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Current Issues in International Marketing Management

Jan Napoleon Saykiewicz, Ph.D.

Duquesne University A.J. Palumbo School of Business Administration John F. Donahue Graduate School of Business

Submitted for The International Conference Innovation in Management Poznan University College of Business and Foreign Languages June 29-30, 2006 Poznan, Poland

Current Issues in International Marketing Management

Contemporary international, multinational, or global marketing managers frequently discuss challenges and problems related to the events taking place in the international markets. They express a lot of concern for current business developments and how to succeed in a turbulent global marketplace. As the history of business indicates, it was rather unusual that the marketplaces were not turbulent. However contemporary developments, changes and rivalries emerging from the global marketplace of today result in quite unusual challenges. The greatest challenge business is facing today is the management of change. It seems obvious that no product or service is likely to remain relevant forever and that leadership, in most cases, is transitory and very often short-lived. This refers not only to business but also to politics, as well as to many concepts and approaches in academe. Another challenge is the search for and creation of distinct competences. The global marketplace produces new customer needs and wants, while the emergence of new technologies contributes to the development of new products and services. In the search for distinct competences, the managers need to apply a dynamic approach to management development while trying to develop managerial ideas, concepts, and strategies effective in the future. Effective response to changing market requirements, competitive conditions and customer preferences requires specific managerial actions. International managers try to anticipate emerging technology changes, market requirements and customer preferences and proactively seek ways to gain advantage over competition. Building competencies and capabilities that help to gain sustainable competitive position is an important element of the management of change in the international marketplace. To keep pace with the sometimes rapidly changing environment leaders in business, politics, and academe face the constant challenge of altering their thinking. The concept of management development encompasses the idea of developing a global managerial mindset for the advantage of organizations participating in the creation of the global marketplace since it is obvious that managerial thinking influences strategy formulation and implementation. And last but not least, one of the great challenges of today is building a knowledge-based organization. Knowledge is a key source of competitive advantage. The ability to acquire, store, retrieve and utilize information and knowledge contributes to the creation of distinct competencies. Management development acknowledges the fact that the business world becomes increasingly knowledge-intensive and highlights the importance of organizational learning. Business and governmental organizations have a lot to learn, jut to be able to deal with current problems of changes in the energy market, the loss of manufacturing jobs in leading industrial countries due to outsourcing, unanticipated consequences of outsourcing, growing need for raw materials, changes in export/import structure of emerging economies, shifts in regional balance, and last but not least international trade problems created by genetically modified crops. All of that creates the demand for new types of marketing managers prepared to deal with the challenges of new international and global marketing management.

Addressing the issue of management of change there is a need to discover, analyze and understand current and also future trends that emanate from the environment in which organizations function. "Unlike the situation a few decades ago, the external environment now changes much more rapidly than organizations do... business organizations in particular do not last as long as they have in the past." However "organizations are created and developed on an assumption of continuity, to continue surviving and to last. The external environment, ...is not continuous in the same sense that organizations are. Factors and forces in an organization's external environment are discontinuous, do not fit neatly together in a pattern, are not independent homeostatic, linear, or highly predictable".1 If we agree with the above mentioned statement, we may come to the conclusion that "forces in the external environment can cause destruction but can cause creativity as well."2 Thus contemporary international marketing operates in a situation of continuous change not only of enterprises and companies creating market structure, but also in market characteristics influencing environment in which international transactions occur. There are visible changes in "critical points" of international markets like the growing role of China as a manufacturer of many consumer goods, and Russia as an energy supplier. For many internationally operating firms, rapid changes in the international business environment proved to be destructible. Just to mention the disappearance of many well known nationally based but international airlines like Panamerican, Swissair or Aeroflot that were not able to manage the change. Many others, on the contrary, were able to manage the change well - creatively building alliances that helped them to adapt to the changing market conditions. One of the most painful challenges that our global economy is confronting today is more then evolutionary change in the energy market. The world needs oil. Nothing significant happened in the area of research for new energy sources or alternative energy sources, and the way energy is used. However a lot happened in the geographic shift of economic power and the global importance of energy consumers. For instance, China was an oil exporter and it changed into an oil thirsty country. There is a strong and growing demand for energy in China and India. Of course, for many countries that are participants in the international market there is a challenge to manage this change. Sometimes it creates controversial situations, for example Russia's entry into the the American market with gasoline distribution. Lukoil's, a strong Russian company, presence in the New Jersey and New York states makes American politicians uneasy. Lukoil operates more than 200 retail gasoline stations there and plans to expand their number to 2000. There is ambiguity in the reception of this particular development. While some politicians welcome Russian owned gas stations (acquired by purchase from other companies), others call for a boycott because Russia has sold defense missiles to Iran, and the U.S.- Iran dispute on nuclear development is quite serious today. The growing role of Russia as an independent energy supplier creates a challenge among its old customers, especially neighboring countries. The situation is even more sensitive when Russia attempts to use its supplier's power to exercise various forms of political influence on traditional buyers; an agreement to build an oil pipe-line between Russia and Germany circumventing Poland is an example. To manage that change and to achieve energy security Poland, Lithuania, Estonia and Latvia have urged the European Union to draw up a common energy policy. Also to

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Burke, Warner W., Organization Change. Theory and Practice. Sage Publications 2002. p. XIII. ibidem. p. XIV.

manage this change Orlen, the biggest refining company in Poland, has signed a deal to buy a majority stake in a Lithuanian oil refinery from Yukos International, a subsidiary of a bankrupt Russian company Yukos. Orlen will buy a 53.7 per cent stake in the Mazeikiu Nafta refinery in Lithuania from Yukos International based in the Netherlands. The sale of the Lithuanian refinery stake to the Polish company is a way of managing change in the energy market in Central Europe by creating close cooperation between two countries that are very concerned about the future of energy security and is intended to give Poland and Lithuania more secure energy supplies and the opportunity to diversify their energy sources.3 Another big challenge clearly visible in the international marketplace is the changing role of the undisputed world economic leader, which is the United States of America. "In 1980, the United States made up 22 per cent of world output; today that has risen to 29 per cent. The U.S. is currently ranked the second most competitive economy in the world (by the World Economic Forum), and is first in technology and innovation, first in technological readiness, first in company spending for research and technology and first in the quality of research institutions," For about 120 years, the United States' share of the global economy has been remarkably steady - accounting for about a quarter of world output - "...and is likely to stay in roughly the same position for the next few decades if it can adapt to current challenges it faces as well as it adapted to those in the past."4 Indeed this is a good question considering that growing competence and cost advantage of countries like China, and the Asian countries, Mexico, and certainly countries of emerging economies of Central Europe make many American companies shift, relocate, and outsource their businesses there. There is a tremendous loss of manufacturing jobs in the United States. Also, due to the lack of management of a change in the world financial markets, there is a visible shift of the world financial center from New York to London. As a result of this trend there is even an opinion that American society is "...becoming a postindustrial society that specializes in consumption and leisure."5 This opinion may raise the question, "If this is true is it the best way to manage global change?" An important issue in international marketing management is the creation of a distinct competence. It can be done in many ways but in contemporary global marketing probably the most important trend is to build, manage and maintain brand equity. Ability to create, maintain, enhance and protect brands is considered perhaps the most distinctive skill of professional managers of today. Creation of distinct competence through building brand equity means adding value "...endowed to products and services, reflected in how consumers think, feel, and act with respect to the brand, as well as the prices, market share, and profitability that the brand commands for the firm. Brand equity is an important intangible asset that has psychological and financial value to the firm." "A brand is said to have positive customer-based brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified as compared to when it is not. A brand is said to have negative customer-based brand equity if consumers react less favorably to marketing activity for the brand under the same circumstances."6 As we see, it is very important for an international and also global marketer to

Dempsey, Indy, - Polish Energy Company to Buy Most of Lithuanian Oil Refinery. The New York Times, May 30, 2006, C2. 4 Zakaria, Fareed, Global Leadership: America and its Competitors. Newsweek, June 12, 2006, p. 46. 5 ibidem, p. 42. 6 Kotler/Keller, A Framework for Marketing Management. Pearson/Prentice Hall, Third Edition 2007. Page 137.

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properly manage and especially maintain control over a brand. The issue is how to do it well in the situation when Western companies are pervasively outsourcing the manufacture of their products to factories overseas. Through the outsourcing process, the companies are "entrusting their precious intellectual property - designs, molds, specifications, trade secrets - to hundreds of contractors and sub-contractors all over the world."7 The risky business trend has led to a rapid increase in counterfeited products or so called "third shift" products ­ unauthorized products made by authorized contractors. Of course, these products make their way to the market driving product owners mad and final customers uneasy about real equity of the brand. That practice is even more dangerous because contractors and sub-contractors in an outsourcing process making unauthorized, additional products quotas in most of the cases are possibly using inferior materials compromising the basic conditions of brand equity image. A good example of this practice was the case of New Balance, the Boston based, high performance shoe manufacturer. In 1999, the company requested that its Chinese manufacturer and licensed distributor, Mr. Chang, halt the sale of an inexpensive style of New Balances sneakers known as "classic." Mr. Chang was not pleased. He had success with this product and anticipated sales to increase. He disregarded the order and continued to produce and sell this particular shoe brand, moving it into premium markets like Japan and trying to sell the product in Taiwan, Hong Kong, Italy and Germany. It ended in prolonged litigation and legal proceedings are still pending; the court system in China is corrupt and works slow. This case is one of many. Today, outsourcing companies take extra precautions to protect their brands. They monitor their supply chain, use invisible inks and dyes to authenticate their products, embed encrypted information into security tags and even apply software that let brand owners monitor how many tagged components a contractor orders. If too few, the contractor may be substituting inferior parts; if too many, there might be a case of additional unauthorized production.8 The lesson learned is that global outsourcing can lead to intellectual property leaks and that threaten the company's reputation and profitability, and also that one can't be too careful when it comes to managing the supply chain in international business. Another big issue facing international marketing today is the production and trade of genetically modified crops. These crops are grown, sold and eaten mainly in the Americas -- European consumers and farmers do not want them. This situation created a divide across the Atlantic, between the European Union on one side, and the United States and Canada on the other. "Facing international pressure and lawsuit brought by the United States, Canada and Argentina at the World Trade Organization, the Union said this year that all member states must open their doors to genetically enpeneered crops and prepare practical and legal regulations to ensure safety for health and the environment."9 However genetically modified foods are so unpopular in Europe that mainstream supermarket giants like Swiss Migros will not stock them. This particular challenge resulting in changes in supply and a resistance on the demand side in a situation of international pressure requires special and sophisticated management to respect legitimate rights and preferences of all sides involved. There is no clear answer on how to do it

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Not Exactly Counterfeit. Fortune, May 1, 2006, p. 108. ibidem, p. 116. 9 Rosenthal, Elizabeth, Biotech Foods Tears Rifts in Europe. The New York Times, June 6, 2006, c1.

at the moment, but the inability to find a proper way to manage this significant change, may hurt significantly international trade relations. Contemporary challenges in the international marketplace and the necessity to manage change create a need for new types of marketing managers prepared to deal with the challenges of the new international and global marketing management. An interesting attempt has been made to "identify and define "a model for a management structure that balances the local, regional, and global demands placed on companies operating across the world's many borders."10 Here are the following suggestions: The Business Manager. The role of this type of manager is "to serve as the strategist for the organization, the architect of its worldwide asset and resource configuration, and the coordination of transactions across national borders. The business manager's overall goal is to capture the full benefit of integrated worldwide operations."11 The Country Manager. The role of this type of manager is to be "the sensor and interpreter of local opportunities and threats, the builder of local resources and capabilities, and the contributor to and active participant in global strategy". The country manager "plays the pivotal role not only in meeting local customer needs but also in satisfying the host government's requirements and defending their company's market positions against local and external competitors."12 The Functional Manager. The role of a functional manager is to be able to "transfer specialized knowledge while also connecting scarce resources and capabilities across national borders. To achieve this important objective, functional managers must scan for specialized information worldwide, "cross-pollinate" leading-edge knowledge and best practice, and champion innovations that may offer transactional opportunities and applications."13 The Corporate Manager. The role of the corporate manager is to be a leader in the broadest sense, and also identify and develop talented business, country, and functional mangers. This type of manager should not only balance the positions of other managers, but also provide opportunities "that allow business, country, and functional managers to handle negotiations in a worldwide context."14 Among all, the management issue is probably the most important. Certainly, managers should be supported by appropriate processes helping them to streamline their activities in an organized way, and also equipment that helps to organize the processes. However, human factor, its quality, training, and readiness will be most important in today's knowledge based economy of the world.

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Bartlett, Christopher A.; Ghoshal, Sumantra, What is a Global Manager? Harvard Business Review, August 2003. 11 ibidem. 12 ibidem. 13 ibidem. 14 ibidem.

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Current Issues in International Marketing Management

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