Analysis business Problems

Boston Scientific A SITUATION ANAYLSIS AND SOLUTION

Contents Executive Summary 1 Situation Analysis 3 Company Overview 3 Business Strategy 3 Mission, Brand Declaration, Values 4 Mission 4 Brand Declaration 4 Values 4 Corporate Citizenship 4 Stakeholders 5 Performance 6 SWOT Analysis 7 Primary Competitors 7 Industries 8 Cardiovascular 8 Rhythm Management 8 MedSurg 8 Market Share 9 Medical Device Manufacturing in the US 9 Stent Manufacturing in the US 9 Industry Outlook 10 Medical Device Manufacturing in the US 10 Stent Manufacturing in the US 10 External Factors Influencing Performance 10 Problem Analysis & Description 11 Problems 11 Litigation with Johnson & Johnson 11 Vaginal Mesh Lawsuits 12 Increase in Accounts Receivable Days Outstanding 12 Foreign Currency Fluctuations 13 Product Recalls 13 Declining Sales in Coronary Stent Systems and Cardiac Rhythm Management 14 Problem Statement 14 Assessing the Root Causes of the Problem 15 Declining Market Share in Coronary Stent Systems 15 Decline in Cardiac Rhythm Management Devices Average Selling Price 16 Supply Constrained 16 Over Dependence of CRM and Coronary Stent Sales 16 Competitors Get New Product to Market First 17 Solutions 18 Solution Analysis 18 Focus Acquisitions on Other Core Businesses 18 Increase Funding for R&D in Neuromodulation 18 Enter Diabetes Device Market 19 Weighted Decision Matrix 20 Long Term Financial Impact 20 Short Term Costs 21 Potential Risk 21 Effect on Stakeholders 21 Business Strategy 21 Time to Implement 22 Recommendation 22 Ethical Screen 22 Cost Benefit Analysis 23 Feasibility 24 Implementation Plan 24 Success Metrics 25 Evaluation 25 Bibliography 26 Appendices 30 Appendix A 30 Appendix B 31 Appendix C 32 Appendix D 33 Appendix E 34 Appendix F 35

1

Executive Summary

Boston Scientific is a worldwide developer of medical devices. While Boston Scientific has remained active in innovative ideas and acquiring companies to expand their product portfolio, they have seen a steady decline in revenues every year since 2009. This paper will analyze how Boston Scientific arrived at their regressing financial progress, some solutions to increase revenues, and finally make a final suggest at the best solution for improving revenues – that Boston Scientific should increase the funding for research and development of their Neuromodulation division.

An overview of Boston Scientific’s business strategy including their mission, brand declaration, and values will be introduced along with key stakeholders of Boston Scientific’s actions. Understanding these elements will provide a better background of the problems Boston Scientific faces along with ensuring that any suggested solutions are acceptable to Boston Scientific’s business strategy and key stakeholders. An overview of Boston Scientific’s performance, markets in which it operates, market share and trends, weaknesses as identified by SWOT analysis, and external factors that affect performance will help put the problems Boston Scientific faces into perspective.

A fishbone diagram was used to uncover the root causes of operational losses, and uncovered root causes for many of the problems that Boston Scientific faces. A total of six problems were identified that put Boston Scientific’s future at risk:

· Litigation with Johnson & Johnson

· Vaginal Mesh Lawsuits

· Increase in Accounts Receivable Days Outstanding

· Foreign Currency Fluctuations

· Product recalls

· Declining Sales in Coronary Stent Systems and Cardiac Rhythm Management Devices

However, only the most urgent and mission critical problem will become the focus for the remainder of the paper; Declining Sales in Coronary Stent Systems and Cardiac Rhythm Management Devices. Five causes with potential solutions have been identified, but only solutions for over dependence of Coronary Stent Systems and Cardiac Rhythm Management devices were developed:

· Focus Acquisitions on Other Core Businesses

· Increase Funding for R&D in Neuromodulation

· Enter Diabetes Device Market

These solutions will be compared to one another using a weighted decision matrix which will indicate that increasing the funding for R&D in Neuromodulation will best address the problem while adhering to Boston Scientific’s business strategy. A cost benefit analysis for a four year period was done to explore the tangible and intangible costs and benefits; confirming that the intangible benefits outweighed the tangible costs. An ethical screen along with a feasibility analysis were done to further show the solution’s plausibility. The paper concludes with an implementation plan for the solution and a way to evaluate whether or not the solution was successful.

Situation Analysis

Company Overview

Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical products that are used in a broad range of interventional medical specialties (Boston Scientific 2013 10-K). The products and technologies are used to diagnose or treat a wide range of medical conditions that include heart, digestive, pulmonary, vascular, urological, women’s health, and chronic pain conditions (About Us).

Boston Scientific has approximately 23,000 employees around the world, which includes a sales force in 40 counties (Locations). As of February 4, 2014 Boston Scientific operates 12 manufacturing facilities, 6 of which are in the United States; International manufacturing facilities include 3 in Ireland, 2 in Puerto Rico, and 1 in Costa Rica and accounted for the manufacturing of approximately 57% of the products sold worldwide (Boston Scientific 2013 10-K). Boston Scientific has gained a market presence in 100 countries (About Us), and international sales accounted for 47% of revenue in 2013 (Boston Scientific 2013 10-K), Japan accounted for 10% of international sales (Annual Report).

Business Strategy

Boston Scientific rebranded themselves in 2013, and developed the following Business Strategy focusing on five imperatives: Strengthen Execution to Grow Share, Expand into High Growth Adjacencies, Drive Global Expansion, Fund the Journey to Fuel Growth, and Develop Key Capabilities (Boston Scientific 2013 10-K).

Mission, Brand Declaration, Values

Mission

Boston Scientific is dedicated to transforming lives through innovative solutions that improve the health of patients (Annual Report).

Brand Declaration

Advancing science for life. Advancing: We push the boundaries of today’s innovations that lead to tomorrow’s medical solutions. Science: Our heritage of discovery drives our passion for transforming lives. For Life: We are committed to helping patients’ live healthier, longer lives (Annual Report).

Values

Caring, diversity, winning spirit, meaningful innovation, global collaboration, and high performance (About Us).

Corporate Citizenship

Boston Scientific feels it is their responsibility to act as a good corporate citizen in the communities where they live and work. They are focused on four major areas Education, Health, Employees, and Environment through the Boston Scientific Foundation (Corporate Citizen). This Foundation is working in neighborhoods around the US, to help expand access to quality health care and educational opportunities in underserved populations. Since 2002, they have donated more than $32 million to support innovative organizations that are making a difference for people of all ages (Boston Scientific Foundation).

Stakeholders

· Communities in which Boston Scientific operates – Boston Scientific encourages its employees to volunteer in the communities in which they work (Corporate Citizen).

· Employees – Boston Scientific offers high paying jobs to 23,000 people around the world, if Boston Scientific was to close its doors, these employees would be without jobs.

· Creditors – If Boston Scientific is unable to meet its debt obligations, their creditors would lose out on the income that is provided from interest on Boston Scientifics debt.

· Shareholders – If Boston Scientific’s stock performs badly, shareholders lose wealth.

· Hospitals and Doctors –depend on the devices that Boston Scientific makes to provide alternative treatment to drug therapy to their patients

· Patients and their Families – depend on Boston Scientific to create products that will improve a patient’s health, without the need of major surgery.

· Boston Scientific Foundation grantees – Boston Scientific donated $54 million in research and educational grants in 2013 (Annual Report).

· Pharmaceutical Companies – directly impacted by the products Boston Scientific makes as they give doctors and hospitals alternatives to their products.

· Competitors – Boston Scientific takes away market share from their competitors.

· Suppliers – Suppliers depend on Boston Scientific for their revenue stream. If Boston Scientific has lower orders, these companies’ revenues will suffer.

· Health Insurance Companies – Health insurance companies benefit from Boston Scientific devices as they improve the health of their subscribers, healthier subscribers result in less insurance payments which increases revenues.

· Group Purchasing Agents – The more products that Boston Scientific offers the better deals group purchasing agents can make with Boston Scientific, driving down the price they pay for products with Boston Scientific and their competitors.

· Federal Government – Boston Scientific pays a 2.3% excise tax on all medical devices sold, in 2013 this amounted to $73 million (Boston Scientific 2013 10-K).

Performance

When looking at Table 1 below, we see that revenues have decreased steadily over the last five years at an annual rate of 3.36%. Boston Scientific has had operating losses in three out of the last five years with the operating profits occurring in 2011 and in 2013. This has led to net losses in four out of the last five years, with 2011 being the only year to report a net profit.

Table 1. Select Income Statement items from the most recent 5yr period. Taken from

Morningstar.

Fiscal year ends in December. USD in Billions except per share data.2009-122010-122011-122012-122013-12
Revenue8.1887.8067.6227.2497.143
Operating income-0.894-0.6560.904-3.8680.120
Net income-1.025-1.0650.441-4.068-0.121
Earnings per share-0.68-0.70.29-2.89-0.09

Cash and Cash equivalents have remained pretty constant since 2010 and had a balance of $217 million as of December 31, 2013. Accounts payable and other long-term liabilities have increased every year since 2010. Boston Scientific is paying down its long term debt as it has decreased every year since 2009. This has come at a cost to retained earnings however, as it too has decreased every year except 2011 (see Appendix A).

SWOT Analysis

Two SWOT Analyses of Boston Scientific were taken from different sources. The weaknesses identified in these analyses were different from each other. MarketLine identified overdependence on the matured Cardiac Rhythm Management (CRM) and Implantable Cardioverter Defibrillator (ICD) product lines. GlobalData identified litigation claims, product call backs, and declined operation performance as Boston Scientifics’ weaknesses. (For SWOT Analyses from MarketLine and GlobalData please see Appendix B).

Primary Competitors

Looking at Chart 1. Below, we can see that while Boston Scientific’s revenues have steadily decreased from 2009 to 2013, while most of their major competitors have had steady increases in their revenues. In 2012, Abbott Laboratories restructured and formed a separate company AbbVie (Abbott Laboratories 2013 10-K); a major portion of their pharmaceutical business is now done in this company, resulting in a steep drop of revenues in 2013 for Abbott Laboratories. (For a complete breakdown of medical device segments revenues for Abbott Laboratories and Medtronic see Appendix D.)

Chart 1. Boston Scientific’s revenues from 2009-2013 in comparison to its top competitors. Revenues taken from Morningstar.

Industries

Medical Device Manufacturing with products in 7 core business areas within 3 business divisions.

Cardiovascular

This division is comprised of products in Interventional Cardiology and Peripheral Intervention and was responsible for $2.867 billion in revenue or approximately 40% of Boson Scientifics Revenues in 2013. Coronary Stent (CS) Systems accounted for $1.177 billion in revenue or approximately 41% of this divisions sales and approximately 16% of Boston Scientifics total revenue in 2013 (Boston Scientific 2013 10-K).

Rhythm Management

This division is comprised of Cardiac Rhythm Management (CRM), and Electrophysiology and was responsible for $2.076 billion in revenue or approximately 29% of Boston Scientifics revenues in 2013. CRM products are comprised of implantable pacemakers and implantable cadioverter defibrillators (ICD) devices. CRM devices were responsible for $1.886 billion in revenue and accounted for 91% of this division’s revenue, and approximately 27% of Boston Scientific’s total revenue in 2013 (Boston Scientific 2013 10-K)).

MedSurg

This division is comprised of products in Endoscopy, Urology and Women’s Health, and Neuromodulation and was responsible for $2.298 billion in revenue or approximately 32% of Boston Scientifics revenue in 2013. Neuromodulation is the fastest growing business segment with revenues growing from $.367 billion in to 2012 to $.453 billion in 2013, an increase of 23% (Boston Scientific 2013 10-K).

Market Share

Medical Device Manufacturing in the US

The Medical Device Manufacturing in the US industry is estimated to have revenues of $37.6 billion in 2014, and had an annual growth rate of 3.6% from 2009-2014. Annual growth rates are estimated to be 7.1% from 2014-2019. Boston Scientific has an estimated 4.9% market share in this industry, with Medtronic as the industry leader with a 25.6% market share (Medical Device). Below we see in Chart 2 that the Cardiovascular Device segment accounts for roughly 11%, and Neuromodulation Devices account for roughly 7% of the Medical Device Manufacturing in the US industry. These are the segments in which Boston Scientific has gained most of its 4.9% market share (Medical Device).

Chart 2. This Chart shows the percentage of revenues that each device segment accounts for. Total Industry revenues in 2014 were estimated at $37.6 billion. Taken from IBISWorld.

Stent Manufacturing in the US

Stent Manufacturing in the US was estimated to have $2.2 billion worth of revenues in 2014. Between 2009 and 2014 this industry experienced annual growth rates of 1.8%, and is estimated to have annual revenue growth rates of 1.9% between 2014 and 2019. Boston Scientific has largest market share in this industry at 22%, with Medtronic (21.1%), and Abbott Laboratories (21.5%) not too far behind (Stent Manufacturing).

Industry Outlook

Medical Device Manufacturing in the US

Healthcare reform in the US, technological advances, and an aging population will drive this industry during the next five years. Revenue growth is expected to increase at an annualized rate of 7.1% to $52.9 billion. High-tech fields such as biotechnology and 3D printing will likely enable the development of new therapeutic and diagnostic product lines. The life cycle of this industry is seen as growing (Medical Device).

Stent Manufacturing in the US

Increased medical scrutiny about the safety and necessity of stenting is expected to dampen demand for industry products. However steady demand for angioplasty procedures, along with growing demand in emerging markets will keep this industry afloat. Revenue is expected to grow at annualized rate of 1.9% to $2.4 billion by 2019. This Industry’s life Cycle is declining (Stent Manufacturing).

External Factors Influencing Performance

Boston Scientific operates globally and deals with many different currencies. In 2013, foreign exchange fluctuations negatively impacted net sales by $156 million. Boston Scientific must get FDA approval for their products before they can sell a product on the open market. To sell in other markets of the world, they must also get approval from those nations governing bodies as well. It is unclear what impacts HealthCare Reform will have on Boston Scientific as not all provision of the legislation are effective. However, the products that Boston Scientific produces are subject to a 2.3% excise tax as part of the HealthCare Reform Act. In 2013, Boston Scientific recorded $73 million to their selling, general, and administrative expenses due to this excise tax. As reimbursement programs from Medicare and Medicaid change, this may have a negative impact on Boston Scientific as hospital may have to choose cheaper products from other companies (Boston Scientific 2013 10-K).

There are currently over 24,000 lawsuits over vaginal mesh products by women (Dye), this may negatively impact Boston Scientific’s performance as they may lose credibility within their Woman’s Health portfolio of products and suffer large settlement fees. Litigation over patent infringement is also a constant influence on performance, a negative outcome in any of these lawsuits may have a negative impact on Boston Scientific’s performance as they may not be able to continue with the sale of a product or may suffer large settlement fees (Boston Scientific 2013 10-K).

Problem Analysis & Description

Problems

There are six problems that Boston Scientific is facing or contributing to its financial problems, decline in market share, or endangering their future. One of the problems has been selected as a problem statement that will be discussed more in depth in the next section.

Litigation with Johnson & Johnson

Boston Scientific acquired Guidant in 2006 for approximately $27 billion (Guidant Press Release). Before this purchase was made Guidant had a deal in place with Johnson and Johnson for $21.5 billion. In November 2014, a trial is set to begin in which Johnson & Johnson seeks $7.2 billion in damages and interest, for breach of contract by Guidant (Ax). This problem is seen as both mission critical and urgent, as it may affect the way Boston Scientific operates in the future, products available for sale, and may affect the future funds available for acquisitions and research and development. However, this problem seems out of the realm for what can be under taken in this paper.

Vaginal Mesh Lawsuits

Boston Scientific currently faces over 24,000 lawsuits over its discontinued vaginal mesh implants. Defendants are claiming that Boston Scientific is guilty of gross negligence with these devices as they rushed the product to market without proper clinical trials, they had defective design, and Boston Scientific failed to warn doctors and patients of the potential risk with using their vaginal mesh devices (Dye).

These lawsuits are just beginning to go to trial. So far, there have been five trials with Boston Scientific winning the first two cases, and losing the last three. In September 2014, Boston Scientific lost its first lawsuit in Texas and was ordered to pay the plaintiff $73 million. This verdict has since been reduced to $11 million (Feeley). During the month of November, Boston Scientific has had two verdicts go against them, one in Miami for $26.7 million, and one in West Virginia for $18.5 million (Dye). This problem is seen as urgent and mission critical as Boston Scientific has only $945 million in reserves for litigation settlements and lawyers’ fees (Boston Scientific 2013 10-K). A negative outcome in any of these lawsuits will reduce future funds available for acquisitions and research and development.

Increase in Accounts Receivable Days Outstanding

Sales to government-owned or supported customers in Southern Europe, most notably Greece, Spain, Italy, and Portugal have increased accounts receivable days outstanding to historic levels. These countries historically accumulate large receivable balances and then subsequently pay large lump payments on a settled amount. As of December 31, 2013 $95 million in receivables were more than 180 days past due, with $50 million of it being more than 360 days past due. If government funding becomes unavailable, Boston Scientific may not be able to collect on these receivables (Boston Scientific 2013 10-K). This problem is seen as not urgent or mission critical. If any of these governments decide not pay, revenues will be decreased and bad debt expense will be increased.

Foreign Currency Fluctuations

In 2013, Boston Scientific was negatively impacted $156 million by fluctuations in foreign currency (Boston Scientific 2013 10-K). This problem varies depending on foreign currencies in relationship with the US Dollar. In some years, this can be a positive number. However it had a negative impact on operating income in 2013. Since this problem fluctuations and at times may have a positive impact it is not seen as mission critical or urgent.

Product Recalls

Product recalls affect a firm’s profitability in three key ways. The first way is by increasing the costs to the firm. These costs can be from multiple sources which include correcting/replacing costs, the transaction costs of the recall process and costs of unsold inventory. Second, a firm’s revenues are reduced by product recalls, as a result of lost sales. This can happen in a few ways, such as loss of sale from product recall, reduction in sales of related items, and loss of sales due to loss of market share. Third, consumer confidence is impacted when a company issues a recall of their products, which can affect the firm’s ability to sustain its market presence (Sriram).

Between September 2013 and April 2014, Boston Scientific issued 7 product recalls, accounting for 48,000 previously sold devices (GlobalData Boston Scientific). This problem is seen as Mission Critical but not urgent. All of Boston Scientifics’ competitors are facing similar recall problems, according to their SWOT Analyses by GlobalData. Boston Scientific needs to address these recalls and identify why they are happening, this should be done in a timely manner and before their competitors address theirs to insure that they do not lose market share.

Declining Sales in Coronary Stent Systems and Cardiac Rhythm Management

Net sales of CS systems and CRM devices have accounted for roughly 43% to 54% of revenue between 2009 and 2013. Revenues of CS systems have decreased from $1.879 billion in 2009 to $1.177 billion in 2013, an average annual decrease of 11% while CRM devices have decreased from $2.562 billion in 2009 to $1.886 billion in 2013, an average annual decrease of 7.4%. Overdependence of these declining product lines have directly contributed to decreased annual revenues of $1.045 billion between 2009 and 2013, or by approximately 3.4% per year (Table 2. below).

Table 2. Five year revenue report of Coronary Stent Systems and Cardiac Rhythm Management devices. (Taken from annual 10-K’s).

Problem Statement

43% of Boston Scientific’s current revenue comes from CS systems and CRM devices. CS systems revenue has declined 11% annually, while CRM revenue has declined 7.4% annually over the last five years. Declining revenues of these business segments, have directly contributed to a $1.045 billion decline in revenues over the last five years.

Assessing the Root Causes of the Problem

A fishbone diagram (Appendix C) was used to find the causes of why Boston Scientific has experienced a decrease in operating income from 2009-2013. All of these causes will need to be addressed at some point, in this paper we will address why CS systems and CRM devices are experiencing a decrease in revenues.

Declining Market Share in Coronary Stent Systems

Boston Scientific’s CS systems have had increased competition as new competitors continually enter the market (Stent Manufacturing). This increased competition has put additional pricing pressures on Boston Scientific reducing Boston Scientifics’ market share (Boston Scientific 2013 10-K).

One of the biggest reason for market share loss has been the 2012 launch of Medtronic’s (Medtronic 2014 10-K) and Abbott Laboratories’ next generation CS systems that are bioabsorbable (Abbott 2013 10-K). Boston Scientific has been late to market with the launch of their own next generation bioabsorbable CS system and had a limited release in Europe at the end of 2013 (Boston Scientific 2013 10-K). Boston Scientific was expected to present their 12 month clinical study findings at the American Heart Association Conference on November 19, 2014 (Synergy).

Another reason for declining market share of CS system has been the reduction in overall market size of this industry (Boston Scientific 2013 10-K). A major reason for the reduction in market size was the publication of data from the Clinical Outcomes Utilizing Revascularization and Aggressive Drug Evaluation (COURAGE) trail, which demonstrated that coronary revascularization does not reduce the risk of major cardiovascular events over and above optimal medical therapy in patients. This has had a negative influenced on the rate at which doctors use percutaneous coronary intervention procedures (Riley).

Decline in Cardiac Rhythm Management Devices Average Selling Price

Hospitals have recently come under pressure to reduce costs. As a result many have sought to negotiate better prices for medical supplies, often targeting expensive medical devices such as pacemakers (Lee). This coupled with governmental pricing pressures by reducing reimbursement by Medicare under the Health Care Reform Act have driven the average selling prices down (Boston Scientific 2013 10-K).

Supply Constrained

In March, 2013 Boston Scientific became supply constrained and were only able to provide a very limited amount of their subcutaneous implantable cadioverter defibrillator (S-ICD), the only one of its kind, during the second and third quarters of 2013 (Boston Scientific 2013 10-K). Boston Scientific believes that many of the components used in the manufacturing of their products are available from multiple sources, and that redundant capacity exists among their suppliers. In the event that redundancy does not exist they feel that alternatives can be developed within a reasonable time frame (Boston Scientific 2013 10-K). The S-ICD is the only product of its kind on the market. Not having a strong relationship with any one supplier effected the supply of the parts used to manufacture this device.

Over Dependence of CRM and Coronary Stent Sales

Boston Scientific is greatly dependent on the sale of its CRM products and CS systems (see Table 2. on page 14). Sales of these products accounted for 43% of Boston Scientific’s revenue in 2013, and accounted for 54% in 2009. The declining revenues of these products are directly responsible for the decline in Boston Scientifics revenues since 2009.

Boston Scientific is over dependent on these products, as a result of focusing their acquisitions on products of this nature. In the first half of 2012, Boston Scientific acquired Cameron Health, Inc., giving them the only S-ICD product on the market (Boston Scientific 2013 10-K). In October 2012, Boston Scientific acquired BridgePoint Medical, Inc., to expand their core coronary technology.

Competitors Get New Product to Market First

In 2012, Medtronic got their bioabsorbable coronary stents to market (Medtronic 2014 10-K), while Boston Scientific has yet to launch their version in the United States. Medtronic currently has 37 manufacturing facilities around the globe, all of which have Research and Development facilities on site. Medtronic maintains strong relationships with their suppliers, working closely with them in design and specification of product parts. Medtronic believes that manufacturing all of their own devices, has not only helped increase gross profit margin, but in combination with its relationships with suppliers has enabled them to constantly be first to market with new technologies (Medtronic 2014 10-K). This has enabled Medtronic to gain their 25.9% market share of Medical Device Manufacturing in the US.

In comparison Boston Scientific operates 12 manufacturing facilities around the globe, all of which have research facilities on site. Boston Scientific currently uses outsourcing to manufacture some of their products (Boston Scientific 2013 10-K) and does not have strong relationships with its suppliers. This leaves Boston Scientific vulnerable to supply chain constraints, and reliant on third party vendors to get their product to market. Failure to get product to market as quickly as their competitors has resulted in market share declines.

Solutions

Solution Analysis

Three solutions have been developed to address the problem of being over dependent on CRM products and CS systems. These solutions are meant to give Boston Scientific more diversity within their product portfolio, and to reduce the impact of declining revenues in CRM products and CS systems.

Focus Acquisitions on Other Core Businesses

Boston Scientific has a history of using acquisitions to grow their core business. This has been identified as one of their strengths in SWOT Analyses by both GlobalData and MarketLine (see Appendix B). However two of the last three acquisitions have been to further their market share in CRM devices and CS systems. Boston Scientific has been experiencing increased revenues in their other core businesses (Boston Scientific 2013 10-K). To further expand these divisions and continue their increased market share Boston Scientific should focus their future acquisitions solely on their other core businesses. This would be a viable option as it would increase their market presence in these other core businesses segments, however it would come at an expense to already suffering revenue streams of CS systems and CRM devices. This decreased focus in these categories would greatly affect the employees that work in these division, and no longer emphasizing the importance of these divisions’ may cause employees to seek employment with Boston Scientific’s competitors.

Increase Funding for R&D in Neuromodulation

As we saw in Chart 2. (See page 9) the Neuromodulation segment of Medical Device Manufacturing in the US accounted for an estimated 7% of the industries $37.6 billion in revenues in 2014, or approximately $2.632 billion. A report published by Market Watch on August 5, 2014 estimates that this industry will experience a 10% compound annual growth rate between 2013 and 2020, growing to an estimated $4.663 billion and is the fastest growing segment within the US Neurological device market. In 2011 Transparency Market Research estimated that the global market for Neuromodulation was worth $2.76 billion and was expected to grow to $7.07 billion in 2018, a compound annual growth rate of 14.4% (Parmar).

Boston Scientific’s Neuromodulation products experienced the greatest increase in revenues during 2013, growing approximately 23% to $453 million compared $367 million in 2012. Boston Scientific currently offers only Spinal Cord Stimulator Systems (SCS Systems) in this business segment. Boston Scientific should increase the research funds available for this division to $200 million per year. This would allow Boston Scientific to develop other products such as Deep Brain Stimulation (DBS) Systems to treat underserved markets such as obesity, epilepsy, Alzheimer’s, and depression (Medical Device).

In 2013, Boston Scientific spent $861 million in Research and Development, approximately 12% of net sales. Assuming that Boston Scientific spreads its funding evening across its 7 core businesses, each business received approximately $123 million in 2013. Increasing the funding for research in Neuromodulation to $200 million has the potential to unlock some technologies that can take advantage of underserved markets. However, increasing the funds for research in Neuromodulation will decrease the research funds available to other divisions to approximately $110 million, perhaps reducing the potential in those segments.

Enter Diabetes Device Market

As we saw in Chart 2. (See page 9), Diabetes devices account for 5% of the revenues for Medical Device Manufacturing in the US market, and the sector is expected to grow to $16 billion in 2017 (US Diabetes). Boston Scientific currently does not compete in this sector of medical devices. Boston Scientific’s two biggest competitors Abbott Laboratories and Medtronic are currently doing operations in Diabetes devices. Looking at Appendix D, we can see that in their last fiscal year Abbott Laboratories generated $1.31 billion in revenue, while Medtronic generated $1.657 billion in revenue in this industry segment.

There are three major divisions of diabetes devices in which to compete; insulin pumps, continuous glucose monitoring (CGM), and blood glucose monitoring devices (Neil). Market Entities are playing a major role in demonstrating the value of CGM devices through independent studies and testing by various clinicians, which is moving the devices forward. This has had an effect on the demand for insulin pumps (Medical Device). However when CGM devices are combined with insulin pumps, the basis for the long-sought-after artificial pancreas is created (Neil). Boston Scientific should start developing both insulin pumps and CGM devices to take advantage of this growing market segment. This would allow them to tap into a whole new revenue source. However, this would greatly impact the research and development of their other products, or come at a cost to their debt levels if they were to acquire a company currently competing in this business segment.

Weighted Decision Matrix

A weighted Decision Matrix was used to decide which solution Boston Scientific should implement. The following paragraphs will describe the six criteria used along with the weight they were given and why. The solution with the highest score was the one to be implemented. (See Appendix E for the matrix and a discussion of the rankings the solution received.)

Long Term Financial Impact

Boston Scientific has been suffering decreased revenues for the last five fiscal years, which have contributed to Net Losses in four of those years. Boston Scientific also faces a large amount of potential litigation related charges. It is very important that the solution implemented will have a positive impact on future financial performance and help offset the declining revenues of CS systems and CRM devices. For this reason Long-Term Financial Impact was given a weight of .30.

Short Term Costs

Boston Scientific had $4.237 billion in long term debt, and only $217 million in Cash and Cash Equivalents at the end of their 2013 fiscal year. Boston Scientific is paying down their long term debt (see Appendix A) in order to maintain investment grade credit ratings (Boston Scientific 2013 10-K). It is important that the solution implemented does not increase debt levels or over spend Cash on hand. For this reason Short Term Costs was given a weight of .25.

Potential Risk

Potential Risks include future litigation claims from class action lawsuits or patent infringement. They also include the possibility of the solution not having the results that were expected, and negatively impacting future financial progress. It is important the solution implemented takes these potential risks into consideration, for that reason potential risk was given a weight of .15.

Effect on Stakeholders

Any solution that is implemented should take into account Boston Scientific’s stakeholders (see pages 5-6) and the affect that solution will have on them. For this reason effect on stakeholders was given a weight of .15.

Business Strategy

The Business Strategy of Boston Scientific has five imperatives: Strength Execution to Grow Share, Expand into High Growth Adjacencies, Drive Global Expansion, Fund the Journey to Fuel Growth, and Develop Key Capabilities (Boston Scientific 2013 10-K). It is important that the solution adheres to the Mission, Brand Declaration, and Values of Boston Scientific. For this reason Business Strategy was given a weight of .10.

Time to Implement

The amount of time it is going to take to implement the solution is important, but is the least important of all the criteria. For this reason it was given a weight of .05.

Recommendation

The Solution with the highest score in the decision matrix was to increase the amount of funding for research and development of Neuromodulation devices.

Ethical Screen

The Solution calls for Boston Scientific to increase the funding for Neuromodulation research and Development from $123 million to $200 million. This will allow Boston Scientific to develop DBS systems allowing them to take advantage of their fastest growing core business while developing devices for markets that are currently underserved (Medical Device).

Implanting DBS systems requires surgical implantation of a lead of electrodes into a nucleus or fiber tract within the brain. An implantable pulse generator (IPG), containing battery and stimulation hardware, is implanted subcutaneously in the chest of the patient, and an extension cable is tunneled under the skin to connect the IPG to the DBS lead. Once implanted the DBS system applies electric current to targeted areas of the brain that treat the patients’ symptoms (Johnson).

The process in which DBS systems are implanted or work may seem unethical. But when looking at possible medical problems that DBS can treat such as obesity, epilepsy, Alzheimer’s, depression, Parkinson’s, obsessive-compulsive disorder, and tics associated with Tourette syndrome (Johnson) to name a few, the greater good outweighs the unethicalness of implantation.

Cost Benefit Analysis

There is a 4 year time frame for the following cost benefit analysis, allowing for development time, clinical trials, FDA approval, marketing, selling, and revenue analysis.

4 Year Cost Benefit Analysis
Tangible BenefitsTangible Costs
· Larger Product line of Neuromodulation devices· $200 million per year of research budget devoted to Neuromodulation.
· Increased revenues in Neuromodulation business· $13 million per year decrease in research budget for other core businesses
Intangible BenefitsIntangible Costs
· Increased innovation in Neuromodulation devices· Decreased funding for research on other core businesses
· Exploits fastest growing core business segment· May miss out on potential advancements in other core businesses
· Potential to decrease the dependency on CRM device and CS system sales.· Potential market share loss in other core businesses from lack of innovation
· Further expand market share in the Neuromodulation industry.· Key employees in other core businesses may deflect

It is difficult to estimate the revenues that will be generated by expanding the Neuromodulation product line, but a market report by Fierce Medical Devices suggests that the benefits can be major. Currently, Boston Scientific is number 2 in market share behind Medtronic in Neuromodulation sales, and is one of 4 major competitors in this industry (Working Hard). Boston Scientific’s SCS device has gained a significant gain in market share as physicians gravitate towards it, as it offers twice as many electrode leads as the competitor’s (U.S Neuromodulation). This puts Boston Scientific in position to capitalize on DBS devices, as physicians are becoming more familiar with their Neuromodulation devices.

Increasing the funding for research in this field, would come at a cost to its other divisions. This could be seen by Boston Scientific’s employees as a lack of commitment to their other core divisions and cause these employees to deflect. Reduced funding in these other core businesses may also cause Boston Scientific to miss potential innovation opportunities in their other core businesses. However, the potential that Boston Scientific has in the Neuromodulation device industry out ways these potential losses.

Feasibility

This Solution is easily feasible, as Boston Scientific already operators in the Neuromodulation industry. This plan would take some time to implement as Boston Scientific would not want to cut the funding of works in progress, in other core businesses. Boston Scientific would simply have to start allocating more funding to this division as it becomes available, and decrease the funding of other divisions as current projects finish.

Implementation Plan

Implementation will not be difficult, but it will take 23 months to get DBS systems to market and start earning a market share. No initial announcement should be made, as Boston Scientific will have to wait for current projects in other divisions to wrap up to have additional funds available. In the meantime, Boston Scientific should use the existing funds available to the Neuromodulation division and start research immediately of DBS Systems. As the additional funds become available Boston Scientific should apply them to the research of DBS systems. Gantt Project was used to evaluate the time frame of getting DMS systems to market (see Appendix F). If there are no setbacks in the FDA approval process Boston Scientific can expect to start shipping DBS systems in February of 2017.

Once the first generation DBS system is developed and begins to sale, Boston Scientific should use the additional research funds, along with market data gathered to begin developing its second generation model, making improvements or targeting different aliments that the doctors who use them suggest. This will strengthen the market position Boston Scientific has in the Neuromodulation segment.

Success Metrics

Evaluation

To ensure that this project is successful, different processes will have to take place along the way. The first step was the development of a Gantt Project Chart (see Appendix F), which outlines the time frame of getting DBS systems to market. Using this chart Boston Scientific will be able to evaluate their progress of each step in the development, marketing, and manufacturing of these devices. Success of getting the product to market will be measured on whether or not Boston Scientific can get the product to market in the time frame suggested.

Once devices have been developed, marketed, manufactured, and begin to sell Boston Scientific will be able to evaluate the success of the project through tracking of quarterly sales. This should be done on a quarterly basis for the remaining 3 quarters of 2017 and the four quarters of 2018. As data is gathered, Boston Scientific will be able to develop other marketing efforts to improve sales. The successes of this solution will be measured by the revenues that DBS systems generate, and the overall market share Boston Scientific gains in the Neuromodulation segment.

Bibliography

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Ax, Joseph. “J&J demands $7.2 billion from Boston Scientific as trial begins.” Yahoo! News. 20 Nov. 2014. Web. 25 Nov. 2014. <http://news.yahoo.com/j-j-demands-7-2-billion-boston-scientific-181643637–finance.html>.

“Balance Sheet for Boston Scientific Inc.” Morningstar. Web. 14 Oct., 2014. <http://financials.morningstar.com/balance-sheet/bs.html?t=BSX&region=usa&culture=en-US>.

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Dye, Jessica. “Transvaginal mesh trial losses put pressure on Boston Scientific” Reuters. 21 Nov. 2014. Web. 22 Nov. 2014. < http://www.reuters.com/article/2014/11/21/us-boston-scient-mesh-litigation-analysi-idUSKCN0J52G220141121>.

Feeley, Jef. “Boston Scientific Ordered to Pay $73 Million Over Implant.” Bloomberg. 9 Sep., 2014. Web. 14 Oct., 2014. <http://www.bloomberg.com/news/2014-09-09/boston-scientific-ordered-to-pay-73-million-over-implant.html>.

“GlobalData Abbott Laboratories SWOT Analysis.” GlobalData 23 July 2014. Gale Business Insights: Global. Web. 15 Nov. 2014. <http://bi.galegroup.com.proxy.lib.pdx.edu/global/search?u=s1185784#displayGroup=swot&q=company^300025>.

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Parmar, Arundhati. “Global market for neuromodulation devices to grow to $7 billion in 2018.” MEDCITY News. 30 Oct. 2014. Web. 29 Nov. 2014. < http://medcitynews.com/2012/10/global-market-for-neurmodulation-devices-to-grow-to-7-billion-in-2018/>.

Riley, Robert F. et al. “Trends in Coronary Revascularization in the United States From 2001 to 2009: Recent Declines in Percutaneous Coronary Intervention Volumes.” Circulation. Cardiovascular quality and outcomes 4.2 (2011): 193–197. PMC. Web. 1 Dec. 2014.

Sriram Thirumalai, Kingshuck K. Sinha, (2011) “Product Recalls in the Medical Device Industry: An Empirical Exploration of the Sources and Financial Consequences.” Management Science 57(2):376-392. Business Source Premier. Web. 22 Oct. 2014. <http://dx.doi.org/10.1287/mnsc.1100.1267>.

“Stent Manufacturing in the US.” IBISWorld. March, 2014. Web. 14 Oct., 2014. <http://clients1.ibisworld.com.proxy.lib.pdx.edu/reports/us/industry/default.aspx?entid=4600>.

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“US Diabetes Care Device Market to Grow Moderately to $16 Billion by 2017.” Fierce Medical Devices. 15 Jan, 2013. Web. 30 Nov. 2014. <http://www.fiercemedicaldevices.com/press-releases/us-diabetes-care-device-market-grow-moderately-16-billion-2017>.

“U.S. Neuromodulation Market Trends and Outlook to 2020: Led by Medtronic, Boston Scientific and St. Jude Medical.” Market Watch.5 Aug. 2014. Web. 30 Nov. 2014. < http://www.marketwatch.com/story/us-neuromodulation-market-trends-and-outlook-to-2020-led-by-medtronic-boston-scientific-and-st-jude-medical-2014-08-05>.

Appendices

Appendix A

Boston Scientific Balance Sheet. Taken from Morningstar.

Appendix B

MarketLine SWOT Analysis of Boston Scientific August 27, 2014

GlobalData SWOT Analysis of Boston Scientific July 23, 2014

Appendix C

C:\Users\buddy\Desktop\Net Losses.bmp

Appendix D

A look at Abbott Labs Medical Device Revenues by segment for Fiscal Year ended Dec. 31 2013 (taken from Abbott Laboratories 2013 Annual Report).

A look at Medtronic Medical Device Revenues by segment for fiscal year ended April 25, 2014 (taken from Medtronic’s 2014 Annual Report).

Appendix E

Weighted Decision Matrix

Neuromodulation received the highest score when looking at L.T Financial Impact, followed by Diabetes, and Acquisitions. Both Neuromodulation and Diabetes present the best chance at long term financial gains, with Neuromodulation getting a slightly better score as Boston Scientific already operates in this sector. Neuromodulation received the highest score when looking at S.T costs. This is because Boston Scientific would simply allocate more funding for Neuromodulation while decreasing funding for its other businesses. Both Diabetes and Acquisitions would cost money up front, and Boston Scientific is unwilling to increase its debt levels. Neuromodulation received the highest score for potential risk, as it is the least risky of the three solutions, both Acquisitions and Diabetes are extremely risky as it is unclear if Boston Scientific could penetrate the diabetes market or whether or not the acquisitions would be successful. Neuromodulation received the highest score for effect on stakeholders as it is carrying on business as normal, just reallocating research funding. It was unknown what impact the other solutions would have on stakeholders. Diabetes got the highest score followed by Acquisitions and Neuromodulation for business strategy as entering new markets is part of their strategy, along with strategic acquisitions. Neuromodulation received the highest score for implementation as can be easily done, Diabetes, and Acquisitions would take much longer to implement.

Appendix F

Gantt Project Diagram of process to get DBS systems to market

Comparison of Revenues

Boston Scientific (BSX)

2009 2010 2011 2012 2013 8.1880000000000006 7.806 7.6219999999999999 7.2489999999999997 7.1429999999999998 Abbott Laboratories (ABT)

2009 2010 2011 2012 2013 30.765000000000001 35.167000000000002 38.850999999999999 39.874000000000002 21.847999999999999 Medtronic (MDT)

2009 2010 2011 2012 2013 14.599 15.817 15.933 16.184000000000001 16.59 St. Jude Medical (STJ)

2009 2010 2011 2012 2013 4.681 5.165 5.6120000000000001 5.5030000000000001 5.5010000000000003

Fiscal Year

Revenues in Billions

Percent of Industry Revenues 2014

Products and services segmentation Percent of Industry Revenues 2014

Cardiovascular Devices Diabetes Devices Spinal Devices Irradiation Devices Anesthesia and Respiratory Devices Neuromodulation Devices Other Devices 0.15 0.05 0.18 0.22 0.22 7.0000000000000007E-2 0.11

Coronary Stent

System Revenue

(in billions)

Coronary Stent

% of Total

Revenue

CRM Revenue

(in billions)

CRM % of Total

Revenue

Combined

Revenues

(in billions)

Combined % of

Total Revenue

Total Revenue

(in billions)

20091.87923%2.56231%4.44154%8.188

20101.67021%2.18028%3.85049%7.806

20111.62021%2.08727%3.70748%7.622

20121.36319%1.90826%3.27145%7.249

20131.17716%1.88627%3.06343%7.143

Annual

Growth

Rate-11.0%-7.4%-8.9%-3.4%

Fiscal year ends in December. USD in

Billions except per share data.

2009-122010-122011-122012-122013-12

Assets

Current assets

Cash and cash equivalents0.8640.2130.2670.2070.217

Receivables1.3751.321.2461.2171.307

Inventories0.920.8940.9310.8840.897

Deferred income taxes0.5720.4290.4580.4330.288

Prepaid expenses0.330.1830.2030.2810.302

Other current assets0.576

Total current assets4.0613.6153.1053.0223.011

Non-current assets

Property, plant and equipment

Gross property, plant and equipment3.2663.1683.1833.523.67

Accumulated Depreciation-1.538-1.471-1.513-1.956-2.124

Net property, plant and equipment1.7281.6971.671.5641.546

Goodwill12.40410.1869.7615.9735.693

Intangible assets6.7316.3436.4736.2895.95

Other long-term assets0.2530.2870.2810.3060.371

Total non-current assets21.11618.51318.18514.13213.56

Total assets25.17722.12821.2917.15416.571

Liabilities and stockholders’ equity

Liabilities

Current liabilities

Short-term debt0.0030.5040.0040.0040.003

Accounts payable0.2120.1840.2030.2320.246

Accrued liabilities2.6091.6261.3271.2841.348

Other current liabilities0.1980.2950.2730.2520.227

Total current liabilities3.0222.6091.8071.7721.824

Non-current liabilities

Long-term debt5.9154.9344.2574.2524.237

Deferred taxes liabilities1.8751.6441.8651.7131.402

Other long-term liabilities2.0641.6452.0082.5472.569

Total non-current liabilities9.8548.2238.138.5128.208

Total liabilities12.87610.8329.93710.28410.032

Stockholders’ equity

Common stock0.0150.0150.0150.0150.016

Additional paid-in capital16.08616.23216.34916.42916.579

Retained earnings-3.757-4.822-4.381-8.449-8.57

Treasury stock-0.492-1.092-1.592

Accumulated other comprehensive income-0.043-0.129-0.138-0.0330.106

Total stockholders’ equity12.30111.29611.3536.876.539

Total liabilities and stockholders’ equity25.17722.12821.2917.15416.571

CriteriaWeightRawWeightedRaw Weighted Raw Weighted

Long Term Financial Impact0.351.582.472.1

Short Term Costs0.2530.7571.7510.25

Potential Risk0.1540.671.0510.15

Effect on Stakeholders0.1550.7571.0550.75

Business Strategy0.160.630.390.9

Time to Implement0.0570.3590.4510.05

Total14.5574.2

Focus Acquisitions on

other core Businesses

Increased R&D in

Neuromodulation

Enter Diabetes Device

Market

Business Analysis

Introduction

Currently the world is liberalized and the government has made it easy for private sectors to be in business. There are new innovative businesses ideas as the gaps in current market exist. For example, poor quality of products in the market may provide a business opportunity for new entrepreneurs to venture into the business concerning the commodity in question. Insufficient quantity of a commodity in the market also leads to a niche in the market; this makes the demand of the product to rise. Because of high demand, the prices also increase leading to unaffordable prices to the consumers. Therefore, a business should identify its weaknesses for its proper existence and reinforcement, given that the stability is change is gauged on an organizational and behavior perception. This study covers an analytical survey of the gap marketing in the business problem and evaluation at Nordstrom Company.

Nordstrom Company is outperforming in several ways, and this has caused its major reduction as well as the financial crisis that is experienced in the firm. For an effective communication on the strategies that should be taken for the effective remedy in delivering quality management skills, the company requires to restructure itself in terms of mobilizing the consumers and ensuring that the profit they were earning for the past decades, is doubled, or rather maintained, instead of it fluctuating.

Nordstrom had recorded a low income and profit in the recent past, due to the market competition that it was receiving from its competitors (Krolzig, 12). As compared to its sales in the recent past, for the earnings in the fourth quarter, the full-line as well as the outlets stores had decreased, which is a major concerned for the organization, and entire American economy. The crisis is literally a concerned to the industrialization of the services as well as goods which are to be transferred and processed within different measurements and incentives of trade.

The decrease in the stores were at 3% and the firm had then dipped, notably characterized as an element that would be effective in transforming the sales as well as profit maximization for the company. However, the inventory of the retailers had increased their sales by 12%, making it more difficult for the company to balance its profits and losses.

Consequently, the only way to help Nordstrom out of this situation is through its reliance to the sales promotion, which entails more brand ambassador’s recruitment for the advertisement procedure to have a notable change in the organization. As such, the reinforcement will inflict and create the opportunities for profit maximization as well as the deduction on the issues that are affecting the company, given that there are outperformances already considered.

The inventory for the brand promotions is the only effective way, since the consumers of the company are not clearing the shelves, anytime soon. The lesson learnt form the company’s setback is that no retailer is spared from the consumer drop out in the industry and marketing field (Kothari & Xu Li, 34). The production level is equivalent to the issues affecting the laws and regulations within the systems, as per underlying decisions that would be relevant for the organizations.

The consumers that focused on the labels of the designers, have now drew their attentions to other issues, including the understatement and decisions in purchasing the counterfeit goods, which are cheaper, and of course, trendy. As such, the implication for this approach is an equivalent opportunity for the market transitioning, which would basically be noted by the analytical survey that is underway.

Findings and Solution

According to Healy (23), Nordstrom is one of the major companies that the US depends on for the growth and development of its economy. However, the rates of pricing should be stabilized for the consumer to have fixed pricing criteria that enables accurate transitioning and outsourcing of the materials for purchase. In this light, the company had restructured its earnings in the quarter due to the conditions in the restock of the merchandise.

In conclusion, the marketing and business analytical survey may be challenging, especially when considering the effective motives of the same business. As such, keenly observing the marketing criteria for retailers and consumers, as well as the wholesaler, have an accurate advantage for reinforcing and establishing equal opportunities in the existence of the business. As such, adequacy in monitoring how the business operates is an equal chance for the affordability and maintenance of its consumers. Loyalty is one factor that the company cannot trade in, and as such, quality brands would be more lucrative of the loyalty of consumers.

Works Cited

Healy, Paul, and Krishna Palepu. Business Analysis Valuation: Using Financial Statements. Cengage Learning, 2012.

Krolzig, Hans-Martin. Markov-switching vector autoregressions: Modelling, statistical inference, and application to business cycle analysis. Vol. 454. Springer Science & Business Media, 2013.

Kothari, S. P., Xu Li, and James E. Short. “The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: A study using content analysis.” The Accounting Review 84.5 (2009): 1639-1670.

http://aaapubs.org/doi/abs/10.2308/accr.2009.84.5.1639

Global marketspace and Virtual networking:

Web 2.0 Revolution

Reading: Shah, N 2008, From global village to global marketplace: Metaphorical descriptions of the global Internet. International Journal of Media & Cultural Politics, Vol. 4. No. 1,pp. 9-26.

INB 20009 Managing the Global Marketplace

Lesson plan • From global village to global marketspace

• Social Media, Web 2.0 and User Generated Content • Social presence theory & social processes (self-identity and

self-expression)

• Social media and the global marketspace

• Challenges and opportunities of Social Media platforms in the global marketspace

PART 1

CONCEPTS

From global village to global marketspace

• The Internet has become a powerful symbol of

globalisation.

• There are two of the most prominent metaphors

associated with the internet enabled globalisation;

(1) the global village

(2) the global marketspace

Global Village

• During 1980-early 1990s, global communication transcended the differences between cultures and societies to create a new global village where people will come together and work towards mutual trust and understanding (Dodge and Kitchin 1998: 33).

• The Internet’s ability to transcend the barriers of space and time and enhance individual interaction was considered the cutting edge of globalisation.

• Shah (2008) argued that the Internet’s contribution to political transformation is not simply a function of its hardware and technical specifications.

• In a global marketspace, states had to abandon their national economic

autonomy.

• Subsequently, although public management had once been closely tied

to the state, private sector markets, market actors, non-governmental

organisations, multinational actors and other institutions [could] exercise

forms of legitimate authority.

• So that the ‘Internet would grow as a seamless . . . global marketspace

where competition and consumer choice are the main drivers of

economic activity.

Global Marketspace

Setting the scene • Facebook registered more than 175 million

active users in 2009. This is only slightly less than the population of Brazil (190 million) and over twice the population of Germany (80 million)! As of the third quarter of 2018, Facebook had 2.27 billion monthly active users.

• Every minute, 10 hours of content were uploaded to the video sharing platform YouTube. And, the image hosting site Flickr provided access to over 3 billion photographs. This makes the world-famous Louvre Museum’s collection of 300,000 objects seem tiny in comparison.

• According to Forrester Research, 75% of Internet surfers used “Social Media” in the second quarter of 2008 by joining social networks, reading blogs, or contributing reviews to shopping sites.

•The very first YouTube video was uploaded on 23 April 2005.

•The total number of people who use YouTube – 1,300,000,000.

•300 hours of video are uploaded to YouTube every minute!

•Almost 5 billion videos are watched on Youtube every single

day.

•YouTube gets over 30 million visitors per day

•In an average month, 8 out of 10 18-49 year-olds watch

YouTube.

•By 2025, half of the viewers under 32 will not subscribe to a

pay-TV service.

•6 out of 10 people prefer online video platforms to live TV

•The total number of hours of video watched on YouTube each

month – 3.25 billion.

•10,113 Youtube videos generated over 1 billion views.

•80% of YouTube’s views are from outside of the U.S.

•The average number of mobile YouTube video views per day is

1,000,000,000

•The average mobile viewing session lasts more than 40

minutes. This is up with more than 50% year-over-year.

•Female users are 38% and male users are 62%.

•User Percentage by Age 18-24 – 11%, 25-34 – 23%, 35-44 – 26%,

45-54 – 16%, 50-64 – 8%, 65+ – 3%, unknown age – 14%.

•More than half of YouTube views come from mobile devices.

•YouTube’s mobile revenue is up to 2x y/y.

•YouTube overall and even YouTube on mobile alone reaches

more 18-34 and 18-49 year-olds than any cable network in the

U.S.

•The number of hours people spend watching videos (aka watch

time) on YouTube is up 60% year-over-year, the fastest growth

we’ve seen in 2 years.

•You can navigate YouTube in a total of 76 different languages

(covering 95% of the Internet population).

•YouTube has launched local versions in more than 88

countries.

•9% of U.S small businesses use Youtubehttps://www.youtube.com/watch?v=jNQXAC9IVRwhttps://www.thinkwithgoogle.com/infographics/video-trends-where-audience-watching.htmlhttps://www.thinkwithgoogle.com/infographics/video-trends-where-audience-watching.htmlhttps://www.youtube.com/intl/en-GB/yt/about/press/

Evolution of media platforms

(Source: idfive.com, 2011) Clay Shirky: How social media can make historyhttps://www.ted.com/talks/clay_shirky_how_cellphones_twitter_facebook_can_make_history

Conversation Prism

(Source: Solis and Thomas, 2008)

What is Social Media—And what is it not?

• How Social Media differ from the seemingly-interchangeable related concepts of Web 2.0 and User Generated Content?

• Web 2.0 is a term that was first used in 2004 to describe a new way in which software developers and end-users started to utilize the World Wide Web.

• Applications such as personal and company web pages (content publishing) belong to the era of Web 1.0.

• Web 2.0 is a platform whereby content and applications are no longer created and published by individuals, but instead are continuously modified by all users in a participatory and collaborative fashion (e.g., blogs, wikis, and collaborative projects in Web 2.0).

• User Generated Content (UGC) can be seen as the sum of all ways in which people make use of Social Media

“Open Diary/weblog” (Bruce and Susan

Abelson)

Blog/weblog MySpace(2003)

Facebook(2004) Social Media

Web 2.0…contd • Technologies contributing to a socially connected Web where

everyone is able to add to and edit content.

Concepts and theory bridge

Concepts Description Theoretical

underpinnings

Social Media

(Web 2.0, User

Generated Content

(UGC))

A group of Internet-

based applications that

build on the ideological

and technological

foundations of Web 2.0,

and that allow the

creation and exchange

of User Generated

Content.

A set of theories in the

field of media research;

Social presence

&

Social processes;

self-identity

self-expression

A business can create its own profile in a

business directory known as “Pages”.

Facebook Page, users can become a “fan” of

your business

From Web 1.0 to Web 2.0: Evolving global marketspace

From Web 1.0 to Web 2.0: Evolving global marketspace

..contd

• Relative comparisons

that were largely

dependent on

information provided

by manufacturers.

• User-generated

reviews and people’s

tendency to consult

social media friends

about purchases,

buyers have other

options.

PART 2

(THEORY)PART 2

THEORY

Making sense of social media

These are instances when social media results in unintended consequences. How do we make sense of these incidents? How do we understand social media?

The global marketspace and few theoretical

underpinnings

A set of theories in the field of media research;

(1) Social presence theory

(2) Social processes (self-identity and self-expression)

These theories can be used to understand how individuals

operate in the the global marketspace

Social Presence Theory (Short, Williams, &

Christie, 1976)

• The theory suggests that a medium’s social effects are principally

caused by the degree of social presence which it affords to its users.

• Social presence- sense of awareness of the presence of interactive

persons ; know and think about other persons, their characteristics,

qualities and inner states (Short et al., 1976).

• Thus, increased presence leads to a better perception.

Source: Short, J.A., Williams, E., & Christie, B. (1976). The social psychology of telecommunications. New York: John Wiley & Sons.

Social Presence Theory (Short, Williams, &

Christie, 1976)…contd

• Media differ in the degree of “social presence”—defined as the

acoustic, visual, and physical contact that can be achieved—they

allow to emerge between two communication partners.

• Social presence is influenced by the intimacy (interpersonal vs.

mediated) and immediacy (asynchronous vs. synchronous) of the

medium.

• Social presence is to be lower for mediated (e.g., telephone

conversation) than interpersonal (e.g., face-to-face discussion) and

for asynchronous (e.g., e-mail) than synchronous (e.g., live chat)

communications.

Source: Short, J.A., Williams, E., & Christie, B. (1976). The social psychology of telecommunications. New York: John Wiley & Sons.

Social Presence in the context of social

media….

Source:Litvin, S. W., Goldsmith, R. E. & Pan, B. 2008. Electronic word-of-mouth in hospitality and tourism management. Tourism management, 29, 458-468.

Social processes (Self-identity and self-expression)

• What am I?’

Social processes (Self-identity and self-expression)

• Self-identity states that in any type of social interaction people have,

the desire to control the impressions other people form of them

(Goffman, 1959).

• This is done with the objective of influencing others to gain rewards

(e.g., make a positive impression on your partner); on the other

hand, it is driven by a wish to create an image that is consistent with

one’s personal identity (e.g., wearing a fashionable outfit in order to

be perceived as young and trendy).

Self-expression • Self-expression is the conscious or unconscious revelation of

personal information (e.g., thoughts, feelings, likes, dislikes) that is

consistent with the image one would like to give.

• Self-expression is a critical step in the development of close

relationships (e.g., during dating) but can also occur between

complete strangers; for example, when speaking about personal

problems with the person seated next to you on an airplane.

Social processes in the context of social

media…. • Applied to the context of social media, different degrees

of self-expression and presentation can be seen.

• The consumers of the digital era are argued to be unpredictable, individualistic, expressive and also highly competent in their spending patterns.

• The key reason why individual decide to create a personal webpage is, for example, the wish to present themselves in cyberspace (Schau & Gilly, 2003).

Classification of Social Media by social presence/media

richness and self-identity/self-expression.

Self- identity/self- expression

Social Presence

Low

Medium

High

High

Blogs

Social networking sites (e.g., Facebook)

Vitural social world (e.g., Second Life)

Low

Collaborative projects ( e.g., Wikipedia)

Content communities (e.g., YouTube)

Virtual game world (e.g., World of Warcraft)

PART 3

APPLICATION

Most often used forms of Social media in the

global marketspace 1. Social networking (34%)

2. Blogging (30%)

3. Online video uploading (13%)

4. Microblogging (12%)

Source: TopRank, 2011; http://www.toprankblog.com/2010/07/seo-tops-digital-marketing-2011. Gilfoil, D. M. 2011. MIND THE GAP: A GLOBAL ANALYSIS OF THE NUMBER OF BUYERS TO SELLERS USING BLOGGING, SOCIAL NETWORKING, ONLINE VIDEO, AND MICROBLOGGING PLATFORMS. International Journal of Business Research, 11.http://www.toprankblog.com/2010/07/seo-tops-digital-marketing-2011

Features of Web 2.0 – Interactivity – Information sharing – Collaboration – Community – Content co-creation – User-centered design

– Why social media ‘ likes’ say more than you might think?https://www.ted.com/talks/jennifer_golbeck_the_curly_fry_conundrum_why_social_media_likes_say_more_than_you_might_think

• Global firms now need to shift their business strategies to account

for the rising power exerted on future customers by the opinions of

existing customers.

• They should actively get involved in online consumer communities

and provide all relevant and complete information about their

operations (Jalilvand, Esfanani, and Samiei 2011)

Social media and the global marketspace

Advantages of using social media

• Volkswagen’s ‘The Force’ commercial for the 2011 Passat model has been viewed nearly 53 million times on YouTube.

Businesses can use

LinkedIn as a

powerful recruitment

tool, finding potential

employees with the

exact talent and skills

they require

Companies can use

YouTube to share

video content. This

includes webcasts,

keynote speeches,

corporate

presentations, video-

based training and

e-learning, video

tutorials

Twitter, a

microblogging

service that

allows its users

to update their

status in a

maximum of

140 characters

per update.

The IBM LotusLive suite

includes, among other

Web 2.0 features, a

social networking

platform that is targeted

at large organisations,

allowing them to create

in-house social

networks and giving

employees a method of

connecting with co-

workers around the

globe

Source: Utilizing Web 2.0 in business, accssed on 28th March 2014 from <http://www.ibm.com/developerworks/library/wa-web20business/>

Benefits of Social Media for Brand Building

1. Increase brand awareness

2. Humanize your brand

3. Establish your brand as a thought leader

4. Stay top of mind

Benefits of Social Media for Growth

5. Increase website traffic

6. Generate leads

7. Boost sales

8. Partner with influencers

Benefits of Social Media for Content Creation & Distribution

9. Promote content

10. Go viral

11. Source content

Benefits of Social Media for Communication

12. Reputation management

13. Crisis communication

14. Customer and audience engagement

15. Customer service and customer support

https://blog.hootsuite.com/social-media-for-business/https://blog.hootsuite.com/social-media-for-business/

• Social media are a function of the technology,

culture, and government of a particular country or

context.

• Local events rarely remain local

• Global events are likely to be (re)interpreted

locally

• Creative consumers’ actions and creations are

also dependent on technology

Source:Berthon, P. R., Pitt, L. F., Plangger, K. & Shapiro, D. 2012. Marketing meets Web 2.0, social media, and creative consumers: Implications for international marketing strategy. Business Horizons, 55, 261-271.

(e.g., prosumers)

Key implications of social media in the

global marketspacehttp://www.youtube.com/watch?v=hcwWOwPQvwA

Challenges and opportunities of Social

Media platforms in the global

marketspace 1.Collaborative projects

• Collaborative projects enable the joint and simultaneous creation of content by many end-users and are, in this sense, probably the most democratic manifestation of UGC

• Within collaborative projects allow users to add, remove, and change text-based content—and social bookmarking applications— which enable the group-based collection and rating of Internet links or media content.

• Exemplary applications within this category include the online encyclopaedia Wikipedia, a wiki currently available in more than 230 different languages, and the social bookmarking web service Delicious,

• The main idea underlying collaborative projects is that

the joint effort of many actors leads to a better outcome

than any actor could achieve individually

• International firms must be aware that collaborative

projects are trending toward becoming the main source

of information for many consumers.

• As such, although not everything written on Wikipedia

may actually be true, it is believed to be true by more

and more Internet users.

Collaborative projects can be particularly crucial in corporate crises.

Challenges • Amazon’s pricing strategy

• When online book retailer Amazon started to test the idea of dynamic pricing, comments declaring such a practice as unfair showed up instantaneously under the Wikipedia entry on “time-based pricing.”

Opportunities • Finnish handset manufacturer

Nokia uses internal wikis to update employees on project status and to trade ideas, which are used by about 20% of its 68,000 staff members.

Likewise, American computer software company Adobe Systems maintains a list of bookmarks to company-related websites and

conversations on Delicious.

Challenges and opportunities of Social

Media platforms in the global

marketspace….contd

2.Blogs

They are the Social Media equivalent of personal web

pages and can come in a multitude of different

variations, from personal diaries describing the author’s

life to summaries of all relevant information in one

specific content area.

Blogs; Challenges and opportunities of Social Media in the

global marketspace…contd

Opportunities Many companies are already using

blogs to update employees,

customers, and shareholders on

developments they consider to be

important. Jonathan Schwartz,

CEO of Sun Microsystems,

maintains a personal blog to

improve the transparency of his

company; so does automotive

giant General Motors.

Challenges Microsoft’s former “technical

evangelist” Robert Scoble, for

example, had a tendency to

fiercely criticize the products of his

employer—before he decided to

leave the Redmond-based

software company in 2006.

Challenges and opportunities of Social Media

platforms in the global marketspace…contd

3. Content communities

• The main objective of content communities is the sharing of media

content between users.

• Content communities exist for a wide range of different media types

• Examples, including text (e.g., BookCrossing, via which 750,000+

people from over 130 countries share books), photos (e.g., Flickr),

videos (e.g., YouTube), and PowerPoint presentations (e.g.,

Slideshare).

Content communities: Challenges and

opportunities of Social Media in the global

marketspace…contd • The high popularity of content communities makes them a very attractive contact

channel for many firms

• Almost 5 billion videos are watched on Youtube every single day

• In 2007, Procter & Gamble organised a contest for its over-the-counter drug Pepto-

Bismol, whereby users were encouraged to upload to YouTube 1-minute videos of

themselves singing about the ailments Pepto-Bismol counteracts, including heartburn

and nausea.

• In a similar spirit, kitchen appliances manufacturer Blendtec became popular for its

bevy of inexpensive “Will it blend?” videos, which have been watched by millions of

people.

• Other firms, such as Cisco and Google, rely on content communities to share

recruiting videos, as well as keynote speeches and press announcements, with their

employees and investors.

Challenges and opportunities of Social Media

platforms in the global marketspace…contd

4. Social networking sites

Applications that enable users to connect by creating personal

information profiles, inviting friends and colleagues to have access

to those profiles, and sending e-mails and instant messages

between each other.

These personal profiles can include any type of information, including

photos, video, audio files, and blogs. The largest social networking

sites are U.S.-based Facebook (initially founded by Mark

Zuckerberg to stay in touch with his fellow students from Harvard

University) and MySpace (with 1,500 employees and more than 250

million registered users).

Social networking sites • Several companies are already using social networking sites to support the

creation of brand communities (Muniz & O’Guinn, 2001) or for marketing research in the context of netnography (Kozinets, 2002).

• To promote the movie “Fred Claus,” a 2007 Christmas comedy film, Warner Brothers created a Facebook profile via which visitors could watch trailers, download graphics, and play games.

• The Adidas custom soccer community on MySpace allows visitors to associate themselves with one of two brands of elite soccer cleats produced by the German sports apparel manufacturer, and to access product reviews and information on professional soccer players who play using “their” shoes.

• Some firms even go one step further and use Facebook as a distribution channel. Consider U.S.-based florist 1-800-Flowers.com, which offers a widget on Facebook called “Gimme Love” whereby users can send “virtual bouquets” to friends or, with a click of the mouse, be directly transferred to the company’s website to send real flowers.http://www.sciencedirect.com.ezproxy.lib.swin.edu.au/science/article/pii/S0007681309001232http://www.sciencedirect.com.ezproxy.lib.swin.edu.au/science/article/pii/S0007681309001232

Summary: Challenges in using social media

in the global business context….contd

• Lack of expertise and experience. – There is a lack of knowledge, evidence and research on:

• How companies should use social media. • How consumers actually use social media.

• Difficulty of measuring effectiveness. – Return on investment (ROI) and promotional effectiveness are

difficult to measure. Current claims of miraculous results may be over-stated.

• Costs – While potentially cheaper than traditional media, there are costs

associated with social media which include: • Regular creation of content

• Platform development (website, accounts, pages)

• Monitoring, reporting

• Opportunity cost of promotional spend on marketing communication budget.

Summary: Challenges in using social media

in the global business context….contd

• Social media are used differently across and within countries. – Understanding country usage patterns is

important.

– Avoid making assumptions about ‘typical users’.

• Of FaceBook’s 400 million active users, a study by the New York Times (2010) revealed 50% are thought to be over 35, with only 27% aged under 24.

• A study of Twitter users revealed 70% were over 25, 57% had an income over $60,000, and 52% were tertiary educated (Quantcast, 2010).

Vs

Challenges in using social media in the

global business context: China

• FaceBook, YouTube and Twitter are blocked in China.

• However, China has the largest number of internet users in the world. – From the CNNIC 24th Statistical Report of Chinese

internet usage (2009): • 338 million Chinese ‘netizens’ in 2009 (25.5% of population)

• 46% of Chinese ‘netizens’ access the internet via mobile phone; 35.5% access the web through internet cafes.

• More than 100 million Chinese netizens use online forums (bulletin board system – BBS), spending at least 1 hour per day on these sites.

Challenges in using social media in the

global business context: China

• Local websites and social media dominate: – Search engine usage: Baidu (64%),

Google (25%), Yahoo China (8%) (Comscore, 2008).

– Top social media sites: • Renren.com (Launched 2005. Similar to

FaceBook. 31 million active users by April 2011)

• Kaixin001.com (Launched 2008. 8 million+ active users after first year.)

• Sina Weibo (Launched 2008. Similar to Twitter. 250 million users, 25 million messages a day at October 2011).http://www.chinahush.com/2010/04/05/why-renren-is-better-than-facebook/http://www.chinahush.com/2010/04/05/why-renren-is-better-than-facebook/

Challenges in using social media in the

global business context

• Limited control and the potential for

negative publicity and brand damage.

– ‘Hate’ sites and pages.

– Boycott groups.

– Trolling behaviour on social media.

– Low popularity and usage.

– Poor public relations handling of incidents.

– Inappropriate consumer-created content.

Challenges of Web 2.0 channels

Challenges of Web 2.0 channels

Using Social media : Good outcomes

• In 2009, the Facebook page

for Ferrero’s Nutella brand

united 4.9 million fans of the

chocolate and hazelnut

spread who gather together

to share their brand

experiences. Nutella’s page

was originally created by a

fan, and Ferrero’s hands-off

approach to site

management helps keep

authenticity strong.

The Facebook page for Coca- Cola’s was originally built by aficionados who united 14 million fans. Coca-Cola boldly share ownership with its fan base. The site’s originators now co-manage the site alongside Coca-Cola, which plays a decidedly backseat role.

Using Social media : Bad outcomes

• Apple had a lawsuit against one of the many rumor websites

dedicated to the company.

• The facebook for Wal-Mart was overrun by protesters. One poster

wrote: ‘Facebook should take the number of negative comments on

this page as a note that we don’t support this company [for] its use

of a space for social networking. This space is for people talking to

other people’

Take away note and lesson summary

• Tim O’Reilly urges Web 2.0 firms to solve real-world problems

• From global village to global marketspace

• Social Media, Web 2.0 and User Generated Content • Social presence theory & social processes (self-

identity and self-expression) • Features of Web 2.0 • Social media and the global markespace • Challenges and opportunities of Social Media

platforms in the global marketspacehttp://www.youtube.com/watch?v=aaltXUARar0

References

Andersen, P. 2007. What is Web 2.0?: ideas, technologies and implications for education, JISC Bristol, UK.

Cleveland, M., & Laroche, M 2007 Acculturaton to the global consumer culture: Scale development and research paradigm.

Journal of Business Research, 60(3), 249-259.

Fournier, S. & Avery, J. 2011. The uninvited brand. Business Horizons, Vol. 54, no. 3, pp. 193-207.

Gilfoil, D. M., & Jobs, C. G. (2011). MIND THE GAP: A GLOBAL ANALYSIS OF THE NUMBER OF BUYERS TO SELLERS

USING BLOGGING, SOCIAL NETWORKING, ONLINE VIDEO, AND MICROBLOGGING PLATFORMS. International

Journal of Business Research, 11(5), 86-98.

Jalilvanda, M. R., Esfahani, S. S. & Samiei, N. 2011. Electronic word-of-mouth: Challenges and opportunities. Procedia Computer

Science, Vol. 3, no., pp. 42-46.

Simonson, I. & Rosen, E. 2014. What Marketers Misunderstand About Online Reviews. HARVARD BUSINESS REVIEW,

23-25.

O‘Reilly, T. 2009. What is web 2.0, O’Reilly Media, Inc.

Short, J.A., Williams, E., & Christie, B. (1976). The social psychology of telecommunications. New York: John Wiley & Sons.

Parise, S. & Guinan, P. J. Marketing using web 2.0. Proceedings of the 41st Hawaii International Conference on System

Sciences, 2008 Hawaii IEEE, 281-281.

Ellison, N. B. 2007. Social network sites: Definition, history, and scholarship. Journal of Computer‐Mediated Communication, 13, 210-230.

Litvin, S. W., Goldsmith, R. E. & Pan, B. 2008. Electronic word-of-mouth in hospitality and tourism management. Tourism

management, 29, 458-468.

Shah, N. 2008) From global village to global marketplace: Metaphorical descriptions of the global Internet. International Journal of

Media & Cultural Politics, 4(1), 9-26.

Wilska, T. A. (2002). Me–a consumer? Consumption, identities and lifestyles in today’s Finland. Acta Sociologica, 45(3), 195-210.

BUSINESS PLAN

[Your Name], Owner

Date

1. EXECUTIVE SUMMARY

1.1 Product

1.2 Customers

1.3 What Drives Us

2. COMPANY DESCRIPTION

2.1 Mission and Vision Statements

2.2 Principal Members at Startup (In Unit 7 you will expand on this section to include medium and long term personnel plans for all team members, including the line staff.)

2.2.1 Using chapter 10 of your text, write the plan, using the section in Chapter 10 that shows how to introduce each team member and describe their background and responsibilities. You will start with the leaders and managers, then discuss other employees as needed for your company to grow.

2.2.2 Use this spreadsheet to show the planning

Leaders/managers (unit 1) When needed (number of months/years after opening)Outside Services Needed
Key Functions
      
      
      
      
      
      
 Add line staff (Unit 7)     
      
      
      
      
      
      
      

2.3 Legal Structure

3. MARKET RESEARCH

3.1 Industry (from SBA, Business Guides by Industry – https://www.sba.gov/managing-business/business-guides-industry, and Bureau of Labor Statistics –https://www.bls.gov/iag/tgs/iag51.htm, )

3.1.1 Industry description

3.2.1 Resources used

3.2 Customers (from SBA site fill in worksheet, then use text for spreadsheets and follow-up explanations)

Add SBA part here

Then:

Fill in spreadsheet using this example from the text:

Housewife:Married Couple:
Age:35–65Age:35–55
Income:FixedIncome:Medium to high
Sex:FemaleSex:Male or Female
Family:Children living at homeFamily:0 to 2 children
Geographic:SuburbanGeographic:Suburban
Occupation:HousewifeOccupation:Varies
Attitude:Security mindedAttitude:Security minded, energy conscious
Older Couple:Elderly:
Age:55–75Age:70+
Income:High or fixedIncome:Fixed
Sex:Male or FemaleSex:Male or Female
Family:Empty nestFamily:Empty nest
Geographic:SuburbanGeographic:Suburban
Occupation:White-collar or retiredOccupation:Retired
Attitude:Security minded, energy consciousAttitude:Security minded, energy conscious

Explain who you are targeting and where they are located beginning with the heading “Customers.” Insert information here using these guidelines:

Information About Your Target Market – Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market:

Distinguishing characteristics – What are the critical needs of your potential customers? Are those needs being met?  What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business?

Size of the primary target market – In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry? What is the forecasted market growth for this group? For more information, see our market research guide for tips and free government resources that can help you build a market profile.

How much market share can you gain? – What is the market share percentage and number of customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation.

3.3 Competitors (from SBA site fill in worksheet, then use text for spreadsheets and follow-up explanation)

Then:

Fill in spreadsheet using this example from the text:

Estimated Market ShareCompetition 60%Home Improvements Inc. 30%
Product Line45
Quality45
Technology45
Advertising25
Sales Force35
Distribution34
Price44
Installation45
Ease of Use45
Appearance35
Design45
Useful Life44
Responsiveness35
Availability15
Technical Expertise45
Repair Service35
Efficiency35
Guarantee/Warranty55
On Time Capability45
Industry Reputation35

Write an explanation of your findings using information from the spreadsheet using these guidelines:

· Market share

· Strengths and weaknesses

· How important is your target market to your competitors?

· Are there any barriers that may hinder you as you enter the market?

· What is your window of opportunity to enter the market?

· Are there any indirect or secondary competitors who may impact your success?

· What barriers to market are there (e.g., changing technology, high investment cost, lack of quality personnel)?

3.4 Competitive Advantage

Read: Sustainable competitive advantage or temporary competitive advantage: Improving understanding of an important strategy construct.

3.5 Regulation (use SBA site to fill in blanks, and use https://www.sba.gov/managing-business/business-law-regulations as a resource)

4. PRODUCT/SERVICE LINE

4.1 Product or Service

4.2 Pricing Structure

4.3 Product/Service Life Cycle

4.4 Intellectual Property Rights

4.5 Research & Development

5. MARKETING and SALES

5.1 Growth Strategy

· A market penetration strategy.

· A growth strategy. This strategy for building your business might include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.

· Channels of distribution strategy. Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.

· Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.

After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product.

5.2 Your overall sales strategy should include two primary elements:

· A sales force strategy. If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?

· Your sales activities. When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor.

5.3 Communication Strategy

5.3.1 Internet Strategy (from the text)

5.3.1 Tracking ROI form website

5.3.2 Discuss how you will assure ethical practices are being used in your marketing and selling.

6. FINANCIAL PROJECTIONS

6.1 Profit & Loss

Year 1Year 2Year 3
Sales
Costs/Goods Sold
GROSS PROFITOPERATING EXPENSES
Salary (Office & Overhead)
Payroll (taxes, etc.)
Outside Services
Supplies (Office & Operation)
Repairs & Maintenance
Advertising
Car, Delivery & Travel
Accounting & Legal
Rent
Telephone
Utilities
Insurance
Taxes (Real Estate, etc.)
Interest
Depreciation
Other Expenses
TOTAL EXPENSES
NET PROFIT BEFORE TAXES
Income Taxes
NET PROFIT AFTER TAX
Owner Draw/Dividends
ADJUSTED TO RETAINED

6.2 Cash Flow Complete section 6.3 of your business plan outline

Pre-StartupEST.Year 1Year 2Year 3
Cash on Hand
CASH RECEIPTS
Cash Sales
Collections from CR Accounts
Loan/Cash Injection
TOTAL CASH RECEIPTS
TOTAL CASH AVAILABLE
CASH PAID OUT
Purchases
Gross Wages
Outside Services
Supplies
Repairs & Maintenance
Advertising
Car, Delivery & Travel
Accounting & Legal
Rent
Telephone
Utilities
Insurance
Taxes (Real Estate, etc.)
Interest
Other Expenses
SUBTOTAL
Loan Principal Payment
Capital Purchase
Other Startup Costs
Reserve and/or Escrow
Others Withdrawal
TOTAL CASH PAID OUT
CASH POSITION

6.3 Balance Sheet

AssetsStart Date:End Date:
CURRENT ASSETS
Cash in Bank
Accounts Receivable
Inventory
Prepaid Expenses
Other Current Assets
TOTAL CURRENT ASSETS
FIXED ASSETS
Machinery & Equipment
Furniture & Fixtures
Leaseholder Improvements
Land & Buildings
Other Fixed Assets
TOTAL FIXED ASSETS(net of depreciation)
OTHER ASSETS
Intangibles
Deposits
Other
TOTAL OTHER ASSETS
TOTAL ASSETS
Liabilities & Equity
CURRENT LIABILITIES
Accounts Payable
Interest Payable
Taxes Payable
Notes, Short Term (due in 12 months)
Current Part, Long-Term Debt
TOTAL CURRENT LIABILITIES
LONG TERM DEBT
Bank Loans Payable
Notes Payable to Stockholders
LESS: Short-Term Portion
Other Long-Term Debt
TOTAL LONG-TERM DEBT
TOTAL LIABILITIES
OWNER’S EQUITY
Invested Capital
Retained Earnings
TOTAL OWNERS EQUITY
TOTAL LIABILITIES & EQUITY

Customers

6.4 Break-Even Analysis

DIRECT COSTSFixed Costs ($)Variable Costs (%)
Cost of Goods Sold
Inventory
Raw Materials
Direct Labor
INDIRECT COSTS
Salaries
Supplies
Repairs & Maintenance
Advertising
Car, Delivery & Travel
Rent
Telephone
Utilities
Insurance
Taxes
Interest
Depreciation
Other Costs
Total Fixed Costs
Total Variable Costs
BREAK-EVEN SALES LEVEL:

6.5 Financial Assumptions

6.5.1 Assumptions for Profit and Loss Projections

6.5.2 Assumptions for Cash Flow Analysis

6.5.3 Assumptions for Balance Sheet

6.5.4 Assumptions for Break-Even Analysis

Social Media and the global marketplace

Social Media and the global marketplace: Web 2.0

Business Models

Readings:

Wirtz, B.W., Schilke, O. and Ullrich, S., 2010. Strategic development of

business models: implications of the Web 2.0 for creating value on the

internet. Long Range Planning, 43(2), pp.272-290.

INB 20009 Managing the Global Marketplace

Lesson plan

• Social Media and digital business models

• Socio-cultural research (Verstehen school of thought) 1) Socio-Cultural Research: The social as capital

2) Socio-Cultural Research: The social as theatre

• Stages of Internationalisation

• A Strategic Approach to Internationalisation: A Traditional Versus a ‘Born-Global’ Approach :

• Implications and recommendations

PART 1

CONCEPTS

A BUSINESS MODEL

• The business model is a holistic management

approach that reflects the fundamental value

creation logic, value creation architecture and the

functioning of a company (Timmers 1998).

• A representation of a firm’s underlying core logic and

strategic choices for creating and capturing value

within a value network (Shafer, S.M., Smith, H.J.

and Linder, J.C., 2005 p.202).

A BUSINESS MODEL…contd

• Porter (1985) distinguishes nine value chain elements. Namely, as

primary elements inbound logistics, operations, outbound logistics,

marketing & sales, service; and as support activities technology

development, procurement, human resource management,

corporate infrastructure.

Components of a business model

Source: (Shafer, S.M., Smith, H.J. and Linder, J.C., 2005 p.202).

The 4C-Net-Business-Model typology (Wirtz 2000; Wirtz and Lihotzky 2003, p. 522)

• A typology to structure the different business models on the Internet within the B2C sector.

• Four basic business models are characterised by different service offerings across Content, Commerce, Context and Connection.

• The classification is considered as 4C-Net- Business-Model typology (Wirtz 2000, p. 218).

Content, Commerce, Context and

Connection • Content-orientated business models are used by firms –

such as The Wall Street Journal Online – that focus on

the collection, selection, compilation, distribution, and/or

presentation of online content.

• Their value proposition is to provide convenient, user-

friendly online access to various types of relevant

content.

Content, Commerce, Context and

Connection • Commerce-orientated business models focus primarily

on the initiation, negotiation, payment and delivery

aspects of trade transactions using online media.

• Commerce-oriented firms, such as Amazon and Dell,

offer cost-efficient transactions for buyers and sellers of

goods and services.

• Companies focusing on this type of business model use

electronic Internet-based processes to substitute or

support traditional transaction functions and arenas,

creating direct revenue streams in the form of sales

revenues, as well as indirect revenue streams such as

commissions.

Content, Commerce, Context and

Connection • Context-oriented business models – represented by firms

such as Google – primarily structure information already existing on the Internet, rather than creating new content.

• Their aim is to increase transparency and reduce complexity so as to help Internet users navigate through the abundance of websites and identify those that fit their specific needs.

• Their business models mostly rely on indirect, transaction-independent revenue streams, such as online advertising.

Content, Commerce, Context and

Connection • Connection-oriented business models aim at providing

the network infrastructure that enables users’ participation in online networks, either on a physical ‘interconnection’ level (i.e., Earthlink provides the physical communication between an end-user and the Internet) or a virtual ‘intraconnection’ level, where providers offer Internet communication services such as emailing or instant messaging.

• They generate revenues directly on a subscription, time or volume basis

The 4C-Net-Business-Model typology

Content Commerce Context Connection

Definition Companies that

archive, select,

compile, distribute

or present content

online

Companies that

initiate or

handle business

transactions

Companies that

sort and

aggregate

information

Companies that

provide physical

or virtual network

infrastructure

Value proposition User friendly and

convenient access

to

various content

(Cost-)efficient

market

platform for sellers

and

buyer

Reduction of

intransparency and

complexity for

users

Requirements for

exchanging

information over

the Internet

Forms of Revenue Advertising

Subscriptions

Pay-Per-Use

Sales Revenue

Commissions

Advertising Advertising

Subscriptions

Pay-Per-Use •

Commissions •

Time-/Volume-

Based Billing

BM-Variants E-Information

E-Entertainment

E-Education

E-Infotainment

E-Attraction

E-Bargaining/-

Negotiation

E-Transaction

E-Search Engines

E-Web Catalog

E-Intra-Connection

(community)

E-Inter-Connection

Examples Wallstreet journal

online

Amazon Google Intra: Facebook

Inter: Vodaphone

The Web 2.0-Four Factors-Model

• Web 2.0 is characterized by a high degree of

participation, networking and social interaction.

• The Web 2.0- Four Factors Model can be used to

understand the structuring and evaluation of relevant

changes that are induced by Web 2.0 in Internet

business models.

The Web 2.0-Four Factors-Model..contd

This model includes four key dimensions of

Web 2.0 impact, which consist of several

sub-factors;

1. Social Networking

2. Interaction Orientation

3. Customisation and Personalisation

4. User- Added Value

The Web 2.0-Four Factors-Model..contd

Source: Wirtz, B.W., Schilke, O. and Ullrich, S., 2010. Strategic development of business models: implications of the Web 2.0 for creating

value on the internet. Long Range Planning, 43(2), pp.279.

Four Fundamental Factors of Web

2.0

1. Social networking; This involves dramatically increasing numbers of participants. Social

networking services are often built around certain topics and aim at

connecting friends, or involve assessments of products and services

1. Social Networking

Four Fundamental Factors of Web

2.0 2. Interaction orientation; • Interaction orientation concerns the firm’s ability to

manage effectively the rising customer demand for a

more intense and authentic dialogue between firm and

customer

2. Interaction Orientation

Four Fundamental Factors of Web 2.0

3. Personalisation/customisation;

Internet users the possibility of reconfiguring (e.g.,

changing the look of) websites according to their specific

needs and preferences.

3. Customization and Personalization

Four Fundamental Factors of Web

2.0

4.User-added value;

This includes user-generated content and user-

generated creativity, as well as user-generated

innovations and revenue

4. User- Added Value

PART 2

(THEORY)PART 2

THEORY

Socio-cultural research (Verstehen school of thought) can be used

to analyse information in various social media business models

and platforms from two perspectives;

(1) Socio-Cultural Research: The social as capital

(2) Socio-Cultural Research: The social as theatre

Socio-cultural research (Verstehen

school of thought)

Socio-Cultural Research: The social as capital

The “volume of the social capital

possessed by a given agent thus depends

on the size of the network of connections”

– Bourdieu

Bourdieu, P. 1986. “The forms of capital.” P. 241-258. Handbook of Theory And Research For The Sociology of Education. Richardson, J. G. (ed). New York: Greenwood. p., 248

Pierre Bourdieu was a sociologist, anthropologist and philosopher in France

Leveraging social capital in global business context

Tactic Assumption for Success

FB Fan pages

Brand or corporate image has valuable social capital (e.g., “friends” with “connected” people)

Buzz Brand or corporate image has a large, accessible network of people with “weak ties”

Viral Brand or corporate image has a large, accessible network of people with “weak ties” with the ability to forward on content easily

Twitter Brand or corporate image has many followers who in turn have many more followers

WoM Brand or corporate image can use many “weak ties” in target demographic

Watch: https://www.ted.com/talks/tim_leberecht_3_ways_to_usefully_lose_control_of_your_reputation Leveraging social capital using social mediahttps://www.ted.com/talks/tim_leberecht_3_ways_to_usefully_lose_control_of_your_reputation

Goffman, E. 1967. Interaction Ritual: Essays on Face-to-Face Behaviour. New York: Pantheon Books. P. 108

Socio-Cultural Research: The social as theatre

“Embarrassment, then, leads us to the

matter of ‘role segregation.’ Each individual

has more than one role but he is saved

from the role dilemma by ‘audience

segregation’….however, there are times

and places where audience segregation

regularly breaks down…” – Goffman.

Leveraging social theatre in Global business

context

Tactic Assumption for Success

UGC Firms can control who sees what content they generate

Social Networking

Firms/brands can control who sees they are connections.

Folksonomy Firms can control who sees their categories and bookmarks

Twitter Firms can control who sees your tweets

FB Firms can control who sees they are connected to you

PART 2

(THEORY)PART THREE

APPLICATIONS

Implications and Recommendations: Using

social media in managing the global

marketplace

1. Business model level innovation and

entrepreneurship

2. Business process and practice level innovation

and entrepreneurship

3. Business Strategy level innovation and

entrepreneurship

1. Business model level innovation

and entrepreneurship

• Firms that are internationalised in accordance with the

internationalisation process are referred to ‘traditional

(international)’ firms.

Five Stages of Internationalisation

1. Domestic business – A local coffee shop

2. Export business- animals, vegetables, Wine

exporters

3. International (country-by-country) business-

International fast-food restaurants

4. Multinational (region-by-region) business-Joint

venture operations in each region

5. Global business- Coca-Cola, Nike

 Evo

lu tio

n ary p

ro cess

A traditional Vs ‘Born Global Approach’

• Firms that are internationalised soon after they are

founded are referred to ‘born global’ firms (Chetty, S., &

Campbell-Hunt, C.2004, p.57).

Market conditions that are favourable for

Born Global firms

• Advances in technology in production, transportation,

and communication – Born global-online firms

• Internationalisation of industry competition

• The increasingly global scope of cultural homogeneity,

social change, and firm strategy

• The more sophisticated capabilities of the founders and

entrepreneurs who establish born-global firms

1. Business model level innovation and

entrepreneurship

2. Business process and practice level

innovation and entrepreneurship

• Service streamlining, digital marketing, mobile marketing.

– Airlines using email marketing, websites for booking and checking-in functions, and smartphone apps for checking-in, providing real time information and digital boarding passes.

3. Business Strategy level innovation

and entrepreneurship

• ‘Networked company’ linking companies with customers and suppliers through the use of Web 2.0 tools

• The rise of the networked enterprise: Web 2.0 finds its payday

• http://www.mckinsey.com/insights/high_tech_tele coms_internet/the_rise_of_the_networked_enter prise_web_20_finds_its_paydayhttp://www.mckinsey.com/insights/high_tech_telecoms_internet/the_rise_of_the_networked_enterprise_web_20_finds_its_payday

Informing social media strategies in the

global marketplace

Using Social media

1. Choosing the right medium for any given purpose depends on the target group

to be reached and the mess.

2. Making or using it? It might just be best to join an existing Social Media

application and benefit from its popularity and user base.

3. Ensure activity alignment

4. Access for all

Being Social ( Remember, Social Presence Theory)

1.Be active, sharing and interaction

2.Be interesting

3.Be humble

4.Be unprofessional

(Source: Andreas M. Kaplan and Michael Haenlein 2010, Harvard Business Review )

1. Choosing social media strategies in the global

marketplace

1. Choosing the right medium for any given purpose depends on the target group to

be reached and the mess.

E.g., A content community via which users share self-written novels or poems is

likely better suited to reach a potential markets for online books than a virtual world

which focuses on fighting dragons and finding treasures.

E.g., the U.S. Army undertook an initiative in 2007 to reach the Hispanic

community, it decided to utilize the social networking site Univision rather than the

more popular Facebook.

This choice was driven in part by the fact that Univision—a Spanish-language

television network in the U.S.

2. Making or using it?

• E.g., Japan’s Fujifilm, recently launched its own social network to

build a community of photo enthusiasts.

• U.S.-based department store firm Sears collaborated with MTV

music television to create a social network around back-to-school

shopping.

• The focus should be on participation, sharing, and collaboration,

rather than straightforward advertising and selling.

3. Ensure activity alignment

• E.g., A computer manufacturer Dell and its “Digital Nomads” campaign.

• Dell uses a combination of social networking sites (Facebook, LinkedIn),

blogs, and content communities (YouTube videos) to show how its range of

laptop computers enable individuals to become a nomadic mobile

workforce.

4.Access for all

• Guidelines for Social Media usage

• Defining groups of employees whose primary objective is the

management of corporate Social Media

• E.g., “Big Blue” IBM, has a corporate charta for appropriate behavior

within Second Life.

Being social 1. Be active

A blog kept by Sun Microsystems CEO Jonathan Schwartz. He discusses—on an ongoing basis—his corporate strategy, new product development projects, and company values, and replies directly to correspondence received

2. Be interesting

The first step is to listen to your customers. Find out what they would like to hear; what they would like to talk about; what they might find interesting, enjoyable, and valuable. Then, develop and post content that fits those expectations.

E.g., Coffee powerhouse Starbucks, created the “My Starbucks Idea” platform, via which customers can submit new ideas for the company. These ideas are subsequently voted on by other users, with the winners being considered for implementation by Starbucks top management.

3. Be humble

• Boeing decided to launch its first corporate blog, the site was

designed such that users were not allowed to comment on what they

saw.

• Thus, many readers perceived the Boeing blog as a fake, and

simply corporate advertising in disguise.

4.Be unprofessional and honest

• E.g., Bill Marriott, Chairman and CEO of the Marriott International

Hotel chain, uses his blog, for example, to post regular updates and

stories from his travels to Marriott properties around the world—very

much in the same way as would a work colleague when describing

her last vacation.

Lesson Summary

• Stages of Internationalisation

• A Strategic Approach to Internationalisation: A Traditional Versus a ‘Born- Global’ Approach

1. Business model level innovation and entrepreneurship

2. Business process and practice level innovation and entrepreneurship

3. Business Strategy level innovation and entrepreneurship

• Implications and recommendations Using Social media and being social

• Web 2.0 and digital business models The Web 2.0-Four Factors-Model.

• Socio-cultural research (Verstehen school of thought)

• (1) Socio-Cultural Research: The social as capital

• (2) Socio-Cultural Research: The social as theatre

References • Andreas M. Kaplan and Michael Haenlein 2010, Harvard Business Review, viewed 22 July 2015 from

<HTTPS://HBR.ORG/PRODUCT/USERS-OF-THE-WORLD-UNITE-THE-CHALLENGES-AND-OPPORTUNITIES-

OF-SOCIAL-MEDIA/BH369-PDF-ENG>PUBLICATION DATE: January 15, 2010 PRODUCT #: bh369-pdf-eng

• Andersen, P. 2007. What is Web 2.0?: ideas, technologies and implications for education, JISC Bristol, UK.

• Simonson, I. & Rosen, E. 2014. What Marketers Misunderstand About Online Reviews. HARVARD BUSINESS

REVIEW, 23-25.

• Timmers, P., 1998. Business models for electronic markets. Electronic markets, 8(2), pp.3-8.

• O‘Reilly, T. 2009. What is web 2.0, O’Reilly Media, Inc.

• Ellison, N. B. 2007. Social network sites: Definition, history, and scholarship. Journal of Computer‐Mediated Communication, 13, 210-230.

• Litvin, S. W., Goldsmith, R. E. & Pan, B. 2008. Electronic word-of-mouth in hospitality and tourism management.

Tourism management, 29, 458-468.

• Parise, S. & Guinan, P. J. Marketing using web 2.0. Proceedings of the 41st Hawaii International Conference on

System Sciences, 2008 Hawaii IEEE, 281-281.

• Porter M.E. and Millar V.E., “How Information Gives You Competitive Advantage”, Harvard Business Review, July-

August 1985, p.151.

• Shafer, S.M., Smith, H.J. and Linder, J.C., 2005. The power of business models. Business horizons, 48(3), pp.199-

207.

• Wirtz, B. W., Mory, L. & Piehler, R 2014, Web 2.0 and digital business models. In Handbook of Strategic e-

Business Management. Springer. Berlin Heidelberg, pp. 751-766.

• Wirtz, B.W., Schilke, O. and Ullrich, S., 2010. Strategic development of business models: implications of the Web

2.0 for creating value on the internet. Long Range Planning, 43(2), pp.272-290.

Few Key words to remember

Recap: Few Key words to remember

Global marketspace

Globalisation

Marketplace Vs Marketspace

McLuhan’s (1964) framework

Social Media ( Web 2.0, User generated content)

Different business models

Social media

Social presence theory

Social processes

The social as capital

The social as theatre

INB20009 Managing the Global

Marketplace

Global Consumers in the

global marketplace: power of

web 2.0

Source: Berthon, P. R., Pitt, L. F., Plangger, K. & Shapiro, D 2012, Marketing meets

Web 2.0, social media, and creative consumers: Implications for international

marketing strategy. Business Horizons, Vol. 55, pp. 261-271.

Lesson plan

PART 1-2 Concepts and Theory

(1) Effects of Web 2.0

(2) Prosumers; Creative Consumers

(3) Success and disaster in the marketspace (4) Five axioms for using social media in the global marketspace

PART 3 Applications

(5) Recommendations for Global Business Managers

(6) Barriers to the implementation of an international social media strategy

Part 1

Concepts

Effects of Web 2.0 from consumer

perspectives (1) A shift in locus of activity from the

desktop to the Web

(2) A shift in locus of value production from

the firm to the consumer

(3) A shift in the locus of power away from

the firm to the consumer

Prosumers: Creative Consumers

• Participants on Social Media applications have the desire to actively engage and to become both producers and consumers of information, so-called “prosumers”(Toffler, 1980).

• Creative consumers are the new locus of value in Web 2.0. It is they—rather than firms—who produce much of the value-added content in social media, and it is their networks of friends and associates that constitute the social (watch_ prosumers)http://www.youtube.com/watch?v=hcwWOwPQvwA

Activity 1

• “Working with social media looks easy in the global marketplace. It seems to be as simple as establishing a fan page on Facebook, tweeting regularly, and perhaps placing some of a brand’s ads on YouTube”

• Do you agree? Why ?

Social media and Prosumers

• In the marketspace, it is important to distinguish between these two concepts;

1. The media (e.g., YouTube, Facebook, Twitter) are essentially vehicles for carrying content.

2. This content—in the form of words, text, pictures, and videos—is generated by millions of consumers around the world, and from a marketer’s perspective can indeed be inspired to create value (Muniz & Schau, 2011)

1 • Informal discussions about products and services via Facebook or

Twitter

2 • Consumers creating structured reviews and evaluations in text or

video

3

• Consumers become involved in the promotion or demotion of brands through self-created advertising videos (Berthon, Pitt, & Campbell, 2008)

4

• Consumers become involved in the modification of proprietary products and services and the distribution of these innovations (e.g., Berthon et al., 2007 and Mollick, 2005).

Social media and Prosumers

Success and disaster in the

marketspace

• Dave Carroll and ‘United Breaks

Guitars’

United Airlines’ market capitalization

declined by around 20%—a loss in

value to shareholders of around $180

million at the time (Ayres, 2009)

• The change in locus of value creation

from the firm to the individual or

community (i.e., Shit my Dad Says)

Success and disaster in the

marketspace

• Some smart companies are leveraging social media to good marketing effect.

• Procter & Gamble’s Old Spice brand. This veteran brand was almost certainly in the

decline phase of its product lifecycle when an ad was created featuring NFL star

Isaiah Mustafa as the ‘Old Spice Guy.’ The ad won the Golden Lion award at the

Cannes Film Festival in 2010.

• The real success came from its posting on YouTube with millions of downloads, very

successful humorous tweets on Twitter, and the creation of a hugely popular fan page

on Facebook. Sales of Old Spice increased by 55% between April and June 2010

( Pitt et al., 2011)

Activity 2

• Watch How to Be a Social Media Change

Agent • An interview with Josh Bernoff, vice president and principal analyst at

Forrester Research. Over the past thirteen years, Mr. Bernoff has become

one of America’s most frequently quoted research analysts. His analysis,

which aims at a deeper understanding of people and how they use

technology (Harvard Business Review)https://www.youtube.com/watch?v=iB9Npo3qtH0

Part 11

Theory

Five axioms for using social media in the global

marketspace

1.Social media is a function of the technology, culture, and government of a particular country.

2.In the age of social media, local events seldom remain local.

3.In the age of social media, general issues seldom remain general; that is, macro issues tend to be (re)interpreted locally.

4.The actions and creations of creative consumers tend to be a function of the technology, culture, and government of a particular country.

5.Technology tends to be historically dependent; that is, technologies in different countries evolve along unique trajectories due to inertia rather than because they are the optimal solution.

1.Social media is a function of the technology,

culture, and government of a particular country.

The social media profile of a particular country is to be

determined by three factors:

(1) Technology (the infrastructure enabling social media)

(2) Culture (shared values)

(3) Government (institutional rules and regulations).

2.In the age of social media, local

events seldom remain local.

• Nestlé and its well-known Kit Kat brand. Greenpeace targeted the brand because Nestlé is a major purchaser of palm oil.

• Palm oil is grown in rainforest areas, mainly in Indonesia and Malaysia, where natural forests are often destroyed in order to plant oil palms.

3.In the age of social media, general issues seldom remain

general; that is, macro issues tend to be (re)interpreted

locally.

• Global issues—such as global warming, the financial crisis, and

democracy (Arab Spring)—are viewed and processed in very different

ways by different countries, states, and regions.

• An analysis of European social media reveals that while Zara and H&M

are the two most blogged, tweeted, and discussed brands in all three

countries, the Spanish are differentially obsessed by Benetton, the

French by Promod, and the British by Mango (Aramendia 2010).

4.The actions and creations of creative consumers tend to

be a function of the technology, culture, and government of

a particular country.

• These actions range from the very simple, such as creating a whole home’s

furniture out of FedEx boxes (Morrisey 2005), to modifying entire

automobiles, as Ron Gremban did with his Toyota Prius (Molloy 2005).

• Creative consumers tend to mess with products.

• Site memberships devoted to hacking the iPhone or Sony’s PlayStation 3

outnumber many countries’ Facebook membership.

• While Japanese consumers

loved Sony’s AiboPet

robotic dog and cared for

and nurtured it, Americans

just did not ‘get it.

• A number of owners,

disappointed that a $3,000

toy could do so little,

hacked the dog’s software

and made it do things Sony

never intended, such as

jiving and dancing (Kohler,

2005).

4.The actions and creations of creative consumers tend to

be a function of the technology, culture, and government of

a particular country…contd.

5.Technology tends to be historically

dependent

1. The state of both current and previously deployed technologies in

that country

2. The country’s culture

3. The legislation enacted by government in that country.

E.g., Mxit in South Africa

Part 111

Application

Recommendations for Global

Business Managers

1. Understand the technology that underpins

social media and creative consumers

2. Understand the consumer: enticing customers

to participate in value creation

3. Understand social media

Understand the consumer: enticing customers to

participate in value creation

1) Facilitate users in generating content

2) Focus on building a community

3) Ensure authenticity of the message

4) Look for business opportunities through

experimentation.

Source: Parise, S. & Guinan, P. J. Marketing using web 2.0. Proceedings of the 41st Hawaii International Conference on System Sciences, 2008 Hawaii IEEE, 281-281.

Understand the consumer: enticing

customers to participate in value creation

Source: Simonson, I. & Rosen, E. 2014. What Marketers Misunderstand About Online Reviews. HARVARD BUSINESS REVIEW, 23-25.

Understand the consumer: Weak

Ties & Strong Ties

Understand the consumer: enticing customers to

participate in value creation…contd

eWOM

• Communication through Web 2.0 applications such as online

discussion forums, electronic bulletin board systems,

newsgroups, blogs, review sites, and social networking sites.

• Unlike in traditional WOM, through eWOM communication,

consumers receive information related to goods and services

from a vast, geographically dispersed group of people who

have experience with relevant products or services.

Barriers to the implementation of a

successful international social media

strategy

1. The attitude and language of engagement is one major

barrier.

Learn to engage, (not bully customers) and to take a

personal, not an officious, tone in conversations with

consumers.

2. Attempting to engage stakeholders by means of social

media, while at the same time prohibiting their own

employees from using social networking tools at work!

Barriers to the implementation of a

successful international social media

strategy…contd 3. Bureaucracy is an impediment to the implementation of

social media plans

4. Lack of IT and communication skills among employees

5. ‘digital divide,’ a situation in which many parts of the population—even in developed countries—do not have access to basic computing tools, such as desktops and broadband Internet access, let alone more sophisticated social networking tools.

6. Senior decision makers in some organizations see social media as the wasteful pastime of teenagers

Making sense of social media: The

consumer decision journey • https://www.youtube.com/watch?v=eNGS5

8T96eM

• David Edelman: Mastering Digital

Marketing; What companies get wrong

http://www.mckinsey.com/insights/business_technology/managing_beyond_web_20https://www.youtube.com/watch?v=eNGS58T96eMhttps://www.youtube.com/watch?v=amzh3k0ubUkhttp://www.mckinsey.com/insights/business_technology/managing_beyond_web_20

More readings

Managing beyond Web 2.0

http://www.mckinsey.com/insights/business_technology/managing_bey ond_web_20

Business and Web 2.0: An interactive feature

http://www.mckinsey.com/insights/business_technology/business_and_ web_20_an_interactive_feature

How companies are benefiting from Web 2.0: McKinsey Global Survey results

http://www.mckinsey.com/insights/business_technology/how_companie s_are_benefiting_from_web_20_mckinsey_global_survey_resultshttp://www.mckinsey.com/insights/business_technology/managing_beyond_web_20http://www.mckinsey.com/insights/business_technology/business_and_web_20_an_interactive_featurehttp://www.mckinsey.com/insights/business_technology/how_companies_are_benefiting_from_web_20_mckinsey_global_survey_results

References • Berthon, P. R., Pitt, L. F., Plangger, K. & Shapiro, D 2012, Marketing meets

Web 2.0, social media, and creative consumers: Implications for

international marketing strategy. Business Horizons, Vol. 55, pp. 261-271.

Simonson, I. & Rosen, E. 2014. What Marketers Misunderstand About

Online Reviews. HARVARD BUSINESS REVIEW, 23-25.

• O‘Reilly, T. 2009. What is web 2.0, O’Reilly Media, Inc.

• Andersen, P. 2007. What is Web 2.0?: ideas, technologies and implications

for education, JISC Bristol, UK.

• Ellison, N. B. 2007. Social network sites: Definition, history, and scholarship.

Journal of Computer‐Mediated Communication, 13, 210-230.

• Litvin, S. W., Goldsmith, R. E. & Pan, B. 2008. Electronic word-of-mouth in

hospitality and tourism management. Tourism management, 29, 458-468.

• Parise, S. & Guinan, P. J. Marketing using web 2.0. Proceedings of the 41st

Hawaii International Conference on System Sciences, 2008 Hawaii IEEE,

281-281.

Managing the Global Marketplace

Unit Overview

INB20009

Managing the Global Marketplace

Dr Chandana Hewege

Image source: https://s-media-cache-ak0.pinimg.com/236x/cb/28/d8/cb28d8c3f56e83d6d9344a4c19aff821.jpg

• ‘This unit provides students with the necessary knowledge and skills to enable them to critically analyse the dynamics of global marketplace within which an international firm operates. This unit requires students to apply theories of global marketplace, global consumer culture and global online networks to effectively exploit global marketplace opportunities. Students are expected to develop a thorough understanding of the evolving nature of the global marketplace and the virtual marketspace with a view to adding value to an international firm.

Unit Outline INB20009 Managing The Global Marketplace

Aims

Unit Learning Outcomes (ULO)

After completing this unit, You will be able to;

1. Individually and in groups identify the underlying principles and assumptions underpinning theories of global marketplace, global consumer culture and social networks

2. Describe the key components of virtual marketspace affecting the overall global market approach of an international firm

3. Analyse the interface between virtual and brick & mortar operations of an international firm with a view to developing solutions for apparent misalignment

4. Develop appropriate social network-based strategies with a view to effectively utilising global market opportunities

This unit of study will mainly cover

following areas;

 Evolution of global marketplace and global marketspace

 Global online (virtual) marketspace behaviour and virtual networking

 Integration and fragmentation of global marketplace

 Global consumer culture

 Global consumer identities in global marketspace

 Researching the global marketplace

 Global business firms matching strategies to global marketplace changes

 Global consumer activism and the virtual networking

 Ethicality of global marketplace: developing a global ethical framework for international firms and consumers

Assessments

Tasks and Details Individual or

Group Weighting

Unit Learning

Outcomes that

this

assessment

task relates to

Assessment

Due Date

Assignment 1 Individual 30% 1,2 End of week 6

Assignment 2 Group (report 20%- Presentation 10%)

30% 1,2,3 End of Week 10

Final

Assignment (3)-

Learning

Portfolio

Individual 40% 1,2,3,4 Week 13 (check

Turnitin in

Canvas for

exact

submission

deadline)

Assessments Assignment 1 Assignment 2 Assignment 3

Critical Essay-Identifying theories and underlying principles of global Marketspace

Case presentations (week 8-10+)

The learning portfolio is a flexible, evidence-based activity that combines your reflection and documentation. This learning portfolio should be in the form of a reflective journal demonstrating how concepts and theories are applied in real work (or life) situations.

Due by week 6 Case study analysis report due by week 10

Due by week 13

Readings; Theory, practice and critical perspectives

A collection of referred research articles and a few book chaptershttp://mtq.sagepub.com/content/currenthttp://mtq.sagepub.com/content/current

Readings; Theory, practice and critical perspectives Week Referred research articles and a few book chapters

1 Zinkhan, G. M. 2005, The marketplace, emerging technology and marketing theory. Marketing Theory, Vol. 5, No. 1, pp. 105-115. doi: 10.1177/1470593105049603

2 Shah, N 2008, From global village to global marketplace: Metaphorical descriptions of the global Internet. International Journal of Media & Cultural Politics, Vol. 4. No. 1,pp. 9-26.

3 Wirtz, B.W., Schilke, O. and Ullrich, S., 2010. Strategic development of business models: implications of the Web 2.0 for creating value on the internet. Long Range Planning, 43(2), pp.272-290.

4 Berthon, P. R., Pitt, L. F., Plangger, K. & Shapiro, D 2012, Marketing meets Web 2.0, social media, and creative consumers: Implications for international marketing strategy. Business Horizons, Vol. 55, pp. 261-271.

5 Wen Gong , Rodney L. Stump , Zhan G. Li , 2014 “Global use and access of social networking web sites: a national culture perspective”, Journal of Research in Interactive Marketing, Vol. 8 Issue: 1, pp.36 –45

6 Agarwal, J., Malhotra, N. K., & Bolton, R. N 2010 A cross-national and cross-cultural approach to global market segmentation: An application using consumers’ perceived service quality. Journal of International Marketing, 18(3), 18-40.

7 Ngai, E. W., Tao, S. S., & Moon, K. K 2015, Social media research: Theories, constructs, and conceptual frameworks. International Journal of Information Management, Vol. 35, No.1, pp. 33-44.

8 Aula, P 2010, Social media, reputation risk and ambient publicity management. Strategy & Leadership, Vol. 38, No. 6, pp. 43-49.

9 Thevenot, H. J., Simpson, T. W., Jiao, R. J., & Kenger, P 2008, Product platforming for a global marketplace. Journal of Engineering Design, Vol. 19, No. 6, pp. 461-463.

10 Hollenbeck, C. R., & Zinkhan, G. M 2006, Consumer activism on the internet: The role of anti-brand communities. Advances in Consumer Research, Vol. 33, p. 479-485

11 Cassel, D. (2001). Human Rights and Business Responsibilities in the Global Marketplace. Business Ethics Quarterly, 11(2), 261-274

Lesson 1a plan

Concept and theories

1. Introduction to INB20009 Managing Global Marketplace: Three pillars

2. Global marketplace

3. Global marketspace

Introduction to INB20009 Managing Global Marketplace:

Three pillars Globalisation

Global marketplace and

marketspace Integration and

fragmentation of global

markets

Globalisation • There is no commonly agreed definition of the notion “Globalisation”

• A movement

• A debate

• In general, most scholars explain the notion of globalisation in relation to the greater

movements of people, goods, capital and ideas due to increased economic

integration and, trade and investment.

Factors of Globalisation 1. Macro-economic factors: Substantial productivity differentials among countries; continuing fluctuations in exchange rates, accelerating technology transfers among countries; and rapidly increasing populations in emerging economies

2.Political factors: Promotion of regional integration to encourage trade; deregulation of capital, personnel, and raw material flows; increased intervention of third-party supranational entities (i.e., United Nations, International Monetary Fund, World Bank, etc.) to encourage global trade

3.Technological factors: Rapidly declining computing, communication and transportation costs

4.Organisational factors: Shift in strategic attention from efficient management of tangible resources to effective management of intangible assets; shift from economies of “scale” to economies of “scope”; and the development of a “global mindset” of the organisation’s management

Globalisation and Global

Marketplace

• Global economic integration, domestic deregulation, and the

evolution of information and telecommunication technologies have

stimulated organisations to globalise their market positioning options

in the past 5 years (Harvey Novicevic M. 2002).

• A global marketplace is an institutional structure that allows

individuals and organisations to exchange goods, services and

labour anywhere in the world.

• Globalisation of production and consumption are key features

Global Marketplace

• In the late 19th century, department stores

brought an entire marketplace under one

roof.

• The 20th century, malls performed the same

service. Catalogs connected buyers to the

marketplace via the postal service.

Likewise, telephone lines and internet

service connected buyers and sellers in a

different way.

Source: Recommended reading : Zinkhan, G. M. (2005). The marketplace, emerging technology and marketing theory. Marketing Theory, 5(1), 105-115.

The marketplace as an engine of economic exchange and

focus of public life

• Socrates argues that ‘exchange’ is one key reason for human

beings to gather together and form a community.

• In Plato’s dialogue, written more than 2300 years ago. He

understands key economic principles related to marketplaces,

currency, specialization of labour, hierarchy of needs, retailing,

standard of living, importing, and exporting.

• Marketplace became the centre of public life and discourse.

The marketplace as an engine of economic exchange and

focus of public life..contd

• Economic historians estimate that currency money began in Lydia (modern-day Turkey) in the seventh century BC.

• By the time of Solon, a century later, money was weakening the power of inherited aristocracy.

• Replacing the palace, the agora or marketplace became the centre of public life and discourse (Weatherford, 1997).

• In fact, ancient Greek society flourished both because of the economic activities associated with trade in the economic marketplace and because of the free exchange of ideas in the intellectual marketplace (Boardman et al., 2001).

• A marketplace is a website that connects third-party merchants with shoppers. The marketplace platform acts as an intermediary between the two. The marketplace processes the transaction and remits the sale minus a commission to the buyer.

• A pure marketplace is where only third-party merchants sell inventory. The hybrid model is where both the marketplace company sells inventory alongside third-party merchants. Flipkart is an example of this. This means a combination of the traditional and marketplace model.

• Retailers with a physical presence have added the marketplace model to their digital operations, such as Walmart. Digital commerce retailers have added stores. The best examples are Alibaba and Amazon.

• eBayPure

• FlipkartHybrid

• WalmartHybrid + Physical

What is a marketplace?

INTRODUCTION TO MARKETPLACES

Evolving global marketspace

• The natural give and take that exist in the traditional dialogs.

• At the same time, marketplaces serve as a public forum where citizens can meet and exchange both ideas and goods.

• In this way, technological and intellectual advancements go hand in hand.

• In the 21 century, we see the ‘marketspace’ as an innovation that has potential to enhance human experiences via the interactive media.

Global Marketspace • ‘Marketspace’ as an innovation that has potential to enhance human

experiences (Zinkhan 2005, p.105).

• Global Marketspace is an evolving marketplace as a result of emerging

technologies and interactive media (Zinkhan 2005, p.105).

• e-Marketplace: the internet, as a place where organisations and consumers

exchange information and do business (Cambridge Business English

Dictionary 2015)

• The Internet was not simply included within the global marketplace but

synonymous with it and hence notion of the global marketspace can be

described as an Electronic Herd of . . . stock, bond, and currency

traders and multinational investors, connected by screens and

networks (Shah, N,2008).

Understanding the impact of a new

technology on the global

marketspace Understanding the notion of ‘global marketspace’ through McLuhan’s (1964) framework for

understanding the impact of a new technology (cited in Zinkhan 2005, p.110)

• (1) What will this thing enhance?

The internet can enhance the power of human information processing and the human

voice.

• (2) What will this tool render obsolete?

Traditional functions of a sales force cease to exist (i.e., Dell caters its business clients

directly)

• (3) What will this tool retrieve from all the things that we’ve lost?

The internet is a powerful tool for retrieving lost information

• (4) What are the ripple effects?

Potential impacts of the internet

Marketplace Vs Marketspace

• Emergence of the virtual world

• Actual (tangible) Vs virtual (intangible)

• Interface between actual (physical) and virtual (online)

• Actual (brick and mortar) Vs Virtual (click)

Class/Tutorial Activity 1

Reflect on any international or local firm which manages the interface between

actual (physical) and virtual (online) business activities (un) successfully. Share

your experience with your peers.

Lecture summary: Key concepts

Key Concepts Description

Globalisation Globalisation implies that while people and societies may live together in local,

provincial and national realms, they also subsist in transborder spaces where

the world is a single unit or space (Scholte, 2005).

Global marketplace A global marketplace is an institutional structure that allows individuals and

organisations to exchange goods, services and labor anywhere in the world.

Global marketspace An evolving marketplace as a result of emerging technologies and interactive

media.

References

• Business Dictionary viewed 27 February 2015 http://www.businessdictionary.com/definition/marketspace.html#ixzz3SzPqAfhL

• Cambridge Business English Dictionary 2015 viewed 27 February 2015 <http://dictionary.cambridge.org/dictionary/business-english/e-marketplace>

• Cambridge Business English Dictionary 2015 viewed 27 February 2015 < http://dictionary.cambridge.org/dictionary/business-english/the-global-

marketplace?q=Global+Marketplace >

• Crosby, M., and Bodman, P ‘When the US Sneezes, Do We Need to Catch a Cold? Historical and Future Linkages between the Australian and US

Business Cycles’ viewed 27 February 2015 < http://www.rba.gov.au/publications/confs/2005/pdf/crosby-bodman.pdf >

• Das, Dilip K., Globalisation and an Emerging Global Middle Class. Economic Affairs, Vol. 29, Issue 3, pp. 89-92, September 2009. Available at SSRN:

http://ssrn.com/abstract=1484161 or http://dx.doi.org/10.1111/j.1468-0270.2009.01927.x

• Harvey, M., & Novicevic, M. M. 2002. The hypercompetitive global marketplace: the importance of intuition and creativity in expatriate managers.Journal

of World Business, 37(2), 127-138.

• Ustuner, Tuba and Douglas Holt (2007), ‘‘DominateScholte, J. A. (2005) ‘The Sources of Neoliberal Globalization’, United Nations Research Institute for

Social Development, Program Paper

• No. 8, Geneva (October).

• Simon, S. J. 2000. The impact of culture and gender on web sites: an empirical study. ACM SIGMIS Database. 32, no. 1: 18-37.

• Luna, D., Peracchio, L. A. & De Juan, M. D. 2002. Cross-cultural and cognitive aspects of web site navigation. Journal of the academy of marketing

science. 30, no. 4: 397-410.

• d Consumer Acculturation: The Social Construction of Poor Migrant Women’s Consumer Identity Projects in a Turkish Squatter,’’ Journal of Consumer

Research, 34 (June), 41-56.

• Zinkhan, G. M. 2005, The marketplace, emerging technology and marketing theory. Marketing Theory, Vol. 5, No. 1, pp. 105-115. doi:

10.1177/1470593105049603

• Images

• Wisco Histon.d., [image], daugherity.com, viewed 27 February 2015, <http://wiscohisto.tumblr.com/post/63588676271/the-bitker-family-and-other-local-

merchants-dress>.

• Micework, 2012 [image], , viewed 27 February 2015, http://www.margopp.co.id/V3/you-talk-they-listen.htmlhttp://www.businessdictionary.com/definition/marketspace.htmlhttp://dictionary.cambridge.org/dictionary/business-english/e-marketplacehttp://ssrn.com/abstract=1484161http://dx.doi.org/10.1111/j.1468-0270.2009.01927.x

Lesson 1b Plan

Applications

1. Recent developments in the global marketplace

2. Key trends that could change the way we manage global marketplace

Recent developments in the global

marketplace (1) The global marketspace and the growth of internet

users, web 2.0 based businesses

(2) Globalisation, global consumers and global consumer

culture

(3) New capacity: New Markets

(4) The global economic crisis and FDI flows to emerging

markets

(5) The Asian century

(1) The global marketspace and the growth of internet users, web 2.0 based businesses

• The Internet population is increasing continuously, and the Internet

allows consumers around the world to access to market globally

without national boundaries.

• Globally, Internet users exceeded $2.8 billion in 2014 (Internet World

Stats, 2014). How many in 2018?

• Further, business-to consumer (B-to-C) e-commerce sales reached

$1.4 trillion in 2014, and this figure increased approximately 20%

over 2013 (eMarketer,2014).

(2) Globalisation, global consumers

and global consumer culture

• Globalisation implies that while people and societies may live together in

local, provincial and national realms, they also subsist in transborder spaces

where the world is a single unit or space (Scholte, 2005).

• The role and evolution of consumer culture and its interaction with

globalisation is important for understanding how markets transition as they

develop.

• Consumers in the emerging markets may not be acculturated to their new

globalised social reality (Ustuner and Holt 2007).

• International customers prefer to use culturally adapted websites (Luna,

Peracchio, & de Juan, 2002; Simon, 2001)

(3) New capacity: New Markets • Globalisation has expanded the size of the global middle

class.

• This expansion will change consumption patterns and

shift the balance of spending power to middle-income

economies.

• Rapid growth rates of the middle class in China and

India have played a decisive role in creating the middle-

income bulge.

• By 2030 the global middle class has been projected to

grow to two billion.

New capacity: New Market

(4) The global economic crisis and FDI flows

to emerging markets

• The rapid growth of global FDI—which has grown faster

than world GDP—reflects major underlying policy

changes toward FDI in host and home countries.

• The global economic and financial crisis has had a major

impact on FDI flows.

• Emerging markets will attract considerable FDI and

probably more than developed countries.

More readings: Kekic, L.(2011).The global economic crisis and FDI flows to emerging markets.FDI PERSPECTIVES,2.

(4) The global economic crisis and FDI

flows to emerging markets…contd

• Just under 60% of companies expect to derive more than 20% of their total

revenue in emerging markets in five years’ time – almost double the present

proportion of 31%.

• General Motors sales in the United States have declined, but the growth

opportunities have arisen elsewhere.

• Emerging markets are an important avenue for growth: Currently, General

Motors sells more cars in China than it does in the United States (Barboza

and Bunkley 2010).

(5) The Asian century

• Historically, the triad regions have dominated world trade

– North America, Western Europe and Japan

• Increasingly, it is the Big Emerging Markets (BEMs) which are now

having an impact

– CEA,(Chinese Economic Area),India, South Korea, Mexico, Brazil,

Argentina, South Africa, Poland, Turkey and ASEAN

– Second-tier emerging markets (referred to as the Next 11), such as

Indonesia, Egypt, Nigeria, Mexico, the Philippines and Vietnam

The Asian century…contd

• Increasing amount of competition coming

from the BEMs.

• There is a desire for modernity in these

markets which fuels their competitiveness

and growth.

• Infrastructure and energy needs will prove

to be problematic as they grow.

© Euromonitor International PASSPORT 36STRATEGY BRIEFING: UNDERSTANDING GLOBAL MARKETPLACE TRENDS

 The largest (and the

oldest with the exception

of JD.com) marketplaces

give a peek into what the

future of the marketplace

model looks like.

 Amazon, Alibaba, eBay,

JD.com and Rakuten have

built ecosystems (to

varying degrees) that keep

consumers and third-party

merchants spending time

and money with them.

 The tables are a limited

list of key features that

these giants offer to keep

consumers and

businesses locked into

their ecosystems.

The leading marketplaces hint at the future

INTRODUCTION TO MARKETPLACES

Features for Consumers in 2017

Feature Amazon Alibaba eBay JD.com Rakuten

TV, film, other

entertainment

production

X X

Social media

elements X X X X

Payments X X X X

Financial services X X X

Features for Businesses in 2017

Feature Amazon Alibaba eBay JD.com Rakuten

Fulfilment X X X X X

Cloud computing X X X

Advertising X X X X X

Financial services X X X X Xhttp://www.euromonitor.com/http://www.euromonitor.com/

© Euromonitor International PASSPORT 37STRATEGY BRIEFING: UNDERSTANDING GLOBAL MARKETPLACE TRENDS

 According to a survey

conducted on behalf of

Pitney Bowes in 2017,

consumers in 12 countries

prefer marketplaces over

traditional retail websites

due to the assortment and

price.

 For all but one country

(Australia), consumers start

their product searches on a

marketplace. When

shopping online, consumers

now habitually start with

marketplaces.

 Consumers are also

attracted by the

convenience marketplaces

offer through simple

checkout processes, as well

as offers of faster and free

delivery.

The marketplace model proves popular with consumers

INTRODUCTION TO MARKETPLACES

Source: Pitney Bowes’ 2017 Global Ecommerce Report

Note: Survey conducted by ORC Research in August 2017

With 12,000 consumers who had made an online purchase in the past year

Countries: US, UK, Australia, Canada, France, Germany, India, china, Hong Kong, Japan, South Korea,

Mexicohttp://www.euromonitor.com/http://www.euromonitor.com/

© Euromonitor International PASSPORT 38STRATEGY BRIEFING: UNDERSTANDING GLOBAL MARKETPLACE TRENDS

 The lines between the traditional retail model and the marketplace model will continue to blur. It is likely

that the most successful marketplaces will have a traditional model, a marketplace model and a physical

outlet – in other words, the hybrid model with stores.

 Operating as a traditional retailer online has advantages. The retailer can get exclusive products, receive

inventory commitments and create wide-margin private label products. It also gives retailers more control

over third-party merchants, as they are competing against the traditional model. The competition drives

prices lower, sets a standard for customer service and helps keep delivery efficient.

 Adding a store component means that the retailer can offer an omnichannel experience and more

convenient logistics. At some point, although not in the next five years, digital commerce will mature, and

having stores will allow previously pure online-only retailers to compete in store-based retailing.

 However, the giant marketplaces, such as Amazon, Alibaba and Rakuten, are not just focused on selling

products. They are looking to build ecosystems that lock consumers in with entertainment, financial

services, and payments. The future is open for their innovation to keep customers returning to their assets.

Additionally, their strong network effects may mean that digital commerce becomes an almost winner-

takes-all market.

What does the future marketplace model look like?

WHAT DOES THE FUTURE HOLD?http://www.euromonitor.com/http://www.euromonitor.com/

Lesson summary: Key concepts

Key Concepts Description

Recent

developments in the

global marketplace

(1) The global marketspace and the growth of internet users

(2) Globalisation, global consumers and global consumer culture

(3) New capacity: New Market

(4) The global economic crisis and FDI flows to emerging markets

(5) The Asian century

References

• Business Dictionary viewed 27 February 2015 http://www.businessdictionary.com/definition/marketspace.html#ixzz3SzPqAfhL

• Cambridge Business English Dictionary 2015 viewed 27 February 2015 <http://dictionary.cambridge.org/dictionary/business-english/e-marketplace>

• Cambridge Business English Dictionary 2015 viewed 27 February 2015 < http://dictionary.cambridge.org/dictionary/business-english/the-global-

marketplace?q=Global+Marketplace >

• Crosby, M., and Bodman, P ‘When the US Sneezes, Do We Need to Catch a Cold? Historical and Future Linkages between the Australian and US

Business Cycles’ viewed 27 February 2015 < http://www.rba.gov.au/publications/confs/2005/pdf/crosby-bodman.pdf >

• Das, Dilip K., Globalisation and an Emerging Global Middle Class. Economic Affairs, Vol. 29, Issue 3, pp. 89-92, September 2009. Available at SSRN:

http://ssrn.com/abstract=1484161 or http://dx.doi.org/10.1111/j.1468-0270.2009.01927.x

• Harvey, M., & Novicevic, M. M. 2002. The hypercompetitive global marketplace: the importance of intuition and creativity in expatriate managers.Journal

of World Business, 37(2), 127-138.

• Ustuner, Tuba and Douglas Holt (2007), ‘‘DominateScholte, J. A. (2005) ‘The Sources of Neoliberal Globalization’, United Nations Research Institute for

Social Development, Program Paper

• No. 8, Geneva (October).

• Simon, S. J. 2000. The impact of culture and gender on web sites: an empirical study. ACM SIGMIS Database. 32, no. 1: 18-37.

• Luna, D., Peracchio, L. A. & De Juan, M. D. 2002. Cross-cultural and cognitive aspects of web site navigation. Journal of the academy of marketing

science. 30, no. 4: 397-410.

• d Consumer Acculturation: The Social Construction of Poor Migrant Women’s Consumer Identity Projects in a Turkish Squatter,’’ Journal of Consumer

Research, 34 (June), 41-56.

• Zinkhan, G. M. 2005, The marketplace, emerging technology and marketing theory. Marketing Theory, Vol. 5, No. 1, pp. 105-115. doi:

10.1177/1470593105049603

• Images

• Wisco Histon.d., [image], daugherity.com, viewed 27 February 2015, <http://wiscohisto.tumblr.com/post/63588676271/the-bitker-family-and-other-local-

merchants-dress>.

• Micework, 2012 [image], , viewed 27 February 2015, http://www.margopp.co.id/V3/you-talk-they-listen.htmlhttp://www.businessdictionary.com/definition/marketspace.htmlhttp://dictionary.cambridge.org/dictionary/business-english/e-marketplacehttp://ssrn.com/abstract=1484161http://dx.doi.org/10.1111/j.1468-0270.2009.01927.x

Identifying theories and underlying principles of global Marketspace

1 Assessment 1: Identifying theories and underlying principles of global Marketspace Nature of the assessment: Individual Assignment Word limit: 2000 words (10% +/- excluding the reference list and appendices) Marks Allocated 30% Submission Deadline: Check Canvas site for submission deadline. _____________________________________________________________________

Aim: This assignment aims to achieve 1st and 2nd learning objectives of the unit of study. It also facilitates developing some of the generic skills listed in the unit outline.

Tasks: This assignment requires you to write a critical essay

identifying and describing at least 10 theories / underlying

principles of global marketspace applicable to 5 global web

2.0 based businesses described below. These theories are

discussed in weekly lectures and also can be found from the

recommended readings.

(Following excerpt is adapted from the blog by Clifford Chi

https://blog.hubspot.com/marketing/business-model )

Uber, Amazon, Netflix, Airbnb, and Tesla all have one thing in common: even though they’re some

of the best brands in tech, the strength and viability of their business models are what propel them to

the top of their industries. These global businesses harness the power of web 2.0 based

applications including virtual social networking sites, interactive webpages, interactive media sites

and photo sharing sites. A compelling brand image can attract a lot of attention and new customers,

but without a sound and realistic business model to monetise all that attention and retain those

customers, you’ll never grow or reach your potential as a business.

These successful firms apply principles of global marketspace to develop winning strategies.

Billion Dollar Business Model Examples: Uber, Amazon, Netflix, Airbnb, and Tesla

Uber’s Business Model

2017 Revenue: $37 Billion

In 2009, Uber made it their mission to scrap the idea that taxis were the only way to get around a

city. Today, Uber facilitates 15 million rides a day — without owning a single cab. Uber achieved its

monumental success so quickly by staying laser-focused on the speed, convenience, and cost of

their service.

For example, customers can book a ride with the nearest drivers, see exactly how much their fare

costs, and track their driver’s location all without leaving the app. Drivers can either reject or accept

the ride request based on the user’s rating, and if they reject them, the rider’s request goes to the

next nearest driver. Riders can also cancel rides before or after their driver arrives, but they’ll have

to pay a fee if they cancel their ride two minutes after requesting or if they take five minutes or

longer to meet their driver. Uber charges riders based on the estimated time and distance of their

route and the current demand for rides in the area, which is billed directly to their credit card. To

attract new drivers and retain current ones, Uber only keeps 20 – 25% of the fare and gives their

drivers the rest. Uber also charges customers a different fare depending on the type of car they want

Relevant ULOs:

1. Individually and in groups identify the

underlying principles and assumptions

underpinning theories of global

marketplace, global consumer culture

and social networks

2. Describe the key components of virtual marketspace affecting the overall global

market approach of an international firmhttps://blog.hubspot.com/marketing/business-model

2 to ride in, which are Economy, Premium, Extra Seats, and More. Economy offers carpool

opportunities with other riders or rides for one person or a group in a sedan. Premium offers Uber

Black, which is a luxury ride with a professional driver. Extra Seats offers luxury rides for 6 people

with professional drivers in a Black SUV or an Uber XL. More offers local taxi cab and wheelchair

accessible rides.

Another way Uber makes money is through surge pricing. During times of high demand, like days

with bad weather, rush hour, or holidays, they charge more per mile, based on the number of

available drivers and ride requests in the area. It’s one of their most profitable revenue streams.

They also leverage their 40 million monthly active users and the visibility of their app as another way

to make money. Restaurants, hotels, and other businesses can all advertise on the Uber app.

Uber’s other revenue streams include UberEATS, UberFreight, UberElevate, and their own line of

self-driving cars.

Amazon’s Business Model

2017 Revenue: $177.8 Billion

With a market value that’s 46% larger than Wal-Mart, Target, Best Buy, Macy’s, Nordstrom, Kohl’s,

JC Penney, and Sears combined, Amazon is one of the most successful companies in the world.

And they can credit their company’s financial health to their constant innovation and entrance into

different markets, which gives them a variety of revenue streams.

Here are the top four ways Amazon makes money:

Retail (67% of Net Sales)

The bulk of Amazon’s revenue comes from selling goods directly to consumers on their website.

Since they order massive amounts of products from wholesalers, they can negotiate a cheaper cost

and sell them for a lower price than their competition. They also ship their products faster because

they can store inventory in their own network of warehouses. Amazon even manufactures and sells

their own products, like the Amazon Echo and Alexa.

Amazon Marketplace (17% of Net Sales)

Amazon Marketplace is a platform that lets third-party sellers sell products on Amazon’s website.

Sellers can also buy a service called Fulfilment by Amazon, which stores, packs, and ships your

products from Amazon’s world class facilities.

Amazon earns commission off each of their third-party sellers’ sales, which is a hefty sum since 51%

of their sellers make over $100,000 a year on the platform. Sellers can also buy ads that list their

products on the top of Amazon’s search results and homepage.

Amazon Web Services (9% of Net Sales)

Amazon Web Services offer cloud computing infrastructure services to businesses for a yearly

subscription fee. Migrating your company’s data to the cloud lets your customers access your

software on any computer at any time through the internet, like Netflix.

Amazon Prime (5% of Net Sales)

By paying a subscription fee every month, Amazon Prime gives customers access to free two-day

shipping on all items, free same-day shipping in eligible zip codes, streaming services like Amazon

Video, Amazon Music, and Twitch Prime, unlimited photo storage on Amazon Photos, the Kindle

library, audio books, and much more.

3 Netflix’s Business Model

2017 Revenue: $11.6 Billion

If you work in the SaaS industry, Netflix’s business model is probably pretty similar to your

company’s. Their subscribers pay for the service each month and can cancel their subscription

anytime. To retain as much loyalty and revenue as possible, Netflix needs to focus on keeping their

customer relationships long and healthy.

Fortunately, big data and analytics lets Netflix keep their customers happy. Knowing their

subscribers’ behaviour and preferences on the platform allows Netflix to personalize each of their

customers experience with unique recommendations. They can also predict and understand if the

content they buy and create will actually resonate with their subscribers.

Streaming and DVD services are Netflix’s only two revenue streams, but they rake in almost $1

billion per month. To attract new subscribers to their streaming services, Netflix offers people a free

month trial of any of their plans, and after it ends, they can continue their membership by paying for

one of three plans:

The basic plan for $7.99 per month, which lets you watch Netflix on one screen only. The standard

plan for $10.99 per month, which lets you watch Netflix on two simultaneous screens. The premium

plan for $13.99, which lets you watch Netflix on four simultaneous screens. The majority of Netflix’s

revenue comes from streaming, but they won’t abandon their DVD service anytime soon. It helped

them enter the movie rental market, eventually tear down Blockbuster, and still makes a profit today.

Netflix’s DVD and Blu-Ray arm offers free 2-day shipping and no late fees. You can subscribe to

one of three plans:

A starter plan for $4.99 per month, which lets you watch one disc at a time with a two disc limit per

month

A standard plan for $7.99 per month, which lets you watch one disc at a time with an unlimited

amount of discs per month

A premier plan for $11.99 per month, which lets you watch two discs at a time with an unlimited

amount of discs per month

Airbnb’s Business Model

2017 Revenue: $2.6 Billion

Airbnb is like the Uber of accommodation. They connect over 140,000 travellers with hosts in more

than 190 countries every day, without owning a single property. Airbnb blew up in popularity

because they gave hosts an opportunity to run a side hustle that has no overhead costs and

attracted travellers with more affordable and authentic visits. Guests can book a room in a local

hosts’ home that’s much cheaper than a hotel — most hosts don’t depend on Airbnb as their main

source of income, like a hotel does. And staying at a local’s home better immerses guests in their

destination’s culture. Airbnb also has a relatively simple listing and booking process for hosts and

guests. When a host lists their property details like pricing, amenities, and location on Airbnb, the

platform will send a freelance photographer to take professional photos of their home to put on their

listing.

When travellers search for a place to stay, they can filter properties by price, amenities, and city.

Once they book the property through Airbnb, the host has to approve the guest. Hosts can gauge

4 their potential guests’ character by looking at their reviews from past hosts on Airbnb and their social

media profiles. The guests and hosts can rate and review each other after the stay.

Airbnb’s business model is unique because they earn revenue from both their hosts and guests.

Since they offer free listings to their hosts and free membership to their guests, they collect a

commission fee from hosts and a transaction free from guests. Airbnb charges hosts a 3% fee for

every booking they get through the platform and charge guests 5-15% of their booking cost.

They also offer a subscription to their own travel magazine, partner with hosts who provide work-

ready homes for business travellers, and partner with locals who lead guests through immersive

experiences in their community.

Tesla’s Business Model

2017 Revenue: $11.7 Billion

Tesla is unlike any other car company. They engineered and introduced luxury sport cars that run

entirely on electricity and entered the automotive industry with an unproven business model: a direct

sales approach complemented by superior customer service and their free Supercharger network.

Direct Sales

Most car manufacturers sell their cars through franchised dealerships, but Tesla wanted to cut the

middleman out and create a better buying experience by selling their cars in flashy showrooms and

galleries. Tesla also lets people customize and purchase cars on their website.

Service Centres

At Tesla’s service centres, customers can charge or service their cars. And by building service

centres in certain areas, they hope their commitment to customer service will catch the attention of

other luxury car owners and generate more demand.

The car company also offers the help of Tesla Rangers — mobile technicians who service their

customers’ vehicles at their house. They can even fix a car’s software issues online since Teslas

can send data to technicians through the internet.

Supercharger Stations

Tesla’s network of supercharger stations lets customers fully charge their cars for free in just 30

minutes. Tesla built this network and offer free charging because they know no one will buy their

cars if it’s hard to charge them. An ample amount of charging stations around the country will

accelerate the acceptance of electric cars, just like how gas stations enabled the world-wide

adoption of gas cars.

Other Revenue Streams

Tesla also sells home charging installation services, energy storage systems for homes or

businesses, solar panels, solar roofing, powertrain systems and components to other auto

manufacturers, and will start producing an electric semi-truck in 2019.

Guidelines for writing the critical essay: Tasks:

(1) Read the brief background of the 5 global firms described above (2) Perform an online search to update and expand the information about the 5 companies.

5

(3) Refer to your lecture slides/notes and the recommended readings to identify theories/principles that can be used to understand and explain business models and the strategies used by the 5 companies.

(4) Write a critical essay covering; a. A brief introduction b. key aspects of each business c. Specific concepts/principles/theories that are applicable to these firms d. Describe 5 key strategies that you could apply to your own web 2.0 based business

(assuming that you would consider setting up a business within the next 12 months) e. conclusion

(5) Use the essay format- (6) Submit the critical essay through Turnitin by the due date (7) Format: Use 11pt Times New Roman font and 1.5 spacing (8) If you need any help in regards to writing critical essay, Please refer Summers J, & Smith B.

(2006). Report Writing Communication skills handbook (pp. 41): John Wiley & Sons Australia, Ltd.

(9) Must include at least 10 journal articles in the reference list in addition to other sources. (10) Clearly write your tutorial time (i.e, Tuesday 10.30) on the cover page

—————————–End of Assessment 1 Details——————————————————http://www.swinburne.edu.au/student-administration/docs/student/Cover_sheet_for_submission_of_work_for_assessment.pdf

Project Closure & Lessons Learned

Week 6 Paper: Project Closure & Lessons Learned

Grading Rubric

Failing Below

Average

Average Above Average Superior

0 – 60 (F

range)

70 – 79 (C

range)

80 – 89 (B

range)

90 – 93 (A-

range)

94 – 100 (A range)

Topical

Content &

Focus (75%)

Paper does not

sufficiently

address the

closure and

lesson learned

processes and

does not cite

the

appropriate

number of

external

sources (2)

Paper only

partially

addresses

some or all of

the closure

and lesson

learned

processes, and

only cites in-

class sources

supporting

case

Paper fully

addresses the

closure and

lesson

learned

processes in

a thorough

manner and

makes good

use of

research by

citing at

least two

relevant,

non-course

resources

Paper fully

addresses the

closure and

lesson learned

processes and

shows

thoughtful

consideration of

the integration

between the

related topics

from the course

readings and

student’s

independent

research,

including the

citation of two

peer reviewed

sources

Paper fully addresses

the closure and lesson

learned processes,

shows thoughtful

consideration of the

integration between

the related topics from

the course readings

and student’s

independent research,

including the citation

of two peer reviewed

sources, and evidences

a superior

comprehension of the

relevant processes

Personal

Competencies

(10%)

 Critical thinking

 Problem solving

 Professi onal writing

Submission

reflects no

applicable

personal

competencies

Submission

reflects a

minimal

applicable

personal

competencies

Submission

reflects both

applicable

personal

competencie

s in an

acceptable

manner

Submission

strongly reflects

applicable

personal

competencies

integrated

throughout the

assignment

Submission reflects an

excellent use of

applicable personal

competencies

integrated throughout

the paper in a way that

synthesizes the

personal competencies

with the key topical

areas

Grammar &

Clarity (10%)

Writing

contains

numerous

errors in

spelling,

grammar,

sentence

structure, etc.

that interfere

with

comprehensio

n. The reader

is unable to

understand

some of the

intended

meaning.

Frequent

errors in

spelling,

grammar,

sentence

structure,

and/or other

writing

conventions

that distract

the reader.

Minimal

errors in

spelling,

grammar,

sentence

structure

and/or other

writing

conventions

but the

reader is

able to

understand

what the

writer

meant.

All work

grammatically

correct with rare

misspellings.

All work

grammatically correct

with rare misspellings.

Formatting

(5%)

NOTE: Gross

failure to

provide

PROPER

citations and

references –

particularly

with regard to

direct quotes –

will result in

sanctions as

outlined in the

academic

honesty policy.

Multiple

errors in

formatting,

citations, or

references.

Some errors

in formatting,

citations, or

references.

Rare errors

in

formatting,

citations, or

references.

Virtually no

errors in

formatting,

citations, or

references.

Virtually no errors in

formatting, citations,

or references.