Name:Chloe Newport StudentID: 15069379 Module:International& Global Marketing Assignment 1″Critically evaluate how marketing affects one economic, onepolitical, and one cultural issue likely to be influential to firms engaged ininternational and global marketing during the next decade” This essay will be critically evaluating how marketingeffects one economic, political and cultural issue on a global scale. It willlook into the internationalisation of BMW and how it tackled the obstacles ofexchange rates when emerging into the Chinese market. How Trelleborg, a Swedishcompany operating in Brazil, have overcome the political difficulties of tradebarriers to establish a harmonious relationship which is beneficial to bothhome countries. How cultural attitudes and perspectives raise issues for Nike,when entering new markets, specifically in China.
“Marketing is the management process responsible foridentifying, anticipating and satisfying customer requirements profitably.”(Chartered Institute of Marketing, 2015) 1. Internationalmarketing refers to a domestic company’s application of marketing in a foreignmarket, the way it is using processes to communicate the value of a product topotential customers. A diverse set of activities is involved withininternational marketing, these include; franchise agreements between domesticfirms and foreign companies, the export of domestic products in to foreignmarkets, direct investment into foreign markets and joint ventures betweendomestic and foreign firms. There are many theories and models used to study theexpansion of businesses into an international market. The Uppsala model ofgradual incremental stages to international business development based upon asequence of incremental choices. These steps are based upon knowledge offoreign markets and operations of specific markets. Based on four case studiesof Swedish firms, Johanson and Weidersheim-Paul (1975) identified fourconsecutive steps in the international expansion process of a company.
“Step 1: No regular export activities (sporadic export).Step 2: Export via independent representative (export mode).Step 3: Establishment of a foreign sales subsidiary.Step 4: Foreign production/manufacturing.
“(Hollensen 2007) (see appendix 1) 2. Johanson and Vahlne later developed the approach in adynamic model which the result of one series of events then develops into theinput to the next. The fundamental mechanisms of internationalisation are thestage and change characteristics. The stage characteristics are the foreignmarket (host country) knowledge and market commitment. Market knowledge, especially experimental itis assumed that knowledge, and commitment is related directly, hence, stronger commitmentin the foreign market is derived from sounder knowledge. The stage featuresaffect the successive changes in terms of the commitment decisions and also thebusiness activities. Thus; better knowledge of the market and commitment will followto commitment decisions to activities within the foreign market for thebusiness to be increased. Therefore, the internationalisation of a business isthe evolutionary process which is closely related with the learning of theforeign market.
The internationalisation/expansion of an organisation acrossforeign markets is relatable to the psychic distance where the preliminaryentry is to a foreign market which is closer and more familiar to the hostcountry in terms of psychic distance, followed then by other entries to marketswith greater psychic distance. Psychic distance is expressed as the “sumof factors preventing the flow of information from and to the market. Examplesare differences in language, education, business practices, culture andindustrial development” (Johanson and Vahlne, 1977, p.
24) 3. That being said, psychic distance is on the declinedue globalisation of a more homogenous world. The Uppsala Model, however have limitations, especially inthe new global era.
Although the model has greatly contributed to a broaderunderstanding of the internationalisation process of many organisations it doesnot take into account changes and advancements that have happened within thelast 2 decades, rapid technology development and globalisation within theinternational business environment exceed the model’s theory as it was basedupon manufacturing companies in the 1970’s. With the global advancements ofservices and digital companies. Also, in some cases competitive forces and or marketopportunities may mean that firms cannot wait to do a stage by stage IGMapproach.
Following theUppsala model in order for a firm to decide to expand into a foreign market, itneeds to understand the potential market soundly, meaning understanding thedemographics, geography and the infrastructure of the potential market. A firmwill put together a strategic plan which assesses market size, costs,competition, transportation and social or cultural characteristics.International marketing has the potential for many benefits, expanding into aforeign market has the prospect of increasing sales, especially when thedomestic market is saturated. By diversification of production and markets itcan reduce a firm’s economic risk. However, it can also bring a number ofpossible disadvantages, political and economic risks of operating in countriesthat are politically unstable and complications in an inadequately understoodcultural or social environment. Political liberalisation along with economic globalisationhas provided a global market for firms prepared to operate internationally.Countless companies progressively participate in global activities such asoutsourcing, imports, exports and the formation of production and sales abroad.(Moosa 2003) 4.
In recent years, after the deterioration of the’Bretton Woods Regime (1971)’, floating exchange rates have demonstratedsignificantly unpredictable with aggressive short-term fluctuations but alsolong over and undervaluation or key currencies such being; the US dollar andthe Pound Sterling. “In contrast to companies that only operate within acountry, multinational companies (MNC’s) face gains and/or losses arising fromexchange rate risks caused by the uncertainty of the exchange rates prevailingin the future”. (Matson 1996) 5. As companies are internationalising and expanding intoglobal markets the decision whether or not it is vital and advantageous tohedge the risk of depreciation of the foreign currency compared to the homecurrency is becoming increasingly crucial.
BMW group, owner of the BMW, Mini and Rolls-Royce brands isbased in Munich, Germany since it was founded in 1916. However, by the year2011, a small 17% of the cars sold were actually bought in Germany. As a globalbusiness it had emerged overseas and expanded into new markets, one of which,China. China has quickly become BMW’s fastest growing market, with 14% of BMW’sglobal sales coming from the country. Countries such as Russia, Eastern Europeand India have also become vital markets for the brand.
When expanding intoforeign markets firms face challenges of operating within different systems andcurrencies, because of external factors affecting negatively, for example, thecontinuing weakening of US dollar and currencies like, Chinese yuan in whichthe company is operating is leading to high cost of raw materials. Althoughincreasing sales revenues, BMW was mindful that profits were beingsignificantly diminished by ever-changing exchange rates. “The company’s owncalculations in its annual reports suggest that the negative effect of exchangerates totalled €2.4bn between 2005 and 2009.” (Bin and Ying, 2012) 6 Wheninternationalising, firms face economic and political barriers, some moredifficult than others.
Brazil has undergone significant development and is now currentlyone of the key emerging markets in the world. The careful approach towardstheir future with macroeconomic policies combined with the floating exchangerate is seen as a key factor in Brazil’s positive economic development over thepast few years. “The growth for 2011 is expected at 5% and new tradeliberalization has been implemented to stimulate trade with foreign companies(Embassy of Sweden, 2011).” 7 So, consequently Swedish firms andalso other foreign organisations in the Brazilian market are crucial in thecontinued growth of their market. Around the world, trade differs some areas inthe world trade is free, however, sometimes trade barriers can be so extensivethat trade is diminished, it makes it problematic for firms to establishthemselves within a foreign market. Tariff barriers are charges imposed onimports and direct taxes.
Non-tariff barriers are barriers such as bureaucracy,quotas and financial controls” (Doole & Lowe, 2008). 8 TrelleborgWheel Systems, a Swedish company that develops and manufactures withinindustrial environments. They work within the automotive industry,manufacturing motor parts. They have been established within Brazil since 1993.
According to theory, countries such as Brazil, collect capital for theirgovernment and to safeguard their industry from foreign opposition. ForTrelleborg, import duties are high and problematic, ocean freight and othercharges that occur cause high surcharges on the goods for Trelleborg, asignificant entry barrier to Brazil. Import duties can also often be discriminatoryas they do not incorporate Mercosur countries, these are countries includedwithin an “economic and political agreement between Argentina, Brazil, Paraguayand Uruguay.” 9 (www.ne.se) . Non-tariff barriers are also alarge factor when it comes to trade within Brazil, bureaucracy is used as aform of protection. It can become a complication to a firm, such as Trelleborg.
The Brazilian authorities are very slow when making decisions. Bureaucracy canbe very inefficient which can cause timing issues for firms as they causeadministrative delays. For Trelleborg, aSwedish company, a significant barrier to entry in the Brazilian market are tariffbarriers, which prove to be costly. When acompany engages in global marketing, it is vital that their promotional effortshave to appeal to the consumers within the different cultures. Values andattitudes of different countries can cause marketing communication problems.Psychologist Dr. Geert Hofstede collated together cultural data from across theworld, beginning in 1970.
By late 2010 this data was used to devise 6dimensions of culture that define national values and attitudes of consumers inspecific countries. In order for marketing to be successful and effective acompany must customise their marketing approach to suit each country. Nike foundthese cultural differences a challenge when emerging into new markets,specifically China. Sportswear has been increasingly popular in China in recentyears, this is a cause of a healthy economy and increasing disposable incomes.”Over the last seven years, the market has grown at a compounded annual rate ofnearly 30%. Yet Nike’s sales in Greater China (i.e., including Hong Kong, Macauand Taiwan) fell for five consecutive quarters, before recording a paltrygrowth of 4% in the second quarter of Fiscal 2014.
” 10 Culturalbarriers are a hindrance for Nike when striving to succeed in this market.Using Hofstede’s cultural dimensions, it is evident that the US culture and theChinese market differ considerably. (see appendix 2) 11. Marketingin new countries needs to be sensitive to the collective group of consumers youare marketing towards.
In 2004, Nike ran an advertising campaign staring LeBronJames defeating traditionally dressed Chinese people and a dragon. AlthoughChina is a rapidly developing, its population are still very traditional. Theirtraditions are ‘Confucianism’ where its teachings emphasise relationships andloyalty. The marketing message caused offence by diminishment of the traditionalsymbols that the culture saw as strong. Nike failed to pay attention to theculture and the national customs of the target market by not following theoriesand models such as Hofstede’s cultural dimensions. To conclude, BMWcan implement a two-pronged tactic to managing their foreign exchange exposure.A strategy named ‘natural hedge’ this is when they attempt to mirror thecurrency of its operating revenues to its operating expenses.
This then cancelsout exchange rate effects to a certain degree. The company closely watches theglobal network and risk figures, while local treasury centres can reviewexposure on a frequent basis, this can then be evaluated at the centraltreasury department. BMW also use an internally developed model, this is usedto plan foreign exchange hedging for the future. The model shows that anequilibrium rate for all the key currencies BMW are involved with, includingthe Chinese Yuan, it can then indicate their over or undervaluation. Tariff and non-tariff barriers are used in Brazil,predominantly to protect its domestic market from competition from foreignfirms.
If these import duties and tariff barriers were lowered this couldconsequently lead to an increased competition within the Brazilian market. Thiswill always benefit the Brazilian consumers as it will provide cheaper priceson products, however it could lead to the exclusion of Brazilian firms.Furthermore; a decrease of tariff barriers would benefit Swedish companies,such as Trelleborg by easing the exports on the Brazilian market. As fornon-tariff barriers, a main one being bureaucracy for entry of Swedish firmsinto the market. It is very costly and time consuming and also administrativelyproblematic for both Brazilian and Swedish companies alike. If it was to belessened, it could lead to a better climate for businesses to operate withinand for cheaper products for the Brazilian consumers. Cultural issues have affected Nike’s share in the Chinesesportswear market.
Due to the lack of understanding of cultural sensitivity,they published an advert that their Chinese market took strong offence to. Withthe Chinese market being loyal to its culture and traditions, this advertcreated a loss in that market. Understanding the cultural issues, Nike shouldfirst gain knowledge of their chosen markets and the cultural sensitivity ofsaid markets, before they implement marketing strategies and campaigns. Fromthis they could adjust their marketing strategies to best suit, allowing themto use cultural differences to their advantage by creating new or expand onexisting trends in chosen market.
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