International Marketing

Sixth Edition
International Student Version

Masaaki Kotabe • Kristiaan Helsen

Chapter 1
Globalization

Copyright © 2013 John Wiley & Sons, Inc.

 Chapter Overview

1. Why Global Marketing is Imperative

2. Globalization of Markets: Convergence and Divergence
3. Evolution of Global Marketing
4. Appendix: Theories of International Trade and the
Multinational Enterprise

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 2

 Introduction

• Products have been traded across borders throughout

recorded civilization, extending back beyond the Silk
Road that once connected East with West from Xian
(China) to Rome (Italy).
• Total world merchandise trade volume grew from $7.6
trillion in 2000 to $16.3 trillion in 2008.
• Despite the sharp drop of world merchandise exports
down to $12.5 trillion in 2009, total merchandise trade
volume bounced back to US$15.2 trillion in 2010 and
grew steadily to US$18.2 trillion in 2011—a growth of
46% in two years.
Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 3
 Introduction

• Big Emerging Markets (BEMs): In the next ten to twenty

years, BEMs such as the Chinese Economic Area (CEA:
including China, Hong Kong Region, and Taiwan), India,
South Korea, Mexico, Brazil, Argentina, South Africa,
Poland, Turkey, and the Association of Southeast Asian
Nations (ASEAN: including Indonesia, Brunei, Malaysia,
Thailand, the Philippines, and Vietnam) will provide many
opportunities in global business.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 4

 1. Why Global Marketing is Imperative

• Saturation of domestic markets: Domestic-market

saturation in the industrialized parts of the world and
marketing opportunities overseas are evident in global
marketing.
• Global competition: Competition around the world and
proliferation of the Internet have been on the rise and
are now intensifying.
• Need for global cooperation: Global competition brings
global cooperation.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 5

 1. Why Global Marketing is Imperative

• Internet revolution: The Internet and electronic

commerce (e-commerce) are bringing major structural
changes to the way companies operate worldwide.
• The term global epitomizes both the competitive
pressure and expanding market opportunities.
• Whether a company operates domestically or across
national boundaries, it can no longer avoid competitive
pressures from around the world.

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 Exhibit 1-1: Change in World’s 100 Largest
Companies and Their Nationalities

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 2. Globalization of Markets:
Convergence and Divergence
• Per capita income is an important determinant of
consumer buying behavior.
• When a country’s per capita income is less than $10,000,
much of the income is spent on food and other
necessities, and very little disposable income remains.
• As a country’s per capita incomes reaches $20,000, the
disposable portion of income increases dramatically.
• This increased disposable income level results in
increased convergent pressures on consumer buying
behavior.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 8

 2. Globalization of Markets:
Convergence and Divergence
• People with higher incomes tend to enjoy similar
educational levels, desires for material positions, ways of
spending leisure time, and aspirations for the future.
• Globalization does not suffocate local cultures, but rather
liberates them from the ideological conformity of
nationalism, with consumers becoming more receptive
to new things.
• Consumers also have a wider, more divergent “choice
set” of goods and services to choose from.
• In other words, the divergence of consumer needs is
taking place at the same time.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 9

 2. Globalization of Markets:
Convergence and Divergence
• International trade consists of exports and imports.
• International business includes international trade and
foreign production.
• Extensive international penetration of companies is
called global reach.
• International trade and foreign production activities are
managed on a global basis.
• Growth of Multinational Corporations (MNCs) and intra-
firm trade is a major aspect of global markets.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 10

 2. Globalization of Markets:
Convergence and Divergence
Who manages international trade?
– Intrafirm trade: Trade between MNCs and their
foreign affiliates. Comprises 34 percent of world
trade.
– An additional 33 percent of world trade was exports
between MNCs and their affiliates.
– In other words, two-thirds of world trade is managed
one way or another by MNCs.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 11

 3. Evolution of Global Marketing

What is marketing?
Marketing involves the planning and execution of the
conception, pricing, promotion, and distribution of ideas,
products, and services.
Marketing involves customer satisfaction and their
current and future needs.
Marketing is much more than selling and involves the
entire company.
Within marketing strategies, companies are always under
competitive pressure to move forward both reactively
and proactively.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 12

 3. Evolution of Global Marketing

• Five stages in the evolution of global marketing

(see Exhibit 1-2):

1. Domestic Marketing (domestic focus; home country

customers; ethnocentric orientation).
2. Export Marketing (indirect vs. direct exporting; country
choice, exports; ethnocentric orientation; home country
customers).
3. International Marketing (markets in many countries;
polycentric orientation; use of multidomestic marketing when
customer needs are different across national markets).

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 3. Evolution of Global Marketing

4. Multinational Marketing (many markets; consolidation on

regional basis; regiocentric orientation; standardization
within regions).
5. Global Marketing (international, multinational & geocentric
orientation; company’s willingness to adopt a global
perspective; global products with local variations).

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 Exhibit 1-2: Evolution of Global Marketing

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 3. Evolution of Global Marketing

• Global Marketing refers to marketing activities that

emphasize the following:
1. Standardization efforts.
2. Coordination across markets.
3. Global integration.

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 3. Evolution of Global Marketing

• Global marketing does not necessarily mean that

products can be developed anywhere on a global scale.
• The economic geography, climate, and culture affect how
companies develop certain products.
• The Internet adds a new dimension to global marketing.
• E-commerce retailers gain substantial savings by selling
online.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 17

 4. Appendix: Theories of International
Trade & the Multinational Enterprise
• Comparative Advantage Theory (see Exhibit 1-3)
– Absolute Advantage
– Comparative Advantage
– Commodity Terms of Trade
– Principles of International Trade
– Factor Endowment Theory
• International Product Cycle Theory (see Exhibit 1-4)
– Economies of Scale

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 Exhibit 1-3: Comparative Advantage at Work

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Exhibit 1-4: International Product Life Cycle
 4. Appendix: Theories of International
Trade & the Multinational Enterprise
– Economies of Scope
– Technological Gap
– Preference Similarity
– Stages of International Product Cycle Theory:
• Introduction Stage
– A U.S. company innovates on a new product in its home
country.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 21

 4. Appendix: Theories of International
Trade & the Multinational Enterprise
• Growth Stage
– Product standards emerge and mass production becomes
feasible.
• Maturity Stage
– Many U.S. and foreign companies vie for market share in the
international markets.
• Decline Stage
– Companies in the developing countries also begin producing
the product and marketing it in the rest of the world.

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 22

 4. Appendix: Theories of International
Trade & the Multinational Enterprise
• Internalization/Transaction Cost Theory
– Appropriability Regime
– Dominant Design
– Manufacturing and Marketing Ability

Chapter 1 Copyright © 2013 John Wiley & Sons, Inc. 23