Tapping into Global Markets Part IV

111) Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands. Answer: TRUE 112) As required levels of distribution increase, so do customer prices relative to the importer's price. Answer: TRUE 113) Country-of-origin effects refer to the attitude anything produced by the home country is better than imported goods. Answer: FALSE 114) Country-of-origin perceptions, once formed, are very difficult to change. Answer: FALSE 115) People are often ethnocentric and favorably predisposed to their own country's products, unless they come from a less developed country. Answer: TRUE 116) The impact of country of origin is independent of the type of product. Answer: FALSE 117) A firm normally gets into international marketing simply by shipping out its goods. Answer: TRUE 118) The international division that is responsible for a firm's worldwide marketing activities is headed by a division president who sets goals and budgets and is in charge of the company's international growth. Answer: TRUE 119) When forces for both global integration and national responsiveness prevail to some extent, a "global" strategy that standardizes certain elements and localizes other elements can be the way to go. Answer: TRUE 120) Most companies would prefer to remain domestic if their domestic market were large enough. Yet several factors are drawing more and more companies into the international arena. List some of these factors. Answer: Some of the factors are: (1) Some foreign markets present higher profit opportunities; (2) the company needs a larger customer base to achieve economies of scale; (3) the company wants to reduce its dependence on any one market; (4) the company decides to counterattack global competitors in their home markets; and (5) customers are going abroad and require international servicing. 121) What are the various risks that a company must consider before making a decision to enter foreign markets? Answer: These risks are: (1) The company might not understand foreign customers' preferences and could fail to offer a competitively attractive product; (2) the company might not understand the foreign country's business culture; (3) the company might underestimate foreign regulations and incur unexpected costs; (4) the company might lack managers with international experience; and (5) the foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property. 122) Outline the major decisions that a firm must undergo in making a decision to market internationally. Answer: The first step is deciding whether to go abroad; the second step is deciding which markets to enter; the third step is deciding how to enter each market; the fourth step is deciding on the marketing program; and the final step is deciding on the marketing organization. 123) Regional free trade zones exist around the world. One of the oldest is the European Union, formed in 1957. Describe the purpose of the EU and discuss some of the benefits to firms engaged in trade within the European Union. Answer: The EU creates a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries and develops trade policies with nonmember nations. Members in the EU have access to 454 million consumers, accounting for 23% of the world's exports. It has a common currency, the euro monetary system. The biggest advantage of this is that companies are more likely to enter entire regions at the same time, giving them access to much larger markets. 124) Once a company decides to target a particular country, it must determine the best mode of entry. Each of its market entry strategies involves more commitment, risk, control, and profit potential. List these market entry strategies in order from low risk to high risk. Answer: The five modes of entry into foreign markets are as follows: (1) indirect exporting; (2) direct exporting; (3) licensing; (4) joint ventures; and (5) direct investment. The level of risk involved in each rises steadily, with indirect exports entailing minimum risk, and direct investment involving the maximum risk. 125) Explain how marketers are using the Web for international business. Answer: Marketers are using the Web to attract new customers outside their home countries, to support existing customers who live abroad, to source from international suppliers, and to build global brand awareness. These companies adapt their Web sites to provide country-specific content and services to their best potential international markets, ideally in the local language. 126) Define a joint venture and list some of the advantages and disadvantages. Answer: In a joint venture, foreign investors and local investors share ownership and control. A joint venture may be necessary or desirable for economic or political reasons. The foreign firm might lack the financial, physical, or managerial resources to undertake the venture alone; or the foreign government might require joint ownership as a condition for entry. Joint ownership has certain drawbacks. The partners might disagree over investment, marketing, or other policies. Joint ownership can also prevent a multinational company from carrying out specific manufacturing or marketing policies on a worldwide basis. 127) Most brands are adapted to some extent to reflect significant differences in consumer behavior, brand development, competitive forces, and the legal or political environment. Identify the five international product and communication strategies available to firms that expand their businesses to foreign countries. Answer: The five international product and communication strategies are as follows: 128) Name the three choices that companies have for setting prices in different countries. Answer: Companies have three choices for setting prices in different countries: (1) Set a uniform price everywhere; (2) set a market-based price in each country; and (3) set a cost-based price in each country. 129) Explain the country-of-origin effect. Answer: Country-of-origin perceptions are the mental associations and beliefs triggered by a country. In an increasingly connected, highly competitive global marketplace, government officials and marketers are concerned with how attitudes and beliefs about their country affect consumer and business decision makers. They want to strengthen their country's image to help domestic marketers who export and to attract foreign firms and investors. Marketers want to use positive country-of-origin perceptions to sell their products and services. 130) Define the internationalization process' four stages. Answer: Some companies don't act until events thrust them into the international arena. The internationalization process typically has four stages: no regular export activities; export via independent representatives (agents); establishment of one or more sales subsidiaries; and finally, establishment of production facilities abroad. 131) A company that is planning to go global must decide on how many countries to enter and how fast to expand. A company's entry strategy typically follows one of two possible approaches. What are those approaches? Answer: The approaches are waterfall approach and a sprinkler approach. The waterfall approach is when firms gradually enter countries in sequence. It allows firms to carefully plan expansion and is less likely to strain human and financial resources. The sprinkler approach entails entering many countries simultaneously. When first-mover advantage is crucial and a high degree of competitive intensity prevails, the sprinkler approach is better. 132) Define psychic proximity and explain why it is important for companies engaged in exporting products. Answer: It is sometimes seen that companies determine which markets to enter on the basis of psychic proximity. Many U.S. firms prefer to sell in Canada, England, and Australia because they feel more comfortable with the language, laws, and culture. Companies should be careful in choosing markets according to cultural distance. Besides overlooking potentially better markets, they may only superficially analyze real differences that put them at a disadvantage. 133) When deciding where to operate internationally, it often makes sense to operate in fewer countries, with a deeper commitment and penetration in each. Mention some of the criteria that a country should possess in order to be a viable and attractive investment destination. Answer: Companies prefer to enter countries that rank high on market attractiveness, are low in market risk, and in which the company possesses a competitive advantage. 134) Briefly describe the advantages of direct investment. Answer: In direct investment, the firm: (1) secures cost economies in the form of cheaper labor or raw materials; (2) strengthens its image in the host country because it creates jobs; (3) develops a deeper relationship with government and consumers in the host country; (4) retains full control over its investment; and (5) assures itself access to the market. 135) "No matter which nation a person belongs to, people's inherent needs and requirements are essentially the same." - Do you agree with this statement? How relevant is this statement in the context of marketing? Answer: Student answers will vary. The statement may be true to the extent that the essential requirements, our physiological needs, are indeed the same. However, there is no denying that people's choices and preferences are shaped by the society they live in. No matter how much nations and regions integrate their trading policies and standards, each nation still has unique features. Its readiness for different products and services, and its attractiveness as a market, depend on its economic, political-legal, and cultural environments. In the context of marketing, therefore, it is important to understand these differences and identify the precise need a particular product or service satisfies to be able to position the product effectively. Straight extensions may not always work, nor will standardized communication strategies in countries that are significantly different. 136) International companies must decide how much to adapt their marketing strategy to local conditions. Identify and explain the two strategies companies can use. Answer: A company foraying into the international market can choose between a standardized marketing program and an adapted marketing program. In the standardized marketing mix, no changes are made to the marketing mix when entering foreign countries. At the other end is the adapted marketing mix, where the producer adjusts the marketing program to each target market. 137) Discuss three disadvantages of standardizing the marketing mix worldwide. Answer: Standardizing the marketing mix (1) ignores differences in consumer needs, wants, and usage patterns for products; (2) ignores differences in consumer response to marketing-mix elements; (3) ignores differences in brand and product development and the competitive environment; (4) ignores differences in the legal environment; (5) ignores differences in marketing institutions; and (6) ignores differences in administrative procedures. Students should identify any three of these. 138) Discuss three advantages of standardizing the marketing mix worldwide. Answer: Standardizing the marketing mix (1) helps the company achieve economies of scale in production and distribution; (2) lowers marketing costs; (3) increases power and scope; (4) fosters consistency in the brand image; (5) offers the company the ability to leverage good ideas quickly and efficiently; and (6) allows for uniformity in marketing practices. Students should identify any three of these. 139) Satisfying different consumer needs and wants can require different marketing programs. Name the four cultural dimensions that differentiate countries, as identified by Hofstede. Answer: Hofstede identified four cultural dimensions that differentiate countries: (1) individualism vs. collectivism; (2) high vs. low power distance; (3) masculine vs. feminine; and (4) weak vs. strong uncertainty avoidance. 140) Some types of products travel better across borders than others. What types of products are most likely to be successful as straight extensions. Answer: Straight extension introduces the product in the foreign market without any changes. It has been successful with cameras, consumer electronics, and many machine tools. 141) You work for a company that produces and markets apparel for men and women, and is planning to enter the Chinese market. If you were asked if the company should opt for a straight extension or a product adaptation, what would you choose, and why? Answer: Student answers may vary. If a foreign apparel maker chooses to enter the Chinese market, they will have to choose product adaptation. A straight extension would imply no change in product or communication strategy. However, though an increasing number of people in China understand English, the company will probably have to make some changes in its marketing mix depending on what medium of advertising is more popular and can access more people. As far as the market offerings are concerned, clothes will have to be resized as the Chinese are short in stature, as compared to Americans. They may also have different preferences of color and design than their American counterparts. 142) Product adaptation alters the product to meet local conditions or preferences. Identify four levels of adaptation. Answer: There are several levels of adaptation, including regional versions, country versions, city versions, and retailer versions. 143) When companies sell their goods abroad, they face a price escalation problem. Define price escalation. Answer: A firm must add the costs of transportation, tariffs, importer margin, wholesaler margin, and retailer margin, as well as the currency-fluctuation risk while selling the product in another country. Price escalation from these added costs and currency fluctuation risk might make the price two to five times as much in another country to earn the same profit for the manufacturer. 144) What are the choices available to companies when setting prices to avoid price escalation problems? Answer: The three choices that companies have to set prices in international markets are: setting a uniform price everywhere; setting a market-based price in each country; or setting a cost-based price in each country. 145) Your company manufactures travel bags and is keen on establishing its presence in the Indian market. If you were given the responsibility to decide the pricing strategy the company should use, what would you decide? Explain your answer. Answer: Student answers can vary. However, they must bear in mind that India is an emerging country and presents its unique set of opportunities and challenges. Hence, strategies that have yielded impressive results in the U.S. may not be as successful in India. Targeting the affluent middle-class and the rich upper class, the company needs to know how competing products are priced in India. The best way forward would be to use a cost-based pricing strategy. This is because, if the distribution network is long and not as efficient, then it can add to the cost of making the product available to the consumer. However, a cost-based strategy would work well only if the company can ensure competitive prices even after accounting for higher distribution costs. 146) Define the gray market. Answer: The gray market consists of branded products diverted from normal or authorized distribution channels in the country of product origin or across international borders. 147) How do multinationals try to prevent gray markets? Answer: Multinationals try to prevent gray markets by policing the distributors, by raising their prices to lower-cost distributors, or by altering the product characteristics or service warranties for different countries. 148) Describe the whole-channel concept of international marketing. Answer: Many U.S. manufacturers think their job is done once the product leaves the factory. They should instead note how the product moves within the foreign country and take a wholechannel view of distributing products to final users. The whole-channel concept consists of: (1) a seller; (2) seller's international marketing headquarters; (3) channels between nations; (4) channels within foreign nations; and (5) final buyers. Thus, there are three links between the seller and the final buyer. In the first, seller's international marketing headquarters, the export department or international division makes decisions about channels and other marketing activities. The second link, channels between nations, gets the products to the borders of the foreign nation. Decisions made in this link include the types of intermediaries (agents, trading companies), type of transportation (air, sea), and financing and risk management. The third link, channels within foreign nations, gets products from their entry point to final buyers and users. 149) What are global organizations? Answer: Several firms have become truly global organizations. Their top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or executive committee, not to the head of an international division. The firm trains its executives in worldwide operations, recruits management from many countries, purchases components and supplies where it can obtain them at least cost, and makes investments where anticipated returns are greatest.