International marketing can be defined as the process by which a firm creates and communicates value in a culturally sensitive way. As this definition implies, international marketing involves building relationships with customers on both sides of a border. These relationships can take many forms. For example, an international marketing plan may consist of short-term promotions such as discounts or free shipping, or it might consist of long-term partnerships like joint ventures or licensing agreements.
In this guide, we review the Benefits Of International Marketing With Examples, features of international marketing, scope of international marketing, and disadvantages of international marketing.
Benefits Of International Marketing With Examples
International marketing is the process of promoting your business to a global audience. It is quite different from local marketing, which focuses on domestic consumers and businesses. International marketing allows you to reach more people and expand into new markets, so it is an important part of any business plan. Here are some benefits of international marketing:
The key benefits of international marketing are as follows:
- New Markets to Explore. The first benefit of international marketing is that it helps you explore new markets, which are often untapped and under-explored. When you do this, you’ll be able to identify the best ways to promote your products in these markets and how your product can be used in different situations by different people.
- Increased Revenue and Profits. Another benefit of international marketing is that it improves your revenue and profits by allowing you to sell more products or services than before while also reducing costs associated with doing business abroad (such as taxes). By expanding your reach beyond domestic borders, you’re able to increase revenues without increasing costs because there are no additional expenses related specifically with expanding into foreign markets—only those related generally with doing business abroad such as managing employees abroad or maintaining infrastructure like offices overseas
New Markets to Explore
There are many benefits to exploring new markets, but it can be a challenge. The first step is to understand the culture and language of the country you’re entering. You should also research what goods and services they need, their laws and customs, any tariffs that apply and other factors specific to their region.
If you have an established business in your home country, then entering a new market will probably cause challenges for both your customers and employees. It’s important that everyone is aware of how things work at all levels so there aren’t any surprises along the way!
The benefits of branching out into another market include increased revenues because there’s more opportunity for sales growth as well as potential cost savings from reduced transportation costs once everything has settled down after launch day (which could take some time).
Increased Revenue and Profits
You can increase your revenue and profits by doing international marketing. You may get increased market share, customer satisfaction, and customer base. When you expand your business to other countries, you will be able to attract new customers for better sales of your products or services.
You should know that the international market offers a lot of opportunities for business owners because there are many different cultures in different countries that have their own unique characteristics that make each nation distinct from one another. As an entrepreneur who wants to expand his or her business internationally, he/she needs to consider some factors before deciding which country they want to target first: whether they have enough resources such as money and time available; whether they know how these markets work; etc.,
Risk Management
Risk management is another benefit of international marketing. There are a number of risks that can be reduced or managed through international marketing, including foreign exchange fluctuations and political and economic instability. In addition, cultural differences can lead to misunderstandings about what consumers want from products or services. By understanding these differences, you can prevent your company from investing in a market where you may not have success. If a product or service is no longer popular due to changes in technology or other factors, then it may be time to move on before this becomes an issue for your company too.
Access to Latest Technology and Talent
The global market is a place where you can access the best technology, talent and customers. You can also find new suppliers and partners.
If you want to get your products manufactured, it is important to be part of an international network. This will help you access the latest technology and talent from across the globe, which in turn will help reduce costs as well as enhance quality. The ability to leverage this kind of knowledge base will put your company in a very advantageous position when it comes to innovation.
Even if you are just starting out with your business, having access to new markets gives you an opportunity for growth which would otherwise not be possible within borders alone. With international marketing strategies in place, businesses have been able to grow exponentially by accessing new markets outside their own country’s borders and catering specifically at these locations where they may not have had any presence before that point or even known about them at all!
Economies of Scale
Economies of scale are the cost advantages that an enterprise obtains due to size, output, and the ability to spread out fixed costs over a large volume of production.
The larger the scale of production, the greater the economies of scale.
Marketing Edge over Competitors
- You are able to offer a better service to your customers.
- You can compete on price, quality and service.
- You can offer new products and services.
- You can build a reputation for innovation.
- You can become a thought leader in your industry
Brand Recognition and Credibility
When you are thinking about international marketing, one of the first benefits that comes to mind is brand recognition. Brand recognition means that consumers have some level of awareness or familiarity with your company and its products or services. This can be a very important factor when you are trying to establish yourself as a leader in your market. You want customers to connect with your brand because it helps them identify what makes your business unique, and it also helps them feel comfortable doing business with you.
Another benefit associated with international marketing is increased credibility for businesses who target new markets overseas. When foreign consumers learn about a local business’ presence across borders, they become more likely to consider doing business with that company because they perceive there’s something special being offered here — something not available domestically (such as better quality products/services).
features of international marketing
International marketing is now a viable option for businesses, thanks to advancements in communication, transportation, and financial flow. According to the World Trade Organization, the volume of international merchandise trade increased 33 times between 1951 and 2010.
People are now accepting brands and products that originate from other countries. And this comes with a lot of opportunities and challenges.
What is International Marketing?
International marketing, also known as global marketing, involves marketing products to people across the world. In other words, it’s any marketing activity that occurs across borders. According to the American Marketing Association, international marketing is a multinational process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create an exchange that satisfies individual and organizational objectives.
It’s somewhat similar to export management. However, export management only involves managing the flow of goods and services from the host country to the guest country.
International marketing, on the other hand, covers production, finance, and personnel activities. It also entails several post-sales activities.
What are the Characteristics of International Marketing?
All the features of modern marketing apply to international marketing. However, the latter aims to satisfy the needs of global customers. So, it takes place across borders.
As a result, international marketing has specific characteristics, such as:
As you may have guessed, global marketing offers attractive opportunities to companies that are successful at it. However, it also comes with several threats and challenges.
Before we consider the benefits and challenges of international marketing, let’s address an equally important question.
What are the Types of International Marketing?
International businesses looking to sell their products or service in a new country usually start with export or licensing. Besides these options, other international marketing types include contract manufacturing, joint venture, and foreign direct investment (FID).
Let’s delve a little deeper.
1. Export
Exporting refers to the practice of shipping goods directly to a foreign country. Manufacturers looking to expand their business to other countries often consider exporting first. And that’s not surprising.
Compared to the other international marketing types on this list, exporting entails the lowest risk. It also has the least impact on the company’s human resource management.
2. Licensing
Licensing is an agreement whereby a company, known as the licensor, grants a foreign firm the right to use its intellectual property. It’s usually for a specific period, and the licensor receives royalty in return.
You’ll find several examples of licensing of intellectual property across the United States. These include patents, copyrights, manufacturing processes, and trade names.
Some top global licensors include Disney, Iconix Brand Group, and Warner Bros, to name a few.
3. Franchising
Like licensing, franchising involves a parent company granting a foreign firm the right to do business in its name. However, franchises usually have to follow stricter guidelines in running the business than licensing.
This type of international marketing is also more prevalent among service firms, such as hotels, rental services, and restaurants. On the other hand, licensing is usually restricted to manufacturing.
4. Joint Venture
A joint venture describes the combined effort of two businesses from different countries to their mutual benefit. It’s the participation of two or more companies jointly in an enterprise in which each company:
Perhaps the most popular international joint venture to date is Sony-Ericsson. It’s a partnership between a Japanese electronics company, Sony, and Swedish telecom company Ericsson.
5. Foreign Direct Investment (FID)
In FID, a company places a fixed asset in a foreign country to manufacture a product abroad.
Unlike joint ventures, the foreign company wholly owns the subsidiary. As a result, it establishes either effective control or substantial influence over the decision-making process.
Examples of foreign direct investment include mergers, acquisitions, retail, services, logistics, among others.
Several companies in the United States use these international marketing methods to sell their products and services globally. Here are some examples.
What is International Marketing examples?
There’s no one-size-fits-all approach to international marketing. As such, brands usually have to adopt various global marketing strategies to appeal to their diverse audience. It includes adjusting menus, translating across multiple languages, and adapting to the social system to avoid blunders. For example, Pepsi used the slogan “Come Alive with Pepsi” in Taiwan, or so they thought. Meanwhile, it actually translates as “Pepsi brings your ancestors back from the dead.”
scope of international marketing
International marketing, at its grassroots level, involves a certain firm in making marketing decisions/statements across boundaries of countries. At its most difficult portions, international marketing involves that firm in establishing manufacturing, research, and marketing facilities in another country and contemplating marketing strategies and schemes across the world’s trade centers. Before we learn about its humongous scope in today’s world, let’s understand the importance of International Marketing through two points.
Why International Marketing is Important
1. International Marketing brings about Peace Amongst Nations
All the activities associated with a business, namely: development, production, and marketing, especially in the case of high-tech commodities, involve people from around the world to work as one. Moreover, companies as a part of employee interactions and engagements enable workers from all countries to meet face-to-face for both recreation and commerce, which makes them feel part of a bigger family.
All this interaction goes on to not just the mutual profits associated with business relationships but also personal relations and mutual relations. The latter is the foundation of global peace and prosperity and widens the scope of International Marketing for the better. For eg, Mobile phone companies regulate different functions of their business in different parts of the globe. Say manufacturing in China, Research & Development in London, and sales teams across the globe.
2. Risk Reduction by Global companies and Open Opportunities
Scope of International Marketing goes up with global markets opening up for trading. At times, manufacturing a product in a nation can be much cheaper and the nation, in turn, becomes the hub of all exports. For example, it is common knowledge that a huge portion of all consumer commodities sold globally is manufactured in China.
Factors Influencing The Scope of International Marketing
Of all the events and trends affecting global trading today, four stand out as the most profitable and dynamic, the ones that will influence the shape of international businesses. They are:
• The rapid growth and advancement of the World Trade Organization and regional free trade areas such as the North American Free Trade Area and other unions.• The trends toward the acceptance of the free market/trading system among developing countries in Latin America, Asia, and Eastern Europe.• The overwhelming impact and influence of the Internet, mobile phones, and other global media on the dissolution of national boundaries.• The mandate to manage the resources and global surroundings properly for the generations to come.
The Scope of International Marketing For Various Kinds of Businesses
1. Imports
This is the easiest form of International Marketing a company/business venture can get into – Importing from one nation and selling in the domestic market. This is convenient only in a scenario where there is a demand in the domestic market for imported goods or services, due to the non-availability of the commodity in domestic markets. Companies also localize the imported products catering to the needs of the market.
2. Exports
Opposite to importing and selling, companies usually export their final commodities to international markets or their other franchises or companies in far-off markets where they can trade the products for generating huge profits.
3. Contractual Agreements
Whenever a business moves beyond its domestic borders, its scope of international marketing exposes it to greater chances of doing a lot better trade. The market expands, the consumer base expands and even volumes and profits expand, resulting in an all-over profitable experience. Companies grow rapidly by getting into contractual agreements with several other partners outside of their origin nation.
4. Joint Venturing for Business
Two brands can come together and enter a potential market for mutual benefits. The investments, profits, or losses are pre-decided in terms of both value and time, and after they’re achieved, they’re allied with the previously set values. At this time it is profitable for companies to enter into a joint venture for raising the scope of international marketing as a result of a hindrance to new entrants in foreign markets. A local partner can prove to be immensely useful for doing business not only technically but also from a domestic idea of the market dynamics.
5. Completly Owned Manufacturing
Relatively a bigger level of engagement in the foreign soils, companies can own and operate a completely owned manufacturing in a country. The company can use this feature to sell and deal with products within the nation or export to nearby countries. Owning completely owned manufacturing helps companies control the quality and finesse of products.
Senpai Says
To conclude, the international market is a market where a business can sell its products and services. The market is quite different from the domestic markets because of its priority, target, customers, strategy, etc. Rather than selling in a single individual country, one can sell on a whole global level, as there are way more customers in comparison to the local country level, so profit becomes more, logical. Such is the scope of International Marketing. One such business that can benefit an organization when it comes to International Marketing is a Digital Marketing Agency. So, when considering doing business in Mumbai, one would look for the best Digital Marketing Agency in Mumbai to get market data and other important information.
Selecting international markets to regulate business is an integral aspect of international activity. In this article, several logical approaches have been pointed out. These, however, have been offered so that the business can have a more on-the-spot approach to choosing a market. This especially stands true in the case of micro or smaller firms, where the personal networks/connections and cultural backdrop of the entrepreneur/owner-manager will be highly influential, as it might be one of the better-deciding factors for investors.
Micro-segmentation can play a pivotal role in narrowing the range of customers a company can choose to cater to, and as a result, make it more profitable. Expanding business to a newer nation needs research and development, and without research, the expansion of a business can be at risk, and the money can be wasted in other unthinkable ways.
Although, there are many marketing strategies, which one can pursue at their disposal for capturing global customers. The end goal should be to make a strong and reliable brand image, spread the franchise, exporting the product or services so that it caters to a larger audience.
disadvantages of international marketing
As Kia’s experience illustrates, fueled by globalization, international business has become a huge segment of the world’s overall economic activity. Amazingly, current projections suggest that, within a few years, the total dollar value of trade across national borders will be greater than the total dollar value of trade within all of the world’s countries combined. One driver of the rapid growth of international business over the past two decades has been the opening up of large economies such as China and Russia, which had been mostly closed off to outside investors and producers.
The United States, as a single country, has the world’s largest economy. Collectively, the European Union (EU) has a higher GDP than the United States, but of course it is composed of a group of nations. As an illustration of the power of the American economy, consider that, as of early 2011, the economy of just one state—California—if it were a country, would be ranked eighth largest in the world, between the UK and Russia. The U.S. capacity for production of manufactured and agricultural goods is far greater than can be consumed in America alone or NAFTA (North American Free Trade Agreement; includes Canada, Mexico, and the United States). As a result, the overall size of the U.S. economy has led American commerce to be very much intertwined with international markets.
As primarily a trading nation, Canada has also benefited from the rapid growth in international trade and globalization. Given our immense shared border with the United States, it is not surprising that Canada and the U.S. are each others’ largest trading partner, and the world’s largest trading partnership. In fact, it is fair to say that every Canadian business is affected by international markets to some degree, although services are typically affected to a lesser extent. Tiny businesses such as individual convenience stores and clothing boutiques sell products that are largely imported from abroad. Many Canadian manufacturing firms would be hard pressed to produce for only the Canadian market, as the volumes of potential sales would not allow them to achieve economies of scale. Many large corporations, on both sides of the border (e.g., General Motors (Canada), Coca-Cola, Blackberry, and Microsoft) conduct much of their business internationally (Wikipedia, 2014).
The Economist, a well-respected international magazine, has predicted that the economy of China, just 20 years ago a closed economic backwater, will be larger than that of the United States by 2019, based on real GDP growth, inflation, and the appreciation of the value of the yuan, China’s currency (S.C. & D.H., 2014). Economics suggests that the core reason for this remarkable growth has been the gradual opening of China’s border to trade. Their initially low salary scale, unlimited labor force, and few manufacturing restrictions have made China a major manufacturing and trade nation. More recently an emerging middle class has begun to fuel national consumption, further increasing the economic wealth of the nation (Wikipedia, 2014).
Access to New Customers
Perhaps the most obvious reason to compete in international markets is gaining access to new customers. Although the United States currently has the largest economy in the world, it accounts for less than 5 percent of the world’s population. Canada ranks at 0.5 percent of the world’s population. Selling goods and services to the other 95 percent of people on the planet can be very appealing, especially for companies whose home market is saturated (Figure 7.3 “Why Compete in New Markets?”).
Few companies have a stronger “American” identity than McDonald’s. Yet McDonald’s is increasingly reliant on sales outside the United States. In 2006, the United States accounted for 34 percent of McDonald’s revenue, while Europe accounted for 32 percent, and Asia, the Middle East, and Africa accounted for 14 percent. By 2012 Europe was McDonald’s biggest source of revenue (39 percent), the U.S. share had fallen to 32 percent, and the collective contribution of Asia, the Middle East, and Africa had jumped to 23 percent. With less than one-third of its sales being generated in its home country, McDonald’s is truly a global powerhouse (University of Oregon Investment Group, 2013).
China and India are increasingly attractive markets to U.S. firms. The two most populous nations in the world, both have growing middle classes, defined loosely as people financially able to purchase goods and services that are not merely necessities of life. With their immense population numbers, if only 1 percent of Chinese became middle class over the next three years, that would be 16 million potential new consumers! This trend has created tremendous opportunities for some firms. In 2013, for example, GM sold more vehicles in China than it sold in the United States (3.2 million vs. 2.8 million) (Szczesny, 2014).
GM is not alone in moving into China. Ford Motor Company sold a total of 935,813 vehicles in China in 2013, setting another annual record. Toyota and its two joint-venture partners recorded sales of 917,500 units, a 9.2 percent increase, while Honda’s China volume jumped 26 percent to 756,882. Meanwhile, sales for Japanese brands in China continued to suffer early last year amid boycotts and violent protests that occurred after Japan renewed its claims on the disputed Senkakus islands in the East China Sea, noted for their potential offshore oil and gas reserves (Miller, 2014).
Lowering Costs
Offshoring has become a popular yet controversial means of trying to reduce costs. Offshoring involves relocating a business activity to another country. Many Canadian and U.S. companies have closed down operations at home in favor of creating new operations in countries such as China and India that offer cheaper labor. While offshoring can reduce a firm’s costs of doing business, the job losses in the firm’s home country can devastate local communities, leading to negative publicity.
Many firms that compete in international markets hope to gain cost advantages. When a firm increases sales volume by entering a new country, for example, it may generate economies of scale that lower its overall and average production costs. Economics of scale may be linked to greater production from existing faciltities (sharing fixed costs across larger sales) and other shared costs such as research and development (R&D) and marketing. It also has the potential to diversify risks. As well, going international has implications for dealing with suppliers. The growth that overseas expansion creates leads many businesses to purchase supplies in greater amounts and from suppliers in multiple countries, reducing risk. This can provide a firm with stronger leverage when negotiating prices with its existing suppliers.
For example, major companies continue to outsource much of their IT work to specialists, a move that in many cases makes good business sense. The majority of employers (six out of ten) said cost savings was the main benefit of outsourcing, which they estimated at 35 percent on average, according to an IDC survey called Outsourcing Monitor in June 2012. Competitive advantage and access to specialized skills also ranked high on the list of benefits, the survey found. Most IT work is still performed in Canada, IDC says, but a growing share of the market is going to companies outside the country. Offshore firms account for $3 billion of the Canadian outsourced IT market. And their share is rising 20 percent a year. They’re handling everything from check processing to large databases, IDC says.
However, a growing number of U.S. companies are finding that offshoring is not providing the benefits they had expected. This has led to a new phenomenon known as reshoring, whereby jobs that had been sent overseas are returning home. In some cases, the quality provided by workers overseas is not good enough. Carbonite, a seller of computer backup services, found that its call center in Boston was providing much stronger customer satisfaction than its call center in India. The Boston operation’s higher rating was attained even though it handled the more challenging customer complaints. As a result, Carbonite returned 250 call center jobs to the United States in 2012.
After spending a couple of decades advising Western clients on how to “offshore” their production facilities to low-cost jurisdictions in Asia, business consultancies say it might be time to bring some of that work home. The combination of rising wages in China, elevated shipping costs, and a rethinking of supply chains is making North America the hot “new” global manufacturing hub. Boston Consulting Group predicts the combination of production returning from China and increased exports will create between 600,000 and one million jobs in the United States over the next decade (Flavelle, 2013).
This wave of reshoring has yet to touch Canada’s shores, reflecting the country’s status as a relatively expensive place to assemble gadgets, parts, and machinery. That raises a policy question for officials in Ottawa and the provincial capitals that they haven’t had to consider for a long time: How far are they willing to go to win factory work? (Carmichael, 2012; Ovsey, 2013)
Earlier this year, research company Alix Partners released a report that showed the United States had reached cost parity with Mexico as a preferred “nearshoring” location, and that it would reach similar parity with China by 2015. In lay terms, that means it costs American companies no more to keep their production on home turf than it does to offshore it to traditionally low-cost locales in Asia.
In other cases, the expected cost savings of offshore production have not materialized. In the United States, NCR had been making ATMs and self-service checkout systems in China, Hungary, and Brazil. These machines can weigh more than a ton, and NCR found that shipping them from overseas plants back to the United States was extremely expensive. NCR hired 500 workers to start making the ATMs and checkout systems at a plant in Columbus, Georgia. NCR’s plans call for 370 more jobs to be added at the plant by 2014. Similarly, General Electric announced plans to hire approximately 1,300 workers in Louisville, Kentucky, starting in the fall of 2011. These workers make water heaters and refrigerators that had been produced overseas (Isidore, 2011). Snapper, a high-quality lawn mower manufacturer located in Milwaukee, Wisconsin, concluded that the long transportation times from China did not allow them to respond quickly enough to emerging opportunities, often weather related, and so they kept production facilities in the United States.
Diversification of Business Risk
A familiar cliché warns “don’t put all of your eggs in one basket.” Applied to business, this cliché suggests that there is a certain risk for firms operating in only one country. Business risk refers to the potential that an operation might fail. If a firm is completely dependent on one country, from either a supply or market perspective, negative economic, political, or natural disasters in that country can create significant difficulty, as the Japanese earthquake of 2011 proved. Just like spreading one’s eggs into multiple baskets reduces the chances that all eggs will be broken, business risk is reduced when a firm diversifies across multiple countries.
Consider, for example, natural disasters such as the earthquakes and tsunami that hit Japan in 2011. If Japanese automakers such as Toyota, Nissan, and Honda sold cars only in their home country, the financial consequences could have been grave. Because these firms operate in many countries, however, they were protected from being ruined by events in Japan. In other words, these firms diversified their business risk by not being overly dependent on their Japanese operations.
American cigarette companies such as Philip Morris and R. J. Reynolds are challenged by trends within Canada, the United States, and Europe. Tobacco use in these areas is declining as laws are passed restricting smoking in public areas and restaurants, high taxation on smoking continues, and society’s views of smoking change. In response, cigarette makers are attempting to increase their operations within countries where smoking remains popular so they can remain profitable over time. They have also introduced e-cigerettes as a separate business line to retain customers and profits.
In 2006, for example, Philip Morris spent $5.2 billion to purchase a controlling interest in Indonesian cigarette maker Sampoerna. This was the biggest acquisition ever in Indonesia by a foreign company. Tapping into Indonesia’s population of approximately 230 million people was attractive to Philip Morris in part because nearly two-thirds of men are smokers, and smoking among women is on the rise. As of 2007, Indonesia was the fifth-largest tobacco market in the world, trailing only China, the United States, Russia, and Japan. To appeal to local preferences for cigarettes flavored with cloves, Philip Morris introduced a variety of its signature Marlboro brand called Marlboro Mix 9 that includes cloves in its formulation (T2M, 2007). Although unit sales of Philip Morris products overseas dropped 5 percent from 2012 to 2013, profits rose by concentrating on its profitable, high-profile Marlboro brand.
Since 2009, Philip Morris International and Swedish Match AB have operated a joint venture company that has commercialized smokeless tobacco products outside of Scandinavia and the United States. Through this joint venture company, PMI sells smokeless tobacco products, including Swedish snus (Philip Morris International, 2014).
Political Risk
Although competing in international markets offers important potential benefits, such as access to new customers, the opportunity to lower costs, and the diversification of business risk, going overseas also poses daunting challenges. Political risk refers to the potential for government upheaval or interference with business to harm an operation within a country (Figure 7.8 “Entering New Markets: Worth the Risk?”).
The relative stability of Canadian, U.S., and European governments leaves citizens unfamiliar with the significant political disruption that can occur with a military takeover (Thailand), military or terrorist insurrection (Egypt), or outright war (Iraq). One example of larger political change is the “Arab Spring,” a term used to refer to a series of uprisings in 2011 in countries such as Tunisia, Egypt, Libya, Bahrain, Syria, and Yemen, as their populations sought to overthrow corrupt governments.
Similarly, in 2013 and 2014, military conflict between Russia and Ukraine sent international oil prices upward on fears of further instability in oil-rich countries. Unstable governments associated with such demonstrations and uprisings make it difficult for firms to plan for the future. Over time, a government could become increasingly hostile to foreign businesses by imposing new taxes and new regulations. In extreme cases, a firm’s assets in a country may be seized by the national government. This process is called nationalization. In recent years, for example, Venezuela has nationalized foreign-controlled operations in the oil, cement, steel, and glass industries.
Countries with the highest levels of political risk tend to be those such as Somalia, Sudan, and Afghanistan whose governments are so unstable that few foreign companies are willing to go there. High levels of political risk are also present, however, in several of the world’s important emerging economies, including India, the Philippines, Russia, and Indonesia. This creates a dilemma for firms in that these risky settings also offer enormous growth opportunities. Firms can choose to concentrate their efforts in countries such as Canada, Australia, South Korea, and Japan that have very low levels of political risk, but opportunities in such settings are often more modest (Kostigen, 2011).
Economic Risk
Economic risk refers to the potential for a country’s economic conditions and policies, property rights protections, and currency exchange rates to adversely affect a firm’s operations within a country. Executives who lead companies that do business in many different countries have to take stock of these various dimensions and try to anticipate how the dimensions will affect their companies. Because economies are unpredictable, economic risk presents executives with tremendous challenges.
Hyundai and Kia are flagship companies of Hyundai Motor Group, the world’s fifth-largest automotive conglomerate. Car sales by Hyundai Motor Co. backtracked in Europe in 2013 amid weak overall market conditions, while its smaller sibling Kia Motors Corp. managed to increase its presence on the continent (The Korean Herald, 2014).
Consider, for example, Kia’s operations in Europe. Kia has achieved sales volume growth in Europe every year since 2008, increasing market share from 1.7 percent to 2.7 percent in 2013. This success, often going against the overall market downturn, is a tribute to Kia’s design, product range, quality, and warranty. As Kia’s executives planned for the future, they needed to wonder how economic conditions would influence Kia’s future performance in Europe. If inflation and interest rates were to increase in a particular country, this would make it more difficult for consumers to purchase new Kias. If currency exchange rates were to change such that the euro became weaker relative to the South Korean won, this would make a Kia more expensive for European buyers (Kia.com, 2014).
Cultural Risk
Cultural risk refers to the potential for a company’s operations in a country to struggle because of differences in language, customs, norms, and customer preferences (Figure 7.11 “Cultural Risk: When in Rome”). The history of business is full of colorful examples of cultural differences undermining companies. For example, a laundry detergent company was surprised by its poor sales in the Middle East. Executives believed that their product was being skillfully promoted using print advertisements that showed dirty clothing on the left, a box of detergent in the middle, and clean clothing on the right. A simple and effective message, right? Not exactly. Unlike English and other Western languages, the languages used in the Middle East, such as Hebrew and Arabic, involve reading from right to left. To consumers, the implication of the detergent ads was that the product could be used to take clean clothes and make them dirty. Not surprisingly, few boxes of the detergent were sold before this cultural blunder was discovered.
A refrigerator manufacturer experienced poor sales in the Middle East because of another cultural difference. The firm used a photo of an open refrigerator in its prints ads to demonstrate the large amount of storage offered by the appliance. Unfortunately, the photo prominently featured pork, a type of meat that is not eaten by the Jews and Muslims who make up most of the area’s population (Ricks, 1993). To get a sense of consumers’ reactions, imagine if you saw a refrigerator ad that showed meat from a horse or a dog. You would likely be disgusted. In some parts of world, however, horse and dog meat are accepted parts of diets. Firms must take cultural differences such as these into account when competing in international markets.
Cultural differences can cause problems even when the cultures involved are very similar and share the same language. During the 2000 Summer Olympics held in Sydney, Australia, clothing manufacturer Roots was the official outfitter for members of the Canadian Olympic and Paralympic teams. The Roots brand was emblazoned on the Olympians’ distinctive uniforms, and the Roots clothing was also sold on-site at the games. The fact that “root” is an Aussie slang for “sexual intercourse” and often replaces the F-bomb in sentences may have somewhat helped its popularity Down Under. Who doesn’t want a bag that says “Roots” on it?
RecycleBank is an American firm that specializes in creating programs that reward people for recycling, similar to airlines’ frequent-flyer programs. In 2009, RecycleBank expanded its operations into the UK. Executives at RecycleBank became offended when the British press referred to RecycleBank’s rewards program as a “scheme.” Their concern was unwarranted, however. The word scheme implies sneakiness when used in the United States, but a scheme simply means a service in the UK (Maltby, 2010). Differences in the meaning of English words between the United States and the UK are also vexing to American men named Randy, who wonder why Brits giggle at the mention of their name (Figure 7.13 “Watch Your Language”).