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7.2 Assessment of Global Markets for Opportunities

LEARNING OUTCOMES

By the end of this section, you will be able to:

  • 1 Identify the different ways marketers can assess opportunity in global markets.
  • 2 Discuss effective methods of analyzing global opportunities.

Internal Assessment for Global Readiness

According to Douglas Quackenbos and his coauthors in their Harvard Business Review article “Does Your Company Have What It Takes to Go Global,” “external factors only set the stage for an international opportunity.”21 In other words, even though a global market may represent an opportunity for the company, the organization also must be prepared internally to expand. The factors external to the organization—a country’s economy, for example—is only half of the equation. Company leaders must do a thorough internal assessment of their organization to determine if it has what it will take to expand globally. Managers and marketers who will be working directly in the international market should have fully assessed the other countries’ regulations, business landscape, and cultural differences, for example.

Harvard Business Review has a published list of the seven common characteristics found with companies that have been successful in international expansion.22 The list includes attitude, aptitude, magnitude, latitude, rectitude, exactitude, and fortitude, each of which is defined in Table 7.1.

Characteristic Definition
Attitude Global expansion is a priority.
Aptitude The company has the knowledge and skills to expand.
Magnitude The scope of expansion is aligned with capabilities.
Latitude The company has the ability to adapt.
Rectitude The company has the legal and ethical flexibility to adapt to foreign markets.
Exactitude Corporate culture aligns with flexibility and ambiguity of expansion.
Fortitude There is a commitment to long-term expansion despite setbacks.
Table 7.1 Seven Characteristics of Firms That Win Globally

Economic Infrastructure

Economic infrastructure refers to the facilities of an economy that benefit the production and distribution of goods and services.23 Infrastructure includes anything that would be required to produce and/or transport goods and services—for example, roads, railways, and high-speed Internet. Imagine that you are starting a lemon tree farm. You would not plan your farm in Michigan, where the temperatures often fall below freezing, because that would wipe out your lemon crops. Or imagine starting an online company where you sell art, but you live in a location where your Internet access is spotty and unreliable. Infrastructure considerations are critical in business needs evaluation.

Consumer Income and Purchasing Power

There are three types of income for you to be aware of:

  • Consumer income, the amount of money a household or individual earns. Consumer income is often defined as the amount of money a household has to spend.
  • Disposable income, the income available after taxes are paid.
  • Discretionary income, the money available once consumers have paid taxes and living expenses such as, rent, food, heat, groceries, etc. This income is the predominant type of income that interests marketers because it’s the money consumers typically have the most flexibility with.

Marketers evaluate discretionary and disposable income differently. It depends on the type of product or service they offer. For example, consider the impact of inflation. With inflation, the cost of goods and services increases but individual income does not also increase, meaning things cost more but there isn’t additional income to cover the additional cost. When this happens, consumers purchase fewer items and prioritize their spending differently because with the increase in the cost of necessities, there is less discretionary income to spend. As a result, consumers will cut back on nonessential items. Due to this, marketers of luxury goods are concerned with discretionary income, while marketers of packaged consumer goods are concerned with disposable income.

Companies are also impacted by inflation. Just as it costs consumers more to purchase the same goods and services during inflation, inflation will increase the cost of production for companies to create the same number of products. Companies have various tactics on addressing environmental influences like inflation. One way in which companies of consumer-packaged goods avoid increasing prices during inflation is to decrease the size of products while not increasing the price, a practice known as shrinkflation. For example, Procter & Gamble’s Charmin ultra-soft toilet paper 18-count mega package was decreased in 2022 from 264 double-ply sheets per roll to 244 two-ply sheets, yet the price either remained the same or was slightly increased.24 Often with shrinkflation, consumers don’t notice that a package is smaller, and they focus on their ability to get as much as they can for the price.

Purchasing Power

Purchasing power is defined as how many goods can be purchased with one unit of currency. As you can imagine, purchasing power varies greatly across the globe and is of great importance when deciding whether to expand into foreign markets. For example, in a country where consumers have very little income and poor purchasing power, it would be difficult to sell expensive, nonessential goods. Consumers simply would not have the money to purchase them.

Currency Exchange Rates

Marketers and other business executives must understand foreign exchange rates and how fluctuations can affect marketing strategies.25 An exchange rate is the rate at which one country’s currency can be exchanged for that of another country. Because currency exchange rates fluctuate daily, the prices of goods and services in global markets will also fluctuate.26 In turn, fluctuations in prices of goods and services will have an impact on the purchasing power of consumers and even larger effects on economic indicators such as jobs and inflation.

Suppose that in 1997, your US-based family imported British pantry items from the UK in order to create and export its own brand of barbecue sauce for sale in the UK. In 1997, it took $1.64 to buy 1 British pound (£).27 So, $1.00 was worth £0.61 in British currency (1/1.6).28 In this situation, the dollar is relatively weak compared to the British pound. One British pound would go a long way toward paying for that barbecue sauce.

Fast-forward 25 years. For the majority of 2021, it only took $1.37 to buy £1.00. So, $1.00 would buy £0.73 worth of British goods in 2021 (1/1.37). As you can see, the dollar had strengthened relative to the pound (which is the same as saying the pound had weakened relative to the dollar). This means that, by 2021, your dollar would buy more in terms of paying for British imports; conversely, consumers in the UK would have to pay more for your barbecue sauce!

Analyzing Governmental Actions

Just as every economy in the world operates differently, so does each country’s government. Businesses are greatly influenced by politics in every country (some more than others). Therefore, understanding how governmental actions impact the ability to be successful in a global market is imperative.

Political Stability

A country’s political stability can impact nearly every facet of the country. Most notably, political stability has been linked to economic conditions in various countries. When there is increased political stability, the country’s economy tends to stabilize or grow.29 This is of keen interest to marketers as they consider new foreign markets to enter. As a country’s stability increases, the opportunities to gain early entry into these markets grows. Conversely, many companies choose to avoid entering markets that lack political stability, not only because of the shaky economy but also because of potential changes in leadership, laws, and regulations.

Consider Russia’s invasion of Ukraine in early 2022. In response, many companies pulled their operations out of Russia in a show of support for Ukraine. McDonald’s, which opened its first Russian location in 1990, was one of the first global companies to cease operations there. The company stated that the activities of the Putin government were not consistent with McDonald’s values, but also that the turbulent operating environment made it untenable to continue operations there.30

Trade Regulations

In an effort to promote (or inhibit) trade with other countries, governments often have some level of trade regulations. These regulations can be within industries or with specific nations or groups of nations. The common trade regulations surrounding imports and exports around the world include tariffs, quotas, trade blocs, and embargoes. Additionally, countries have specific regulations for foreign companies hoping to establish business within their markets.

Tariffs are taxes that governments impose on imports coming into the country. Tariffs can be imposed as a percentage (most common) or dollar amount. Tariffs are generally used by governments to bring more money into a country. Japan, for example, has one of the lowest tariffs in the world at 2.5 percent for nonagricultural products.31 Conversely, the East African nation of Seychelles once had a much higher tariff rate, averaging well over 50 percent prior to joining the World Trade Organization (WTO) in 2015.32 After joining the WTO, tariffs were reduced to under 25 percent.33

Quotas are maximum allowable units to be imported into or exported out of a specific country. Quotas are often used by a country to protect a domestic industry. For example, if the US government limited the number of Japanese automobiles to 2 million imports per year, this would cause lower sales of imported vehicles and, in turn, higher sales of domestically produced vehicles.34

Embargoes are bans on trading a product with a specific country and are imposed between countries that have different political ideologies. The United States, for example, has embargoes against Cuba, Iran, North Korea, and Syria that prohibit all transactions with these countries without a license.35

Trade blocs are intergovernmental agreements that remove barriers of trade within regions of the world. There are currently 10 major trade blocs in the world.36 The United States-Mexico-Canada Agreement (USMCA) and the EU27 are two prominent examples. The USMCA allows free trade among Canada, the United States, and Mexico.

There are a variety of examples of the sorts of approaches countries will take with trade regulations. For example, companies may impose strict laws and regulations on who can own the factors of production. In some instances, there are issues with corrupt governments requiring bribes and kickbacks.

Transparency International publishes an annual survey called the Corruption Perceptions Index (CPI). Marketers use this survey for insights into country dynamics and can evaluate market viability of their product or service offering. This guide helps company leadership determine how much work they may have in understanding a country’s way of operating and what kind of work it would take to make their product or service successful.

Analyzing Sociocultural Factors

While the economic and political factors of a foreign market will determine a firm’s ability to enter a market, the sociocultural factors may be most important in determining whether goods and services will be successful in a market. Sociocultural factors include values, behaviors, culture, lifestyle, and language that shape a person’s or group’s way of living. As you can imagine, there are hundreds of cultures around the world, and every culture within a country has its own nuances, preferences, and even ways of conducting business. Marketers who want enter foreign markets must have a deep understanding of these factors to establish effective marketing strategies.

Lifestyles

The way a person or group lives is known as their lifestyle. Each person has their own unique lifestyle, while cultures and families share similar traits within their collective lifestyles. Marketers must get to know their consumers to understand their buying behavior and how their lifestyles affect it.

In 2009, toy manufacturer Mattel Inc. opened a huge, three-story, Barbie-inspired flagship store in Shanghai, China. What marketers failed to do before making this market-entry decision was to study the lifestyles of Chinese consumers. In China, the culture stresses educational toys and playtime that builds skills; Barbie was neither of those. The store closed after only two years.37

Marketers must also be careful to avoid stereotypes of other cultures and countries. Stereotypes are oversimplified perceptions, images, or ideas of a person or groups.38 While they can be negative or positive, they are overgeneralized perceptions about an entire group or people. Companies sometimes learn the hard way to avoid stereotypes.

For example, in 2014, Delta Air Lines, a major US passenger airline carrier (see Figure 7.3), made a big stereotype blunder with its social media marketing. The company sent out a congratulatory tweet to the US team for its win over the Ghanaian team in the World Cup in which it used a photo of a giraffe to represent Ghana.39 Unfortunately, Delta marketers failed to realize that there is not one wild giraffe in Ghana; this is a frequent stereotype about the entire continent of Africa. In fact, there are over 50 countries in Africa, but only around 20 have naturally wild giraffes.40 The Twitter market caught on to this error quickly and proceeded to tease Delta for its stereotype mistake.

An airplane flies over a body of water while the sun is setting.
Figure 7.3 Marketing based on stereotypes can lead to big mistakes, such as when a social media post by Delta Air Lines incorrectly assumed that Ghana was home to wild giraffes, resulting in the market openly teasing the company on Twitter for its blunder. (credit: “Phuket 2018” by un.cloned/flickr, CC BY 2.0)

Law and Politics

Laws and politics have a large impact on a country’s economy and, in turn, how products will (or even can) be marketed. Political and legal decisions made within a country’s system surrounding tariffs, labor laws, the environment, and even an expectation of bribery can impact a business’s decisions. Even politics between two countries can have a big impact on decisions made by marketers.

In 2019, President Donald Trump increased the tariffs on Chinese goods to 25 percent. Several companies subsequently opted to pull their production facilities out of China. For example, Apple and Dell moved some of their production to Vietnam and other parts of Asia to avoid these tariffs.41

Education

Education impacts a consumer’s product and service choices. Generally speaking, the more educated an individual is, the more discretion they use when purchasing products.42 In other words, that person will spend more time researching various products before deciding which to purchase. Levels of education also effect an individual’s choices in magazines, television shows, and other entertainment.43 Therefore, platforms, messages, and even specific words marketers choose for the promotion mix will depend on the level of education that the target market holds. Is the market tech savvy? If not, using technical words and messages may confuse a consumer who doesn’t understand the message.

Technology

The availability of technology within an international market will have several impacts on marketing efforts. First, the ability for consumers to access and use technology will directly impact the goods and services that are being marketed. Second, the company’s access to technology to produce goods and services within the country will also be impacted.

For example, Uganda has the second-youngest population in the world.44 It is also ranks among the poorest countries in the world.45 Because of this, someone may make the mistake of thinking that Uganda would not be a market to enter with technology, but this is far from true. While many citizens of Uganda live without electricity or running water, the country’s population of 45.74 million is estimated to own around 16 million cell phones, but only around 1 million homes have electric lights.46 Due to the young population seeking to be more connected with others, the people of Uganda prioritize and are heavily reliant on their cell phones (see Figure 7.4).

But if there is limited electricity, how do Ugandans charge their cell phones? It has certainly been a challenge for many who have to share solar power with neighbors or travel to a nearby village that has electricity. However, the use of portable charging solutions has become more widespread. One company, Charge Ko Technologies, has turned this into an opportunity and created various portable charging solutions, including solar backpacks and energy generation through bicycle usage.47 While some impoverished Ugandan consumers may not be able to afford these products, the company is hopeful that the wealthier will purchase enough to help bring the price down over time.

An advertisement above a building reads “Switch to Airtel 4 G“. The building is on a dirt road.
Figure 7.4 Cell phone use is widespread in Uganda because people prioritize connecting with other people, resulting in portable charging stations because electricity is a limited resource. (credit: Sarah Shepler, photographer)

Conducting a Cross-Cultural Analysis

When the Walt Disney Company decided to open Disneyland Hong Kong in 2005, the company struggled to gain momentum with its Chinese target market. Among other blunders, such as its high admission price, the company assumed that its Chinese market would love the Disney brand as much as Americans do. The company failed to realize that, unlike Americans, the Chinese did not grow up with the Disney brands and characters. Imagine walking into a fantasy theme park with characters you had never heard of or seen before. Unlike Americans, the Chinese do not view Disney characters as cultural icons. The fantasy aspect of the brand and park was another issue Disney faced. Its closest competitor, Ocean Park, provided visitors with real animals, educational material, and thrilling rides. The Asian market, which values education, found Disney’s high ticket prices with little educational value to be wasteful when the park initially opened.48

Values

Cultural values are often unspoken. They include the aesthetics, socialization, and religious aspects woven throughout a culture. Consider the Disney example. Marketers stumbled with truly understanding the Chinese consumer culture when opening Disney Hong Kong by assuming that Chinese values were similar to those of Americans.

Customs and Cultural Symbols

Like other cultural values, customs are often unspoken. Customs consist of mannerisms or behaviors that are considered characteristics within a social system.49 For example, in Spain, the afternoon siesta is a cultural custom. The siesta is an afternoon nap taken after the midday meal. Businesses will close for extended lunch breaks to allow employees to take their afternoon siesta.50 If you are considering opening a business in Barcelona, you should expect to do the same!

Cultural symbols are physical representations of a culture’s language, values, and traditions. They include items such as flags, gestures, holiday decorations, and many others. For example, in China, the national animal is the giant panda, and it has significant cultural importance as a symbol.51 Similarly, the maple leaf is symbolic of Canada52 (see Figure 7.5).

The Canadian flag has a red maple leaf in the center on a white background. Two red stripes are on the sides of the maple leaf.
Figure 7.5 Cultural symbols, like the Canadian maple leaf, are physical representations of a culture’s language(s), values, and traditions. (credit: “Vancouver B.C. - Canadian Flag ‘Maple Leaf’” by David Paul Ohmer/flickr, CC BY 2.0)

Language, Idioms, and Nuances

It may seem obvious, but even language differences play a large role in the marketer’s job as products and services are rolled out in international markets. Brands and product names may have one meaning in the home country and a completely different meaning in another language. For example, Nestlé had problems when rolling out its Gerber baby food in France because “Gerber” translates to “puke” in French. For obvious reasons, this didn’t appeal to French parents choosing food for their infants.53

Nuances are words, phrases, or beliefs that vary slightly from one culture to another and can cause miscommunication in translation. For example, UK citizens use the word “jelly” to describe what people in the United States would call “Jell-O,” and they use the word “biscuit” for “cookie.”54

Idioms are phrases used in a culture that mean something completely different. For example, if you hear someone say “break a leg” in the United States, it would mean “good luck.” However, using this idiom in another culture may leave the other person quite confused or even offended, thinking it was meant literally to go break their leg.55 In Spanish-speaking cultures, the popular idiom “a lot of noise and no walnuts (mucho ruido y pocas nueces)” means “all talk and no action,” but it would have no meaning in the United States.56

However, even idioms can become problematic within and across languages and cultures. In 2022, Lizzo, a world-renowned pop star, issued an apology and a rerelease of a song because she had used a culturally insensitive word that she was unaware of at the time of recording.57

CAREERS IN MARKETING

Global Marketing Manager

With the increase in companies doing business internationally, global marketing managers’ job roles are becoming more important. Global marketing managers work to understand what international markets need, the competition, rules and regulations, and local cultures and values. They then use this information to develop global marketing strategies that appeal to the local market. Learn more about this role from these sources:

Knowledge Check

It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.

1.
During the Russian invasion of Ukraine in 2022, the Russian ruble’s value decreased to less than one United States penny. This conversion from ruble to dollar is known as the ________.
  1. exchange rate
  2. business landscape
  3. purchasing power
  4. consumer income
2.
Generally speaking, when a country’s political stability improves, so does its ________.
  1. international business
  2. purchasing power
  3. economy
  4. consumer income
3.
The assumption that all Chinese individuals are extremely gifted in mathematics is known as a ________.
  1. stereotype
  2. lifestyle
  3. culture
  4. sociocultural factor
4.
During the Russian invasion of Ukraine in 2022, United States President Joe Biden halted all imports of Russian oil. This action is known as a(n) ________.
  1. tariff
  2. quota
  3. trade bloc
  4. embargo
5.
The United States, Canada, and Mexico are part of a trade bloc known as ________.
  1. ASEAN
  2. USMCA
  3. tariffs
  4. embargoes
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