Lesson 1, Topic 1
In Progress

Global Marketing In The 21st Century


Warning: Attempt to read property "post_author" on null in /home/palanfou/evarsity.my/wp-content/themes/buddyboss-theme/learndash/ld30/topic.php on line 196

The past quarter century has seen rapid changes in the global economy. Barriers to the free flow of goods, services, and capital have been coming down. As their economies advance, more nations are joining the ranks of the developed world. A generation ago, South Korea and Taiwan were viewed as second-tier developing nations. Now they boast large economies, and firms based there are major players in many global industries, from shipbuilding and steel to electronics and chemicals. The move toward a global economy

has been further strengthened by the widespread adoption of liberal economic policies by countries that had firmly opposed them for two generations or more. In short, current trends indicate the world is moving toward an economic system that is more favourable for international business. But it is always hazardous to use established trends to predict the future. The world may be moving toward a more global economic system, but globalization is not inevitable. Countries may pull back from the recent commitment to liberal economic ideology if their experiences do not match their expectations. There are clear signs, for example, of a retreat from liberal economic ideology in Russia. If Russia’s hesitation were to become more permanent and widespread, the liberal vision of a more prosperous global economy based on free market principles might not occur as quickly as many hope. Clearly, this would be a tougher world for international businesses. Also, greater globalization brings with it risks of its own. This was starkly demonstrated in 1997 and 1998, when a financial crisis in Thailand spread first to other East Asian nations and then to Russia and Brazil. Ultimately, the crisis threatened to plunge the economies of the developed world, including the United States, into a recession. Even from a purely economic perspective, globalization is not all good. The opportunities for doing business in a global economy may be significantly enhanced, but as we saw in 1997–1998, the risks associated with global financial contagion are also greater. Indeed, during 2008– 2009, a crisis that started in the financial sector of America, where banks had been too liberal in their lending policies to homeowners, swept around the world and plunged the global economy into its deepest recession since the early 1980s, illustrating once more that in an interconnected world a severe crisis in one region can affect the entire globe. Still, as explained later in this text, firms can exploit the opportunities associated with globalization while reducing the risks through appropriate hedging strategies. These hedging strategies may also become more and more important as the world balances globalization efforts with a potential increase in nationalistic tendencies by some countries (e.g., United States, United Kingdom).

The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace. Falling barriers to cross-border trade and investment have made it easier to sell internationally. It has been argued for some time that the tastes and preferences of consumers in different nations are beginning to converge on some global norm, thereby helping create a global market. Consumer products such as Citigroup credit cards, Coca-Cola soft drinks, video games, McDonald’s hamburgers, Starbucks coffee, IKEA furniture, and Apple iPhones are frequently held up as prototypical examples of this trend. The firms that produce these products are more than just benefactors of this trend; they are also facilitators of it. By offering the same basic product worldwide, they help create a global market.

The lowering of trade barriers made globalization of markets and production a theoretical possibility. Technological change has made it a tangible reality. Every year that goes by comes with unique and oftentimes major advances in communication, information processing, and transportation technology, including the explosive emergence of the “Internet of Things.”

Communications

Perhaps the single most important innovation since World War II has been the development of the microprocessor, which enabled the explosive growth of high-power, low-cost computing, vastly increasing the amount of information that can be processed by individuals and firms. The microprocessor also underlies many recent advances in telecommunications technology. Over the past 30 years, global communications have been revolutionized by developments in satellite, optical fibre, wireless technologies, and of course the Internet. These technologies rely on the microprocessor to encode, transmit, and decode the vast amount of information that flows along these electronic highways. The cost of microprocessors continues to fall, while their power increases (a phenomenon known as Moore’s law, which predicts that the power of microprocessor technology doubles and its cost of production falls in half every 18 months).

Internet of Things

The explosive growth of the Internet since 1994, when the first web browser was introduced, is the latest expression of the development of the so-called Internet of Things. Tracing back about three decades to 1990, fewer than 1 million users were connected to the Internet. By 1995, the figure had risen to 50 million. By 2017, the Internet had 3.8 billion users, or 51 percent of the global population.18 As such, 2017 marked the first year that more than half of the world’s population were Internet users. It is no surprise that the Internet has developed into the information backbone of the global economy. In North America alone, e-commerce retail sales will surpass $520 billion in 2020 (up from almost nothing in 1998), while global e-commerce sales surpassed $2 trillion for the first time in 2017. Viewed globally, the Internet has emerged as an equalizer. It rolls back some of the constraints of location, scale, and time zones.20 The Internet makes it much easier for buyers and sellers to find each other, wherever they may be located and whatever their size. It allows businesses, both small and large, to expand their global presence at a lower cost than ever before. Just as important, it enables enterprises to coordinate and control a globally dispersed production system in a way that was not possible 25 years ago.

Transportation Technology

In addition to developments in communications technology, several major innovations in transportation technology have occurred since the 1950s. In economic terms, the most important are probably the development of commercial jet aircraft and super freighters and the introduction of containerization, which simplifies transhipment from one mode of transport to another. The advent of commercial jet travel, by reducing the time needed to get from one location to another, has effectively shrunk the globe. In terms of travel time, New York is now “closer” to Tokyo than it was to Philadelphia in the colonial days. Containerization has revolutionized the transportation business, significantly lowering the costs of shipping goods over long distances. Because the international shipping industry is responsible for carrying about 90 percent of the volume of world trade in goods, this has been an extremely important development.21 Before the advent of containerization, moving goods from one mode of transport to another was very labour intensive, lengthy, and costly. It could take days and several hundred longshore workers to unload a ship and reload goods onto trucks and trains. With the advent of widespread containerization in the 1970s and 1980s, the whole process can now be executed by a handful of longshore workers in a couple of days. As a result of the efficiency gains associated with containerization, transportation costs have plummeted, making it much more economical to ship goods around the globe, thereby helping drive the globalization of markets and production. Between 1920 and 1990, the average ocean freight and port charges per ton of U.S. export and import cargo fell from $95 to $29 (in 1990 dollars).22 Today, the typical cost of transporting a 20-foot container from Asia to Europe carrying more than 20 tons of cargo is about the same as the economy airfare for a single passenger on the same journey.

Implications for the Globalization of Markets

In addition to the globalization of production, technological innovations have facilitated the globalization of markets. Low-cost global communications networks, including those built on top of the Internet, are helping create electronic global marketplaces. As noted earlier, low-cost transportation has made it more economical to ship products around the world, thereby helping create global markets. In addition, low- cost jet travel has resulted in the mass movement of people between countries. This has reduced the cultural distance between countries and is bringing about some convergence of consumer tastes and preferences. At the same time, global communications networks and global media are creating a worldwide culture. U.S. television networks such as CNN and HBO are now received in many countries, Hollywood films are shown the world over, while non-U.S. news networks such as the BBC and Al Jazeera also have a global footprint. In any society, the media are primary conveyors of culture; as global media develop, we must expect the evolution of something akin to a global culture. A logical result of this evolution is the emergence of global markets for consumer products. Clear signs of this are apparent. It is now as easy to find a McDonald’s restaurant in Tokyo as it is in New York, to buy an iPad in Rio as it is in Berlin, and to buy Gap jeans in Paris as it is in San Francisco.

Despite these trends, we must be careful not to overemphasize their importance. While modern communications and transportation technologies are ushering in the “global village,” significant national differences remain in culture, consumer preferences, and business practices. A firm that ignores differences among countries does so at its peril.

Global marketing is expansive, extensive, and complex. It can be seen as both a business strategy and an operation, as a force for good and/or as the ‘new imperialism’. It can be embodied in companies or perceived as a phenomenon (e.g. business globalization, the internet, etc.). One view of global marketing is as a giant supply chain management system or an added value system. Global giants such as Toyota (www.toyota.com), VW (www.vw.com) and DaimlerChrysler (www.daimlerchrysler.com) source their raw materials, semi-processed and processed materials, finance and human inputs from all over the world and deliver the results of the combination of these, i.e. vehicles, to numerous market segments, adding value as they do so. Defining terms in the global marketing arena is a complex issue. Marketing across political and cultural boundaries raises many questions, problems, and juxtapositions, rendering precise definitions difficult. Typical issues centre on the standardization–adaptation argument; locus of control—central or devolved; and when exactly a multinational corporation focus becomes a global one.

Domestic marketing

The focus of domestic marketing is primarily marketing carried out within a defi ned national or geographic boundary where the marketer is relatively free to plan, implement, and control marketing plans, including decisions on the marketing mix (i.e. the ‘controllable’), within a relatively known and easily researchable marketing environment (i.e. the ‘uncontrollable’). Over time, the marketer learns to anticipate the needs and wants of his/her market. There is little need to attend to the demands of the across-boundary markets, other than to monitor and meet the threat of imports. Focus and control are firmly on the domestic market.

International marketing International marketing takes place when the marketer explores markets outside the national boundaries of the domestic market. This often begins with direct or indirect exporting to a neighbouring country. The focus is to find markets which have needs similar to those in the domestic market and can be satisfied with similar products and services. Typical of these are standard product parts and computers. While the marketing environment may be different and some adjustment may have to be made to the marketing mix elements, exporting in economic terms is basically the movement of surplus production overseas. Once again, planning, implementation, and control of the marketing mix are based in the exporting organization. When organizations begin operating across a number of national/political boundaries, they need a more cohesive and constructive approach to their engagement with their international markets. As they progress in their internationalization, organizations would increasingly recognize the importance of accounting for country-to-country differences in their international marketing planning decisions. Because they value these differences, there is the recognition that there are many distinct marketing systems, leading to the notion that international marketing can be viewed as ‘a collection of more or less coordinated domestic marketing’s’ (Perry, 1999: 45). In this sense, the characteristics of international operations are the differing effects of, and the emphases on, the uncontrollable marketing elements and hence the need for differing marketing mixes to address those differences. However, international operators may wish to minimize the effect of these differences by operating a standardized marketing mix policy by appealing to global market segments. The emphasis may still be on central production, planning, implementation, and control, with deference paid to different market conditions. When organizations begin to produce in different countries and market according to the demands of local or regional markets, with the resultant devolution of production, planning, implementation, and control (‘think global, act local’), then they are evolving into a ‘multinational’. Despite this devolution, most multinationals have a corporate base from which to operate through a network of subsidiaries. The media company BSkyB (www.sky.com) is a typical example.

Global marketing

The concept of global marketing begins with the notion that the world has no centre. The ‘borderless’ global marketplace encompasses the participation of all countries—not only the industrialized and the newly industrialized nations, but also the emergent economies such as China and India—in international competition. This new ‘market internationalism’ is coupled with more integrative global structures, including free trade areas, common markets, and multilateral agreements (e.g. World Trade Organization) which link international markets more closely, even though protectionism and conflicts coexists with it. It rests upon ‘the dynamic premise that consumer preferences can be, and are, constantly being reshaped by common exogenous (rather than endogenous) forces, resulting in the convergence of many consumers’ wants and desires’ (Perry, 1999: 48). The growing availability and spread of communication and transportation technologies are making consumers more homogeneous and foreign markets more accessible. National borders are no longer effective barriers against external influences. For instance, the internet has made it possible for foreign companies to get around local advertising restrictions. Global marketing organizations would strive exclusively to ‘maximize standardization, homogenization, similarity, concentration, dependence, synchronization, and integration of marketing activities across markets’ (Svenssen, 2002: 581). On the other hand, the truly global marketing organizations would also have an enlightened recognition that global consumers differ in their consumption behaviour from culture to culture. Markets are about people, not products. There may be global products, but there are not global people. There may be global brands but they are no global motivations for buying those brands (De Mooij, 1998). Global organization seeks to lever its resources across political and cultural boundaries to maximize opportunities and exploit market similarities and differences in search of competitive advantage. There is a proactive willingness to adopt a global perspective instead of a country-to country or region-by-region perspective in the development of a marketing strategy. It will move its resources from country to country to achieve its goals and maximize stakeholders’ value by globalizing marketing activities in the organization of worldwide efforts, the research of domestic and foreign markets, the pursuit of international partnerships, the sourcing of raw materials and support services, and the managing of international transactions. Organizations would operate as if the world were one large market, ignoring superficial regional and national differences while making sure that marketing activities fit the products and services to the practices and cultural characteristics of different markets.

The Importance of Global Marketing

The largest single market in the world in terms of national income is the United States, representing roughly 25 percent of the total world market for all products and services. U.S. companies that wish to achieve their maximum growth potential must “go global,” however, because 75 percent of world market potential is outside their home country. Management at Coca-Cola clearly understands this; about 75 percent of the company’s operating income and two-thirds of its operating revenue are generated outside North America. Non-U.S. companies have an even greater motivation to seek market opportunities beyond their own borders; their opportunities include the 325 million people in the United States. For example, even though the dollar value of the home market for Japanese companies is the third largest in the world (after the United States and China), the market outside Japan is 90 percent of the world potential. For European countries, the picture is even more dramatic. Even though Germany is the largest single-country market in Europe, 94 percent of the world market potential for German companies is outside Germany. Many companies have recognized the importance of conducting business activities outside their home country. Industries that were essentially national in scope only a few years ago are dominated today by a handful of global companies. In most industries, the companies that will survive and prosper in the twenty-first century will be global enterprises. Some companies that fail to formulate adequate responses to the challenges and opportunities of globalization will be absorbed by more dynamic, visionary enterprises. Others will undergo wrenching transformations and, if their efforts succeed will emerge from the process greatly transformed. Some companies will simply disappear. Each year, Fortune magazine compiles a ranking of the 500 largest service and manufacturing companies by revenues.41 Walmart stands atop the 2016 Global 500 rankings, with revenues of $486 billion; it currently generates only about one-third of its revenues outside the United States.

However, global expansion is key to Walmart’s growth strategy. In all, 5 companies in the top 10 compete in the oil or energy sectors. Toyota and Volkswagen, the only global automakers in the top 10, are locked in a fierce competitive struggle as the German company rebounds from a scandal involving its diesel engines.

Examining the size of individual product markets, measured in terms of annual sales, provides another perspective on global marketing’s importance. Many of the companies identified in the Fortune rankings are key players in the global marketplace.