Because of permissions issues, some material (e.g.

, photographs) has been removed from this chapter, though reference to it may occur in the text. The omitted content was intentionally deleted and is not needed to meet the University's requirements for this course.

Part I: Introduction

Chapter

Introduction to Global Marketing

e live in a global marketplace. McDonalds sandwiches, Sony consumer electronics, Nokia cellular phones, and Caterpillar earthmoving equipment are available for sale around the globe. But ask the average consumer where this global horn of plenty comes from, and youll likely hear a variety of answers that reflect widely differing perceptions. Its certainly true that some brandsMcDonalds, Corona Extra, Swatch, Waterford, Benetton, and Dr. Martens, for instanceare strongly identified with a particular country. In much of the world, McDonalds is the quintessential American fast-food restaurant, just as Dr. Martens are synonymous with British youth culture. But, for many other products, brands, and companies, the sense of identity with a particular country is becoming blurred. Which brands are Japanese, or American, or German? Does a Big Mac taste the same everywhere in the world? The global marketplace finds expression in subtler ways as well. While shopping, you may have noticed more multi-language labeling on your favorite products and brands. If you had an Amoco or Standard Oil credit card, it was recently replaced by a card for BP When you shop at . your local gourmet coffee store, you may have noticed that some beans are labeled Free Trade Certified. You have probably heard or read news accounts of anti-globalization protesters disrupting meetings of the World Trade Organization in various cities around the globe. The preceding paragraphs provide some clues to the sweeping transformation that has profoundly affected the people and industries of many nations during the past 150 years. Prior to 1840, students sitting at their desks would not have had any item in their possession that was manufactured more than a few miles from where they livedwith the possible exception of the books they were reading. International trade has existed since the beginning of civilization. However, since

1
Global Marketing, Third Edition, by Warren J. Keegan and Mark C. Green. Copyright 2003 by Pearson Education, Inc. Published by Prentice Hall, Inc.

Dr. Martens have long been popular with rock stars and club kids. Recently, people from all walks of lifeincluding the popehave taken to wearing the rugged shoes with the distinctive yellow Z Welt stitching. The brand's owner, R. Griggs Group, is headquartered in Northamptonshire, but 85 percent of the companys footwear sales are generated outside of the United Kingdom.

World War II there has been an unparalleled expansion into global markets by companies that previously served only customers located in their home country. Two decades ago, the phrase global marketing did not even exist. Today, savvy business people utilize global marketing for the realization of their companies full commercial potential. That is why you may be familiar with the brands mentioned in the preceding paragraph whether you live in Asia, Europe, or North or South America. But there is another even more critical reason why companies need to take global marketing seriouslysurvival. A company that fails to become global in outlook risks losing its domestic business to competitors with lower costs, more experience, and better products.

Part I Introduction

But what is global marketing? How does it differ from regular marketing? Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organization goals.1 Marketing activities center on an organizations efforts to satisfy customer wants and needs with products and services that offer competitive value. The marketing mix (product, price, place, and promotion) comprises a contemporary marketers primary tools.2 Marketing is a universal discipline, as applicable in Argentina as it is in Zimbabwe. This book is about global marketing. An organization that engages in global marketing focuses its resources on global market opportunities and threats. One difference between regular marketing and global marketing is the scope of activities. A company that engages in global marketing conducts important business activities outside the homecountry market. Another difference is that global marketing involves an understanding of specific concepts, considerations, and strategies that must be skillfully applied in conjunction with universal marketing fundamentals to ensure success in global markets. This book concentrates on the major dimensions of global marketing. A brief overview of marketing is presented next, although the authors assume that the reader has completed an introductory marketing course or has equivalent experience.

O VERVIEW

OF

M ARKETING

Marketing can be described as one of the functional areas of a business, distinct from finance and operations. Marketing can also be thought of as one of the activities that, along with product design, manufacturing, and transportation logistics, comprise a firms value chain. Decisions at every stage, from idea conception to support after the sale, should be assessed in terms of their ability to create value for customers. Historically, marketing was considered just another link in the chain. Today, however, many organizations are emphasizing the effective coordination of marketing with other functional areas. Competitive pressures have prompted many firms to involve marketers in design, manufacturing, and other value-related decisions from the start. This approach is known in some circles as boundaryless marketing. Rather than linking marketing sequentially with other activities, the goal is to eliminate the communication barriers between marketing and other functional areas. Properly implemented, boundaryless marketing ensures that a marketing orientation permeates all value-creating activities in a company. This change in emphasis is reflected in Figure 1-1. GE and other companies that subscribe to the boundaryless concept give employees at all levels and in all departments the opportunity to be involved in marketing.

1 2

Peter D. Bennett, ed., Dictionary of Marketing Terms, 2d ed. (Chicago: NTC Business Books, 1995), p. 166. For a recent review of the strengths and limitations of the 4P classification, see Walter van Waterschoot and Christophe Van den Bulte, The 4P Classification of the Marketing Mix Revisited, Journal of Marketing 56, no. 4 (October 1992), pp. 8393.

Chapter 1 Introduction to Global Marketing

Marketing

Customer needs and wants

R&D

Engineering

Manufacturing

Customer value

Figure 1-1
The Value Chain and Boundaryless Marketing

C USTOMER VALUE

AND THE

VALUE E QUATION

For any organization operating anywhere in the world, the essence of marketing is to surpass the competition at the task of creating perceived value for customers. The value equation is a guide to this task:
Value Benefits/Price (money, time, effort, etc.)

The marketing mix is integral to the equation because benefits are a combination of the product, promotion, and distribution. As a general rule, value as perceived by the customer can be increased in two basic ways. Markets can offer customers an improved bundle of benefits or lower prices (or both!). Marketers may strive to improve the product itself, to design new channels of distribution, to create better communications strategies, or a combination of all three. Marketers may also seek to increase value by finding ways to cut costs and prices. Nonmonetary costs are also a factor, and marketers may be able to decrease the time and effort that customers must expend to learn about or seek out the product.3 Companies that use price as a competitive weapon may enjoy an ample supply of low-wage labor or access to cheap raw materials. Companies can also reduce prices if costs are low because of process efficiencies in manufacturing. If a company is able to offer a combination of superior product, distribution, or promotion benefits and lower prices than the competition, it enjoys an extremely advantageous position. This is precisely how Toyota, Nissan, and other Japanese automakers made significant gains in the American market in the 1980s. They offered cars with higher quality and lower prices than those made by Chrysler, Ford, and General Motors. Needless to say, to become a market success a product must measure up to a threshold of acceptable quality. Some of Japans initial auto exports were market failures. In the late 1960s, for example,

With certain categories of differentiated goods, including designer clothing and other luxury products, higher price is often associated with increased value.

Part I Introduction

Subaru of America began importing the Subaru 360 automobile and offering it for sale with a sticker price of $1,297. After Consumer Reports judged the 360 not acceptable, however, sales ground to a halt. Similarly, the Yugo automobile achieved a modest level of U.S. sales in the 1980s (despite a dont buy rating from a consumer magazine) because its sticker price of $3,999 made it the cheapest new car available. Low quality was the primary reason for the market failure of both the Subaru 360 and the Yugo.4

Competitive Advantage, Globalization, and Global Industries

When a company succeeds in creating more value for customers than its competitors, that company is said to enjoy competitive advantage in an industry. Competitive advantage is measured relative to rivals in a given industry. For example, your local laundromat is in a local industry; its competitors are local. In a national industry, competitors are national. In a global industryautomobiles, consumer electronics, athletic shoes, watches, pharmaceuticals, steel, furniture, and a host of other sectorsthe competition is, likewise, global. Global marketing is essential if a company competes in a global industry or one that is globalizing. The transformation of formerly local or national industries into global ones is part of a broader process of globalization, which Thomas L. Friedman defines as follows: Globalization is the inexorable integration of markets, nation-states and technologies to a degree never witnessed beforein a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before, and in a way that is enabling the world to reach into individuals, corporations and nation-states farther, faster, deeper, and cheaper than ever before.5 From a marketing point of view, globalization presents companies with tantalizing opportunitiesand challengesas executives decide whether or not to offer their products and services everywhere. At the same time, globalization presents companies with unprecedented opportunities to reconfigure themselves; as John Micklethwait and Adrian Wooldridge put it, the same global bazaar that allows consumers to buy the best that the world can offer also allows producers to find the best partners.6 What, then, is a global industry? As management guru Michael Porter has noted, a global industry is one in which competitive advantage can be achieved by integrating and leveraging operations on a worldwide scale. Put another way, an industry is global to the extent that a companys industry position in one country is interdependent with its industry position in other countries. Indicators of globalization include the ratio of cross-border trade to total worldwide production, the ratio of cross-border investment to total capital investment, and the proportion of industry revenue generated by companies that compete in all key world regions.7 Achieving competitive advantage in a global industry requires executives and managers to maintain a well-defined strategic focus. Focus is simply the concentration of attention on a core business or competence. The importance of focus for a
4 5 6 7

The history of the Subaru 360 is documented in Randall Rothman, Where the Suckers Moon: The Life and Death of an Advertising Campaign (New York: Vintage Books, 1994), pp. 4756. Thomas L. Friedman, The Lexus and the Olive Tree (New York: Anchor Books, 2000), p. 9. John Micklethwait and Adrian Wooldridge, A Future Perfect: The Challenge and Hidden Promise of Globalization (New York: Crown Publishers, 2000), p. xxvii. Vijay Govindarajan and Anil Gupta, Setting a Course for the New Global Landscape, Financial TimesMastering Global Business, part I (1998), p. 3.

Chapter 1 Introduction to Global Marketing

Based in Atlanta, Georgia, Southern Company is the largest producer of electricity in the United States. In response to the globalization of the power industry, its Southern Energy subsidiary is actively acquiring power companies in both Asia and Europe.

global company is evident in the following comment by Helmut Maucher, former chairman of Nestl SA: Nestl is focused: We are food and beverages. We are not running bicycle shops. Even in food we are not in all fields. There are certain areas we do not touch. For the time being we have no biscuits [cookies] in Europe and the United States for competitive reasons, and no margarine. We have no soft drinks because I have said we either buy Coca-Cola or we leave it alone. This is focus.8 However, company management may choose to initiate a change in focus as part of an overall strategy shift. Even Coca-Cola has been forced to sharpen its focus on its core beverage brands. Following sluggish sales in 20002001, chief executive

Elizabeth Ashcroft, Nestl and the Twenty-First Century, Harvard Business School Case 9-595074, 1995. See also Ernest Beck, Nestl Feels Little Pressure to Make Big Acquisitions, The Wall Street Journal (June 22, 2000), p. B4.

Part I Introduction

Douglas Daft announced a new alliance with Nestl that will jointly develop and market coffees and teas. Daft also outlined plans for transforming Coca-Colas Minute Maid unit into a global division that will market juice brands worldwide. As Daft explained: Were a network of brands and businesses. You dont just want to be a total beverage company. Each brand has a different return on investment, is sold differently, drunk for different reasons, and has different managing structures. If you mix them all together, you lose the focus.9 There are many similar examples of corporate executives addressing the issue of focus, often in response to changes in the global business environment. In recent years Fiat, Volvo, Electrolux, Toshiba, Colgate and many other companies have stepped up efforts to sharpen their strategic focus on core businesses. Specific actions can take a number of different forms besides alliances, including mergers, acquisitions, divestitures, and folding some businesses into other company divisions.10 In 1998, Edgar Bronfman, Jr., the CEO of Montreal-based Seagram Company, paid $1 billion for music giant PolyGram NV and sold the companys Tropicana orange juice unit to PepsiCo. Bronfman then sold Chivas Regal and several other major spirits brands plus Seagrams wine business to Diageo PLC and Pernod-Ricard SA. Collectively, these transactions shifted Seagrams focus from beverages to entertainment; the combination of PolyGram with Seagrams MCA record unit created a global music powerhouse. In 2000, Bronfman agreed to a $32 billion takeover by Frances Vivendi. The resulting company, Vivendi Universal, is tightly focused in two industry sectors: environmental services and communications. The strategic plan for the communications businesses calls for distributing Universals entertainment content via an Internet portal that can be accessed by PCs, wireless phones, and other electronic devices.11 IBM originally succeeded in the data processing industry by focusing on customer needs and wants better than Univac. After decades of success, however, IBM remained focused on mainframe computers, despite customers who were increasingly turning to PCs. IBM was a key player in the early days of the PC revolution, but its corporate culture was still oriented toward mainframes. Big Blue faltered in the early 1990sit lost more than $8 billion in 1993in part because competitors specializing in PCs had become even more clearly focused on what PC customers needed and wantednamely, low prices and increased speed. Within a few years, however, new CEO Lou Gerstner succeeded in refocusing the companys PC business and broadening its scope to higher-margin products such as servers for electronic commerce and the Thinkpad laptop. Gerstner and e-business marketing chief Abby Kohnstamm also leveraged IBMs reputation for providing expertise-based solutions for its customers; IBM enjoyed record revenues in 2000 with global services accounting for a full 50 percent of profits.12 Value, competitive advantage, and the focus required to achieve them are universal in their relevance. They should guide marketing efforts in any part of the world. Global marketing requires attention to these issues on a worldwide basis and utilization of an information system capable of monitoring the globe for opportunities
9 10 11 12

Betsey McKay, Cokes Think Local Strategy has Yet to Prove Itself, The Wall Street Journal (March 1, 2001), p. B6. Robert A. Guth, How Japans Toshiba Got Its Focus Back, The Wall Street Journal (December 12, 2000), p. A6. Bruce Orwall, Universal Script: Vivendi-Seagram Deal has the Former MCA Playing Familiar Role, The Wall Street Journal (June 20, 2000), pp. A1, A8. Scott M. Davis, Great Brands Continue to Find Relevance, Brandweek (April 16, 2001), p. 16.

Chapter 1 Introduction to Global Marketing

Global Marketing in Action

Assessment of an industrys actual or potential degree of globalization may vary among companies. Recalling Whirlpools assessment of the changing business environment, CEO David Whitwam noted, The closer we looked, the more we said to ourselves, This is becoming a global industry. One of these days someone is going to figure that out and build lots of competitive advantage. That someone should be us. Today, Whirlpool produces white goods (as major appliances are known in the industry) in 11 countries and is the only appliance manufacturer with strategic positions in North America, Latin America, Europe, and Asia. To date, however, the European strategy has not paid off as expected, as large competitors such as BoschSiemens and Electrolux invested heavily in product and efficiency improvements. Meanwhile, Whirlpool made marketing and management mistakes. Executives were forced to scale back the objective of capturing 20 percent of the European appliance market by 2000. Despite its disappointments, Whirlpool is proceeding with plans to globalize the development of new products by creating platforms (core design elements) that can be used throughout the world. It is noteworthy that appliance makers in Japan have not targeted the United States, in part because they do not share the view that the appliance industry is global.

SOURCES: William C. Taylor and Alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (New York: Penguin Books USA, 1996), p. 7; Greg Steinmetz and Carl Quintanilla, Tough Target: Whirlpool Expected Easy Going in Europe, and It Got a Big Shock, The Wall Street Journal (April 10, 1998), pp. A1, A6. See also Peter Marsh and Nikki Tait, Whirlpools Platform for Growth, Financial Times (March 26, 1998), p. 8.

and threats. A fundamental premise of this book can be stated as follows: Companies that understand and engage in global marketing can offer more overall value to customers than companies that do not have that understanding. There are many who share this conviction. For example, C. Samuel Craig and Susan P. Douglas recently noted: Globalization is no longer an abstraction but a stark reality. . . . Choosing not to participate in global markets is no longer an option. All firms, regardless of their size, have to craft strategies in the broader context of world markets to anticipate, respond, and adapt to the changing configuration of these markets.13

G LOBAL M ARKETING : W HAT I T I S

AND

W HAT I T I SN T

The discipline of marketing is universal. It is natural, however, that marketing practices will vary from country to country, for the simple reason that the countries and peoples of the world are different. These differences mean that a marketing approach that has proven successful in one country will not necessarily succeed in another country. Customer preferences, competitors, channels of distribution, and communication media may differ. An important task in global marketing is learning to recognize the extent to which marketing plans and programs can be extended worldwide, as well as the extent to which they must be adapted. A second important task in global marketing is sorting through controversies among both academicians and business practitioners about the nature of the field

13

C. Samuel Craig and Susan P. Douglas, Responding to the Challenges of Global Markets: Change, Complexity, Competition, and Conscience, Columbia Journal of World Business 31, no. 4 (Winter 1996), pp. 618.

Part I Introduction

itself. Much of the controversy dates back to Professor Theodore Levitts 1983 article in the Harvard Business Review, The Globalization of Markets. Levitt argued that marketers were confronted with a homogeneous global village. He advised organizations to develop standardized, high-quality world products and market them around the globe by using standardized advertising, pricing, and distribution. Some well-publicized failures by Parker Pen and other companies that tried to follow Levitts advice brought his proposals into question. The business press frequently quoted industry observers who disputed Levitts views. For example, Carl Spielvogel, chairman and CEO of the Backer Spielvogel Bates Worldwide advertising agency, told The Wall Street Journal, Theodore Levitts comment about the world becoming homogenized is bunk. There are about two products that lend themselves to global marketingand one of them is Coca-Cola.14 Indeed, global marketing made Coke a worldwide success. However, that success was not based on a total standardization of marketing mix elements. For example, Coca-Cola achieved success in Japan by spending a great deal of time and money to become an insider; that is, the company built a complete local infrastructure with its sales force and vending machine operations. Cokes success in Japan is a function of its ability to achieve global localization, being as much of an insider as a local company but still reaping the benefits that result from world-scale operations.15 Similarly, in India, the companys local Thums Up cola brand competes withand even outsellsthe flagship cola.16 What does the phrase global localization really mean? In a nutshell, it means that a successful global marketer must have the ability to think globally and act locally. As we will see many times in this book, global marketing may include a combination of standard (e.g., the actual product itself) and nonstandard (e.g., distribution or packaging) approaches. A global product may be the same product everywhere and yet different. Global marketing requires marketers to behave in a way that is global and local at the same time by responding to similarities and differences in world markets. Kenichi Ohmae recently summed up this paradox as follows: The essence of being a global company is to maintain a kind of tension within the organization without being undone by it. Some companies say the new world requires homogeneous productsone size fits alleverywhere. Others say the world requires endless customizationspecial products for every region. The best global companies understand its neither and its both. They keep the two perspectives in mind simultaneously.17 As the Coca-Cola Company has demonstrated, the ability to think globally and act locally can be a source of competitive advantage. By adapting sales promotion, distribution, and customer service efforts to local needs, Coke established such strong brand preference that the company claims a 70 percent share of the soft drink market in Japan. At first, Coca-Cola managers did not understand the Japanese distribution system. However, with considerable investment of time and money, they succeeded in establishing a sales force that was as effective in Japan as it was in the United States. Today, Coca-Cola Japan generates higher profits than the U.S. operation.

14 15 16 17

Joanne Lipman, Ad Fad: Marketers Turn Sour on Global Sales Pitch Harvard Guru Makes, The Wall Street Journal (May 12, 1988), p. 1. Kenichi Ohmae, The Borderless World: Power and Strategy (New York: Harper Perennial, 1991), p. 26. Nikhil Deogun and Jonathan Karp, For Coke in India, Thums Up is the Real Thing, The Wall Street Journal (April 29, 1998), pp. B1, B2. William C. Taylor and Alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (New York: Penguin Books USA, 1996), pp. 4849.

Chapter 1 Introduction to Global Marketing

NOT AVAILABLE FOR ELECTRONIC VIEWING

To complement cola sales, the Japanese unit has created new products such as Georgia-brand canned coffee expressly for the Japanese market.18 Coke is a product supported by marketing mix elements that are both global and local. In this book, we do not propose that global marketing is a knee-jerk attempt to impose a totally standardized approach to marketing around the world. A central issue in global marketing is how to tailor the global marketing concept to fit particular products, businesses, and markets.19 Finally, global marketing does not mean entering every country in the world. Global marketing does mean widening business horizons to encompass the world in scanning for opportunity and threat. The decision to enter markets outside the home country depends on a companys resources, its managerial mind-set, and the nature of opportunity and threat. The Coca-Cola Companys drink products are distributed in some 200 countries; in fact, the theme of a recent annual report was A Global Business System Dedicated to Customer Service. Coke is the best-known, strongest brand in the world; its enviable global position has resulted in part from the CocaCola Companys willingness and ability to back its flagship product with a network of local bottlers and a strong local marketing effort.

18 19

David McHardy Reid, Perspectives for International Marketers on the Japanese Market, Journal of International Marketing 3, no. 1 (1995), p. 74. John A. Quelch and Edward J. Hoff, Customizing Global Marketing, Harvard Business Review 64, no. 3 (May-June 1986), p. 59.

10

Part I Introduction

A number of other companies have successfully pursued global marketing by creating strong global brands. The Altria Group (formerly Philip Morris), for example, has made Marlboro the number one cigarette brand in the world. In automobiles, DaimlerChrysler enjoys global recognition for its Mercedes nameplate. However, as shown in Table 1-1, effective global marketing strategies can also be based on product or system design, product positioning, packaging, distribution, customer service, and sourcing considerations. For example, McDonalds has designed a restaurant system that can be set up virtually anywhere in the world. Like Coca-Cola, McDonalds also customizes its menu offerings in accordance with local eating customs. Cisco Systems, which makes local area network routers that allow computers to communicate with each other, designs new products that can be programmed to operate under virtually any conditions in the world.20 Unilever uses a teddy bear to communicate the benefits of the companys fabric softener. Harley-Davidsons motorcycles are perceived around the world as the all-American bike. Gillette uses the same packaging for its flagship Mach3 razor everywhere in the world. Italys Benetton utilizes a sophisticated distribution system to quickly deliver the latest fashions to its worldwide network of stores. The backbone of Caterpillars global success is a network of dealers who support a promise of 24-hour parts and service anywhere in the world. About 85 percent of Gaps 3,000 stores are located in the United States, and its design group is based in New York. However, the company relies on apparel factories in Honduras, the Philippines, India, and other low-wage countries to supply most of its clothing. The success of Honda and Toyota in world markets was initially based on exporting cars from factories in Japan. Now, both companies have invested in manufacturing and assembly facilities in the Americas, Asia, and Europe. From these sites, the automakers supply customers in the local market and also export to the rest of the world. For example, each year Honda exports tens of thousands of Accords and Civics from U.S. plants to Japan and dozens of other countries. The particular approach to global marketing that a company adopts will depend on industry conditions and its source or sources of competitive advantage. Should Harley-Davidson start manufacturing motorcycles in a low-wage country such as Mexico? Will American consumers continue to snap up American-built Toyotas? Should Gap open more stores in Japan? The answer to these questions is: It all depends. Because Harleys competitive advantage is based in part on its Made in Table 1-1
Examples of Effective Global Marketing
GLOBAL MARKETING STRATEGY COMPANY/HOME COUNTRY

Brand name Product/System design Product positioning Advertising Packaging Distribution Customer service Sourcing

Coca-Cola (USA); Altria Group (Marlboro, USA); DaimlerChrysler (Mercedes, Germany); Virgin (Great Britain) McDonalds (USA); Toyota (Japan); Ford (USA); Cisco Systems (USA) Unilever (UK/Netherlands); Harley-Davidson (USA); Gillette (USA); LVMH (France) Philips (Netherlands); Citibank (USA) Gillette (USA) Benetton (Italy) Caterpillar (USA); IBM (USA) Toyota (Japan); Honda (Japan); Gap (USA)

20

Gregory L. Miles, Tailoring a Global Product, International Business (March 1995), p. 50.

Chapter 1 Introduction to Global Marketing

11

the USA positioning, shifting production outside the United States is not advisable. The company has opened a new production facility in Kansas and taken a majority stake in Buell Motorcycle, a manufacturer of American street bikes. Toyotas success in the United States is partly attributable to its ability to transfer world-class manufacturing skills to America while using advertising to stress that its Camry is built by Americans with many components purchased from American suppliers. Gap has more than 500 stores outside the United States, including units in Canada, the United Kingdom, Japan, France, and Germany. Japan may present an opportunity for Gap to increase revenues and profits in a major non-U.S. market. A recent annual report noted that, in terms of sales revenues, the apparel market outside the United States is twice as large as that within the United States. Also, American style is in high demand in Japan and other parts of the world. Gaps management team has responded to this situation by selectively targeting key country markets especially areas with high population densitieswhile continuing to concentrate on trends in the U.S. fashion marketplace. However, recent operating difficulties in the core U.S. market led to the departure of several executives, suggesting managements top priority at this time should be the domestic market.21

T HE I MPORTANCE

OF

G LOBAL M ARKETING

The largest single market in the world in terms of national income, the United States represents roughly 25 percent of the total world market for all products and services. Thus, U.S. companies that wish to achieve maximum growth potential must go global because 75 percent of world market potential is outside their home country. Management at Coca-Cola clearly understands this; about 90 percent of the companys operating income and two-thirds of revenues are generated by its soft drink business outside the United States. Non-U.S. companies have an even greater motivation to seek market opportunities beyond their own borders; their opportunities include the 270 million people in the United States. For example, even though the dollar value of the home market for Japanese companies is the second largest in the world (after the United States), the market outside Japan is 85 percent of the world potential for Japanese companies. For European countries, the picture is even more dramatic. Even though Germany is the largest single country market in Europe, 94 percent of the world market potential for German companies is outside Germany. Many companies have recognized the importance of conducting business activities outside the home country. Industries that were essentially national in scope only a few years ago are dominated today by a handful of global companies. The rise of the global corporation closely parallels the rise of the national corporation, which emerged from the local and regional corporation in the 1880s and 1890s in the United States. The auto industry provides a dramatic example: In the early twentieth century, there were thousands of auto companies scattered around the globe. The United States alone was home to more than 500 automakers. Today, fewer than 20 major companies remain worldwide. A dramatic illustration of the ongoing consolidation in the auto industry is Daimler-Benzs $36 billion takeover of Chrysler in 1998. In most industries, the companies that will survive and prosper in the twenty-first century will be global enterprises. Some companies that fail to formulate adequate responses to the challenges and opportunities of globalization will be absorbed by

21

Gaps transformation into a global brand is chronicled in Nina Munk, Gap Gets It, Fortune (August 3, 1998), pp. 6874 ; see also Calmetta Coleman, Gap is Making Management Changes to Fight Sales Slump, The Wall Street Journal (November 7, 2000), p. B4.

12

Part I Introduction

Open to Debate
Are We Ready for One World?
William Greider believes that the globalization of industries and markets will have some unintended, possibly dire, consequences in the coming years. In his book One World, Ready or Not, Greider describes how the logic of commerce and capital in the closing years of the twentieth century has created an economic revolution and launched great social transformations. As Greider sees it, the message of globalization contains good news and bad news. The good news is that modern technology and global marketing are enabling people and nations throughout the world to leap into the modern era. The bad news, Greider warns, is that modern technology tends to be more individualistic and anti-egalitarian than the mass assembly technology that revolutionized production in the first part of the twentieth century. As a result, disregard for basic human rights and the exploitation of the weak in developing nations may result in great social upheavals and, eventually, a breakdown in the global system. One issue that concerns Greider is the fact that productivity and revenues at many global corporations have risen dramatically, while overall worldwide employment has not. Meanwhile, a dispersal of productive wealth is underway as global corporations establish operations in key developing countries like Brazil and China. Many economists agree that this dispersal will narrow the gap between poor and rich nations. Back in the industrialized nations, however, there is an increasing sense of social distress as workers see their plants close and jobs shipped out of the country. One byproduct of globalization, Greider observes, is that it pits the interests of the older, more prosperous workers against the interests of newly recruited, lower-paid workers. Greider warns that deeper political instability lies ahead for the United States, Germany, France, and Britain as workers take up the fight to save their jobs. In addition, the globalization of industries such as steel, automobiles, and consumer electronics has created surplus production capacity on a massive scale. Greider notes that the U.S. economy serves as a sort of safety valve for the global system. Because the U.S. market places relatively few restrictions on imports, this benevolent openness means that America serves as a buyer of last resort by absorbing much of the worlds excess production. As a result of the chronic imbalance in the trading system, the United States continues to post massive trade deficits that defy conventional economic analysis. What can, or should, be done? Greider argues that U.S.-based global companies that create jobs overseas at the expense of domestic jobs should not be permitted to finance export deals by borrowing from taxsupported agencies such as the Export-Import Bank. At the same time, Greider says that American public interest would be better served if government policy shifted away from supporting and underwriting the interests of global companies and focused instead on jobs and wages. Finally, Greider advocates the use of emergency tariffs to reduce the trade deficit if American policymakers are unable to gain more access in foreign markets to U.S. export.

SOURCES: William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism (Upper Saddle River, NJ: Simon & Schuster, 1997); Greider, Who Governs Globalism? The American Prospect, no. 30 (January-February 1997), pp. 7380.

more dynamic, visionary enterprises; others will simply disappear. Table 1-2 shows 25 of The Wall Street Journals top 100 companies in terms of market capitalization that is, the market value of all shares of stock outstanding. Table 1-3 provides a different perspectivethe top 25 of Fortune magazines 2000 ranking of the 500 largest service and manufacturing companies by revenues. Comparing the two tables, one is struck by GEs strong showing: It is first in market capitalization, ninth in revenues, but first in profits. Much credit for this outstanding performance goes to former CEO Jack Welch, who set out in the mid-1980s to globalize his company. Not every company in the tables is truly global, however; Nippon Telegraph and Telephone (NTT), for example, ranks 20th in market capitalization, 13th in revenues, but 483rd in profit! A downturn in the telecommunications sector and Japans ongoing economic woes help explain the poor profit performance. Chapter 1 Introduction to Global Marketing 13

Table 1-2
The Largest Corporations by Market Value (US$ millions)
COMPANY MARKET VALUE*

1. General Electric (USA) 2. Intel (USA) 3. Cisco Systems (USA) 4. Microsoft (USA) 5. Exxon Mobil (USA) 6. Pfizer (USA) 7. Vodafone Group (USA) 8. Citigroup (USA) 9. NTT DoCoMo (Japan) 10. Nortel Networks (USA) 11. Wal-Mart Stores (USA) 12. Oracle (USA) 13. International Business Machines (USA) 14. Royal Dutch/Shell Group (UK/Nether.) 15. BP Amoco (UK) 16. American International Group (USA) 17. Nokia (Finland) 18. Sun Microsystems (USA) 19. EMC (USA) 20. Nippon Telegraph & Telephone (Japan) 21. Merck (USA) 22. Toyota Motor (USA) 23. Coca-Cola (USA) 24. SBC Communications (USA) 25. Ericsson (UK)
*Data

$562,937 453,541 432,357 372,798 281,469 265,664 259,218 249,292 242,430 233,625 230,481 229,249 219,918 215,164 204,797 201,320 191,041 186,205 182,560 181,883 171,216 161,642 152,830 143,491 137,446

reflect market value on August 15, 2000.

Source: The Worlds 100 Largest Public Companies, The Wall Street Journal (September 25, 2000), p. R24.

Until recently, Japanese regulations severely limited NTTs reach outside of Japan. After regulations were relaxed in 1999, NTT embarked on a global shopping spree. Acquisitions include Verio Inc., a U.S.-based Internet company; NTT also bought a stake in the mobile phone unit of a Dutch company, KPN NV. The companys strategic goal is to become a global company with a strong base in Asia.22 Wal-Mart, the worlds number-one retailer, currently generates only about 5 percent of revenues outside the United States. However, global expansion is the key to the companys growth strategy over the next few years. Examining the size of individual product markets, measured in terms of annual sales, provides another perspective on global marketings importance. Not surprisingly, many of the companies identified in Tables 1-2 and 1-3 are key players in the global marketplace. Selected markets are shown in Table 1-4.

22

Robert Guth, Japans NTT Steps Up Its Push Into U.S. and Europe, The Wall Street Journal (May 26, 2000), pp. A16, A19.

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Part I Introduction

Table 1-3
The Fortune Global 500: Largest Corporations by Revenues (US$ millions)
COMPANY REVENUES PROFITS PROFITS RANK

1. General Motors (USA) 2. Wal-Mart Stores (USA) 3. Exxon Mobil (USA) 4. Ford Motor (USA) 5. DaimlerChrysler (Germany) 6. Mitsui (Japan) 7. Mitsubishi (Japan) 8. Toyota Motor (Japan) 9. General Electric (USA) 10. Itochu (Japan) 11. Royal Dutch/Shell Group (UK/Nether.) 12. Sumimoto (Japan) 13. Nippon Telegraph & Telephone (Japan) 14. Marubeni (Japan) 15. AXA (France) 16. International Business Machines (USA) 17. BP Amoco (UK) 18. Citigroup (USA) 19. Volkswagen (Germany) 20. Nippon Life Insurance (Japan) 21. Siemens (Germany) 22. Allianz (Germany) 23. Hitachi (Japan) 24. Matsushita Electrical Industrial (Japan) 25. Nissho Iwai (Japan)

$176,558 166,809 163,881 162,558 159,985 118,555 117,765 115,670 111,630 109,068 105,366 95,701 93,591 91,807 87,645 87,548 83,566 82,005 80,072 78,515 75,337 74,178 71,858 65,555 65,393

6,002.0 5,377.0 7,910.0 7,237.0 6,129.1 320.5 233.7 3,653.4 10,717.0 (792.8) 8,584.0 314.9 (609.0) 18.5 2,155.8 7,712.0 5,008.0 9,067.0 874.7 3,405.4 1,773.7 2,382.1 152.0 895.5 91.8

14 19 5 12 13 330 367 39 1 484 3 331 483 444 86 8 23 2 199 45 104 77 396 195 416

Source: The Fortune Global 500, Fortune (July 24, 2000), p. F1. Figures cited from most recent fiscal year.

M ANAGEMENT O RIENTATIONS
The form and substance of a companys response to global market opportunities depend greatly on managements assumptions or beliefsboth conscious and unconsciousabout the nature of the world. The world view of a companys personnel can be described as ethnocentric, polycentric, regiocentric, and geocentric.23 Management at a company with a prevailing ethnocentric orientation may consciously make a decision to move in the direction of geocentricism. The orientationscollectively known as the EPRG frameworkare summarized in Figure 1-2.

Ethnocentric Orientation
A person who assumes that his or her home country is superior to the rest of the world is said to have an ethnocentric orientation. Ethnocentrism is sometimes associated with attitudes of national arrogance or assumptions of national superiority.
23

Adapted from Howard Perlmutter, The Tortuous Evolution of the Multinational Corporation, Columbia Journal of World Business (January-February 1969).

Chapter 1 Introduction to Global Marketing

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Table 1-4
How Big Is the Market?
PRODUCT OR SERVICE SIZE OF MARKET KEY PLAYERS/BRANDS

Auto parts

$720 billion

Computers Telecommunications Internetworking products and services Packaging Personal financial services Cigarettes Computer software White goods (major appliances) Construction equipment Luxury goods Recorded music Pet food Farm equipment (tractors, combines, bailers)
Source: Compiled by the authors.

$650 billion $600 billion $470 billion $400 billion $300 billion $295 billion $95 billion $85 billion $70 billion $39 billion $40 billion $30 billion $20 billion

Delphi Automotive Systems (USA); Ford Automotive Products Operations (USA); Robert Bosch GmbH (Germany); Denso Corp. (Japan); Aisin Seiki (Japan) IBM (USA); Compaq (USA); Hewlett-Packard (USA); Dell (USA) AT&T (USA); Global One (USA, Germany, France) IBM (USA); Microsoft (USA); Oracle (USA); Computer Associates (USA); SAP (Germany) Sealed Air (USA); Crown Cork and Seal (USA) Citigroup (USA) Altria Group (USA); B.A.T Industries (UK); Japan Tobacco (Japan); Gallaher Group (UK) IBM (USA); Microsoft (USA); Oracle (USA); SAP (Germany) Whirlpool (USA); Electrolux (Sweden); Bosch-Siemens (Germany) Caterpillar (USA); Komatsu (Japan); Volvo (Sweden) LVMH Group (France); Giorgio Armani (Italy) PolyGram (Netherlands); Sony (Japan); Warner (USA); Bertelsmann (Germany); EMI (UK); Vivendi-Universal (France) Iams (Procter & Gamble USA); Ralston Purina (Nestl Switzerland); Pedigree (Mars USA) John Deere (USA); Case (USA); New Holland NV (Netherlands)

The Global Marketplace

The Rest of the Story
Now that weve got you thinking about global marketing, its time to test your knowledge of global current events. Some well-known companies and brands are listed in the left-hand column below. The question is, in what country is the parent corporation ____ 1. Firestone Tire & Rubber ____ 2. Burger King ____ 3. Rolls-Royce ____ 4. RCA Electronics ____ 5. Dr Pepper ____ 6. Jaguar ____ 7. Gerber ____ 8. Baskin Robbins ____ 9. Rollerblade ____ 10. Dunkin Donuts located? Possible answers are shown in the righthand column. Write the letter corresponding to the country of your choice in the space provided; each country can be used more than once. Answers are provided below. a. Germany b. France c. Japan d. Great Britain e. United States f. Switzerland g. Italy

Answers: 1. Japan (Bridgestone), 2. Great Britain (Diageo), 3. Germany (Volkswagen), 4. France (Thomson SA), 5. Great Britain (Cadbury Schweppes), 6. United States (Ford), 7. Switzerland (Novartis), 8. Great Britain (Allied Domecq), 9. Italy (Benetton), 10. Great Britain (Allied Domecq)

Figure 1-2
Management Orientations
Ethnocentric: Home country is superior, sees similarities in foreign countries Polycentric: Each host country is unique, sees differences in foreign countries

Regiocentric: Sees similarities and differences in a world region; is ethnocentric or polycentric in its view of the rest of the world

Geocentric: World view, sees similarities and differences in home and host countries

Company personnel with an ethnocentric orientation see only similarities in markets, and assume that products and practices that succeed in the home country will be successful anywhere. At some companies, the ethnocentric orientation means that opportunities outside the home country are largely ignored. Such companies are sometimes called domestic companies. Ethnocentric companies that do conduct business outside the home country can be described as international companies; they adhere to the notion that the products that succeed in the home country are superior. This point of view leads to a standardized or extension approach to marketing based on the premise that products can be sold everywhere without adaptation. In the ethnocentric international company, foreign operations or markets are typically viewed as being secondary or subordinate to domestic ones. (We are using the term domestic to mean the country in which a company is headquartered.) An ethnocentric company operates under the assumption that tried and true headquarters knowledge and organizational capabilities can be applied in other parts of the world. While this can sometimes work to a companys advantage, valuable managerial knowledge and experience in local markets may go unnoticed. For a manufacturing firm, ethnocentrism may mean foreign markets are viewed as a dumping ground for surplus domestic production. Plans for overseas markets are developed utilizing policies and procedures modeled on those employed at home. Little or no systematic marketing research is conducted outside the home country, and no major modifications are made to products. Even if customer needs or wants differ from those in the home country, such differences are ignored at headquarters. Nissans ethnocentric orientation was quite apparent during its first few years of exporting cars and trucks to America. Designed for mild Japanese winters, the vehicles were difficult to start in many parts of the United States during the cold winter months. In northern Japan, many car owners would put blankets over the hoods of their cars. Nissans assumptionwhich turned out to be falsewas that Americans would do the same thing. As a Nissan spokesman said recently, We tried for a long time to design cars in Japan and shove them down the American consumers throat. Chapter 1 Introduction to Global Marketing 17

That didnt work very well.24 Until the 1980s, Eli Lilly and Company operated as an ethnocentric company: Activity outside the United States was tightly controlled by headquarters and the focus was on selling products originally developed for the U.S. market.25 Similarly, executives at Californias Robert Mondavi Corporation operated the company for many years as an ethnocentric international entity. As CEO Michael Mondavi explains: Robert Mondavi was a local winery that thought locally, grew locally, produced locally, and sold globally . . . To be a truly global company, I believe its imperative to grow and produce great wines in the world in the best wine-growing regions of the world, regardless of the country or the borders.26 Fifty years ago, most business enterprisesand especially those located in a large country like the United Statescould operate quite successfully with an ethnocentric orientation. Today, however, as CEO Mondavis words make clear, ethnocentrism is one of the major internal weaknesses that must be overcome if a company is to transform itself into an effective global competitor.

Polycentric Orientation
Polycentric orientation is the opposite of ethnocentrism. The term polycentric describes managements belief or assumption that each country in which a company does business is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing strategies in order to succeed; the term multinational company is often used to describe such a structure. This point of view leads to a localized or adaptation approach that assumes products must be adapted in response to different market conditions. Until the mid-1990s, Citicorps financial services around the world operated on a polycentric basis. James Bailey, a Citicorp executive, offered this description of the company: We were like a medieval state. There was the king and his court and they were in charge, right? No. It was the land barons who were in charge. The king and his court might declare this or that, but the land barons went and did their thing.27 Realizing that the financial services industry was globalizing, then-CEO John Reed attempted to achieve a higher degree of integration between Citicorps operating units. Like Jack Welch at GE, Reed sought to instill a geocentric orientation throughout his company. Prior to 1994, Ford Motor Company was also organized as a multinational corporation. Each of the companys four geographical regions operated autonomously. That meant four separate development centers, each designing vehicles to be marketed in their respective regions. In January 1994, CEO Alex Trotman launched Ford 2000, an ambitious reorganization designed to transform Ford into a global company as opposed to a multinational one. A key element in the plan was the centralization of worldwide product development. In November 1999, Trotmans successor announced plans to reintroduce some of the regional focus. Jacques Nassers reversal was viewed as an effort to ensure that Ford products and the Ford brand are responsive to local preferences, especially in Europe.

24 25 26 27

Norihiko Shirouzu, Tailoring Worlds Cars to U.S. Tastes, The Wall Street Journal (January 1, 2001), pp. B1, B6. T. W. Malnight, Globalization of an Ethnocentric Firm: An Evolutionary Perspective, Strategic Management Journal 16, no. 2 (February 1995), p. 125. Robert Mondavi, Harvests of Joy: My Passion for Excellence (New York: Harcourt Brace & Company, 1998), p. 333. Saul Hansell, Uniting the Feudal Lords at Citicorp, The New York Times (January 16, 1994), Sec. 3, p. 1.

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Part I Introduction

Regiocentric and Geocentric Orientations

In a company with a regiocentric orientation, a region becomes the relevant geographic unit; managements goal is to develop an integrated regional strategy. For example, a U.S. company that focuses on the countries included in the North American Free Trade Agreement (NAFTA)the United States, Canada, and Mexicohas a regiocentric orientation. Similarly, a European company that focuses its attention on Europe is regiocentric. A company with a geocentric orientation views the entire world as a potential market and strives to develop integrated world market strategies. A company whose management has a regiocentric or geocentric orientation is sometimes known as a global or transnational company.28 A global company can be further described as one that pursues either a strategy of serving world markets from a single country, or that sources globally for the purposes of focusing on select country markets. In addition, global companies tend to retain their association with a particular headquarters country. Harley-Davidson and Waterford serve world markets from the United States and Ireland, respectively; Gap sources its apparel from low-wage countries in all parts of the world and focuses primarily on the key U.S. market. All three may be thought of as global companies. Transnational companies both serve global markets and source globally; in addition, there is often a blurring of national identity. A true transnational would be characterized as stateless. Toyota is a good example of a company that is coming close to fulfilling the criteria of transnationality. At global and transnational companies, management uses a combination of standardized (extension) and localized (adaptation) elements in the marketing program. A key factor that distinguishes global and transnational companies from international or multinational companies is mindset: at global and transnational companies, decisions regarding extension and adaptation are not based on assumptions. Rather, such decisions are made on the basis of ongoing research into market needs and wants. Table 1-5 shows a ranking of companies according to an index of transnationality, which is an average of three figures: sales outside the home country to total sales; assets outside the home country to total assets; and employees outside the home country to total employees. One characteristic that the companies all have in common is that relatively small home country markets have compelled management to adopt regiocentric or geocentric orientations to achieve revenue and profit growth. The geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a world view that sees similarities and differences in markets and countries, and seeks to create a global strategy that is fully responsive to local needs and wants. A regiocentric manager might be said to have a world view on a regional scale; the world outside the region of interest will be viewed with an ethnocentric or a polycentric orientation, or a combination of the two. However, recent research suggests that many companies are seeking to strengthen their regional competitiveness rather than moving directly to develop global responses to changes in the competitive environment.29
28

29

Although the definitions provided here are important, to avoid confusion we will use the term global marketing when describing the general activities of global companies. Another note of caution is in order: Usage of the terms international, multinational, and global varies widely. Alert readers of the business press are likely to recognize inconsistencies; usage does not always reflect the definitions provided here. In particular, companies that are (in the view of the authors as well as numerous other academics) global, are often described as multinational enterprises (abbreviated MNE) or multinational corporations (abbreviated MNC). The United Nations prefers the term transnational company rather than global company. When we refer to an international company or a multinational, we will do so in a way that maintains the distinctions described in the text. Allan J. Morrison, David A. Ricks, and Kendall Roth, Globalization Versus Regionalization: Which Way for the Multinational? Organizational Dynamics (Winter 1991), p. 18.

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Table 1-5
Companies Ranked by Transnationality
1. Nestl (Switzerland) 2. Thomson Corporation (Canada) 3. Holderbank Financire (Switzerland) 4. Seagram Company (Canada) 5. Solvay (Belgium) 6. ABB (Switzerland) 7. Electrolux (Sweden) 8. Unilever (UK/Netherlands) 9. Royal Philips Electronics (Netherlands) 10. Roche Holdings (Switzerland) 11. SCA (Sweden) 12. Northern Telecom (Canada) 13. GlaxoSmithKline (UK) 14. Cable & Wireless (UK) 15. Volvo (Sweden) 16. News Corporation (Australia) 17. Royal Dutch/Shell (UK/Netherlands) 18. Diageo (UK) 19. Petrofina (Belgium) 20. Saint-Gobain (France)

Source: Alan Rugman, Multinationals as Regional Flagships, Financial TimesMastering Global Business, Part I (January 30, 1998), p. 8.

There are no German and American companies. There are only successful and unsuccessful ones. Thomas Middelhoff, Chairman, Bertelsmann AG32

The ethnocentric company is centralized in its marketing management, the polycentric company is decentralized, and the regiocentric and geocentric companies are integrated on a regional and global scale, respectively. A crucial difference between the orientations is the underlying assumption for each. The ethnocentric orientation is based on a belief in home-country superiority. The underlying assumption of the polycentric approach is that there are so many differences in cultural, economic, and marketing conditions in the world that it is futile to attempt to transfer experience across national boundaries. A key challenge facing organizational leaders today is managing a companys evolution beyond an ethnocentric or polycentric orientation toward a regiocentric or geocentric one. As noted in one recent book on global business, The multinational solution encounters problems by ignoring a number of organizational impediments to the implementation of a global strategy and underestimating the impact of global competition.30 At many companies, management realizes the need to change. For example, Louis R. Hughes, a General Motors executive, said recently, We are on our way to becoming a transnational corporation. His view was echoed by Basil Drossos, president of GM de Argentina, who noted, We are talking about becoming a global corporation as opposed to a multinational company; that implies that the centers of expertise may reside anywhere they best reside.31

F ORCES A FFECTING G LOBAL AND G LOBAL M ARKETING

I NTEGRATION

The remarkable growth of the global economy over the past 50 years has been shaped by the dynamic interplay of various driving and restraining forces. During most of those decades, companies from different parts of the world in different

30 31 32

Michael A. Yoshino and U. Srinivasa Rangan, Strategic Alliances: An Entrepreneurial Approach to Globalization (Boston: Harvard Business School Press, 1995), p. 64. Rebecca Blumenstein, Global Strategy: GM is Building Plants in Developing Nations to Woo New Markets, The Wall Street Journal (August 4, 1997), p. A4. Joseph B. White, Global Mall: There are No German and American Companies. Only Successful Ones, The Wall Street Journal (May 7, 1998), p. A1.

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Part I Introduction

Restraining forces

Driving forces

Global integration and Global marketing

Figure 1-3
Driving and Restraining Forces Affecting Global Integration

industries achieved great success by pursuing international, multinational, or global strategies. During the 1990s, changes in the business environment have presented a number of challenges to established ways of doing business. Today, the growing importance of global marketing stems from the fact that driving forces have more momentum than the restraining forces. The forces affecting global integration are shown in Figure 1-3.32 Regional economic agreements, converging market needs and wants, technology advances, pressure to cut costs, pressure to improve quality, improvements in communication and transportation technology, global economic growth, and opportunities for leverage all represent important driving forces; any industry subject to these forces is a candidate for globalization.

Regional Economic Agreements

A number of multilateral trade agreements have accelerated the pace of global integration. NAFTA is already expanding trade among the United States, Canada, and Mexico. The General Agreement on Tariffs and Trade (GATT), which was ratified by more than 120 nations in 1994, has created the World Trade Organization to promote and protect free trade. In Europe, the expanding membership of the European Union is lowering boundaries to trade within the region. The creation of a single currency zone and the introduction of the euro are also expected to dramatically expand European trade in the 21st century.

Market Needs and Wants

A person studying markets around the world will discover cultural universals as well as differences. The common elements in human nature provide an underlying basis for the opportunity to create and serve global markets. The word create is deliberate. Most global markets do not exist in nature; they must be created by marketing effort. For example, no one needs soft drinks, and yet today in some countries per capita soft drink consumption exceeds the consumption of water. Marketing has driven this change in behavior, and today, the soft drink industry is a truly global one. Evidence is mounting that consumer needs and wants around the world are converging today as never before. This creates an opportunity for global marketing. Multinational companies pursuing strategies of product adaptation run the risk of falling victim to global competitors that have recognized opportunities to serve global customers.

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Global Marketing In Action

Philips and Matsushita: How Global Companies Win
Until recently, Royal Philips Electronics, headquartered in Eindhoven, Netherlands, was a classic example of a company with a polycentric orientation. Philips relied upon relatively autonomous national organizations (called NOs in company parlance) in each country. Each NO developed its own strategy. This approach worked quite well until Philips faced competition from Matsushita and other Japanese consumer electronics companies in which managements orientation was geocentric. The difference in competitive advantage between Philips and its Japanese competition was dramatic. For example, Matsushita adopted a global strategy that focused its resources on serving a world market for home entertainment products. In television receivers, Matsushita offered European customers two basic models based on a single chassis. In contrast, Philipss European NOs offered customers seven different models based on four different chassis. If customers had demanded this variety, Philips would have been the stronger competitor. Unfortunately, the product designs created by the NOs were not based upon customer preferences. Customers wanted value in the form of quality, features, designand price. Philipss decision to offer greater design variety was based not upon what customers were asking for but, rather, on Philipss structure and strategy. Each major country organization had its own engineering and manufacturing group. Each country unit had its own design and manufacturing operations. This polycentric, multinational approach was part of Philipss heritage, and was attractive to NOs that had grown accustomed to functioning independently. However, the polycentric orientation was irrelevant to consumers, who were looking for value. They were getting more value from Matsushitas global strategy than from Philipss multinational strategy. Why? Matsushitas global strategy created value for consumers by lowering costs, and, in turn, prices. As a multinational company, Philips squandered resources in a duplication of effort that led to greater product variety. Variety entailed higher costs which were passed on to consumers with no offsetting increase in consumer benefit. It is easy to understand how the right strategy resulted in Matsushitas success in the global consumer electronics industry. Since the Matsushita strategy offered greater customer value, Philips lost market share. Clearly, Philips needed a new company strategy. To meet the Japanese challenge, Philips executives consciously abandoned the polycentric, multinational approach and adopted a more geocentric orientation. A first step in this direction was to create industry groups in the Netherlands responsible for developing global strategies for R&D, marketing, and manufacturing.

Marlboro is an example of an enormously successful global brand. Targeted at urban smokers around the world, the brand appeals to the spirit of freedom, independence, and open space symbolized by the image of the cowboy in beautiful, open American western settings. Notwithstanding the tobacco industrys recent legal battle in the United States and the worldwide threat of increased regulation of tobacco advertising, Marlboro remains popular throughout the world. The need addressed by Marlboro is universal, and therefore the basic appeal and execution of its advertising and positioning are global. Altria (formerly Philip Morris), which markets Marlboro, is a global company that discovered years ago how the same basic market need can be met with a global approach.

Technology
Technology is a universal factor that crosses national and cultural boundaries. Technology is truly stateless; there are no cultural boundaries limiting its application. Once a technology is developed, it soon becomes available virtually everywhere in the world. This phenomenon supports Professor Levitts prediction concerning the emergence of global markets for standardized products. In his Harvard Business Review article, Levitt anticipated the communication revolution that has, in 22 Part I Introduction

fact, become a driving force behind global marketing.33 Satellite dishes and globespanning TV networks such as CNN and MTV are just a few of the technologyrelated factors underlying the emergence of a true global village. In regional markets such as Europe, the increasing overlap of advertising across national boundaries and the mobility of consumers have created opportunities for marketers to pursue panEuropean product positionings. The Internet and World Wide Web are also driving forces. As John Quelch and Lisa Klein have noted, when a company establishes a site on the Internet, it automatically becomes global, at least in terms of its potential to reach global customers with information.34 At present, Internet usage is heaviest in the United States. Even as that situation changes, however, many constraints must still be overcome before Internet merchandise purchase transactions can become borderless.

Transportation and Communication Improvements

The time and cost barriers associated with distance have fallen tremendously over the past 100 years. The jet airplane revolutionized communication by making it possible for people to travel around the world in less than 48 hours. Tourism enables people from many countries to see and experience the newest products being sold abroad. International air travel has grown from 75 million passengers annually in 1970 to more than 400 million in 1996. One essential characteristic of the effective global business is face-to-face communication among employees and between the company and its customers. Without modern jet travel, such communication would be difficult to accomplish. Todays information technology allows airline alliance partners to sell seats on each others flights, thereby helping travelers get from point to point more easily while boosting revenues for companies such as United Airlines and Lufthansa. Meanwhile, the cost of international telephone calls has fallen dramatically over the past several decades. That fact, plus the advent of new communication technologies such as e-mail, fax, and video teleconferencing, means that managers, executives, and customers can link up electronically from virtually any part of the world without traveling at all. A similar revolution has occurred in transportation technology. The costs associated with physical distributionboth in terms of money and timehave been greatly reduced as well. The per-unit cost of shipping automobiles from Japan and Korea to the United States by specially designed auto-transport ships is less than the cost of overland shipping from Detroit to either U.S. coast. Another key innovation has been increased utilization of 20- and 40-foot metal containers that can be transferred from trucks to railroad cars to ships.

Product Development Costs

The pressure for globalization is intense when new products require major investments and long periods of development time. The pharmaceuticals industry provides a striking illustration of this driving force. According to the Pharmaceutical Manufacturers Association, the cost of developing a new drug in 1976 was $54 million; by 1982, the cost had increased to $87 million. By 1993, the cost of developing a new drug had reached $359 million. Such costs must be recovered in the global marketplace,

33 34

Theodore Levitt, The Globalization of Markets, Harvard Business Review (May-June, 1983), p. 92. John A. Quelch and Lisa R. Klein, The Internet and International Marketing, Sloan Management Review 37, no. 3 (Spring 1996).

Chapter 1 Introduction to Global Marketing

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because no single national market is likely to be large enough to support investments of this size. Thus Merck, GlaxoSmithKline, Novartis, Bristol-Myers Squibb, Aventis, and other leading pharmaceutical companies have little choice but to engage in global marketing. As noted earlier, however, global marketing does not necessarily mean operating everywhere; in the $200 billion pharmaceutical industry, for example, seven countries account for 75 percent of sales. Similarly, in the $40 billion market for recorded music, 12 countries account for 70 percent of sales.

Quality
Global marketing strategies can generate greater revenue and greater operating margins which, in turn, support design and manufacturing quality. A global and a domestic company may each spend 5 percent of sales on research and development, but the global company may have many times the total revenue of the domestic because it serves the world market. It is easy to understand how Nissan, Matsushita, Caterpillar, and other global companies can achieve world-class quality. Global companies raise the bar for all competitors in an industry. When a global company establishes a benchmark in quality, competitors must quickly make their own improvements and come up to par. Global competition has forced many U.S. manufacturers to improve quality; in a 1994 survey conducted by the International Mass Retail Association, 85 percent of respondents indicated they believed that U.S.-made goods had improved in recent years. That is a significant change from 1990, when only 67 percent of those surveyed thought the quality of U.S.-made goods had improved. For truly global products, uniformity can drive down research, engineering, design, and production costs across business functions. Quality, uniformity, and cost reduction were all driving forces behind Fords $6 billion investment in a World Car, which is sold in the United States as the Ford Contour and Mercury Mystique and in Europe as the Mondeo. The same imperatives drove the 1998 launch of the Ford Focus in Europe; company plans call for offering the Focus in a total of 60 countries.

World Economic Trends

Economic growth has been a driving force in the expansion of the international economy and the growth of global marketing for three reasons. First, economic growth in key developing countries has created market opportunities that provide a major incentive for companies to expand globally. At the same time, slow growth in industrialized countries has compelled management to look abroad for opportunities in nations or regions with high rates of growth. Second, economic growth has reduced resistance that might otherwise have developed in response to the entry of foreign firms into domestic economies. When a country such as China is experiencing rapid economic growth, policymakers are likely to look more favorably on outsiders. A growing country means growing markets; there is often plenty of opportunity for everyone. It is possible for a foreign company to enter a domestic economy and establish itself without threatening the existence of local firms. Indeed, the latter can ultimately be strengthened by the new competitive environment. Without economic growth, however, global enterprises may take business away from domestic ones. Domestic businesses are more likely to seek governmental intervention to protect their local position if markets are not growing. Predictably, the worldwide recession of the early 1990s created pressure in most countries to limit foreign access to domestic markets. 24 Part I Introduction

The worldwide movement toward free markets, deregulation, and privatization is a third driving force. The trend toward privatization is opening up formerly closed markets; tremendous opportunities are being created as a result. In a recent book, Daniel Yergin and Joseph Stanislaw described these trends as follows: It is the greatest sale in the history of the world. Governments are getting out of businesses by disposing of what amounts to trillions of dollars of assets. Everything is goingfrom steel plants and phone companies and electric utilities to airlines and railroads to hotels, restaurants, and nightclubs. It is happening not only in the former Soviet Union, Eastern Europe, and China but also in Western Europe, Asia, Latin America, and Africa and in the United States.35 For example, when a nations telephone company is a state monopoly, it is much easier to require it to buy only from national companies. An independent, private company will be more inclined to look for the best offer, regardless of the nationality of the supplier. Privatization of telephone systems around the world is creating huge opportunities for companies such as Lucent Technologies and Northern Telcom.

Leverage
A global company possesses the unique opportunity to develop leverage. In the context of global marketing, leverage means some type of advantage that a company enjoys by virtue of the fact that it has experience in more than one country. Leverage allows a company to conserve resources when pursuing opportunities in new geographical markets. In other words, leverage enables a company to expend less time, less effort, or less money. Four important types of leverage are experience transfers, scale economies, resource utilization, and global strategy. Experience Transfers. A global company can leverage its experience in any market in the world. It can draw upon management practices, strategies, products, advertising appeals, or sales or promotional ideas that have been market-tested in one country or region and apply them in other comparable markets. For example, ABB Inc., a giant industrial organization with 1,300 companies in 120 countries, has considerable experience with a well-tested management model that it transfers across national boundaries. The Zurich-based company knows that a companys headquarters can be run with a lean staff. When ABB acquired a Finnish company, it reduced the headquarters staff from 880 to 25 between 1986 to 1989. Headquarters staff at a German unit was reduced from 1,600 to 100 between 1988 to 1989. After acquiring Combustion Engineering (CE) (an American company producing powerplant boilers), ABB knew from experience that the headquarters staff of 800 could be drastically reduced, in spite of the fact that CE had a justification for every one of the headquarters staff positions. Similarly, Whirlpool has considerable experience in the United States dealing with powerful retail buyers such as Sears and Circuit City. The majority of European appliance retailers have plans to establish their own cross-border power retailing systems; as Whirlpool CEO

35

Daniel Yergin and Joseph Stanislaw, The Commanding Heights (New York: Simon & Schuster, 1998), p. 13.

Chapter 1 Introduction to Global Marketing

25

NOT AVAILABLE FOR ELECTRONIC VIEWING

David Whitwam explains, When power retailers take hold in Europe, we will be ready for it. The skills weve developed here are directly transferable.36 A company in which a polycentric orientation predominates cannot take advantage of experience transfers if each national unit is run like a fiefdom and expertise does not diffuse throughout the company. This was the situation at Paris-based Cap Gemini Sogeti SA, the largest computer-services company in Europe and, along with IBM and EDS, among the top five worldwide. Although the United States accounts for two-thirds of the world market in computer services, Cap Gemini has not been among the key players. Realizing that a change was necessary, management began to transform Cap Gemini into an integrated global company capable of developing sophisticated new computer systems for customers or managing computer systems as an outside contractor. Company officials in Paris considered the ability to leverage experience critical to transforming the company.37 Scale Economies. The global company can take advantage of its greater manufacturing volume to obtain traditional scale advantages within a single factory. Also, finished products can be manufactured by combining components manufactured in scaleefficient plants in different countries. Japans giant Matsushita Electric Company is a classic example of global marketing in action; it achieved scale economies by exporting VCRs, televisions, and other consumer electronics products throughout the world from world-scale factories in Japan. The importance of manufacturing scale has diminished somewhat as companies implement flexible manufacturing techniques and invest in factories outside the home country. However, scale economies were a cornerstone of Japanese success in the 1970s and 1980s. Leverage from scale economies is not limited to manufacturing. Just as a domestic company can achieve economies in staffing by eliminating duplicate positions

36 37

William C. Taylor and Alan M. Webber, Going Global: Four Entrepreneurs Map the New World Marketplace (New York: Penguin USA, 1996), p. 18. E. S. Browning, Cap Gemini Makes Another Run at the U.S. Market, The Wall Street Journal (October 25, 1994), p. B4.

26

Part I Introduction

after an acquisition, a global company can achieve the same economies on a global scale by centralizing functional activities. The larger scale of the global company also creates opportunities to improve corporate staff competence and quality. Resource Utilization. A major strength of the global company is its ability to scan the entire world to identify people, money, and raw materials that will enable it to compete most effectively in world markets. For a global company, it is not problematic if the value of the home currency rises or falls dramatically, because for this company there really is no such thing as a home currency. The world is full of currencies, and a global company seeks financial resources on the best available terms. In turn, it uses them where there is the greatest opportunity to serve a need at a profit. Global Strategy. The global companys greatest single advantage can be its global strategy. A global strategy is built on an information system that scans the world business environment to identify opportunities, trends, threats, and resources. When opportunities are identified, the global company adheres to the three principles identified earlier: It leverages its skills and focuses its resources to create superior perceived value for customers and achieve competitive advantage. The global strategy is a design to create a winning offering on a global scale. This takes great discipline, much creativity, and constant effort. The reward is not just successits survival. For years, French automaker Renault operated as a regional company. However, in an industry dominated by global competitors, chairman Louis Schweitzer had no choice but to devise a global strategy. Recent initiatives include acquiring majority stakes in Nissan Motor and Romanias Dacia; Schweitzer has also invested $1 billion in a plant in Brazil.38 Companies that cannot formulate or successfully implement a coherent global strategy may lose their independence, as evidenced by the fortunes of Chrysler, Gerber, Helene Curtis, and others.

Restraining Forces
Despite the impact of the driving forces identified previously, several restraining forces may slow a companys efforts to engage in global marketing. In addition to the market differences discussed earlier, three important restraining forces are management myopia, organizational culture, and national controls. As we have noted, however, in todays world the driving forces predominate over the restraining forces. That is why the importance of global marketing is steadily growing.

Management Myopia and Organizational Culture

In many cases, management simply ignores opportunities to pursue global marketing. A company that is nearsighted and ethnocentric will not expand geographically. Myopia is also a recipe for market disaster if headquarters attempts to dictate when it should listen. Global marketing does not work without a strong local team that can provide information about local market conditions. Executives at Parker Pen once attempted to implement a top-down marketing strategy that ignored experience gained by local market representatives. Costly market failures resulted in

38

John Tagliabue, Renault Pins Its Survival on a Global Gamble, The New York Times (July 2, 2000), sec. 3, pp. 1, 6.

Chapter 1 Introduction to Global Marketing

27

Parkers buyout by managers of the former U.K. subsidiary. Eventually, the Gillette Company acquired Parker. In companies where subsidiary management knows it all, there is no room for vision from the top. In companies where headquarters management is all-knowing, there is no room for local initiative or an in-depth knowledge of local needs and conditions. Executives and managers at successful global companies have learned how to integrate global vision and perspective with local market initiative and input. A striking theme emerged during interviews conducted by one of the authors with executives of successful global companies. That theme was the respect for local initiative and input by headquarters executives, and the corresponding respect for headquarters vision by local executives.

National Controls
Every country protects the commercial interests of local enterprises by maintaining control over market access and entry in both low- and high-tech industries. Such control ranges from a monopoly controlling access to tobacco markets to national government control of broadcast, equipment, and data transmission markets. Today, tariff barriers have been largely removed in the high-income countries, thanks to the World Trade Organization (WTO), GATT, NAFTA, and other economic agreements. However, non-tariff barriers (NTBs) such as Buy Local campaigns, food safety rules, and other bureaucratic obstacles still make it difficult for companies to gain access to some individual country and regional markets.

O UTLINE

OF

T HIS B OOK
This book has been written for students and businesspersons interested in global marketing. Throughout the book, we present and discuss important concepts and tools specifically applicable to global marketing. The book is divided into five parts. Part I consists of Chapter 1, an overview of global marketing and the basic theory of global marketing. Chapters 2 through 6 comprise Part II, in which we cover the environments of global marketing. Chapters 2 and 3 cover economic and regional market characteristics, including the location of income and population, patterns of trade and investment, and stages of market development. In Chapter 4, social and cultural elements are examined; the legal, political, and regulatory dimensions are presented in Chapter 5. We discuss marketing information systems and research in Chapter 6. Part III is devoted to global strategy. Chapter 7 discusses market segmentation, targeting, and positioning. Chapter 8 covers the basics of importing, exporting, and sourcing. Chapters 9 and 10 are devoted to various aspects of global strategy, including strategy alternatives for market entry and expansion, global strategic partnerships, and competitive advantage. Part IV is devoted to global considerations pertaining to the marketing mix. The application of product, price, channel, and marketing communications decisions in response to global market opportunity and threat is covered in detail in Chapters 11 through 15. Part V consists of one final chapter. Chapter 16 describes the organization and control of global marketing programs and examines the integrating and managerial dimensions of global marketing: planning, organization, control and the marketing audit, and strategy implementation. In the final chapter we also offer some thoughts on the future of global marketing.

28

Part I Introduction

SUMMARY
A company that engages in global marketing focuses its resources on global market opportunities and threats. Successful global marketers such as Nestl, Coca-Cola, and Honda use familiar marketing mix elementsthe four Psto create global marketing programs. Marketing, R&D, manufacturing, and other activities comprise a firms value chain; firms configure these activities to create superior customer value on a global basis. Global companies also maintain strategic focus while relentlessly pursuing competitive advantage. The marketing mix, value chain, competitive advantage, and focus are universal in their applicability, irrespective of whether a company does business only in the home country or has a presence in many markets around the world. However, in a global industry, companies that fail to pursue global opportunities risk being pushed aside by stronger global competitors. Global marketing does not necessarily mean offering identical products to consumers and organizations in all parts of the world; this issue has been widely debated during the two decades that have passed since the publication of Theodore Levitts groundbreaking article The Globalization of Markets. The essence of global marketing is finding the balance between a standardized (extension) approach to the marketing mix and a localized (adaptation) approach that is responsive to country or regional differences. Global marketing strategies can be based on a number of different elements, including brand names, product design, product positioning, advertising, packaging, distribution, customer service, and sourcing. The importance of global marketing today can be seen in the company rankings compiled by The Wall Street Journal, Fortune magazine, Financial Times, and other publications. Whether ranked by revenues, market capitalization, or some other measure, most of the worlds major corporations are active regionally or globally. The size of global markets for individual industries or product categories helps explain why companies go global. Global markets for some product categories represent hundreds of billions of dollars in annual sales; other markets are much smaller. Whatever the size of the opportunity, successful industry competitors find that increasing revenues and profits means seeking markets outside the home country. Company management can be classified in terms of its orientation toward the world: ethnocentric, polycentric, regiocentric, or geocentric. An ethnocentric orientation characterizes domestic and international companies; international companies pursue marketing opportunities outside the home market by extending various elements of the marketing mix. A polycentric world view predominates at a multinational company, where the marketing mix is adapted by country managers operating autonomously. Managers at global and transnational companies are regiocentric or geocentric in their orientation and pursue both extension and adaptation strategies in global markets. Global marketings importance today is shaped by the dynamic interplay of several driving and restraining forces. The former include market needs and wants, technology, transportation and communication improvements, product costs, quality, world economic trends, and a recognition of opportunities to develop leverage by operating globally. Restraining forces include market differences, management myopia, organizational culture, and national controls such as nontariff barriers.

DISCUSSION QUESTIONS
1. What are the basic goals of marketing? Are these goals relevant to global marketing? 2. What is meant by global localization? Is Coca-Cola a global product? Explain. 3. Describe some of the global marketing strategies available to companies. Give examples of companies that use the different strategies. 4. How do the global marketing strategies of Harley-Davidson and Toyota differ? Chapter 1 Introduction to Global Marketing 5. Describe the difference between ethnocentric, polycentric, regiocentric, and geocentric management orientations. 6. Identify and briefly describe some of the forces that have resulted in increased global integration and the growing importance of global marketing. 7. Define leverage and explain the different types of leverage utilized by companies with global operations. 29

GLOBAL MARKETING
Virtually every company mentioned in this chapter is using the Internet as a communications tool. You can learn a great deal about a companys geographic scope and marketing activities by visiting its Web site. Many companies also post their annual reports online; you can read and print them if your computer is equipped with Adobes Acrobat software. A companys universal resource locator (URL) is often based on its name (e.g., www.caterpillar.com) or ini-

AND THE

WORLD WIDE WEB

tials (e.g., www.ibm.com). If, after a couple of tries, you are unable to locate a companys homepage, consult Hoovers (www.hoovers.com). You may already be familiar with the companys printed reference book, Hoovers Handbook. Hoovers Web site offers free Company Capsules that contain basic information including names of top executives, headquarters address, annual sales, and links to other corporate Web sites.

BUILD YOUR GLOBAL MARKETING SKILLS

Each August, Fortune magazine publishes its survey of the Global 500. The top-ranked companies for 2000 are shown in Table 1-3. Browse through the list and choose any company that interests you. Compare its 2000 ranking with the most recent ranking (which you can find either by referring to the print version of Fortune or by visiting www.fortune.com). How has the companys ranking changed? Consult additional sources (e.g., magazine articles, annual reports, the companys Web site) to enhance your understanding of the factors and forces that contributed to the companys move up or down in the rankings.

SUGGESTED READING
Books
Barnet, Richard J., and John Cavanaugh. Global Dreams: Imperial Corporations and the New World Order. New York: Simon & Schuster, 1994. Bryan, Lowell. Race for the World: Strategies to Build a Great Global Firm. Boston: Harvard Business School Press, 1999. Burtless, Gary. Globaphobia: Confronting Fears About Global Trade. Washington, D.C.: Brookings Institute Press, 1998. Doremus, Paul. The Myth of the Global Corporation. Princeton, NJ: Princeton University Press, 1998. Friedman, Thomas L. The Lexus and the Olive Tree. New York: Anchor Books, 2000. Garten, Jeffrey. World View: Global Strategies for the New Economy. Cambridge, MA: Harvard University Press. Greider, William. One World, Ready or Not: The Manic Logic of Global Capitalism. New York: Simon & Schuster, 1997. Kets de Vries, Manfred F. R., and Ellizabeth FlorentTreacy. The New Global Leaders: Richard Branson, Percy Barnevik, David Simon and the Remaking of International Business. San Francisco: Jossey-Bass, 1999. Micklethwait, John, and Adrian Wooldridge. A Future Perfect: The Challenge and Hidden Promise of Globalization. New York: Crown Publishers, 2000. Ohmae, Kenichi. The End of the Nation State: The Rise of Regional Economies. New York: Free Press, 1995. Ries, Al. Focus: The Future of Your Company Depends on It. New York: Harper Business, 1997. Taylor, William C., and Alan M. Webber. Going Global: Four Entrepreneurs Map the New World Marketplace. New York: Penguin Books USA, 1996. Watson, James L., ed., Golden Arches East: McDonalds in East Asia. Stanford, CA: Stanford University Press, 1997. Wendt, Henry. Global Embrace: Corporate Challenges in a Transnational World. New York: HarperBusiness, 1993. Yergin, Daniel, and Joseph Stanislaw. The Commanding Heights. New York: Simon & Schuster, 1998.

Articles
Bartlett, Christopher A., and Sumantra Ghoshal. Going Global: Lessons from Late Movers. Harvard Business Review 78, no. 2 (March-April 2000), pp. 132142. Bassiry, G. R., and R. Hrair Dekmejian. Americas Global Companies: A Leadership Profile. Business Horizons 36, no. 1 (January-February 1993), pp. 4753. Collins, Robert S., and William A. Fischer. American Manufacturing Competitiveness: The View from Europe. Business Horizons 35, no. 4 (July-August 1992), pp. 1523. Craig, C. Samuel, and Susan P. Douglas. Responding to the Challenges of Global Markets: Change, Complexity, Competition, and Conscience. Columbia Journal of World Business 31, no. 4 (Winter 1996), pp. 618.

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Part I Introduction

Franko, Lawrence G. Global Corporate Competition II: Is the Large American Firm an Endangered Species? Business Horizons 34, no. 6 (November-December 1991), pp. 1422. Halal, William E. Global Strategic Management in a New World Order. Business Horizons 36, no. 6 (November-December 1993), pp. 510. Hu, Tao-Su. Global or Stateless Corporations are National Firms with International Operations. California Management Review 34, no. 2 (Winter 1992), pp. 107126. Kogut, Bruce, and Udo Zander. Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation. Journal of International Business Studies 24, no. 4 (Fourth Quarter 1993), pp. 625646. Li, Jiatao, and Stephen Guisinger. How Well Do Foreign Firms Compete in the United States? Business Horizons 34, no. 6 (November-December 1991), pp. 4953.

Malnight, T.W. Globalization of an Ethnocentric Firm: An Evolutionary Perspective. Strategic Management Journal 16, no. 2 (February 1995), pp. 119141. Morrison, Allen J., David A. Ricks, and Kendall Roth. Globalization Versus Regionalization: Which Way for the Multinational? Organizational Dynamics (Winter 1991), pp. 1729. Prahalad, C. K., and Kenneth Lieberthal. The End of Corporate Imperialism. Harvard Business Review 76, no. 4 (July-August 1998), pp. 6879. Rao, T. R., and G. M. Naidu. Are the Stages of Internationalization Empirically Supportable? Journal of Global Marketing 1, no. 2 (1992), pp. 147170. Reid, David McHardy. Perspectives for International Marketers on the Japanese Market. Journal of International Marketing 3, no. 1 (1995), pp. 6384. Smith, Paul M., and Cynthia D. West. The Globalization of Furniture Industries/Markets, Journal of Global Marketing 7, no. 3 (1994), pp. 103132.

Chapter 1 Introduction to Global Marketing

31

C A S E S

Case 1-1

McDonalds Expands Globally While Adjusting Its Local Recipe

McDonalds has responded by stepping up its rate of new unit openings. In 1991, the company had 3,355 units in 53 countries; by the end of 2000, more than 17,200 non-U.S. restaurants were in operation. These comprise about 57 percent of the total number of restaurants (in all, there were 30,200 units worldwide in 2000) and account for about 45 percent of sales. In dollar terms, $18.1 billion of McDonalds $40 billion in 2000 systemwide sales came from outside the United States. Over the 10-year period from 1987 to 1997, operating profits from outside the United States grew at a compound annual rate of 23.3 percent, compared with 3.5 percent in the United States (see Table 1).

McDonalds, a fast-food legend known for quality and service, is pursuing a global expansion strategy that has brought the famous golden arches to more than 120 different countries. Why go abroad when the company already has more than 13,000 restaurants in the United States and serves up 40 percent of the hamburgers that Americans consume? Indeed, in a recent issue devoted to twentieth century advertising milestones, Advertising Age magazine ranked McDonalds You Deserve A Break Today ad campaign as the fifth most popular in the last 100 years. Ronald McDonald ranked number two on Ad Ages list of Top Ten Icons. However, despite such achievements in advertising and promotion, per-store operating profits in the United States have fallen in recent years, as have the percentage of U.S fast-food dollars spent at McDonalds. Outside the United States, the picture appears brighter. While overall U.S. sales only increased by 3 percent from 1999 to 2000, sales in the Asia/Pacific region increased 10 percent. Latin American sales grew 7 percent. From 1999 to 2000, Europe posted a 3 percent decline in sales, due in large part to consumer concerns about mad cow disease. The higher overall growth outside the United States reflects, in part, changing lifestyles around the globe in which fast food plays an increasingly important role. Also, the competitive picture is different in other countries. The United States boasts 25 hamburger restaurants for every 100,000 people, but the figure is much lower elsewhere. In Japan, for example, there are only five hamburger restaurants per 100,000 people; in many European countries, the ratio is two for every 100,000 people.

ASIA-PACIFIC
McDonalds opened its first Japanese location in 1972; by 1998, the companys 2,500 locations accounted for about 50 percent of the fast-food hamburger market in Japan. Approximately 80 percent of the restaurants are company owned, with about 20 percent operated by franchisees (the ratios are reversed in the United States). Skyrocketing real estate and construction costs during the so-called bubble years of the late 1980s translated into a slow rate of new store openings. As Japans economy cooled off in the late 1990s, McDonalds took advantage of lower costs and stepped up the pace of store openings. The company is also experimenting with new locations such as gas stations. Among the menu items tailored to local palates are the soy-flavored Teriyaki McBurger and Chicken Tatsuta.

Table 1
McDonalds Operating Income 19932000 (millions)
2000 1999 1998 1997 1996 1995 1994 1993

U.S. Operating Income Operating Income Outside the U.S.*

*Excludes aIncludes bIncludes

$1,773 $1,725

$1,653 $1,832

$1,202 $1,716

$1,211 $1,659

$1,144a $1,541b

$1,252 $1,397

$1,217 $1,072

$1,156 $ 865

Canada, Africa, and the Middle East. $72 million special charge. $16 million asset impairment charge.

Source: Adapted from McDonalds Corporation Annual Report, 2000.

32

Part I Introduction

McDonalds marketing strategy for Japan also contains some global elements. For example, TV ads feature idealized images of family men sharing quality time with the kids while enjoying McDonalds french fries. Such scenes of family interaction are part of a global campaign that features consistent images. Even so, they have struck a responsive chord in Japan where the balance between work life and family life has become a hotly debated topic. Despite an ongoing price war and so-so results for Wendys, in 1997 Burger King announced plans to open 200 restaurants in Japan over a five-year period. Management acknowledged that the company has low brand recognition but hoped to use this fact as an opportunity to position itself as an upscale alternative to the golden arches. The president of Burger King Japan intends to bring the companys flame broilers out of the kitchen and put them up front where customers can see them. In fall 1996, McDonalds opened its first restaurants in New Delhi and Mumbai. (PepsiCo beat McDonalds into India with the June 1995 opening of a Kentucky Fried Chicken restaurant in Bangalore.) The golden arches will be competing with Nirulas, a local restaurant chain with 26 outlets. Because the Hindu religion prohibits eating beef, McDonalds developed the lamb-based Maharaja Mac. To accommodate vegetarians, each restaurant has two separate food preparation areas. The green kitchen is devoted to vegetarian fare such as the McAloo Tikka potato burger. The meat items are prepared on the red side. Despite the companys pronouncements that as much as 98 percent of the food ingredients would be produced locally, several Hindu nationalist groups protested the first restaurants opening. India is plagued by power shortages, and companies face restrictions to ensure that farmers, hospitals, and other institutions have enough to sustain their operations. At one point shortly after the New Delhi restaurant opened, officials at the citys power company accused McDonalds of using nearly three times more electricity than it was allotted. China is currently home to the worlds largest McDonalds. The first Chinese location opened in mid1992 in central Beijing, a few blocks from the infamous Tiananmen Square. By mid-1995, McDonalds had 12 restaurants in the Chinese capital and 40 throughout the rest of the country. The restaurants get 95 percent of their suppliesincluding lettucefrom within China. Despite McDonalds 20-year lease for its central Beijing location, the company found itself in the middle of a dispute between the central government and Beijings city government. City officials decided to build a new $1.2 billion commercial complex in the city center and demanded

that McDonalds vacate the site. However, central government officials had not approved the citys plans. McDonalds has felt the effects of the currency crisis in Asia that started in July 1997. In Indonesia, for example, where the rupiahs value fell 80 percent, the company was forced to close 14 of its 101 restaurants as a result of slow sales. An additional six restaurants were destroyed in May 1998 in rioting that led to the ouster of President Suharto. Then again, it now costs about 80 percent less to build a new restaurant, thanks to lower labor and real estate costs. McDonalds also protects itself from currency fluctuations by purchasing as much as possible from local suppliers. For example, the companys Singapore locations now buy chicken patties from Thailand rather than from the United States. However, french fries must still be imported from Australia or the United States. To help offset higher costs to consumers, McDonalds offers customers the choice of rice as a side dish at a lower price.

WESTERN EUROPE
The golden arches are a familiar sight in Europe, particularly in England, France, and Germany. The company has suffered some setbacks, however, particularly in Britain. In 1996, a public health scare linked to mad cow disease resulted in bans on British beef exports to continental Europe. Responding to public concerns, McDonalds immediately substituted imported beef at its British restaurants. By mid-1997, convinced that British beef was safe, McDonalds put it back on the menu. The move was applauded by Britains beef producers, because McDonalds local meat purchases represent $50 million in annual revenues. Ironically, no sooner had the beef furor subsided than Burger King brought its aptly named Big King sandwich (20 percent more beef than a Big Mac) to England. In 2000 and 2001, concerns over the safety of the meat supply surfaced again amid an outbreak of hoof and mouth disease and ongoing media reports about mad cow disease. The publics reduced appetite for beef was reflected in decreases in systemwide sales, revenues, and operating income for McDonalds European division in 2000. Meanwhile, another controversy kept McDonalds in the public eye in Britain during the 1990s. The company became embroiled in a highly publicized lawsuit that eventually earned the dubious distinction as the longestrunning trial in British legal history. McDonalds sued several environmental activists for defamation after they distributed pamphlets that criticized the companys food and environmental policies. The lawsuit quickly took on David and Goliath overtones. The defendants, unable to obtain legal aid, represented themselves. McDonalds, by contrast, established a legal fund of more than $16 million.

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33

McDonalds ultimately won the battle; the judge ruled that the defendants were guilty of defamation and ordered them to pay $96,000 in damages.

CENTRAL AND EASTERN EUROPE

On January 31, 1990, after 14 years of negotiation and preparation, the first Bolshoi Mac went on sale in what was then the Soviet Union. The Moscow McDonalds is located on Pushkin Square, just a few blocks from the Kremlin. It has 700 indoor seats and another 200 outside. It boasts 800 employees and features a 70-foot counter with 27 cash registersequivalent to 20 ordinary McDonalds rolled into one. The restaurant serves up 18,000 orders of fries, 12,000 Big Macs, and 11,000 apple pies every day. To ensure a steady supply of raw materials, the company built a huge processing facility on the outskirts of Moscow and worked closely with local farmers. Despite the turmoil stemming from the dissolution of the Soviet Union and the political upheaval in the fall of 1993, to date more than 50 million sandwiches have been sold at the Pushkin Square location. Meanwhile, two more McDonalds restaurants were opened in Moscow in 1993. By 1995, the three stores were serving a total of 70,000 customers each day. Ukraine and Belarus are among the other members of the Commonwealth of Independent States with newly opened restaurants. McDonalds has also set its sights on Central Europe, where 350 new restaurants will be opened in Croatia, Slovakia, Romania, and other countries.

five chefs examining a batch of dressed chickens; the caption indicated that the chefs were actually dreaming of Big Mac sandwiches. The poster caused an uproar for two reasons. One of the people in the photo was Paul Bocuse, a legendary three-star French chef. Also, the chickens were identified as being from a French region renowned for its poultry. All in all, the posters were not well received in the land of haut cuisine. In a letter of apology to Bocuse, McDonalds inadvertently made a diplomatic blunder by attributing its error in part to the fact that Bocuse is not well known in the Netherlands. McDonalds continues to move forward with its expansion plans. McDonalds International is organized into four geographic regions: Europe, which currently accounts for about 45 percent of international sales; Asia/Pacific, with 34 percent; Latin America, with 9 percent; and Canada, Africa, and the Middle East, with 11 percent. McDonalds recent strategy included a unified global advertising campaigna first for the companyused during the 1994 World Cup soccer playoffs. In the words of one market analyst, McDonalds is similar to Coca-Cola ten years ago. Its on the verge of becoming an international giant, with the United States as a major market, but overseas as the driving force.

REFOCUSING ON THE U.S. MARKET

In January 1996, against this backdrop of international expansion, company executives surprised industry observers by announcing an aggressive new goal of 3,200 new restaurant openings during the yeara rate of nine per day. Despite its emphasis on opening new restaurantsor perhaps because of itMcDonalds has posted disappointing results in the key U.S. market. There have been bright spots, such as the companys wildly successful promotions featuring Teenie Beanie Babies and toys based on characters from Disney movies such as 101 Dalmatians. For all its popularity with youngsters, however, McDonalds is struggling to increase its appeal to grown-ups. The Arch Deluxe sandwich, introduced with a $200 million promotion budget in 1996 and targeted at adults, failed to ring up big sales. The following year, a Campaign 55 promotion angered and confused some consumers who did not understand that they had to buy a drink and french fries to get a Big Mac for 55 cents. Meanwhile, arch-competitors Burger King and Wendys continued to win customers in search of tastier, hotter, made-to-order fast food. By early 1998, McDonalds ongoing woes led to a management shakeup: Chairman and CEO Michael R. Quinlan relinquished the chief executive position to

ACTING LOCAL WITH MCMENU

The menu in Moscowwhere meat and potatoes are stapleshas the same basic offerings as in the United States. In other countries, however, McDonalds has adapted its fare in response to local tastes. Fried chicken is on the menu in many Asian countries. Other offerings include banana fruit pies in Latin America, Kiwiburger (served with beet root sauce) in New Zealand, beer in Germany, McSpaghetti noodles and a sweeter Burger McDo in the Philippines, and chili sauce to go with fries in Singapore. In some countries, McDonalds changes its food preparation methods to comply with religious customs; in Singapore and Malaysia, for example, the beef that goes into Halal burgers must be slaughtered according to Muslim law. McDonalds has occasionally stumbled in its efforts to promote fast food around the world. A poster that was displayed in dozens of Dutch restaurants in October 1991 caused a furor in France, where McDonalds first opened its doors in 1979. The poster featured a photo of

34

Part I Introduction

Jack M. Greenberg, who had headed McDonalds USA. Greenberg immediately launched a new food preparation initiative called Made For You. The goal was to improve customer perceptions of the taste and freshness of menu items. The quest for new ideas to fuel growth also prompted executives to make their first forays outside the core business. In February 1998, McDonalds acquired a majority stake in the Chipotle Mexican Grill chain. The move signaled McDonalds recognition both of the increasing popularity of ethnic foods and of heightened interest among consumers in healthy eating. In 1998, McDonalds also acquired Aroma, a coffeehouse chain in London. The acquisition trend continued over the next two years as McDonalds snapped up Donatos Pizza and Boston Market, a floundering chain featuring home-style cooking. As CEO Greenberg conceded, There are pieces of the business we cant do under the arches. When youre out with friends on a Saturday night for pizza and wine, you dont go to McDonalds. Patrons of Donatos and the other partner brands are offered no hint of the McDonalds connection. Greenberg envisions these partner brands adding at least 2 percent to McDonalds growth rate within a few years.

As Adrian J. Slywotzky, author of Value Migration, has noted, McDonalds needs to move the question from How can we sell more hamburgers? to What does our brand allow us to consider selling to our customers? McDonalds is addressing this key question in several different ways. It has opened a gourmet coffee shop called McCaf in downtown Chicago. It is also testing a diner concept with scores of new menu items such as meat loaf. A McTreat Spot ice cream parlor was recently opened in Houston. The biggest stretch to date, however, is the four star Golden Arch hotel that McDonalds has opened in Zurich. The new millennium brought additional challenges that had a direct impact on McDonalds core business. As noted, continuing concern about mad cow disease in Europe has dampened diners appetite for hamburgers and other beef items. In spring 2001, McDonalds was faced with a consumer lawsuit from diners who charged the company with fraudulently concealing the existence of beef in their french fries. Since 1990, the company had touted its fries as being cooked in 100% vegetable oil. In response to the lawsuit, McDonalds conceded that a small amount of beef extract was added to the potatoes as they were being processed.

DISCUSSION QUESTIONS
1. Does McDonalds success outside the United States provide support for Levitts views about the global marketplace? 2. Do you think government officials in developing countries such as Russia, China, and India welcome McDonalds? Do consumers in these countries welcome McDonalds? Why or why not? 3. Assess McDonalds prospects for success beyond the burger-and-fries model. Do customers care who owns a company such as Donatos Pizza?

Chapter 1 Introduction to Global Marketing

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4. Is it realistic to expect that McDonaldsor any well-known companycan expand globally without occasionally making mistakes or generating controversy?
SOURCES: Bruce Horovitz, McDonalds Tries a New Recipe to Revive Sales, USA Today (July 10, 2001), pp. 1A, 2A; Geoff Winestock and Yaroslav Trofimov, McDonalds Reassures Italians About Beef, The Wall Street Journal (January 16, 2001), pp. A3, A6; Kevin Helliker and Richard Gibson, The New Chief is Ordering Up Changes at McDonalds, The Wall Street Journal (August 24, 1998), pp. B1, B4; Bethan Hutton, Fast-food Group Blows a McBubble in Slow Economy, Financial Times (May 8, 1998), p. 24; Bruce Horovitz, My Job is Always on the Line, USA Today (March 16, 1998), p. 8B; David Leonhardt, McDonalds: Can It Regain Its Golden Touch? Business Week (March 9, 1998),

Visit the Web site www.mcdonalds.com

pp. 7074 ; Richard Tomkins, When the Chips are Down, Financial Times (August 16, 1997), p. 13; Yumiko Ono, Japan Warms to McDonalds Doting Dad Ads, The Wall Street Journal (May 8, 1997), pp. B1, B12; Norihiko Shirouzu, Whoppers Face Entrenched Foes in Japan: Big Macs, The Wall Street Journal (February 4, 1997), pp. B1, B5. The following trademarks used herein are the property of McDonalds Corporation and affiliates: Maharaja Mac, Fischmac, McDonalds, McMenu, Kiwiburger, McSpaghetti, McDo, Big Mac, Arch Deluxe, Chipotle Mexican Grill, Donatos, Boston Market, McCafe, McTreat Spot, Golden Arch Hotel, www.mcdonalds.com

Case 1-2

Acer Inc.
McDonalds hasnt been Shihs only source of inspiration. When Shih first founded his company in the 1970s, it was called Multitech International Corporation. After a decade, Shih decided a name change was in order. For one thing, the original name was too long. Another problem: It didnt convey the image of technical innovation the way names like Sony, BMW, and Honda do. Shih spent two years searching for a new name; a consulting firm helped generate some 20,000 possible alternatives. From the short list of finalists, Acer was the top choice for several reasonsit means sharp in Latin and implies energetic and capable. It also sounds like ace, which has a positive connotation for many people. Once the name change had been implemented, Shih made a number of deeper changes. He developed a policy of global brand, local touch, a break from the traditional Asian preference for hierarchical, top-down corporate structures and corporate cultures that stress deference to authority. Shih realized that hierarchies couldnt act quickly enough in the fast-moving computer industry. Now Acer is organized into strategic business units for manufacturing and regional business units for marketing. Acers local management teams in individual country or regional markets are empowered to make decisions on a wide range of marketing mix elements. Acer America, for example, is a wholly owned subsidiary, but Marketing Vice President Marlene Williamson was afforded free rein to target the home-user market segment by distributing Acers sleek and stylish Aspire line through the Best Buy chain.

Despite McDonalds recent problems (see Case 1-1), the companys business model has served as a source of inspiration for Taiwan businessman Stan Shih. However, Mr. Shih is not in the fast-food business; his company, Acer Inc., manufactures and markets personal computers for the consumer and home office markets as well as chips, monitors, keyboards, CD-ROM drives, and other hardware. Just as hungry consumers will shun a restaurant that serves warmed-over food, most computer buyers want the absolute latest technology. For more than 15 years, Acer manufactured computers in Taiwan and shipped them to dealers throughout the world. By building and marketing computers under its own brand name as well as supplying Hitachi, Siemens, and other companies on an original equipment manufacturer (OEM) basis, Acer became Taiwans number-one exporter. Acers success also helped change the publics perception that Made in Taiwan was synonymous with cheap, low-tech products. However, because of the fast pace of technological change in the computer industry, Acers PCs sometimes became obsolete by the time they were shipped to their destinations. Shih realized that one of the keys to McDonalds success was the companys system of delivering beef patties, buns, and other ingredients to local restaurants, where they are assembled into sandwiches as needed. He decided to decentralize computer assembly in nearly three dozen locations around the globe and use a combination of locally purchased components plus components shipped in from Taiwan. As Shih explains, We are providing the customer with the freshest technology at the most reasonable price.

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Local touch also has financial ramifications: Because joint venture partners have their own investments at stake, Shih believes he can trust them to make prudent decisions. This trust has paid off handsomely. In South Africa, for example, Acer became the number-two brand by expanding during the shift from apartheid to majority rule; some competitors marked time out of fear of market volatility. In Mexico, the governments devaluation of the peso in December 1994 prompted several computer companies to cut back on marketing. Managers at Acer Computec Latinoamerica adjusted to the new financial circumstances and, within a year, Acer commanded a 30 percent share of the market. Back in Taiwan, Shih also made fundamental changes in how his company is run. Acers executive teams encouraged employees to speak up and share ideas without bowing their heads in deference to higherranking personnel. Simon Lin, the chief executive of the information products unit, explained, Sometimes I have to keep my opinions to myself so that others will speak. You need to have different voices speak upthats how innovation comes about. I tell our people, You can bring up anything that you want to discuss. To encourage a free exchange of ideas, Shih, Lin, and their colleagues practice management by wandering around; that is, they drop in on employees to exchange ideas and glean bits of information that may not be available through more formal channels. Lin says, We come in to communicate with each other, to create a spirit of teamwork. This is part of our new way of thinking. Shih has used a number of different approaches to build his company. A joint venture with Texas Instruments produces dynamic random-access memory chips (DRAMs) in Hsinchu, Taiwan. Acer acquired Counterpoint Computers in the United States and bought a stake in Germanys Cetec Data Technology. Acer also has built assembly plants in Australia, Britain, Germany, Japan, the Netherlands, New Zealand, the Philippines, South Korea, and the United States. Of the regional and global issues that will have an impact on the company, perhaps the most significant is the economic crisis in Asia that began in 1997. Acers sales in the region are likely to suffer as consumer spending falls. Then there are broader geopolitical issues involving Taiwans relationship with China, which has long claimed sovereignty over its smaller neighbor. Taiwan lobbied to join 18 other nations in the AsiaPacific Economic Cooperation forum. However, thanks to maneuvering by Beijing, Taiwan was allowed to join only as Chinese Taipei. Similarly, Taiwans hopes to join the World Trade Organization have been stymied by Beijings insistence that mainland China become a mem-

ber first. For now, Taiwan is shut out of the worlds most important organization for resolving trade disputes. Meanwhile, in the United States, Acers market share fell from nearly 15 percent in 1995 to only 5 percent by the end of 1997. The Aspire line of home PCs failed to achieve profitability in the face of aggressive price cutting by Compaq and other competitors. Despite a $20 million advertising budget in 1996, the Acer brand name is still not nearly as well known as Compaq, Dell, Gateway, IBM, or Sony. In 1997, Acer America shifted its communication emphasis from brand image advertising to productoriented advertising. Also, more money will be allocated to retail promotions, trade shows, and public relations communications efforts. In terms of products, Shih and marketing VP Williamson hope to achieve more success by targeting small- and medium-size businesses with a new modular desktop PC called AcerPower. Shih also acquired Texas Instruments global computer notebook business; the deal brought an 80-person sales force on board. Despite these setbacks and challenges, Shih continues to set ambitious goals for his company. One goal was to be the fifth-largest computer company by the turn of the century; by mid-1998, Acer already ranked number eight. To position Acer for the next century, Shih envisions a corporate structure that he calls 21 in 21. Shih intends to break up Acer into a borderless network of 21 independent companies that maintain close ties with Taipei. Fortune magazine described Shihs vision as a global federation of highly autonomous Acer companies. Eventually, Shih said in 1995, Acer will have a majority of local ownership in each country, and no one will be able to say that we are a Taiwanese company. The problems in the U.S. market, however, may make it more difficult to reach $15 billion in sales by 2010. Shih still aspires to challenge Japans dominance in the consumer electronics industry. To achieve these goals, Shih hopes to move beyond PCs and attain leadership in next-generation low-priced information appliances. One new product is the AcerBasic, a computer that provides Internet access when hooked up to a television set. By competing in this segment, Acer will come face-to-face with a new set of competitors, such as marketing heavyweight Sony. Some industry observers believe that Shih should concentrate on supplying PCs to other companies. Shih maintains, Brand is critical to our long-term success. Some industry observers disagree; as one analyst noted, Brand name doesnt bring investors any benefit. He advises Stan Shih to give up his dream of becoming a global brand. To be blunt, the analyst said, Id pull the plug.

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DISCUSSION QUESTIONS
1. How would you classify Acer in terms of the stages of development described in Chapter 1? 2. Assess the market potential for Acers new lines, including childrens computers, information appliances, and video game players. 3. Can you think of any risks associated with Shihs vision of 21 in 21?
SOURCES: Jonathan Moore and Peter Burrows, A New Attack Plan for Acer America, Business Week (December 8, 1997), pp. 8283; Bradley Johnson, Struggling Acer Exits Branding, Advertising Age (April 7, 1997), p. 19; Richard Halloran, Parallel Lives, World Business (NovemberDecember 1996), pp. 2429; Emily Thornton, The Reckoning, Far Eastern Economic Review (July 25, 1996),

4. Advise Shih on global marketing strategy. Should Acer continue its quest to establish Acer as a global consumer brand, or pull the plug and focus on being a top-tier supplier to global brand marketers?

Visit the Web site www.acer.com

pp. 7476; Pete Engardio and Peter Burrows, Acer: A Global Powerhouse, Business Week (July 1, 1996), pp. 9496; Dan Shapiro, Ronald McDonald, Meet Stan Shih, Sales & Marketing Management (November 1995), pp. 8586 ; Louis Kraar, Acers Edge: PCs to Go, Fortune (October 30, 1995), pp. 187188 .

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APPENDIX

The 18 Guiding Principles of the Marketing Company

INTRODUCTION The Marketing Company
Welcome to the global marketplace! Regardless of size, profit, and market strength, every company on the earth has entered a new era of competition. The change drivers such as technology, economy, and market conditions have increasingly redefined almost every sector of industries, and the way we do business. The advance of information technology has transformed the marketplace; it has provided industry players a vast array of alternatives to compete more strategically and forcefully. The dynamic change of economic and social conditions have revolutionized consumer behavior and attitudes. With a dizzying array of product choices in the marketplace, consumers, to the highest degree, have more demanding expectations than ever before. They do not just expect a high-quality product; product quality has become a norm and requirement. This new breed of consumers wants high product quality with an affordable price within their convenient reach. The traditional strategy that brought companies successes will lose applicability in this new marketplace. The conventional disciplines that guaranteed market leadership during the past years will lose their adaptability. In order to survive in this new marketplace, companies need a new set of strategies and tools. They need a set of guiding principles that will create a sustainable competitive advantage. They need to become a new breed of company: the Marketing Company! What is the Marketing Company? As you will soon explore the characters of the company in the following pages, it is not just a marketing-oriented company. The Marketing Company is not just a market-driven company. The Marketing Company is an organization that adopts the 18 Guiding Principles of the Marketing Company as its credoas its guiding values, its principles to compete in the new marketplace. It endures external and internal change drivers, more demanding customers, and even fiercer competitors. After all, a new competition needs a different kind of rules and principles to survive and win the race. Be ready to rewrite your credo or your company will die!

Principle #1The Principle of the Company: Marketing Is a Strategic Business Concept

This principle is the first foundation of the Marketing Company. In the chaotic marketplace in the global economy era, the traditional concept of marketing has lost its adaptability in market competition. As companies are squeezed by external change drivers such as technology, economy, and marketand as they face internal organizational changes within themselves (shareholders, people, and organization culture)marketing is no longer about selling, advertising, or even the 4Ps introduced by Jerome McCarthy. Marketing should become the strategic business concept within corporations. It is no longer functional tasks and responsibilities carried by a department. Marketing is strategic because it should be formulated by top-level management, long-term oriented, navigate a companys direction, and hold the responsibilities of creating loyal business customers (internal, external, and investor customers). Al Ries, in his book, Focus, says that, A good Chief Executive Officer should also be a Chief Marketing Officer. David Packard, a cofounder of HewlettPackard, once said that Marketing is too important for a marketing department. Peter Drucker long ago envisioned that: Business has only two basic functions: marketing and innovation. Marketing and innovation produce results; the rest are cost! Admittedly, their statements are definitely true. In other words, they agree with this first principle: Marketing is a strategic business concept.

Principle #2The Principle of the Community: Marketing Is Everyones Business

This principle is the second foundation of the Marketing Company. Within a Marketing Company, marketing should be adopted as a strategic business concept. In the company, ideally, the organization structure is almost flat and layerless. There is even no marketing department and function in the Marketing Company because marketing is not a department, and marketing as a department is becoming weaker. Therefore,

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all departments are marketing departments, and all functions are marketing functions. All people within the Marketing Company form a community, called a marketing community. So in the community everyone is a marketer, meaning that the responsibilities and tasks of acquiring, satisfying, and retaining customers lie on the shoulders of everyone. Regardless of what level and department a person works in, he/she should be involved in the process of retaining customers. New roles such as AccountingMarketer, OperationsMarketer, R&DMarketer, JanitorMarketer, MaintenanceMarketer, and the like will be emerging as this principle is instilled in the Marketing Company. While their jobs will not be exactly similar, the responsibility to create customer loyalty becomes the central theme of their work. Thus, everyone led by the Chief Executive Officer (acting as Chief Marketing Officer) of the company, should march in the same direction. They should carry a similar mission: It is the responsibility of everyone to attract, satisfy, and retain customers. Everyone is a marketer, whatever his/her job description is.

and keeping customers. Therefore, improve customer value to win the marketing war.

Principle #4The Principle of Retention: Concentrate on Loyalty, Not Just on Satisfaction

In addition to the three previous founding principles, the Marketing Company concentrates on loyalty, not just on satisfaction. As marketing war becomes value war and as industry competition becomes value competition, it is inadequate for the Marketing Company to concentrate merely on customer satisfaction. The ultimate objective of the Marketing Company should be customer loyalty. As we enter the era of choices, there is no guarantee that satisfied customers will become loyal customers. Satisfaction has increasingly become a commodity. It is only the process, not the end result. The final goal of the Marketing Company is customer loyalty. Customer loyalty has become the moving target every Marketing Company must pursue to remain competitive. What matters most to the Marketing Company is now the quality of profit, not just the quantity of profit. It is already evident that customer attraction activities cost a company much more than a customer retention program; the cost to acquire a new customer will cost more than retaining one good customer. Profits, therefore, should come more from old, existing customers than from new, first-time buyers. A companys profit record, accordingly, provides an insight on the level of customer loyalty. As customer attraction, customer satisfaction, and customer retention will become an endless process of company survival, the ultimate effort of the Marketing Company should remain clear: Concentrate on loyalty, not just on satisfaction.

Principle #3The Principle of Competition: Marketing War Is About Value War

This principle is the third foundation of the Marketing Company. The Marketing Company does not pursue short-term profits; it creates customer value for longterm relationships. Unfortunately, the companys principle does not parallel with stockholders short-term orientation in stock exchange institutions. While they rely upon companies quarterly financial reports to buy and sell stocks, the Marketing Company looks beyond this short-term time frame for result. The company regards profit as short term and value creation as long term. By continuously and consistently creating customer value, the Marketing Company will generate profits. Hence, profit follows value. This is because marketing war is not merely marketing war. Marketing war is value war. While value is defined as total get (customer benefits) divided by total give (customer expenses), there are five value-creating formula alternatives to win competition. First, increase benefits and lower expenses. Second, increase benefits and hold expenses constant. Third, hold benefits constant and lower expenses. Fourth, increase benefits significantly and increase expenses. Fifth, lower benefits and significantly lower expenses. Though the value impact among the formula alternatives varies significantly, the core idea behind the principle remains unchanged: Value is the key to winning

Principle #5The Principle of Integration: Concentrate on Differences, Not Just on Averages

The Marketing Company concentrates on differences, not just averages. In order for the Marketing Company to create the loyal customer base mentioned in the first topping principle, it has to concentrate on customers individually. The principle commands the company to build intimate relationships with customersintimate enough to learn about customers needs and wants; close enough to understand customers expectations. In the chaotic competitive setting, every customer will become unique. Underlying this principle is a profound fact that all customers are not created equal. Many companies are tempted to think that their customers have roughly simi-

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lar needs and wants. This dangerous assumption, however, will lead them to create mediocre and average offers for their diversified customers. The principle emphasizes that by no means are customers equal. They are uniquely different and their needs are distinctively diversified. In other words, there are no average customers. The Marketing Company, as a result, has to integrate itself with customers to create a bonding that produces a vivid picture about customers needs, wants, and expectations. There are no average customers. In order to build customer loyalty, a company has to concentrate on differences, not just on averages.

Principle #6The Principle of Anticipation: Concentrate on Proactivity, Not Just on Reactivity

The Marketing Company concentrates on proactivity, not just reactivity. To fully integrate with customers, as described in the second topping principle, the Marketing Company should be ready for change. It has to be adaptive to the current state of industry. It even should anticipate any change and be proactive in coping with the change. Stephen Covey, in his landmark book, The Seven Habits of Highly Effective People, defines proactivity as responsibility. In this context, responsibility means the ability of an organization to choose responses within a given circumstance and environment. Between a stimulus and a response, there is a gap. It is the gap of freedom to react, freedom to choose a response. Thus, to be competitive, a company has to be ready for change in its environment. It has to be able to anticipate change of technology, economy, and markets. It has to be proactive to operate in an uncertain and unpredictable environment. To be fluid and dynamic operationally, the Marketing Company concentrates on proactivity, not just reactivity. Be a change agent, change driver, or even change surpriser to your competitors.

to consumers by enhancing satisfaction and recognition of quality. With brand, the company is able to liberate itself from the supplydemand curve. When the firm successfully liberates itself from the supplydemand curve, the price of the firms offers will not be dependent on the price equilibrium point. The firm, as a result, is able to be the price maker, not price taker. Unfortunately, macroeconomists, to a certain extent, do not realize the power of brand. They view economy from a global perspective and derive numbers from a macro point of view. This ignores the most crucial element of a price driver: brand. It is brand that determines a price. It is brand that liberates the company to create values for internal customers, external customers, and investor customers. It is brand that indicates a value of the firms products and services. Therefore, use, build, and protect your brand. It is the brand that will enable the company to avoid the commodity-like trap.

Principle #8The Principle of Service: Avoid the BusinessCategory Trap

This is the second value-creating principle of the Marketing Company. To the company, service is not just after-sales service, before-sales service, or even duringsales service. Service is not customer toll-free numbers, maintenance service, or customer service. Service is a value enhancer of the Marketing Company. It is the paradigm of the company to create a lasting value to customers through products (small p) and services (small s). Service in this principle refers to service with a big S, not a small s. It is the answer to Peter Druckers question: What business are you in? The only answer to the question is: We are in the service business! There is only one business category: service. Why? It is because service means solution. Companies must give the true solution to customers. Whether the companys business is a restaurant, hotel, or shoe manufacturing, the only category for all businesses must become a service business. To become a real service company, a firm has to continuously enhance the small p and the small s. To create a long-lasting value and build relationships with customers, the firms offers should provide constant value to customers. Therefore, a CEO acting as CMO has the key role between corporate governance and corporate management to create, maintain, and even develop this sense of service throughout the whole organization. In this sense, service is a paradigm. It is the spirit of the company. It is the attitude to sustain and win tomorrows

Principle #7The Principle of Brand: Avoid the Commodity-Like Trap

This is the first value-creating principle of the Marketing Company. To the company, brand is not just a name, nor is it a logo and symbols. Brand is the value indicator of the Marketing Company. It is the umbrella that represents the product or service, companies, persons, or even countries. It is determined by the companys new product development, customer satisfaction and retention, and value-chain management. It is the equity of the firm that adds value to products and services it offers. It is an asset that creates value

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competition. It is the strategy to avoid the business-category trap.

Principle #9The Principle of Process: Avoid the FunctionOrientation Trap

This is the third value-creating principle of the Marketing Company. It refers to the process of creating value to customers. It reflects the product quality, cost, and delivery of a company to customers. It is the value enabler of a company. The principle commands the company to be the captain of supply-chain process. It should manage the supplychain process, from raw materials to finished products, in a way that would enhance value-creating activities and reduce and eliminate value-eroding activities within the company. In addition, it requires a firm to be the hub of network organizations where it could establish relationships with organizations that have the potential to add value. The renowned term for this is strategic alliance. These partnering organizations may be the companys suppliers, customers, or even competitors. Benchmarking, reengineering, outsourcing, merger, and acquisition are examples of strategic actions to improve process. The value-creating drivers such as brand, service, and process (as the value enabler) should not only create value to external customers and investor customers, but also become the credo of internal customers, who are people. People within the organization should be marketers. They should avoid functional arrogance within the company because everyone holds a similar belief: Customer value is the end result, not titles and job positions in the company. Brand, service, and process as three value-creating principles are drivers to win the heart share of customers.

demographic, psychographic, and behavior variables or even a segment of one. Whatever segmentation variables are used, please make sure that each person in a segment has similar behavior, especially in purchasing, using, or servicing the products. The Marketing Company should be creative enough to view a market from a unique angle. It also has to clearly identify the market from an advanced perspective, using segmentation variables. Segmentation is the first marketing strategy element. It is the initial step that determines the life of the company. Market opportunities are in the eyes of the beholder. In order to exploit the opportunity arising in the market, that beholder must first view the market creatively.

Principle #11The Principle of Targeting: Allocate Your Resources Effectively

The second element of marketing strategy is targeting. By the traditional definition, targeting is the process of selecting the right target market for a companys products and services. We, however, define targeting as the strategy to allocate the companys resources effectively. Why? Because resources are always limited. It is about how to fit the company within a selected target market segment. Hence, we call it the fitting strategy of a company. There are several criteria used to select an appropriate market segment for the companys resources. The first criterion is market size. The company has to select the market segment that has good size to generate expected financial returns. The bigger the market size, the more lucrative the segment is to the company. The second criterion used to choose market segment is growth. The potential growth of a market segment is a crucial attribute for the company. The better and higher the growth is, the more promising the market segment to the company. The third criterion is competitive advantage. Competitive advantage is a way to measure whether the company has such strength and expertise to dominate the chosen market segment. The fourth criterion is competitive situation. The company has to consider the competition intensity within the industry including the number of players, suppliers, and entry barriers. Using these main criteria, the company has to find its fit with the right market segment.

Principle #10The Principle of Segmentation: View Your Market Creatively

Another crucial part of a company: marketing strategy. The strategy comprises three elements, namely segmentation, targeting, and positioning. Together they are drivers to win shares of customers. The first element of marketing strategy is Segmentation. A typical definition of segmentation is the process of segmenting or partitioning the market into several segments. However, segmentation to us is about viewing a market creatively. It is about mapping a market into several categories by gathering similar behavior of consumers into a segment. It is the mapping strategy of a company. Segmentation is an art to identify and pinpoint opportunity emerging in the markets. At the same time, it is a science to view the market based on geographic,

Principle #12The Principle of Positioning: Lead Your Customers Credibly

The third element of marketing strategy is positioning. By the traditional definition, positioning is the strategy to

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occupy the consumers minds with our companys offerings. In this principle, however, we define positioning as the strategy to lead the companys customers credibly. It is about how to establish trustworthiness, confidence, and competence for customers. If the company has those elements, customers will then have the being of the company or product within their minds. Therefore, positioning is about the being strategy of the company or product in the customers minds. It is about earning customers trust to make them willingly follow the company. Yoram Wind, a marketing strategy professor, defines positioning as the reason for being. He advocates that positioning is about defining the companys identity and personality in the customers minds. As we move toward the era of choices, the company can no longer force customers to buy their products; they no longer can manage the customers. In this era, the company should have credibility in the minds of customers. Because customers cannot be managed, they have to be led. In order to successfully lead customers, companies have to have credibility. So positioning is not just about persuading and creating image in the consumers minds, it is about earning consumers trust. It is about the quest of trustworthiness. It is about creating a being in the consumers minds and leading them credibly.

brand and reputation. On the other hand, if the positioning is supported by differentiation, the company will establish strong brand integrity. It means the brand image in the consumers minds is similar to brand identity communicated by companies.

Principle #14The Principle of Marketing Mix: Integrate Your Offer, Logistics, and Communications
The second element of marketing tactics is marketing mix. To many practitioners, this is considered as the whole marketing concept. The 4Ps (product, price, place, promotion), initially introduced by Jerome McCarthy, is often thought of as the complete marketing principle. To us, marketing mix is only an element of marketing tactic. It is also the tip of an icebergthe most visible part of the company in the market. The marketing mix, to us, is about integrating the companys offers, logistics, and communications. The companys offers, consisting of products and prices, should well be integrated with logistics (including channel distribution) and communications to create a powerful marketing force in the marketplace. Therefore, we call it the creation tactic of the company. Why? Because marketing mix has to be the creation of contentcontextinfrastructure differentiation. There are three types of marketing mix in the market. First is destructive marketing mix. It is marketing mix that does not add customer value and does not build companys brand. Second is me-too marketing mix. It is marketing mix that often imitates other existing marketing mix from other players in an industry. Third is creative marketing mix. It is the marketing mix that supports the marketing strategy (segmentation targetingpositioning) and other marketing tactic principles (differentiationselling) of the company and builds marketing value (brandserviceprocess).

Principle #13The Principle of Differentiation: Integrate Your Content, Context, and Infrastructure
The first element of marketing tactics is differentiation. Traditionally, differentiation is the act of designing a set of meaningful differences in the companys offers. To us, this definition by Philip Kotler is still valid. We define differentiation as integrating the content, context, and infrastructure of our offers to customers. Different products are the core tactic of the company to support its positioning. Differentiation, therefore, is the core tactic of the Marketing Company. As the first marketing tactic element, differentiation should create a truly different and unique product for customers. The product not only has to be perceived differently by customers (positioning), it has to be really different in content, context, and infrastructure (differentiation). A company can ideally create a unique offer by concentrating on three aspects of differentiation: content, context, and infrastructure. Content (what to offer) is the core benefit of the product itself. Context (how to offer), in addition, refers to the way the company offers the product. Infrastructure (enabler) is the technology, facilities, and people used to create the content and context. When positioning strategy is not supported by differentiation, the company may overpromise and underdeliver to customers, which could ruin the companys

Principle #15The Principle of Selling: Integrate Your Company, Customers, and Relationships
The last element of marketing tactics is selling. The principle of selling does not refer to personal selling at all, nor is it related to the activities of selling products to customers. What we mean by selling is the tactic to create long-term relationship with customers through companys products. It is the tactic to integrate company, customers, and relationships. After developing marketing strategy and creating marketing mix, the company should be able to generate financial returns through selling. Thus, it is the capture tactic of the company. There are three main levels of selling: feature selling, benefit selling, and solution selling. As the

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choice of products in the marketplace overwhelm customers, companies have to sell solutions to customers, not just features and benefits. There is a relevant framework called customer bonding that emphasizes the importance of this principle. In the concept, customers have to go through five steps, from consumers to loyalists, as follows: awarenessidentityrelationshipcommunityadvocacy. Hence, consumers should be made aware of our products and drive them to become advocacies. The principle of differentiation, marketing mix, and selling are drivers to win the market share.

Principle #16The Principle of Totality: Balance Your Strategy, Tactics, and Value
After focusing on the nine core elements of marketing (segmentation, targeting, positioning, differentiation, marketing mix, selling, brand, service, and process) individually, in the implementation, the Marketing Company should be able to balance those elements operationally as well as strategically. The Marketing Company should be able to balance the strategy, tactic, and value in the implementation. Marketing strategy is about how to win the mind share. Marketing tactic is about how to win the market share. Marketing value is about how to win the heart share. Together, they will win the mind, heart, and market shares. As the business environment changes dynamically, the strategy, tactic, and value of the company may not be as precise as when it was developed. The maneuvers of competitors, the revolution of technology, and the changes in consumer behavior will require the company to adjust and readjust the strategy, tactic, and value. It demands the company to align strategy, tactic, and value to adapt to the most current business environment. The dynamic business environment will necessitate the company to constantly monitor or review the balance of strategy, tactic, and value; to build the totality of the business. The Marketing Company should also balance the time allocation in strategy, tactic, and value activities.

tion gathered from the first activity to get a useful insight about the environment (why). Third, the gathered and analyzed information is incorporated in its strategy and tactic development process (how). To put it simply, an agile company monitors, scans, and reviews the business environment continually. It analyzes the information and uses it to respond and preempt the competitor movement. This principle will allow the company to be informed about the changes in the marketplace. This principle will allow the company to be not just a change agent and a change driver, but also a change surpriser. A change surpriser is a company who is agile. It is the organization that can balance what, why, and how. Balance your time allocation on whatwhyhow activities in the implementation.

Principle #18The Principle of Utility: Integrate Your Present, Future, and Gap
The Marketing Company does not just create profit for today and lose tomorrow. It does not just think about tomorrow and forget about today. The Marketing Company knows exactly the utility to integrate the present, future, and gap. Together with the principles of totality and agility, utility is the driver to win the activity share, which is important, as mentioned by Michael Porter in one of his writings in Harvard Business Review. In the implementation, finally, the Marketing Company can successfully balance present activities, future activities, and gap activities. Present activities are about todays products, which create profit by servicing todays customers. Future activities, meanwhile, are about developing tomorrows products, which create sustainable growth by servicing tomorrows different customers. Gap activities are about enhancing capabilities of the technology and people, internally and externally, or by creating a strategic alliance or merger and acquisition in order to create futures activities. Living by this principle, the company can maintain its competitiveness today and tomorrow and pursue whatever it lacks (the gap) to stay competitive in the present and future.

Principle #17The Principle of Agility: Integrate Your What, Why, and How
To operate in a competitive, dynamic environment, where technology, consumer behavior, and competitor movement change in a chaotic pattern, a company has to be agile to survive. The question, then, is, What does it take to be agile? In this principle, an agile company continually engages in three main activities: First, it constantly monitors the competitors movement and consumer behavior (what). It has marketing intelligence and information systems to take a picture of the business environment. Second, it continuously uses and analyzes the informa-

FINAL THOUGHT The Company Making

Throughout this writing, we have learned about the new principles of marketing. It is not just a set of static principles. It is a set of dynamic, guiding principles of the Marketing Company. The 18 principles are organized around six dimensionsFoundation, Topping, Strategy, Tactic, Value, and

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Part I Introduction

Figure 1A.1
Strategy, Tactic, and Value Model
What

Segmentation

Differentiation

Positioning Targeting
C

Selling

TMarketing
mix

Marketing
C C

Brand

Why

V Service Process

How

Implementationin which each dimension contains three principles. Using these principles, a companys transformation from production oriented, selling oriented, marketing oriented, and market driven to a customer-driven company should be clearly guided along the way to become the Marketing Company. The making of the Marketing Company involves strategic processes and steps as follows: The company should conduct an internal and external marketing audit. The results of the audit will produce what we call CAP (company alignment profile) and CSP (competitive setting profile). The gap between CAP and CSP portrays what the company should do. In addition, the Marketing Company should adopt the 18 Guiding Principles as the corporate guiding credo and value that determine how it should act and react in the marketplace. The set of principles should become the guidance, culture, and foundation to live by. Furthermore, the Marketing Company should be navigated by top management or a CEO (Chief Executive Officer) who acts as a CMO (Chief Marketing Officer). How the company behaves in the marketplaceand which direction it should takemust be decided by the top management based on the gap. One final word: The Marketing Company is not a destination. It is not a goal or objective. Becoming the Marketing Company is a process. It is the never-ending pursuit of

excellence. It is a moving target every company should pursue if it wants to survive and become competitive.

The Anatomy of Marketing

Many people who come to the subject of marketing with little or no business experiences think of it as a study of selling. Those who already have extensive professional experience or have undergone intensive academic training regard marketing as marketing mix. We at MarkPlus define marketing with three strategic dimensions: marketing strategy, marketing tactic, and marketing value (STV). The integrated concept of marketing is illustrated in Figure 1A.1. In the global marketplace of the new millennium, marketing should be redefined to reflect the increasingly intensified competition in almost every sector of industries.

Marketing Strategy: How to Win the Mind Share

Marketing strategy is the first dimension in the marketing concept. Its role is to win the mind share of consumers. Because of its strategic importance, it is in the Strategic Business Unit (SBU) level of a company. The first element of marketing strategy is segmentation. Segmentation is defined as a way to view a market creatively. We call it the mapping strategy of a company. After the market is mapped and segmented into groups of potential customers with similar characteristics

Chapter 1 Introduction to Global Marketing

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and behavior, the company needs to select which segments to enter. This act is called targeting, which is the second element of the marketing strategy. Targeting is defined as a way to allocate companys resources effectivelyby selecting the right target market. We also define it as a companys fitting strategy. The 18 Guiding Principles of the Marketing Company Rewrite your credo or your company will die. 1. The Principle of the Company Marketing Is a Strategic Business Concept 2. The Principle of the Community Marketing Is Everyones Business 3. The Principle of Competition Marketing War Is about Value War 4. The Principle of Retention Concentrate on Loyalty, Not Just on Satisfaction 5. The Principle of Integration Concentrate on Differences, Not Just on Averages 6. The Principle of Anticipation Concentrate on Proactivity, Not Just on Reactivity 7. The Principle of Brand Avoid the Commoditylike Trap 8. The Principle of Service Avoid the BusinessCategory Trap 9. The Principle of Process Avoid the FunctionOrientation Trap 10. The Principle of Segmentation View Your Market Creatively 11. The Principle of Targeting Allocate Your Resources Effectively 12. The Principle of Positioning Lead Your Customers Credibly 13. The Principle of Differentiation Integrate Your Content, Context, and Infrastructure 14. The Principle of the Marketing Mix Integrate Your Offer, Logistics, and Communications 15. The Principle of Selling Integrate Your Company, Customers, and Relationships 16. The Principle of Totality Balance Your Strategy, Tactic, and Value 17. The Principle of Agility Balance Your What, Why, and How

18. The Principle of Utility Balance Your Present, Future, and Gap The last element of strategy is positioning. Positioning is defined as a way to lead customers credibly. We call it the being strategy of a company. After mapping the market and fitting the companys resources into its selected market segment, a company has to define its being in the mind of the target marketin order to have a credible position in their minds.

Marketing Tactic: How to Win the Market Share

The second dimension of The STV Model is marketing tactic. Marketing tactic, because of its role, is regarded as elements to win the market share. Whereas marketing strategy is in the SBU level, marketing tactics occur in the operational level. The first element of marketing tactic is differentiation. Differentiation is the core tactic to differentiate the content, context, and infrastructure of a companys offers to the target markets. Meanwhile, we call marketing mix a creation tactic, which integrates a companys offer, logistics, and communications. Selling, furthermore, is the third element of marketing tactic, which we define as the capture tactic to generate cash inflows for the company and to integrate the customer and company in a longterm, satisfying relationship.

Marketing Value: How to Win the Heart Share

Marketing value is the last dimension of The STV Model. It is the corporate-level responsibility and is intended to win the heart share of target markets. The first element of marketing value is brand. Brand is the value indicator of a company, which enables the company to avoid the commodity trap. Service is the second element of marketing. It is the paradigm of a company to always meet or exceed the customers needs, wants, and expectations. We define it as the value enhancer of a company. The last element of marketing value is process. It is the value enabler of a company that enables it to deliver value to customers through the process within and without the firm.

DISCUSSION QUESTIONS
1. What do you think of The 18 Guiding Principles of the Marketing Company? How do these principles compare to the marketing concepts and principles that you learned in your basic marketing course or that you have acquired through your experience as a marketer? 2. Hermawan Kartajaya is an Asian marketer. Do his 18 Guiding Principles apply in your country? Is marketing a universal discipline? Do the marketing concepts, tools, and methods that are used in a home country need to be modified or changed when used in other countries? Explain your answer. 3. What, in your view, are the key principles of marketing? List your principles (no more than six), and explain their importance to marketing success.

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Part I Introduction