Chapter 7 Understanding and Reaching Global Consumers and Markets I The Nature and Size of Organizational Markets a Why International Trade i To get access to materials products and services which are not available domestically or available but at a higher price lower quality less technology etc ii To get access to markets which want OUR materials products and or services iii Because of the nature of Comparative Advantage 1 Some countries have unique national or human resources that give them a competitive edge internationally ex oil in the middle east iv Market Saturation cigarettes v Potential Demand vi Customer Expectations b What does it mean to US i Balance of Trade 1 The difference between the monetary value of a nation s exports and imports 2 US Balance of Trade Exports are UP Imports are up MORE so the balance of trade is NEGATIVE ii Impact of the DHL Germany decision for Ohio People lose jobs iii Desire to HAVE foreign investment locally gives jobs 61 II Dynamics of World Trade The Competitive Advantage of Nations a Porter s Diamond WHY do some industries and firms become world leaders and others lose ground or fail i 1 2 Factor Conditions Natural Resources That country has Diamonds Africa Education and skill levels of people who live there 3 Wage Rates China because it is cheap a Examples i Hollywood is the film production star as it has a concentration of skilled labor and excellent film schools Japan has a relative lack of raw materials and so has focused on miniaturization just in time inventory delivery and zero defect manufacturing 4 AND the question for OUR FIRM Can we produce in ii this country ii Demand Conditions 1 Size of Market 2 Sophistication of Consumers 3 Media Exposure of Products a Example Germans have demanded a high level of engineering in their cars So Mercedes BMW and Prosche have allowed Germany to dominate the world in high performance cars They do not do well in the cheap mass produced car market 62 4 AND the question for OUR FIRM Is there demand for our market iii Related and Supporting Industries 1 Existence of Supplier Clusters a Examples National strengths are associated with clusters of industries Silicon Valley in the US provides an advantage 2 AND the question for OUR FIRM Can we get the SUPPORT in this country iv Company Strategy Structure and Rivalry 1 Number of Companies in an Industry 2 Intensity of Competition 3 Public or Private Ownership a Example competition can drive innovation and upgrades Japan had nine major competitor plus foreign markets driving innovation 4 AND the question for OUR FIRM Can we be competitive in this country b CONCLUSION Firms that succeed in global markets have succeeded first in intense domestic competition through i Continuous improvement ii Innovation iii Change III Marketing In A Borderless Economic World a Trend 1 Decline of Economic Protectionism 63 i Today we have an economic slowdown ii Should Congress create more Protectionism 1 Some argue that the benefits of today s free trade systems go unfairly and primarily to low wage countries which take jobs away from Americans 2 These arguments are not supported by the facts iii Reagan said 1 A creative competitive America is the answer to a changing world not trade wars that would close doors create greater barriers and destroy millions of jobs We should always remember Protectionism is destructionism iv America s economy over the past few decades has proved that openness coupled with flexibility makes the economic pie much bigger and that the benefits can be widely shared v Over the past 10 years open trade has boosted job growth by more than 13 percent and has helped to raise U S GDP by nearly 40 percent vi Protectionism in World Trade see textbook Figure 7 3 PROTECTIONISM Tariffs Quotas Increase Prices Limit Supply vii General Agreement on Tariffs and Trade GATT 64 A treaty NOT an organization 1947 to 1994 1 2 3 Focus Merchandise Trade NO dispute mechanism viii World Trade Organization WTO Goals 1 Trade Without Discrimination Exceptions e g Regional Trade Agreements 2 Predictable and Growing Access to Markets Example binding tariffs 3 Promoting Fair Competition 4 Encouraging Development and Economic Reform Over 3 4 of its members are developing countries 5 Patrick Low Chief Economist WTO a The WTO is an international trade agreement b Including 150 nations c The WTO needs to get cooperation and buy in from all nations d Regional Trade Agreements have exploded and they are a challenge to trade without discrimination e The WTO agreements create an environment of stability continuity and predictability f They seek to create equality and fairness in trade 6 An aside how many countries ARE there in the world today 194 only 150 in WTO Unless you don t count Taiwan b Trend 2 A Rise of Economic Integration 65 i European Union consumers U S Mexico 1 Consisting of 27 countries with more than 500 million ii North American Free Trade Agreement NAFTA Canada 1 Consisting of Canada US Mexico iii Asian Free Trade Agreements 1 South Asian Free Trade Area a a framework for the creation of a free trade zone covering 1 4 billion people in India Pakistan Nepal Sri Lanka Bangladesh Bhutan and the Maldives 2 East Asian Free Trade Agreement on Services c TREND 3 Global Competition Who are we up against How might we compete i Strategic Alliances independent firms to cooperate for the purpose of achieving common goals agreements among two or more 1 Example breakfast cereals Nestle and general mills are partners ii International Firm way as domestic marketing International marketing done in the same 1 Example Levi s one size fits all unbuttoned sol iii Multinational Firm Varies its Marketing Strategy for each country 1 Example Nestle s brands HQ Switzerland different logo packaging etc iv Transnational Firms keep the mix the same where there are similarities and CHANGE the mix when cultures differ Use a Global Marketing Strategy to 66 1 A goal of transnational firms is to create and maintain a balanced portfolio of global AND local brands to Take advantages of economies of scale where possible by sharing R D technical features manufacturing etc across brands Grow global brands where possible Obtain market penetration though brand differentiation locally when necessary Henkel Example transnational 3 areas of competence Laundry IV A Global Environmental Scan What do we need to know before we go a Cultural Diversity 67 i Social and Cultural Environment 1 Family how important are