MBA - International Marketing
Growth of International Markets and Trade
At its most basic, economic exchange across national boundaries has taken place for several centuries - MBA - International Marketing introduction. Furthermore, one of the most remarkable aspects of economic life nowadays is the manner in which all countries increasingly find themselves an intrinsic part of the global economy. Such interdependence means that the concepts of the global village and spaceship earth are reflections of the fact that the contemporary marketplace is inherently international. Moreover, this new world order with its international competition, economic trading blocs (e.g., Association of South East Asian Nations, North American Free Trade Agreement and the Single European Market) and global emphasis, is forcing firms towards a “new reality,” which demands a global marketing imperative (Lazer, 93).
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The importance of international trade to a nation’s economic welfare and development has been heavily documented in the economics literature since Adam Smith’s pioneering inquiry into the nature and causes of the wealth of nations. The rationale underlying this relationship suggests that economies need to export goods and services in order to generate revenue to finance imported goods and services which cannot be produced indigenously.
Probably one of the broadest indicators of a nation’s economic strength can be gauged from its gross domestic product (GDP), as this measure is an estimate of the value of goods and services produced by an economy in a given period (Tayeb, 92). The notion that international trade can influence GDP has been explored by several economic theorists and culminated in the export-led growth thesis. The tenet underlying this volume of research is that as export sales increase, other things being equal, the GDP of a nation will rise and provide a stimulus to improved economic well-being and societal prosperity. The way in which this relationship can be interpreted suggests that export performance has a stimulating effect throughout a country’s economy in the form of technological spillovers and other related favorable externalities (Marin, 678). Export activities may exert these influences because exposure to international markets demands improved efficiency, and supports product and process innovation activities, while increases in specialization encourage profitable exploitation of economies of scale. Thus, the export-led growth thesis predicts export growth will cause economy-wide productivity gains in the form of enhanced levels of GDP.
Theoretical Explanations for Internationalization of Markets
International trade issues generally pose three types of questions for economists. The first is based on explanations of trade flows between at least two nations. The second refers to the nature and extent of gains or losses to an economy. Finally, the third issue concerns the effects of trade policies on an economy. Most theories of international trade are dedicated to the first question, and attention will now turn to theoretical responses to such an issue in the form of: classical trade theory; factor proportion theory; and product life cycle theory. Certain theorists have attempted to address limitations of international trade theories under the rubric of Foreign Direct Investment. Thus, the market imperfections theory states that firms constantly seek market opportunities and their decision to invest overseas is explained as a strategy to capitalize on certain capabilities not shared by competitors in foreign countries. The capabilities or advantages of firms are explained by market imperfections for products and factors of production. That is, the theory of perfect competition dictates that firms produce homogeneous products and enjoy the same level of access to factors of production. However, the reality of imperfect competition, which is reflected in industrial organization theory (Porter, 1985), determines that firms gain different types of competitive advantages and each to varying degrees. Nonetheless, market imperfections theory does not explain why foreign production is considered the most desirable means of harnessing the firm’s advantage. Simultaneously, international production theory suggests that the propensity of a firm to initiate foreign production will depend on the specific attractions of its home country compared with resource implications and advantages of locating in another country. This theory makes it explicit that not only do resource differentials and the advantages of the firm play a part in determining overseas investment activities, but foreign government actions may significantly influence the piecemeal attractiveness and entry conditions for firms.
On the other hand, Internalization theory centers on the notion that firms aspire to develop their own internal markets whenever transactions can be made at lower cost within the firm. Thus, internalization involves a form of vertical integration bringing new operations and activities, formerly carried out by intermediate markets, under the ownership and governance of the firm. However, Millington and Bayliss paid particular attention to the role of strategic planning in the process of internationalization and found that the incremental stepwise development of firms was the exception rather than the rule (Millington, A.I. and Bayliss, 155). They concluded that, in the early part of international involvement, firms rely on market experience and thereby make incremental adjustments. Simultaneously, while the degree of international experience increases, planning systems are implemented which formalize strategic analysis and information search. International involvement continues to increase to the extent that experience may be translated across different markets and between various product groups, thus, enabling firms to leapfrog the incremental process within markets. Furthermore, an important issue of intra-stage evolution is not considered within these models. Commonly referred to as “micro-internationalization” this issue can have significant implications for the development of small and medium-sized firms because a number of subtle changes regarding systems, procedures and other internal and external phenomena may influence their outlook on exporting. It is largely considered that firms advance along the path of internationalization rather than the reverse. Some international firms may encounter the situation where the aggregate disadvantages of international involvement outweigh the potential advantages of such a strategy. Given this scenario, it is possible that firms may undergo a process of “de-internationalization” and thereby reverse the sequence of international expansion through divestment and other similar tactics.
One of the key problems that will likely confound further progress in international trade research will be the precise method of measuring and determining the degree of internationalization. For instance, specialists considered that the reliability of measuring the degree of internationalization of a firm remains almost completely speculative. In consequence, attempts at theory building may lack the evidence to ensure that comparisons between different conceptualizations of internationalization are suitable. Therefore, future research should necessarily take account of these anomalies in international trade measures, in order to draw more precise conclusions underlying the nature of international involvement and expansion.
Need For Marketing in International Setting
The large, sophisticated industrial nations dominate the world marketing scene and are responsible for the major share of its expansion. These are the countries which have bred the large multinational companies which not only trade throughout the world but have global networks of subsidiary and allied companies. Many of these companies are vast conglomerates with a wide diversification of interests.
Parallel with the growth of multinational companies has come the growth of multinational marketing agencies to serve multinational clients. The increased widening of trade horizons, coupled with the dismantling of trade barriers is turning manufacturing, distribution and marketing agency practice into an international activity in which the old concept of home as distinct from overseas markets is increasingly irrelevant. Society and contemporary business have moved into a world where many industries – particularly those where technical or cost considerations dictate a scale of mass production or technical sophistication – must market internationally if they are to survive and grow.
Given this basic requirement multinationals must exercise strategic control over their global operations seeking a practical compromise between complete decentralization and centralized control. The optimum is a complete local marketing operation supported by international marketing coordination and strategic planning conducted centrally. Advertisers need for this an overseas marketing service in depth and this is now being provided by most well equipped advertising agencies in sophisticated and developed countries such as the US and UK.
It must, however, be said that in the field of international marketing, marketing agencies can only be as good as their clients permit. They can do nothing for the multinationals which treat overseas trading as a marginal extension of his home market. Nor can they do much for the short-sighted manufacturer who will cheerfully risk the loss of thousands of pounds by putting the wrong product through an inefficient distribution system into the wrong market rather than spend money on basic research. The manufacturer who can benefit most from the help of agencies is the one prepared to invest in overseas growth, as indeed most of the multinational companies are.
From this critical point of view, international marketing emerged as a subdiscipline of marketing in the circumstances of development of multinational corporations, emergence of new markets and overall globalization of society.
Development of International Marketing
According to Szymanski and other researchers, international marketing strategy can be considered as an element of the global marketing strategy of multinationals that can impact market share and business profits (Szymanski, Bharadwaj, & Varadarajan, 4). Ettinger pointed out that BMW in the 1960s was pursuing an international strategy in advertisements for its cars (Ettinger, 18). BMW at this time had sales in 27 countries and it faced a challenge in establishing a similar reputation in all of them. To launch intensive advertising campaigns in such diverse markets as Europe, Singapore, Arab States, and the countries of Latin America and Africa, BMW had to find a common advertising theme and at the same time adapt it to the local market conditions. It used the underlying theme of high quality in all the markets, and then depending on the market characteristics it emphasized additional features such as 100-mph cruising speed, safety features in construction, economy, unique suspension system, etc. For corporate and product identification, all advertisements prominently displayed the BMW symbol. Thus, in the middle of the last century multinationals were beginning to appreciate to the very degree the role and value of international advertising as an integral part of international marketing strategy.
Back in 1959 Kramer emphasized that domestic advertising message should not be utilized for international advertising purposes. He stated: “the form in which a story is to be told depends on the temperament and psychology of the people for whom it is intended” (Kramer, 271). He further stated that tradition, religion, and economic conditions needed to be considered when designing international advertising copy. He illustrated the example of India where he said an advertisement should never show a cow because it is a sacred animal for the Indian people. Certain colours are considered lucky in some countries and not so lucky in other countries. While translating advertisement copy, one must take expert assistance. Trade marks and trade names should be chosen carefully for international markets, according to Kramer, since advertising depends heavily on symbolism.
According to Leo the character of international marketing depends on the product or service being advertised, the marketing conditions it faces, and the strategic intent of the advertiser. He pointed out the advantages of standardizing advertisements, namely, the advantage of economy and the “strength of uniformity and repetition”. Leo also predicted that as time would pass, with the increase in communication and travel facilities, the standardized approach will become more important and practical. He stated:
“Because advertising, effective advertising, is an appeal to human fundamental needs, desires, and motivations, it is an appeal to basic human nature. People the world over have the same basic need for food, clothing, and shelter, the same ambitions, the same egotism, and the same temptations. The setting changes, the climate, the culture, the idiom, but the basic human nature is the same everywhere. And so, the traditional advertising appeals of economy, comfort, advancement, and social approval are equally applicable in all markets” (Leo, 181-2).
Thus, theory and practice of international marketing encountered a significant debate among scholars regarding standardization and adaptation used in advertising within international marketing strategy.
Standardisation in IM
In the beginning of this significant debate, which lasted for more than forty years the standardization approach to IM was advocated by Ettinger and by Deschampsneufs. Both felt that consumer motives were homogeneous worldwide, thus facilitating standardized advertising. In 1967, the multinational “Rank Xerox” decided to undertake a standardized approach to their advertising campaign in their European markets. Xerox had their own operating company in 13 Western European countries. Each of these companies had its own advertising agency. Xerox realized that each of the agencies in these countries was producing advertisements that looked and sounded different and that the resulting costs were unnecessarily high with a great deal of duplication. Xerox then decided to appoint an international agency to act as joint coordinator with its headquarters in London. This agency would then work with its European offices. After researching the markets in the 13 countries it was found that there were no significant differences in the composition of the potential market for their machines. A standardized campaign format was developed. This was then provided to each European branch and they were instructed to preserve the format and the concept of the campaign. However, they could tailor it to their own market without destroying the message of the campaign.
In terms of seeking to explain the international advertising practices of multinational companies, and whether or not standardization should be practiced, several contemporary studies have focused on identifying the variables that determine when advertising standardization becomes viable or optimal. In most instances these studies have focused on environmental variables such as GNP; literacy rates; media infrastructure and government regulations (Hill & James, 1991; Mueller, 1991). Alternatively, other studies have been conducted to investigate which environmental variables are actually correlated with the practice of advertising standardization. In many of these studies the primary objective was to investigate whether the practice of standardization was correlated with the stage of economic development of the markets concerned (Mueller, 1992; Sandler & Shani, 1992).
As regards those studies which have explicitly studied the motives of those companies who practice international marketing standardization, the following factors have been identified as positively influencing the sampled companies policies:
– Reduced media production costs;
– Good ideas are rare and should be exploited;
– Standardization is necessary given the increasing degree of consumer convergence resulting from the communications revolution;
– Standardization helps to establish a uniform world image and a consistent brand identity;
– Consumer confusion is reduced in areas of media overlap and when consumers are traveling abroad;
– Standardization is a necessary component of a global strategy;
– A common advertising approach helps support basic business decisions;
– Many national subsidiaries lack the financial and management resources to develop effective local advertising;
– Standardization represents a simple solution to an otherwise complex co-ordination process.
When these factors are analyzed, it would appear that they can be divided into two groups. First, factors such as economies of scale, the need to exploit good ideas and the ability to build an international image, all of which have an implicit economic rationale in terms that standardization contributes to the sales and profit performance of the brands in question. Second, factors such as the need to achieve skills transfer; concern about the abilities of the national subsidiaries and improved decision making, where the rationale for standardization would appear to have more to do with internal organizational considerations
Adaptation in IM
In a 1983 article global marketing specialist Theodore Levitt strongly endorsed standardization, bringing the debate in the academic literature (Kotler, 1986), and it naturally triggered research on this issue, mostly focusing on the comparative content of advertising. A number of studies comparing Japanese and US advertising were conducted during this period (Mueller, 1987; Ramaprasad and Hasegawa, 1990). Similar multi-country comparative studies on advertising content found differences in the advertisement content with respect to themes, emotional and informational cues, type of appeals, etc. pointing to the need for a localized approach to global advertising (Tansey et al., 1990).
Mueller (1987) studied the Japanese culture to delineate the impact of cultural characteristics on advertising strategies and appeals. Mueller concluded that “the advertisements of each country exhibit some degree of sensitivity to the cultural uniqueness of the particular consuming market. Cultural sensitivity is portrayed through the varying usage of these same appeals” (Mueller, 1987: 57). By the end of the 1980s Tansey (1990) concluded that international marketing strategy was situation-specific and that the real issue was to what extent and under what conditions should standardized marketing be used. To resolve this issue, they felt that practical frameworks were needed for this purpose.
Kaynak (1989) in his work The Management of International Advertising, expressed the view that a major determinant in the success of an international business venture may well be awareness of and sensitivity to subtle cultural differences. Kaynak suggested that a successful international advertising strategy requires:
– An international brand with wide cross-frontier appeal;
– Promotion of sufficiently general appeal to attract customers from a variety of cultures; and
– Knowledge of national regulations.
In addition, Kaynak identified three common mistakes that international advertisers make:
(1) Hiring a non-native speaker to translate the company’s advertising message;
(2) Assuming wrongly, on the part of the home country firm or advertiser, that a commercial that appeals to Americans will sell to foreigners with equal effectiveness; and
(3) Conducting few or no studies of the foreign markets.
Content Analysis Studies: Standardisation and Adaptation
Three studies have been undertaken which have employed content analysis methods to study the international marketing practices of multinationals – Mueller, 1991, Whitelock and Chung, 1989 and Seitz and Johar, 1993). In these studies actual press advertisements for a given brand in one national market were compared with ads appearing for the same brand at the same time in different national markets. Mueller (1991) “compared pairs of advertisements to determine the degree of similarity between foreign messages and US baseline ads. The instrument designed to investigate the degree of standardisation of print advertisements focused on the advertising theme, slogan, headlines, subheads, body copy, models and spokespersons, visual background scenes, products attributes, product packaging, product name and product portrayal” (Mueller, 1991:8).
The US ads were compared to ads appearing for the same brand in selected German and Japanese magazines. Each of the above mentioned elements were measured on a 1-5 scale, with 1 representing total standardisation and 5 total adaptation. The measurements on this scale were left to the discretion of the coders. Her findings indicated that standardised messages were more likely to be deployed in Western markets, namely the Japanese advertisements were more adapted. Also, that product type was a key variable influencing policy on standardisation.
Whitelock and Chung (1989) focused on comparing ads appearing in the same media in two culturally diverse, but economically similar national markets, France and the UK. Ads for the same brands were taken from one woman’s magazine in each market. The final sample consisted of 43 beauty or toiletry products. In order to measure the degree of similarity between the respective ads they developed a model where points were allocated to various executional elements. For instance, one point was awarded to colour and size differences and three points for explanatory text. A totally standardised ad would receive zero points and a totally adapted ad ten. Their key findings were that 13.5 per cent of the sampled brands were found to deploy totally standardised ads in the markets surveyed, all of whom were fragrance brands, and 17.3 per cent practiced total adaptation (Whitelock & Chung, 307).
Seitz and Johar (1993) used the same model and scoring system as Whitelock and Chung. Four issues of a women’s monthly publication were selected and the advertising for nine brands (three perfume; three apparel and three cosmetics) were analyzed in five national markets. The results indicated that there were significant differences in the extent of standardisation practiced across the three product categories, with high levels of standardisation being exhibited by perfume products and low for apparel products.
The data obtained from the three content analysis studies represented a significant innovation in terms of establishing that while the practice of international advertising standardisation was widespread, total standardisation was the exception rather than the rule.
In contemporary context, as traditional business shifts beyond geographical boundaries, companies have to adapt their strategies to these circumstances. From this perspective, it means that every company that goes internationally should adjust not only its supply chains and human resources to international conditions, but primarily its marketing approach. Practically, every management has to choose between two main marketing strategies, namely adaptation or standardization, depending on in what markets and with what products/services company aims to penetrate. Marketing theorists and practitioners do not have a universal opinion regarding the best strategy, and mainly it is company’s management responsibility to define marketing techniques and penetration strategies appropriate for particular market, target audience and product/service. From the critical standpoint, it is evident that in order to be successful internationally companies should take into account macro, micro and demographic differences among international and domestic markets, and it is here when the development and implementation of adequate international marketing strategy becomes pivotal.
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