International Marketing

15th edition

Philip R. Cateora, Mary C. Gilly, and John L. Graham

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
 Introduction 11

• As the 21st century continues to unfold, so does

the dynamism of the Asia Pacific Region as it has
seen double-digit annual growth rates
• The economic miracle began by Japan in the
1970s and carried on by the Four Asian Tigers in
the 1980s has now been embraced by Greater
China and the region as a whole
• Opportunities in the Asia-Pacific region abound,
brought about by the combination of fast
economic growth and half the population of the
world!
Roy Philip 11-2
 Overview 11

• Dynamic growth in the Asia Pacific region

– Greater China, Japan, India, the Four Asian
Tigers, and Vietnam
• Bottom-of-the-Pyramid Markets (BOPMs)
• Market Metrics
• Asia Pacific Trade Associations
– ASEAN, ASEAN+3, and APEC
• Focus on diversity within China
– Northeast China, Beijing-Tianjin, Shanghai and
the Yangtze River delta, Pearl River delta, and the
Other Billion
Roy Philip 11-3
 Global Perspective 11
Walmart, Tide, and Three-Snake Wine
• Developing markets are experiencing rapid
industrialization, growing industrial and
consumer markets, and new opportunities for
foreign investment
• Walmart operates over 8,000 units in 15
countries, including almost 150 in China and
about 95% of what Walmart sells is sourced
locally, example the Three-Snake rice wine
• P&G’s Tide detergent turned into unwieldy
clumps in China because of its oppressive
summer humidity
Roy Philip 11-4
 Dynamic Growth in the 11

Asia Pacific Region

• The Greater China
• Japan
• India
• The Four Asian Tigers
• Vietnam

Roy Philip 11-5

 The Greater China 11

• Refers to both the People’s Republic of China

(PRC) and Taiwan (Republic of China - ROC)
which were in 1949, and each government
claimed the other as its territory
• The ROC was one of the founding members of
the United Nations in 1945, but the PRC was
recognized into the UN in 1971
• Relationship between the ROC and the PRC has
been both politically difficult and militarily
dangerous; this has been eased in the 21st
century due to increased trade between them
Roy Philip 11-6
 The People’s Republic of 11

China (PRC) (1 of 2)
• Aside from the United States and Japan, there is
no more important single national market than
the PRC
• The PRC with a dual economic system,
embracing socialism along with many tenets of
capitalism, has produced an economic boom
with expanded opportunity for foreign
investment
• Its GNP averaged nearly 10% since 1970 and is
predicted to be around 8 – 10% in the next 10 to
15 years, equaling that of the US by 2015
Roy Philip 11-7
 The People’s Republic of 11

China (PRC) (2 of 2)
• Two major events that occurred in 2000 had a
profound effect on China’s economy:
– Admission to the World Trade Organization
(WTO)
– US granting normal trade relations (NTR) to
China on a permanent basis (PNTR)
• Two steps China must take if its road to
economic growth must be smooth:
– Improving human rights
– Reforming the legal system

Roy Philip 11-8

 The Tale of Two Chinas 11

• Old China
– Maddening, bureaucratic, bottomless money pit,
heaps demands on MNCs, local officials shaking
down major corporations, whipsawed by policy
swings, railroaded into bad partnerships, and
squeezed for technology
• New China (Market-Driven)
– Fast emerging, open to products from fast food to
shampoo, entry barriers eroding even in tightly
guarded sectors

Roy Philip 11-9

 Hong Kong 11

• After 155 years of British rule, Hong Kong

reverted to China in 1997, when it became a
special administrative region (SAR) of the PRC
• Hong Kong is given a high degree of autonomy.
It negotiates bilateral agreements (which are
then “confirmed” by the PRC0 and makes major
economic decisions on its own
• Hong Kong is a free society with legally
protected rights as the PRC continues to pursue
a generally noninterventionist approach to
economic policy that stresses the private sector
Roy Philip 11-10
 Taiwan, The ROC 11

• Both Taiwan and China continue to implement

WTO provisions between themselves
• Taiwan companies have invested over %50
billion in China, and about 250,000 Taiwanese-
run factories are responsible for about 12% of
China’s exports
• Trade helps out both countries: Taiwanese
companies face rising costs at home - China
offers a nearly limitless pool of cheap labor and
engineering talent; China’s SOEs are laying off
millions and Taiwan provides plentiful jobs
Roy Philip 11-11
 Japan 11

• Japan’s fast growth in the 1970s and 1980s

amazed the world. Then came the early 1990s,
and Japan’s economy produced a stunning
surprise: it slowed, sputtered, and stalled
• Four explanatory themes have emerged:
– Faulty economic policies
– Inept political apparatus
– Disadvantages due to global circumstances
– Cultural inhibitions

Roy Philip 11-12

 Japan’s GNI per capita 11

(Current International $)
Exhibit 11.1

Roy Philip 11-13

 Faulty Economic Policies 11

• In the early 1990s, Japan’s stock market collapsed

as its Nikkei index level plummeted from over
35,000 to under 13, 000 (it is now around 11,000)
• Decades of galloping economic recovery success had
bred a prideful national overconfidence. This was
followed by willingness to take exaggerated risks
which came in the form of borrowing heavily. After a
while, lenders became cautious and this caused the
inflated structure to collapse
• Spending habits curtailed, causing demand to fall;
this caused industry to cut back on output and
hiring; unemployment soared and confidence fell
Roy Philip 11-14
 The Political Explanation 11

• Two major villains:

– Japan’s long entrenched liberal democratic
political party – a one party sickness brought on
by a 40-year hardening of political arteries.
– Hidebound Japanese Bureaucracy – Japanese
Bureaucracy controlled its elected politicians

Roy Philip 11-15

 Global Circumstances 11

• Japanese population is shrinking faster than the

U.S. In 2005, while American baby boomers
were at their peak of productivity, the Japanese
were about 10 years ahead to population declines
and graying hair
• Serious disadvantage in the information age: its
complex language (three alphabet system)
hindered software innovations
• With historically low real prices of oil and the
U.S. peak consumption level of SUVs, Japan was
late to tap this market
Roy Philip 11-16
 The Cultural Explanation 11

• The lack of a national goal for Japan plagued

them after successfully building themselves from
the ruins of World War II
• The Japanese management culture such as,
lifetime employment, job promotion based not
on merit but on length of service, reciprocal
contractor/subcontractor loyalties, hindered
their adjustment to the new economic era
• Japan is expected to continue its slow-growth
economy; Toyota’s 2010 quality problems may
have disrupted its contributions to the economy
Roy Philip 11-17
 India (1 of 4) 11

• India’ s traditional insular policies, import

substitution, and aversion to free trade has
constrained its growth
• Its five -point agenda:
– Improving the investment climate
– Developing a comprehensive WTO strategy
– Reforming agriculture, food processing, an small-
scale industry
– Eliminating red tape, and
– Instituting better corporate governance

Roy Philip 11-18

 India (2 of 4) 11

• The following steps have already been taken:

– Privatizing state-owned companies ; reducing stake
to about 51%
– Recasting the telecom sector’s regulatory authority
and demolishing the monopolies enjoyed by SOEs
– Signing a trade agreement with the U.S. to lift all
quantitative restrictions on imports
– Maintaining momentum in the reform of the
petroleum sector
– Planning the opening of domestic long-distance
phone services, housing, and real estate and retail
trading sectors to foreign direct investment
Roy Philip 11-19
 India (3 of 4) 11

• India still presents a difficult business

environment
– Tariffs are well above those of developing world
norms
– Inadequate protection of intellectual property rights
– Anti-business attitudes of India’s federal and state
bureaucracies continue to hinder potential
investors and plague their routine operations
– Delay by policymakers on selling money-losing
SOEs, making labor laws flexible, and deregulating
banking
– Widespread corruption and ingrained bribery
Roy Philip 11-20
 India (4 of 4) 11

• But India presents a lot of opportunities

– Massive market (over 1 billion, second in size only
to China)
– Cheap and qualified labor
– Knowledge of English
– Educated middle class numbering 250 million
(college graduates, scientists, engineers, etc)
– Supplier and exporter of expertise in all areas of
information technology
– Time zone puts India in a competitive position with
their European counterparts (they work while
Americans sleep)
Roy Philip 11-21
 Four Asian Tigers 11

• Hong Kong, South Korea, Singapore, and

Taiwan
• First countries in Asia, after Japan, to move from
developing countries to newly industrialized
countries
• They are rapidly industrializing and extending
their trading activity to other parts of Asia
• They are also becoming more important as
economic leaders as the economies of other
Asian countries have strengthened and
industrialized
Roy Philip 11-22
 Vietnam 11

• Its economy and infrastructure were in shambles

after 20 years of socialism and war, but this
country of more than 88 million is poised for
significant growth
• Although the population is educated and highly
motivated and the government is committed to
economic growth, there still exists poor
infrastructure, onerous government restrictions,
minimal industrial base, competition for
resources with China, and a lack of capital
technology
Roy Philip 11-23
 Bottom-of-the-Pyramid 11

Markets (BOPMs)
• It consists of the 4 billion people across the globe
with incomes of less than $1200.
• These 4 billion consumers are, of course,
concentrated in the LDCs and LLDCs
• They have been relatively ignored by
international marketers because of
misconceptions about their lack of resources
(both money and technology)and the lack of
appropriateness of products and services usually
developed for more affluent consumers

Roy Philip 11-24

 Dynamic Transformation 11

of BOPM Clusters
Exhibit 11.2

Roy Philip 11-25

 Standard of Living in the Eight Most
11
Populous Countries in the
Asia Pacific Region

Exhibit 11.3

Roy Philip 11-26

 Infrastructures of the Eight Most
11
Populous Countries in the
Asia Pacific Region

Exhibit 11.4

Roy Philip 11-27

 Consumption Patterns in the Eight Most
11
Populous Countries in the
Asia Pacific Region

Exhibit 11.5

Roy Philip 11-28

 Asia Pacific Trade 11

Associations
• Once a source of inexpensive labor for products
shipped to Japan or to third markets, countries
in the Asia Pacific region are now seen as viable
markets
• Three free trade associations in this region:
– Association of South East Asian Nations (ASEAN)
– ASEAN+3 (ASEAN members plus ministers from
China, Japan, and South Korea)
– Asia-Pacific Economic Cooperation (APEC)

Roy Philip 11-29

Association of Southeast Asian 11
Nations (ASEAN)(1 of 2)
• Goals of the ASEAN
– Operating within a free trade area
– The ability to sell in an entire region without
differing tariff and nontariff barriers
– Distribution can be centralized at the most cost-
effective point rather than having distribution
points dictated by tariff restrictions
– Pricing can be more consistent, which helps
reduce smuggling and parallel importing
– Marketing can become more regionally and
centrally managed
Roy Philip 11-30
Association of Southeast Asian 11
Nations (ASEAN)(2 of 2)
• Four major events that caused the vigorous
economic growth of ASEAN
– The ASEAN governments’ commitment to
deregulation, liberalization, and privatization of
their economies
– The decision to shift their economies from
commodity based to manufacturing based
– The decision to specialize in manufacturing
components in which they have a comparative
advantage
– Japan’s emergence as a major provider of
technology and capital
Roy Philip 11-31
 Asia Pacific Market Group 11
Fundamental Market Metrics
Exhibit 11.6

Roy Philip 11-32

 ASEAN+3 11

• ASEAN plus China, Japan, and South Korea was

created as a result of the Asian financial crisis
(1997-1998) to deal with trade and monetary
issues facing Asia
• ASEAN+3 consists of foreign and finance
ministers of each country, which meets annually
after ASEAN meetings
• Closer links between Southeast Asia and
Northeast Asia are seen as a step toward
strengthening Asia’s role in the global economy
creating a global three-bloc configuration
Roy Philip 11-33
 Asia-Pacific Economic 11
Cooperation (APEC)
• APEC was formed in 1989
– Provides formal structure for major governments to
discuss mutual interests in open trade and economic
collaboration
– Includes all major economies of the region and the most
dynamic, fastest-growing economies in the world
• Common goal and commitment to:
– Open trade
– Increase economic collaboration
– Sustain regional growth and development
– Strengthen the multilateral trading system
– Reduce barriers to investment and trade without detriment
to other economies
Roy Philip 11-34
 A Focus on Diversity 11
Within China
• Today’s China is divided into mutually
competitive, complementary economic “warring
states,” just as it was two thousand years ago,
before being united in the Qin Dynasty
• There are four regional economies from the
north to the south of the country, along the
Pacific Coast:
– Northeast China – Industrial heartland
– Beijing-Tianjin information technology corridor
– Yangtze River Delta
– Pearl River Delta
Roy Philip 11-35
 Chinese Administrative 11
Divisions
Exhibit 11.7

Roy Philip 11-36

 Northeast China 11

• Northeast China was the industrial and

technological center of the country in the 1970s
and 1980s
• The three contiguous provinces in Northeast
China:
– Liaoning (43.2 million persons) closest economic
ties with Japan
– Jilin (27.4 million persons) shares border with
North Korea and houses 60% of North Koreans
– Heilongjiang (38.3 million persons) shares border
with Russia; the capital city of Harbin is called the
“little Moscow”
Roy Philip 11-37
 Beijing - Tianjin 11

• The 75-mile corridor between Beijing and its coast

cousin Tianjin hosts some 5,000 Chinese high-tech
companies, among them Lenovo, and more than 1,000
international IT companies
• Tianjin is China’s third largest industrial city after
Shanghai and Beijing, but it is also the fastest growing
one
• Primary industries include automotive, electronics,
metals, and petrochemicals
• Motorola’s huge investments in the Tianjin Economic
and Technology Development Zone have yielded perhaps
the biggest mobile phone manufacturing operations in
the world
Roy Philip 11-38
 Shanghai and the Yangtze 11
River Delta
• Shanghai has been undergoing a major industrial
renaissance during the past two decades
• Although medium value-added industries now
account for the vast majority of Shanghai’s industrial
employment, but new emphases are being put on
developing its automobile assembly industry and
other high-tech industries, such as computer,
telecommunications equipment, and integrated
circuit manufacturing
• China’s sustained economic growth and accession to
the WTO have aided Shanghai’s position as a
regional trade and financial center
Roy Philip 11-39
 Pearl River Delta 11

• The Greater Pearl River area includes three cities of

over 5 million inhabitants; five cities with more than
1 million inhabitants; and a number of cities that
each contain approximately half a million
inhabitants
• Shenzhen, bordering Hong Kong, leads the local
economy. It’s population is 7 million, reflecting the
significance and attractiveness of the city as a
manufacturing and transportation in base
• Proximity to Hong Kong is one of its advantages as it
can use Hong Kong as a trade platform to expand
the global market
Roy Philip 11-40
 The Other Billion 11

• There is a part of China that few Westerners ever see

and has not yet participated in the global economy.
They are called the “Other Billion,” and they usually
receive about 10 % of the central government budget
which amounts to less than $100 a head for rural
roads, water, power supplies, schools, and hospitals
• Although the government is not spending much in
the area, MNCs such as HP, Volvo, and Yamaha are
funding development, with Yum! Brands, Tricon
Global, and McDonalds closely following
• But, the area is filled with economic divide and a
massive lack of infrastructure and technology
Roy Philip 11-41
Differences in Business Negotiation 11
Styles within Greater China
• Northeastern negotiators (Forthright, industrious,
competent, honest, and plainspoken, yet averse to risk and
lack of creativity)
• Beijing area (Bureaucracy, imperialist perspective, lack of
creativity)
• Shanghai area (Shrewd, outgoing, big talkers and
spenders, creative-thinkers, and successful)
• Pearl River Delta (Entrepreneurship, spontaneity,
honest, and forthright)
• Hong Kong (Bilingual, adept with the British culture, and
humble)
• Taiwan (Conservative, age, rank, and family important,
and autocratic decision style)
Roy Philip 11-42
 Marketing Opportunities in 11
Greater China
• Across this vast land of opportunity, there are extreme
differences in economic wellbeing, cultures, and
political structures
• The following sectors are great for American
exporters:
– Automotive components, cleaner coal, construction
equipment, education and training services, machine
tools, marine industries, healthcare, water and
wastewater treatment, rail equipment, renewable
energy, and green building
• Finally, the influence of national government policies
and regulations of marketing will often be minor
compared with that of their local counterparts
Roy Philip 11-43
 Summary (1 of 2) 11

• The Asia Pacific region is the most dynamic of

the three regions covered in chapters 9-11
• China and India both grew at double-digit rates
during the last five years, and so far, they have
fared better than the United States or Europe
coming out of the 2008-2009 global recession
• Japan still remains the second most important
national market, behind only the United States
• New concepts, such as marketing to the bottom
of the pyramid, are also most applicable in south
Asia
Roy Philip 11-44
 Summary (2 of 2) 11

• The mixed stages of economic development

present a variety of opportunities for
international marketers
– Infrastructure development, new industrial
markets, and huge consumer markets
• The countries of the Asia Pacific region are
cooperating in two major trade associations:
ASEAN+3 and APEC
• There is a great deal of diversity in markets,
industries, and cultures within China

Roy Philip 11-45