question

Case 9-2 McDonald's in China

answer

1. McDonald's competes in China with Yum! and KFC which both have localized menus, especially since Chinese prefer chicken rather than beef. 2. McDonald's plans to narrow the gap by adding drive-thrus as more Chinese are buying cars. 3. Menu changes and customers tiers. Rice burger for high end customers. Customers are less sensitive to nutrition, bird flu also may have a positive effect.

question

Examples of improper product policy decisions in global marketing

answer

Ikea in U.S., P&G in Australia, U.S. Car Makers in Japan

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Extension strategy

answer

adopting a uniform product or communication policy used in the home market

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Invention strategy

answer

products or communication policy are designed from scratch to fit the country specifically

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Strategic Option 1: Product Extension & Communication Extension -- what it's good for

answer

marketing a standardized product using a standardized communication strategy; good for economies of scale, offers savings

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Strategic Option 2: Product Extension, Communications Adaptation -- what it's good for

answer

Used when there are differences in cultural environment. there are still cost savings on manufacturing side but not on advertising campaigns (communications)

question

Strategic Option 3: Product Adaptation, Communications Extension -- what it's good for

answer

Differences among local markets may require product adaptation, but uniform advertising strategies because the customers have similar values and buying behaviors

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Strategic Option 4: Dual Adaptation

answer

Both product and communications adapted because of differences in both the physical and cultural environment.

question

5 Forces favoring a globalized product strategy

answer

1. Common consumer needs among countries (iPhone, white cars) 2. Global customers (because of globalization, B2B customers demand services that are harmonized worldwide) 3. Scale economies (cost savings with standardization) 4. Time-to-market (centralized research/development allows companies to reduce the time-to-market cycle, necessary in this competitive day) 5. Regional Market agreements (allows launching of products throughout huge regions like all of Europe)

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Degree of standardization: Modular approach

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developing a range of product parts that can be used worldwide in different products

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Core-Product approach

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starting with a mostly uniform core-product or platform and adding customized product parts later

question

Multinational diffusion & example

answer

Products that do extremely well in one market may flop in another. Ex: Xbox did fabulously in the U.S. but horribly in Japan in Europe because of unawareness of market differences

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What is the adoption of new products driven by? 3 factors

answer

Individual diferences (personal willingness to try new products), Personal influences (word-of-mouth rather than media advertising), and Product characteristics

question

Product characteristics include...

answer

Relative advantage to alternatives, compatibility with individual's lifestyle, complexity, triability, observability of benefits

question

Other characteristics used to predict product success (penetration) in a new market

answer

1. Is the population homogeneous (Japan, South Korea, Thailand)? 2. Is it a lead country or lag country? (adoption tends to to better in lag countries where they've had more time) 3. Is the county cosmopolitan? (more likely to respond to innovation and try new products) 4. Mobility? (the higher the mobility/communciation, the better penetration)

question

Time to "take off" for a product

answer

take-off marks the turning point between the introduction of the product and its growth stages. Declining over the years, country differences are strong. Newly developed countries show faster takeoffs than established Euro companies or emerging markets.

question

What cultural/economic traits are associated with longer time -to-takeoffs for products?, and what is China vs. U.S. time to takeoff?

answer

collectivism, power distance, religion. China takeoff is 13.9 while U.S. is 6.2

question

True or false: The probability of takeoff increase with previous takeoffs of the product in other countries

answer

True

question

What are the 4 Cs, sources for new product ideas for global markets?

answer

Company (R&D), customers (market research), competition (monitoring the New Product Database, NPD), collaborators (suppliers, distributors)

question

True or false: Products with incremental or major newness do better than medium newness

answer

True

question

True or false: Products marketing in less concentrates, less advertised categories have higher acceptance

answer

True

question

Importance of screening ideas

answer

Not every idea is a good one - once new product ideas are identified, the goal is to weed out ones with little potential.

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Concept testing - may not always be trusted; just speculation

answer

The product concept is developed after the product idea. It's a detailed description of the product, often assessed by focus group discussions

question

Test Marketing

answer

The norm for most consumer good companies, where product is sold in select cities. Helps gauge market share. May be skipped to save money and time

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Lead Market (test marketing)

answer

relying on sales performance of the product in one country (lead market) to predict sales in other countries. In this sense, it's an entire country used as the test market

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Timing of entry: Waterfall (phased roll out) -- when is it used?

answer

rolling out the product in the home market, then other countries one at a time (in stages). May last several decades, but in tech, the overall process is quicker. Used with adaptation strategies because adaptation can be very time consuming. But it may give competitors time to catch up.

question

Timing of entry: Sprinkler -- when is it preferable

answer

Simultaneous worldwide entry, very quick process used with universal products/communication strategies. Especially useful in consideration of competitive pre-emption. Waterfall model is preferable to sprinkler when life cylce of product is long, there are non-favorable conditions in foreign market, host country has a weak competitive climate

question

Examples or large, innovative markets to launch products first

answer

U.S. or Japan (fast time to takeoff)

question

Examples of small, highly innovative markets to launch products first

answer

Scandinavian countries, Switzerland, Netherlands, South Korea (fast time to takeoff)

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Which markets are ideal for later entry (slower times to takeoff)?

answer

Countries with slow takeoff and limited influence over other countries. India, Pakistan, China

question

Which markets are ideal for early entry (quick times to takeoff)?

answer

Countries with large markets, fast takeoff, and high influence over other countries. Germany, France

question

Case: Lexus in Europe

answer

1. Why is Lexus struggling in Europe? Design was too American for Europeans, too boxy. They wanted sleeker, and wanted more features - not enough diesel engine options. Competition was tough in Europe - BMW, Mercedes. To combat their struggles, they will offer hybrid versions, but Infiniti is a strong competitor with "fun to drive", performance cars. 2. Why such a success in the US? Affordable price for luxury, wide variety of models. Lexus = more head-to-head with Mercedes for an executive style car, more smooth ride. Comfort focus in U.S., while BMW is more sports-car focus.

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Case: Phillip Morris Cigarettes

answer

Market penetration doesn't work anymore because of U.S. regulations, and preferences have changed - you cannot market to young teens, consumers are more educated about harms of smoking So, PMI decided to specialize within each region, allowing for localized management - aka product adaptations: for promotion, changed packaging (flashy in China, subdued in others), different nicotine levels, and they built a separate legal entity for international markets outside of the U.S. Thus, lawsuits in U.S. cannot affect international market sales.

question

Four step procedure for initially screening Target Markets to enter

answer

1. Select indicators (based on company's own goals and values) and collect data 2. Determine importance of country indicators (assign weights to each) 3. Rate the indicators using a scale (1-100) 4. Sum the total points for the overall county score

question

External Factors to consider for choosing an entry mode

answer

market size and growth, political and economic risk, government regulations (openness), competitive environment, cultural distance, local infrastructure (weak infrastructure means a company is less willing to commit major resources), company objectives

question

Theory about joint ventures in lieu of wholly owned subsidiaries, concerning cultural distance

answer

MNCs are able to lower risk exposure by using joint venture model in a culturally distant market

question

Theory about wholly owned subsidiaries rather than partnerships concerning cultural distance

answer

MNCs are able to lower risk through higher percentage of equity and bridge differences in cultural values

question

Platform countries - market attractiveness

answer

Ex. Singapore, Hong Kong. Can be used to gather intelligence and establish a network. Involves just establishing a company base to learn more

question

Emerging countries - market attractiveness

answer

Ex. Vietnam, Philippines. Can build an initial presence via a liaison office

question

Growth countries - market attractiveness and which entry mode to use

answer

Ex. China, India. Offer first mover advantage, can capitalize on future market opportunities. Usually involves joint ventures and local subsidiaries

question

Maturing/established countries - market attractiveness

answer

Ex. South Korea, Taiwan (maturing), Japan (established). Fewer growth prospects, but solid middle class and infrastructure. Usually involves strategic alliances, major investments or acquisitions of local players

question

Internal Factors to consider for choosing an entry mode

answer

Company objectives, need for control (depends on resource commitment), internal resources/capabilities, Flexibility of home country (to cope with own environmental changes)

question

Low control vs High control (risk)

answer

Indirect exporting or licensing vs. wholly owned subsidiary. But high control means more commitment of resources and more to lose

question

Transaction Cost Analysis perspective to deal with control issue

answer

Treating each entry to a foreign market as a transaction. Market failure happens when transaction-specific assets (valuable for a very narrow range of uses) become valuable, and a high-control method may be better because of minimized competition (monopolies?)

question

Indirect exporting vs direct strategy

answer

using a middleman based in home market (export merchants, agents, EMCs) to sell products in foreign market (little control) vs. using a middle man based in the foreign market (more control, better market feedback, company can build up its own network in the foreign market)

question

Licensing entry strategy

answer

the firm offers a foreign company the right to use their trademark, technology, or patents in exchange for royalties on sales. Not demanding on resources, good for small companies, can access markets quicker that barr imports. However, behavior of the licensee can affect brand image, and can nurture a future competitor once the contract ends

question

Franchising strategy

answer

Franchisee has the right to use the company's name, logos, and business model in a given territory usually for 10 years in exchange for royalties. I.e. Blockbuster in Brazil. Companies can capitalize on their winning business formula and expand with little investment, and can capitalize on the franchisee's knowledge of the local market. However, there is a lack of control and performance may not be up to par. Should choose based on similar cultural and physical proximity.

question

Master franchising

answer

Franchiser gives the master franchise to a local entrepreneur who will sell local franchises within his or her territory (countries)

question

Outsourcing (Contract Manufacturing) strategy

answer

Company arranges with a local firm (a foreign subcontractor) to make or assemble parts of their product (or even the entire product), while marketing remains the company's responsibility. Can have big cost savings by outsourcing to a low wage country, lower risk. However, outsourcers can become the future competitor, there may be lower quality standards, and backlash about labor issues

question

Joint venture strategy

answer

Foreign partners agree to share equity and other resources with the host country in order to establish an entity there. Greater return potential, synergy, and network. However, there is great lack of control, future competitor issue.

question

Qualities of an ideal subcontractor

answer

Flexible, able to meet quality standards, solid financial footing, able to integrate with company's business, must have contingency plans

question

Joint venture - what to do when creating launch team during the launch phase

answer

1. build the strategic alignment between the two separate companies 2. create a system of governance 3. decide upon the split of profits 4. build the organization for the joint venture by assigning responsibilities, staffing new positions

question

Wholly Owned Subsidiary - 2 types

answer

Acquisition/Merger (buying an existing company in the foreign market), Greenfield operations (starting from scratch in the foreign market)

question

Acquisition/Merger

answer

Full ownership, quick access to local brands, distribution channels, technology. Good for late comers. However, differences in culture between the two companies can be a hindrance, and it can be expensive (good prospects don't come cheap, can result in a bidding war)

question

Greenfield Operations

answer

More flexibility to hire who they want and decide where to buy stuff, layout, etc. Avoids the cost of integrating one company into the other. however, huge amounts of time, effort, and money are required

question

Overall benefits/negatives for Wholly Owned Subsidiaries

answer

Greater control and higher profits, commitment to the local market, investor manages all decisions. However, no help from third party in setting up resources in the face of cultural/political risk

question

Timing of entry - firms tend to enter foreign markets earlier when....

answer

high level of international experience, larger firm size, broad scope of products or services, knowledge of foreign market, less risky environment of foreign market, and when non-equity entry modes are chosen (licensing, exporting)

question

What is the advantage of entering a foreign market later?

answer

Bypass the restrictive business regulations that earlier entrants had to face. More flexibility to set up joint ventures or subsidiaries

question

True or false: cultural similarity with the home market is not relate to timing of foreign market entry, and economic factors are more crucial than cultural

answer

True

question

What are some risks of exiting a foreign market?

answer

Fixed costs of exit, damage to image (because of job losses), no one to sell assets to (low liquidity), signal to other markets (raising a red flag about the company's commitment to its foreign markets), forgoing of long-term opportunities in the market

question

What does a truly global brand mean?

answer

Same core benefits, product, value proposition, positioning across the world

question

Local branding example

answer

Coca Cola owns several local and regional brands across the world like Thumbs Up in India

question

Solo branding

answer

each brand stands on its own with no ties between them (like P&G)

question

Hallmark branding

answer

firm uses one brand name for al products and services, no sub brands (banks)

question

Family branding (umbrella)

answer

hierarchy of brands where the corporate brand is at top, and there are sub brands under the badge (aka Sony and Sony Playstation)

question

Extension branding

answer

starting with only one product then stretching the brand to other product categories (fashion industry)

question

Local vs global brand example

answer

food/beverages more likely to be local, technology global

question

Width & length of product lines

answer

width = number of different product lines of the firm, length = number of different products within a single line

question

Firms with a narrow product mix and huge mix usually extend which lines?

answer

the domestic lines, vs a subset of product lines

question

What are the four types of product lines

answer

core products, niche products, seasonal, filler

question

How piracy affects the MNC

answer

fake products directly take away from the MNCs profits because of foregone sales, and also indirectly because MNCs are forced to lower prices in order to combat the counterfeit competitor prices

question

Aspects of products vulnerable to piracy

answer

anything - brand name, logo, design, package etc.

question

COO as an indicator of quality

answer

AKA Japanese products are seen as high quality around the world, while China is very bad. Ex: we prefer french wine over chinese wine...ew

question

COO influences are greater among who?

answer

elderly, less educated, politically conservative people

question

Individualist vs collectivist societies and product COO

answer

Individualist countries like the U.S. only care about COO when it's a matter of quality, whereas collectivist countries like China value COO highly no matter what

question

Positive vs. negative impact COO/product

answer

Japanese car, German watch vs. Mexican car

question

Strategies to cope with negative COO effect

answer

improve country image, bolster brand image regardless of origin (disguise or emphasize quality), use highly respected distribution channels (prestigious supermarkets), selling price as an indicator of quality or value

question

Main drivers affecting global pricing

answer

ROI, building market share, specific profit goal

question

Main options for setting export prices

answer

rigid cost-plus (all costs accrued), flexible (dynamic, first method but adjust prices to host market conditions), flexible cost-plus (incremental, price set after removing domestic fixed costs)

question

For global prices, cost and customer demand set which limits...?

answer

floor, and ceiling

question

Starbucks/Haagen-Dazs foreign pricing strategy

answer

setting foreign prices the same as domestic to target upper-end foreign customers

question

Price wars in U.S. vs China

answer

to be avoided at all costs, while Chinese see price war as a useful weapon

question

EDLP as power by large-scale retailers

answer

manufacturers of products sell to retailer at lower prices and force competitors in the store to lower prices too

question

5 Options to lower the export price

answer

1. Rearrange the distribution channel 2. Eliminate costly features (or make them optional) 3. Downsize the product 4. Assemble or manufacture the product in foreign markets 5. Adapt the product to escape tariffs or tax

question

7 Ways to safeguard against inflation

answer

1. Modify components, ingredients, parts and/or packaging materials. 2. Source materials from low-cost suppliers. 3. Shorten credit terms. 4. Include escalator clauses in long-term contracts. 5. Quote prices in a stable currency. 6. Pursue rapid inventory turnovers. 7. Draw lessons from other countries.

question

Alternatives to price controls

answer

1. Adapt the product line 2. Shift target segments or markets. 3. Launch new products or variants of existing products. 4. Negotiate with the government. 5. Predict incidence of price controls.

question

Price-to-Market (PTM) method

answer

lowering markups more in price-conscious markets, and lesser in price-insensitive markets

question

Local currency price stability (LCPS)

answer

adjust markups so local currency prices remain fairly stable instead of constantly fluctuating (aka by temporary price promotions or other incentives rather than a permanent cut of the regular local currency price)

question

Things to consider when setting transfer prices

answer

Tax regimes, local market conditions, joint venture partner's interests, market imperfections, morale of local country managers

question

Transfer pricing: arms-length or non-market (most firms use a mixture of both)

answer

In principle a transfer price should match what the seller would charge an independent, arms-length customer (objective market price is used), vs. non-market pricing which is based on cost or negotiation

question

Basic Arm's Length Standard (BALS)

answer

the international standard for assessing transfer prices. In practice, there are three methods to calculate a BALS price: comparable/uncontrollable price, resale price, and cost-plus

question

Transfer pricing def

answer

setting of prices among divisions within an enterprise. Transfer pricing is the major tool for corporate tax avoidance

question

When developing a global pricing strategy, one of the thorniest issues is....

answer

how much coordination should exist between prices charged in different countries

question

What to consider for price coordination among markets...

answer

Nature of customers (when information on prices travels fast across borders, its hard to sustain wide price gaps), amount of product differentiation, nature of channels (price coordination becomes critical when price information is transparent), competition (competition pushes companies toward centralized pricing policies), market integration (aka transparency in European Union),

question

reasons behind the shift toward global-pricing contracts

answer

centralized buying, information technology that provides improved price monitoring, standardization of products

question

Given the pressure toward increased globalization, some degree of price coordination...

answer

becomes necessary

question

pricing corridor

answer

sustaining a price gap among countries/regions.

question

Non-pricing solutions to combat losses involved with parallel imports

answer

differentiate product, intelligence systems to monitor parallel markets, creating negative perceptions in consumers minds about buying parallel imports

question

the narrower the price gap....

answer

the more profits the firm has to sacrifice

question

4 ways for MNCs promote pricing coordination among markets

answer

Economic (transfer prices, purchase limits), Centralization (standard price decided by corporation, but only if environments aren't complex or volatile), Formalization (pricing rules to abide by, allows flexibility in each market), Informal decisions

question

Case: Swatch's Transfer Pricing Policies

answer

whistleblowers who had left the company were asking U.S. tax authorities to have a closer look at Swatch's tax policies. Invoices indicated that goods shipped through this subsidiary received a major markup before being sent to other units of Swatch. They defended themselves by saying that as a matter policy, they try to avoid major price gaps between markets in order to minimize the risks of gray markets where local traders sidestep authorized distributors.

question

Case: U.S. solar firms file trade action against China

answer

Massive state subsidies and sponsorship have enabled Chinese manufacturers to illegally dump their solar products into a wide-open U.S. market, where lower margins in solar panels have driven shares of solar companies down, and many have gone bankrupt

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