Since 1990, the number of multi-national corporations in the world has grown from 30,000 to more than 60,000. In the largest of the 150 economies in the world, only 74 are countries, and the remaining 76 are multinational corporations. Walmart is the world's largest company, and has annual revenues greater than the gross domestic product of all but the world's 23 largest GDP countries.
Since 2003, total world trade has been growing at 6 to 11 percent per year, whereas global GDP has grown at only 2.5 to 5 percent annually. Many US companies have been successful at international marketing, for example: Coca-Cola, McDonalds, Boeing, Colgate, etc. Johnson and Johnson does 45% of its business abroad. Companies that go global may face highly unstable governments and currencies, restrictive government policies and regulations, and high trade barriers; corruption is also a problem.
US companies looking abroad must start by understanding the international trade system. Foreign governments may charge tariffs, may set quotas, and they may also face exchange controls. They may also face nontariff trade barriers, such as biases against the US company bids, restrictive product standards, or excessive regulations. But certain countries have formed free trade zones, or economic communities.
The European Union (EU), formed in 1957, set out to create a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries and by developing policies on trade with non member nations. Currently it has 27 member countries containing close to half a billion consumers and accounts for more than 20% of the worlds exports.
The North American Free Trade Agreement (NAFTA) established free trade zone among the US, Mexico, and Canada. The agreement created a single market of 443 million people who produce and consume over $15.4 million worth of goods and services per year. The Central American Free Trade Agreement (CAFTA) established free trade zone between the US, Cost Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. This would include 34 countries, with a population of 800 million and combined GDP of about $17 trillion.
The country's industrial structure shapes its products and service needs, income levels, and employment levels. The four types of industrial structures are as follows:
- Subsistence economies- vast majority of people engage in simple agriculture; offer few market opportunities.
- Raw material exporting economies- rich in one or more natural resources, but poor in other ways.
- Industrializing economies- manufacturing accounts for 10-20 percent of the country's economy; creates a new rich class and a small but growing middle class.
- Industrial economies- major exporters of manufactured goods, services, and investment funds.
The seller must understand the ways that consumers in different countries think about and use certain products before planning a marketing product. Business norms vary from country to country and companies that understand cultural nuances can use them to advantage when positioning products and preparing campaigns internationally. Once a company has decided to sell in a foreign country, it must determine the best mode of entry. It's choices are:
- Exporting- entering a foreign market by selling goods produced in the company's home country, often with little modification.
- Joint venturing- entering foreign markets by joining with foreign companies to produce or market a product or service.
- Licensing- a method of entering a foreign market in which the company enters into an agreement with a licensee in the foreign market.
A second method of entering a foreign market is by joint venturing, which is joining with foreign companies to produce or market products or services. The four types of joint ventures are as follows:
- Licensing- a simple way for a manufacturer to enter international marketing. The company enters into an agreement with a licensee into a market.
- Contract manufacturing- a company contracts with manufacturers in a foreign market to produce the produce or provide its service.
- Management contracting- the domestic firm supplies the management know-how to a foreign company that supplies the capital; the domestic firm exports management services rather than products.
- Joint ownership- a company joins investors in a foreign market to create a local business in which the company shares joint ownership and control.
The international company must take a whole channel view of the problem of distributing products to final consumers. Channels between nations moves company products from points of production to the borders or countries within which they are sold. The second, channels within nations, moves the products from their market entry points to the final consumers. The whole channel view takes into account the entire global supply chain and marketing channel. It recognizes that to compete well internationally, the company must effectively design and manage an entire global value delivery network.
Companies manage their international marketing activities in at least 3 different ways: most companies first organize an export department, then create an international division, and lastly become a global organization. Major companies today must become more global if they hope to compete. As foreign companies successfully invade their domestic markets, companies must move more aggressively into foreign markets.
Source:
Marketing, 9th Edition, Armstrong & Kotler
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