Int Marketing

International Marketing
Lecture | Fall term 2014 Martin Klarmann
Institute of Information Systems and Marketing (ISSM)

Marketing & Sales Research Group
KIT Universitt des Landes Baden-Wrttemberg und

nationales Forschungszentrum in der Helmholtz-Gemeinschaft
www.kit.edu
Team
Lecture:
Prof. Dr. Martin Klarmann
Lecturer: Prof. Dr. Martin Klarmann
Email: martin.klarmann@kit.edu
Homepage: http://marketing.iism.kit.edu/
Office hours: Mondays, 4 p.m. 6 p.m. (appointment required, please contact Juliane
Bayer at juliane.bayer@kit.edu)
Dr. Sven Feurer (Lecture October 27)
Phone : 0721 608 4 1796

Email: sven.feurer@kit.edu
Adresse: Zirkel 2, Gebude 20.21, Raum 103
MSc. Isabella Kindersberger (Lecture and student support)
Office Hours: Tuesdays 3 p.m.-5 p.m.

Phone : 0721 608 4 1798
Email: isabella.kindersberger@kit.edu
Adresse: Zirkel 2, Gebude 20.21, Raum 102
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20-Oct-14
Martin Klarmann, Fall 2014
Institute of Information Systems and Marketing (IISM)

Organization
Times:
Room:
Slides:
Exam:
Type:
Probable date:
Room:
Resit:
Old exams:
Contact:
Lecturer:
Email:
Homepage:
Office hours:
20-Oct-14
Monday, 9.45 a.m. 11.45 a.m.

First lecture: October 20, 2014
Last lecture: December 1, 2014
HS 20.13/ 001
Available online on ILIAS
Written exam (no exceptions), 60 min. + 10 min. reading time
December 15, 2014, 5.50 p.m. 7.00 p.m.
tbd
16 May 2015
Previous exams will be provided on ILIAS in November
Prof. Dr. Martin Klarmann
martin.klarmann@kit.edu
http://marketing.iism.kit.edu/
Mondays, 4 p.m. 6 p.m. (appointment required, please
contact Juliane Bayer at juliane.bayer@kit.edu)

Agenda
I.
Introduction
II.
Understanding International Markets: Culture
III. Understanding International Markets: Buyer Behavior

IV. Market Entry Decisions
V.
International Market Research
VI. International Marketing Mix Management
VII. Marketing in Emerging Markets
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This course has two sets of goals

Course goals
Content-related goals
Language-related goals
Understanding of the concept of

culture and its application to marketing
Familiarity with particular aspects
of international buyer behavior
Ability to evaluate countries regarding
their market potential and knowledge
of appropriate market strategies
Ability to apply market research
techniques to international contexts
Knowledge of particularities that need to
be considered in the international design
of the marketing mix
Knowledge of options in designing
the international marketing organization
Recognition of business opportunities
in emerging markets
Familiarity with key English

marketing terminology
Ability to formulate an international
marketing strategy using the appropriate
vocabulary
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Reasons for studying international marketing:

World trade is continuously growing (I)
Source: WTO World Trade Report 2013

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World trade is continuously growing (II)
Source: WTO 2013

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Foundations of International Trade:

Classical Trade Theories
Mercantilism
Foreign trade arises because countries want to increase their wealth at the expense of other
countries: The ordinary means to increase our wealth and treasure is by foreign trade,
wherein we must ever observe this rule: to sell more to strangers yearly than we consume of
theirs in value. (Thomas Mun, 16th century)
Theory of Absolute (Cost) Advantage (Smith)
Foreign trade arises because countries specialize in the production of goods where they
have an absolute cost advantage. These goods are exported to the countries which import
goods they can not produce without incurring a cost disadvantage.
Theory of Comparative (Cost) Advantage (Ricardo)
Foreign trade arises because countries specialize in the production of goods where they
have a comparative cost advantage and import goods they can not produce without incurring
a cost disadvantage.
Factor Proportions Trade Theory (Heckscher/Ohlin)
A country that is relatively abundant in a factor of production should export goods that use a
lot of that factor in the production process, and import other goods.
(Kutschker and Schmid 2006, pp. 375; adapted from Hagelstam 1991; Smith 1776; Ricardo 1970; Heckscher 1949; Ohlin 1952)
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Example:
The Theory of Comparative Advantage (Ricardo 1817)
(Kotabe and Helsen 2010, p. 26)

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Exports are a key factor in German business models (I)
Source: WTO World Trade Report 2013

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20-Oct-14


Exports are a key factor in German business models (II)
Total:
68.8 Bil.
Germany: 12.9 Bil. (19%)
Abroad: 55.9 Bil. (81%)
Total:
6.00 Bil.
Abroad: 4.63 Bil. (77%)
Total:
106 Bil.
Germany: 20 Bil. (19%)
Abroad:
86 Bil. (81%)
Total:
2.02 Bil.
Germany: .59 Bil. (29%)
Abroad: 1.43 Bil. (71%)
Total:
73.5 Bil.
Abroad: 44.8 Bil. (61%)
Total:
4.24 Bil.
Germany: .53 Bil. (13%)
Abroad: 3.71 Bil. (87%)
Source: Firm homepages, all numbers for 2011

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Evolution of international marketing (I)

Domestic Marketing
Type of
Marketing
Domestic
Focus
International Marketing
Export Marketing
Country
Choice
Export
Timing and
Sequencing
of Entry
Country 1
Modify
Marketing
Strategy
Country 2
Develop and
Acquire New
National Brands
Country 3
Share Advertising,
Promotional, and
Distribution Costs
Orientation
Product
Planning
Marketing
Mix
Decisions
12
Ethnocentric
Ethnocentric
Polycentric
Product
development
for home
customers
Product development
determined primarily
by the needs of home
country customers
Local product
development
based on
local needs
Made at
headquarters
Made at
headquarters
Made in each
country
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Country 4
Source: Kotabe and

Helsen (2011, p. 15)

Evolution of international marketing (II)

Multinational Marketing
Type of
Marketing
Global Marketing
Region 1
Modify
Marketing
Strategy
Country 1
Country 5
Develop and
Acquire New
National Brands
Share Advertising,
Promotional, and
Distribution Costs
Orientation
Product
Planning
Marketing
Mix
Decisions
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Region 2
Country 6
Country 4
Coordinate
Marketing Mix
Across Countries
and Regions
Integrate
Sourcing and
Production with
Marketing
Allocate Resources
to Achieve
Portfolio Balance
and Growth
Regiocentric
Geocentric
Standardize
within regions,
but not across
Global product
with local
variations
Made regionally
Made jointly
with mutual
consultation
Source: Kotabe and

Helsen (2011, p. 15)

The international marketing trajectory for Bosch

Siemens Hausgerte (BSH)
Export Marketing
Domestic Marketing
Multinational Marketing
1967
1990
2012
3 Factories in Germany
13 Factories in Germany,
Greece, Spain
42 Factories in Germany, China, France, Greece, Peru,

Poland, Russia, Slowakei, Slovakia, Spain, Thailand,
Turkey, USA
Subsidiaries
Employees
Revenues
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14,000
.5 billion Euros
Subsidiaries
Employees
Revenues
41
23,000
3.3 billion Euros
Subsidiaries
Employees
Revenues
70 in 50 countries
46,925
9.8 billion Euros

The international marketing challenge

Walmart in Germany (I): Background
Short history: 1962:
1967:
1970:
1975:
1980:
1985:
Today:
Superlatives:
Sam and James Walton open first store in Rogers, Arkansas

24 stores with US$ 12.6 million revenues overall
Walmart goes public and opens distribution center at
Bentonville, Arkansas
Sam Walton introduces Walmart cheer
270 stores (USA)
882 stores (USA)
10,390 stores in 27 countries (3,925 stores in the USA)
2012 revenues estimated to be US$ 444 billion
- 2011 third largest firm (revenues) in the world (behind Shell and Exxon)
- 2011 largest retailer in the world
- 2011 largest employer in the world (more than 2.2 million employees)
Key elements of the business model:

- Everyday low pricing policy
- Superior logistics
- Strong in analyzing Big data
- Low wages and strict anti-union policies
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Walmart in Germany (II): Timeline
16
1997
Walmart announces intention to enter European

market
Plans to establish Germany (at the time the thirdlargest retailing market in the world) as base for
entering Eastern Europe
Walmart buys 21 Wertkauf hypermarkets
1998
Walmart buys 74 Interspar hypermarkets

(estimated US$ 1.6 billion payment for all
95 markets)
1999
Estimated US$ 200 million loss in Germany
2001
Fourth CEO appointed (Kay Hafner), the

second German after Volker Barth
2002
Introduction of the Euro in Germany results

in strong decreases in consumer spending
2003
Only official profit figure from Walmart Germany:

Loss of 487 million Euros
2006
Six weeks after announcing to stay in the German

market for good, Walmart sells its remaining 85
markets to the Metro Group (real) for an unknown
sum, leading to depreciations in the US balance
sheet of almost $US 850 million
20-Oct-13

Walmart in Germany (III): Cultural

misunderstandings
Expatriate top managers

Four CEOs in first
four years
First two CEOs from
USA and UK without
international experience
and German skills
Lack of cultural
sensibilities: requirement
for managers to share
hotel rooms
Remaining high potentials
leave the firm
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The Walmart Cheer

Highly publicized after
Walmarts entry on
the German market
Earns the firm a lot
of ridicule in Germany
Generally: High
skepticism towards
rituals based on
totalitarian abuse in
German past
Employees not willing
to adopt this practice
The no romantic
relationsships at the
workplace rule
2005: Walmart Germany
introduces new ethics
guidelines
One element: Employees
are not allowed to date
each other or have
romantic relationships
Highly publicized
Revoked by court
Walmart in Germany (IV): Unexpected consumer

behavior
No one stop shopping

German shopping
behavior different
Many groceries
(e.g., bread, meat,
fruit, vegetables) are
bought the day they
are consumed
Specialized non-food
retailers (particularly
drugstores such as dm
highly successful)
Smaller shopping baskets
at Walmart
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Germans bring own bag

German consumers
tend to bring own
bags when shopping
High irritation at the
use of plastic bags by
Walmart
Packaging services
in the stores not
appreciated
High degree of price

consciousness
Empirical show that
German customers
are highly priceconcscious
McKinsey 2002:
45% of German
consumers rank
price as most
important criterion
(vs. 13% for quality)

Walmart in Germany (V): Legal troubles
Restricted opening hours

At the time of Walmarts
entry opening hours
still highly regulated
Maximum 80hrs possible
Strongly reduced
shelf productivity
compared to US
Less time for buyers to
drive out to hypermarkets
No superior service
against promise
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Labor regulations
German legislation
makes traditional
anti-union policies
impossible to uphold
Reluctance to sign
a global wage arrangement leads to strikes
Walmart learns that
they are required to
allow employee councils
New rules of competing

US managers
simply ignored German
competitive legislation
High fines because milk
and other products were
sold for less than costs
Hesitation to publish
balance sheet and Win/
Loss statements costly
for firm and managers

Walmart in Germany (VI): Flawed entry strategy
Bad locations
Acquired hypermarkets
from Interspar and
Wertkauf not profitable
Key reason: Locations
Typically located in
socially difficult areas
of major metropolitan
areas
Not well-aligned with
Walmarts focus on
conservative rural
America
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Internal culture clash

Interspar and Wertkauf
markets have a
completely different
background
Wertkauf: Highy
centralized
Interspar: Decentralized
decision making in
regions
Strong cultural differences
and major rivalries
between managers from
both firms
No growth opportunity
US growth strategy
of simply opening
new stores not
applicable to Germany
Rigorous legislation on
zones where retailers
can open new stores
Generally German
regulatory bodies very
reluctant to allow new
zones for hypermarkets
Only growth opportunity
M&A, but no seller willing
to sell to Walmart
Walmart in Germany (VII): The tough competive

environment
Home of hard discounters

With Aldi, Lidl, and Penny
hard discounters already
have a strong foothold
on the German market
Hard discounting:
Few items in a very
simple store environment
Walmart cannot become
price leader
Consumers consider
additional services waste
of money
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High degree of
concentration
German retailing market
highly concentrated
In 2002 top five firms
made almost two-thirds of
all revenues
KPMG (2010) expects that
the concentration will
increase even further
to 75%
Much better bargaining
power with suppliers
for these firms
Generally low margins

Margins in German
retailing are often
considered to be
among the lowest
worldwide
In many markets 1% or
less
Only highly efficient
retailers can become
profitable

The international marketing challenge

Tesco in the USA (I): Background
Short history: 1919:
1924:
1929:
1939:
1990s:
1997:
2006:
2011:
Today:
Founded by John Cohen as a group of market stalls

Name Tesco first appears (T.E. Stockwell [Tea] + COhen]
First store in Burnt Oak, Middlesex, England
More than 100 stores, focus on groceries
Business motto: Pile it high and sell it cheap
About 500 stores, increasingly wider product portfolio,
including books, CDs, clothing (3rd largest retailer in the UK)
Sir Terry Leahy appointed as CEO: Aggressive expansion
nationally and internationally
First UK retailer with profitable grocery online business
Philip Clarke appointed as CEO
6,800 stores in 14 countries (3,146 stores in the UK)
2012 revenues 72.4 billion pounds, 2 billion profits
Superlatives: - 2012 third (second) largest retailer based on revenues (profits) world-wide
Key elements of the business model:
- Wide range of store brands (ranging from discount to luxury)
- Wide range of store formats
- Online presence
- Loyalty program (Clubcard)
- Process optimization
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Tesco in the USA:

fresh & easy The Vision
USA very competitive retail market
Very successful players at the value level (WalMart)

and the premium level (Whole Foods)
No need for another supermarket chain
By some estimates eight times more retails space
per head of the population than the UK
Only a retail innovation can be successful
Sir Terry Leahy (*1956)
Tesco invents a new format
Niche strategy: In a market as vast as the USA, a big niche

allows you to build a very big business (Leahy 2012, p. 91)
Focus on high quality fresh food
o European know how advantage
o Just-in-time delivery directly onto the shelves
o 30% of the products produced directly in the distribution
center (e.g., juice, salads, ready-made meals, meat, produce)
Low cost concept

o
o
o
o
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Self-service checkouts
Small stores, only 4,000 products
Mostly store brands
Economies of scale start with 400 stores
Source: Leahy (2012, p. 90-95)

Tesco in the USA:

fresh & easy What happened (I)
24
2006
Tesco announces plans to open fresh & easy chain in the US Southwest
Expected to break even in 2009, 250mn Pound investment
2007
Spring: Opens headquarters in El Segundo (California)

Autumn: First stores open
2008
Expansion continues
Financial crisis creates very challenging environment
2009
Expansion continues: Opening 1 store in every two weeks
2010
Mothballing of 13 stores, more stores opened
2011
Strategic relaunch after accumulated losses > 500m Pounds

Store remodeling to include bakeries
2012
2013
September: Yucaipa (US investment group) takes over 150 stores

September: Closure of the remaining 50 stores, layoff of 1,000 employees
Writedown of about 1bn Pounds plus overall loss of more than 1bn Pounds
20-Oct-14
May: New store openings put on hold

Expected losses > 100m Pounds
December: Internal review regarding closure or sale of fresh & easy
Tesco CEO Philip Clarke: The business has failed, lets face it.

Tesco in the USA:

fresh & easy What happened (II)
Key problems (Financial Times, 5-Dec-12/7-Dec-12/4-Apr-13)
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Problems in securing an adequate supplier base

Requires multi-stop shopping (no bread, no coffee)
Not enough frozen food (against US shopping habits)
Lack of familiar US brands (customers unprepared for store brands)
Produce wrapped in plastic, against fruit-shopping habits of US customers
Self-service checkouts not appreciated

Summary: The major challenges in international

marketing compared to national marketing
Even more
need for
information
More information is necessary because of unknown market

environments
Access to information more difficult
Higher risk
Less information and less transparency lead to higher risks

Many countries less stable than Western home markets
Coordination
requirements
Higher task
complexity
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Need to align national activities

(e.g., consistent brand image)
More contingency factors need to be taken into account

Additional qualifications are necessary
(e.g., understanding of foreign cultures)

Agenda
I.
Introduction
II.

V.
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Fundamentals (I)
Concept of culture difficult to define

Multitude of definitions in the literature
Straub et al. (2002) distinguish three types of definitions
Definitions based on shared values:
Patterned ways of thinking, feeling and reacting, acquired and transmitted
mainly by symbols, constituting the distinctive achievements of human
groups, including their embodiments in artifacts; the essential core of culture
consists of traditional (i.e., historically derived and selected) ideas and
especially their attached values (Kluckhohn 1951, p. 86, emphasis added)
Shared way a group of people view the world (Erez and Earley 1997, p. 23)
Definitions based on problem-solving:

Traditional problem solving through accepted responses that have met
with success. It consists of learned problem-solutions (Ford 1942, p. 546)
A group problem-solving tool that enables individuals to survive in a
particular environment (Moran and Stripp 1991, p. 43)
All-encompassing definitions
The man-made part of the human environment. (Herskovits 1955, p. 305)
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Fundamentals (II)
Working definition for this class:

Culture is the pattern of basic assumptions that a given group has invented, discovered, or
developed in learning to cope with its problems of external adaptation and internal integration, and
that have worked well enough to be considered valid, and, therefore, to be taught to new members
as the correct way to perceive, think, and feel in relation to those problems
(Schein 1984, p. 3, emphasis in the original)
Characteristics of culture:
a multi-level
phenomenon
sometimes
perceived inaccurately
learnt
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described in
dimensions
Culture is
a group-level
phenomenon

The levels of culture
Artifacts
e.g., Technology, Art, visible and audible
behavior patterns
Visible but often

not decipherable
Values and norms

Values: beliefs as to how the world should be
Greater level
of awareness
Norms: behavioral rules how to get there
Basic Assumptions
e.g. regarding
- nature of reality, time and space
- nature of human activity
- nature of human relationships
- nature of human nature
- relationship to the environment
- Taken for granted

- Invisible
- Preconscious
Adapted from Schein (1984, p. 4)

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Some exemplary artifacts of culture
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Firm cultures as artifacts of national culture
USA
Germany
Confidence in the American Dream

Bias for action
Factual planning and process

Hierarchical bureaucracy
German Ordnung
Japan
Face protection, honour

Company is sacred
Ultra-courtesy
France
France- centred self esteem

Sense of intellectual superiority
Sweden
Ideal welfare system

Focus on human rights
Source: Hammerich, Lewis 2013
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Four important approaches to determine the

dimensions of culture
Hofstede
Power
distance
Individualism
Masculinity
Uncertainty
avoidance
Longterminism
Trompenaars (1996)
Achievement
versus
ascription
Individualism
versus
collectivism
Universalism
versus
particularism
Orientation
towards time
Hall
33
Institutional
Collectivism
Gender
Egalitarianism
Performance
Orientation
In-Group
Collectivism
Assertiveness
20-Oct-14
Uncertainty
avoidance
Affective
versus neutral
relationships
Specifity
versus
diffuseness
Low-context
versus highcontext
cultures
GLOBE Project (House et al. 2004)

Power
distance
Internal
versus
external
control
Future
orientation
Humane
Orientation

The Hofstede (2001) dimensions of culture:

Empirical background
Original publication Cultures consequences (book) in 1980
Revised version (same data) in 2001
Almost 15,000 citations since 1980 according to Google Scholar
Database from employee survey at IBM
Collected between 1967 and 1973
Geert Hofstede (*1928)
Within IBM subsidiaries in 66 countries
In retrospect Hofstede selected some questions as
indicators of cultural values
In-depth data-analysis revealed four dimensions,
later a fifth dimension was added based on additional data
Popular criticisms:
Age of data
Only collected from IBM employees
High status and high income individuals particularly in third world countries
No controls for IBM corporate culture
Ad hoc nature of the analysis
GLOBE project response to these criticisms
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The first dimension from Hofstede (2001) is the

degree of power distance
Definition
Characteristics
Characteristics
Centralized companies
Power distance refers to the degree of inequality
that exists and is accepted among people with
and without power.
Acknowledge a leader's
power.
Strong hierarchies
High
PD
Power distance plays an important role in all types

of groups (e.g., in families and organizations).
A high score indicates that the culture accepts

an unequal distribution of power, and people
understand their part in the system.
Asian countries are typically characterized by strong
power distance, while Western countries show lower
levels of power distance.
Tips
Low
PD
Large gaps in
compensation, authority
and respect
Be aware that you may

need to go to the top for
answers.
Flatter organizations
Use teamwork.
Supervisors and
employees are
considered almost as
equals
Involve as many people

as possible in decisionmaking.
Source: Hofstede (2001)

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Distribution of power distance across the planet
Power Distance Index:

Austria
11
Germany
35
USA
40
France
68
China
80
Russia
93
http://geert-hofstede.com/index.php
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The second dimension from Hofstede (2001) is the

degree of individualism
Definition
Characteristics
Characteristics
Individualism refers to the strength of the ties

people have to others within the community.
High
IND
A high score indicates a loose connection with

other people.
Individualism and collectivism are concepts that

are relevant whenever groups of individuals
interact (e.g., in family and work situations).
Asian countries are highly collectivist, while
Western countries (especially the USA) are highly
individualistic.
Low
IND
Tips
High valuation on
peoples time and their
need for freedom
An enjoyment of
challenges and an
expectation of rewards
for hard work
Respect for privacy
Acknowledge
accomplishments.
Dont ask for too much
personal information.
Encourage debate and
expression of ideas.
Emphasis on building
skills and becoming the
master of something
Work for intrinsic rewards
Harmony more important
than honesty
Show respect for age and

wisdom.
Suppress feelings and
emotions in order to work
in harmony.
Respect traditions and
introduce change slowly.

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Recent results on individualism
Source: http://www.pewglobal.org/2014/10/09/emerging-and-developing-economies-much-more-optimistic-than-richcountries-about-the-future/pg_14-09-04_usindividualism_640-px/
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The too much talent effect in collective team

sports compared to individualistic team sports
General belief that top-talented individuals are the key to performance
Reality: U-shaped team performance in collective team sports like football or
baseketball, opposite effect in individualistic sport teams like baseball
Effect due to status related conflicts of top players that affect team coordination
Individualism Index:
USA
91
France
71
Germany
67
Austria
55
China
20
Source: Swaab et al. 2014

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20-Oct-14

The third dimension from Hofstede (2001) is the

degree of masculinity
Definition
Masculinity refers to how much society sticks with

and values traditional male and female roles,
Characteristics
High
MSC
High MAS scores are found in countries where

men are expected to be tough, to be the provider,
to be assertive, and to be strong,
Japan is an example of a masculine country, while
Thailand is characterized by strong femininity.
In Europe, Germany and Great Britain are more
masculine whereas France and Sweden
are not
Low
MSC
Characteristics
Tips
Men are masculine and

woman are feminine.
There is a well defined
distinction between
mens work and womens
work.
Be aware that people may

expect male and female
roles to be distinct.
Advise men to avoid
discussing emotions or
making emotionally based
decisions or arguments.
A woman can do
anything a man can do.
Powerful and successful
women are admired and
respected.
Avoid an old boys club

mentality.
Ensure job design and
practices are not
discriminatory to either
gender.
Treat men and woman
equally.
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Female employment rates differ according to

masculine and feminine role model distribution
Masculine cultures feature traditional role model distribution of duties
Typically the female employment rate differs due to the fact that women tend to stay at
home and take care of the familiy instead of being employed
Femine cultures show a more differentiated role model distribution with overlaps
Female Employment Rate

Masculinity Index:
Austria
China
Germany
USA
Italy
Netherlands
70%
60%
79
66
66
62
70
14
50%
40%
Italy
30%
Netherlands
Year
Source: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdec420
http://geert-hofstede.com/
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20-Oct-14

The fourth dimension from Hofstede (2001) is the

degree of uncertainty avoidance
Definition
Characteristics
Characteristics
Uncertainty avoidance refers to the degree of

tolerance for uncertainty and ambiguity with the
society; i.e., unstructured situations.
High
UNC
The uncertainty avoidance index indicates whether

the country has a low tolerance for uncertainty and
ambiguity, resulting in a rule-oriented society that
institutes laws, rules, regulations and controls to
reduce uncertainty.
Japan and France are examples of countries with
high uncertainty avoidance, while China is
characterized by low uncertainty avoidance.
Low
UNC
Tips
Very formal business

conduct with lots of rules
and policies
Structure is needed and
expected
Sense of nervousness
spurs high levels of
emotions and expression
Differences are avoided
Be clear and concise

about your expectations
and parameters.
Plan and prepare
Communicate often and
early
Be calm and consider
carefully what you say
Informal business
attitude
More concern with longterm strategy than what
is happening on a daily
basis
Accepting of change and
risk
Do not impose rules or

structure unnecessarily.
Express curiosity when
you discover differences.

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20-Oct-14

Up to 53% variance in mineral water consumption across

Europe due to different uncertainty avoidance
Since 1970s comparable tap water quality across Europe
Significant differences in mineral water consumption correlated to uncertainty avoidance
index
Uncertainity Avoidance
Index:
USA
46
France
86
Austria
70
Germany
65
China
40
UK
35
Source: De Mooij 2010

43
20-Oct-14

The fifth dimension from Hofstede (2001) is the

degree of long-term orientation
Definition
Characteristics
Characteristics
This cultural dimension was not identified in the

original study from Hofstede but in a later validation
study in Asia.
High
LTO
Long-term orientation refers to the degree the

society embraces or does not embrace long-term
devotion to traditional, forward-thinking values.
A high LTO ranking indicates the country
subscribes to the values of long-term commitments
and respect for tradition.
China is an example of a country with strong longterm orientation, and the US is a country with low
long-term orientation.
Low
LTO
Tips
Family is the basis of

society
Parents and men have
more authority than
young people and
women
Strong work ethic
High value placed on
education and training
Show respect for tradition

Do not display
extravagance or act
frivolously
Reward perseverance,
loyalty, and commitment
Avoid doing anything that
would cause another to
lose face
Promotion of equality
High creativity and
individualism
Treat others as you
would like to be treated
Self-actualization is
sought
Expect to live by the same

standards and rules you
create
Be respectful of others.
Do not hesitate to
introduce necessary
changes

44
20-Oct-14

Long-term orientation results in total higher saving

rates
The higher saving rate is based on the future driven perspective
Rather short term oriented cultures indulge spending in the present instead of saving
Long-term orientation:
China
118
Hong Kong 96
Germany 31
USA
29
Source:http://www.oecd-ilibrary.org/
45
20-Oct-14

Hall distinguishes communication cultures by the

importance of implicit meanings
Low-context cultures
High-context cultures
Most emphasis on the written or spoken word
Interpretation of messages heavily rests

on contextual cues:
Context, within which messages are

communicated, is largely discounted
What is meant is what is said!
Typical examples:
Scandinavia
United States
Germany
Nature of relationship between

sender and receiver (gender, age,
balance of power)
Time and site of communication
What is left unsaid is often as (if not

more) important as what is said!
Typical examples:
Confucian cultures
(China, Korea, Japan)
Latin America
Source: Hall 1989

46
20-Oct-14

Low context versus high context cultures
Japanese
High context
IMPLICIT
Arabian
Latin American
Spanish
Italian
English (UK)
French
English (US)
Scandinavian
Low context
German
Swiss
EXPLICIT
Source: Kotabe and Helsen (2011)
47
20-Oct-14

Globe Study
Goal: Analysis of the effectiveness of management styles in different cultural contexts
Derived cultural clusters
Confucian Asia
Germanic Europe
Performance
Orientation
Performance
Orientation
Uncertainty Avoidance
Assertiveness
In-Group Collectivism
Future Orientation
Power Distance
Humane Orientation
Gender Egalitarianism
Practices
Institutional Collectivism
Values
Uncertainty Avoidance
Assertiveness
In-Group Collectivism
Future Orientation
Power Distance
Humane Orientation
Gender Egalitarianism
Practices
Institutional Collectivism
Values
(House 2004; Javidan, House, and Dorfman 2004, p. 33)

48
20-Oct-14

Overview country cluster of Globe Study

Cluster
Nations
High characteristic
Low characteristic
Australia England, Ireland, Canada, New

Zealand, South Africa, USA
Performance oriented
Group-based collectivism
Germanic
Germany, Austria, Switzerland,

Netherlands
Performance oriented, certainty, future

oriented, uncertainty avoidance
Human-oriented, group-based
collectivism, institutional collectivism
Confuzian
China, Japan, Singapur, South Korea,

Taiwan
Performance oriented, institutional

collectivism, group-based collectivism
Latin America
Argentina, Brasil, Bolivien, Costa Rica,

Ecuador, El Salvador, Guatemala,
Columbia, Mexico, Venezuela
Latin Europe
France, Israel, Italy, Portugal, Spain
Middle East
Egypt, Qatar, Kuweit, Morocco, Turkey
Future oriented, uncertainty

avoidance, gender equality
Northern Europe
Denmark, Finland, Norway, Sweden
Future oriented, uncertainty avoidance,

institutional collectivism, gender equality
Certainity, group-based collectismus,

uncertainty avoidance
Eastern Europe
Albany, Georgia, Greece, Poland,

Russia, Slowenia, Czech Republic,
Hungary
Certainity, group-based collectivism,

gender equality
Performance oriented, future

oriented, uncertainty avoidance
Sub-Saharan
Namibia, Nigeria, Sambia, Zimbabwe
Human-oriented
South Asian
India, Indonesia, Iran, Malaysia,

Philippines, Thailand
Human-oriented, group-based
collectivism
Anglo Saxon
Performance oriented, future

oriented, uncertainty avoidance,
institutonal collectivism
Human-oriented, institutional
collectivism
Source: Engelen/ Tholen 2014

49
20-Oct-14

Culture is a group-level phenomenon (I)
National culture descriptions always

relate to the group level.
Culture B
Culture A
Individual members of the culture are

not described.
The means of natural cultural
characteristics vary according to
national culture.
Consequently, there can be
substantial
overlap between national cultures,
despite mean differences
Source: Trompenaars/Hampden-Turner (2008)

50
20-Oct-14

Culture is a group-level phenomenon (II)
Overlays of National culture
Stereotyping
How Americans see
the French:
Arrogant
Flamboyant
Hierarchical
Emotional
French culture
American culture
Norms and values
How the French see

Americans:
Naive
Aggressive
Unprincipled
Workaholic
French culture
American culture
Norms and values
Source: Trompenaars/Hampden-Turner (2008)

51
20-Oct-14

Cultural learning in a foreign country: The concept

of acculturation
Acculturation refers to
how individuals react to
foreign cultures.
Migration is the most
intense form of
acculturation.
Milder forms of
acculturation exist, such
as through exposure to
global mass media.
high
Separation
Integration
Marginalization
Assimilation
low
high
Cultural
maintenance/
identity
low
Willingness to adopt another culture
Source: Berry (1990)

52
20-Oct-14

Perceiving culture: The psychic distance paradox
Difficulties in
cross-national
projects
True cultural distance

Source: OGrady/Lane (1996)
53
20-Oct-14

Examples of small cultural differences between

Applying toilet paper
Germany and the USA
Celebrating birthdays
Expressing criticism
Party!
Feier!
Having lunch on workdays
Attitude towards squirrels
Party Time
Good Morning
54
20-Oct-14

Agenda
I.
Introduction
II.

V.
55
20-Oct-14

Concepts of individual buying behavior in an

international context
What do individuals prefer to buy?
How do they prefer to buy?
Levitts convergence hypothesis:

Customer preferences are assimilating
internationally
Empirical investigations on what

European consumers expect from their
shopping environment shows fairly
homogenous preferences.
Country-of-Origin:
Stereotypes about countries influence
the purchase decision
Social Identity Theory:
Sense of group membership and
discrimination
Ethnocentrism:
Patriotism influences the purchase
decision
56
20-Oct-14

Levitt (1983) posited that consumer needs are

converging internationally
Socio-demographic development
In many industrial nations, there is a trend
towards small families and older people
Standardization of
products
&services
Education
Early confrontation with foreign cultures
Transport technology
High distances can be overcome accompanied
by decreasing costs
Communication technology
Better information sources for customers
57
20-Oct-14
Convergence of
customer needs
Centralization of
decisions
Low costs and

therefore, low
prices

Examples supporting the convergence hypothesis
International proliferation of the television

format Who wants to be a millionaire?
International
proliferation
of McDonalds
58
20-Oct-14

Country-of-Origin effects
Country associated with the product
Country of headquarters
What is the country-of-origin?
Country of manufacture or assembly

Country of product design
Country associated with the brand name (e.g., French fries, French
mustard)
When consumers are unfamiliar with a product (e.g., product
quality), country image has a halo effect on their evaluation
of the product (Han 1989)
What is the country-of-origin effect?
A positive country image may allow marketers to introduce

new products that quickly gain consumer recognition and
acceptance. (Agarwal/Sikri 1996)
Products made in developing countries are only marketable

when they are priced far less than products offered by
regional or global competitors (Hulland/Todino/Lecraw 1996)
59
20-Oct-14

Country-of-Origin effects II
Country-of-origin effects are not stable over time
Country images can change when consumers become more
familiar with the country Example: Japanese-made cars image
took a 180 turn during the last couple of decades.
(Wood/Darling/Siders 1999, Nagashima 1970)
When consumers are more knowledgeable about countrys
products, country image may be less important in forming their
beliefs about product and brand
What does the effect depend on?
Country-of-origin influences are particularly strong among the

elderly (Shimp/Sharma 1987), less educated, and politically
conservative (Anderson/Cunningham 1972)
Country-of-origin effects depend on product
COO effects are more relevant for products like cars or
consumer electronics (+), while COO effects would be less
relevant for cosmetics or designer clothes (Roth/Romeo 1992)
60
20-Oct-14

Using the country-of-origin effect: The case of

moods of norway
Source: http://store.moodsofnorway.com/
61
20-Oct-14

Country images (quality)

Based on a global survey in 2008 (n=8,007)
(Reinecke, Feige, and Fischer 2009, p. 51)

62
20-Oct-14

127 years Made in Germany

To beginn of industrial revolution German products were of inferior quality but offered at a
lower price
Rivalry of British quality productus and cheaper German plagiarised products
Need for more transparency
Britain introduced Merchandise Marks Act in 1887, requirement to label country of origin
German quality campaign in order to keep up with international standards
Late 19th century contrary effect of Made in Germany as a quality indicator
(http://www.br.de/themen/wissen/made-in-germany-100.html)
63
20-Oct-14

Country-of-Origin effects revisited: Country images
Quality image of products made in various countries

(Percent (%) of respondents rate xxx products as being high quality)
Hong Kong
Taipei
Seoul
Bangkok
Shanghai
Moscow
Frankfurt
Japan
(86.4%)
(94.3%)
(29.6%)
(54.3%)
(49.6%)
(70.4%)
(64.2%)
(74.1%)
(78.3%)
(28.9%)
(45.8%)
(39.2%)
(42.6%)
(38.6%)
(60.5%)
(61.0%)
(19.3%)
(34.4%)
(33.6%)
(24.8%)
(24.2%)
(38.0%)
(28.3%)
(11.8%)
(20.3%)
(26.9%)
(15.4%)
(9.4%)
(6.0%)
(2.1%)
(2.5%)
(11.6%)
(16.0%)
(1.0%)
(7.9%)
5
Source: Hakuhodo Global HABIT 2008 survey, found by Kotabe and Helsen (2011, p. 382)
64
20-Oct-14

The relevance of country-of-origin effect: Brand

origin recognition accuracy in the USA
Question: Do customers actually know, where a product comes from?
Survey in the USA with 480 participants
Participants were asked to state the country-of-origin for 84 brands from 7 countries
Hong Kong was included as option, although no brand was from there
Additional options: Country not listed and dont know
Results:
Source: Samiee et al. 2005
65
20-Oct-14

Social Identity Theory Examples of different

social groups and corresponding identities (I)
66
20-Oct-14

Social Identity Theory (II)
What is the key learning of

the social identity theory?
What are the axioms of the

social identity theory?
What are the conditions of

the social identity theory?
Social identity theory is an analysis of an

individual's perceived concept derived from group
membership:
social reference group
group process
intergroup relation
1. People want to create a positive self-assessment
2. People derive their self assessment, the social identity,
..from group membership and group assessment
3. Group assessment is a comparison of the group with other
..relevant groups
Potential group members are able to identify with ingroup

categories
Importance of category and connected social identity are
dependent on situation
Source: Turner 1979
67
20-Oct-14

Social identity & consumer ethnocentricsm
68
20-Oct-14

Consumer ethnocentricsm
What is ethnocentrism?
The belief that ones own culture is superior

to another culture.
As an example, purchasing managers often
prefer to deal with sales managers who
speak the same language and come from the
same country.
What does the strength of ethnocentrism

depend on?
Ethnocentrism has been seen to increase
when there is a perceived threat to the own
nation
As another example, consumers often prefer

domestic products over imports.
Ethnocentrism may result in an
overestimation of the attributes and overall
quality of domestic products and an
underestimation of the quality of foreign
products
Source:Sharma et al. 1995
69
20-Oct-14

Ethnocentricsm in the USA
70
20-Oct-14

Ethnocentricsm in Germany
Percentage of Germans who highly trust or rather trust the following brands
77
VW
Audi
73
Nivea
73
70
Adidas
Mercedes-Benz
69
BMW
69
64
Samsung
62
Sony
Esprit
53
Coca-Cola
53
Hugo Boss
49
Nike
49
44
Apple
Deutsche Bank
35
(GPRA-Vertrauensindex, TNS Emnid Horizont 49/2012)
71
20-Oct-14

Agenda
I.
Introduction
II.

V.
72
20-Oct-14

Market entry decisions
Decisions concerning the internationalization process

Four key decision areas:
Internationalization
Strategy
Exit Mode
Decision areas
Country Market
Selection
Entry Mode
73
20-Oct-14

Two basic internationalization strategies

Waterfall strategy
Sprinkler strategy
Principle of concentration
Principle of diversification
Extensive market research
Activity in as many markets as possible in a
Customization of marketing activities
relatively short time

High standardization of marketing activities
Failure and withdrawal from some markets
accepted
Very often: Selection of the geographically
closest market from the home country
Market entry
Market entry
Markteintritt
Market entry
Country A Country A
Country B Country B
Country C Land C
Country D Land D
Land A Country A
Land B Country B
Land C Country C
Land D Country D
01
12
23
3years
Wasserfallstrategie
Wasserfallstrategie
74
20-Oct-14
Jahre
0
0 1
12
2 3
3 Jahre
years
Sprinklerstrategie
Sprinklerstrategie
Waterfall strategy leads to extension of product

life cycles
Product life cycle in each country
Comparison of sales volumes
Sales
Country1
Sales
Simultaneous
market entries
Years
1
Waterfall
entry
Sales
Country2
Years
Years
Sales
Country3
The waterfall strategy artificially extends the

overall life cycle of a product.
Years
Source: Kotabe/Helsen (2011)

75
20-Oct-14

Advantages and disadvantages of the two

strategies
Criteria
Companyrelated
criteria
External
criteria
Low resources
Low risk propensity
Little experience in foreign countries
Competitive advantage is only temporary
Market-related
High market entry costs
Low homogeneity of consumers preferences
Competition
High competitive intensity in countries
Strong overall degree of globalization in the industry
Short product life cycle stage
Waterfall
strategy
Strategy of
simultaneous
market entry
+
+
+
-
+
+
-/+
-
-/+
+
+
+ Strategy is more appropriate
- Strategy is less appropriate

76
20-Oct-14

Waterfall strategy: The case of the
group
Egypt
Kazakhstan
30
Number of country markets
Pakistan
Sweden
Serbia
Moldavia
No. of Outlets
(06/2010) in
Germany: 121
Foreign countries: 543
(* selling of the format

** leaving after first tests)
Vietnam
Japan
20
Poland
Hungary
Switzerland
Russia
Croatia
Slovakia
Czech. Rep.
Ukraine
India
Bulgaria
Romania
China
Morocco
Greece
Turkey
Portugal
Luxembourg *
10
USA **
Denmark
France
Austria
Great Britain
Netherlands
Germany
1964
77
1967
20-Oct-14
Spain
Italy
126 /
15
Belgium
345 /
86
Poland, Turkey, Romania, Russia
353 /
355
Austria, Belgium, France, Greece, Hungary, Italy, Lux.,

Netherlands, Poland, Portugal, Russia, Spain, Sweden,
Switzerland, Turkey
Belgium
1970
1973
1976
1979
1988
1991
1994
1997
2000
2003
2006
2009
Zentes et al. (2011)

Waterfall strategy:
store openings in Europe
No. of Outlets (10/2014) in

Germany: 1.480
Foreign countries: 1.413
http://www.dm.de/de_homepage/unternehmen/zahlen-fakten/unternehmenszahlen/
78
20-Oct-14

Sprinkler strategy:
and
Source: wikipedia.org
79
20-Oct-14

Born Globals as new type of international company

Drivers of born globals
Born Globals refer to firms

that adopt an international or
even global approach right
from birth or very shortly
thereafter.
Management
Products
Markets
Technology
Managers with a strong background in

international activity will foster
international expansion.
Products with short life cycles (particularly

those of high-tech firm) need to be
brought to foreign markets in a timely
fashion.
Born globals often operate in niche

markets
Demand in the home market is too low to
permit expansion
Recent technology developments enable
born globals to expand to international
markets with reasonable investments.
Source: Hollensen 2011

80
20-Oct-14

Example Born GlobalsGerman Start Up of the Year 2013

Highest amount of crowdfunding in history 1.5m Euro
Unique mission:
At Protonet, we are following our vision: to build the simplest server in the world. Our goal is to
make it easy for companies and individuals to take control and ownership of their data. To do
that, weve built the hardware and software to eliminate the need for cloud services and for IT
expertise. Our users whether solo, small, or medium-sized businesses simply need to press
a button to start the process of data ownership and control. simply independent.
Key product features: secure data storage, team communication, work with clients, create
networkhttps://protonet.info/en/product/
81
20-Oct-14

Country market selection: Possible process for

selecting attractive country markets
Exclusion
Ranking
All
countries
20
acceptable
countries
Selection
6
countries
in the short list
82
20-Oct-14
2 target countries

Important criteria for strategic country market

selection
General attractiveness
of a country market
Political, legal, and technological criteria
Availability of skilled labor (+)
Wage level (-)
Political stability (e.g., BERI-Index) (+)
Quality of infrastructure (+)
Extent of price regulations (-)
Possibility to use market as a
platform market, e.g. Singapore, Hong
Kong (+)
Demand-related criteria
Number of customers (+)
Market volume (+)
Market growth (+)
Growth of population (+)
Purchasing power per capita (+)
Ease of entry
Political, legal, and technological barriers

Import duties (-)
Different technical norms (-)
Logistical costs (-)
Local content laws (-)
Demand-related criteria
Cultural barriers (-)
Language barriers (-)
Switching costs of customers (-)
Customer loyalty to competitors (-)
Competition-related criteria
Scale advantages / cost advantages of
incumbents (-)
Technological advantage of incumbents
(-)
Competition-related criteria
Intensity of competition (-)
83
20-Oct-14

Assessing country risk: The BERI index

Provided by Business Environment Risk Intelligence S.A.
1 and 5 year forecasts for 50 countries and 5 regions
Evaluation through management executives, political scientists, and sociologists
Two-stage scoring model in which the total score is an aggregation of the three following sub
indices:
ORI: Operation risk index
PRI: Political risk index
E.g.,
E.g.,
Attitude: Foreign investors and profits
Fractionalization of the political spectrum
Degree of privatization
Bureaucratic delays
Economic growth
and the corruption, nepotism, willingness

to compromise
Fractionalization by language, ethnic
R factor: Remittance and

repatriation factor
Legal framework (dividend, profit, and
salary remittances, repatriation of

capital)
Foreign exchange
International debts
and(or density and wealth distribution
Labor cost productivity
In addition to the indices for each country, two-page summaries for each of 50 countries,
including the outlook and tables with historical and forecasts for ratings and economic and
financial information, are provided (see following pages for summarized examples of country
reports)
Comparable indices provided by other agencies, e.g., Business Monitor International or
Economist Intelligence Unit
Source: Business Risk Intelligence S.A. 2001
84
20-Oct-14

Assessing country risk: An example of the BERIindex for selected countries

Country
Major
advanced
economies
Political risk
index (PRI)
Operations risk
index (ORI)
Remittance &
repatriation factor
(R factor)
Average
score
2001
+5 years forecast
average score
Germany
64
71
78
71
72
United States
68
74
68
70
73
France
60
64
72
65
66
United Kingdom
63
66
57
62
65
Other
advanced
economies
Spain
62
64
61
62
64
Italy
41
53
60
51
53
Israel
36
53
45
45
47
Countries in
transition
Estonia
44
46
38
43
44
Russia
41
37
46
41
44
Ukraine
37
36
38
37
40
China
56
49
66
57
57
Egypt
44
45
45
45
46
India
39
48
47
45
46
Syria
46
42
44
44
44
Brazil
42
40
37
40
42
Indonesia
36
36
44
39
42
Developing
countries
Interpretation of the ratings:

70-100: Stable environment typical of an advanced industrialized economy. Problems for foreign businesses are offset by the countrys efficiency, market opportunities,
financial system, and advanced infrastructure.
55-69: Moderate-risk countries with complications in day-to-day operations. Usually the political structure is sufficiently stable to permit consistent operations without
serious disruption. Dynamic economic expansion often has the potential for attractive profits.
40-54: High risk for foreign-owned businesses. Only special situations should be considered, e.g., scarce raw materials for unusual profit potential. Selection of
management is critical to success in this risk range.
0-39: Unacceptable business conditions for foreign-owned businesses.
Source: Business Risk Intelligence S.A. 2001

85
20-Oct-14

Assessing market size: Method of analogy

Starting point: Selection of comparison standard (base country)
Country that is at the same stage of economic development as the country of interest
Market size is known in base country
Premise: Relationship between the demand for a product and a particular indicator (e.g., the
demand for a related product) is similar in both countries
Example:
Electronics company wants to estimate the market size for DVD players in the Ukraine
Base country: Poland
Proxy that correlates highly with DVD players demand: Number of color TVs in use
Assumption:
()
()
2001 data:
()
()
Color TVs in Use*
DVD Player Sales*
Poland
14,722.64
69.17
Ukraine
15,626.15
???
* in thousands
Market size: 73,400

Challenges: Finding a comparable country and a good proxy variable
Source: Kotabe and Helsen (2011, p. 209)
86
20-Oct-14

Assessing market size: Longitudinal method of

analogy
Analogy may also exist between time periods
E.g., economic state of country A is similar to economic state of country B ten years back
Formula changes to:
2012
2012
2002
2002
Both analogy methods produce misleading estimates whenever:

Consumption patterns are not comparable due to strong cultural disparities
Other factors (competition, trade barriers) cause actual sales to differ from potential
sales
Technological advances allow use of product innovations in a country at an earlier
stage of economic development (leapfrogging)

87
20-Oct-14

Use of the analogy method at

Fortune reported in 1994 that McDonalds uses a variant of the analogy method to
derive market size estimates

.
(21,629)

($41,800)
Market potential estimates (based on 2006 data):

Country
2004: Number of Restaurants
1996: Number of Restaurants
Market Potential
Japan
3,774
2,004
4,284
Canada
1,362
992
1,190
Germany
1,262
743
2,707
UK
1,249
737
2,064
France
1,034
540
2,004
Australia
729
608
711
China
639
117
8,958
Brazil
549
214
1,750
Sweden
244
129
295
Poland
207
65
542
Argentina
186
88
594
Malaysia
164
129 (1999)
275
Source: Kotabe and Helsen (2011, p. 210-11)
88
20-Oct-14

Assessing market size: The chain ratio method

Typical process:
Starting point: Very rough base number (e.g., population size)
Systematic fine-tuning by applying a string (chain) of percentages to come
up with the most meaningful estimate for total market potential
Illustration: Potential market size in Japan for Nicorette gum (2002 figures)
Base number: Total population 127 million
Smoking rate: 31%
Nicorette targets adult smokers: 15 to 64-year old age group is about 67.5% of
Japans total puplation
Survey data: 64% of adult smokers in Japan would like to quit or cut smoking
Survey data: 25% of smokers that intend to quit would like to start immediately
Japan
Total population
127 MM people
Adult population (15-64)
85.6 MM =.675 127 MM
Adult smokers
26.5 MM =.31 85.6 MM
Smokers with intention to quit
17.0 MM =.64 26.5 MM
Smokers with intention to quit and

wishing to start immediately
4.3 MM = .25 17.0 MM

89
20-Oct-14

Entry modes: Different ways to market products in

a foreign market (I/II)
Exports
Franchising
Licensing
Two Types
Transferring right to use

the franchisors business model
to the franchisee
Royalties (and/or lump sum)
Franchisor often operates as
supplier to the franchise outlets
Advantages
Licensor offers intellectual

property (e.g., brand name) to
the licensee in exchange for
royalty fees
Advantages
Disadvantages
Disadvantages
Direct: Without intermediary

Indirect: With intermediary
Direct exports
Access to customers
Control over marketing mix
(especially the price)
Requires some investments
Indirect exports
Very small risks

No need of know-how concerning
regulations in other countries
Limited access to customers
Limited control over marketing mix
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Reduced risk
Fast growth
Control over marketing mix
Dependence on franchisees
Spillover effects in case of
crises
Light on resources (attractive

for smaller companies)
Possibility to enter closed markets
Fast implementation
Facilitates differentiation
Reduced commitment of licensee
Possibly nurturing of future
competitors

Entry modes: Different ways to market products in

a foreign market (II/II)
Sales representation
Joint venture
Subsidiary
Selling products directly to

the customer without
intermediary
Representation staffed with
own employees
Advantages
Co-managed firm
Both partners contribute capital,
know-how and possible existing
companies
Advantages
Two Types
Disadvantages
Disadvantages
Little risk, reduced investment

Acquisition of market knowledge
Supports standardization
strategies
Distance to mother-firm
Little product know-how
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Possibility to enter closed

markets
Know-how synergies (e.g., product
expertise + market expertise)
Risk sharing
Often source of conflict
Danger of hijacking through
one of the partners
Greenfield
Acquisition
Limited to sales & services or

including manufacturing
Advantages
Control
Acquisition of market knowledge
Possibly country-of-origin effects
Supports differentiation strategies
Disadvantages
Full country risk

High investments required
Possibly negative country-of-origin
effects

What entry mode is appropriate? (I)

Key issue: Control versus autonomy
Control is always associated with large investments in terms of time and other resources
Two theoretical approaches to make decisions in this environment
Transaction Cost Economics
Resource-Based View
Key idea: Desirable governance structures

depends on the comparative transaction costs
Market entry = transaction
In highly competitive markets no need of high
control structures
If transaction-specific assets are valuable
(e.g., patents, know-how), high control
structures are preferred
Resources itself do not create competitive

advantage, organization is required for this
If resources are imitable (e.g., knowledge),
then high control entry modes are
recommended
Three differences between perspectives (Kotabe and Helsen 2011, p. 298)

TCE predicts high-control entry modes because of opportunistic behavior, RBV
predicts high-control entry modes to facilitate cooperation
TCE focuses on one-time events, RBV looks at a chain of events
TCE assumes exploitation, RBV cooperation
Source: Anderson and Gatignon (1986)
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in South Korea
Lessons learnt in international retailing:
Importance of local know how

Process know how can only be partially transferred
Joint Ventures explored as alternative entry mode
Tesco in South Korea:
Entered the country in 1999

Joint Venture with Samsung (Store chain Home plus)
Samsung required retailing expertise
Tesco required market expertise
80% Tesco / 20% Samsung
Key learnings:
Vertical store format due to limited availability of land:

o 3-4 floors for parking
o 3 retail floors (hypermarket, food court, boutiques)
People are customers and citizens: Extra floor for Culture Centre
Stronger focus on fresh food and convenience food than in UK
Legal protection of small retailers requires omitting some products
Successful experiments with virtual stores in subways
Performance:
93
Best-performing foreign business of Tesco

2012: 520 stores, 5.3m Pounds revenues
20-Oct-14
Sources: Leahy (2012),

www.tescoplc.com
Exit strategies
Reasons for leaving a market:
Sustained losses (e.g., Walmarts exit from Germany in 2006)
Difficulties in cracking the market (e.g., Nokias exit from Japan in 2008)
Volatility in the markets
Premature entry
Ethical reasons
Intense competition
Resource allocation
Exit barriers:
Exit costs
Damage to corporate image
Low liquidation value
Signal to other markets
Long-term opportunities
Three recommendations:
Assess all other options
Incremental exit > Immediate full exit
Sources: Bea/Haas 2009
Migrate customers
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Agenda
I.
Introduction
II.

V.
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The emic versus etic dilemma in international

market research
Distinction originally from anthropology (science of humanity)
Key question: How relative are human values?
Based on the response to this question two viewpoints can be distinguished:
Emic perspective
Etic perspective
Everything that individuals do and say

can only be understood by other
individuals raised in the same
cultural environment
It is not possible for external observers
to accurately understand the behavior
of individuals in other cultures
Highly relativist perspective
Implications for market research:
Emphasis on longitudinal
qualitative projects
No generalizations across
cultures
Rarely adopted by practitioners
While cultural differences exist,

it is possible to establish universal
truths about human behavior
If appropriate methodological
care is taken, cross-cultural
market research is possible
Implications for market research:
Emphasis on establishing
cultural invariance of methods
Quantitative approaches
and qualitative approaches
Mainstream perspective in
business practice
Sources:Engelen/ Tholen 2014
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Challenges associated with international market

research based on secondary data
Measurement reliability
over time
Data accuracy and age
Problems with
secondary data
Data lumping and

degree of aggregation
Be sure to check:
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1.
2.
3.
4.
5.
Measurement
comparability across
countries
When were the data collected? Over what time frame?

How were the data collected?
Have the variables been redefined over time?
Who collected the data?
For what purpose were the data gathered?

Sources of secondary data
International
National
Non-commercial
Commercial
National statistical offices

Scientific institutes
Chambers of commerce
and industry (CCIs)
National market research

institutes
Publishing companies (e.g.
Gruner + Jahr)
United Nations information

service
Worldbank
International Monetary Fund
World Trade Organization
Organization of ECD
European Union
International market
research institutes (e.g.
Nielsen)
international agents
Data bases (z.B.
International Market
Identifiers)
Source: Schopphoven 1991, p. 31; Schulz-Rinne 1989, p. 14ff

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Eurostat is the EUs initiative to make national

statistics comparable
Basic facts about Eurostat
Established in 1953 as Statistics Division to
meet the requirements of the Coal and Steel
Community
Areas of Eurostat activities:
Economic statistics
Economic and monetary convergence
External and intra-Community trade statistics
Business statistics
Social statistics
Agricultural, environmental, food and regional
statistics
Staff & Budget:
In 2011 around 900 people worked in
Eurostat
Eurostat had a total budget of around 61
million in 2010, this budget was used for
the implementation of the Community
Statistical Programme (CSP) and the
Modernisation of European Enterprise and
Trade Statistics (MEETS).
From national to European statistic
Statistical Authorities of the Member States

collect data. They verify and analyze national
data and...
...send them
to Eurostat.
Eurostats role is to consolidate the data and

ensure they are comparable, using harmonized
methodology.
Source: http://europa.eu.int/comm/eurostat
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Challenges associated with international market

research based on primary data
Different cultural
response styles
Different cultural responses

to the form of data collection
Sources of the lack of

comparability of international
interview results
Lack of linguistic similarity of questions and response scales
100
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The suitability of survey methods in intercultural

market research studies
Mail
Telephone
Requires literacy
Only applicable
in some countries
with working
postal systems
Great reluctance
to participate in
surveys initiated
from abroad
(return address
in own country
needed)
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Problematic for
surveys in lessdeveloped countries:
High and middle
incomes overrepresented
In high context
cultures prone
to cause social
desirability biases
In Japan and other
countries considered
to be an extreme
intrusion into
private lives
Native speaking
interviewers a must
Can be organized
and managed from
one country
Face-to-Face
Very expensive
Allows for
surveys among
households
that cannot be
accessed through
telephone or online
In high context
cultures prone
to cause social
desirability biases
Native speaking
interviewers a must
Online
Requires literacy
Problematic for
surveys in lessdeveloped countries:
High and middle
incomes overrepresented
Problems with
censoring in
some countries
Can be organized
and managed from
one country

Establishing the linguistic equivalence of questions
A standard process for establishing the linguistic equivalence of survey questions exists
It is called the translation back-translation process:
Adapt the translated

questionnaire until
the back-translated
version is sufficiently
similar to the
original version
Master questionnaire
is translated into
the foreign language
Translated questionnaire
is back-translated into
the original language
(by a native speaker
not involved
in the project)
Identification of
difference between
the original questionnaire
and the back-translated
questionnaire

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Establishing the linguistic equivalence of response

scales (I)
Original
scale
in English
Originalskala
Englische
ModeExtremely rately
poor
poor
Fair
Unusually
good
Reasonably
good
Distortion
Distortion
Verzerrung
Verzerrung
Distortion Verzerrung
1
Terriblement
mauvais
Faible
16
12
Lgre- Honnte
ment
bon
20
Perceived valence
Empfundene
of the judgment
des
Wertigkeit
Urteils
5
Merveilleux
bersetzung
Franzsische
French translation
Source: Bauer (2002, p. 303)
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Establishing the linguistic equivalence of response

scales (II)
Examples for equivalent rating scales
Source: Angelmar/Pras (1978), p. 67

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Response styles in intercultural market research (I)

Response styles: Tendency of survey participants to favor certain responses regardless
of the content of the question
Different types of response styles are observed in practices
Particularly problematic in intercultural market research
Most response styles are negligible if everyone is affected the same
Cultural differences make even comparison of averages difficult
Acquiescence bias
Tendency to respond positively to survey statements (e.g., agree with statements)
Can be discovered by adding reversed survey items to a questionnaire
Some empirical evidence of a link between acquiescence bias and a high degree of
cultural collectivism
To what extent do you agree with the following statements?
Most products I buy are overpriced.
Businesses could charge lower prices and still be profitable.
Most prices are reasonable considering the high costs of firms.
Most prices are fair.
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Strongly
Disagree
1
2
Strongly
Agree
6
7

Response styles in intercultural market research (II)

Extreme response style
Tendency to prefer endpoints of the scale over the middle of the scale
Some empirical evidence of a link between extreme response styles and the degree of
power distance in a country (more extreme response if power distance is high) (Johnson et al. 2005)

Most prices are fair.
Strongly
Disagree
1
2
Strongly
Agree
6
7
Midpoint response style

Tendency to prefer the middle of the scale over the endpoints
Most20-Oct-14
prices are fair.
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Strongly
Disagree
1
2
Strongly
Agree
6
7

Testing for measurement equivalence (I)

The general question of invariance of measurement is one of whether or not,
under different conditions of observing and studying phenomena, measurement
operations yield measures of the same attribute. (Horn/McArdle 1992, p. 117)
Goal in primary international market research: measurement equivalence
Also referred to as measurement invariance
Can be statistically tested using confirmatory factor analysis
Requirement: A phenomenon (or construct) is measured through three or more
questions (or items, or indicators) in a questionnaire
Idea: The shared variance of the items represents the essence of the
construct () that is supposed to be measured
Graphically:
Formally:
11
21
31
x1
1 = 1 + 11 1 + 1
x2
2 = 2 + 21 1 + 2
x3
3 = 3 + 31 1 + 3
xk: Response for item k

1: Construct/phenomenon behind responses
k: Expected response for item k, if 1=0
k: Random measurement error for item k
k1: Strength of link between item k and 1
The parameters of these equations can be estimated using a Maximum Likelihood

approach (not considered in this lecture)
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Testing for measurement equivalence (II)

Different types of measurement invariance can be distinguished
Three types are typically the most important:
1.
2.
3.
Configural invariance
Can the construct be measured

through the same indicators in all
contexts?
Metric invariance
Are the relationships between

indicators and construct equally
strong in all countries?
Scalar invariance
At the same level of the

construct, are indicator values
equal in all countries?
Source: Steenkamp and Baumgartner (1998)

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Testing for measurement equivalence (III)

Starting point: equation system from before
1 = 1 + 11 1 + 1
2 = 2 + 21 1 + 2
3 = 3 + 31 1 + 3
xk: Response for item k

1: Construct/phenomenon behind responses
k: Expected response for item k, if 1=0
k: Random measurement error for item k
k1: Strength of link between item k and 1
Configural invariance between the measures from two countries A and B is given, if
all k1 that are different from zero in A are also different from zero in B
all k1 that are zero in A are also zero in B
Metric invariance between the measures from two countries A and B is given, if
D1 = 1 for all k items
Scalar invariance between the measures from two countries A and B is given, if
= for all k items
Source: Klarmann (2008)

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Outcomes of lack of measurement equivalence
Is
configural
invariance
present?
Yes
No
No
Is
metric
invariance
present?
Yes
No
Is
scalar
invariance
present?
Yes
Mean values are
not comparable
Correlations are
not comparable
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Mean values are

not comparable
Correlations
are comparable
Mean values
are comparable
Correlations
are comparable
Source:
Klarmann (2008)

Agenda
I.
Introduction
II.

V.

I.
Product Management
II.
Pricing
III. Communication
IV. Sales
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The importance of international product

management
Ford Taurus too large for Japanese

parking spaces (sales reportedly <1500)
IKEA with problems on the US market,

because European bed sizes were
considered too small
Audi has problems selling the A6 in

China, because space in the back is
not sufficient for buyers with drivers
Source: Business Week (1999)
Source: Mller and Gelbrich (2004)
For each aspect of the product, a decision between standardization and differentiation is required.
112
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Reasons for standardizing and for differentiating

the product offering
Factors speaking for standardization
Cost-related considerations
Economies of scale
Economies of simplicity
Critical mass for brand recognition
Economies of flexibility (e.g., logistics)
Factors speaking for differentiation

Customer-related considerations
Customer-related considerations
Anticipation of converging customer needs

Requirements of internationally expanding
customers and distributors
Bargaining power vis--vis international
customers and distributors
Possibility to address taste differences

Possibility to make use of country-of-origin
effect (patriotism, nostalgia)
Necessity to avoid country-of-origin effect
Need to avoid cross-cultural misunderstanding
of names and symbols
Environmental considerations
Different climate conditions

Different technical norms
Different legal norms
Strategic considerations
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Possibility to spin-off and sell brands

Occupying niche markets
Supporting price differentiation and fighting
gray imports

Differences in customer tastes: Automotive color

popularity in Brazil, China, and Europe
Source: DuPont Perfomance Coatings 2012 Global Color Popularity Report

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Product differentiation at
Country
Sandwich
Description
France
Croque McDo
A grilled ham and cheese sandwich on toast
India
Maharaja Mac
Two grill chicken patties with smoke-flavored mayonnaise,

onions, tomatoes, and cheddar cheese
Taiwan
Rice Burger
Shredded beef between two rice patties
Japan
Teriyaki Burger
A chicken cutlet patty marinated in teriyaki sauce
Middle East
McArabia Sandwich
A marinated grilled chicken sandwich in flatbread
New Zealand
Kiwi Burger
A hamburger with a fried egg and a slice of pickled beet
Poland
McKielbasa
Kielbasa (Polish sausage) patty topped with ketchup, mustard,

and onion
Pakistan
Spicy McChicken
A chicken sandwich with chutney
Thailand
Samurai Pork Burger
A pork burger flavored with teriyaki sauce
South Korea
Bulgogi Burger
Pork patty marinated in soy-based sauce
Netherlands
McKroket
A deep fried roll containing beef ragout and potato
Greece
Greek Mac
A pita bread sandwich with two beef patties and some yoghurt
Israel
McShawarma
Shawarma served in flatbread
115
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The challenge in managing differentiation is to combine

product differentiation with production standardization
Levels of product standardization
Differentiated
products
Modular design
Built-in-flexibity
Standardized
products
116
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A special modular design success study: the new

beetle
The story of the new beetle

Early 90s
Market Research detects that old beetle is most know and appreciated VW car in the US
1991
Secretly US engineers start working on a design remake of the old beetle
1992
VW Concept 1, as the project is called as a code name is presented to leading designers
1993
Volkswagen AG design chief Dr. Helmut Warkuss presents the first scale
model to Ferdinand Piech, chairman of VW AG
1993
First full size model is developed
1994
North American International Auto Show unveiling of the Concept 1 version of the
New Beetle and later the same year Volkswagen Board of Management approves development of
New Beetle
1998
New Beetle goes on sale and becomes an instant success

Source: Kiley 2002
117
20-Oct-14

The special case of brand standardization: Global

brands
A truly global brand is one that has a consistent identity with consumers across the
world (Kotabe and Helsen 2011, p. 362)
What conditions favor launching a product with a single brand identity worldwide?
Advantages of global brands
Customers value global brands
(Holt, Quelch, and Taylor 2004)
Global brands signal quality and offer
higher prestige
Global brands give customers the
sense of belonging to something bigger
Global brands are held to higher
ethical standards
Economies of scale
Higher brand awareness, even without
entry in a specific country market
Advantages of local brands

No negative spillover effects from a
crisis in one country to other countries
The name does not need to work
internationally
Can be adapted to cultural particularities
Allows firms to draw on patriotism and
buy-local attitudes
No negative country-of-origin associations
Analyze costs , economies of scale and value creation of a global brand compared to a
local brand
118
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Naming products internationally: Some car stories

Ford Pinto
Rolls Royce Silver Mist
Reportedly never aimed at the Brazilian market.
In Germany (and elsewhere) sold as Silver Shadow
Chevy Nova
Mitsubishi Pajero
Reportedly quite successful in South America

(despite the name)
Sold in Spain (and some other countries) as

Mitsubishi Montero
Source: Haig (2011) and the Internet
119
20-Oct-14

Three options for standardizing local brand names
Fade-in/fade out or
Dual branding
Transparent forewarning
Hard cut
The new global brand is

combined with the existing
brand name. After a transition
period, the old name is
dropped:
The customers are intensely

informed about the changed
brand name.
The local brand name is

dropped almost overnight and
replaced by the global brand
name.
Examples:
Examples:
Morgan Grenfell
Raider became Twix
Example: Fairy Ultra

becoming Dawn
Deutsche Morgan Grenfell

Deutsche Bank
(Raider heit jetzt Twix,

sonst ndert sich nix)
D2
D2 Vodafone
Vodafone D2
Vodafone
120
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A failed Hard Cut strategy, the case of

Introduction on the German market in 1992, to replace the traditional brand Spli
Large TV budget for introduction, campain surrounding two Spanish villages
(Villariba und Villabajo) competing for the cleanest Paella pan
At a time more than 90% of German consumers were able to remember these
spots, with 61% linking them to Fairy (Source: wikipedia.de)
2000: Brand standardization initiative
by Procter and Gamble, Fairy Ultra
(market share of nearly 12%) renamed
overnight to Dawn
2001: Dawn market share of 4.7
2003: Reintroduction of Fairy Ultra on
the German market, now called
Fairy by Dawn
Today: Product only called Fairy
Source: Kotabe and Helsen 2011

121
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Importance of congruent branding in international

context
Web-bases survey of consumers In New Zealand, because a developed country with a high level of
foreign trade , N=577
Online invitation to survey where brand name, price and short description were provided in a fictitious
advertisement
Participants indicated likelihood of purchase
Luxury watch was used as hedonic product, whereas sports watch was used as utilitarian
Source: Melnyk et al. 2012

122
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Product plagiarism and brand counterfeiting as

threats in international marketing
Product Piracy
Product Plagiarism
123
20-Oct-14
Brand Counterfeiting

Estimates of the total value of counterfeit and

pirated products in 2008 and 2015
OECD Category
Estimate in $ billions (2008)
Estimate in $ billions (2015)
Internationally traded counterfeit and

pirated product
285 360
770 960
Domestically produced and consumed

counterfeit and pirated products
140 215
370 570
30 75
80 240
455 650
1,220 1,770
125
125+
2.5 million
2.5 million+
Digitally pirated products

Sub total
Broader economy-wide effects1
Employment losses in G20 economies
1
Effects on government tax revenues, welfare spending, costs of crime fighting services, FDI flows
Source: Frontier Economics 2011

124
20-Oct-14

Scope of the problem for German firms

Are your products plagiarized or counterfeited?
How strongly is your firm affected by these actions?
Very strongly
No
Rarely
8%
16%
Strongly
24%
Sometimes
25%
19%
76%
32%
Yes
Often
Based on data from a survey among 800 German firms conducted by fischerAppelt (2009)
125
20-Oct-14

Product piracy: The case of Stylus shoes

Stylus: A south European mid-range to premium shoe manufacturer
Moved its production to Taiwan
Partnership developed well, in 2004 entry of the Chinese market was considered
In 2007: 60,000 pairs of shoes sold in China
Taiwanese partner proposed production of 250,000 pairs of shoes in 2008
Stylus managers skeptical, worked with normal growth rate
2008:
Stylus managers observe that their supplier had bought material
to produce 460,000 pairs of shoes
Japanese distributor observes that a Japanese discounter is selling
Stylus shoes for $20 per pair
Stylus immediately ends the business relationship
2009: Retailing outlets of the supplier were still operating and pirated shoes were
also sold in Europe (Switzerland, Spain, and Italy)
Collaboration with the China State Administration leads to raids and the confiscation
of 100,000 pairs of shoes
Supplier markets shoes under new (but very similar) name
126
20-Oct-14

Different variants of product piracy
high
Degree of
deception
low
Counterfeits that are

considered to be originals
sold at a low price
Counterfeits of high quality

that are considered to be
originals
Example:
Counterfeited spare
parts of a car
Example:
Apparel that was secretly
produced in addition to the
numbers ordered
Low quality plagiarized

products that customers
buy in full knowledge of
the product piracy
Plagiarized products of high

quality that customers
buy in full knowledge of
the product piracy
Example:
Imitated luxury watch from
cheap material sold at a
bargain price
Example:
Imitated machines
low
Quality of the pirated product
high
Source: Wildemann et al. (2007)

127
20-Oct-14

Customer reactions to brand counterfeiting

Flight
Reclamation
Abranding
Key response to
proliferation of
counterfeits
Flee brands popularly

counterfeited
Offer evidence of pioneering

brand affiliations and fashion
leadership
Disguise information on brands

patronized
Motivation behind key

response
Fear of conforming to
stereotypes
Dissonance arising out of two

factors: (1) others not
similarly stationed are
dressing as these consumers
do, and (2) the inability to
change wardrobe on account
of substantial investments
already made and lower
discretionary incomes
Desire to sustain high social

distance from others not
similarly stationed
Profile
Young
Newly rich
Transitioning social classes
Mean age: 25 years
Older
Well-established brand
loyalties
Mean age: 47 years
Very affluent
Mean age: 40 years
Brands patronized
Pepe
Diesel
Dolce & Gabanna
Gucci
Nike
Armani Exchange
Ralph Lauren
Coach
Tommy Hilfiger
DKNY
Fendi
Giorgio Armani
Versace
Hermes
Anderson & Sheppard
Escada
Topic that engaged

these consumers most
When you see counterfeits,

how does that make you feel?
Tell us about your last

purchase of a fashion item.
How will I be able to tell the

difference between you and
someone wearing a counterfeit?
Source: Commuri 2009
128
20-Oct-14

Activities of German firms to protect their

intellectual property
Activities pursued
Legal measures
91%
Customer-related
communication
Departments involved
Legal
Board
43%
Internal communication
38%
Marketing
Active involvement in
industry associations
34%
Other
Technological solutions
Lobbying
Nothing
77%
None
34%
46%
33%
17%
4%
28%
2%
Based on data from a survey among 800 German firms conducted by fischerAppelt (2009)
129
20-Oct-14

Counterfeiting protection through pricing
130
20-Oct-14

Counterfeiting protection through electronic

certificates of originality
Sennheiser
Knauf
George Gina and Lucy
Individual product ID
allows Internet check,
whether the product
is authentic
Similar information
through QR-Code
Paper changes color
under light and last
figure of ID becomes
larger
Combination of
open and hidden
security features
Seal of quality on
every Knauf product
Security paper seal
tightly glued to the
package
Seal changes color
upon touching
(special ink), from
blue to transparent
Training videos for
foreign markets with
piracy problems
Introduced in 2010:
Certificate of
authenticity in every
bag
ID allows accessing
information through
RFID chips: Where
should the bag be
right now?
Customers can
check authenticity
using smartphone
in a store
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20-Oct-14
Canada Goose
Individual Product
ID Hologram on paper
certificate

Agenda
I.
Introduction
II.

V.

I.
Product Management
II.
Pricing
III. Communication
IV. Sales
132
20-Oct-14

Challenges in international pricing
Defining sales and

delivery terms
Setting transfer prices
Price escalation
133
20-Oct-14
Price differentiation
Challenges in
international
pricing
Currency fluctuations
Inflationary
environments

Price differentiation: The Economist BigMac Index

Introduced by the Economist in 1986 as a
guide to compare currencies according to the
theory of purchasing power parity for homogeny goods
Definingcurrencies
sales and
Displays under- overvalued
delivery terms
Price escalation
Challenges in
international
pricing
Inflationary
environments
Source: The Economist 2014

134
20-Oct-14

Regional price discrimination : Examples of car

prices in the EU
Germany
France
UK
Denmark
Poland
in (%)
Fiat Panda
9.050
8.319
6.764
7.270
7.577
34%
Kia Picanto
8.437
8.269
7.112
7.700
6.378
32%
Ford Fiesta
11.345
10.661
8.983
9.110
8.898
28%
Mazda 2
13.113
12.205
9.712
9.977
11.159
35%
Opel Astra
15.261
14.737
12.309
12.562
12.446
24%
VW Golf
13.866
13.076
10.738
11.031
10.687
30%
Peugot 407
24.196
23.411
17.373
17.062
20.067
42%
Toyota Avensis
22.017
20.818
15.262
17.023
15.721
44%
Audi A6
38.412
35.812
26.371
32.847
31.443
46%
Mercedes E220
34.500
34.555
23.387
34.500
27.293
48%
BMW 730d
59.244
56.970
40.332
66.431
46.713
65%
Audi A8
66.655
66.816
43.105
61.920
60.840
55%
Alfa Romeo Brera
26.849
28.052
21.897
27.833
27.934
28%
Volvo XC 90
36.815
36.573
24.413
34.091
29.481
51%
Model
*(without taxes )
(Source: Backhaus/Voeth 2010, S. 151)
135
20-Oct-14

Profit maximization as key benefit of international

price differentiation (I)
Exemplary calculation for the two country case
Notation:
q: Quantity sold
p: Price
Country A:
Large market
High price sensitivity
Price demand function: = 400 2
Cost function: = 10000 + 20( + )
Country B:
Small market
Reduced price sensitivity
Price demand function: = 150 .4
Cost function: = 10000 + 20( + )
qA
qB
pA
136
20-Oct-14
pB

Profit maximization as key benefit of international

price differentiation (III)
One price for all countries
2
2
2
Sales: S qA p qBp 400p 2p 150p .4p 550p 2.4p
Costs: K 10000 20(qA qB ) 10000 8000 40p 3000 8p 21000 48p
Profit: G S K 550p 2.4p 2 21000 48p 598p 2.4p 2 21000
Optimum price: p* 598 / 4.8 124.58
Sales
Costs
Profit
Overall profit: G S C 598 124.58 2.4 124.58p 2 21000 16250.42

About 2550 less profit compared to the situation with price differentiation
137
20-Oct-14

Arbitrage as key risk of international price

differentiation
Country A (production site)

Price level:
authorized
exports
reimports
Country B
Price level:
parallel
imports
authorized
exports
Country C
Price level:
lateral gray imports
Source: Simon and Wiese (1992, p. 250)

138
20-Oct-14

Arbitrage: The case of Levis
Levis pricing problem
Reasons for price

differences
Diverters buy Levis 501s at

retail prices (usually during
sales) and then resell them to
foreign buyers.
The US retail price is about
$40/pair; in Germany a pair is
sold for $40 to authorized
wholesalers and retailed for
$80.
The difference of about $40
makes it possible to buy a pair
in the US and sell it for about
$65 in Europe.
Retail prices are typically more

competitive in the US than in
Europe.
Some of the difference can be
attributed to price escalation
(e.g., because of tariffs,
shipping).
Solution:
Levis first sued Tesco and won after four-year court battle.
Levis developed a new brand, Levis Strauss Signature for about $20 less than ordinary Levis
for value-channel retailers such as Tesco.

139
20-Oct-14

Arbitrage: Supap Kirtsaeng and the Supreme Court

The arbitrage opportunity:
Supap Kirtsaeng
Thai math student at USC

Relatives in Thailand buy international versions of US textbooks
Resale over ebay: estimates of revenues up to $US 1.2m
First court case
Wiley sues for damages

Student asked to pay over $US 600,000 in damages
Everything he owns is confiscated, because of potential money transfers abroad
Supap Kirtsaeng
US Supreme court decision March 2013
140
20-Oct-14
No one can forbid resale of legally acquired goods, new interpretation of first sale doctrine
Student gets his money back
Source: Business Week (10/26/2012), The Economist (03/23/2013)

Strategies for dealing with arbitrage buying
Responding through
pricing
Buying all reimports and
gray imports oneself

Harmonizing prices
Creation of country
specific products or
brands
Lead country pricing
Limiting guarantees and
Introduction of price
service for unauthorized

imports and making that
known in the market
corridors
Do nothing (maintain
price differences while

tracking product flows)
141
Responding through
products, services, and
communication
20-Oct-14
Responding through
customer relationship
management
Increasing distributors
loyalty
Segmenting national and
international customers
and establishing a crosscountry relationship
management for
international customers

Lead country pricing as instrument to avoid

arbitrage
Price
Prices must be set in a way

such that arbitrage does not pay
off
Arbitrage
costs
Lead country concept

Country
A
Country
B
Lead
Country Country
Country
D
E
National
markets
Source: Simon and Fassnacht (2009)

142
20-Oct-14

International price differentiation and harmonization

are a matter of degree: Idea of the price corridor
Desirable evolution if
harmonization is necessary
Worst case of price harmonization
International prices
International prices
Highest
Highest
Future price corridor

Lowest
Lowest
Time
Today
Tomorrow
Time
Today
Tomorrow
Source: Simon and Fassnacht (2009)

143
20-Oct-14

Reasons for standardizing and for differentiating

prices
Factors speaking for price differentiation
Low interdependence
Customers are local

Customers have little transparency of
foreign prices
Insulating market sub-segments is
possible
Products are differentiated
Products can be easily customized
Factors speaking for price standardization

Cost-related considerations
High interdependence
High differences
Heterogeneous customer needs

Heterogeneous willingness to pay
Competitive intensity is lower in some
countries
High costs of implementing price

differentiation
Low costs of transporting the product

Low trade barriers
Low currency risks
Existence of international key accounts
High degree of international M&A activity
between customers
Centralized procurement of customers
High price transparency
Other considerations
144
20-Oct-14
Legal restrictions on price differences

Customer emphasis on price fairness
Currency fluctuations: The Dollar/Euro exchange

rate since 1999
Defining sales and

delivery terms
Price escalation
Challenges in
international
pricing
Inflationary
environments
Source: European Central Bank

145
20-Oct-14

Pricing optimization considering for currency

fluctuations
A European company selling in the USA
Quantity: q a bp $
with q: quantity sold in USA, p$: price in $US, a,b: response parameters
Costs: C C fix kq C fix ka kbp $
with Cfix: fixed costs, k: variable costs per unit
Sales in $: S$ q p$ ap $ bp $2
Sales in : S w(q p$ ) wap $ wbp $2
with w: exchange rate expressed in /$
2
Profit in : G S C wap $ wbp $ C fix ka kbp $
Optimum price:
dG
wa 2wbp $ kb
dp $
p$*
1a k

2b w
Some generalizations:
Impact of currency fluctuations larger, if k is large compare to a/b (maximum price)
Increasing exchange rate reduces the optimum price in $
Source: Simon/Fassnacht 2009
146
20-Oct-14

Example: Impact of the exchange rate on the US

optimum price in and the US quantity sold
Example
Quantity sold in the USA
Variable costs in
Profit in
Profit in $
16
14
12
q = a- bp$ = 200 -10 p$

C = C fix + kq = 5q
G = 200 p$w-10 p$2w-1000 + 50 p$
G$ = 200 p$ -10 p$2 -1000w-1 + 50 p$w-1
p* in $
10
8
q/10
6
4
2
0
.5
2.00
.6
1.67
.7
1.43
.8
1.25
.9
1.11
1.0
1.0
1.1
.91
1.2
.83
1.3
.77
w [/$]
w-1 [$/]

147
20-Oct-14

Example: Impact of the exchange rate on profits in

$ and
900
Example (continued)
Quantity sold in the USA
Variable costs in
Profit in
Profit in $
q = a- bp$ = 200 -10 p$

C = C fix + kq = 5q
G = 200 p$w-10 p$2w-1000 + 50 p$
G$ = 200 p$ -10 p$2 -1000w-1 + 50 p$w-1
800
Profit in
700
600
500
Profit in $
400
300
200
100
0
.5
2.00
.6
1.67
.7
1.43
.8
1.25
.9
1.11
1.0
1.0
1.1
.91
1.2
.83
1.3
.77
w [/$]
w-1 [$/]

148
20-Oct-14

Determining the right amount of Pass-through

Strong assumptions for price optimization on previous charts:
Price demand function remains unaffected (no competitive effects)
Costs remain unaffected (no imports necessary for production)
In business practice the question becomes much more complex
With appreciation, local competitors offer relatively better prices
With depreciation, local competitors are disadvantaged
Price variation should be reduced
Question: To what degree should exchange rate changes be passed through to the
customer?
Two basic alternatives:
Maintain the foreign price (Local currency price stability)
Maintain the price in (Home currency price stability)
Sources: Kotabe and Helsen (2011), Simon and Fassnacht (2009)

149
20-Oct-14

Example: Impact of maintaining the price in $/ on

profits
Example (continued)
Quantity sold in the USA q a bp$ 200 10p$
C C fix kq 5q
Variable costs in
G 200p$ w 10p$ w 1000 50p$
Profit in
900
800
Profit in with optimum price in $
Profit in with a constant

price of $ 13.33
700
600
500
Profit in with a constant price of 10
400
300
200
100
0
.5
2.00
.6
1.67
.7
1.43
.8
1.25
.9
1.11
1.0
1.0
1.1
.91
1.2
.83
1.3
.77
w [/$]
w-1 [$/]
Source: Simon and Fassnacht 2009

150
20-Oct-14

Pass through behavior in the 1990s car industry
Retail Price Changes during Dollar Appreciations:

Japanese and German Exports to the U.S. Market
Real Dollar
Appreciation
Real Retail Price Change

in U.S. Market
Honda Civic 2-Dr. Sedan
39%
-7%
Datsun 200 SX 2-Dr.
39%
-10%
Toyota Cressida 4-Dr.
39%
6%
BMW 210i 2-Dr.
42%
-8%
BMW 733i 4-Dr.
42%
-17%
Mercedes 300 TD Station Wgn.
42%
-39%
Model
Source: Gagnon and Knetter 1995, reproduced form Kotabe and Helsen 2011
151
20-Oct-14

The problem of inflation for pricing

Inflation, measured as annual change in consumer prices in %
Country
2007
Belarus
8.4
Brazil
3.6
China
4.8
14.8
12.9
Defining sales and
5.7
4.9
delivery terms
5.9
-.7
Egypt
9.3
18.3
11.8
Germany
2.3
2.6
.3
India
Italy
2008
8.4
Setting6.4
transfer prices
1.8
3.4
2009
10.9
.8
2010
2011
7.7
53.2
January 1990: First

Price
6.6 differentiation
shop in Moscow
3.3
5.4
Price of a BigMac meal:
6 rubles
11.3
10.1
January 1993: Price of
1.1
2.3
a BigMac meal: 1100 rubles
Challenges in
12.0
8.9
international
5.0
pricing
1.5
2.7
Japan
.1
1.4
-1.3
-.7
-.3
Russia
9.0
14.1
11.7
6.9
8.4
Serbia
6.4
6.1
Turkey
8.8
12.4
8.1
Price escalation
10.4
6.3
Ukraine
12.8
25.2
15.9
9.4
USA
2.9
3.8
-.4
1.6
8.6
Beginning of the 1990s

11.1
Inflationary
Hyperinflation in Peru
environments
6.5
(up to 7000% per year)
Procter required to raise
8.0
prices for washing powder
3.2
twice per week
Inflation as measured by the consumer price index reflects the annual percentage change in the cost
to the average consumer of acquiring a basket of goods and services that may be fixed or changed
at specified intervals, such as yearly.
Sources: World Bank; Kotabe and Helsen 2011; Simon and Fassnacht 2009
152
20-Oct-14

Dealing with inflation from a marketing perspective

With free capital markets and without exchange rate controls, inflation is not
a large problem for exporters
Exchange rate reflects inflation
Defining
saleslarge
and unaffected
Relative price level
remains
delivery terms
Problems especially in two cases
Governments respond with price regulation to inflation
Products are at least partly produced in the country with inflation
The case of government interventions
Typically as price control/price freeze
Price caps for some (or all) industries
Often coupled with wage freezes
Very ineffective due to rumors and anticipatory actions
Options for companies facing price controls
Launch variations of existing markets
Export products from inflationary countries
Predict incidence of price controls
Negotiate with the governments
Sources: Kotabe and Helsen 2011; Simon and Fassnacht 2009
153
20-Oct-14

Safeguarding against inflation if products are at

least partly produced in the country with inflation
Five alternative ways to safeguard against inflation
Shorten credit terms
Reduce the time your customers have to

pay you for the product
Include escalatorclauses in long-term

contracts
In long-term contracts in B2B settings include

clauses that allow you to raise prices in
inflationary environments
To handle high inflation, companies often quote
prices in stable currency such as the U.S.
dollar or the Euro
Quote prices in a
stable currency
Pursue rapid
inventory turnovers
High inflation mandates rapid inventory

turnarounds driven by information technology
Draw lessons from

other countries
Managers from countries with a long history of

inflation (e.g., Brazil, Turkey) can offer valuable
insights for other countries

154
20-Oct-14

Price escalation
Exporting
requires more steps in the logistic chain from manufacturer to customer
is associated with higher risks than exporting to the home market
Defining
salesfinal
and foreign retail price will often be much higher than
Result: Price escalation,
i.e. the
delivery terms
the domestic retail price (Kotabe and Helsen 2011, p. 402)
Illustration:
Possible local price elements
Possible foreign price elements
Manufacturer price
Shipping
Manufacturer price
Challenges
in
Shipping
(longer distance,
international across water) Currency fluctuations
pricing
Insurance
Tariffs
Price escalation
Inflationary
Taxes
environments
Importer margin
155
20-Oct-14
Wholesale margin
Wholesale margin
Retailer margin
Retailer margin

Some examples for high discrepancies between US

retail prices and German retail prices
USA: $499
D: 499
USA: $60
D: 90
156
20-Oct-14
USA: $300
D: 370
USA: $200000
D: 75000
(Exact
configuration
differs)

Options for dealing with price escalation
Price escalation
The final foreign
retail price is often
much higher than
the domestic retail
price because of
incremental costs.
Rearrange the distribution

channel.
Distribution channels are often responsible for price

escalation.
Solution: Shorten channel arrangements that provide cost
savings.
Eliminate costly features or

make them optional.
Offer no-frills versions of products.
Downsize the product.
Downsize the product by offering a smaller version of the

product.
Assemble or manufacture
the product in the foreign
markets.
Closer proximity to the export market lowers transportation

costs.
Reduce or eliminate import duties.
Adapt the product to

escape tariffs or tax levies.
Modify the product to bring it into a different tariff or tax

bracket,

157
20-Oct-14

Transfer prices are important when local sales

companies are run as profit centers
Country A
Country B
Defining sales and
delivery terms
Country C
Sales and
production company
(profit
center)
Challenges
in
Transfer
price
Setting
transfer
prices
price
CurrencyTransfer
fluctuations
international
pricing
Sales company
(profit center)
Market price
Sales company
(profit center)
Price escalation
Customer
158
20-Oct-14
Market price
Customer
Inflationary
environments
Market price
Customer

Alternative transfer pricing policies
Real costs
Standard costs
Market price
Incentive for sales company to

achieve high (market) prices
++
+++
Incentive for sales company to

reduce costs
++
+++
Incentive for production

company to achieve high
(market) price
++
+++
Incentive for production

company to reduce costs
+++
++
Possibility of tax optimization
++
+++
Simplicity / feasibility
++
+++
159
20-Oct-14

In comparing international price quotations,

particular attention to the Inco terms is warranted
Explanation
Carriage
arranged by
Risk transfer from seller to

buyer: When the goods...
Cost transfer from seller to buyer
EXW
Ex works
buyer
are at the disposal of buyer
when goods are at the disposal of buyer
FCA
Free carrier
buyer or seller on
buyers behalf
have been delivered to the

carrier at the named place
when the goods have been delivered to the carrier at the named
place
FAS
Free along-side
ship
buyer
FOB
Free on board
buyer
pass the ships rail
when the goods pass the ships rail
CFR
Cost and Freight
seller
pass the ships rail
at port of destination, buyer paying such costs as are not for the
sellers account under the contract of carriage
CIF
Cost, Insurance,
Freight
seller (carriage
and insurance)
pass the ships rail
at port of destination, buyer paying such costs as are not for the
CPT
Setting
Carriage
paidtransfer
to
sellerprices
Challenges sellers
in account under the contract of carriage
international
Currency
fluctuations
have been delivered
to the
at place of destination, buyer
paying such
costs as are not for the
carrier
sellers
account
under
the
contract
of
carriage
pricing
CIP
Carriage and
insurance paid
seller (carriage
and insurance)
have been delivered to the

carrier
at place of destination, buyer paying such costs as are not for the
sellers account under the contract of carriage
DAF
Delivered at
frontier
seller
have been delivered at the

frontier
when the goods have been delivered at the frontier
DES
Delivered ex
ship
seller
are placed at the disposal of
when the
goods are placed at the disposal of the buyer on board
Inflationary
the ship
DEQ
Delivered ex
quay
seller

the buyer on the quay
when the goods are placed at the disposal of the buyer on the
quay
DDU
Delivered duty
unpaid
seller

the buyer
when the goods are placed at the disposal of the buyer on the
quay
DDP
Delivered duty
paid
seller

the buyer
when the goods are placed at the disposal of the buyer
Defininghave
sales
and
been placed alongside
delivery
terms
the ship
Price escalation
the buyer on board the ship
when
thedifferentiation
goods have been placed alongside the ship
Price
environments
Source: International Chamber of Commerce 1999

160
20-Oct-14

Agenda
I.
Introduction
II.

V.

I.
Product Management
II.
Pricing
III. Communication
IV. Sales
161
20-Oct-14

Standardization in communication is only

sometimes possible
Standardization in communication
Standardized international communication strategies distinguish themselves by assuming
a worldwide standard with no particular consideration for national wishes and needs.
Advantages
Uniform implementation of goals
Cost saving
High control potential
Disadvantages
Disregard of differences
Empty messages
Problem of acceptance
Requirements of complete standardization:

Culture-free products (e.g., regarding
utilization)
Homogeneous target group
Similar product life cycle
Media availability
162
20-Oct-14

Barriers to standardization in advertising
Cultural differences
Advertising regulations
Barriers to
standardization in
advertising
Market maturity
Not-Invented-Here Syndrome
Cultural gaps may permit many products

(e.g., terms of lifestyle, usage contacts)
Local advertising regulations pose a barrier to

standardization that affects the execution of
commercials
Gaps in cross-market maturity levels lead to

different advertising approaches.
Education of customer may be necessary
Local subsidiaries or local agencies could

stonewall attempts at standardization
Source: Ghauri/Cateora (2005)

163
20-Oct-14

Barriers to communication standardization:

Different meanings of colors
Example of different meanings of colors in several countries:
White
Black
Red
Yellow
Blue
Green
Western
Europe
Birth, purity
Death,
mourning
Love,
danger,
power,
dynamic
Optimism,
friendliness,
sun
Coldness,
authority
Freshness,
vitality
China
Death,
mourning
Japan
Death,
mourning
Arabian/
Islamic
countries
Fun,
festiveness
Dignity,
aristocracy
Happiness,
wealth
Tropical
countries
Future,
energy,
virtue
Virtue, trust,
truth
Religious
color, fertility
Illness,
jungle
Source: Hnerberg 1994

164
20-Oct-14

Barriers to communication standardization:

Legal advertising restrictions in selected countries
Spirits
Austria
France
Wine
Beer
Greece
Tobacco
Medicines
Italy
Turkey
The Netherlands
UK
X - Forbidden
O - Highly regulated

165
20-Oct-14

Example of a standardized advertising campaign:

Crdit Suisse
China
166
20-Oct-14
Italy
US/UK

Nissans global shift advertising campaign
Starting point (2002)

Nissans advertising
messages varied across
markets:
- In Europe, there was no
tagline,.
- In the US, the tagline
was Driven.
- In Japan, the tagline was
Driving more to enjoy
your life every day.
Shift campaign (2002)

Varying taglines, but all include the world shift.
- Second half of the tagline after shift allowed local variations.
- In the US, shift achievement, shift forward, etc.
- In Europe, shift expectations.
- In Japan, shift the future.
Result of a worldwide
cooperative process with all
subsidiaries
Shift is not
copyright
protected in any
country.
Can be easily
understood in
non-English
speaking
countries
Conveys
appropriate
message for
Nissan

167
20-Oct-14

Example of a differentiated advertising campaign:

Siemens
Symbol of energy in ...

... Hong Kong ad:
Firework display with a view of

the Hong Kong skyline.
... German ad:
Crowd of enthusiastic youngsters

at a pop concert.
168
20-Oct-14

Example of a localized advertising campaign:

Dunkin Donuts in Thailand
General position in
Thailand
Moms campaign 1999
Dunkin Donuts entered

Thailand in 1981 and now
operates130 outlets with
300,000 customers per week.
The largest Dunkin Donut shop
worldwide is in Thailand.
Dunkin Donuts portrays itself as
a company that cares for
society and honours the family.
Restaurants are meeting places
for families and friends.
Summer 1999: Dunkin Donuts

runs five-week campaign
around the birthday of
Thailands queen which
coincides with national mothers
day.
Objective: Increase in market
share by two percent
Cornerstone was that Thais
came to restaurants and
penned a love note to their
mothers on a special banner.
Dunkin Donuts positioned as a
company that cares about Thai
culture.
5% increase in market share
was achieved.
169
20-Oct-14

Agenda
I.
Introduction
II.

V.

I.
Product Management
II.
Pricing
III. Communication
IV. Sales
170
20-Oct-14

Distribution channels in international markets

can be very complex
Home country
International channel
of distribution
alternatives varies
according to :
Length of channel
(i.e., number of
parties in the
channel)
Types of
distribution
partner in the
channel
171
20-Oct-14
Foreign country
The foreign marketer or producer
sells to or through
Domestic producer or
marketer sells to or
through
Open distribution via

domestic wholesale
middlemen
Foreign
consumer
Exporter
Importer
Foreign agent
or merchant
wholesalers
Foreign
retailer
Export management
company or company
sales force

One key challenge in international sales is the control

over marketing activities vis--vis the final customer
Supplier
Country
of origin
Target
country
Exporter
Country A
Exporter
Country B
Country C
Country D
Importer
Importer
Own
subsidiary
Wholeseller
Consumer
172
20-Oct-14
Consumer
Consumer
Consumer

If several channels are used to cover one country,

functions and segments have to be carefully separated
Example: Coverage concept for Belgium of one business unit of a large chemical company
Customer
segment
International key
accounts
Large national
accounts
Small and medium national accounts
Function
Key-accountmanager
Selling,
relationship
management
Belgian field rep
none
Belgian field rep
Order handling &

customer service
Technical service
Central European
customer service
center
Central technical
coordinator
Local customer
service center
responsible for
Belgium
Belgian technician
External
distribution partner
for France and
Benelux countries
E-Commerce
portal (partially
owned)
none
Belgian technician
173
20-Oct-14

Barriers to global internet marketing
Language Barrier
Cultural Barrier
Infrastructure
Knowledge Barrier
Access Charges
Regulations
Source: Kotabe and Helsen 2011, p. 627-633

174
20-Oct-14

Digital economy is still only well developed in

economically strong countries
Source: www.economist.com
175
20-Oct-14

Negotiation behavior varies greatly between

countries: The example of Japan and America
Category
Japanese
Americans
Language
Most Japanese executives understand English,

though interpreters are often used.
Americans have less time to formulate answers and

observe Japanese nonverbal responses because of a
lack of knowledge of Japanese.
Nonverbal behaviours
The Japanese interpersonal communication style

includes less eye contact, fewer negative facial
expressions, and more periods of silence.
American businesspeople tend to fill silent

periods with arguments or concessions.
Values
Indirectness and face-saving are important.

Vertical buyer-seller relationships, with sellers
depending on the goodwill of buyers is typical.
Speaking ones mind is important; buyer-seller

relationships are horizontal.
Four Stages of Business Negotiations

1. Non-task sounding
Considerable time and expense is devoted to

such efforts in Japan.
Very short periods are typical.
2. Task-related exchange of
information
The most important step: High first offers with

long explanations and in-depth clarifications.
Information is given briefly and directly. Fair first

offers are more typical.
3. Persuasion
Persuasion is accomplished primarily behind the

scenes. Vertical status relationships dictate
bargaining outcomes.
The most important step: Minds are changed at

the negotiation table, and aggressive persuasive
tactics are often used.
4. Concessions and
agreement
Concessions are made only toward the end of

negotiations a holistic approach to decisionmaking. Progress is difficult for Americans to
measure.
Concessions and commitments are made

throughout a sequential approach to decisionmaking.
Source: Ghauri/Cateora (2005)

176
20-Oct-14

More clichs about negotiations with international

customers
Bring an interpreter
most negotiations are in
Russian.
Be serious.
Be patient. Negotiations
may take four times as
long as in the West.
Restrict drinking to the
official toasts.
Clarify everything
Russians dislike
uncertainty.
Build personal
relationships.
Make the other side
Translate verbally:
Be blunt and rude.
lose face.
Compromis has a
Expect your partner to
Teach, explain.
negative connotation. A
openly contradict. Look
Compromise too early

concept is a vague
for implicit concerns
this is a sign of
idea, not an elaborated
instead.
weakness. Display
proposal.
Underestimate
strength and
Be too relaxed toward
understatement. A
endurance.
managers who are
slight problem might Overestimate a
hierarchically superior.
be big.
contract. Delivery
guarantees often do not
Rush into details right Talk politics or
mean a lot.
away.
ideologies over dinner.
Reduce a conversation Be overly fussy about
to the factual level.
details.
Speak French.
Talk elegantly and
eloquently.
Try to find an abstract
approach to your topic
before going into
specifics.
Take delays (up to 30
minutes) of your
partners into account.
Accept contradictions
as your partners way to
show interest.
DO
DONT
Look for pragmatic

solutions.
Practice fairplay.
Dress conservatively
(e.g., leave your jacket
on during negotiations).
Be prepared for subtle
humor.
Be on time.
Define the key terms of
the project first.
Keep it short and
simple.
Keep smiling. Be
prepared to talk
business after a very
short, casual warm-up.
Give positive feedback
on personal anecdotes.
Involve local lawyers.
Put all agreements into
the written contract.
Be patient. Negotiations
may take six times as
long as in the West.
Be polite. Always.
Use middlemen who are
trusted by all parties.
Build personal
relationships.
Ask for compensation for
each concession.
Document all results.
Even written contracts are
subject to later
interpretation.
Think that nobody
Talk about religion,
understands you when
sexuality, politics.
your delegation is
Use abstract thinking.
speaking German among
Use concrete examples.
themselves.
Boast on academic
Make the other side lose
titles.
face.
Be direct. A no is a nogo. Circumscribe it in
order not to expose the
counterparty.
Source: Wirtschaftswoche
177
20-Oct-14

Some clichs about negotiating with Germans

found on the Internet and elsewhere
DOs:
DONTs:
Be on time. A delay of more than ten minutes is

often considered offensive.
Stick to the agenda. Germans prefer crisp
meeting agendas.
Consider negotiations as a joint problem-solving
process.
Focus on long-term benefits.
Be patient. Negotiations take a long time.
Bring a translator. English is the likely language
at the table. However, Germans tend to speak
in native language during side discussions.
Focus on the Euro as the agreement currency.
Communicate directly and openly.
Take hard-and-fast questions regarding
your offer as a clear signal of interest.
Keep your distance. People generally converse
standing about three to four feet apart.
Understand that oral agreements are
considered binding (and often legally so).
Be prepared to talk about politics over dinner.
Haggle. Germans believe in the concept of a fair

price. Prices rarely move by more than 10 to 25
percent between initial offers and final
agreement.
Feel patronized. The Germans negotiate in an
unpleasant, instructor-type style.
Waste time by reading between the lines.
Be too enthusiastic. Germans view too much
enthusiasm and spin as lacking credibility. Focus
on the logic and facts of your arguments.
Take blunt, if not brusque, words from the
Germans personally. Questions come across as
aggressive. Germans like to debate.
Bring gifts.
Discuss business over dinner.
Ask for exceptions.
Bring your lawyer to a negotiation table. It is a
strong signal of distrust.
Question the effectiveness and efficiency of
German workers.
Sources: Various blogs; Katz (2008); Kotabe and Helsen (2007)
178
20-Oct-14

Expatriates in international selling
Expatriates: Home country personnel sent abroad to manage local operations

in a foreign market. (Kotabe and Helsen 2011, p. 486)
Advantages:
Better Communication
Goal alignment with
headquarter
Development of Talent
Difficulties:
Cultural
misunderstandings
Motivation
Compensation
Family Discord
Security Risk
Sting as Englishman in New York
Using expatriates is generally positive, when communication with the home

country office is at a premium:
179
20-Oct-14
Complex operating environments

High cultural distance
Elevated political risk that requires constant monitoring
Highly individualized products manufactured in the home country

Agenda
I.
Introduction
II.

V.
180
20-Oct-14

What are the emerging markets?
Term coined in 1981

Introduced by Antoine van Agtmael at an investor conference in Thailand
At the time deputy director of World Banks International Finance
Corporation
Idea: To replace Third World label with something more optimistic
Antoine van
Agtmael
No clear definition what countries can be counted as

emerging market
Popular: Goldman Sachs classifications by Jim ONeill
BRIC: Brazil, Russia, India, China
(political organization includes since 2011 South Africa)
Next Eleven (N-11): Bangladesh, Egypt, Indonesia, Iran,
Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey,
Vietnam
Jim O Neill, Goldman Sachs
Related term: Transition economies = Countries changing from planned economy to free
economy
Source: Kotabe and Helsen 2011, p. 598/599
181
20-Oct-14

Characteristics of emerging markets

BRIC countries alone:
15% of global GDP in 2007, predicted to overtake G7 in 2050
40% of world population (3 billion people)
Low per capita incomes
High income inequalities
Rapid pace of
economic development
High rates of emigration
Youthful and growing

populations
Weak and highly

variable infrastructure
Source: Kotabe and Helsen 2011, p. 599

182
20-Oct-14

Prediction: The growing importance of emerging

markets
Years, when these countries are expected to have a larger GDP than G7 countries
GB
JAP
USA
China
ITA
FRA
JAP
India
ITA
FRA
Russia
ITA
FRA
Brasil
G7
BRIC Total
2000
2010
2020
2030
2040
2050
Source: Holtbrgge and Welge (2010)
183
20-Oct-14

Average consumer spending for

per year
products
Source: Fortune.cnn.com
184
20-Oct-14

Product management in emerging markets: The

infrastructure challenge as a source of innovation (I)
No equivalent to 911 or 112

hotline for ambulances in India
Taxis used for transport to hospital
2003: Startup Dial 1298 for
Ambulance in Mumbai
Paid private ambulance service
Premium services and prices
for middleclass subsidize
free fares for the poor
Training facilities for staff
Funding through non-profit
foundation accepting donations
185
20-Oct-14
Today: Fleet of 280 ambulances,

expanded into other cities
No equivalent to 911 or 112

hotline for ambulances in India
Access to drinking water difficult
in rural regions of Bangladesh
2010 foundation of private-public
partnership Micro Water Facility
Idea: Combination of microfinancing with machines for
water-purification
Locals get a credit for buying a
machine to clean the water and
then sell this water at a small
price to others in the village

Product management in emerging markets: The

infrastructure challenge as a source of innovation (II)
Strong position of Unilever in middle

class in Latin America
Goal: Target consumers in poor
rural communities
Development of special washing
powder that is suited if clothes
are washed in the river
Result: ALA brand
Today: highly
successful in
northern regions
of Brazil
186
20-Oct-14
P&G set up an $2 per day initiative in

October 2009
Goal: Develop product and pricing
models that target consumers that
earn less than $2 per day
Focus on market research in poor
rural communities in China
First consequence: Development of*
hair and body products that do not
require much water for rinsing
Pricing in emerging markets: Sachet Marketing

as response to the low income challenge
Low income households cannot afford

standard cartons of washing powder
Strategy of P&G, Unilever, and other
companies: Sachet Marketing
Small packages including washing
powder for one washing at very low
prices (.02-.04)
Distributed through small vendors
Coke popular brand in many emerging
markets and developing countries
However, regular prices often too high
2002: Introduction of a new 200ml bottle
in India
Offer expanded to other markets, such
as Kenya and Tanzania in 2011
187
20-Oct-14

Pricing in emerging markets: Reducing costs to

respond to the low income challenge
Bharti group founded in
Bharti Airtel: Largest mobile phone provider in India
Radical outsourcing strategy:
Network operations from Ericsson
Business infrastructure from IBM
Transmission towers from independent Indian company
(Bharti Infratel)
Airtel nothing more than a marketing and sales unit
Cost-reduction through contract design:

Pay-per-minute contract with Ericsson
Prepaid business model with customers (no billing costs, no
relationship costs)
Sunil Bharti Mittal (*1957)
186.41 million subscribers in October 2012 (Vodafone India: about 150 million)
Business model successfully exported
Bangladesh and Sri Lanka in Asia

Burkina Faso, Chad, Democratic Republic of the Congo, Republic of the Congo, Gabon, Ghana,
Kenya, Madagascar, Malawi, Niger, Nigeria, Rwanda, Seychelles, Sierra Leone, Tanzania,
Uganda, and Zambia in Africa
Source: Meyer and Kirby (2012, p. 21/22)
188
20-Oct-14

Distribution and sales in emerging markets: The use

of innovative channel designs in Russia and India
P&G entered Russian market in 1991

Slow growth: 1995 11 P&G employees
Key problem for all multinational
FCMG firms: Selling outside
Moscow and St. Petersburg
Adoption of model from P&G Poland:
Training and equipping wholesellers through P&G (including
a van and computers)
Regional exclusivity
Exclusive distribution of P&G
Access to 80% of the population before
all competitors -> strong market position
2001: Hindustan Unilever without access

to 500,000 rural communities in India
Solution: Project Shakti
Target womens self-help groups
(more than a million in India)
Women were trained in selling,
commercial knowledge, and
bookkeeping
After completion of training
possibility to become Project
Shakti entrepreneurs
Micro-Financing of first stock
Sales to around 500 customers
Profits of about $22 per month
2009: 45000 participants, 135000 villages
189
20-Oct-14

Africa: The new emerging market?

Some facts about African economies 2000-2010:
Six of the worlds ten fastest growing countries in Africa
In eight of ten years faster growth than East Asia
(including Japan)
IMF expectations: 6% growth in 2011 and 2012
(similar to Asia)
Still the poorest continent:
most Africans live on less than two dollars a day
food production per person has slumped since the 1960s
the average lifespan in some countries is under 50
highly instable political environment and corruption in many countries
Fundamental numbers going up:
Fast growing middle class: 60 million Africans with more than $3,000 per year
(expected to rise to 100 million in 2015)
1000% increase in foreign investment (often Chinese, but also Brazil, Turkey, and India)
600 million mobile-phone users (more than in Europe)
Tenth of the land mass covered by mobile internet services (more than in India)
Productivity growth by 3% a year
Source: Economist 12/32011
190
20-Oct-14

Growth in African markets: The case of

First presence in the 1960s
Today:
4 cement plants: Congo (2x), Gabon, Tanzania
9 grinding plants: Benin, Congo, Gabon (2x),
Ghana (2x), Liberia, Sierra Leone, Togo
2011: 10% growth compared to 2010
Capacities limits reached in nearly all plants
Heavy expansion activities:
New mills in Liberia and Ghana (2012)
New clinker plant at Lom facility in Togo,
new grinding plant in Togo (2014)
New grinding plant in Burkina Faso (2015)
300% Capacity increase in Congo
Capacity increase in Tanzania (2012)
Options in other countries being evaluated
Grinding plant in Lom, Togo
Integrated plant in Dar es Salaam, Tanzania

Source: HeidelbergCement
191
20-Oct-14


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International Marketing

Lecture | Fall term 2014 Martin Klarmann

Institute of Information Systems and Marketing (ISSM)

KIT Universitt des Landes Baden-Wrttemberg und

Phone : 0721 608 4 1796

MSc. Isabella Kindersberger (Lecture and student support)

Office Hours: Tuesdays 3 p.m.-5 p.m.

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Martin Klarmann, Fall 2014

Monday, 9.45 a.m. 11.45 a.m.

Institute of Information Systems and Marketing (IISM)

Understanding International Markets: Culture

III. Understanding International Markets: Buyer Behavior

International Market Research

VI. International Marketing Mix Management

VII. Marketing in Emerging Markets

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

This course has two sets of goals

Understanding of the concept of

Familiarity with key English

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Reasons for studying international marketing:

Source: WTO World Trade Report 2013

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Reasons for studying international marketing:

Source: WTO 2013

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Foundations of International Trade:

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

(Kotabe and Helsen 2010, p. 26)

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Reasons for studying international marketing:

Source: WTO World Trade Report 2013

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Reasons for studying international marketing:

Source: Firm homepages, all numbers for 2011

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

Evolution of international marketing (I)

Martin Klarmann, Fall 2014

Source: Kotabe and

Institute of Information Systems and Marketing (IISM)

Evolution of international marketing (II)

Martin Klarmann, Fall 2014

Source: Kotabe and

Institute of Information Systems and Marketing (IISM)

The international marketing trajectory for Bosch

42 Factories in Germany, China, France, Greece, Peru,

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)

The international marketing challenge

Sam and James Walton open first store in Rogers, Arkansas

Key elements of the business model:

Martin Klarmann, Fall 2014

Institute of Information Systems and Marketing (IISM)