Chapter 18

Marketing in the Global Firm

International Business
Strategy, Management
& the New Realities
by
Cavusgil, Knight & Riesenberger

International Business: Strategy, Management, and the New Realities 1

 Global Strategy in Marketing

Global Marketing Strategy: A plan of action that

guides the firm in:
(1) positioning itself and its offerings,
(2) targeting global market segments, and
(3) devising marketing program elements,

on a global basis.

International Business: Strategy, Management, and the New Realities 3

 Global Marketing Strategy and Positioning

Global market segment: a group of customers

that share common characteristics across many
national markets. Firms target these buyers with
relatively uniform marketing programs. E.g., the
global youth segment who are customers to MTV,
Levi’s. The global segment of jet-setting business
executives.
Global positioning strategy: strategy in which
the firm’s offering is positioned similarly in the
minds of buyers worldwide. E.g., Starbucks,
Volvo, Sony.
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 Standardization and Adaptation

• Adaptation: company efforts to modify elements of

the international marketing program to accommodate
specific customer requirements in a particular market.
E.g., publishing and software industries.
• Standardization: company efforts to make the
marketing program elements uniform, with a view to
targeting entire regions of countries, or even the global
marketplace, with a similar product or service.
However, “one offering – one world” strategy is not
usually feasible.
• Management tries to strike some ideal balance
between global integration and local responsiveness
International Business: Strategy, Management, and the New Realities 5
 Firms Prefer Standardization

• Adaptation is costly. May require substantial

changes to products, manufacturing
operations, (lower) pricing, distribution, and
marketing communications.
• Costs add up across many national markets.
• Thus, managers usually err on the side of
standardization, adapting marketing program
elements only when necessary.
• Or, firms pursue a regional strategy, where
marketing program elements are formulated to
exploit commonalities across a geographic
region, instead of across the world.

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 GM’s Global Brand Hierarchy

Global

Europe, Middle East, North America,

Regional
International Asia Middle East, Europe North America, Asia

North America North America

Local

United Kingdom Australia Korea

 Global Branding

• Well-known global brands include: Hollywood

movies (e.g., Star Wars), pop stars (Shakira), sports
stars (David Beckham), personal care products
(Gillette Sensor), toys (Barbie), credit cards (Visa),
food (Cadbury), beverages (Heineken), furniture
(IKEA), and electronics (Playstation).
• A strong global brand enhances the efficiency and
effectiveness of marketing programs, facilitates the
ability to charge premium prices, increases the firm’s
leverage with resellers, stimulates brand loyalty, and
inspires trust and confidence in the product.

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International Business: Strategy, Management, and the New Realities 10
 Designing Global Products with Global Teams

• Until 1990s, product development and design was

a sequential process, usually based in a single
country.
• Today, many more firms develop global products
intended for world markets from the outset.
• Product designers work in virtual global teams,
experts drawn from subsidiaries across the globe.
• Leveraging information and communications
technologies to create virtual teams is key.
• For example, Boeing 777 was developed by design
teams from Europe, Japan, and the United States.
International Business: Strategy, Management, and the New Realities 13
 Factors Affecting International Pricing

• Nature of the product or industry. A specialized

or highly advanced product, or an industry with few
competitors, can facilitate charging a higher price.
• Location of the production facility. Locating
manufacturing near customers or in countries with
low-cost labor facilitates lower prices.
• Type of distribution system. Channels in some
countries are very complex. Some distributors mark
up prices substantially.
• Foreign market considerations. Local purchasing
power and distribution infrastructure are big factors.
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 Three Pricing Strategies
• Rigid cost-plus pricing. Set a fixed price for all
export markets, by adding a flat percentage to the
domestic price to compensate for the added costs of
doing business abroad.
• Flexible cost-plus pricing. Set price to
accommodate local market and competitive
conditions, such as customer purchasing power,
demand, and competitor prices.
• Incremental pricing. Set price to cover only
variable costs, not fixed costs. Firm assumes that
fixed costs are already paid from sales in the firm’s
home country, or other countries.
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Strategies to Combat International Price Escalation

1. Shorten the distribution channel. That is, bypass some

intermediaries in the channel.
2. Redesign product to remove costly features. E.g.,
Whirlpool developed a no-frills, simplified washing machine
for sale in developing economies.
3. Ship products unassembled, as parts and components,
qualifying for lower import tariffs. Do final assembly in the
foreign market, often using low-cost labor; or assemble in
Foreign Trade Zones.
4. Have product re-classified using a different tariff
classification to qualify for lower tariffs. Imported goods
often fit more than one product category.
5. Move production or sourcing to another country to take
advantage of lower labor costs or favorable currency rates.
International Business: Strategy, Management, and the New Realities 18
 Transfer Pricing

The pricing of intermediate or finished products

exchanged among the subsidiaries and affiliates of
the same corporate family located in different
countries.
• May be used to repatriate profits from countries
that restrict MNEs from taking their earnings out
of the country.
• May be used to shift profits out of a high
corporate tax county into a low corporate tax
one, thereby increasing company-wide profits.
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 The Favored Subsidiary is Likely to be in a
Country with:

• Lower corporate income-tax rates

• High tariffs for the product in question
• Favorable accounting rules for
calculating income
• Political stability
• Little or no restrictions on profit
repatriation
• Strategic importance to the MNE
International Business: Strategy, Management, and the New Realities 22
 Gray Marketing

Legal importation of genuine products into a

country by other than authorized intermediaries.
Gray marketers buy the product at a low price
in one country, import it into another country,
and sell it there at a higher price. Causes:
• Large difference in pricing of same product
between two countries, often the result of
company strategy.
• Exchange rate differences of products priced in
two different currencies.
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 Manufacturer Concerns over Gray Markets

• Risk of tarnished image when customers

realize the product is available at a lower price
through alternative channels.
• Strained manufacturer-distributor relations as
authorized distributors lose sales.
• May disrupt regional sales forecasting, pricing
strategies, merchandising plans, and other
marketing efforts.

International Business: Strategy, Management, and the New Realities 26

 Strategies to Cope with Gray Markets

1. Standardize pricing across the firm’s markets within

the same region.
2. Pursue illicit intermediaries; Fire intermediaries who
break the rules.
3. Reduce flow of products into markets where gray
market brokers procure the product. E.g., Pfizer
could reduce the shipment of drugs to Canada.
4. Differentiate products in individual countries. Design
products with exclusive features in each market.
5. Publicize the limitations of products obtained from
gray market channels.
International Business: Strategy, Management, and the New Realities 27
 Global Account Management

Servicing a key global customer in a consistent and

standardized manner, regardless of where in the world it
operates.
• Wal-Mart is a key global account for P&G. Wal-Mart
expects consistent service including uniform prices for the
same product from P&G regardless of where in the world
they are delivered.
• Emphasizes the use of cross-functional teams, specialized
coordination activities for specific accounts, and formalized
structures and processes.
• Each customer is assigned a global account manager, or
team, which provides a coordinated marketing support and
service worldwide.
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