you moving at the same
pace as the global
сСОПоШУ.
WARNING: In the world's current commercial atmosphere, to stop changing is to die.
Matching Goods to Market: Make It and They Will Buy
Up to this point, the term product has been used to describe both goods and services, with
the implication that there's little difference in the marketing strategies necessary to bring
either to the marketplace. The selling of goods will, by necessity, include some form of a
service component, but the very fact that goods are physical in nature makes their
relationship with the consumer different from the more intangible services. Goods (a.k.a.
merchandise) may include commodities (grains, livestock, petroleum, minerals, currencies,
securities), manufactures (machinery, textiles), or property (real estate). These three
subgroups cover every form of physical merchandise available in the marketplace.
(Although property isn't considered movable like other merchandise, its title-the rights to
the real estate- can be traded internationally.)
PACKAGING OF GOODS: LITTLE THINGS MEAN A LOT
Packaging is the design and production of the appearance of, the features of, or the
container for merchandise. It's the physical manifestation of the positioning that the
company has chosen for each individual marketplace. Packaging, in all of its forms, is
what piques the interest of consumers at the point of sale. Goods at the retail level are, for
the most part, experienced visually. The cover of a book, the wrapper of a candy bar, the
tea tin, the toy box, the shape of a personal computer cabinet or a milk carton all beckon
the customer to buy. These are examples of primary packaging--the product's immediate
container. Secondary packaging are the containers used to hold the primary packaging.
Tertiary packaging are those containers used to ship or store the product. Packages are
used to market not just contain the product at the point ot purchase through siX standard
means.
ENCOURAGE LARGER SINGLE PURCHASES Jumbo cans of beer, five-kilo bags of
onions, and cartons of eggs get the consumer to buy in larger quantities than they can
immediately use. Larger single-packaging can also invite greater use, as consumers feel
the need to match consumption to availability. Fast-food giant Burger King uses this
concept with its ever larger versions (usually by layer) of the already substantial Whopper.
Like Australia's Fosters beer company,
Burger King has found that larger packages breed larger appetites.
FACILITATE USAGE Some packaging eases usage and thereby increases consumption.
Frozen four-course dinners, twist-off bottle caps, tea bags, or personal computers with
built-in speakers all make products easier to use and their purchase more attractive.
Sometimes the ease may come in the form of storage, as in the case of Sweden's Tetra
Pak International whose "asceptic"
packaging for juices and milk allows storage for up to five months. This can be key to
businesses with irregular or infrequent delivery dates.
CONSOLIDATION Cellular phones with paging features, TVs with built-in DVD players or
photocopiers with printer/fax capability all allow several products to be packaged as a
single unit. Sometimes the consolidation is so successful that consumers lose sight of the
fact that multiple products are at work. Personal computers with factory-installed modems
or sound systems are a good example of how consolidation can blur the line between
separate products, even when each product is made by a different, often individually
famous, company.
PROMOTIONS Packaging can promote a product by identifying and establishing a brand
at a visual level. The shape of a Volkswagen Beetle or of a Coca Cola bottle can trigger
immediate recognition by consumers. Likewise, other
packaging elements can bring continuity to a brand as its products change or as new
products are brought to market (e.g., the Mercedes hood ornament, the Louis Vuitton
logo). Beyond use as a brand platform, packaging can differentiate the product from
competitors through size, shape, quantity, or color.
INTRODUCTIONS Packaging can be used as a signal to consumers that a product has
been updated or that an entirely new product is being offered.
Changes in design and color, even the inclusion of the famous marketing phrase
"new and improved," all attract consumers to the purchase. Sometimes the packaging is
the only real "new" part of the product line (e.g., new auto models
built on old frames and drive trains). But for many consumers, "new" means
"better," even when no substantive change has occurred.
• EASE OF DISTRIBUTION Every market has a distinctive form of distribution that each
marketeer will have to deal with even when they operate their own distribution channels in
the target country. The size, weight, shape, and recyclability of packaging will affect its
acceptability to the distribution channel and to end-users. Because of this, packaging and
the expense of redesign will have to be considered when planning for a new market.
Labeling is often the main focus of packaging redesign, as government regulation is
increasingly stringent. The EU's requirement that all weights and measures be listed in
metric only will have an enormous effect on companies wishing to package for the United
States and European market, as two separate packaging designs will now be required.
Language and ingredient/component requirements can also make packaging design
difficult and expensive. When consumers buy in small quantities (the Japanese) as
opposed to bulk (North Americans), the size of packaging for storage may have to be
redesigned. While tertiary (and most secondary) packaging has been standardized
internationally, primary packaging is still the subject of cultural
NOTE: Sometimes the proper packaging and the willingness to conform to local
distribution requirements will give the marketeer the upper hand over less cooperative
competitors. Being prepared with new packaging will definitely give you a time advantage.
Getting to the consumer first is always best.
The Pricing Process: Relativity of Value
Price is the value of what a consumer exchanges in return for products. It may take the
form of monetary exchange, bartered services, or other goods. The price must be set so
that both the consumer and the marketeer "profits" by the exchange if only at the
perceptual level. The price (at least the starting price) is set by the marketeer, and
consumers the world over consider price a major factor in purchasing decisions, whether
they're buying vegetables at the local store, diamond rings, office furniture, or factory
machinery. The key to controlling the pricing process is a firm understanding of how the
targeted consumer perceives the value of goods.
NOTE: Much of this section on pricing can be applied to services, as well as to goods.
Special concerns regarding the pricing of services will be taken up later.
Consumers must believe (and it's only a belief) that the price is less than or equal to the
value they derive from the goods being sold. Marketeers can create this belief in the
consumer's mind through adjustments to the quality of the goods themselves (raise or
lower quality to match consumer buying capabilities), the atmosphere in which they're sold
(raise or lower consumer expectations by manipulating ambiance), or by promotions
(discounting).
Pricing will be driven by three main forces: cost, demand and competition. Each of these
forces can, in its turn, be the main focus of a company's pricing strategy.
COST-ORIENTED PRICING
The cost of producing something represents the lowest possible price that a marketeer can
charge for goods without incurring a loss. However, cost isn't as simple as it seems and its
full extent can be hidden. Understanding cost is primarily an accounting process. These
accounting concepts will be presented in a simplified form so as to assist in explaining
pricing strategies only.
Fixed costs are those expenditures that don't change, regardless of how much is
produced. These include such items as rent, management salaries, depreciation, and
property taxes. While these costs remain static for extended periods of time, the fixed cost
per unit will decline as production increases. Variable costs are expenditures that change
according to the quantity of a company's output. These might include employee wages,
materials, transportation, and packaging. The variable cost per unit may actually decrease
when production expands--as efficiency increases and the savings that come with mass
raw material purchasing become evident. Total costs are the sum of all fixed costs and
variable costs.
Marginal cost is the added cost that occurs when a single unit of production is added to
current levels; it only affects variable costs and is used to determine the effectiveness of
expanding production and its ultimate effect on pricing. Six cost-oriented pricing schemes
are described below.
• COMPONENT COST This strategy takes a single component of cost (usually the
major variable component, such as labor or materials) and expands it by a standard
percentage to arrive at a market price. (e.g., unit material cost x 300
percent = sale price). That percentage, added by the original producer, is called a
markon (as opposed to the markup added by middlemen) and is a very common, if
simplistic, pricing scheme. It disregards consumer demand and doesn't take into account
total cost per unit or competitor pricing.
COST PLUS This strategy adds a profit percentage to the total cost per unit.
This is more etticient than the component cost method as now all costs are considered,
but there's still no accounting for demand. The cost plus strategy also relies on costs
remaining relatively stable, making large fluctuations difficult to absorb. At the primary
producer level, this pricing represents a markon.
Middlemen using this strategy to set their sale prices are adding a markup.
AVERAGE RETURN In this method, a company adds a fixed amount of profit (rather than
a percentage) to its total cost. This amount is then divided by the total number of units to
be produced in order to derive the price. The average return scheme relies on the selling
of its entire production run in order to realize profits.
But as many companies that have used this method have discovered, it's impossible to
raise prices to recoup profit if demand is lower than projected, and discounting further
erodes what little profit has been secured by earlier sales transactions.
average return = total cost of projected unit + desired profit
number of units to be produced
• BREAKEVEN Volume sales can be used to secure profit by figuring the level of
unit sales at which revenue money coming in) equals total costs money going out).
This is the breakeven point. Beyond this point, additional sales represent profit; below this
point, all sales will incur a loss. The breakeven point will vary for different prices; projected
sales volumes and variations on competitor prices or sales forecasts can be experimented
with to arrive at the most favorable price. Like average return, this method assumes that
whatever quantity will be produced will be sold and that variable costs will remain stable
during the production period.
total fixed costs
breakeven point = price per unit - variable cost per unit
NOTE: Even when this method isn't the scheme ultimately used, it's an effective means
of determining where vour company stands land has potential in a new marketolace
MARGIN Breaking into a new market may require drastic measures to gain market share
or recognition. Pricing below total cost--margin pricing-is a method utilized by large and
small companies alike. It can be used to quickly grab a piece of a burgeoning market or to
drive competitors out. When the former is the goal, a company hopes that long-term
efficiencies and gradual prices increases will make up for early losses. When the latter is
the goal, a company plans on becoming the market leader (if not its sole supplier) and
making up losses with long-term volume. This tactic is called "dumping" when it's utilized
by large international manufacturers; in some economies, it's an illegal procedure.
ECONOMIES OF SCALE Characteristically, as a company's amount of market share
increases (along with its production levels), there's an accompanying increase in the
efficiency and a decrease in cost. These economies of scale are brought about by the
discounts on volume material purchases and by increased worker productivity. For
manufacturing processes, there is typically a 15 percent
decrease in per unit costs for every 100 percent increase in production levels.
Companies fight for market share as a pricing strategy because the money saved by
increased production can be passed along as price reductions, which further increase
market share. This is rarely considered for start-up companies, but it's a
regular ploy of established ones entering a new market with less efficient competitors
DEMAND-ORIENTED PRICING
Cost may set the base for pricing but demand sets the high end, as consumers often place
value on goods far in excess of the costs required to produce them. Gems and precious
metals are examples of goods whose prices are set almost entirely by arbitrary demand.
Demand can fluctuate wildly, and forecasts of consumer demand are taken on faith (rather
than fact) and always as short-term considerations.
Demand, price and supply are closely related and require continual monitoring. In the
classic economic principle of supply and demand, as price increases on a steady supply,
demand drops. If demand rises and supply is limited, prices increase. If supply increases
and demand remains fixed, prices drop. Marketeers can manipulate demand to a degree
by promotion and they have an obvious control over supply, but it's far easier to tinker with
pricing, especially when goods must be produced in advance. Different goods react in
differing fashion to price manipulation, a phenomenon known as price elasticity of demand.
The four main categories of this price-demand relationship are discussed below.
ELASTIC DEMAND When price is changed by a percentage, demand changes by a
greater percentage. Normally, demand will drop dramatically as price increases and rise
sharply as price decreases. However, consumers sometimes interpret price as a quality
indicator, in which case demand will actually rise with price increases (wine, housing) or
drop with price decreases (convenience foods,
clothing) without any pressure trom the supply area.
INELASTIC DEMAND When price is changed by a percentage, demand changes
by a lesser percentage. Prices of goods considered to be necessities medicine or near
necessities (sugar) can absorb very large price increases without affecting demand.
Similarly, goods can have a sharp price decrease and demand will change only slightly as
there is a limit to consumption (e.g., milk).
UNITARY DEMAND (A.K.A. UNITARY FALLOFF) When price is changed by a
percentage, demand changes by an equal percentage. Like elastic and inelastic, these two
percentages run in opposite directions, but it may not always be so for some luxury goods
or those goods subject to short supply and high demand.
CROSS DEMAND When goods are used in conjunction with other products, their price will
fluctuate with that of the other product. For example, as the price of DVD players began to
decrease, usage increased and the demand for movies in DVD format increased.
NOTE: Fans of popular music readily adopted CD and mp3 players, while classical music
and jazz fans stayed with record albums claiming higher fidelity. Only recently
have recording artists of all types returned to producing music on record albums (along
with digital format), with a commensurate rise in the price of vintage turntables and
amplifiers. Price, supply, and demand continue to orchestrate the market.
Determining the price elasticity of demand can be reduced to a formula, but it also requires
the marketeer to understand how consumers in the target market make decisions.
Because of the difficulty met by small companies when gathering survey information prior
to entering a foreign market, elasticity shouldn't be used for setting initial pricing, only for
subsequent changes. A simplified version of the formula is stated below.
E = percentage change in quantity sold
percentage change in unit price
E equals the coefficient of elasticity. If E is greater than one, demand is elastic.
If E is less than one, demand is inelastic. Unitary demand exists when E = 1.
COMPETITIVE -ORIENTED PRICING
Cost and demand may set the extremes of pricing but a marketeer rarely has a market to
himself--at least not for very long. Prices are a matter of recovering cost, meeting demand,
and--most importantly-responding to the prices of the competition. Some industries (such
as auto manufacturing) respond directly to the pricing initiatives of competitors. Others
(global beer manufacturers) respond to a competitor's price change by increasing their
advertising in order to maintain a customer base. Still other industries (fast-food
operations) respond to competitive pricing by oftering consumers a package of goods at
discount, in a mix that disguises the marginal profits of the individual goods. A recent trend
in pricing is to lower the upfront cost of the product and make up for the reduced price by
raising the price on supplies needed to maintain the original purpose. Ink and toner
cartridges for computer printers and photocopving machines are prime examples of this
trend.
The key to competitive pricing is to keep the consumer from seeing that there's a direct link
between your price setting and that of the competition. When consumers are aware of this
link, they begin to play one company off of another (as regularly occurs when shopping for
automobiles). A company that chooses to
"hold the line" when a competitor lowers prices must work doubly hard to convince
consumers that the product is worth the now-higher price. This can be very difficult if the
product was previously positioned head-to-head with the competitor's. Similarly,
discounting and mix-packaging can very often cheapen the consumer's opinion of the
value of your product, especially when the price changes are dramatic. When price
changes are seasonal (holiday sales, for example), price increases can be viewed as
"gouging." Many countries in the developing world institute rigid pricing guidelines or
"caps" during holiday seasons to protect against inflation and an angry population. Even in
technological societies, companies may be subject to investigation and prosecution if their
competitive pricing of certain vital commodities (fossil fuel, electrical power) gets too
extreme or if it seems they're taking advantage of a spike (sudden increase) in demand.
Product Life Cycle: Pricing and Time
All products have a marketplace life span that goes through the phases of development,
introduction, growth, maturity, decline and on to eventual withdrawal (see Chapter 7).
During this cycle, a product may enter a market at a very low price and increase that price
until it reaches "maturity of demand" and then decline in price as interest wanes. Many
products, especially technological ones, have required extensive research and
development costs prior to market entry. The introductory price for these goods may be
very high but will actually decline as demand increases and research and development
costs are recovered (as was the case with cellular phones and digital calculators). When
goods merely imitate goods already present in the new market, a special introductory price
is offered to get consumers to try out the imitator.
LIMITED DEMAND
During the decline phase of the product cycle, competitors start to leave the marketplace
altogether. A company may find itself the sole supplier of a commodity that's still required
by a small group of consumers but that's needed in amounts too small to warrant
competition. This situation can greatly extend an otherwise doomed product. For example,
large computer companies regularly sell off the rights to retail the replacement parts for
computer models that are no longer available for retail sale, usually to original suppliers of
those parts.
Consumers still using the out-of-date models are now dependent on these suppliers to
maintain a product that has, from the original seller's viewpoint, run the length of its cycle.
This secondary market has become a very lucrative niche, as the price of limited supplies
can be increased. Being a sole supplier with a limited market comes with the proviso that
prices should be set just high enough to prevent the
consumer from switching co a new product une altogether.
PLANNING THE CYCLE
Companies with a great deal of experience in a particular market can plan their product
cycle along with their pricing scheme. Consumer behavior is a known quantity and
elasticity has already been tested. The result can be a set of goods that have a "planned
obsolescence" (consumer electronics) or even
"disposability" (throw-away instamatic cameras). These experienced marketeers don't
leave the life span up to the consumer but take it upon themselves to limit it. They price
(and manufacture) these short-term goods with disposability in mind--not too costly, not
too sturdy.
At the other end of the spectrum are producers that wish to offer a product whose main
feature is durable luxury, as exemplified by quality timepiece manufacturers. Here, the
consumer base is wealthy but few in number. The resulting price is usually quite high and
doesn't necessarily reflect just the costs of materials and labor. Since the few consumers
targeted will probably buy just a single unit in their lifetime, each sale must provide a huge
margin. This type of pricing has a certain snob appeal, since a cheap digital watch will tell
time just as well as an expensive Patek Philippe. High-end pricing for easily substituted
goods like watches, clothing, or food relies on the consumer's willingness to equate price
with quality. From the producer's point of view: Why should they sell a hundred Product
Life Cycle: Pricing and Time
All products have a marketplace life span that goes through the phases of development,
introduction, growth, maturity, decline and on to eventual withdrawal (see Chapter 7).
During this cycle, a product may enter a market at a very low price and increase that price
until it reaches "maturity of demand" and then decline in price as interest wanes. Many
products, especially technological ones, have required extensive research and
development costs prior to market entry. The introductory price for these goods may be
very high but will actually decline as demand increases and research and development
costs are recovered (as was the case with cellular phones and digital calculators). When
goods merely imitate goods already present in the new market, a special introductory price
is offered to get consumers to try out the imitator.
LIMITED DEMAND
During the decline phase of the product cycle, competitors start to leave the marketplace
altogether. A company may find itself the sole supplier of a commodity that's still required
by a small group of consumers but that's needed in amounts too small to warrant
competition. This situation can greatly extend an otherwise doomed product. For example,
large computer companies regularly sell off the rights to retail the replacement parts for
computer models that are no longer available for retail sale, usually to original suppliers of
those parts.
Consumers still using the out-of-date models are now dependent on these suppliers to
maintain a product that has, from the original seller's viewpoint, run the length of its cycle.
This secondary market has become a very lucrative niche, as the price of limited supplies
can be increased. Being a sole supplier with a limited market comes with the proviso that
prices should be set just high enough to prevent the
consumer from switching co a new product une altogether.
PLANNING THE CYCLE
Companies with a great deal of experience in a particular market can plan their product
cycle along with their pricing scheme. Consumer behavior is a known quantity and
elasticity has already been tested. The result can be a set of goods that have a "planned
obsolescence" (consumer electronics) or even
"disposability" (throw-away instamatic cameras). These experienced marketeers don't
leave the life span up to the consumer but take it upon themselves to limit it. They price
(and manufacture) these short-term goods with disposability in mind--not too costly, not
too sturdy.
At the other end of the spectrum are producers that wish to offer a product whose main
feature is durable luxury, as exemplified by quality timepiece manufacturers. Here, the
consumer base is wealthy but few in number. The resulting price is usually quite high and
doesn't necessarily reflect just the costs of materials and labor. Since the few consumers
targeted will probably buy just a single unit in their lifetime, each sale must provide a huge
margin. This type of pricing has a certain snob appeal, since a cheap digital watch will tell
time just as well as an expensive Patek Philippe. High-end pricing for easily substituted
goods like watches, clothing, or food relies on the consumer's willingness to equate price
with quality. From the producer's point of view: Why should they sell a hundred the topic.
For example, Fujitsu PC Corporation uses an advertisement to boast about how their
computer service people answer the telephone in two minutes, rather than the industry
average of thirteen, but the ad contains scant information about the computer itself.
Whereas automobile manufacturers have consistently widened the scope and length of
their warranties and service, computer companies have done the opposite. The former
found that consumers were keeping their cars longer than expected (especially during
periods of economic downturn) and therefore wanted the greater product life span inherent
with maintenance. However, computer buyers (laptop users, in particular) found they had
little use for a three-year warranty, as they were buying new machines every eighteen to
twenty-four months. Computer companies dropped the warranties to one-year. and now
some even charge consumers to use their telephone "help" lines for service.
Understandably, as these two opposite approaches to service were being formulated, the
price of automobiles rose and that of computers dropped.
NOTE: When consumers pay more for something, they expect more service and tighter
guarantees. Expectations of "more" become skewed over cultural lines. For example,
Westerners are often cited for being demanding and intolerant of counterparts or sellers
while working in Asia. This stems from Westerners having higher expectations of service.
Asian businesspeople seem unusually passive to Western counterparts, but much of this
is the result of Asians having different expectations beyond product delivery. In either
situation, the buyer rules. The marketeer bears the burden of knowing what the consumer
culture "expects" of service. The seller's opinions are of no importance
Matching Services to Market: Selling Intangibles
"Services" are the work done by a company that benefits another company or a consumer.
They're often referred to as "intangibles" because there's often little or no physical
component to the process. Services include education, banking, hospitality, airline travel,
accounting, consulting, brokering, software, insurance, health care, communications, and
a host of other "acts" performed by one group of people for another. While there may be a
physical item as part of a service (banks have money, restaurants have food, schools have
books) a company is denoted as a service because the greatest part of what it sells is the
labor of its staff. Services are a fast growing sector in developed economies; international
trade in services for all nations has topped US$700 billion per year. Far from connoting
servitude, becoming a "service society" is now indicative of having attained the most
advanced form of economy beyond industrial and technological.
It's a standard economic observation that the majority of what wealthy people purchase
isn't goods but services. Services in this case are, literally, for those
consumers who have everything that they or their companies need
Commercial and Consumer Services: Different Attitudes
Services are divided into two main groups: commercial services, which are marketed to
other businesses, and consumer services, which are directed at individual buyers. Each
group has needs and attitudes very different from the other. Two service industries--
banking and hotels provide contrasting approaches to dealing with this divergence on an
international basis.
A bank will offer its commercial and consumer patrons similar services but in a very
different manner. Merchant and corporate customers demand immediate service and
preferential treatment. Beyond deposit, withdrawal, and checking,
these commercial customers want Davroll accounting. low-rate business loans. investment
advice, foreign exchange transactions, correspondent bank connections and letters of
credit. And they want (and receive) enormous discounts on these services, based on how
much they keep on deposit.
Individual consumers receive basic checking and savings account services, along with
bank card privileges (Visa/Mastercard). They place few demands on the bank and accept
without question (for the most part) whatever rates the bank offers. Most consumers put
little more thought into which bank they choose than determining which has a branch
closest to their home. Few major banks have
found value in oftering consumer services. due to the extensive administrative work
required to handle these relatively small accounts. Many nations force banks to maintain
consumer services in order to retain their licensing. Banks have responded by entry into
more lucrative areas (such as insurance and securities brokering) to make up for losses
incurred while handling small consumer accounts, which they consider a nuisance, at best.
Hotels take the opposite view of consumer/commercial differences. They see even
corporate customers as individuals and market their services accordingly. Large hotel
facilities have "business class"
' or "concierge level" floors set aside for business
travelers, although they're available to tourists as well. Corporate accounts allow for the
discount purchases of blocks of room-nights spread over a year's time. These are often
sold to airlines for housing their flight crews or to repeat corporate accounts.
And like the airlines, hotels offer their noncorporate guests the opportunity for similar
discounts with
"frequent guest" promotions. International hotel companies like
Marriott have created
"extended stay hotels" for business travelers on long
assignments while, at the same time, maintaining resorts for leisure travelers. Rather than
shunning one segment in favor of another, hotels have focused on the needs of each and
attempted to exploit them to the fullest extent possible.
No one can deny that banking is a profitable business or ignore the importance of the hotel
industry to international trade. Each of their service marketing strategies has been
successful. Every marketeer who works in a service industry must make the decision to
focus on commercial service, consumer service or both.
Marketeers will find that, for the most part, commercial customers are far more demanding
and have greater "clout" because their purchasing power is so large.
There's a natural tendency to work harder to maintain the business of a large account. (If a
bank teller or a hotel clerk loses a single consumer account due to rudeness, there will be
little consequence. However, if the account in question is the Philips Electronics corporate
account, be assured there will be much greater concern.) This isn't to say that consumers
can't be demanding or have considerable purchasing power, only that the scale is smaller.
Pricing: How Much is Service Worth?
Much of the earlier discussion about pricing goods can be applied to services.
However, the pricing of services creates problems for marketeers. Since there's no size,
shape, or weight to a service, it's difficult for consumers to value it relative
even to other services with which they mav be familiar. Unless a service Is presented by a
known brand name, consumers tend to equate price with quality.
This sense of "you get what you pay for" has been the standard pricing scheme for many
services from lawyers to leisure.
This consumer perception is often called the Disneyland Effect--people spend so much to
arrive at and enter into the theme park that they're reluctant to admit that, in the end, they
aren't satisfied with the result. Even after standing in long lines for virtually everything,
people go away happy. ("It cost so much, I must have had fun.") Similarly, consultants
charge huge fees in the belief that customers will find their work more satisfactory if it
comes at a premium price. And it works.
Consumers know that high-quality goods demand a high price so, in reverse logic, they
assume that high-priced services provide top quality.
VALUING SERVICES
Values for services are really a matter of personal values, and those values are easily
manipulated. Consider the following examples:
• A New York exporter pays a lawyer $100 per hour to look over a trade document but
pays only minimum wages to the immigrant au pair who takes care of her child.
A global manufacturer pays a British business consultant £500 per day plus expenses but
grumbles about the 15 percent service charge a Hong Kong hotel applies to a banquet
check for a deal-closing celebration.
A subsidiary of a Canadian financial planning company operating in France charges clients
for brief telephone consultations but regularly makes bootleg copies of its office application
software to avoid paying for additional licenses.
MARKET PRICES
Services are like goods in that the value placed on them seems culturally arbitrary but
different from goods in that there's no "market rate" for services (as is the case for
commodities). A service company can set its own pricing in isolation (e.g., a consultancy)
or position itself relative to competitors (e.g., a fast-food restaurant). Big global players
have traditionally marketed their services on a market-by-market basis in which prices are
customized to each target's perception of the service, to its local costs, and to its ability to
pay. A service may cost ten times as much in one market as it does in another, even
though the true cost of providing that service to each set of consumers may differ only
slightly. In the past, this could be done because, generally, services weren't easily
transferred from low-priced markets to high-priced ones. However, this has changed
enormously in the last few decades as information flows have accelerated. Some services
are increasingly transferable (finance, telecom), and consumers are now more aware of
what other markets are paying. This has resulted in demands for more equitable pricing.
UNIFORM PRICING
Much of the difficulty of having a uniform pricing policy, in which prices in each market are
matched to the exchange rate without regard for other factors, stems from the tariffs,
taxes, and other local costs that plague international companies.
Consumers only see the products or goods, not their underlying costs. 'This can be very
telling on something as intangible as a service. Market-by-market pricing is still the best
approach especially when the marketeer works in an economically diverse landscape.
Services are better understood and more highly valued in technological societies than in
agricultural based emerging markets. If the service is provided for the same price in both
marketplace extremes, it can run into problems. If it's priced for technological markets, the
service will be beyond the reach of emerging market consumers. If the service has its
pricing geared for emerging markets, the low rate will be taken by technological markets
as a sign of poor quality.
NOTE: The pricing of services requires extra attention during the research process.
Researchers must determine the local market's familiarity with the service to be sold, as
well as local attitudes toward services in general. While many markets are familiar with
globally branded commodities, it's less common that foreign markets recognize service
providers by
Financing Strategies: Buy Today, Pay Tomorrow-Perhaps
Having a great product that's in high demand and marketable at a profitable price is
absolutely no guarantee of success. Consumers everywhere are prone to wanting
products they can't afford to pay cash for--at least their own cash.
Marketeers must be concerned about the way that purchases of goods and services will
be financed and the mode of compensation. Being paid in local currency isn't the only
option and, in some cases, it may not be an option at all.
FINDING FINANCING
Finance literally means the "end of debt," which implies that a debt was created. For the
purposes of this discussion, finance will represent the use of a third party to pay a seller for
a transaction on behalf of the buyer. Marketeers who wish to work in the global arena are
increasingly required to understand finance and the various financial avenues available.
It's not unusual for a seller to be expected to line up the financing for the buyer as part of
his responsibility
for having a successtul transaction. Buyer access to financing may De severely limited due
to location or education. In emerging markets, sizable transactions will most likely require
the seller to bring the financial package to the table. Many of the following sources of
financing can also be used for product development prior to entering a marketplace.
• COMMERCIAL BANKS Both domestic and foreign commercial banks are willing to
finance international transactions, but only when there's minimal risk and the contract is
short-term. This lack of risk is reflected in a relatively low interest rate. Large commercial
banks (e.g., Citicorp, Sumitomo) have suffered severely in each of the last three decades
for lending to high-risk projects that have gone bust. Such banks can be very wary of
international deals. They're best approached for financing only if the deal is rock-solid and
the buyer dependable.
INVESTMENT BANKS (I- BANKS) Traditionally, investment bankers sold securities on
behalf of a company taking per-trade fees or differentials for their services. Newer forms of
investment banking firms raise money for projects from any and all of the sources listed in
this section. Primarily connected with technology projects or the building of manufacturing
plants, investment bankers can be well worth their fees for large, difficult projects.
EXPORT- IMPORT BANKS (EXIM BANKS) This is a general term for banking services set
up by national governments to promote the export or import of goods and services
deemed profitable for the country. They work with short-term (less than 180 days),
medium-term (180 days to 5 years) and long-term financing (5 to 10 years). Short-term
usually provides low-cost insurance for a transaction so that the exporter can more readily
acquire a commercial loan. Medium-term offers
a combination of insurance and discount lending for transactions. Long-term financing
extends direct credit to the foreign buyer or a guarantee (rather than partial payment
insurance) for a private loan. Both medium- and long-term financing will require down
payments by the buyer.
DEVELOPMENT BANKS These are international bodies set up to promote development in
parts of the world considered lacking. They offer low interest loans for worthy projects, and
in the last decade they've even "bailed out" entire economies that were floundering. The
more specialized the bank (e.g., The Bank of Central African States), the more likely that it
will finance trade transactions.
Some development banks can be found at the provincial and city level.
FORFAITING (FINANCING WITHOUT RECOURSE) In this process, a seller takes the
debt incurred by the buyer (a receivable) and sells it at a discount to a company willing to
collect the debt over an extended period. Sellers figure the discount cost into the selling
price and collect their money immediately, even when the transaction or project has long-
term financing. Forfait companies specialize in debt collection and are betting they can
collect the debt within a set period of time. They may even resell the debt in a secondary
market in the form of a promissory note or bill of exchange.
WARNING: As mentioned earlier, countries following orthodox Islamic law will not become
involved in "usurious" transactions, that is, those in which moneylenders take interest for
their participation. Forfaiting under these circumstances is out of the question. Some
cultures that rely on the personal relationship rather than the commercial contract may
also take affront at finding their debt being sold off to a third party and then into the open
market. If forfaiting is used, make sure the buyer is aware of the ramifications.
PRIVATE INVESTORS (ANGELS) Many private citizens, especially expatriates or former
citizens of the target market, are willing to finance international projects. This is
exemplified by the massive amount of foreign investment that flooded into China in the
1980s that was orchestrated by groups of so-called Overseas Chinese. Wealthy
individuals or groups of individuals inside the target market may also be likely candidates.
VENTURE CAPITALISTS (VC) This funding is, by its very nature, reserved for high-risk
projects. Venture capitalists see potential where commercial banks fear to tread. VC
companies command direct involvement with the project (40 percent or more equity
stakes) and they're active at the managerial level. The seller may bring the VC to the table,
but the buyer will have to live with them for a long time. VC companies have the long-term
goal of selling off equity interest once the project becomes profitable. Although they rarely
get involved in trade deals, venture capitalists can bring a wealth of business acumen to a
project.
INTERNAL FINANCING Larger companies and small companies with large cash reserves
may choose to finance the sale themselves. Build-Operate-Transfer projects (BOTs) often
take this form, in which the seller literally pays for the sale and the buyer repays the seller
over time. This is common for infrastructure ventures in developing countries. On a smaller
scale, exporters may finance initial forays into a new market as a way to "get their foot in
the door" and make a good impression. When this becomes a common practice, some
companies actually form separate subsidiaries designed solely for the purpose of financing
new broiects in new markets.
NOTE: Buvers in markets new to international trade can be reluctant to pay even short-
term interest to a seller. Rolling the interest directly into the sale price causes even more
problems. Forming a separate financing subsidiary tends to ameliorate the buyer's opinion
of internal financing.
• ENGINEERED FINANCE Sellers with far-flung offices and global experience can call
upon financing from around the globe. These sellers offer buyers the opportunity to
arrange financing in whatever country provides the most beneficial terms. As a marketeer's
company grows and successes mount, financial relationships in one market can be utilized
in another, possibly even years after the original project. As is true of other parts of
commerce, maintaining networks of contacts is the key to long-term success.
Transaction Settlement
CURRENCY
In international commerce, not all national currencies are of equal value. The stable value
of a currency (known as its degree of "hardness") makes it more desirable for being
converted into other currencies. Some currencies, like the renmibi of China, are completely
inconvertible, and because these currencies are less desirable for transactions they are
described as being "soft." The U.S. dollar, on the other hand, is considered to be one of
the hardest of currencies along with the Japanese yen and the EU's euro. Their values
change but do so over long periods of time, as opposed to the volatility of soft currencies.
Sellers prefer contracts in which they're paid in a hard currency assuming a stable value;
buyers prefer to commit to paying in soft ones assuming a drop in value.
Nations with high inflation problems and soft currencies will oftentimes place severe
restrictions on how foreign companies will be paid for their products. War-torn central
African nations forbid the carrying of foreign currencies within their borders, thus making
payment for foreign shipments difficult and subject to direct government approval, even for
small transactions. Countries (like Vietnam and China) that are attempting to build large
hard currency reserves go so far as to put restrictions on how much their business-people
can spend while traveling overseas since these expenses must be paid in something other
than their domestic currency.
During periods of crisis (such as the summer of 1997 currency devaluations in Asia), some
countries will actually cease currency exchanges of all kinds in an attempt to protect their
economy. Experienced sellers must attempt to ensure transactions against this type of
interference when dealing in risky markets. See also A Short Course in International
Payments, also by World Trade Press.
NOTE: A great deal can happen between when a contract is signed and when payment is
made. Marketeers must be aware of the prevailing value of the currency specified in a
transaction, as well as of the political and economic milieu in which the transaction takes
COUNTERTRADE
As many Thai companies found out in 1997, foreign-denominated debt can ruin a firm if
the local currency drops in value. Another aspect to keep in mind is that marketeers are
buyers of raw materials as well as sellers of product. Currency valuation may work in your
favor during the sale but against you when it's time to purchase raw materials or labor.
Marketeers working in the fluctuating landscape of global business will find that there are
times when buyers will simply be unable to achieve financing in a currency that's suitable.
When this occurs-
and it does occur in an estimated 10 percent to 15 percent of all international trade -buvers
may offer goods or services in return. This process of exchanging one product for another
is known as countertrade.
BARTER
Barter--the equal and full exchange of goods between two companies is one form of
countertrade. No currency is used for the transaction and there may be more than just the
two original companies involved, as each part o the transaction attempts to get a useful
product in return. For example, Company A sells sugar to Company B, which can only pay
with wheat. Since Company A doesn't need wheat, Company B sells it to Company C,
which can only pay with alcohol, a product unneeded by Company B but useful to
Company A. Company C, in turn, delivers alcohol to Company A in an amount of equal
value to the original sugar.
This type of bartering can have as many segments as efficiency will permit. It should be
noted that even when no currency exchanges hands, customs offices will still be levying
tariffs. And they rarely barter.
MIXED COMPENSATION
Mixed compensation is another form of countertrade, wherein goods or services are
exchanged for a mixture of other goods and services as well as currency. The importer
may, for example, pay for goods with 40 percent cash, 25 percent commodities and 35
percent services. In another scenario involving A, Band C from above, Company A sends
sugar to B, which sells wheat to C. Company C sends 30 percent of the original AB trade
to Company A in cash and 70 percent in alcohol.
Sometimes an importer and an exporter from the same country will transact business with
a foreign company that exports as well as imports. Different products (but of equal value)
are sent to and received from the foreign country, and money is exchanged only between
the original importer and exporter.
OFFSETS
An offset or buy-back agreement is a special arrangement between the seller and the
buyer. It involves the seller making a commitment to purchase from the buyer, at a future
date, products that have been made possible by the original sale.
This type of arrangement is usually reserved for very large purchases or those that effect
an economy at the national level. It generally requires the cooperation of governments as
numerous companies or industries may be involved. As one example, a large auto
manufacturer is allowed to sell automobiles in a foreign market only if the manufacturer
agrees to import parts from the target market.
In another example, a chemical producer will be permitted to sell the manufacturing
processes for a new polyethylene plant in a foreign market only if it agrees to import raw
petrochemicals from that same market.
NOTE: Often, groups of smaller marketeers will band together in an effort to set up their
own buy-back agreements. This takes a great deal of internal as well as intergovernmental
cooperation
Brand Selection and Equity: Building on Success
A brand is the distinctive name or design (logo, package, trademark, etc.) that becomes a
recognized marketplace image, a way for buyers to distinguish a product from its
competitors. The establishment of a strong, positive brand image can actually enhance the
value of a company and is considered at this point to be
brand equity. As with price, marketeers must give consideration to how a particular brand
name will be received in each different market. After all is said and done, brands are
images, and images can be controlled to a great degree by skilled management and a firm
understanding of what motivates the consumer.
Like all images, they're much more easily destroyed than created.
BIG COMPANY, BIG NAME
Some companies have established international brand names (e.g., Toyota, McDonald's,
Shell Oil, Nestle) that are recognized virtually anywhere on the globe. Names as famous
as these are often part of a market's language even before the products cross the borders.
However, most marketeers aren't equipped with such reputations in advance of their
arrival and must literally "start from scratch" when entering a new market. This situation
has both positive and negative aspects.
On a positive note, the target markets have no preconceived notion about what the
company represents. Famous companies often have to overcome not tame but notoriety
(deserved or not). Toyota and McDonald's, for example, not only bear the standard for
their products but are also often seen as representatives and promulgators of domineering
foreign cultures. Shell Oil and Nestlé are often taken to task for the environmental (oil
drilling) and medical (baby formula) impact that their products have had, respectively, on a
global scale. It's not unusual for a project to come up against enormous local protest. even
when the brand name company is a small investor or supplier for a venture. Beyond the
possibility of notoriety is the problem of wealth. Iew markets assume that wealthy
corporations will just throw money around (legally and illegally), and local partners can
become indignant about the stringent financial controls that are part and parcel of
international business.
LITTLE COMPANY, BIG PROBLEMS
Of course, the negative aspects of being an unknown company can be even more
troublesome. Business and government leaders in the target market may be reluctant to
meet with an obscure foreign marketeer. When meetings do occur, the marketeer has to
spend extra time explaining the company's background and reliability. Distributors and
consumers will have to be equally persuaded and may see little value in carrying or using
an unrecognized brand. But this must be looked upon as a challenge, just as it was in the
domestic market.
The creation of brand awareness in a foreign market faces the same obstacles as those
found in the domestic market, but with the added problems of language and cultural
differences. Awareness moves from recognition to recall to preference. This can be
managed in a new market through a variety of promotional and design methods.
DISTINCTIVE NAME
Choosing a name to use in a foreign market can be a delicate issue. A literal translation of
the domestic market name may create humor where intended, or possibly offense. It may
even serve to confuse consumers about the product line. Similarly, retaining the domestic
name without translation may cause problems as well, as it may sound like an unattractive
word in the target market's language (e.g., Sunbeam's Mist Stick hair curler went to the
German market untranslated. Then it was discovered that "mist" is German for manure).
Companies that have a widespread international presence may choose to simply
abbreviate or use the initials of their domestic name (e.g., ING Bank). The name should be
chosen based upon the image desired, consumer cultural perceptions, and the
marketeer's product line.
ATTRACTIVE SYMBOL OR LOGO
This topic can be as sensitive a subject as the brand name, and symbols often create
more powerful reactions in consumers. For instance, a Japanese manufacturing company
may use flowers as part of its logo, as these symbolize perfection and symmetry in their
domestic culture. Those same flower symbols in the U.S. market connote feminine images
not generally associated with factories and machinery. Another Japanese company,
Subaru, uses its namesake constellation, Pleiades, as its company logo. However, this
symbolism has virtually no significance outside of Japan. In both examples, the names and
logos were chosen long before the companies went international. Nowadays, companies
shy away from logos that are too easily identified with a single culture and have moved
toward more generic images. Microsoft Windows, for instance, uses an easily recognized
windowframe pattern, while Lucent Technologies uses a simple red circle. Even when your
logo has an apparently neutral image, test it out in the foreign market before committing it
to exposure.
SLOGAN
Slogans or promotional jingles should be customized to each market. Poetry and music
are very highly linked to culture. Beyond just making the slogan attractive to the local
audience, it must also have meaning. Even something as simple as the old slogan for
Ivory Soap, "So Pure It Floats," can fall flat in cultures like Japan, where washing is done
prior to getting into the bathing tub. A bar of soap that floats is of little value. Conversely,
the Japanese recognized the American obsession with individuality (and imperfect
grammar) and marketed Toyota with its "You want it, you got it--Toyota!" slogan. Burger
King taps the same sensibility with its "Have it your way!" jingle. Jingles and slogans tend
to stay in the consumer consciousness for extended periods. Consumers can repeat radio
and TV jingles decades after they've stopped being broadcast. While their content may
vary from culture to culture, their etfectiveness doesn't.
GOODWILL CREATION
This topic was discussed earlier in the section on public relations regarding a company's
need to maintain its stature in the community. However, goodwill efforts are also an
efficient means of gaining brand awareness when entering a
new market.
Donations to cultural events, art projects, or health facilities can be very effective for
marketeers if the logo or company name is visibly affixed to program materials, bulletin
boards, signage, and other promotional collateral associated with the event or project. This
isn't to be confused with advertising, although the lines between the two can be quite
blurred. In order for a goodwill effort to be effective, the target public must believe that the
company is offering their money, product, or labor as a donation to the particular cause.
WARNING: Displays of the company logo or name should be kept to a discreet, but
visible, minimum and should never overshadow the main event or cause. Grabbing to
much of the spotlight can easily backfire.
EVENT ASSOCIATION
This type of association goes more to the heart of blatant advertising than goodwill. Here,
a company seeks to establish a close and long-term relationship in the consumer's mind
between a favorable event and the product. It's most often utilized with championship
sports events and major rock music tours, and it's best exemplified on the grand scale by
the number of companies that wish to become the "official
- of the Olympic Games." The hope is that good feelings
engendered by the event will somehow be transferred to the product. This works just as
well at the local level and is an effective way for foreign companies to gain
acceptance in new markers
ENDORSEMENTS
A company may choose to labor for some time to achieve recognition in a new market, or
it may simply seek endorsements from respected members of the target community.
Endorsements can take the form of a quote or advertised use of the product. Marketeers
will usually supply the product for free to the endorser in
return for such an endorsement.
NOTE: While this is a great way to quicken the pace of brand acceptance, marketeers
must be caretul to select only those endorsers that can bring them the most benefit and
the least harm. Having your logo proudly displayed by a local celebrity is great, unless
they're being led away in handcuffs for some malfeasance
BRAND EXTENSION
Brand extension is the process of applying an established name to new product lines. This
is a risky concept even in one's own domestic market, and no less so when entering
foreign terrain. However, risk has the potential for greater success and the marketeer may
want to consider attaching their brand name to a product line already accepted in the new
market.
The idea is much like an endorsement, except that the marketeer is now the endorser and
will take full responsibility for the product, rather than just being associated with it.
Extending the brand name to new products may improve exposure; however, marketeers
must select their lines carefully so as not confuse consumers. While consumers accept
some extensions (Nike seamlessly moved from shoes to clothing), it will not accept others
(McDonald's has continually failed to gain favor in most markets for its barbecue
sandwich).
CO-BRANDING
This awareness-creating technique involves the direct linkage of brand names from
separate companies. A widespread example of this is the display of the "Intel Inside" logo
on the cabinet of most personal computers. Both the computer manufacturer and Intel gain
by this exposure if the computer performs well. Of course, even if a component of the
machine not under direct control of Intel (such as the monitor) malfunctions, then both
companies will suffer. This points up the necessity of choosing your co-branding partners
with care.
NOTE: A foreign company entering a new market may link itself with a successful local
company or an already established foreign firm. In emerging or unstable markets, local
partners may be the best choice, at least initially, as such a collaboration can be very
userul for gaining bolitical as well as economic protection.
REPETITION
Creating brand recognition and recall is often a matter of simple repetition.
Consumers at all levels prefer to purchase products with which they're familiar, even if that
familiarity is with the brand name only. Merchandise such as cigarettes, beer, fast food,
athletic equipment, toys, and recorded music rely on repetition, due to the vast amount of
competition in these areas as well as the frequent usage rate.
The logic here is that since consumers are buying these products on a regular basis, they
must be continually "reminded" which product to prefer.
Repetition can be done on the grand scale as it is by Umbro sportswear, during
internationally televised soccer events, with their logo displayed on the clothing of every
player and prominent on field signage. Or it can be done cheaply as Marlboro cigarettes
did in Vietnam--by putting small but colorful logo stickers on Ho Chi Minh City's numerous
xyclo pedicabs, without mention of what the product was. The effect is the same.
Repetition causes a subconscious recognition and eventual recall of the brand name that
can be triggered at the point of purchase. This is perhaps the oldest form of creating brand
awareness, and it can
be one of the most economical. Companies of all sizes should consider its use as part of
an overall plan.
PROVISO: Some national governments (and almost all localities) have restrictions on
advertisements from cultural, language, and artistic perspectives. Before a full-scale
repetition scheme is put into action, check with the proper authorities about local standards
and linguistic content
PACKAGING
When it comes to merchandise, the inclusion of a prominently displayed brand name or
logo in the packaging can stimulate the consumer to make the purchase.
This is why supermarket shelves have all of the products' labels turned to face outward
toward the passing shoppers. Food producers even vie for prominent shelf space to assist
in triggering the purchase. At this level, the package is the last chance a marketeer has to
reach the consumer. On a larger scale, the automobile industry has combined the
packaging with the repetition process and made every one of their products a rolling
brand-awareness mechanism. Some logo hood ornaments (such as those of Rolls-Royce,
Mercedes Benz, and BMW) have become cultural icons of their own and indicators of
status.
Gaining Market Share: Slicing the Big Pie
Market share (a.k.a. brand share) is the number of product units a company sells in a
particular market as a percentage of the total number of units of that product type sold in
that market. It may also be calculated on the basis of revenue generated by sales, rather
than units sold. However, market share is calculated based on the segment that the
marketeer has chosen to target, and those segments may be of virtually any size. Market
share and its expansion is at the root of all marketing efforts.
Marketeers may choose a target and slowly develop their share of it over a long period of
time or they may choose to simply "seize" market share by purchasing
a company already active in the target market. The latter process is very common in
capital-intensive sectors (heavy manufacturing, hotels). Whatever strategy a marketeer
chooses between these extremes, the same variables must be considered for entering any
foreign market. Each will be discussed from the viewpoint of companies marketing goods
or services.
EXPORTING
Exporting of products (discussed in some detail in Chapter 2) is the most common way for
a company to attempt entry into a foreign market. Merchandise manufacturers use
exporting as a way to test consumer interest with minimal risk.
Service providers often find that exporting their product is the only way that foreign
governments will permit its use. Some services (software, publications) find that they've
become "exporters against their will" through copyright violation. Such companies are then
forced to formally export to the new market just to prevent further monetary losses and the
erosion of quality control.
LICENSING
Licensing is the procedure wherein a company assigns the right to a brand, a trademark, a
copyright, or the patent for a product or a process to another company for a tee. The fee
may be a one-time-only charge, a per-unit produced fee, or a percentage-of-total-sales
agreement. Licensing agreements usually cover specified periods of time and allow a
company to have equity in the foreign market as they control the licensee's ability to
produce. Rather than wait for market share to develop, the licensing company allows the
licensee to take the majority of the risk for a product's success or failure. Beer
manufacturers such as Anheuser-Busch and Heineken are prime examples of companies
that license their process to local manufacturers rather than go to the expense of building
their own breweries. On the service front, book publishers such as Macmillan, McGraw-
Hill, and World Trade Press license out the translation and publication of books to foreign
publishing houses on a regular basis. In both goods and services, if a market proves
to be potentially expansive, marketeers can consider setting up their own production in the
foreign country once the licensing agreement expires, subject to local governmental
regulation. Of course, a marketeer must choose their licensee wisely, regardless of the
levels of long-term risk. Local governments may require that the technology or process be
transferred to the licensee at the end of the agreement, further complicating full-scale
market entry. Keep in mind that trademark and patent protection varies a great deal from
market to market.
FRANCHISING
Franchising is a more extensive form of licensing wherein a company in a target market
agrees to purchase or license the brand name, products, logo, method of operation,
promotional plans, and sometimes even building design from the marketeer. Besides
larger fees, this gives the marketeer (the franchisor) greater control over quality and local
market positioning. The targeted foreign company (the franchisee) gains procedural and
management expertise, as well as an established brand name. In the service field, hotel
operator Holiday Inn (owned by Britain's IHG) is a world leader in franchising, providing
both operational procedures and room design to franchisees. In commodities, BP (British
Petroleum) franchises their filling stations and refining expertise around the globe in an
effort to keep up with the ever-expanding automotive market. Some franchisors, like KFC,
provide what are called turnkey operations-the entire building, operating manuals,
management training, and production supplies are purchased as part of the franchise
agreement.
NOTE: Most franchise contracts include clauses that permit the franchisor to revoke the
agreement or take over the venture if the franchisee doesn't maintain the quality standards
required or causes the brand name to fall into disrepute. Marketeers may find it difficult to
enforce such agreements in foreign markets that lack legal protection for
noncitizens.
REPRESENTATIVE OFFICE
A representative office is an overseas "branch" that's opened to either investigate market
potential, solicit business for the home market, or oversee a licensing/franchising
agreement. Since these offices rarely generate revenue of their own, their costs of
operation can be difficult to justify. However, these "rep offices" serve also as superb
centers trom which to conduct marketing surveys and as springboards for larger market
entry plans. This applies to both goods and services producers. Some countries mandate
that foreign firms open "rep offices" that are partially staffed by locals if the firms wish to
conduct any business in the new market. This brings in hard currency to the local economy
in the form of rent and local employment--both of which create the all important "goodwill."
WARNING: Many marketeers have sought to evade the office-rental price gouging of the
emerging markets by using their hotel room as a "rep office" for extended periods.
While this makes short-term practical sense from the marketeer's point of view, local
governments (and their landlord constituents) frown on this practice and long-term public
relations can be damaged.
CONTRACT PRODUCTION
Under "contract production," a foreign marketeer arranges for local production, after which
the products are turned over to the marketeer for distribution and sale both locally and
internationally. The marketeer only commits to the number of units produced over a
specific time and forgoes the expense of building a facility or hiring employees, although
some facility upgrades and training may be necessary. Computer hardware manufacturers
such as Compaq and Texas Instruments regularly contract out production in low-cost
Southeast Asia. In services, international banks have made Ireland a focal point for
contracting out some of banking's credit card reconciliation operations.
Though contract production may first appear as a cost-cutting measure, manufacturers
and service providers alike know that as incomes grow in the
"contracted" market, so too will the need for goods and services. It's a long-term
strategy that may take a generation before true market entry occurs.
ASSEMBLY
An assembly strategy requires that a portion of a manufacturing process be located inside
the target market. Usually, this portion takes the form of the "final assembly" but utilizes
imported parts. This strategy allows the marketeer to take advantage of skilled but low cost
labor while providing the target market with the beginnings of a technology transfer, as well
as "value added" finished-product exports. Countries trying to attract this type of
investment will often establish export processing zones (EPZs) or special economic zones.
These government-sponsored areas permit foreign companies to have tariff-free
production if the end-product is exported.
LOCAL PRODUCTION
Establishing a local production plant in a foreign country is very expensive but it may be
the best way to achieve market share goals. This is true for several reasons:
Some governments will not permit foreign companies to sell finished, value-added
products within their borders unless that company makes the firm commitment to employ
locals. These countries will also require the marketeer to transfer technology.
Local production may be the only way to access the market without paying prohibitively
high importation tariffs. Denmark's toy producer Lego found this to be the case in Brazil,
even though there was no sizable Brazilian toy industry
for the government to protect.
It's not unusual for a successful export marketeer to suddenly find that its success has
caused local producers in the target market to seek high tariff protection. As exporting
becomes untenable, local production becomes the only way to protect what market share
gains have been made.
NOTE: Even when local production is instituted, governments may also add in a "local
content requirement" to ensure that the production plant doesn't become simply an
assembly plant.
Service businesses must often go where their customers are, since a good deal of
personal contact may be required to perform the service. The customers may be local to
the foreign market or they may be other foreign marketeers establishing a beachhead.
Companies not set up for franchising (Deloitte-Touche, British Airways, Credit Lyonnaise)
must provide their services in person and therefore must set up local "production" in the
form of accountancy offices, airport service desks, and banks, respectively.
FINAL NOTE ON MARKET ENTRY: A marketeer should remain aware that while the
international markets may appear infinite in size, individual nations may be far less
expansive. Local competitors can easily decide to have their government intercede on
their behalf to protect or recover market share. Good political connections are as valuable
as good commercial ones.

CHAPITRE 10

Developing Distribution
HERE MUST ALL DISTRUST BEHIND THEE LEAVE.
- DANTE
DISTRIBUTION IS THE PROCESS of getting the product to the customer at the right
place
and the right time. This seems to be a simple requirement, but it's one that has caused the
failure of innumerable companies over the centuries, despite the fact that many of these
companies have had well-made and well-priced products.
The main cause of failure isn't the unavailablity of distribution channels but the lack of
consideration given to distribution during the early stages of market planning. This chapter
will examine all of the variables that need to be part of distribution planning.
Controlling the Channels: Getting to the Customer
A distribution channel is the route a product takes when moving from the producer to the
consumer. Channels may be simple with few intermediaries or they may be composed of
complex networks with numerous layers of middlemen.
Marketeers must contend with their domestic market distribution to get supplies as well as
with international distribution networks to get their product or service to the foreign market.
Once this is done, local distribution inside the target market will have to be considered.
Plainly, the greater control a marketeer has over these three distribution channels, the
greater the likelihood of success. The amount of control will be determined by the following
factors.
COST
Initially, there's the cost of setting up the channel, which involves the management labor to
locate and negotiate distribution deals a process that can be as lengthy and expensive as
finding the consumers for the product. Secondly, maintenance costs on the channel
include the cost of internal sales staff, middlemen, and promotional efforts. The final costs
to be considered are those associated with transportation, storage, and administration. All
costs determined at this level will eventually be passed along to the consumer; therefore,
marketeers seek to reduce these expenditures whenever possible.
CAPITAL DEPTH
The choice and control of a channel will depend greatly on a marketeer's ability to
capitalize the process. Some parts of the distribution chain may pay for the product as it
moves through the channel, in which case the marketeer must only finance the production.
This is true, for instance, of an import distributor that buys a product from an
marketeer/exporter for eventual resale to local retailers, who've bought it outright for sale
to consumers. Each member of the chain receives payment as the channel lengthens and
each has very short-term exposure.
At other times, the distribution chain can be just as lengthy, but no single member
(including the producer) receives payment until after the sale to the end-user. This is the
case when agents are utilized who only represent (rather than purchase) the products for
resale. Even if the agent has better connections than the import distributor and proves to
be a better marketing choice, a marketeer with little capital may not be able to wait for the
extended payment process.
PRODUCT LINE
The type of product under consideration will, of course, greatly influence the method of
distribution. Broad product lines attract distributors, whercas single items are more the
territory of specialist agents. Perishables will, by necessity, require short distribution chains
and quick handling. Some consumer products (personal care goods) may need more
personal selling while high-tech gear may move from producer to end-user directly, with
only a shipper as intermediary.
The per-unit size and price will also have an impact on the availability and choice of
members of the chain
CONTROL REQUIREMENT
Total control of the distribution channels may not always be necessary, desirable, or even
attainable. Each marketeer must determine how much control is needed and how much
they'll accept. With direct sales a company controls promotion, quality, and price, but the
expense of doing so may be large if it entails the use of separate retail outlets (as is the
case with designer clothing stores as opposed to department store retailing). Other times,
a company may find that its product requires little care once it has reached its final form.
The distributors are willing to buy the product "up front," rather than after the sale to the
end-user (as is the case with companies producing recorded music for worldwide
distribution).
RANGE
The success of a product in the marketplace will depend greatly on the size of the area
over which it's distributed--also known as its range. Not all products require the same
amount of range. Legal services, for instance, may only need to
be marketed in urban areas, while a commodity like eggs will need distribution over a
much larger area. When seeking an external distributor, agent, or broker, the following
should be considered:
Current office location (will show the effort's focal point)
Previous sales by geographic locale (demonstrates the effect of the effort)
Other accounts (helps determine familiarity with the product type)
COMPATIBILITY
Regardless of how stringent a contract is, distribution will not be successful if the producer
and the members of the chain don't work together in an efficient manner. Incompatibility
may spring from differing goals, business practices, or cultures. All of these must be made
consistent before any attempt at distribution is made. In the cases of goals and practices,
a marketeer must have them clearly delineated before expecting to find compatible chain
members. Large companies produce guidelines for external members of the distribution
chain and make adherence a contractual matter. Smaller companies (with less
marketplace power) may not be able to get chain members to sign off on guidelines, but a
clear statement of requirements can only help the situation. Other companies (whose
products require follow-up service) may choose to work within the confines of
"authorized dealerships" to maintain standards. Cultural compatibility can never be the
subject of contract or authorization; it must be a matter of tolerance among the chain
members. Consideration should be given, in descending order, from those that deal most
closely with the end-user down to the producer level.
Marketeers that work for companies that place executives at the top of the organizational
pyramid may find this difficult to swallow initially, but such cultural considerations are at the
heart of international (maybe more aptly named
"intercultural") business.
Distribution Strategies: Matching Resources to the Marketplace
DISTRIBUTION DENSITY
Distribution density refers to the number of sales outlets required to provide adequate
range for a product. Density requirements are a direct function of the end-user's
purchasing habits. Changes in density needs will ripple through to change other
components of the distribution chain. The key to proper density is consumer habit
research. A fine example of density and its effect on distribution can be found in the
computer industry. For many years consumers went to computer sales outlets scattered
around the globe to look at, compare, and test personal computers prior to purchase. They
shopped for computers much in the same way that they shopped for stereo equipment or
televisions. Not surprisingly, outlets for these two types of electronic consumer goods were
also some of the early distributors of computer hardware. Over time, however, consumers
became more skilled at computer usage and more knowledgeable about the technology, to
the point where they no longer required the assistance of sales personnel or hands-on
comparison shopping.
INFORMED CONSUMERS
This change in consumer skills has altered their buying habits. The latest growth in PC
sales is in Internet direct sales with companies like Gateway and Dell, which service
customers from remote low-cost locations. Consumers can now review hardware options
online, order custom-built hardware and have it shipped directly to their home or office
within a matter of days. No retail outlet, no salespeople, no local warehousing a shrinking
distribution chain. For Gateway, distribution density is an assembly plant in South Dakota
and cyberspace. (In an extreme example of this new process, crew members of the Mir
Spacecraft ordered computers from Gateway via radio, although the delivery details
weren't immediately made clear.)
While some distribution chains contract, others expand, as is the case with Starbucks
Coffee. This one-time coffee roasting company has now taken their
"coffee bar" and retailing concepts worldwide, with thousands of outlets worldwide.
Because the service (coffee brewing) that accompanies the goods (coffee) must be
delivered daily (sometimes more often) and face-to-face, Starbucks had to continually
open new outlets to reach new customers. Like the fast-food operations that have
preceded it, Starbucks increased its density to acquire market share. However, by 2008 it
had "saturated" the American market and began to close units and retool its operation.
While some wholesale/retail operators may look to a future of catalog or online direct
distribution, hospitality operators face ever-expanding density until they find themselves
overbuilt.
Each marketeer will need to consider the density requirements of new markets and the
expansion or contraction necessary to thrive there. Technical developments (Internet),
distributor channel upgrades (international delivery services such as DHL) and competitive
moves (Apple Computer challenges Dell Computer by threatening its "direct sales" market
share) can all force a company's hand when reviewing the density of the distribution.
NOTE: Market share can often be won or lost based entirely on creating the proper
distribution densit, as product quality and price take a secondary role to access.
DISTRIBUTION LENGTH
Distribution length refers to the number of intermediaries needed to move a product
through the marketplace. The expanding density mentioned above doesn't imply length, as
density may utilize very few intermediaries (as is true in the case of Starbucks). A
company may choose to shorten the length of their distribution by setting up a vertical
marketing system in which all parts of the chain come under direct control of the producer.
There are three types:
CORPORATE The company owns all areas of the distribution channel, including shipping
and retail outlets.
CONTRACTUAL Distribution channel members are under long-term contract to
the producer and must perform to exacting standards set by that producer.
ADMINISTRATIVE The producer, through dominance in its market segment, oversees all
areas of the distribution channel. Members willingly participate, due to the amount of
business generated by the producer. (Some international companies, such as McDonald's,
have taken this a step farther by controlling all areas of their business, including the supply
lines, an approach known as vertical integration.)
TWO COMPANIES, ONE SYSTEM
Another way to control the length of the distribution chain is horizontal marketing, wherein
two or more companies combine their marketing efforts and their distribution to the benefit
of all participants. This is similar to cobranding, but the partnership is deepened to sharing
costs and efficiencies of distribution. A prime example of this can be found in the designer
eyewear industry. Clothing designer Giorgio Armani sells a line of prescription eyeglass
frames through optometrists
and sunglasses through his own retail outlets. Italian frame designer and manufacturer
Luxotica also distributes through optometrists and retail outlets.
Luxotica found that linking itself with designer names (Armani is one of many) and
combining the two distribution networks has both expanded market share and reduced
promotional cost. The "name" brands, in their turn, have opened market segments
formerly closed to them before their marketing went "horizontal."
The addition of intermediaries or "lengthening" the chain can result in a loss of control,
which may be damning to some products. It does, however, save the costs of purchasing
shipping fleets, retail outlets, and local warehouses, as well
as the training of a retail- eve sales force. As a general rule. companies whose products
require tight quality control have short distribution channels while those with products that
are less sensitive can afford (but may not use) longer distribution chains.
NOTE: Marketeers may not be able to control as much of their distribution during the early
stages of establishing market share as they would prefer. Local government edict may
even prevent them from having a hand in any part of the distribution. Still marketeers
should always plan their distribution channels and seek any opportunity to make them
more efficient.
LOGISTICS
Physical distribution (a.k.a. logistics) refers to the physical requirements necessary to
move a product from producer to end-user. Logistics include export processing, freight
forwarding, import processing, warehousing, fulfillment, and just-in-time delivery. On a
global scale, logistics can become the most complex issue of market planning. Although
logistics is most commonly associated with the movement of goods, services face similar
problems. Logistics can impact heavily on a company's resources, both financial and
administrative. Logistics can command more than 33 percent of revenues and generally
exist outside of a company's "core business" (main focus). It's not unusual for a company
to turn over the problems (and much of the expense) of logistics to external specialists.
Efficient logistics is very often the determining factor in obtaining, maintaining,
and expanding market share.
Managing Logistics: How to Get There from Here
The goal of a logistics management system is the efficient and dependable movement of
products from producer to end-user. Logistics management is the primary service that all
companies provide to consumers. As a marketeer plans the logistical aspects of the
distribution process, the following topics must be considered.
TRANSPORTATION
The traditional modes of transportation have been by airplane, ship, railroad, or truck. but
now the Internet also delivers product -digital product at least. In all areas of transport,
there are three main areas to be reviewed during the planning phase.
• TRANSIT TIME The amount of time it takes the selected mode of transport to move from
the shipping point to its intended destination. Sea, rail or trucking transport may be a
matter of weeks, while air transit time can be measured in hours and the Internet in
seconds. With the exception of the Internet, cost is a function of speed; the shorter the
transit time, the higher the price.
LEAD TIME The time that it takes between when a product is ordered and when it arrives.
(Lead time shouldn't be confused with transit time, although the length of the transit will
affect lead time.) Lead time includes all of the other factors that slow down delivery such
as order handling, financial transfers, customs paperwork, and loading. A company that
can afford a long lead time can usually take advantage of the cheaper and slower modes
of transport.
BORDER COST These are transport costs (in addition to those listed above) associated
with each port of entry. For example, it may be cheaper to ship a product by sea to a
country neighboring the target consumer and then truck it across the border, rather than to
send it via a more direct route, due to differing customs and port charges. Countries
regularly adjust their port charges and landing fees without notification, so logistics
managers and marketing planners
must stay well informed at all times
INVENTORY
Control of inventory is essential to a distribution plan for two reasons: the reduction of the
amount of capital devoted to stored materials and the reduction of storage space expense.
Streamlining inventory has become the goal of almost every company, and much of the
burden has shifted to suppliers, who in turn must seek to control their own levels.
International companies tend to keep larger stocks on hand than domestic firms to allow
for the problems that come with long-distance operations. However, even globally, the
storage of only enough materials
and tinished products to cover a tew davs or weeks (sometimes hours) is a common
practice--a concept known as just-in-time inventory or JIT. This system requires a great
deal of cooperation from suppliers, and companies tend to reduce their number of
suppliers so as to make the linkage worthwhile for all involved.
Increases in efficiency are matched by increased savings of both labor and materials.
ORDERING
An inefficient process for handling orders can increase the lead time needed to receive a
product just as easily as slow transit times can. Also, since the ordering process is typically
handled internally, a marketeer must accept all responsibility for its smooth operation.
Marketeers should strive to make ordering procedures as quick and as uncomplicated as
possible. (A company that fills orders quickly can insist on prompt payment.) Fax and
email ordering systems are fast becoming the standard in international business, as these
communications media function regardless of time-zone differentials. Similarly, global
pagers and satellite telephones can make even the remotest location and order taker
accessible twenty-four-hours a day, every day.
NOTE: Customers must be informed of the technological limitations of all members of the
distribution chain. The ordering process can only move as fast as its slowest participant. A
lOkYo company may place an order with a producer in Montreal, but it the order must be
routed through a subsidiary in the Andes with limited communicatior gear, the whole
process may grind to a halt
AA
& scholarvox.com
SUPPLY AND PRODUCT STORAGE
The four main considerations when planning storage facilities for an international operation
are size, conditions, systems, and placement.
Preproduction materials must be properly stored, either domestically or (more
problematically) in overseas locations. While ample facilities may be available in the home
market, the foreign market may not have the size or number of warehouses necessary.
Even when there are dimensionally suitable facilities, the warehouse climate control may
be inadequate. Handling systems such as elevators, forklifts, conveyor belts and so forth
may also be far from ideal and perhaps even detrimental to the materials being stored.
Another possible problem is storage facilities that aren't properly situated for the efficient
movement of goods from ports or internal transport routes. Even when facilities are
physically ideal, poor location or too few locations can greatly limit a company's ability to
process orders, make products, and deliver them to the buyer.
It's not unusual for marketeers to wish to build their own facilities in a target market,
especially when working in the less-developed economies. Even when the marketeer is
economically willing and able to build storage facilities, local regulation may either hinder
or halt the project. Local law may make it impossible for a foreigner to own land in the
target market or to operate without taking on a local partner. In extreme cases, the foreign
company may be banned from the entire distribution process.
NOTE: It vour materials or products require special handling or large storage facilities. the
warehousing process may become the determining factor for success. Consider it closelv
and consider it early
Channel Options and Problems: Choosing the Right Methodology
When the distribution system is open to foreign players, there are a variety of methods for
access. The greatest challenge in trying to distribute in a new market isn't always the
location of the proper intermediaries but gaining their interest in carrying the new product
line. Competitors may dissuade the local channel members from dealing with a foreign
producer, or those members may be unconvinced of the foreign producer's viability.
The following are some common problems that marketeers may encounter and some
options to consider when they find that the new market poses distribution entry problems.
MEMBER BLOCKAGE
When a market has a limited number of distribution choices, the members of that chain
can exert a dictatorial force over what enters and what succeeds.
Marketeers may find themselves confronted with one of these "middleman markets" where
the consumer isn't given choices until the intermediaries have decided a "go or no go" on
products. This position of power may be the result of a natural market dominance, legal
edict, or a cultural tradition of strong linkage among local producers and intermediaries.
Many of the complaints about market entry in Japan stem from this form of distributor
blockage.
COMPETITOR BLOCKAGE
A more common form of blockage is when a powerful competitor persuades the local
distribution network to spurn the advances of foreign producers. Local chain members may
be threatened with financial ruin if they assist a foreign marketeer. Sometimes this type of
coercion comes directly from the competitor or through political connections. Such "locked"
markets exist all over the world.
Even the vaunted Microsoft faces continual scrutiny from the U.s. government for its
distribution tactics against domestic and foreign competition.
OPTIONS
LEGAL ACTION It may be possible to seek legal recourse if distribution is blocked, but
only in countries that are signatories to international commercial treaties. This action may
be conducted in the local courts or in the international commercial courts of the World
Trade Organization (WTO). Besides the enormous expense entailed, adverse publicity can
result from trying to "sue" your way into a market. Local competitors and distributors are
more likely to win local sympathy, so that even when the courts favor the marketeer,
consumers may reject
the product for emotional reasons.
NOTE: Many countries view foreign producers as the enemy, not the competition, and they
have little shame about keeping their markets closed and their distribution locked.
• DIPLOMATIC ACTION This is the preferred way of attempting to pry open a locked
market. It can only function if the marketeer and the target market have diplomatic
relations and there's an embassy or consulate with a commercial component to serve the
marketeer. Most of the negotiations are conducted out of public view; thus, the emotional
levels are kept low. Much of the time foreign marketeers find that their motives have been
greatly misunderstood. Diplomatic action allows all parties involved to clear the air. It can
also lay the groundwork for other ventures in the new market.
POLITICAL ACTION A producer may find it necessary to remind the target market of the
interdependence of the global economy. By using the political structure of their home
market, a producer can limit the target's exporting ability, either in a directly related sector
or in another segment entirely. United States manufacturers of all sizes regularly lobby
their government to restrict products
from markets where these same manutacturers experience distributor or competitor
blockage. Similarly, all of the trading blocs mentioned earlier in the text were partially
devised to ensure this type of "fair" (if not free) trade.
NOTE: Smaller companies that lack the individual means to influence their own politicians
into taking action may wish to join forces with co-ops or trade groups that
are adent at exploiting the nower of numerous smal voices.
FINANCIAL ACTION Blockage is always a matter of money, as some party or other is
worried about losing a customer. Marketeers must sometimes "buy" their way into a
market by underwriting any potential losses a distributor might sustain, or by joint venturing
with a potential competitor. In extreme cases, a company may simply buy out the local
market competition completely, taking over their facilities and distribution channels.
NOTE: While "buying a market" can be efficient from a time standpoint, it should be
conducted with discretion. Even with smaller companies, it can give the appearance of
economic or cultural colonization, with its incumbent consumer resistance or outright
rejection. In many countries, such market entry attempts are now subject to government
approval.
LACK OF INFRASTRUCTURE
Willing distributors, minimal competition, and eager consumers may not be enough to
overcome the lack of infrastructure needed to bring specialized goods or services (those
requiring high-tech delivery methods) to market. Refrigerated truck fleets, temperature-
controlled warehouses, fiber-optic cables, air-conditioned computer rooms, pipelines, and
sometimes even paved roads, bridges or electric power may be in insufficient quantity,
quality, or completely absent in the target market.
OPTIONS
Infrastructure development Such development is always a combination of public and
private efforts. Marketeers may find that their product or project is highly desired in a
market of millions (e.g., China) but that physical access to consumers is limited.
Part of the marketing plan must be an international lobbying effort to secure the proper
infrastructure funding. International aid groups and development banks are always the first
to approach (see Chapter 3). Another possibility is the offer of a Build-Operate-Transfer
plan wherein the marketeers finance the infrastructure development necessary for
distribution themselves (e.g., the laying of pipelines), with the agreement that local
governments will buy back the project at a later date while retaining the marketeer's right
to distribute. Such BOT projects are set up by large global companies; smaller companies
(those unable to finance bridges, pipelines, or power plants) may offer their expertise on
behalf of target-market governments to secure the proper funding. Telecommunications
gear providers often take this approach when dealing with the emerging markets. Setting
up proper first-stage financing and installation of infrastructure has allowed Australia's
Telstra to secure long-term relationships with many of Southeast Asia's markets and
government ministries.
CHANNEL RESISTANCE
New products may intimidate local channel members, who may be reluctant to take the
chance on an unproven product. Even when the product has shown considerable success
elsewhere, local intermediaries resist adding it to their distribution chain.
OPTIONS
CODISTRIBUTE A marketeer may attempt to distribute its products along with those of
another foreign marketeer already operating successfully in the target economy.
Kikkoman, the famous soy sauce manufacturer, used this option when its products met
resistance during the early 1980s in Mexico (not a traditional user of Asian cooking
products). By contracting with successful U.S. food marketeer Del Monte to use its existing
channels in Mexico, Kikkoman was able
to gain immediate access at a minimal cost.
LOCAL LABELING When a company is only interested in marketing its products but not
advancing its brand name to the public, it may consider contracting with a local company
to place their label on the product prior to distribution. This
allows the foreign company immediate access and the local company to link its name to
quality goods or services. Many big names in Japanese electronics (e.g., Hitachi,
Matsushita) have allowed well-established local brands to relabel their products in order to
overcome the resistance of distributors against products with apanese names.
LOCAL PARTNER As was true in previous cases, resistance can often be overcome by
simply buying a piece of the local action. It may take the form of joint-venturing with a local
producer or becoming part of the distribution channel.
NOTE: This can meet with varying degrees of another type of resistance to the venture
itself; marketeers may find it easier to partner with producers that aren't direct competitors
or with distributors on the periphery of the main channels.
LOCAL BUY-OUT When a marketeer buys out a local producer or distributor in order to
gain access to distribution, expense is traded for efficiency. The same provisos that apply
to local partnering apply here, with the additional advice to maintain a low profile and keep
the local government on your side.
DIG A NEW CHANNEL Many times, local distributor resistance can leave foreien
marketeers no choice but to create their own local channels from scratch.
Besides being very expensive, there's a good deal of accompanying risk-but it's usually
worth taking. The case of Toys "R" Us is one of the most famous examples of a foreign
marketeer creating its own highly successful channel in a local market.
In 1990, after close to twenty years of institutionalized channel resistance, Japan finally
revoked the law that allowed local competitors to give "permission" to companies wishing
to open retail stores in excess of five hundred square meters.
Toys "R" Us, a proponent of vertical marketing, circumvented the usually thick
intermediary layers of Japanese distribution and opened a five thousand square meter
retail store in Niigata. Their market share in Niigata in their first year was 50 percent.
Selecting Teammates: Trusting Others with Your Future
Success may depend on what type of companies a marketeer chooses to work with when
overcoming the problems of distribution. Choose carefully as the relationship may last a
long time and there's little advantage to disharmony. Here are some attributes, both
financial and personal, that should be taken into account when searching out "teammates"
for a distribution effort.
CONNECTED
Members of the chain should have the widest network available, one that includes not only
those resources needed directly for actual distribution but also the political, diplomatic and
public relations connections necessary to a smooth operation. In international marketing,
members of the chain may become political, cultural, and legal intermediaries as well as
commercial ones--get the best you can afford.
NOTE: Don't take a member's connections at tace value. It their stated connections
can't be vertied, consider them nonexistent. Be discreet during the vertication process and
solicit recommendations
FINANCIALLY SOUND
Distribution is a business, and like all businesses it can have money problems.
Just like connections, each member of the chain should be able to prove that they can do
what they say they can and that they won't go "belly up" a few months into the contract.
Keep in mind that in a new market, your image will be directly linked to the quality of the
distribution channel.
NOTE: In some developing markets, distributors may be using the prestige of handling a
foreign product to leverage financing for other projects. Keep informed about the
marketplace to prevent your company's name from being unknowingly used to operating
funds for channel members.
SERVICE ORIENTED
Distribution is a service, and the level of that service must match the marketeer's
standards. Unless total vertical marketing is achieved, much of the service that the
consumer sees will be provided by someone out of the producer's direct control. When
choosing channel teammates, make your standards clear and reasonable for the target
market. Distribution, like the product itself, must sometimes be adapted to each specific
segment. Rewards for meeting standards. as well as punishment for not meeting them,
should be part of the contractual agreement. Even when certification is present (e.g., ISO
9001), don't assume that your needs and those of the end-user are "understood" by
members. Start with quality service and stick with it.
NOTE: Take great care to be specific about service levels when distribution channels are
limited or when members have been "assigned" to your project by local governments.
It may be best to postpone market entry until the status of the channels improves, it
assurances on service can't be found. Don't fool yourself into believing you can "bring
them up to par" once you've entered the market. By the time you've corrected the
distribution problems, the consumer will be elsewhere.
PROFESSIONAL
This word means many things in many cultures, but it's only the end-user's culture that
matters. Marketing research must reveal what constitutes professional standards in the
target market, and that must become the hallmark for local distributors. Accept no less and
demand no more.
NOTE: Don't apply your home market's level of professionalism or attempt to impress it
upon the target market, at least initially. You must get used to the local channels and they
must get used to you. Unlike service standards, you can afford to wait and you just
may learn a thing or two in the meantime.
FLEXIBLE
Views about contracts vary as greatly as professional standards. However, when a new
product enters the marketplace, all members of the channel must be flexible until the
"bugs" are worked out. Any intermediaries that show signs of adhering to the "letter of the
contract" and nothing more should only be used if
no alternative is available
NOTE: When possible, insert "breaking-in periods with specific starts and ends to let
members know that flexibility isn't perpetual.
STABLE
Some members of the chain may not distribute as their core business or may not approach
a chosen segment on a regular basis. Marketeers can't afford "part-time" channel
members. Regular and reliable distribution should be the only kind a marketeer seeks out.
NOTE: Although stability is most likely found in members that have been in the
marketplace for a long period, newcomers shouldn't be dismissed out of hand, especially if
they embody the right attributes.
EAGER
Marketeers should look for teammates that are excited about distributing your products to
new markets. Enthusiasm can be contagious: smart marketeers know that it filters directly
down to consumers. A great deal ot consumer resistance can be overcome by the manner
and methods of the distribution chain. Unlike stability, eagerness is most often found in the
newcomer who is unjaded by the vagaries of the marketplace. As movement along the
chain approaches those links most directly involved with selling, eagerness will take on
greater importance.
NOTE: Although eagerness is part and parcel of sales, it plays a role in many other
aspects of the channel. For instance, many companies choose to ship their products via
FedEx just
so the deliveries are handled by the global denvery company's enthusiastic drivers
FAR -SIGHTED
The international marketplace is full of people who want to make a quick profit. Marketeers
should learn to avoid them. A new product in a new market may take some time to
become profitable. Distribution chain members must be willing to share the long-term
outlook of the marketeer.
NOTE: Potential members who try to have clauses added to contracts that allow them to
easily drop an individual product from an entire line (called "cherrypicking") should instead
be encouraged to have shorter initial contracts with an option for extension
Place the burden of performance on the distributor, not the product. If they balk at this
prospect. look elsewhere
TINBIASED
The goal of the distribution channel is to assist the producer in getting the product to the
consumer--any product, any consumer. Members that demonstrate cultural, ethnic, class,
religious or any of the other myriad of negative biases are best left out of the chain.
Marketeers should interview members of the distribution chain (especially those with
customer contact) as much as time and circumstance allow.
This will ensure that they're comfortable with the product line and the target consumer
base. Reluctance to deal with "that sort of people" or less-than-subtle remarks about
"quality" generally mark potential members as being unable to control their biases; these
prejudices won't be lost on consumers.
NOTE: Everyone suffers from some form of negative bias. Marketeers and their
distribution teams must simply learn to control them.
OPEN
Marketeers working in global business discover that each culture sets its own values on
openness. At one extreme are the groups that "lay everything on the table," including their
personal lives early in a business relationship. At the other end of the spectrum are those
cultures that reveal good news easily and keep the
bad news secret, at least until a more private and opportune moment.
Neither
extreme is necessarily more "honest" than the other; only the timing and level of intimacy
are different. What's important is that the marketeer learn how to access the level of
openness they require for business dealings. Much of the needed methodology will be
uncovered during the cultural research phase (see Chapter 6).
NOTE: Though you've applied your research, you still may not get the "whole story" from
members of the chain unless vou've made vour requirements known early in the
relationshiD.
Keep in mind that 50 percent of the burden of cultural understanding and honesty is on the
distribution chain. Members must please producers as well as end-users.
MORAL
This word is one of the most controversial in all of international business. It derives from
the Latin moralis which means "custom," and every culture certainly has its own customs.
Marketeers must look for members that best reflect the level of morality suitable for the
marketeer and the marketplace. It will be a compromise and concessions must be made.
It's not unusual for a marketeer to find the level of morality unacceptable (too high as well
as too low). If so, look for another market. The same may be true of potential channel
members. Unless
"the fit" is just right, the relationship will fail in the long run.
NOTE: Morality takes in many of the other attributes stated above. To be successful,
marketeers must maintain the core of their own morality while reshaping those aspects
that are less stringent. Just as a product may require minor alterations to make it
acceptable to the new market, so too may a moral code. This isn't a recommendation for
moral indifference, just an acknowledgment that self-righteousness is a poor foundation for
international marketing
FINAL NOTE ON DISTRIBUTION: Members of the distribution channel may be the only
members of the target marketplace with which the marketeer will have direct contact.
Choose them carefully and treat them well. They'll be both your sales force and service
representatives. The distribution team will reflect your outlook on the marketplace and
determine the level of success or failure. Marketeers are coaches as well
as managers in this very competitive game.