Figure 1-1 Driving and Restraining Forces Affecting Global Integration

Figure 1-1 Driving and Restraining Forces Affecting Global Integration

the geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a “worldview” that sees similarities and differences in markets and countries and seeks to create a global strategy that is fully responsive to local needs and wants. a regiocentric man- ager might be said to have a worldview on a regional scale; the world outside the region of interest will be viewed with an ethnocentric or a polycentric orientation, or a combination of the two. However, research suggests that many companies are seeking to strengthen their regional competitiveness rather than move directly to develop global responses to changes in the competitive environment.50

the ethnocentric company is centralized in its marketing management; the polycentric company is decentralized; and the regiocentric and geocentric companies are integrated on a regional and global scale, respectively. a crucial difference among the orientations is the underlying assumption for each. the ethnocentric orientation is based on a belief in home- country superiority. the underlying assumption of the polycentric approach is that there are so many differences in cultural, economic, and marketing conditions in the world that it is futile to attempt to transfer experience across national boundaries. a key challenge facing organiza- tional leaders today is managing a company’s evolution beyond an ethnocentric, polycentric, or regiocentric orientation to a geocentric one. as noted in one highly regarded book on global business, “the multinational solution encounters problems by ignoring a number of organiza- tional impediments to the implementation of a global strategy and underestimating the impact of global competition.”51

Forces affecting Global Integration and Global Marketing the remarkable growth of the global economy over the past 65 years has been shaped by the dynamic interplay of various driving and restraining forces. During most of those decades, companies from different parts of the world in different industries achieved great success by pursuing interna- tional, multinational, or global strategies. During the 1990s, changes in the business environment presented a number of challenges to established ways of doing business. today, despite calls for protectionism as a response to the economic crisis, global marketing continues to grow in impor- tance. this is due to the fact that, even today, driving forces have more momentum than restraining forces. the forces affecting global integration are shown in Figure 1-1.

regional economic agreements, converging market needs and wants, technology advances, pressure to cut costs, pressure to improve quality, improvements in communication and trans- portation technology, global economic growth, and opportunities for leverage all represent important driving forces; any industry subject to these forces is a candidate for globalization.

Multilateral Trade Agreements a number of multilateral trade agreements have accelerated the pace of global integra- tion. naFta is expanding trade among the United States, Canada, and Mexico. the General agreement on tariffs and trade (Gatt), which was ratified by more than 120 nations in 1994,

50allan J. Morrison, David a. ricks, and Kendall roth, “Globalization Versus regionalization: Which Way for the Multinational?” Organizational Dynamics (Winter 1991), p. 18.

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chaPter 1 • IntroductIon to Global MarketInG 45

created the World trade organization (Wto) to promote and protect free trade. In europe, the expanding membership of the european Union is lowering boundaries to trade within the region. the creation of a single currency zone and the introduction of the euro have led to increased intra-european trade in the twenty-first century.

Converging Market Needs and Wants and the Information Revolution a person studying markets around the world will discover cultural universals as well as dif- ferences. the common elements in human nature provide an underlying basis for the opportu- nity to create and serve global markets. the word create is deliberate. Most global markets do not exist in nature; marketing efforts must create them. For example, no one needs soft drinks, and yet today in some countries, per capita soft drink consumption exceeds water consumption. Marketing has driven this change in behavior, and today the soft drink industry is a truly global one. evidence is mounting that consumer needs and wants around the world are converging today as never before. this creates an opportunity for global marketing. Multinational com- panies pursuing strategies of product adaptation run the risk of failing to be successful against global competitors that have recognized opportunities to serve global customers.

the information revolution—what some refer to as the “democratization of information”— is one reason for the trend toward convergence. the revolution is fueled by a variety of tech- nologies, products, and services, including satellite dishes; globe-spanning tV networks such as Cnn and MtV; widespread access to broadband Internet; and Facebook, twitter, Youtube, and other social media. taken together, these communication tools mean that people in the remot- est corners of the globe can compare their own lifestyles and standards of living with those of people in other countries. In regional markets such as europe and asia, the increasing overlap of advertising across national boundaries and the mobility of consumers have created opportunities for marketers to pursue pan-regional product positioning. the Internet is an even stronger driving force: When a company establishes a site on the Internet, the company automatically becomes global. In addition, the Internet allows people everywhere in the world to reach out, buying and selling a virtually unlimited assortment of products and services.

Transportation and Communication Improvements the time and cost barriers associated with distance have fallen tremendously over the past 100 years. the jet airplane revolutionized communication by making it possible for people to travel around the world in less than 48 hours. tourism enables people from many countries to see and experience the newest products sold abroad. In 1970, 75 million passengers traveled internationally; according to figures compiled by the International air transport association, that figure increased to nearly 980 million passengers in 2011. one essential characteristic of the effective global business is face-to-face communication among employees and between a company and its customers. Modern jet travel made such communication feasible. today’s information technology allows airline alliance partners such as United and Lufthansa to sell seats on each other’s flights, thereby making it easier for travelers to get from point to point. Meanwhile, the cost of international data, voice, and video communication has fallen dra- matically over the past several decades. today, Skype, Google+, and Cisco telepresence are powerful new communication channels. they are the latest in a series of innovations— including fax, e-mail, video teleconferencing, Wi-Fi, and broadband Internet—that enable managers, executives, and customers to link up electronically from virtually any part of the world without traveling at all.

a similar revolution has occurred in transportation technology. the costs associated with physical distribution, in terms of both money and time, have been greatly reduced as well. the per-unit cost of shipping automobiles from Japan and Korea to the United States by specially designed auto-transport ships is less than the cost of overland shipping from Detroit to either U.S. coast. another key innovation has been the increased utilization of 20- and 40-foot metal containers that can be transferred from trucks to railroad cars to ships.

Product Development Costs the pressure for globalization is intense when new products require major investments and long periods of development time. the pharmaceutical industry provides a striking illustration of this

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46 Part 1 • IntroductIon

driving force. according to the Pharmaceutical research and Manufacturers association, the cost of developing a new drug in 1976 was $54 million. today, the process of developing a new drug and securing regulatory approval to market it can take 14 years, and the average total cost of bringing a new drug to market is estimated to exceed $400 million.52 Such costs must be recov- ered in the global marketplace, because no single national market is likely to be large enough to support investments of this size. thus, Pfizer, Merck, GlaxoSmithKline, novartis, Bristol- Myers Squibb, Sanofi-aventis, and other leading pharmaceutical companies have little choice but to engage in global marketing. as noted earlier, however, global marketing does not neces- sarily mean operating everywhere; in the pharmaceutical industry, for example, seven countries account for 75 percent of sales. as shown in table 1-6, demand for pharmaceuticals in asia is expected to exhibit double-digit growth in the next few years. In an effort to tap that opportunity and to reduce development costs, novartis and its rivals are establishing research and develop- ment (r&D) centers in China.53

Quality Global marketing strategies can generate greater revenue and greater operating margins that, in turn, support design and manufacturing quality. a global and a domestic company may each spend 5 percent of sales on r&D, but the global company may have many times the total revenue of the domestic company because it serves the world market. It is easy to understand how John Deere, nissan, Matsushita, Caterpillar, and other global companies have achieved world-class quality (see exhibit 1-9). Global companies “raise the bar” for all competitors in an industry. When a global company establishes a benchmark in quality, competitors must quickly make their own improvements and come up to par. For example, the U.S. auto manufacturers have seen their market share erode over the past four decades as Japanese manufacturers built reputations for quality and durability. Despite making great strides in quality, Detroit now faces a new threat: Sales, revenues, and profits have plunged in the wake of the economic crisis. even before the crisis, the Japanese had invested heavily in hybrid vehicles that are increasingly popular with eco-conscious drivers. the runaway success of the toyota Prius is a case in point.

World Economic Trends Prior to the global economic crisis that began in 2008, economic growth had been a driving force in the expansion of the international economy and in the growth of global marketing for three reasons. First, economic growth in key developing countries creates market opportunities that provide a major incentive for companies to expand globally. thanks to rising per capita incomes

52Joseph a. DiMasi, ronald W. Hansen, and Henry G. Grabowski, “the Price of Innovation: new estimates of Drug Development Costs,” Journal of Health Economics 22, no. 2 (March 2003), p. 151. 53nicholas Zamiska, “novartis to establish Drug r&D Center in China,” The Wall Street Journal (november 11, 2006), p. a3.

tabLe 1-6 World Pharmaceutical Market by Region

2011 2007–2011 2012–2016

Market Size (uS$ billions) *caGr % Forecast caGr %

north america $347.1 3.5% 1–4%

europe 265.4 4.9 0–3

asia/africa/australia 165.2 15.5 10–13

Japan 111.2 3.9 1–4

Latin america 66.7 12.3 10–13

total world 995.5 6.1 3–6

*Compound annual growth rate Source: Based on IMS Health Market Prognosis. Courtesy of IMS Health.

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Figure 1-1 Driving and Restraining Forces Affecting Global Integration
Figure 1-1 Driving and Restraining Forces Affecting Global Integration

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