Religions, Christmas and International Marketing

Historically, the religious tradition in the United States, based on Christianity and Judaism, has emphasized hard work, thrift, and a simple lifestyle. These religious values have certainly evolved over time; many of our modern marketing activities would not exist if these older values had persisted. Thrift, for instance, presumes that a person will save hard-earned wages and use these savings for purchases later on. Today, Americans take full advantage of the ample credit facilities that are available to them. The credit card is such a vital part of the American lifestyle that saving before buying seems archaic. Most Americans feel no guilt in driving a big SUV or generously heating a large house.

Christmas is one Christian tradition that remains an important event for many consumer goods industries in all Christian countries. Retailers have their largest sales around that time. However, Christmas is a good illustration of the substantial differences that still exist among even predominantly Christian societies. A large U.S.-based retailer of consumer electronics discovered these differences the hard way when it opened its first retail outlet in the Netherlands. The company planned the opening to coincide with the start of the Christmas selling season and bought advertising space accordingly for late November and December, as retailers do in the United States. The results proved less than satisfactory. Major gift giving in Holland takes place not around December 25, Christmas Day, but on St. Nicholas Day, December 6. Therefore, the opening of the company’s retail operation was late and missed the major buying season.

From a marketing point of view, Christmas has increasingly become a global phenomenon. For many young Chinese, Christmas is not regarded as a religious holiday but simply represents “fun.” Fashionable bars charge up to $25 for entrance on Christmas Eve, and hotel restaurants charge $180 for a Christmas Eve function. The week around Christmas is the top grossing week for movie theaters in China, as young Chinese head out to theaters together instead of watching pirated DVDs at home. Santa Claus is increasing in popularity in the predominantly Sunni Muslim country of Turkey. In Istanbul shopping centers, children stand in line to sit on Santa’s lap and ask for gifts. Stores sell Santa suits and statues.

With billions of people celebrating Christmas and exchanging wishes of peace, perhaps we will see at least some of the inspired and faithful take personal steps which reduce the barbarities which humanity commits against itself in the many ongoing wars. Also, a time of remembrance of the difficult travels of Joseph and Mary, with Jesus soon to be born, might help us soften our stance against refugees and migrants in the world. Remember, we all – but for the mercy of God- could be the ones looking for succor and support.
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MERRY CHRISTMAS
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Michael R. Czinkota

Success in the Battle Against Counterfeits

Counterfeits

Michael R. Czinkota and Ilkka A. Ronkainen*

Counterfeit products and services are an international plague. It is no longer just the United States who is concerned. China’s biggest Internet companies have clamped down on a problem that has hit China’s e-commerce market particularly hard. Alibaba spends more than $16 million yearly fighting counterfeit goods.

With the globalization of competition, new markets have become both recipients and originators of products with intellectual property (IP). Consider the uncompensated value of African music components that has been integrated into Western melodies. One can also observe that many countries, particularly poorer ones, are reluctant, and often unable to pay for intellectual property. As these countries grow and develop their indigenous innovations, they also grow in their understanding of the IP issue, and the need to protect their own IP

Intellectual property enforcement ensures that new ideas can blossom into economic opportunity. Intellectual Property Rights (IPRs) have become a core issue in the global economic debate. No longer confined to cheap knockoffs of luxury goods, IP theft is placing industry and the public at risk of highly adverse economic, safety, and health consequences.

Globally, companies reportedly lose a total of $657 billion every year because of product counterfeiting and other infringement on intellectual property. Today’s key problems are with high-visibility and strong brand name consumer goods. Earlier, the only concern was whether a company’s product was being counterfeited; now, the raw materials and components purchased for production may be counterfeited. In general, countries with lower per capita incomes, higher levels of corruption in government, and lower levels of involvement in international trade tend to have more intellectual property violations.

The international marketer must act to enforce intellectual property rights. No industry or country is immune from infringement, nor can they address the threat alone. There is also need for better education regarding the risks IPR violations pose and how to defend against them.

For example, the pharmaceutical industry lobbied to make sure that provisions for patent protection in the NAFTA agreement were meticulously spelled out.

PhRMA (Pharmaceutical Research and Manufacturers) addressed the issue of international IP protection by responding to the Special 301 Report issued by the United States Trade Representative (USTR) in May 2012. The PhRMA statement cited the need for IP protections in spurring innovation, research and development, as well as the need for fair international market conditions to ensure that patients have access to medications.

One research firm estimated the global market for counterfeit pharmaceuticals to generate revenues between $75 billion and $200 billion a year. The Pharmaceutical Security Institute (PSI), a trade association created to address illegal pharmaceutical incidents, collects data on the number of counterfeiting, illegal diversion, and theft incidents. These incidents increased seventy-eight percent from 2005 to 2009. Pfizer reports that between 2004 and 2010 it seized more than 62 million doses of counterfeit medicines worldwide. More than 200 million counterfeit Eli Lilly medicines have been seized in 800 raids around the world.

Asia’s World City, Hong Kong is committed to the protection of intellectual property. With the goal of enhancing consumer confidence in Hong Kong, and to strengthen the City’s reputation as a “Shopping Paradise” for genuine products, the Intellectual Property Department has launched the “No Fakes Pledge” scheme.

The issuing bodies of the scheme are the Hong Kong & Kowloon Electrical Appliances Merchants’ Association Limited and the Hong Kong Coalition for Intellectual Property Rights of the Federation of Hong Kong Industries. With the help of strong marketing and growing participation, this campaign distinguishes honest and reliable retail merchants, thereby gaining the confidence and trust of consumers.

In 2004, the Hong Kong Intellectual Property Department cooperated with the Guangdong Intellectual Property Office to launch the “No Fakes Pledge” scheme in Guangdong Province. All participating retail merchants of the “No Fakes Pledge” scheme have committed not to sell or deal in counterfeit or pirated goods and to sell only genuine goods. All retail merchants participating in the “No Fakes Pledge” Scheme will post the “No Fakes” stickers and tent cards in their shops. With the “No Fakes” logo, tourists and consumers can easily identify reliable retailers and shop with confidence.

A number of other governments are drafting similar policies, which have served as a catalyst for enhancing protection in both the public and private sectors in those nations. Efforts to protect intellectual property, and modernize the patent and trademark system are crucial. The power of creativity and innovation applied to the solving of practical problems is not the exclusive province of any country or people. A victory over fakes and counterfeits will protect the quality and reliability of products and services, and lets customers be more informed and secure in their usage decisions.

* – Ilkka Ronkainen (Ronkaii@georgetown.edu) is a member of the faculty of marketing and international business at Georgetown University.

Tariffs, Taxes and Channel Costs /International Marketing 10th/

Tariffs

When products are transported across national borders, tariffs may have to be paid. Tariffs are usually levied on the landed costs of a product, which include shipping costs to the importing country. Tariffs are normally assessed as a percentage of the landed value. The World Trade Organization (WTO), like its predecessor, the General Agreement on Tariffs and Trade (GATT), has gone a long way in reducing tariffs. However, they can still prove significant for certain products in certain markets. Tariff costs can have a ripple effect and increase prices considerably for the end user. Intermediaries, whether they are sales subsidiaries or independent distributors, tend to include any tariff costs in their costs of goods sold and to calculate operating margins on the basis of this amount. As a result, the impact on the final end-user price can be substantial whenever tariff rates are high.

Taxes

A variety of local taxes also affect the final cost of products.

Value-added tax (VAT) a tax that is levied at each stage in the production and distribution of a product or service based on the value added by that stage; the tax is ultimately passed on to the buyer

One of the most common is the value-added tax (VAT) used by member countries of the European Union (EU). This tax is similar to the sales tax collected by state governments in the United States but involves more complicated assessment and collection procedures based on the value added to the product at any given stage.

Each EU country sets its own VAT structure. However, common to all is a zero tax rate (or exemption) on exported goods. A company exporting from the Netherlands to Belgium does not have to pay any tax on the value added in the Netherlands. However, Belgian authorities do collect a tax, at the Belgium rate, on products shipped from the Netherlands. Merchandise shipped to any EU member country from a nonmember country, such as the United States or Japan, is assessed the VAT rate on landed costs, in addition to any customs duties that may be applied to those products.

Sin taxes taxes assessed on products that are legal but discouraged by society

Different countries also assess different sin taxes. These are taxes assessed on products that are legal but are discouraged by the society. Cigarettes and alcoholic beverages commonly fall into this category.

Local Production Costs

Up to this point, we have assumed that a company has only one producing location, from which it exports to all other markets. However, most international firms manufacture products in several countries. In such cases, operating costs for raw materials, wages, energy, and/or financing may differ widely from country to country, allowing a firm to ship from a particularly advantageous location in order to reduce prices by taking advantage of lower costs. Companies increasingly choose production locations that give them advantages in production costs as well as freight, tariffs, or other transfer costs.

Consequently, judicious management of sourcing points may reduce product costs and result in added pricing flexibility.

Channel Costs

Channel costs are a function of channel length, distribution margins, and logistics. Many countries operate with longer distribution channels than those in the United States, causing higher total costs and end-user prices because of additional layers of intermediaries. Also, gross margins at the retail level tend to be higher outside the United States. Because the logistics system in a large number of countries is also less developed than that in the United States, logistics costs, too, are higher on a per-unit basis. All these factors add extra costs to a product that is marketed internationally.

Full book is available here.

DEVELOPING A GLOBAL INFORMATION SYSTEM /International Marketing 10th/

Companies that already have become global marketers, as well as those that plan to do so, must look at the world marketplace to identify global opportunities. The forces that affect an industry must also be analyzed to determine the firm’s competitiveness. To evaluate the full range of opportunities requires a global perspective for market research. Researchers must provide more than data on strictly local factors within each country. All firms that market their products in overseas markets require information that makes it possible to perform analysis across several countries or markets. However, leaving each local subsidiary or market to develop its own database will not result in an integrated marketing information system (MIS). Instead, authority to develop a centrally managed MIS must be assigned to a central location, and market reports need to be sent directly to the firm’s chief international marketing officer.

The Brazilian Institute of Public Opinion and Statistics (IBOPE) is among the top 25 global research organizations. It has operations in 14 countries in North and South America.

Full book is available here.

Studying The Competition

Firms may investigate competitors in order to benchmark. Benchmarking involves identifying best practices in an industry in order to copy those practices and achieve greater efficiency.

Benchmarking the act of identifying best practices in an industry in order to adopt those practices and achieve greater efficiency

Keeping track of a firm’s competitors is also an important strategic function. This type of strategic intelligence can be critical to a firm.

To undertake effective research about its competition, a company must first determine who its competitors are. The domestic market will certainly provide some input here. However, it is important to include any foreign company that either currently is a competitor or may become one in the future. The monitoring should not be restricted to activity in the competitors’ domestic market but, rather, should include competitors’ moves anywhere in the world. Many foreign firms first innovate in their home markets, expanding abroad only when the initial debugging of the product has been completed.

Aside from general business statistics, a competitor’s profitability may shed some light on its capacity to pursue new business in the future. Learning about others’ marketing operations may enable a company to assess, among other things, the market share to be gained in any given market. Whenever major actions are planned, it is extremely helpful to anticipate the reactions of competitive firms and include them in the company’s contingency planning. Of course, monitoring a competitor’s new products or expansion programs may give early hints of future competitive threats.

Analysis that focuses solely on studying the products of key competitors can often miss the real strength of the competitor. To understand an industry and where it is headed over the next five years, it is important to study the core competencies in the industry. 

The whole book is available here.