Globalization Imperative

THUNDERBIRD

CHAPTER 1 GLOBALIZATION IMPERATIVE MR. MURUGA CHINNIAH January 6, 2009

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AGENDA 1. Why Global Marketing is Imperative 2. Globalization of Markets: Convergence and Divergence 3. Evolution of Global Marketing 4. Theories of International Trade and the Multinational Enterprise

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Samuel J. Palmisano, the Chair of the Board, President, and CEO of IBM: • “Today’s global corporations are shifting their focus from products to production-from what things companies choose to make to how they choose to make them, from what services they offer to how they choose to deliver them. Simply put, the emerging globally integrated enterprise is a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production and value delivery worldwide. State borders define less and less the boundaries of corporate thinking or practice.” 3

The Globalized World of Business

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• The global corporation is evolving as a global network of interconnected and tightly integrated internal and external activities designed to satisfy their varied customer markets in different parts of the world

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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 trade volume in goods and services grew from $6.5 trillion in 1998 to $7.6 trillion in 2000. Chapter 1

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ITALY

CHINA

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INTRODUCTION (CONTD.) • According to the World Trade Organization (WTO), the world’s five exporting countries were the United States ($781 billion), Germany ($552 billion), Japan ($479 billion), France ($298 billion), and Britain ($284 billion), collectively accounting for 38 percent of global trade in 2002. • The Triad Regions (North America, Western Europe, and Japan) of the world collectively produce over 80 percent of world GDP.

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INTRODUCTION (CONTD.) • 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) Chapter 1

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INTRODUCTION (CONTD.)

Will provide many opportunities in global business ……..

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Why Global Marketing is Imperative • Saturation of domestic markets: Domesticmarket 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 are on the rise. • Need for global cooperation: Global competition brings global cooperation. Chapter 1

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Why Global Marketing is Imperative (contd.) • Internet revolution: The Internet and electronic commerce (ecommerce) 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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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.

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Management Orientations • • • •

Ethnocentric Polycentric Regiocentric Geocentric

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Ethnocentric Orientation • Assumes home country is superior to the rest of the world; associated with attitudes of national arrogance and supremacy • Management focus is to do in host countries what is done in the home country – Sometimes called an international company – Products and processes used at home are used abroad without adaptation 17

Polycentric Orientation • Management operates under the assumption that every country is different; the company develops country-specific strategies – Sometimes called a multinational company – Company operates differently in each host country based on that situation

• Opposite of ethnocentrism

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Regiocentric Orientation • Region becomes the relevant geographic unit (rather than by country) • Management orientation is geared to developing an integrated regional strategy – European Union – NAFTA

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Geocentric Orientation • Entire world is a potential market • Managerial goal is to develop integrated world market strategies • Global companies serve world markets from a single country and tend to retain association with a headquarters country • Transnational companies serve global markets and acquire resources globally; blurring of national identity

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Globalization of Markets: Convergence and Divergence (contd.) • International trade versus international business: – International trade consists of exports and imports. – International business includes international business trade and foreign production. • Who manages international trade? – Intrafirm trade: Trade between MNCs and their affiliates.

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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.

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Evolution of Global Marketing (contd.) 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). Chapter 1

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Evolution of Global Marketing (contd.) 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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Evolution of Global Marketing (contd.) •

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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Evolution of Global Marketing (contd.) • 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.

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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 Chapter 1

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Theories of International Trade & the Multinational Enterprise (contd.) – – – –

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.

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Theories of International Trade & the Multinational Enterprise (contd.) • 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.

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Theories of International Trade & the Multinational Enterprise (contd.) • Decline Stage –Companies in the developing countries also begin producing the product and marketing it in the rest of the world. • Internalization/Transaction Cost Theory – Appropriability Regime – Dominant Design – Manufacturing and Marketing Ability

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Looking Ahead to Chapter 2 The Global Economic Environment

© 2005 Prentice Hall

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