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miles. They may be located at airports, in harbor
areas, or within the interior of a country (e.g., Salt
Lake City). In addition to the FTZs (general-
purpose zones), there are also subzones throughout
the USA. Subzones are special-purpose facilities for
companies unable to operate effectively at public
zone sites.
One popular misconception about FTZs is that
they are used basically for warehousing. Although
goods may be stored for an unlimited length of time
in an FTZ, any gain from doing so is small when
compared to the alternative of a bonded warehouse,
which allows temporary storage without duty.
Actually, the future of FTZs lies in manufacturing
(product manipulation), not storing.
FTZs offer several important benefits, both for
the country and for companies using them. One
benefit is job retention and creation. When better
facilities and grants are provided to attract MNCs,
FTZs can generate foreign investment and jobs. For
example, in Buffalo, New York, FTZ was able to
attract a Canadian automobile assembly operation
and a Japanese camera importer to establish opera-
tions there. China has set up Special Economic
Zones (SEZs) for manufacturing, banking, export-
ing and importing, and foreign investment. These
SEZs provide a more liberal environment than that
of the rest of the country. SEZs, when compared to
the rest of China, are unique in the sense that they
enjoy considerable administrative autonomy and
they offer numerous economic incentives.
41
Some countries, due to political reasons, are not
able to open up their economies completely. Instead
they have set up export processing zones,a
special type of FTZ, in order to attract foreign
capital for manufacturing for export. However, for
export processing zones to be effective, exporters
should not be isolated from other firms.
42
There is evidence that manufacturers take free
trade zones into account when selecting a site for
their foreign operations. Plant location is related
positively to size of free trade zones, per capita
GNP, exchange rate devaluation, length of income
tax holidays, political stability, and manufacturing
concentration. On the other hand, the location of
export-oriented manufacturing investment is
related negatively to wage rate, inflation rate, trans-
portation cost, and profit repatriation restrictions.
43
The benefits of FTZ use are numerous. Some of
these benefits are country-specific in the sense that
some countries offer superior facilities for lower
costs (e.g., utilities and telecommunications). Other
benefits are zone-specific in that certain zones may
be better than others within the same country in
terms of tax and transportation facilities. Finally,
there are zone-related benefits that constitute
general advantages in using an FTZ. Some of the
zone-related benefits are: lower theft rate, lower
insurance costs, delay of tax payment, and reduction
of inventory in transit.
FTZs provide a means to facilitate imports.
Imported merchandise can be sent into FTZs
without formal customs entry and duty payment
until some later date. Both foreign and domestic
goods may be moved into FTZs and remain there
for storage, assembling, manufacturing, packaging,
and other processing operations. Goods that were
improperly marked or cannot meet standards for
clearance can be remarked and salvaged. Moreover,
goods can be cleaned, mixed, and used in the man-
ufacturing of other products. One Swiss cosmetics
company imports in bulk and employs US labor to
repackage its goods for retailing. In fact, importers
can even display and exhibit merchandise and take
orders in FTZs without securing a bond. For retail-
ers, benefits derived by using FTZs include the
sorting, labeling, and storing of imports.
FTZs not only facilitate imports but also facili-
tate export and re-export, though the gain from this
practice is small when compared to the alternatives
of duty drawback and temporary import bond.
However, domestic goods can be taken into an FTZ
and are then returned free of quotas and duty, even
when they have been combined with other articles
while inside the zone. Sears uses the New Orleans
FTZ to inspect foreign cameras it subsequently
ships to Latin America. Seiko Time Corporation of
America opened a 200,000-square-foot facility in
the New Jersey FTZ to store and ship watches to
Canada and Latin America. One European medical
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FOREIGN MARKET ENTRY STRATEGIES
supply firm that makes kidney dialysis machines uses
German raw materials and American labor in a
US FTZ for assembly purposes, and then exports
30 percent of the finished product to Scandinavia.
CONCLUSION
If a company wants to avoid foreign direct invest-
ment when marketing in foreign markets, it has a
number of options. It can export its product from
its home base, or it can grant a license permitting
another company to manufacture and market its
product in a foreign market. Another option is to
sign a contract to sell its expertise by managing the
business for a foreign owner.
If the firm is interested in making foreign direct
investment, it can either start its business from the
ground up or acquire another company.The acqui-
sition, however, may receive a less than enthusiastic
response from the foreign government. If the
company decides to start a new business overseas,
it must consider whether a sole venture or joint
venture will best suit the objective. Sole ventures
provide a company with better control and profit,
whereas joint ventures reduce risk and exploit the
strengths of a local partner. Regardless of whether
a sole venture or joint venture is used, the company
must still decide whether local production is going
to be complete or partial (i.e., assembly). Finally,
foreign sales to governments often take the form of
giant turnkey projects that require the company to
provide a complete package, including financing,
construction, and training.
Once a particular market is chosen, management
needs to decide on the market entry strategy. In
addition,the company should consider the feasibility
of operating all or some of its international business
in a free trade zone, since such a zone can comple-
ment many of the market penetration options.
Each market entry strategy has its own unique
strengths and weaknesses. In most circumstances
the strategies are not mutually exclusive. A manu-
facturer may use multiple strategies in different
markets as well as within the same market. No
single market penetration is ideal for all markets or
all circumstances.The appropriateness of a strategic
option depends on corporate objectives, market
conditions, and political realities.
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FOREIGN MARKET ENTRY STRATEGIES
CASE 9.1 HOW TO EXPORT HOUSES
Prefabricated houses are not new. Some well-known mail-order retailers started selling such houses in the USA
decades ago. Nearly all houses built today contain some prefabricated components such as roof trusses, floor
trusses, prehung doors, windows, and so on. The site-built or stick-built housing industry has long realized that
using ready-made components for selected parts of a house results in a significant saving of time and money in
overall construction.
Factory-built housing has come a long way since its early trailer park days back in the 1950s. Dramatic
advances in design and technology have transformed these once small, creaky single-sectioned mobile campers
into attractive, spacious, multi-sectional family dwellings. In 1999, US manufacturers exported $72 million in
prefabricated homes and housing trailers. Prefabricated housing has been gaining in popularity in the USA and
has also been expanding into overseas markets.This is mostly because of lower transportation costs and improve-
ments in styling and engineering technology.
Prefabricated houses are assembled from components that are manufactured in an enclosed central produc-
tion facility. The assembled structures are either fabricated in the factory into an almost complete module
(a modular house) or the components are transported for assembly to the construction site (panelized, precut,
or log homes). Housing is a highly varied product.
Modular structures are the most sophisticated complete types of all prefabricated buildings, being 95 percent
complete when they leave the factory, with interior and exterior walls, wiring, plumbing, insulation, windows/doors,
kitchen/bathroom appliances/fixtures, heating and cooling equipment, water heater and all other mechanical items.
The entire set-up process usually takes only a few hours and all remaining work on the building is completed in
less than two weeks.
An important type of modular housing is mobile homes. Manufactured housing units (mobile homes) are
shipped as single-section units or as single-wide sections of multi-section structures. Most are built for housing
purposes but some are made for light commercial uses, such as offices, clinics, or classrooms.
Panelized buildings are the most popular type of prefabricated structure for both domestic and international
sales due to ease of transportation via containers. Design flexibility, cost reduction advantages, and improvements
in quality control are just some of the advantages of using this system for both housing and light commercial
applications. Wall panels, some including doors and windows, are ready for assembly immediately after delivery
to the building site. Addition of the roof and completion of the building takes only a few days.
The precut building is the most basic type of manufactured structure requiring the least amount of factory
fabrication. All the wooden structural members of a building are precut at the factory with each component num-
bered or coded to key it to a set of assembly instructions or blueprints.
One advantage of prefabricated housing is quick assembly – only a few days are needed. Another buying incen-
tive is the lower price achieved through mass production. Another advantage of the assembly-line approach is
better quality control. The major disadvantage is, of course, the product’s image. There is no prestige in living
in a prefab house, and the uniform look does not enhance consumer perception. Although mass production has
generally negative connotations, it does not appreciably hurt such durables as refrigerators, automobiles, and
sound equipment. Yet, for housing, the negative image is quite overwhelming.
In Japan, where land and housing costs are outrageous, prefab houses are a necessity for many. One Japanese
firm that has acquired technical know-how in manufacturing prefab houses is Misawa Homes. Ones of its popular
designs is House 55. This model has ten capsules, requiring five large containers for transportation.The model’s
advantage is that rough assembly can be accomplished in only two hours. Another strength is its price – 20 percent
lower than conventional prefab houses and 30 percent lower than wood houses. The model was exhibited at trade
fairs in Europe and received a great deal of interest. Encouraged, Misawa Homes wanted to export its House 55
houses to Europe and the USA.
Points to consider
1 Do you think that such prefab houses as House 55 can gain consumer acceptance in the USA and Europe?
2 Even supposing the absence of US consumers’ negative reactions, are there any factors that pose no problem
in Japan and yet would create difficulties in the USA?
3 What should be Misawa’s strategy to enter overseas markets with the product?
Source:
This case was based in part on Patrick MacAuley and Pat Smeller, “Exporting US Manufactured Housing,”
Export
America
, December 2000, 19–23.
QUESTIONS
1 Briefly explain these market entry strategies: exporting, licensing, joint venture, manufacturing, assembly
operations, management contract, turnkey operations, and acquisition.
2 What is cross-licensing or grantback?
3 What are the factors that should be considered in choosing a country for direct investment?
4 What is an FTZ? What are its benefits?
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FOREIGN MARKET ENTRY STRATEGIES
DISCUSSION ASSIGNMENTS AND MINICASES
1 Since exporting is a relatively risk-free market entry strategy, is there a need for a company to consider other
market entry strategies?
2 Can a service be licensed for market entry purposes?
3 In spite of the advantages of foreign trade zones, most companies have failed to use them effectively. What
are the reasons? Can anything be done to stimulate the interest?
4 One of the most celebrated joint ventures is NUMMI (New United Motor Manufacturing, Inc.), a joint venture
between General Motors and Toyota. It seems surprising that the two largest competitors would even think
of joining forces. GM is the number one manufacturer in the USA as well as in the world. Toyota, on the
other hand, is number one in Japan and number two worldwide. NUMMI is a fifty–fifty joint venture with
the board of directors split equally between the two companies. Initially, the venture was to manufacture the
Toyota-designed subcompact, and the name chosen for the car was Nova.The total number of vehicles assem-
bled at NUMMI in 2002 was 369,856: Toyota Tacoma (164,550), Toyota Corolla (137,642), Pontiac Vibe
(59,556), Toyota Voltz (8108). What are the benefits each partner may expect to derive from the NUMMI
joint venture? Do you foresee any problems?
5 Each year, foreign companies generate some $10 billion in capital and 300,000 new jobs for the US economy.
As may be expected, US politicians, states, and local governments have competed aggressively for foreign
direct investment. Discuss the business of attracting foreign corporations from the viewpoints of both the
companies and the states. What are the matters of concern to companies which they will take into consid-
eration when making their location decisions? What are the incentives which states can offer to lure busi-
nesses to locate in a particular state?
NOTES
1 Prakash Loungani and Assaf Razin,“How Beneficial Is Foreign Direct Investment for Developing Countries?”
Finance & Development
(June 2001): 6–9.
2 “Foreign Direct Investment Flows Soar in 2000, But Are Likely to Decline Sharply in This Year,”
IMF Survey
,
October 8, 2001, 314–15.
3 “FDI in Africa: Why Do Select Countries Do Better?”
IMF Survey
, March 25, 2001, 91–2.
4 Mohsin Habib and Leon Zurawicki, “Corruption and Foreign Direct Investment,”
Journal of International
Business Studies
33 (second quarter 2002): 291–307.
5 Artur Baldauf, David W. Cravens, and Udo Wagner, “Examining Determinants of Export Performance in
Small Open Economies,”
Journal of World Business
35 (No. 1, 2000): 61–75.
6 Paul Ellis and Anthony Pecotich, “Social Factors Influencing Export Initiation in Small and Medium-Sized
Enterprises,”
Journal of Marketing Research
38 (February 2001): 119–30.
7 Kevin I.N. Ibeh and Stephen Young,“Exporting as an Entrepreneurial Act – An Empirical Study of Nigerian
Firms,”
European Journal of Marketing
35 (No. 5, 2001): 566–86.
8 Ashley Lye and R.T. Hamilton, “Search and Performance in International Exchange,”
European Journal of
Marketing
34 (No. 1, 2000): 176–89.
9 “Saint Laurent’s Newest Look,”
Business Week
, July 31, 2000, 82, 84; “Making Over YSL Is No Stroll
Down the Catwalk,”
Business Week
, January 28, 2002, 54.
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FOREIGN MARKET ENTRY STRATEGIES
10 Sandra Mottner and James P. Johnson, “Motivations and Risks in International Licensing: A Review and
Implications for Licensing to Transitional and Emerging Economies,”
Journal of World Business
35 (2),
2000, 171–88.
11 “Accor Buys Zenith Stake to Life China Exposure,”
Asian Wall Street Journal
, January 4, 2001.
12 “AMD to Form New Venture with Fujitsu,”
San José Mercury News
, March 31, 2003;“Fujitsu, AMD Expand
Venture,”
San José Mercury News
, April 1, 2003.
13 Keith D. Brouthers, “Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and
Performance,”
Journal of International Business Studies
33 (second quarter, 2002): 203–21.
14 Linda Longfellow Blodgett, “Partner Contributions as Predictors of Equity Share in International Joint
Ventures,”
Journal of International Business Studies
22 (No. 1, 1991): 63–78.
15 Robert J. Rolfe
et al
., “Determinants of FDI Incentive Preferences of MNEs,”
Journal of International
Business Studies
24 (No. 2, 1993): 335–55.
16 Yigang Pan, “Equity Ownership in International Joint Ventures: The Impact of Source Country Factors,”
Journal of International Business Studies
33 (second quarter, 2002): 375–84.
17 Vijay Pothukuchi
et al
., “National and Organizational Culture Differences and International Joint Venture
Performance,”
Journal of International Business Studies
33 (second quarter, 2002): 243–65.
18 Joel Bergsman and Xiaofang Shen, “Foreign Direct Investment in Developing Countries: Progress and
Problems,”
Finance & Development
(December 1995): 6–8.
19 Robert R. Miller, “Determinants of US Manufacturing Investment Abroad,”
Finance & Development
, March
1993, 16–18.
20 Klaus E. Meyer and Saul Estrin,“Brownfield Entry in Emerging Markets,”
Journal of International Business
Studies
32 (third quarter, 2001): 575–84.
21 “Can Nestlé Resist This Morsel?”
Business Week
, September 2, 2002, 60, 62.
22 Philippe Very and David M. Schweiger, “The Acquisition Process as a Learning Process: Evidence from a
Study of Critical Problems and Solutions in Domestic and Cross-border Deals,”
Journal of World Business
36 (No. 1, 2001): 11–31.
23 “Mergers: Will They Ever Learn?”
Business Week
, October 30, 1995, 178; and “Is the European Grass
Greener?”
Business Week
, January 29, 2001, 28.
24 AOL 2000 Annual Report.
25 Masaaki Kotabe
et al
., “Strategic Alliances in Emerging Latin America: A View from Brazilian, Chilean, and
Mexican Companies,”
Journal of World Business
35 (No. 2, 2000): 114–32.
26 John B. Cullen, Jean L. Johnson, and Tomoaki Sakano, “Success Through Commitment and Trust: The Soft
Side of Strategic Alliance Management,”
Journal of World Business
35 (fall 2000): 223–40.
27 Johny K. Johansson, “International Alliances: Why Now?”
Journal of the Academy of Marketing Science
23
(fall 1995): 301–4.
28 Gabriel R. G. Benito and Geir Gripsrud, “The Expansion of Foreign Direct Investments: Discrete Rational
Location Choices or a Cultural Learning Process,”
Journal of International Business Studies
23 (No. 3,
1992): 461.
29 Jiatao Li and Stephen Guisinger, “The Globalization of Service Multinationals in the ‘Triad’ Regions:
Japan, Western Europe and North America,”
Journal of International Business Studies
23 (No. 4, 1992):
675–96.
30 Jung Hoon and Derick Sohn, “Social Knowledge as a Control System: A Proposition and Evidence from the
Japanese FDI Behavior,”
Journal of International Business Studies
25 (No. 2, 1994): 295–324.
31 Jiatao Li and Stephen Guisinger, “Comparative Business Failures of Foreign-controlled Firms in the USA,”
Journal of International Business Studies
22 (No. 2, 1991): 209–24.
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32 C. Patrick Woodcock, Paul W. Beamish, and Shige Makino, “Ownership-based Entry Mode Strategies and
International Performance,”
Journal of International Business Studies
25 (No. 2, 1994): 253–73.
33 Benjamin Gomes-Casseres, “Firm Ownership Preferences and Host Government Restrictions: An Integrated
Approach,”
Journal of International Business Studies
20 (No. 1, 1990): 1–22.
34
US Manufacturing Firms’ Attitudes toward 1992
, Economics Department of The Bank of Boston, 1989.
35 Shih-Fen S. Chen and Jean-Francois Hennart, “Japanese Investors’ Choice of Joint Ventures Versus Wholly-
Owned Subsidiaries in the US:The Role of Market Barriers and Firm Capabilities,”
Journal of International
Business Studie
s 33 (first quarter, 2002): 1–18.
36 Klaus E. Meyer, “Institutions, Transaction Costs, and Entry Mode Choice in Eastern Europe,”
Journal of
International Business Studies
32 (second quarter, 2001): 357–67.
37 Jane W. Lu, “Intra- and Inter-organizational Imitative Behavior: Institutional Influences on Japanese Firms’
Entry Mode Choice,”
Journal of International Business Studies
1 (first quarter, 2002): 19–37.
38 Vibha Gaba, Yigang Pan, and Gerardo R. Ungson, “Timing of Entry in International Market: An Empirical
Study of US Fortune 500 Firms in China,”
Journal of International Business Studies
33 (first quarter,
2002): 39–55.
39 Keith D. Brouthers and Lance Eliot Brouthers,“Explaining the National Cultural Distance Paradox,”
Journal
of International Business Studies
32 (first quarter, 2001): 177–89.
40 Oded Shenkar, “Cultural Distance Revisited: Towards a More Rigorous Conceptualization and Measurement
of Cultural Differences,”
Journal of International Business Studies
32 (third quarter, 2001): 519–35.
41 Arvind Panagariya, “What Can We Learn from China’s Export Strategy?”
Finance & Development
(June
1995), 32–5.
42 Ann Harrison, “The Role of Multinationals in Economic Development: The Benefits of FDI,”
Columbia
Journal of World Business
29 (winter 1994): 6–11.
43 Douglas P. Woodward and Robert J. Rolfe, “The Location of Export-Oriented Foreign Direct Investment in
the Caribbean Basin,”
Journal of International Business Studies
24 (No. 1, 1993): 121–44.
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272
Because of the level of reliability and confidence consumers have in a certain [brand] name, they
would expect more within reason.
Allen Vangelos, vice president, Marketing/Customer Relations,
Castle & Cooke’s Fresh Foods Division
CHAPTER OUTLINE
■ What is a product?
■ New product development
■ Market segmentation
■ Product adoption
■ Theory of international product life cycle (IPLC)
Stages and characteristics
Validity of the IPLC
Marketing strategies
■ Product standardization vs. product adaptation
Arguments for standardization
Arguments for adaptation
■ A move toward world product: international or national product?
■ Marketing of services
Importance of services
Types of services
The economic and legal environment
Marketing mix and adaptation
Market entry strategies
■ Conclusion
■ Case 10.1 McDonaldization
Product strategies
Basic decisions and product planning
Chapter 10
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PRODUCT PLANNING
PURPOSE OF CHAPTER
Just because a product is successful in one country, there is no guarantee that it will be successful in other
markets. A marketer must always determine local needs and tastes and take them into account (see Cultural
Dimension 10.1. p. 274). Some products have universal appeal, and little or no change is necessary when
these products are placed in various markets. But for every so-called universal product there are many
others, as mentioned above, that have a narrower appeal. For products in this category, modification is
necessary in order to achieve acceptance in the marketplace. It is generally easier to modify a product than
to modify consumer preference. That is, a marketer should change the product to fit the need of the con-
sumer rather than try to adjust consumers’ needs to fit product characteristics. An awareness of applica-
tion of this marketing concept in an international setting would provide definite advantages to an
international merchant. Although the principle has been universally accepted in domestic marketing, it has
often been ignored in international marketing.
The purpose of this chapter is to study
product
in an international context. The discussion focuses on
the meaning of product and the necessities of market segmentation and product positioning. Other topics
include product development and services.There is also a critical look at the controversial issue of product
standardization versus product adaptation, as well as the theory of international product life cycle and that
theory’s marketing applications.
Appealing to 1.1 billion Muslims, LG Electronics has
introduced a mobile phone that includes an electronic
compass. Muslims pray five times a day facing Mecca.
The phone, equipped with location tracking software,
is able to point toward Mecca.
Hillary Rodham Clinton’s autobiography,
Living
History
, is a bestseller in China. It sold more than
200,000 copies in just over one month, making it the
most popular foreign political memoir in Chinese
history. Although China’s imprisonment of Harry Wu,
a prominent human rights activist, almost caused
Hillary Clinton to cancel her plan to attend a UN
women’s conference in Beijing in 1995, the officially
licensed Chinese edition of the book merely identified
Wu as a person who was “prosecuted for espionage
and detained awaiting trial.” In addition, Clinton’s
criticisms of Communist Party social controls and
human rights politics were either shortened or selec-
tively excerpted. The Chinese publisher admitted that
it made changes in the text but that these minor and
technical changes did not affect the integrity of the
book. When informed of the changes, Clinton
expressed outrage.
At one time, the Atlanta headquarters of Coca-
Cola dictated advertising, packaging, and product
decisions for its overseas operations. Now Coke has
embraced localism. It has introduced new flavors
specifically for Europe. Its Turkish division offers a
pear-flavored drink, while the German division
markets a berry-flavored Fanta. Due to legal require-
ments, the products’ ingredients may have to be mod-
ified from country to country. The combinations of
low-calorie sweetener used in each country varied
according to both local consumer tastes and local
regulations.
Japanese owners, like other Asians,wash their cars
a lot. Hence they become more intimate with areas of
the car not seen by others. This is one reason why
NUMMI has to remove three burrs – tiny metal
bumps – from the tailpipes of its Voltz vehicles during
the assembly process. One was inside the tailpipe,
while another was outside it. The third was located
MARKETING ILLUSTRATION EAST IS EAST AND WEST IS WEST
273
274
PRODUCT PLANNING
where the tailpipe was welded to the main exhaust
system. When Japanese customers clean their cars,
they will want to clean inside the pipe where some
exhaust residue has accumulated, so that they achieve
a nice shiny finish. American buyers do not notice
these burrs in the exhaust pipes that bother their
Japanese counterparts.
KFC’s name in Chinese is kendeji (kun-duh-jee) or
Kentucky. Blending local cuisine with its American-
style poultry fare, KFC offers Beijing duck. This new
item is Chicken Roll of Old Beijing, rolled in a thin
pancake with scallions, cucumber slivers and tradi-
tional sauce – typical accompaniments to Beijing-
style roast duck. The product contains fried chicken
instead of duck meat. Certainly, to maintain global
success, KFC cannot afford to cling to American
tastes without giving due consideration to diversified
cultures and customs of local consumers in other
countries.
Sources:
“LG Reaches Out to Muslim Callers,”
San José
Mercury News
, September 9, 2003; “Chinese Censorship
Angers Sen. Clinton,”
San José Mercury News
, September
24, 2003; “For Coke, Local Is It,”
Business Week
, July 3,
2000, 122; “No banned Sweetener in Coke Light or Coca-
Cola,”
Bangkok Post
, April 19, 2001; “Fremont Plant to
Produce Autos for Japan Sale,”
San José Mercury News
,
May 18, 2002; “KFC’s New Secret Recipe in China Draws
on Traditional Beijing Duck,”
San José Mercury News
,
February 15, 2003.
Ramen
is a Japanese word for
lo mein
(Chinese boiled
noodles). Momofuku Ando first introduced his instant
chicken ramen in 1958 which had flavoring already
infused in the noodles. At the time, at a price of 10
cents a packet, the product cost six times the price of
a bowl of fresh
ramen
. Ando persevered and ulti-
mately succeeded, even though it took nearly half a
century for the world to come around. China consumes
17.8 billion packets, while the figures for Indonesia,
Japan, South Korea, and the USA respectively are:
9.9 billion, 5.35 billion, 3.64 billion, and 3 billion.
Ando’s Nissin Food Products has perfected a
process to preserve cooked noodles. Fresh
ramen
is
steamed, molded into blocks, dried, cooled, and pack-
aged. He improved flavor by packaging powdered soup
mix separately from the brick of wavy noodles.
When asked to name Japan’s most influential
invention of the twentieth century, people ranked
ramen
first, ahead of Sony Walkman,Toyota cars, and
Nintendo video games. No longer limited to mild vari-
ations,
ramen
now comes in a variety of hot and spicy
flavors.
The global noodle king produces more than four
billion packs and cups a year and controls 40 percent
of the Japanese market and 10 percent of the world
market. Nissin operates twenty-five plants in eight
countries and uses shrimp from India and cabbage
from China.To conquer the world, Nissin has adapted
its products to the peculiarities of foreign markets.
Shorter noodles are offered to accommodate forks
rather than chopsticks.
Sources:
“The Universal Appeal of Ramen,”
San José
Mercury News
, February 26, 2003; “Chicken Ramen Maker
Used His Noodle,”
San José Mercury News
, February 12,
2001.
CULTURAL DIMENSION 10.1 JAPAN’S MOST INFLUENTIAL
INVENTION:
RAMEN
WHAT IS A PRODUCT?
A product is often considered in a narrow sense as
something tangible that can be described in terms
of physical attributes, such as shape, dimension,
components, form, color, and so on. This is a mis-
conception that has been extended to international
marketing as well, because many people believe that
only tangible products can be exported. A student
of marketing, however, should realize that this
definition of product is misleading since many prod-
ucts are intangible (e.g., services).Actually, intangi-
ble products are a significant part of the American
export market. For example, American movies are
distributed worldwide, as are engineering services
and business-consulting services. In the financial
market, Japanese and European banks have been
internationally active in providing financial assis-
tance, often at handsome profits. Even when tangi-
ble products are involved, insurance services and
shipping are needed to move the products into their
markets.
In many situations, both tangible and intangible
products must be combined to create a single, total
product. Perhaps the best way to define a product
is to describe it as a bundle of utilities or satisfaction.
Warranty terms, for example, are a part of this
bundle, and they may be adjusted as appropriate
(i.e., superior versus inferior warranty terms).
Purchasers of Mercedes-Benz cars expect to acquire
more than just the cars themselves. In hot and
humid countries, there is no reason for a heater to
be part of the automobile’s product bundle. In the
USA, it is customary for automatic transmission
to be included with other standard automobile
equipment.
One marketing implication that may be drawn is
that a multinational marketer must look at a product
as a total, complete offering. Consider the Beretta
shotgun. The shotgun itself is undoubtedly a fine
product, quite capable of superbly performing its
primary function (i.e., firing shotgun ammunition).
But Beretta also has a secondary function in Japan,
where the Beretta brand is perceived as a superior
status symbol. Not surprisingly, a Beretta can
command $8000 for a shotgun, exclusive of the
additional amount of a few thousand dollars for
engraving. In this case, Beretta’s secondary function
conceivably overshadows its primary objective.
Therefore, a complete product should be viewed as
a satisfaction derived from the four Ps of marketing
(product, place, promotion, and pricing) – and not
simply the physical product characteristics.
Since a product can be bundled, it can also be
unbundled. One problem with a bundled product is
the increased cost associated with the extra benefits.
With the increased cost, a higher price is inevitable.
Thus a proper marketing strategy, in some cases, is
to unbundle a product instead so as to get rid of the
frills and attract price-sensitive consumers. As
an example, Serfin is a mid-tiered bank in Mexico,
and is owned by Spain’s Banco Santander Central
Hispano. Serfin has launched Serfin Light, a new
credit card that offers no points or air miles.Instead,
its key feature is an interest rate of 24 percent rather
than 40 percent charged by the main competitors.
The word “Light” is appropriate because Mexico is
the world’s largest consumer per capita of soft
drinks, and Diet Coke is sold as Coke Light. The
“light” concept has a significant meaning in Mexico.
The success of Serfin Light prompted Banorte, the
largest bank in northern Mexico, to change its
slogan to “better than a light card, a strong card.”
1
NEW PRODUCT DEVELOPMENT
There are six distinct steps in new product devel-
opment.The first step is the generation of new product
ideas. Such ideas can come from any number of
sources (e.g., salesperson, employees, competitors,
governments, marketing research firms, cus-
tomers). As in the case of Japan, already one out of
five Japanese is age 65 or older, and the trend
has adversely affected baby food. From the peak of
$252 million in 1999, sales of baby foods fell to
$235 million in 2001. Searching for new sources of
revenue, Japanese food companies were intrigued to
learn that the same characteristics which make baby
food appealing to babies (soft, small morsels, low
salt, easy preparation) also attracted old people.
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PRODUCT PLANNING