[MUSIC] Welcome to the module on international marketing decisions. My name is Robert Wilken, and I'm Professor of International Marketing at ESCP Europe in Berlin. And I'm guiding you through several challenges to international marketing decisions. The objectives of this module roughly are that first, you know what these challenges are about and second, you will also get an idea on how they might be addressed. Now, what is so special about the international context of marketing decisions? The academic literature and daily press speak consistently about increased globalization. I would say already that the term globalization is ambiguous. Why? Because it is meaningful, even necessary, to distinguish four levels of globalization. Four, not one, because normally people talk about globalization just from the macro perspective of the interdependence of economies due to increased flows of exchanges across countries. For international marketing decisions though, we need to add the meso level of globalization as it represents the global versus the local nature of industries. For example, the manufacturing of aircraft is a truly global industry. In contrast, food tastes are so different across the globe that we need to talk about multi-domestic industries here. Then there is the micro level of globalization. This level considers the increasing internationalization of companies which can be measured, for instance, by the transnationality index, which we introduced in our first module in this MOOC. Lastly, at the nano level we ask ourselves, are consumers really becoming global? Do you really believe that consumers taste and habit are converging across the globe? In fact, research and business practice show that international consumer markets are generally becoming more culture bound. Instead, business markets are altogether more culture free as far as products are concerned. But still very much culture bound in terms of buying processes, be it negotiations or service delivery. To conclude on our understanding of globalization for international marketing decisions, the world, so economies, industries, companies and consumers, is much less global than we actually think. This is why there are still so many opportunities for companies to internationalize. These include looking for the deregulation of markets, such as mobile phones, the growth of demand in emerging markets, for instance in the famous BRICS cluster, for larger economies of scales or for ways of simply following of the client, as seen, for instance, in the consulting and advertising industries. Having said that, international marketing consists of finding and satisfying foreign customer needs from a local regional perspective. Doing it better than both the domestic and international competition, and coordinating marketing activities within the constraints of a global environment and company resources. Developing foreign markets, in time, will then include three phases. The first phase is initial penetration, the second is local expansion, and the third is referred to as global international marketing decisions. The first phase, that is, initial penetration, describes companies expanding abroad for the first time. These companies will have to identify where to go. This is the topic of country choice. They also need to decide on how to enter these countries. This is the topic of entry strategies. Lastly, they must decide on what to offer. The key question here is to what degree they should standardize versus adapt existing products to the specific country's needs. In phase two of internationalization, known as local expansion, the company will have landed and will now need to develop the market potential with existing and new offerings. However, there is an increasing requirement for economies of scale across markets, as well as an increased need to coordinate the marketing decisions across these countries. Lastly, in phase three, global international marketing decisions, namely global marketing operations, take place. One such operation is global branding. The aim of which is to rationalize on a global scale way beyond marketing. For example, developing global brands requires rationalizing production and standardizing brand image worldwide. Therefore, all companies, when growing international, will face three core decisions in time. Where to grow, how to grow, what to offer. These three phases differ because they are characterized by an increase need for coordination and organizational support. The first core question is, where to grow? And the two first phases of internationalization, so initial penetration and local expansion, companies use a number of criteria to select national markets into which they want to expand. For example, in the retailing industry AT Kearney suggested the Global Retail Development Index, which categorizes emerging markets according to their attractiveness for modernizing distribution channels. Once several or many countries have been penetrated, the question of where to grow increasingly becomes a question of portfolio management in phases two and three. For example, an international company can apply the Boston Consulting Group Matrix here. This matrix clusters strategic business units of a company according to market share and growth rate. On the first axis, market share, you will plot a business unit against competing ones. On the second axis, you will plot the growth rate of that business unit relative to the industry. Using these distinctions you will get four clusters. By combining high versus low market shares and high versus low growth rates. You can also apply this idea to country markets using the company's country market activities as business units. The BCG Matrix will help the company find a balance between countries with high versus low growth rates and countries with high versus low competitiveness for the company. The second core question is, how do we cross borders? In phase one, entry strategies are usually based on exports that rely, most of the time, on agent agreement. In stages two and three, the need for control increases, so companies increasingly establish subsidiaries, alone or in partnerships, for joint ventures. For example, the worldwide leader in electrical kitchen appliances, the French SEB Groupe, started its expansion into China through exports. In 2006, it acquired the local competitor, Supor, as a means of ensuring long term growth in China. The third core question is, what to offer to customers in their respective country markets? This decision will be based on considering the relative advantages of standardization and localization or adaptation. Both approaches will try to increase profits, albeit through different routes. To illustrate this idea let's consider the profit function. Profit is defined as revenue minus costs. Hereby, revenues are price per sales unit times sales. Costs are variable costs per unit times sales plus the fixed costs. Standardization means that the company uses similar offerings across country markets to benefit from economies of scale and organizational simplicity. Profit maximization results from reduced costs, which means that efficiency goals are emphasized. In contrast, localization, or adaptation, means that the company develops specific offerings per country market in an attempt to adjust the offering to specific needs for market conditions. Here, profit maximization results from increased revenues, because consumers are willing to pay more for something that better fits their needs. This means, in this case, that effectiveness goals are emphasized. As a result of combining the two optimization options, a company has two choices. It can adopt a global orientation, where international marketing programs are more homogeneous than differentiated. For example, companies that benefit from their home country's reputation typically emphasize the global orientation, such as French fashion companies, German car manufacturers, or Swiss watch brands. Or it can adopt a multinational orientation where international marketing programs are more differentiated than homogenous. This is often the case in the food and beverage sector. Finally, a company can also mix both approaches and become something that we call a glocal orientation. McDonald's fast food chain standardizes the concept, but highly adapts its menus to country-specific environments. We will use this framework of standardization versus adaptation in the next four units. Each unit will be devoted to one of the four marketing mix variables. Product, promotion, place, and finally, price. So thank you for listening, and stay tuned. [MUSIC]