Chapter 3: THE DIMENSIONS OF INTERNATIONAL MARKETING

CHAPTER 3

The Dimensions of International Marketing

SHEAR THE SHEEP, BUT DON’T FLAY THEM. — DUTCH PROVERB

MARKET WISDOM is millennia in age and prodigious in size. Like the preceding aphorism, the best of this wisdom is the result of clear-headed observation filtered through common sense. Keeping marketing in perspective requires the practitioner to look both backward at the forces that shaped today’s markets and forward to where those forces are propelling new prospects. Many marketeers fail to realize that much of the groundwork and research have already been laid for them; they’re best advised to view the future by standing on the shoulders of those who preceded them. “Don’t reinvent the wheel, put new tires on it” is a common saying in marketing, one that admonishes the listener to learn from history, not repeat it before moving forward. This chapter will give the reader essential background for understanding the complexity and scope of international markets.

Defining Market Conditions: Money Talks

Human beings have always traded among themselves, with each side of a trade believing they stood to gain by the transaction. Originally goods were traded for other goods (my two chickens for your pail of milk) in a process called bartering. Eventually, goods were traded for services (my two chickens in exchange for your medical recommendations). Much of what went on in the marketplace was (and still is) a matter of perception. I believe your pail of milk is of greater value to me than my two chickens and therefore I’m willing to relinquish the chickens. You, of course, believe the opposite.

Money soon came along to replace the barter and it became a medium of exchange. Money also created a wider range of bargaining options (it’s very difficult to make change with a live chicken). Money originally had some intrinsic value (gold, silver, copper); it gradually came to serve as a promissory note for the delivery of goods and services. Once everything was “priced” in terms of money (rather than chickens or milk), a new burden of proving value was placed firmly on the seller. The buyer had a set value for money and the seller had to prove that a product was worth that monetary value. Although there were extreme cases where buyers had to convince sellers that money has value (e.g., war-ravaged economies), the marketplace demanded (for the most part) that the seller do the convincing and the buyer the believing. Sellers would bring products to market hoping to attract buyers equipped with money. This was the birth of marketing,

but it wasn’t an equal relationship. The sellers might do a great deal of talking, but money always had the last word.

The Dawn of Exchange Rates: Money “Walks”

For many centuries, there was no guarantee that a single country would have a single currency. Localities minted specie or printed their own scrip, thereby complicating both the concept and practice of the marketplace. When different localities traded, both the value of the products and the currency were open to discussion. Even the amount of precious metal in coins was subject to dispute. In many ways, the burden of proving value was redistributed almost back to the level of bartering. National currencies put an end to this for internal trade purposes and reburdened the seller with all marketing responsibilities. Once trade across national borders or among city-states became prevalent, the old questions of value were resurrected. Since no nation was willing to give up its right to print or mint its own money, currency exchange rates had to be agreed upon. Gold and silver figured prominently in international trade due to their seeming universal value but, as happened before, purity was always in question.

Over time there was a movement toward the use of paper money for international trade. This made currency supply and transport easier, but without the backing of precious metals (as is the case today), paper scrip was valued (or backed) only by the “full faith and credit” of the issuing country. A powerful country could say that its paper money was worth more than a weaker country’s scrip. This led to “strong” and “weak” currencies and onto the latter day nomenclature of “hard” and “soft” (for use when describing a nation’s ability to back their scrip). The marketing of a nation’s goods and services is heavily tied to this currency valuation. The “power” behind a currency is purely economic as many of the strongest currencies come from militarily weak but economically vibrant nations (e.g., Germany and Japan). Having only military power means little in international trade, as is evidenced by the almost eternal weakness and longtime inconvertibility of Russia’s ruble.

One of the hardest of the “hard” currencies, the U.S. dollar, is issued not just by the only military superpower but by the world’s largest economy. Emerging markets tend to have the weakest currencies and their markets can suffer enormous swings of value, as was seen in Southeast Asia at the end of the 20th century. This huge devaluation greatly affected the ability of Malaysian, Indonesian, Korean, and Thai companies to sell their products internationally at a profitable price. Sudden drops in their respective currency value, some as high as 40 percent, made goods from these countries very attractive to foreign buyers. However, when paid in foreign hard currencies, these nations’ exporters received far less in payment for products that had been priced in their local currencies, due to exchange rates. Foreigners with strong currency got a lot more for a lot less. This effect unfortunately ricochets to the stronger economies, because their own products or raw materials are now priced far above the buying power of emerging Asia’s consumers and manufacturers. Marketeers worldwide had problems until currencies and prices found a new equilibrium.

This effect on marketing created by currency fluctuation comes into play among even the strongest economies. The constant wrangling over trade deficits and surplus between the top economies, China and the United States, for instance, is a major problem for their marketeers. Currency rates will determine when, what, and how companies can bring products to the international marketplace. Political and cultural influences weigh heavy on marketing as well. It’s important to understand that the determination of “value” for both product and currency is the oldest (and most visible) of the forces still at play in the international marketplace and one that ultimately reflects the other underlying forces.

International Business: Who’s Playing, Who’s Winning

International business takes place at many levels of commerce, with success and failure being distributed throughout the roster. Below is a listing of the types of companies (large, medium, and small) that have the largest involvement in international trade. The reader needs to understand the marketing process from both sides of the transaction, as each will act as both marketeer and target during their time in the marketplace. ■ EXPORTERS These “sellers” are the backbone of international trade, as they bear the burden of proving value. Though generally associated with the shipping of goods, countries also export services, as the “service economies” of the United

States and Great Britain are known to do to great success. Exports can run the gamut from mangoes to movies, shellfish to software, or coffee to cameras; the scale of operations can be massive or minuscule. If you’re selling on the international scene, regardless of size, you are an exporter. ■ IMPORTERS These are the “buyers” at the other end of the transaction, although they may not be the “end-users.” Like exporters, they come in all shapes and sizes and frequently act as exporters as well. Because they hold the money end of the trade, all marketing efforts are ultimately directed at them. Even if it doesn’t say so on your business card, if you’re buying products internationally, you’re an importer.

■ FREIGHT FORWARDERS AND SHIPPERS These very capital-intensive service providers move products among the globe’s nations by land, sea, and air.

Even other services (such as software companies and movie studios) rely on freight forwarders and shippers to move the physical goods (computers and projectors) necessary to ultimately deliver the service. This highly competitive business can include enormous sea shipping lines, shipping brokers, consolidators, couriers, airmail delivery, railways, trucking companies, or even a cross-border bicycle cart.

If exporters are the backbone of international trade, then freight forwarders and shippers are its arms and legs. ■ TRANSPORTATION Whereas some companies move products, the transportation business moves people. Few doubt that the enormous rise in international trade is due in great part to the revolution in transportation. Trips that took weeks or months only a few decades ago now can be measured in hours or days.

Operating abroad is no longer a long-distance affair as foreign companies regularly visit their representative offices in target markets. Though airlines and

airplane manufacturers are the main beneficiaries, other transporters such as railways have profited as well. Many emerging markets use international transportation as a welcome source of “hard” currency, and every country seeks the prestige of having its own national airline. ■ HOSPITALITY Hospitality and tourism as an overall industry is now the world’s largest employer, with one of every ten people on the planet involved in its operations. Not only does this new colossus of hotels, airlines, and restaurants supply travelers with diversion, but it also feeds the demand for international products through exposure. Once sampled on vacation or business trip, a product can be marketed in the visitor’s home economy as a symbol of sophistication. All nations track their visitors via immigration statistics and savvy marketeers have a ready supply of new targets. Emerging markets build hotels before they even put in a telephone system as a means of securing hard currency from visitors.

Tourism is so important to most nations that it’s a primary focus of antigovernment groups: Kill tourism, kill the economy. ■ TELECOMMUNICATIONS International business lives and breathes “information flow,” and telecommunications is the pipeline. The marketing of “telecom” services and hardware has exploded in the last decade and yet still seems to be feeding an unquenchable demand. The internal development level and potential of a market is now measured in “teledensity” or telephones per 100 people.

Moving information has become just as important as moving freight or people, and international calls are another source of hard currency for developing nations. ■ INFRASTRUCTURE Bridges, roads, seaports, airports, waste disposal, potable water, flood control, and power plants are all key factors in the development of international business. The companies that market the goods and services necessary for their acquisition are usually the first ones into emerging markets, as well as key players in the developed world’s effort to remain ahead of the pack.

It’s a simple formula: No infrastructure, no access to markets. ■ ADVERTISING Advertising, along with its related services (such as media buying and graphic design), has taken on global proportions. Advertising agencies now have multinational offices and worldwide contracts. Though lucrative and acknowledged as essential to international business, many countries put severe restrictions on how this driving force in marketing can ply its trade. Advertising foreign goods in a local market is not without peril. It’s often the unfortunate target of a government’s or subculture’s wrath and can be the flashpoint for greater problems. ■ ENTERTAINMENT Music, videos, movies, theater, games, radio, television, newspapers, magazines and book publishing all fall under the entertainment industry title. It’s one of the leaders in global marketing and, like advertising, can be the target of considerable resentment and censorship. Marketeers must take care not to have their entertainment product viewed as a form of cultural imperialism. Entertainment is a service that helps fill the coffers of many trade leaders (United States, Great Britain) but is slyly left out of trade deficit bickering.

Without a doubt, entertainment is big business internationally. ■ TECHNOLOGY The United States and Japan are the undisputed leaders in this marketplace. Manufacturing may be done worldwide, but the ideas flow primarily

from the two big players, with the United States dominating in both hardware and software. Technological advancement is the external yardstick used to measure an economy and “computer literacy” marks the stature of a national workforce. Every nation wants to get into this market. ■ CURRENCY TRADERS Currency trading represents the biggest single market in actual value in the world. The equivalent of more than two trillion U.S. dollars changes hands daily worldwide, with the market open twenty-four hours a day, seven days a week. Many international banks make more from their arbitrage trades (the price differential between two markets for the same commodity—in this case, currency) than they do from commercial loans. This trading drives prices, exchange rates, and purchasing power with very little, if any, government oversight. Though often denounced by the governments of floundering economies, currency traders operate in the ultimate free market. It’s a highly technical business with large international companies employing their own arbitrage departments to protect their profits from international sales. ■ BANKERS With all of the money floating around the globe, someone has to keep track of it. Beyond just issuing letters of credit, bankers provide both the security and financial acumen needed for trade and were thus one of the first services offered to cross-border traders. Banks were the original issuers of paper money, although most currency now moves across borders electronically.

Government-run national banks (e.g., Bank of Namibia), international banks (e.g., Credit Suisse), and local banks (e.g., VietCom Bank) all contribute to, and receive profits from, international business. Money is the blood of commerce and banks are the arteries through which it flows. ■ MANUFACTURERS Manufacturers of all nations make the stuff of which marketing sings the praises, and they make a lot of it. Manufacturers can range in size from major automotive producers to peasants doing piece-work. Even the marketer of services relies on manufactured goods to deliver the physical component of the product. From computers to cosmetics to sunglasses, manufactured goods are still the greatest focus of international marketing and will be for some time. ■ FOODSTUFFS This group includes agriculture, aquaculture, food processors, food chemists, and food geneticists. While some nations show declining populations, the world as a whole is expanding. Subsistence feeding is a concern in China and India (each with over a billion people), while Africa is constantly plagued with famine. Alarmingly, North Korea’s continual bout with starvation is a major security concern for regional governments. More developed economies demand increasingly sophisticated foodstuffs, with no end to demand in sight. As will be seen in Chapter 6, food can be a serious cultural issue for marketeers, and no one should doubt its importance to international commerce and world peace. ■ MEDICAL “Wealth makes health.” There’s a clear correlation between a nation’s coffers and its coffins. Medicine production and medical services are one of the globe’s largest businesses (only recently surpassed by hospitality) and they are concentrated in the high-end economies. Marketing “life” is a fairly easy task, and demand always outstrips supply. Marketeers need only set the right price.

■ FINANCIAL SERVICES Like entertainment, many of the world’s top economies neglect to include this in their published trade figures, concentrating on merchandise instead. It includes such multibillion dollar (yen, mark, pound etc.) industries as credit cards, business consultancy, “back office” accounting, and securities brokerages. This industry keeps international business flowing in an orderly fashion. There will be nothing but growth in this area. ■ LEGAL SERVICES Some countries are law bound (France), some are overly litigious (United States), and others find commercial law bothersome (China). The attractiveness of joining the World Trade Organization (WTO), as well as sundry trade treaties (NAFTA, APEC, MercoSur), has given rise to a blossoming of international legal services. The new requirements for standardizing many aspects of international trade, along with the penalties for noncompliance, will provide decades of work for barristers, lawyers, and their support staff in Brussels and other centers for international commercial courts. Law firms are multinational now, though many countries restrict the role that foreign practitioners can play in domestic courts. Though potentially evoking somewhat more resentment than financial services, the legal profession is in an international “bull market.” ■ INFORMATION SERVICES Telecommunications may launch the satellites, lay the optic fiber, and sell the modems, but other companies supply the information.

Database assemblers, search engines, statistical researchers, and archivists are all examples of information services. The Internet and its service providers (ISPs) have made databases available internationally, and marketeers were the first to take advantage of them. This element of the business depends on telecom and sophisticated infrastructure to function globally, and every economy (even totalitarian ones) realizes that information is critical to commerce. The old phrase was “No news is good news.” The modern equivalent is “No news is no business.”

Believe it.