EPPM 2033

Marketing in the global firm

 1. Objectives
• Discuss:
– Global marketing strategy
– Standardization and adaptation of international
marketing
– Global branding and product development
– International pricing
– International marketing communications
– International distribution
 2. Marketing strategy
• Market segmentation
• The process of dividing the firm’s total customer
base into homogeneous clusters that allows
management to formulate unique marketing
strategies for each group.
• Based on - income level, lifestyle, demographic
profile, or desired product benefits.
• Internationally, common market segment variables
include income level, culture, legal system, etc.
• Global market segment
• A group of customers that share common
characteristics across many national markets.
• Firms target these buyers with relatively uniform
marketing programs, regarding product, pricing,
communications, and distribution
• Such segments often follow global media,
embrace new fashions or trends, and have much
disposable income.
 3. Standardisation vs adaptation
• Standardization
– Efforts to make marketing program elements uniform so as
to target entire regions of countries, or even the global
marketplace, with a similar product or service.
– However, targeting the same product everywhere is not
usually feasible.
• Adaptation
– Modifying elements of the marketing program to
accommodate specific customer requirements in individual
foreign markets. E.g., industries in auto making, publishing,
furniture.
• Management tries to strike some ideal
balance
• Balancing standardisation and adaptation
– Adaptation is costly. May require substantial
changes to the marketing mix, especially when
many national markets are involved.
– Thus, managers err on the side of standardization,
adapting marketing mix only when necessary.
– Or, firms pursue a regional strategy in which
marketing elements are formulated
across a geographic region.
 4. Global branding (Product)
• A strong global brand:
– increases the effectiveness of marketing programs;
– facilitates the ability to charge premium prices;
– increases the firm’s leverage with resellers;
– stimulates brand loyalty; and
– inspires trust and confidence in the product.
• In developing international products, managers
emphasize their commonalities across countries
rather than the differences between them.
• A basic product incorporates only core features that
are then varied at the margins for individual markets.
• A global new-product planning team is a group within
a firm that determines which product elements will
be standardized, which will be adapted locally, and
how products will be launched.
 5. International pricing (Price)
• Pricing is complex in international business, due to
multiple currencies, trade barriers, added costs, and
typically longer distribution channels.
• Prices affect sales and profits. An inverse relationship
often exists between profits and market share.
• Firms face pressure to lower prices abroad, mainly due
to lower income levels.
• Conversely, prices can escalate
due to tariffs, taxes, transportation,
intermediary markups, and after-sales service.
 5.1 Factors
• Nature of the market
– Local purchasing power and distribution
infrastructure are big factors.
• Nature of the product or industry
– A specialized or highly advanced product, or an
industry with few competitors, may necessitate
charging a higher price.
• Type of distribution system
– Channels are complex in some countries, which
pushes prices up.
• Location of the production facility
– Locating manufacturing near customers or in
countries with low-cost labor facilitates lower prices.
5.2 Steps
 5.3 International Price Escalation
• Refers to the problem of end-user prices reaching
high levels in the export market.
• It is caused by multilayered distribution channels,
intermediary margins, tariffs, and other added costs
associated with the foreign market.
• May result in an excessively high retail price in the
target market, creating a competitive disadvantage for
the exporter.
• There are various strategies to reduce price escalation.
• Strategies:
– Shorten the distribution channel
– Redesign product to remove costly features. E.g., Whirlpool
developed a no-frills washing machine.
– Ship products unassembled, as parts and components, to
qualify for lower import tariffs. Perform final assembly in the
foreign market, using low-cost labor, or in Foreign Trade Zones.
– Have product re-classified using a different tariff classification
to qualify for lower tariffs.
– Move production or sourcing to another country to take
advantage of lower labor costs or favorable currency rates.
 5.4 Strategies for Dealing
with Varying Currency Conditions
 5.5 Transfer pricing
• The pricing of intermediate or finished goods
exchanged among the subsidiaries and affiliates of
the same corporate family located in different
countries.
• May be used to repatriate profits from countries that
restrict MNEs from taking their earnings out of the
country.
• May be used to shift profits out of a high corporate
tax country into a low corporate tax one, thereby
increasing company-wide profits.
 5.6 Gray marketing
• Legal importation of genuine products into a country by other
than authorized intermediaries.
• Gray marketers buy the product at a low price in one country,
import it into another country, and sell it there at a higher price.
• Causes:
– Large difference in pricing of same product between two countries, often
the result of company strategy.
– Exchange rate differences of products priced in two different currencies.
 5.6.1 Manufacturer Concerns over Gray
Markets
• Risk of tarnished image when customers realize the
product is available at a lower price through
alternative channels.
• Strained relations between manufacturers and
distributors as distributors lose sales.
• Disrupted company activities, including:
– Sales forecasting
– Pricing strategies
– Merchandising, and
– Marketing.
• Coping:
– Aggressively cut prices in countries and regions
targeted by gray market brokers.
– Prevent the flow of products into markets where
gray market brokers procure the product.
– Design products with exclusive features that
strongly appeal to customers.
– Publicize the limitations of gray market channels.
6. Advertising (promotion)
• Global advertising embraces standardized
strategies in which advertising content is the
same worldwide under the premise that the
entire world is a single entity.
• Some prefers adaptation
9. International distribution (Place)
• Distribution is the most inflexible of the marketing program
elements – once established, it may be difficult to change.
• The most common international distribution approaches
are using independent intermediaries (for exporters) and
establishing subsidiaries directly in the market (FDI).
• Both types of channels must perform a range of
downstream marketing activities.
• The firm should seek to minimize
channel length, to minimize final
prices and decrease complexity.
 10. Global Account Management
• Global account management means serving a
key global customer in a consistent and
standardized manner, regardless of where in
the world it operates.
• Each global customer is assigned a global
account manager, or team, which provides the
customer with coordinated marketing support
and service across various countries.
 EPPM2033

Human resource management in the

global firm
 1. Objectives
• Understand:
– The strategic role of human resources in
international business
– International staffing policy
– Preparation and training of international employees
– International performance appraisal
– Compensation of employees
– International labor relations
– Diversity in the international workforce
 2. The strategic role of human resources in
international business
• Int HRM: The planning, selection, training,
employment, and evaluation of employees for
international operations.
• How a firm recruits, trains, and places skilled
personnel in its worldwide value chains sets it
apart from competition.
2.1 Three Employee Categories in the MNE
• Host-country nationals (HCNs):
– Citizens of the country where the subsidiary or affiliate is located.
– HCNs make up the largest proportion of employees that the firm
hires abroad.
– Examples: the labor force in manufacturing, assembly, basic service
activities, clerical work, and other non-managerial functions.
• Parent-country nationals (PCNs):
– Also known as home-country nationals, PCNs are citizens of the
country where the MNE is headquartered.
• Third-country nationals (TCNs):
– Employees who are citizens of countries other than the home or
host country. Most work in management; have unique skills
2.2 Factors Contributing to the Complexity of
International Human Resource Management
 2.3 Differences between
Domestic and International HRM
• New HR responsibilities
– Eg international taxation, international relocation and
orientation, services for expatriates, host government relations,
language translation services.
• Need for a broader perspective, such as establishing fair,
comparable compensation when there is a mix of PCNs,
HCNs, and TCNs.
• Greater involvement in employees’ personal lives, such as
regarding housing arrangements, health care, children’s
education, safety, security, appropriate compensation,
and higher living costs.
• Managing the mix of expatriates versus locals.
• Greater risk exposure
– Exposure to political risk and terrorism may require
increased compensation and security
arrangements.
• External influences of government and culture,
such as taxes, local work regulations,
traditional work practices, and cultural
conditions.
 2.4 IHRM – Key tasks
• International staffing policy – activities directed at recruiting,
selecting, and placing employees
• Preparation, training of international employees
• International performance appraisal – providing feedback for
employees’ professional development
• Compensation of employees – including formulation of benefit
packages that vary greatly from country to country.
• International labor relations – managing relationships with
unions; collective bargaining processes, known as industrial
relations
• Diversity in the international workforce
 2.5 Criteria for Selecting
Employees for Foreign Operations
 2.6 Employee Characteristics That
Facilitate International Effectiveness
• Technical Competence
– Must have adequate managerial and technical capabilities.
• Self-Reliance
– Entrepreneurial, proactive mindset; expatriate managers
function with considerable independence and limited
support from headquarters.
• Adaptability
– Ability to adjust
to foreign cultures; cultural
empathy, flexibility, diplomacy,
and a positive attitude.
• Interpersonal Skills
• Leadership Ability
• Physical and Emotional
Health
• Spouse / Dependents
Prepared for Living Abroad
 3. Who are expatriates?
• An employee who goes to work abroad for an extended
period, usually years
• Repatriation:
– return of the expatriate to the home country.
– Requires advance preparation. Unless managed well, returning
expatriate may encounter problems, such as career disruptions and
‘reverse culture shock’.
• Expatriate assignment failure:
– the premature return of an expatriate due to an inability to
perform well abroad. Costly to the firm (lost productivity and
relocation costs) and to expatriates themselves (family stress and
career disruption).
 3.1 Culture Shock
• The confusion and anxiety, often akin to mental
depression, that can result from living in a foreign
culture for an extended period. Often affects
family members most.
• A leading cause of expatriate failure.
• Especially a factor for those assigned to culturally
dissimilar countries
• Can be reduced via advance preparation, training,
language skills, deep interest in the new country.
4. Preparation and Training for International Employees
 4.1 Three Components of Training
Personnel for International Assignments
• Area studies:
– factual knowledge of the historical, political, and
economic environment of the host country
• Practical information:
– knowledge and skills necessary to function effectively in a
country, including housing, health care, education, and
daily living
• Cross-cultural awareness:
– ability to interact effectively and appropriately with
people from different language and cultural backgrounds.
4.2 Cultivating a Geocentric Orientation
• Ethnocentric views are common in many MNEs.
• More progressive MNEs
– follow a geocentric orientation, staffing HQ and subsidiaries
with the most competent personnel, regardless of nationality
– Characterized by an openness to and articulation of multiple
cultural and strategic realities on both global and local levels.
• Best to hire, develop, nurture, and recognize employees
who possess a global mindset and offer global
leadership potential.
 4.3 Performance appraisal
• Performance appraisal: formal process of assessing how
effectively employees perform their jobs.
• Helps identify problem areas where an employee needs to
improve and additional training is warranted.
• Determines compensation and firm performance.
• MNEs devise procedures to assess the performance of individual
employees; ascertain if any problems are attributable to
inadequate skill levels; provide additional training and resources;
and terminate employees who consistently fail to achieve goals.
• Often very challenging in international business.
– Why?
 4.4 Compensation
• Compensation varies internationally due to differences
in legally mandated benefits, tax laws, cost of living,
local tradition, and culture.
• Employees posted abroad expect to be compensated
at a level that allows them to maintain their usual
standard of living, which can make compensating
expatriates very costly.
• Includes base remuneration, benefits (e.g., health care
plans), allowance (e.g., for housing, children’s
education, travel), and incentives
 5. Trends in International Labor
• Mobility of labor across national borders has
increased substantially for the following
reasons:
– Growing interconnectedness of national
economies;
– Rapid expansion of multinational firms;
– Rise of international collaborative ventures; and
– Greater emphasis on global teams.