CHAPTER ONE:

OVERVIEW OF INTERNATIONAL MARKETING

1.1. Nature and Scope of International Marketing
 International marketing is the marketing of a company's products and/or services outside of that
company's home nation. According to Cateora and Graham, “International marketing is the
performance of business activities designed to plan, price, promote and direct the flow of a
company’s goods and services to consumers or users in more than one nation for a profit.”

 According to Terpstra and Sorathy, “international marketing consists of finding and satisfying
global customer needs better than the competition, both domestic and international and of
coordinating marketing activities within the constraints of the global environment.”

 At its simplest level, international marketing involves the firm in making one or more marketing
decisions across national boundaries. Thus, how international marketing is defined and
interpreted depends on the level of involvement of the company in the international marketplace.
Therefore, the following possibilities exist:
International Marketing vs. Domestic Marketing
 Domestic marketing: This involves the company manipulating a series of controllable variables,
such as price, advertising, distribution, and the product, in a largely uncontrollable external
environment that is made up of different economic structures, competitors, cultural values, and
legal infrastructure within specific political or geographic country boundaries. Domestic
marketing involves one set of uncontrollable derived from the domestic market.
 International marketing: This involves the company operating across several markets in which
not only do the uncontrollable variables differ significantly between one market and another, but
the controllable factors in the form of cost and price structures, opportunities for advertising, and
distributive infrastructure are also likely to differ significantly. International marketing is much
more complex because a marketer faces two or more sets of uncontrollable variables originating
from various countries. The marketer must cope with different cultural, legal, political, and
monetary systems. Degree of commitment is expressed as follows:
 Export marketing: In this case the firm markets its goods and/or services across
national/political boundaries.
 Multinational marketing: Here the marketing activities of an organization include activities,
interests, or operations in more than one country, and where there is some kind of influence
or control of marketing activities from outside the country in which the goods or services
will actually be sold. Each of these markets is typically perceived to be independent and a
profit center in its own right.
 Global marketing: The entire organization focuses on the selection and exploration of global
marketing opportunities and marshals resources around the globe with the objective of
achieving a global competitive advantage. The primary objective of the company is to
achieve a synergy in the overall operation, so that by taking advantage of different exchange
rates, tax rate, labor rates, skill levels, and market opportunities, the organization as a whole
will be greater than the sum of its parts.

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  The difference between the definitions of domestic and international marketing is that, in the
latter case marketing activities take place in “MORE THAN ONE COUNTRY”. It accounts
for the complexity and diversity found in international marketing operations.
The International Marketing Task
The international marketer’s task is more complicated than that of the domestic marketer because
the international marketer must deal with at least two levels of uncontrollable uncertainty instead of
one. Uncertainty is created by the uncontrollable elements of all business environments, but each
foreign country in which a company operates adds its own unique set of uncontrollable.

Figure 1.1: The international marketing task

 The above figure 1.1 illustrates the total environment of an international marketer. The inner
circle depicts the controllable elements that constitute a marketer’s decision area, the second
circle encompasses those environmental elements at home that have some effect on foreign-
operation decisions and the outer circles represent the elements of the foreign environment for
each foreign market within which the marketer operates. As the outer circles illustrate, each
foreign market in which the company does business can (and usually does) present separate
problems involving some or all of the uncontrollable elements.
 Thus, the more foreign markets in which a company operates, the greater the possible variety of
foreign environmental uncontrollable with which to contend. Frequently, a solution to a problem
in country market A is not applicable to a problem in country market B.

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Importance of International Marketing
A. Macro level benefits in national perspective
a. Increase in national income f. Educative effect
b. Efficiency g. Promotes foreign direct investment
c. Employment generation h. Stimulates competition
d. Increased linkages i. Technology sourcing
e. Optimal utilization of resources
B. Micro level effects of international business
i. Important to expand target market v. Fighting Competition
ii. Growth vi. Increased efficiency
iii. Important to boost brand reputation vii. Scale economies
iv. Important to connect business with the viii. Innovation
world ix. Risk cover
x. Important to open door for future opportunities- International marketing not only increases
market share and customer base, it also helps the business to connect to new vendors, a larger
workforce and new technologies and ways of doing business.
REASONS FOR ENTERING INTERNATIONAL MARKETS
 Many marketers have found the international marketplace to be extremely hostile. But although
many firms view international markets with trepidation, others still make the decision to go
international. Why?
 In one study, the following motivating factors were given for initiating overseas marketing
involvement (in order of importance):
1. Large market size 6. Excess capacity
2. Stability through diversification 7. Offer by foreign distributor
3. Profit potential 8. Increasing growth rate
4. Unsolicited orders 9. Smoothing out business cycles
5. Proximity of market
 Other empirical studies over a number of years have pointed to a wide variety of reasons why
companies initiate international involvement. These include the saturation of the domestic
market, which leads firms either to seek other less competitive markets or to take on the
competitor in its home markets; the emergence of new markets, particularly in the developing
world; government incentives to export; tax incentives offered by foreign governments to
establish manufacturing plants in their countries in order to create jobs; the availability of
cheaper or more skilled labor; and an attempt to minimize the risks of a recession in the home
country and spread risk.

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REASONS TO AVOID INTERNATIONAL MARKETS
 Despite attractive opportunities, most businesses do not enter foreign markets. The reasons
given for not going international are numerous. The biggest barrier to entering foreign markets
is seen to be a fear by these companies that their products are not marketable overseas, and a
consequent preoccupation with the domestic market.

 The following points were highlighted by the findings in the previously mentioned study by
Barker and Kaynak, who listed the most important barriers:
1. Too much red tape 7. Unfavorable conditions overseas
2. Trade barriers 8. Slow payments by buyers
3. Transportation difficulties 9. Lack of competitive products
4. Lack of trained personnel 10. Payment defaults
5. Lack of incentives 11. Language barriers
6. Lack of coordinated assistance
 It is the combination of these factors that determines not only whether companies become
involved in international markets, but also the degree of any involvement.
1.2. International Market Orientation and Involvement
1.2.1. International Marketing Orientations
 The form and substance of a company’s response to global market opportunities depend greatly
on management’s assumptions or beliefs— both conscious and unconscious—about the nature
of the world. The worldview of a company’s personnel can be described as ethnocentric,
polycentric, egocentric, and geocentric. Management at a company with a prevailing
ethnocentric orientation may consciously make a decision to move in the direction of
geocentricism. The orientations are collectively known as the EPRG framework.
A. Ethnocentric Orientation or The Domestic Market Extension Orientation
 This orientation to international marketing is illustrated by the domestic company seeking sales
extension of its domestic products into foreign markets. The ethnocentric orientation means
company personnel see only similarities in markets and assume the products and practices that
succeeded in the home country will, due to their demonstrated superiority, be successful
anywhere.
 At some companies, the ethnocentric orientation means that opportunities outside the home
country are ignored. Such companies are sometimes called domestic companies. Ethnocentric
companies that do conduct business outside the home country can be described as international
companies; they adhere to the notion that the products that succeed in the home without
adaptation.
 It views its international operations as secondary to and an extension of its domestic operations;
the primary motive is to dispose of excess domestic production. Domestic business is its priority
and foreign sales are seen as a profitable extension of domestic operations.

 Minimal, if any, efforts are made to adapt the marketing mix to foreign markets; the firm’s
orientation is to market to foreign customers in the same manner the company markets to
domestic customers. It seeks markets where demand is similar to the home market and its
domestic product will be acceptable.

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B. Polycentric Orientation or Multi-domestic Market Orientation
 The polycentric orientation is the opposite of ethnocentrism. The term polycentric describes
management’s often-unconscious belief or assumption that each country in which a company
does business is unique.
 Once a company recognizes the importance of differences in overseas markets and the
importance of offshore business to the organization, its orientation towards international
business may shift to a multi-domestic market strategy. A company guided by this concept has a
strong sense that country markets are vastly different (and they may be, depending on the
product) and that market success requires an almost independent programme for each country.
Firms with this orientation market on a country-by-country basis, with separate marketing
strategies for each country.
 This assumption lays the ground work for each subsidiary to develop its own unique business
and marketing strategies in order to subsidiary to develop its own unique business and marketing
strategies in order to succeed; the term multinational company is often used to describe such a
structure. Subsidiaries operate independently of one another in establishing marketing objectives
and plans, and the domestic market and each of the country markets have separate marketing
mixes with little interaction among them. Products are adapted for each market without
coordination with other country markets; advertising campaigns are localized as are the pricing
and distribution decisions.
 A company with this concept does not look for similarity among elements of the marketing mix
that might respond to standardization; rather it aims for adaptation to local country markets.
Control is typically decentralized to reflect the belief that the uniqueness of each market
requires local marketing input and control. Production and sale of detergents and soaps by
Unilever, all over the world, is a typical example of this concept. Firms with this orientation
would be classified in the EPRG schema as polycentric.
C. Regiocentric and Geocentric Orientations or Global Marketing Orientation
 A company guided by this orientation or philosophy is generally referred to as a global
company, its marketing activity is global, and its market coverage is the world. A company
employing a global marketing strategy strives for efficiencies of scale by developing a product,
to be sold at a reasonable price to a global market, that is, somewhat the same country market set
throughout the world. Important to the global marketing concept is the premise that world
markets are being ‘driven towards a converging commonality’, seeking in much the same ways
to satisfy their needs and desires. Thus, they constitute significant market segments with similar
demands for the same basic product the world over. With this orientation a company attempts to
standardize as much of the company effort as is practical on a worldwide basis.

 For example, a U.S. company that focuses on the countries included in the North American Free
Trade Agreement (NAFTA)—the United States, Canada, and Mexico — have a regiocentric
orientation. Similarly, a European company that focuses its attention on the EU or Europe is
regiocentric. A company with a geocentric orientation views the entire world as a potential
market and strives to develop integrated world market strategies. A company whose
management has a regiocentric or geocentric orientation is sometimes known as a global or
transnational company.

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  The geocentric orientation represents a synthesis of ethnocentrism and polycentrism; it is a
“worldview” that sees similarities and differences in markets and countries and seeks to create a
global strategy that is fully responsive to local needs and wants. A regiocentric manager might
be said to have a worldview on a regional scale; the world outside the region of interest will be
viewed with an ethnocentric or a polycentric orientation, or a combination of the two.
Summary of International Marketing Orientations
 The ethnocentric company is centralized in its marketing management, the polycentric company
is decentralized, and the regiocentric and geocentric companies are integrated on a regional and
global scale, respectively. A crucial difference between the orientations is the underlying
assumption for each. The ethnocentric orientation is based on a belief in home country
superiority. The underlying assumption of the polycentric approach is that there are so many
differences in cultural, economic, and marketing conditions in the world that it is impossible and
futile to attempt to transfer experience across national boundaries.
• Ethnocentric Strategy
– Everywhere the same strategy as at home
• Polycentric Strategy
– Separate and distinct strategy for each foreign market
• Regiocentric Strategy
– Separate and distinct strategy for each region – group of similar countries
• Geocentric Strategy
– One strategy for all countries worldwide

What is Globalization? Is Globalization good or bad? Discuss!

 “Globalization is the inexorable integration of markets, nation-states, and technologies to a
degree never witnessed before - in a way that is enabling individuals, corporations, and nation-
states to reach around the world farther, faster, deeper and cheaper than ever before, and in a
way that is enabling the world to reach into individuals, corporations, and nation-states farther,
faster, deeper, and cheaper than ever before.”
Thomas Friedman
 Globalization is neither good nor bad. Rather, certain aspects of the complex, and multi-faceted
process of globalization have impacts that can be viewed in different ways depending on the
values at stake.
The Indicators of Globalization
There are three main economic and financial indicators of globalization, these are:
a. International trade in goods and services
b. The transfer of money capital from one country to another
c. The movement of people across national borders.

1.2.2. Stages of International Marketing Involvement

In general, firms go through five different phases in going international:

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  No Direct Foreign Marketing
 Infrequent Foreign Marketing
 Regular Foreign Marketing
 International Marketing
 Global Marketing
Stage 1: No Direct Foreign Marketing
 Not active foreign customer seekers. No activity in cultivating customers outside domestic
market.
 Foreign markets via domestic wholesalers/distributors. Distributors/Dealers/Foreign
Customers coming directly to the firm.
 Unsolicited orders
 Internet (Web Pages as indication)
Stage 2: Infrequent Foreign Marketing
 Variation in production levels or demands. There is product surplus in domestic market.
 No commitment to foreign market representation. There is no intention of maintaining
continuous market representation. Few companies fill this model as customers always look
for long term commitment.
 If domestic demand , foreign activity 
 Foreign agents may approach
 Managers’ own foreign contacts
Stage 3: Regular Foreign Marketing
 Dedicated production capacity to foreign markets. That means, marketing goods on a
continuous basis to foreign markets.
 Own sales force/subsidiaries in foreign markets
 Domestic market is still the prime focus, but as the foreign demand , production/products are
adapted to meet those customer needs.
 Depend on foreign sales to meet goal (vs. as a bonus)
 Adaptation of the product to the foreign market
Stage 4: International Marketing/Multinational Marketing
 Fully committed and involved in international marketing
 Planned productions for various foreign markets
 Production of goods in foreign markets as well
 The company formulates a unique strategy for every country with which it conducts business
 At this stage, a firm is international or multi-national
Stage 5: Global Marketing
o Treats the world including home market as one
o Market segments are defined by demographic and psychographic variables
o Half of its revenue should come from foreign market
o Global perspective is the focus

1.3. International Marketing Management Process

Major decisions

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1. Looking at the global marketing environment
The international trade system
 Tariff- A tax levied by a government against certain imported products. Tariffs are designed to
raise revenue or to protect domestic firms.
 Quota- is a limit on the amount of goods that an importing country will accept in certain
product categories.
 Embargo- A (total) ban on the import of a certain product
 Exchange controls- Government limits on the amount of foreign exchange with other
countries and on the exchange rate against other currencies.
 Nontariff trade barriers- is nonmonetary barriers to foreign products, such as biases against a
foreign company's bids or product standards that go against a foreign company's product
features.
 WTO and GATT
 GATT inception 1948 – now more than 120 members
 Uruguary round in 1993 – took 7 years
 World Trade Organization (WTO) established as part of the round
What is WTOs role?
 Umbrella organization for
o General Agreement on Trade and Tariffs (GATT)
o General Agreement on Trade in Services
 Mediates global disputes, imposes trade sanctions – authorities that GATT organization
never had.
 Regional free trade zones or economic communities- A group of nations organized to work
toward common goals in the regulation of international trade. E.g. EU.
Readiness for products and services
Depends on many factors, including:
 Economic  Cultural
 Political-legal
2. Deciding whether to go international
Not all companies need to go international to survive
– Businesses that are geographically bound
Reasons for going global
– Competitors attacks domestic market => counterattack
– Foreign markets with higher profit opportunities
– Reduce risk by expanding to different kinds of markets
– Company's customers expand abroad and require servicing there
Careful assessment: Careful assessment of strengths, weaknesses, opportunities, threats
3. Deciding which markets to enter
Decisions before going abroad
 International marketing objectives and policies
 Volume of foreign sales
 How many countries- In general, fewer countries with deeper penetration better.
 Types of countries

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  Depends on product match with country
 Screen and rank
4. Deciding how to enter the market
 Exporting  Direct investment
 Joint venturing

5. Deciding on the global marketing program

 Standardized marketing mix- An international marketing strategy for using basically the
same product, advertising, distribution channels, and other elements of the marketing mix in
all the company's international markets.
 Adapted marketing mix- An international marketing strategy for adjusting the marketing
mix elements to each international target market, bearing more costs but hoping for a larger
market share and return.
 Marketing mix
• Product • Promotion
• Price • Place/distribution
6. Deciding on the global marketing organization
Typical scenario Organize export department, create international division, become
global
International divisions Subsidiary which handles all international aspects of a company's
operations; typical but un-optimal solution
Organization of  Geographic – country managers
international divisions  World product groups – responsible persons for worldwide sales of
product groups
 International subsidiaries – responsible for own sales and profits
Truly global Stop thinking of themselves as national marketers who sell abroad
organizations  Planning worldwide manufacturing facilities, marketing policies,
financial flows, logistical systems
 Global operating units report directly to the CEO or executive
committee, not to head of international division

1.4. International Marketing Information System

“To survive in this new globally competitive world, we had to modernize. Information technology is
the glue for everything we do.”
James Wogsland
Vice Chairman, Caterpiller
 A Marketing Information System (MIS) is an integrated network of information designed to
provide marketing managers with relevant and useful information at the right time and place for
planning, decision making, and control. As such, the MIS helps management identify
opportunities, become aware of potential problems, and develop marketing plans. The marketing
information system is an integral part of the broader management information system.
 With modern technology and the availability of affordable computers, it seems quite worthwhile
for an international firm to install a computer – based information system.

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 For MIS to achieve its desired purpose, the system must be carefully designed and developed.
Development involves the three steps of system analysis, design and implementation. System
analysis involves the investigation of all users’ information needs. System design should be the
next major consideration. System design transforms the various information requirements into
one or more plans that clearly specify the procedures and programs in obtaining, recording, and
analyzing marketing data. Alternative or competing plans are developed and compared, and the
most suitable one is ultimately selected. The last step comprises system implementation. The
chosen system is installed and checked to make certain that it functions as planned. Both those
who operate the system and those who use it must be trained and their comments should be
evaluated to ensure that smooth operation o the system.
 Information, or useful data, is the material of executive action the global marketer is faced with a
dual problem in acquiring the information needed for decision making. Thus, the global marketer
is faced with the problem of information abundance an information scarcity. The global marketer
must know where to go to obtain information the subject areas that should be covered and the
different ways that information can be acquired information must be processed in an efficient and
useful way. The technical term for the process of information acquisition is scanning.
Information Subject Agenda
 A starting point for a global MIS is a list of subjects about which information is desired. The
resulting subject agenda should be tailored to the specific needs and objectives of the company.
The general framework consists of six broad information areas.
 The framework satisfies two essential criteria. First, it comprises all the information subject areas
relevant to a company with global operations. Second, the categories in the framework are
mutually exclusive any kind of information encompassed by the framework can be correctly
placed in one and only one category. The basic elements of the external environment economic,
social and cultural, legal and regulatory, and financial factors-will undoubtedly-be- on- the
information agenda of most companies.
Six Subject Agenda Categories for a Global Business
Category Coverage
1. Markets Demand estimates, consumer behavior, products, channels,
communication media availability and cost, and market
responsiveness.
2. Competition Corporate, business, and functional strategies and plans
3. Foreign Exchange Balance of payments, interest rates, attractiveness of country
currency, and expectations of analysts.
4. Prescriptive Information Laws, regulations, rulings concerning taxes, earnings,
dividends in both host countries and home country.
5. Resource Information Availability of human, financial, information, and physical
resources.
6. General conditions Overall review of socio-cultural, political, technological
environments.
Scanning Modes: Surveillance and Search
 Once the subject agenda has been determined, the next step is the actual collection of
information. This can be accomplished using surveillance and search. In the surveillance mode,

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 the marketer engages in informal information gathering. Globally oriented marketers are
constantly on the lookout for information about potential opportunities and threats in various
parts of the world. They want to know everything about the industry, the business, the
marketplace, and consumers. This passion shows up in the way they keep their ears and eyes
tuned for clues, rumors, nuggets of information, and insights from other people’s experiences.
 Browsing through newspapers and magazines and surfing the Internet are ways to unsafe
exposure to information on a regular basis. Global marketers may also develop a habit of
watching news programs and commercials from around the world via satellite. This type of
general exposure to information is known as viewing. If a particular news story has special
relevance for a company-for example, entry of a new player into a global industry, say, Samsung
into automobiles-marketers in the automobile and related industries and all competitors of
Samsung will pay special attention, tracking the story as it develops. This is known as
monitoring.
 The search mode is characterized by more formal activity. Search is characterized by the
deliberate seeking out of specific information. Search often involves investigation, a relatively
limited arid informal type of search. Investigation often involves seeking out books or articles in
trade publications or searching the Internet on a particular topic or issue. Search may also
consist of research, a formally organized effort to acquire specific information for a specific
purpose.
Sources of Market Information
 Human Sources
 Although scanning is a vital source of information, research has shown that headquarters
executives of global companies obtain as much as two thirds of the information they need from
personal sources. A great deal of external information comes from executives based abroad in
company subsidiaries, affiliates, and branches. These executives are likely to have established
communication with distributors, consumers, customers, suppliers, and government officials.
 Indeed, a striking feature of the global corporation-and a major source of competitive strength-is
the role executives abroad play in acquiring and disseminating information about the world
environment. Headquarters executives generally acknowledge that company executives overseas
are the people who know best what is going on in their areas.
 Other important information sources are friends, acquaintances, professional colleagues,
consultants, and prospective new employees. The latter are particularly in1portant if they have
worked for competitors. Sometimes, information-related ethical and legal issues arise when a
person changes jobs.
 Documentary Sources
 One of the most important developments in global marketing research is the extraordinary
expansion in the quantity and quality of documentary sources of information. The information
explosion is an explosion in the availability of documentary information not only in print but
increasingly online and on the Internet and the intra net for company-restricted information. The
two broad categories of documentary information are published public information and
unpublished private documents. The former is available on the Internet, and the latter is
available on the intranet or company password restricted-access networks created by
organizations for their own employees.

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 Internet Sources
 The range and depth of information available on the Internet are vast and growing every day.
Companies, governments, nongovernmental organizations, market research companies, data
assemblers and packagers, security analysts, news gathering organizations, universities, and
university faculty to mention just a few are all sources that can be accessed on-line. The Internet
is a unique information source: It combines the three basic information source types: human,
documentary (published and private), and direct perception.
 An e-mail communication may be personal or impersonal. A document may be text only, or it
may include pictures and music. The pictures may be still or full-motion video or animation.
The document may be combined with music.
 Direct Perception
 Direct sensory perception provides a vital background for the information that comes from
human and documentary sources. Direct perception gets all the senses involved. It means seeing,
feeling, hearing, smelling, or tasting for oneself to find out what is going on in a particular
country rather than getting secondhand information by hearing or reading about a particular
issue. Some information is easily available from other sources but requires sensory experience to
sink in.

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 CHAPTER TWO
INTERNATIONAL MARKETING ENVIRONMENT
2.1. Framework For Analyzing International Marketing Environment
 The marketing environment consists of all factors that can affect the organization’s marketing
activities. These factors are largely uncontrollable. The macro environment refers to all forces
that are part of the larger society and affect the microenvironment. It includes concepts such as
geography, demography, economy, natural forces, technology, politics, and culture. Different
countries have different currencies, accounting practices, legislation, interest rates inflation etc.
 Before deciding whether or not to sell abroad, a company must thoroughly understand the
international marketing environment. Basic principles of domestic marketing apply to
international marketing. However, there are some differences, many of which are centered on
environmental factors which affect international marketing.

2.2. Geographic Environment In International Marketing

 Geographic environment involves geographic units such as nations, states, regions,
counties, and cities. The company can operate in one or few geographic areas or operate in
all but pay attention to local variations. The globalization of business has made geography
indispensable for the study of international marketing. Without significant attention to the
study of geography, critical ideas and information about the world in which business occurs
will be missing. In recent decades, however, geography has become more familiar and more
relevant to many people because emphasis has been placed on five fundamental themes as
ways to structure geographic questions and to provide answers for those questions. Those
themes are (1) location, (2) place, (3) interaction, (4) movement, and (5) region.
 Geography focuses on answering “Where?” questions. Where are things located? What is
their distribution across the surface of the earth? An old aphorism holds, “If you can map it,
it’s geography.” That statement is true, because we use maps to gather, store, analyze, and
present information that answers “Where?” questions. Identifying where things are located is
only the first phase of geographic inquiry. Once locations have been determined, “Why?”

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 and “How?” questions can be asked. Why are things located where they are? How do
different things relate to one another at a specific place, How do different places relate to
each other, How have geographic patterns and relationships changed over time. These are
the questions that take geography beyond mere description and make it a powerful approach
for analyzing and explaining geographical aspects of a wide range of different kinds of
problems faced by those engaged in international marketing.
2.3. Demographic Environment In International Marketing
 Demography refers to studying human populations in terms of size, density, location, age,
gender, race, and occupation. This is a very important factor to study for marketers and helps to
divide the population into market segments and target markets. This can be beneficial to a
marketer as they can decide who their product would benefit most and tailor their marketing
plan to attract that segment. Demography covers many aspects that are important to marketers
including family dynamics, geographic shifts, work force changes, and levels of diversity in any
given area.
 The world population is growing at an explosive rate. This has major implications for business.
A growing population means growing human needs. Depending on purchasing powers, it may
also mean growing market opportunities. On the other hand, decline in population is a threat so
some industrial and the boon to others. The marketing executives of toy-making industry spend
a lot of energy and efforts and developed fashionable toys, and even advertise “Babies are our
business-our only business”, but quietly dropped this slogan when children population gone
down due to declining birth rate and later shifted their business to life insurance for old people
and changed their advertisement slogan as “the company has not babies the over 50s”.

2.4. Economic and Socio-Cultural Environment

2.4.1. Economic Environment
 Economic Environment: mean that all those macro-economic factors like income distribution,
level of savings, debt and credit available to consumers and stage of economic development in a
particular country of interest. Marketing is an economic activity affected by the economic
environment in which it is conducted. A major characteristic of the international marketer’s
world is the diversity of marketing environments in which business may be done. In particular,
the economic dimensions of the world market environment are of prime importance.
 Economic variables relating to the various markets' characteristics are population, income,
consumption patterns, infrastructure, geography, and attitudes toward foreign involvement in
economy form a starting point for assessment of market potential for the international marketer.

Market Characteristics
 The main dimensions of a market can be captured by considering variables such as those
relating to the population and its various characteristics, infrastructure, geographical features
of the environment, and foreign involvement in the economy.
Population
 The number of people in a particular market provides one of the most basic indicators of
market size and the potential demand. Because market entry decisions may lie in the future,

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 it is worthwhile to analyze population projections in the areas of interest and focus on their
possible implications. Depending on the marketer's interest, population figures can be
classified to show specific characteristics of their respective markets. Age distribution and
life expectancy correlate heavily with the level of development of the market.
Income
 Markets require not only people but also purchasing power, which is a function of income,
prices, savings, and credit availability. For the marketer to make use of information on gross
national products of various nations, further knowledge is needed on distribution of income.
Per capita GNP is often used as a primary indicator for evaluating purchasing power. In
some markets, income distribution produces wide gaps between population groups. The
more developed the economy, the more income distribution tends to converge toward the
middle class.
 In general, income figures are useful in the initial screening of markets. However, in product
specific cases, income may not play a major role, and startling scenarios may emerge. Some
products, such as motorcycles and television sets in China, are in demand regardless of their
high price in relation to wages because of their high prestige value.
Consumption Patterns
 Depending on the sophistication of a country's data collection systems, economic data on
consumption patterns can be obtained and analyzed. The share of income spent on necessities
will provide an indication of the market's development level as well as an approximation of how
much money the consumer has left for other purchases. Engel's laws provide some
generalizations about consumers spending patterns. They state that as a family's income
increases, the percentage spent on food will decrease, the percentage spent on housing and
household operations will be roughly constant, and the amount saved or spent on other
purchases will increase.
Infrastructure
 The availability and quality of an infrastructure is critically important in evaluating marketing
operations abroad. Each international marketer will rely heavily on services provided by the
local market for transportation, communication, and energy as well as on organizations
participating in the facilitating functions of marketing: marketing communications, distributing,
information, and financing.
Foreign Involvement in the Economy
 For the international marketer interested in entering a foreign market, it is important to know the
extent to which such entry is accepted by a country. An economy's overall acceptance of
foreign involvement can be estimated by analyzing the degree of foreign direct investment by
country and by industry in a given market as well as by the rules governing such investment.

2.4.2. Socio-Cultural Environment

 The socio - cultural environment influences the behavior of customers who comprise markets,
the managers who plan and implement international marketing programs, and the marketing
intermediaries who participate in international marketing process. Culture should not be simply
considered as an obstacle to doing business across cultures. Culture can provide tangible
benefits and can be used as a competitive tool or as a basis of a competitive strategy. In short,

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 cultural differences can, and should be managed. It is when they are mismanaged that problems
arise and profits are adversely affected.
2.4.2.1. Basic Aspects of Society and Culture
 Anthropologists and sociologists define culture as “Ways of Living “, built up by a group of
human beings, which are transmitted from one generation to another. A culture acts out its ways
of living in the context of social institutions, including family, educational, religious,
governmental, and business institutions. Culture includes conscious and unconscious values,
ideas, attitudes, and symbols that shape human behavior and that are transmitted from one
generation to the next. In this sense, culture does not include one-time solutions to unique
problems, or passing fads and styles. As defined by organizational anthropologist Geert
Hofstede, culture is “the collective programming of the mind that distinguishes the members of
one category of people from those of another”.

Subculture
 Because of differing cultures, worldwide consumer homogeneity does not exist. Neither does it
exist in the United States. Differences in consumer groups are everywhere. There are white,
black, Jewish, Catholic, farmer, truck driver, young, old, eastern, and western consumers,
among other numerous groups. In order to understand these diverse groups of consumers,
particular cultures must be examined. As the focus is on a subgroup within a society, the more
appropriate area for investigation is not culture itself but rather subculture, culture on a smaller
and more specific level.
Subculture is:
Ä A distinct and identifiable cultural group that has values in common with the overall society but
also has certain characteristics that are unique to itself.
Ä Group of people within a larger society. Although the various subcultures share some basic traits
of the wider culture, they also preserve their own customs and lifestyles, making them
significantly different from other groups within the larger culture of which they are a part.
 There are many different ways to classify subcultures. Although race or ethnic origin is one
obvious way, it is not the only one. Other demographic and social variables can be just as
suitable for establishing subcultures within a nation.
2.4.2.2. Culture and Its Characteristics
1. Culture is prescriptive. It prescribes the kinds of behavior considered acceptable in the society.
The prescriptive characteristic of culture simplifies a consumer’s decision making process by
limiting product choices to those which are socially acceptable.
2. Culture is socially shared. Culture, out of necessity, must be based on social interaction and
creation. It cannot exist by itself. It must be shared by members of a society, thus acting to
reinforce culture’s prescriptive nature.
3. Culture facilitates communication. One useful function provided by culture is to facilitate
communication. Culture usually imposes common habits of thought and feeling among people.
Thus, within a given group culture makes it easier for people to communicate with one another.
But culture may also impede communication across groups because of a lack of shared common
cultural values.

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4. Culture is learned. Culture is not inherited genetically-it must be learned and acquired.
Socialization or enculturation occurs when a person absorbs or learns the culture in which he or
she is raised. In contrast, if a person learns the culture of a society other than the one in which he
or she was raised, the process of acculturation occurs. The ability to learn culture makes it
possible to absorb new cultural trends.
5. Culture is subjective. People in different cultures often have different ideas about the same
object. What is acceptable in one culture may not necessarily be so in another. In this regard,
culture is both unique and arbitrary.
6. Culture is enduring. Because culture is shared and passed along from generation to generation,
it is relatively stable and somewhat permanent. Old habits are hard to break, and people tend to
maintain its own heritage in spite of a continuously changing world.
7. Culture is cumulative. Culture is based on hundreds or even thousands of years of accumulated
circumstances. Each generation adds something of its own to the culture before passing the
heritage on to the next generation.
8. Culture is dynamic. Culture is passed along from generation to generation, but one should not
assume that culture is static and immune to change. Far from being the case, culture is
constantly changing-it adapts itself to new situations and new sources of knowledge.

2.4.2.3 Elements of Culture

 Culture includes every part of life. The scope of the term culture to the anthropologist is
illustrated by the elements included within the meaning of the term. They are:
A. Material Culture : Technology, Economics
Material Culture is divided into two parts, technology and economics. Technology includes the
techniques used in the creation of material goods; it is the technical know-how possessed by the
people of a society. Material culture affects the level of demand, the quality and types of products
demanded, and their functional features, as well as the means of production of these goods and their
distribution.
Economics is the manner in which people employ their capabilities and the resulting benefits. The
subject of economics includes the production of goods and services, their distribution, consumption,
means of exchange, and the income derived from the creation of utilities.
B. Social Institutions : Social organizations, Education, Political Structures
Social Institutions include social organization, education, and political structures that are concerned
with the ways in which people relate to one another, organize their activities to live in harmony with
one another, teach acceptable behavior to succeeding generations, and govern themselves. The
positions of men and women in society, the family, social classes, group behavior, age groups and
how societies define decency and civility are interpreted differently within every culture. In cultures
where the social organizations result in close-knit family units, for example, it is more effective to
aim a promotion campaign at the family unit than at individual family members.
 Education, one of the most important social institutions, affects all aspects of the culture from
economic development to consumer behavior. The literacy rate of a country is a potent force in
economic development.
C. Humans and the Universe-Belief Systems

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Within this category, there are religion (belief systems), superstitions, and their related power
structures. The impact of religion on the value systems of a society and the effect of value systems
on marketing must not be underestimated. Religion impacts people’s habits, their outlook on life,
the products they buy, the way they buy them, even the newspapers they read.
Acceptance of certain types of food, clothing, and behavior are frequently affected by religion, and
such influence can extend to the acceptance or rejection of promotional messages as well. In some
countries, focusing too much attention on bodily functions in advertisements would be judged
immoral or improper and the products would be rejected.
D. Aesthetics : Graphic and Plastic Arts, Folklore, Music, Drama and Dance
Closely interwoven with the effect of people and the universe on a culture are its aesthetics, that is,
its arts, folklore, music, drama, and dance. Aesthetics are of particular interest to the marketer
because of their role in interpreting the symbolic meanings of various methods of artistic
expression, color, and standards of beauty in each culture. Customers everywhere respond to
images, myths, and metaphors that help them define their personal and national identities and
relationships within a context of culture and product benefits. The uniqueness of a culture can be
spotted quickly in symbols having distinct meanings.
Without a culturally correct interpretation of a country’s aesthetic values, a whole host of marketing
problems can arise. Product styling must be aesthetically pleasing to be successful, as must
advertisements and package designs. Insensitivity to aesthetic values can offend, create a negative
impression, and, in general, render marketing efforts ineffective. Strong symbolic meanings may be
overlooked if one is not familiar with a culture’s aesthetic values.
E. Language
 The importance of understanding the language of a country cannot be overestimated. The
successful marketer must achieve expert communication, and this requires a thorough
understanding of the language as well as the ability to speak it. Advertising copywriters should
be concerned less with obvious differences between languages and more with the idiomatic
meanings expressed. It is not sufficient to say you want to translate into Spanish, for instance,
because, in Spanish speaking Latin America the language vocabulary varies widely. Tambo, for
example, means a roadside inn in Bolivia, Colombia, Ecuador, and Peru; in Argentina and
Uruguay, it means a dairy farm; and in Chile, a Tambo is a brothel.
2.5. Political and Legal Environment
2.5.1. Political Environment
 Global marketing activities take place within the political environment of governmental
institutions, political parties, and organizations through which a country’s people and rulers
exercise power. Any company doing business outside its home country should carefully study
the government structure in the target country and analyze salient issues arising from the
political environment. These include the governing party’s attitude toward sovereignty, political
risk, the threat of equity dilution, and expropriation.
A. National – States and Sovereignty
Sovereignty can be defined as supreme and independent political authority. Richard Stanley offered
the following concise description. A sovereign state was considered free and independent. It
regulated trade, managed the flow of people into and out of its boundaries, and exercised undivided
jurisdiction over all persons and property within its territory. It has the right, authority, and ability to

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conduct its domestic affairs without outside interference and to use it international power and
influence with full discretion.
Government actions taken in the name of sovereignty occur in the context of two important criteria
a country’s state of development and the political and economic system in place in the country.
B. Political risk
The risk of a change in government policy that would adversely impact a company’s ability to
operate effectively and profitably—can deter a company from investing abroad. When the perceived
level of political risk is lower, a country is more likely to attract investment. The level of political
risk is inversely proportional to a country’s stage of economic development all other things being
equal, the less developed a country, the greater the political risk.
C. Dilution of Equity Control
Political pressure for national control of foreign owned companies is a part of the environment of
global business in lower- income countries. The foremost goal of national governance is to protect
the right of national sovereignty, especially in all aspects of domestic business activity. Host nation
governments sometimes attempt to control ownership of foreign owned companies operating within
their borders. In underdeveloped countries, political pressures frequently cause companies to take in
local partners.
D. Expropriation
The ultimate threat a government can pose toward a company is expropriation. Expropriation refers
to governmental action to dispossess a company or investor. Compensation is generally provided to
foreign investors, although not often in the “prompt, effective, and adequate” manner provided for
by international standard. Nationalization occurs if ownership of the property for by international
standard. Nationalization occurs if ownership of the property or assets in question is referred to as
confiscation.
Political Risks
There are a number of political risks with which marketers must contend. Hazards based on a host
government’s actions include confiscation, expropriation, nationalization, domestication, and
creeping expropriation. Such actions are more likely to be levied against foreign investments,
though local firms’ properties are not totally immune.
1. Confiscation is the process of a government’s taking ownership of a property without
compensation.
2. Expropriation occurs when the government seizes an investment but makes some
reimbursement for the assets. That means, it is the act of a government taking ownership of a
firm’s plants. It differs somewhat from confiscation in that there is some compensation, though
not necessarily just compensation. More often than not, a company whose property is being
expropriated agrees to sell its operations-not by choice but rather because of some explicit or
implied coercion.
3. Nationalization- After property has been confiscated or expropriated, it can be either
nationalized or domesticated. Nationalization involves government ownership, and it is the
government that operates the business being taken over.
4. Domestication In the case of domestication, foreign companies relinquish control and
ownership, either completely or partially, to the nationals. The result is that private entities are
allowed to operate the confiscated or expropriated property. Domestication may sometimes be a

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 voluntary act that takes place in the absence of confiscation or nationalization. Usually, the
causes of this action are either poor economic performance or social pressures.
MNCs have generally been concerned with coups, revolutions, and confiscation, but they now have
to pay attention to so-called creeping expropriation.
2.5.2. Legal Environment
Legal Environment: is the environment that frames the rules the game within which firms play their
business strategies. Government set rules and regulation to normalize the business activities while
safeguarding the societal well-being. Many of the rules set by the government may have an adverse
effect on the business. Hence forth, the business firm may be aware of the government rules and
regulation and accordingly abide by it. Every company's conduct is influenced more and more by
the legal process in the society. The legal forces on marketing can be the following:-
Ä Monetary and fiscal policies- Government spending, tax legislation etc.
Ä Social legislation and regulation-Anti pollution law.
Ä Government relationship with industries- Tariffs and import quotas etc.
2.5.2.1 Legal Systems
To understand and appreciate the varying legal philosophies among countries, it is useful to
distinguish between the two major legal systems: common law and statute law.
i) A common law system
A common law system is a legal system that relies heavily on precedents and conventions. Judges’
decisions are guided not so much by statutes as by previous court decisions and interpretations of
what certain laws are or should be.
ii) A statue law system
Countries employing a statute law system, also known as code or civil law, include most continental
European countries and Japan. Most countries – over 70 – are guided by a statue law legal system.
As the name implies, the main rules of the law are embodied in legislative codes. Every
circumstance is clearly spelled at to indicate what is legal and what is not. There is also a strict and
literal interpretation of the law under this system. Therefore, the only major distinction between the
systems is the freedom of the judge in interpreting laws. A common law country, the judge’s ability
to interpret laws in a personal way gives the judges a great deal of power to apply the laws as it fits
the situation. In contrast, a judge in a civil law country has a lesser role in using personal judgment
to create or interpret laws because the judge must strictly follow the “letter of the law”.
2.5.2.2 Multiplicity of the Legal Systems
Much like the political environment discussed, the multiplicity of legal environments includes
domestic, foreign, and international legal environments.
i. Domestic legal environment
In the domestic environment, a business person must abide by the laws of the home country. Such
laws can affect both imports and exports. Various countries design their legal system on which one
system differs with others. For instance, in the case of the United States, items that are ‘restricted’
but not ‘prohibited’ include automobiles, cultural treasures, more than $5000 of cash, firearms,
wildlife and fish. Counterfeit products and illegal drugs cannot be imported, etc.
ii. Foreign legal environment
Once a product crosses a national border, it becomes subject to both an entirely different set of laws
and a new enforcement systems. E.g. France bans all imports of crawfish because of the risk of

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 disease, etc.
iii. International legal environment
In many cases, agreements between nations must be secured before marketers can enter a particular
market. The airline business provides a good illustration of such agreements. Treaties among
nations govern international air routes.

There is no international law perse that prescribes acceptable and legal behavior of international
business enterprises. There are only national laws – often in conflict with one another, especially
when national politics is involved. This complexity creates a special problem for those companies
that do business in various countries, where various laws may demand contradictory actions.
Because of the complexity of the international legal system, countries enter into an agreement to
overcome such barriers.
2.5.2.3 The Law and Marketing Mix
Government regulations are designed to serve societal interest by preserving business competition
on the one hand and protecting consumers on the other. Such regulations not only increase a
company’s cost of doing business, but also affect its marketing strategies.
i) Product
There are many products that cannot be legally imported into most countries. Examples include
counterfeit money, illicit drugs, pornographic materials, etc. it is usually also illegal to import live
animals and fresh fruits unless accompanied by the required certificates. Furthermore, many
products have to be modified to conform to local laws before these products are allowed to cross the
border. The modification may be quite technical from an engineering standpoint or may only be
cosmetic, as in the case of certain packaging change.
ii) Place
In various countries the restriction in regards to distribution channels differs. As a result it affects
the firms marketing activities. For example, in the USA a manufacturer has a number of distribution
channels from which to choose as long as competition is not stifled in the process. In most other
countries, the manufacture does not have such freedom. In England and Wales, it is legal to buy a
pornographic book on Sunday but not a Bible; Whisky and Gin but no dried milk in cows; post
cards but not birthday cards etc.
iii) Promotion
There are virtually no limits on how much an advertiser can spend for promotion in the USA, but
free spending is usually regarded as improper elsewhere. Taking the view that advertising is not
necessary for doing business, many countries have direct tax on advertising billings, agencies or
media. Some governments use advertising tax to discourage advertising so that demand and
inflation can be cured. Other government use advertising restrictions as a non tariff barrier to
foreign exports. For instance, Japan does not allow foreign cigarettes to be advertised in the
Japanese language. Another problem that a company must be prepared to deal with is the varying
interpretations that occur with advertisement. What is acceptable to one country may be
‘misleading’ in another.
iii) Price
The general policy for using price control is to protect consumers’ interests or to control inflation.
Generally the company has no choice but to obey the wage and price control imposed by the

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government.
2.5.2.4 Intellectual Property
Intellectual property is a general term that describes inventions or other discoveries that have been
registered with government authorities for the sale or use by their owner. Such terms as patent,
trademark, copyright or trade secret fall in to the category of intellectual property. Individuals and
firms have the freedom to own and control the rights to intellectual property (i.e. inventions and
creative works). The term patent, trademark, copyright, and trade secret are often used
interchangeably. In fact, they are four basic forms of intellectual property and hold different
meanings as illustrated below:
i) Trade mark
A trademark is a symbol, work or thing used to identify a product made or marketed by a particular
firm. It becomes a registered trademark when the mark is accepted for registration by the trademark
office.
ii) Copy right
A copy right which is the responsibility of the copyright office in the library of congress, offers
protection against unauthorized copying by others to an author or artist for his/her literary, musical,
dramatic and artistic works. A copyright protects the form of expression rather than the subject
matter.
iii) Patent
A patent protects an invention of a scientific or technical nature, it is a statutory grant from the
government (the patent office) to an inventor in exchange for public disclosure giving the patent
holder exclusive right to the functional and design inventions patented and excluding other firm
using those inventions for a certain period of time.
iv) Trade secret
The term trade secret refers to know – how (i.e. manufacturing methods, formulas, plans and so on)
that is kept secret with in a particular business. This know – how, generally unknown in the
industry, may offer the firm a competitive advantages.
2.5.2.5 Unfair Competition
Even though, there are firms who would like to enjoy their sweats, there are also businesses who
would like to prosper via short cut. These firms are unfairly competing with their competitors. The
government role in the free market economy is to regulate unfair competition by preserving of the
intellectual properties. Some of the unfair competition takes the following forms:
a) Infringement
Infringement occurs when there is commercial use (i.e. recopying or imitating) without owner's
consent, with the intent of confusing or deceiving the public.
b) Counterfeiting
Counterfeiting is the practice of unauthorized and illegal copying of a product. In essence, it
involves infringement on a patent or trademark or both. I.e. according to the Us Lanham Act, a
counterfeit trademark is a “spurious trade mark, which is identical with, or substantially
indistinguishable from a registered trademark.”
There are several levels of counterfeiting;
1. The true counterfeit product, which uses the name of the original and looks like it.
2. A look – alike or knock off, which duplicates the organize design but does not use its name.

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 3. Reproduction or replica, a close but not exact copy and
4. Imitation or associative counterfeit, which is a cheap but poor copy of the original.
But, it is illegal use of the name and a product shape that differs little form the original that leads
consumers to associate an imitation with the original.
c) Gray market
A gray market exists when a manufacture ends up with unintended channel of distribution that
performs activities similar to the planned channel – hence the term parallel distribution. Through
this extra channel, gray market goods move, internationally as well as domestically. In an
international context, a gray market product is one imported by an unauthorized party. Products
notably affected by this method of operation include watches, cameras, automobiles, perfumes and
electronic goods.
d) Bribery
Bribery is both unethical and illegal. A closer look, however, reveals that bribery is not really that
straight forward an issue. There are many questions about what bribery is, how it is used, and why it
is used. The ethical and legal problems associated with bribery can also be quiet complex. I.e.
according to the foreign corrupt practices Act of 1997, bribery is the use of intensive commerce to
offer, pay, promise to pay, or authorize giving anything of value to influence an act or decision by a
foreign government, politician or political party to assist in obtaining, retaining, or directing
business to any person. A bribe is also known as a “pay off” “grease money” “lubricant” “little
envelop” or “bite”, and under – the – table – payment as well as by other terms. A bribe may take
the form of cash, gifts, jobs and free trips.

2.6. Global Trading Environment

2.6.1. The World Trade Organization and GATT
In 1948 when 23 countries underlined in the General Agreement on Tariffs and Trade (GATT) their
determination to reduce import tariffs, this was considered a milestone in international trade
relations. GATT is based on three principles.
Ä The first concerns nondiscrimination, each member country must treat the trade of all other
member countries equally.
Ä The second principle is open markets, which are encouraged by the GATT through a prohibition
of all forms of protection except customs tariff.
Ä The third principle is which prohibits export subsidies on manufactured products and limits the
use of export subsidies on primary products.
In reality, none of these principles is fully realized as yet, although much progress was made during
the Uruguay Round on issues such as no tariff barriers, protection of intellectual property rights, and
government subsidies.
Another major breakthrough at the Uruguay Round was the establishment of the world Trade
Organization (WTO) in 1995, which replaced GATT. In contrast to GATT, which was more loosely
organized, WTO as a permanent institution is endowed with much more decision making power in
undecided cases. These extended competencies have become manifest in visible consequences.

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During its 50 years of existence, only 300 complaints in international trade disputes were filed with
GATT, since its installation in 1995, the WTO has already dealt with 200 cases.
The WTO has statutory powers to adjudicate trade disputes among nations to oversee the smooth
functioning of the multilateral trade accords agreed upon under the Uruguay Round. Its main
function is to ensure that trade flows as smoothly, predictably and freely as possible.
2.6.2. Degrees of Economic Cooperation/Regional Economic Integration
Regional economic integration creates opportunities and potential problems for the international
marketer. It may have an impact on a company's entry mode by favoring direct investment because
one of the basic rationales of integration is to generate favorable conditions for local production and
intraregional trade. By design, larger markets are created with potentially more opportunity.
Because of harmonization efforts, regulations may be standardized, thus positively affecting the
international marketer.
There are four degrees of economic cooperation and integration, as illustrated in table below.
Stage of Elimination of Common Elimination of Harmonization and
Integration Tariffs and External Restrictions on Unification of Economic
Quotas Among Tariff (CET) and Factor Movements and Social Policies and
Members Quota System Institutions
Free Trade Area Yes No No No
Customs Union Yes Yes No No
Common Market Yes Yes Yes No
Economic Union Yes Yes Yes Yes
Table 2.1 Forms of Economic Integration in Regional Markets
Levels of Economic Integration
i. Free Trade Area- Elimination of internal duties
A free trade area (FTA) is formed when two or more countries agree to eliminate tariffs and other
barriers that restrict trade. When trading partners successfully negotiate a free trade agreement
(also abbreviated as FTA), the ultimate goal is to have zero duties on goods that cross borders
between the partners, it creates a free trade area. In some instances, duties are eliminated on the day
the agreement takes effect; in other cases, duties are phased out over a set period of time. Countries
that belong to an FTA can maintain independent trade policies with respect to third countries. Rules
of origin discourage the importation of goods into the member country with the lowest external
tariff for transshipment to one or more FTA members with higher external tariffs; customs
inspectors police the borders between members.
ii. Customs Union- Free trade area + establishment of common barriers
A customs union represents the logical evolution of a free trade area. In addition to eliminating
internal barriers to trade, members of a customs union agree to the establishment of common
external tariffs (CETs). In 1996, for example, the EU and Turkey initiated a customs union in an
effort to boost two-way trade above the average annual level of $20 billion. The arrangement called
for the elimination of tariffs averaging 14 percent that added $1.5 billion each year to the cost of
European goods imported by Turkey. Other customs unions are the Andean Community, the Central
American Integration System (SICA), Mercosur, and CARICOM.
iii. Common Market- Customs union + removal of restrictions on movement of production
factors

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A common market is the next level of economic integration. In addition to the removal of internal
barriers to trade and the establishment of common external tariffs, the common market allows for
free movement of factors of production, including labor and capital. The Andean Community, the
SICA, and CARICOM, which currently function as customs unions, may ultimately evolve into true
common markets.
iv. Economic Union- Common market + Harmonization of national economic policies + One
money
An economic union builds upon the elimination of the internal tariff barriers, the establishment of
common external barriers, and the free flow of factors. It seeks to coordinate and harmonize
economic and social policy within the union to facilitate the free flow of capital, labor, and goods
and services from country to country. An economic union is a common marketplace not only for
goods but also for services and capital. For example, if professionals are going to be able to work
anywhere in the EU, the members must harmonize their practice licensing so that a doctor or lawyer
qualified in one country may practice in any other.

Regional Economic Organizations

ANZCERTA (Australia-New Zealand Closer Economic Relations Trade Agreement): Australia and New
Zealand
APEC (Asia Pacific Economic Cooperation): Australia, Brunei, Canada, Chile, China, Hong Kong,
Indonesia, Japan, Korea, Malaysia; Mexico, New Zealand, Papua New Guinea, the Philippines,
Singapore, Chinese Taipei (Taiwan), Thailand, and the United States Arab Middle
ASEAN (Association of Southeast Asian Nations): Brunei, Indonesia, Malaysia, the Philippines,
Singapore, Thailand, and Vietnam. Benelux Customs Union: Belgium, the Netherlands, and
Luxembourg
CAEMC (Central African Economic and Monetary Community): Cameroon, the Central African
Republic, Chad, the Congo, Equatorial Guinea, and Gabon
CARICOM (Caribbean Common Market): Antigua and Barbuda, Bahamas, Barbados, Belize,
Dominica, Grenada, Guyana, Jamaica, Montserrat, Saint Christopher-Nevis, Saint Lucia, Saint
Vincent and the Grenadines, and Trinidad and Tobago
CACM (Central American Common Market): Costa Rica, EI Salvador, Guatemala, Honduras,
Nicaragua, and Panama.
CFA Franc Zone: the Comoros, members of the WAEMU, and members of the CAEMC
CIS (Commonwealth of Independent States): Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kirgizstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan
East Africa Customs Union: Ethiopia, Kenya, Zimbabwe, Sudan, Tanzania, and Uganda
East Arab Common Market: UAR, Iraq, Jordan, Sudan, Syria, and Yemen
ECOWAS (Economic Community of West African States): Benin, Cape Verde, Da-homey, Gambia,
Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal,
Sierra Leone, Togo, and Upper Volta
EU (European Union): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom
EEA (European Economic Area): Iceland, Norway, and EU members
EFTA (European Free Trade Association): Austria, Finland, Iceland, Liechtenstein, Nor-way, Sweden,
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 and Switzerland Group of Three: Colombia, Mexico, and Venezuela
LAIA (Latin American Integration Association): Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador,
Mexico, Paraguay, Peru, Uruguay, and Venezuela
Mahgreb Economic Community: Algeria, Libya, Tunisia, and Morocco
Mercosur (Southern Common Market): Argentina, Brazil, Paraguay, and Uruguay
NAFTA (North American Free Trade Agreement): Canada, Mexico, and the United States
OECD (Organization for Economic Cooperation and Development): EU members, Australia, Canada,
Iceland, Japan, New Zealand, Norway, Switzerland, Turkey, and the United States.
RCD (Regional Cooperation for Development): Iran, Pakistan, and Turkey
WAEMU (West African Economic and Monetary Union): Benin, Burkina Faso, Ivory Coast, Mali,
Niger, Senegal, and Togo.

CHAPTER THREE
FOREIGN MARKET ENTRY STRATEGIES
3.1 Analyzing International Marketing
Why Businesses Enter International Markets? There are a number of factors that increasingly drive
international trade and marketing efforts.
Proactive Market Entry Reactive Market Entry
Ä Competitive advantage  Competitive pressure & survival
Ä Profit advantage /sales profit growth  Overproduction
Ä Technological advantage  Excess capacity
Ä Exclusive information  Declining domestic sales
Ä Economies of scale  Saturated domestic markets
Ä Market size  Proximity to customers and ports
Ä Low cost production & tax benefits
3.1 Selecting A Market Entry Mode
Several decision criteria will influence the choice of entry mode. Roughly speaking, three classes of
decision criteria can be distinguished: internal (firm specific) criteria, external (environment-
specific) criteria, and desired mode characteristics.
Internal Factors
@ Firm size @ Product/service
@ International experience @ Company Objectives
External Factors
@ Market Size and Growth @ Competitive Environment
@ Risk/ Demand and uncertainty @ Local Infrastructure
@ Government Regulations (Openness)
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@ Socio-cultural distance between home country and host country
Desired Mode Characteristics
© Need for Control © Flexibility © Risk averse
Although some of the factors listed above favor high-control entry modes, other criteria suggest a
low-control mode. The different entry modes can be classified according to the degree of control
they offer to the entrant from low-control (e.g., indirect exporting, licensing) to high-control modes
(e.g., wholly owned subsidiary). To some extent, the appropriate entry-mode decision boils down to
the issue of how much control is desirable. Ideally, the entrant would like to have as much control as
possible. However, entry modes that offer a large degree of control also impose substantial resource
commitments and huge amounts of risk. Therefore, the entrant faces a tradeoff between the benefits
of increased control and the costs of resource commitment and risk.

High involvement, risk, cost & return

Degree of Involvement &Risk

Joint
Contract Venture Direct
Licensing Manufacturing Investment
Export risk, cost &return
Low involvement,

3.1 Indirect and Direct Exporting Activities, Agents, Distributors, Franchising,

Cost and
Licensing

Most companies start their international expansion by exporting. For many small businesses,
exporting is very often the sole alternative for selling their goods in foreign markets. Exporting is a
strategy in which a company, without any marketing or production organization overseas, exports a
product from its home base.
3.3.1. Indirect Exporting
Ü Occurs when the exporting manufacturer uses independent organizations located in the
producer’s country to sell its products in the foreign market.
Ü It is the sale is like a domestic sale.
Ü Sales are viewed primarily as a means of disposing of surplus production.
Ü Adopted by a firm with minimal resources and limited expansion objectives to devote to
international expansion.
There are six main entry modes of indirect exporting:
1. Export Buying Agent (Export Commission House)
♪ It is a representative of foreign buyers who is located in the exporter’s home country.
♪ Offers services to the foreign buyers: such as identifying potential sellers and negotiating prices.
♪ Acts in the interests of the buyer, it is the buyer that pays a commission.

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♪ The export commission house essentially becomes a domestic buyer. It scans the market for the
particular merchandise it has been requested to buy. It sends out specifications to manufacturers
inviting bids.
2. Broker
 Another type of agent based in the home country is the export/import broker.
 The chief function of a broker is to bring a buyer and a seller together.
 Thus the broker is a specialist in performing the contractual function, and does not actually
handle the products sold or bought.
 Paid a commission (about 5 percent)
 Export brokers are that they may act as the agent for either the seller or the buyer.
3. Export Management Company/Export House
 Export houses or export management companies (EMCs) are specialist companies set up to act
as the ‘export department’ for a range of companies.
 It conducts business in the name of each manufacturer it represents.
 All correspondence with buyers and contracts are negotiated in the name of the manufacturer,
and all quotations and orders are subject to confirmation by the manufacturer.
4. Trading Company
Trading companies are part of the historical legacy from colonial days and, although different in
nature now, they are still important trading forces in Africa and the Far East.
Trading companies play a central role in such diverse areas as shipping, warehousing, finance,
technology transfer, planning resource development, construction and regional development (e.g.
turnkey projects), insurance, consulting, real estate and deal making in general (including
facilitating investment and joint ventures). In fact it is the range of financial services offered that is a
major factor distinguishing general trading companies from others.
5. Piggybacking
A strategy where by a firm’s new product uses the existing distribution and logistics of another
business. Piggyback exporting, in which one manufacturer (carrier) that has export facilities and
overseas channels of distribution handles the exporting of another firm’s (rider) noncompeting but
complementary products. With piggybacking, the company uses the overseas distribution network
of another company (local or foreign) for selling its goods in the foreign market.
6. Consortia are groups of small or medium-sized organizations that group together to market
related or sometimes unrelated products in international markets.
3.3.2. Direct Exporting
Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer
located in a foreign market area. Direct export modes include export through foreign-based agents
and distributors (independent intermediaries).
Distinct differences
The terms ‘distributor’ and ‘agent’ are often used synonymously.
 Distributors, unlike agents, take title to the goods, finance the inventories and bear the risk of
their operations, whereas agents do not.
 Distributors are paid according to the difference between the buying and selling prices rather
than by commission (agents).

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 Distributors are often appointed when after-sales service is required, as they are more likely than
agents to possess the necessary resources.
a. Distributors (importers)
 Distributors are the exclusive representatives of the company and are generally the sole
importers of the company’s product in their markets.
 Independent company that stocks the manufacturer’s product.
 It will have substantial freedom to choose own customers and price.
 It profits from the difference between its selling price and its buying price from the
manufacturer.
b. Agents
♣ Agents are may be exclusive, where the agent has exclusive rights to specified sales territories;
semi-exclusive, where the agent handles the exporter’s goods along with other non-competing
goods from other companies; or non-exclusive, where the agent handles a variety of goods,
including some that may compete with the exporter’s products.
♣ It is independent company that sells to customers on behalf of the manufacturer (exporter).
Usually it will not see or stock the product. It profits from a commission (typically 5–10
percent) paid by the manufacturer on a pre-agreed basis.

Export Mode Advantages Disadvantages

Indirect exporting @ Limited commitment and @ No control over marketing mix
(e.g. export buying investment required. elements other than the product.
agent, broker or @ High degree of market @ An additional domestic member
export diversification is possible in the distribution chain may add
management as the firm utilizes the costs, leaving smaller profit to
company) internationalization of an the producer.
experienced exporter. @ Lack of contact with the market
@ Minimal risk (market and (no market knowledge acquired).
political). @ Limited product experience
@ No export experience (based on commercial selling).
required.
Direct exporting  Access to local market  Little control over market price
(e.g. distributor or experience and contacts because of tariffs and lack of
agent) with potential customers. distribution control (especially
 Shorter distribution chain with distributors).
(compared to indirect  Some investment in sales
exporting). organization required (contact
 Market knowledge from home base with distributors
acquired. or agents).
 More control over  Cultural differences, providing
marketing mix (especially communication problems and
with agents). information filtering (transaction
 Local selling support and costs occur).
services available.  Possible trade restrictions.

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3.3.3. Licensing
Companies can also penetrate foreign markets via a licensing strategy. Licensing is a strategy of
marketing where a firm charges a fee and/or royalty for the use of its technology, brand and/or
expertise. A licensing agreement is an arrangement wherein the licensor gives something of value
to the licensee in exchange for certain performance and payments from the licensee. Examples of
assets that can be part of a licensing agreement include trademarks, technology know-how,
production processes, and patents.
Benefits
 Very profitable means for penetrating foreign markets.
 Low initial investment as the firm does not have to set up operation facilities in the host country.
The setting up of the operation facilities is the responsibility of the licensee;
 Overcomes restrictive investment barriers.
 Develop business applications of intangible property.
Caveats (Disadvantage)
 The risk of not getting paid.
 Lack of control.
 Cross-border licensing may be difficult.
 The licensee may not be fully committed to the licensor’s product or technology.
 Creating a competitor.
3.3.4. Franchising
Franchising is a rapidly growing form of licensing. It is a contract between a parent company
(franchisor) and franchisee, which allows the franchisee to operate a business developed by the
franchisor in return for a fee and adherence to franchise-wide policies and practices. This is an
appropriate entry strategy when barriers to entry are low yet the market is culturally distant in terms
of consumer behavior or retailing structures.

It is an arrangement whereby the franchisor gives the franchisee the right to use the franchisor’s
trade names, trademarks, business models, and/or know-how in a given territory for a specific time
period, normally 10 years. In exchange, the franchisor gets royalty payments and other fees. The
package could include the marketing plan, operating manuals, standards, training, and quality
monitoring.
Advantages Disadvantages
 Greater degree of control  The search for competent franchisees
Franchising compared to licensing. can be expensive and time consuming.
(seen from  Low-risk, low-cost entry  Lack of full control over franchisee’s
franchisor’s mode (the franchisees are the operations, resulting in problems with
viewpoint) ones investing in the cooperation, communications, quality
necessary equipment and control, etc.
know-how).  Costs of creating and marketing a
 Using highly motivated unique package of products and
business contacts with services recognized internationally.
money, local market  Costs of protecting goodwill and brand
knowledge and experience. name.

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  Ability to develop new and  Problems with local legislation,
distant international markets, including transfers of money,
relatively quickly and on a payments of franchise fees and
larger scale than otherwise government-imposed restrictions on
possible. franchise agreements.
 Generating economies of  Opening up internal business
scale in marketing to knowledge may create potential future
international customers. competitor.
 Precursor to possible future  Risk to the company’s international
direct investment in foreign profile and reputation if some
market. franchisees underperform (‘free riding’
on valuable brand names).
Licensing Vs. Franchising
Licensing Franchising
• The relationship between licensees and  Franchisees can expect to have a much
the licensing company is looser. closer relationship with their parent
• The licensee does not retain rights to company.
use the company’s trademark.  Franchisees retain rights to the parent
• The licensee is expected to establish its company’s trademark and logo.
own identity in the marketplace.  Franchisees can expect to pay royalties
• Once the licensee launches the operation, on a go-forward basis.
the relationship with the licensing
company is frequently limited to
purchasing products.
3.1 Direct Investment Activities, Wholly Owned Subsidiaries, Mergers/Acquisitions and
Joint Ventures Intermediate Entry Mode

3.3.1. Direct Investment

Foreign direct investment (FDI) –is the market entry strategy in which companies invest in or
acquire plants, equipment, or other assets outside the home country. FDI represents international
investment flows which acquire properties and plants. The international marketer makes such
investments to create or expand a long-term interest in an enterprise with some degree of control.
Portfolio investment in turn focuses on the purchase of stocks and bonds internationally. Portfolio
investment is of primary concern to the international financial community.
The ultimate form of foreign involvement is direct ownership of foreign-based assembly or
manufacturing facilities. The foreign company can buy part or full interest in a local company or
build its own facilities. As a company gains experience in export, and if the foreign market appears
large enough.

Advantages
 The firm could secure cost economies in the form of cheaper labor or raw materials, foreign
government incentives, freight savings, to avoid high import taxes, to reduce the high costs of
transportation to market, and so on.
 The firm will gain a better image in the host country because it creates jobs.
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 The firm develops a deeper relationship with government, customers, local suppliers, and
distributors, enabling it to adapt its products better to the local marketing environment.
Disadvantages
 A firm exposes its large investment to risks such as blocked or devalued currencies, worsening
markets, or expropriation.
 The firm will find it expensive to reduce or close down its operations, since the best country
might require substantial severance pay to the employees.
3.3.2. Wholly Owned Subsidiaries
In a wholly owned subsidiary, the firm owns 100 percent of the subsidiary. Establishing a wholly owned
subsidiary in a foreign market can be done in two ways. The firm can either setup a new operation in that
country or it can acquire an established firm or use that firm to promote its products in the country’s
market.
Advantages:
 No risk of losing technical competence to a competitor.
 Tight control over operations in different countries (i.e., using profits from one country to support
competitive attacks in another).
 Realize location and experience curve economies (as firms pursuing global and transnational
strategies try to do).
Disadvantages:
 Firms doing this must bear the full costs and risks of setting up overseas operations.
4.4.3. Mergers/Acquisitions
A cross-border merger is a transaction in which two firms with their home operations in different
countries agree to an integration of the companies on a relatively equal basis. These companies take
decision to combine their individual operations on a relatively equal basis to create combined
competitive advantage that will contribute to success in the global marketplace.
A cross-border acquisition is a transaction in which an expanding firm buys either a controlling
interest or all of an existing company in a foreign country. Often, the acquired firm becomes a
business unit within the acquiring firm’s portfolio of businesses. Typically, managers in the
acquired firm then report to the acquiring firm’s management team. The aim of the mergers and
acquisitions is generally to create synergy i.e. to create value that is more than the combined value
of the individual firms (Hit, et al., 2001).
Acquisitions take many forms. According to Root (1987) acquisition may be horizontal (the
product lines and markets of the acquired and acquiring firms are similar), vertical (the acquired
firm becomes supplier or customer of the acquiring firm), concentric (the acquired firm has the
same market but different technology, or the same technology but different markets) or
conglomerate (the acquired firm is in a different industry from that of the acquiring firm). No
matter what form the acquisition takes, coordination and styles of management between the foreign
investor and the local management team may cause problems.
Advantages Disadvantages
Acquisition  Gaining quick access to: @ Usually an expensive option.
@ Distribution channels; @ High risk (taking over companies that are
@ A qualified labor force; regarded as part of a country’s heritage
@ Existing management can raise considerable national

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 experience; resentment if it seems that they are being
@ Local knowledge; taken over by foreign interests).
@ Contacts with local market Possible threats:
and government; @ Lack of integration with existing
@ Established brand names operation.
or reputation. @ Communication and coordination
problems between acquired firm and
acquirer.
3.3.4.Joint Ventures
A joint venture is a partnership between a domestic firm and a foreign firm. Both partners invest
money and share ownership and control of partnership. Joint ventures require a greater commitment
from firms than licensing or the various other exporting methods. The most typical joint venture is a
50/50 arrangement in which there are two parties, each of which holds a 50 percent ownership stake
and contributes a team of managers to share operating control. Some firms however, have sought
joint ventures in which they have a majority share and thus tighter control.
Advantages
 Benefit from local partner’s knowledge.
 Shared costs/risks with partner.
 Reduced political risk.
 The firm is able to have significant input and control over the operation and management of the
joint venture.
Disadvantages
 Risk giving control of technology to partner.
 May not realize experience curve or location economies.
 Shared ownership can lead to conflict.
 They have more risk and less flexibility.
 The firm may lose competitive advantage as a result of imitation.
3.3.5. Contract Manufacturing
Contract manufacturing is a joint venture that enables the firm to have foreign sourcing (production) without
making a final commitment. If management may lack resources or be unwilling to invest equity to establish
and complete manufacturing and selling operations, manufacturing is outsourced to an external partner,
specialized in production and production technology. Yet contract manufacturing keeps the way open for
implementing a long-term foreign development policy when the time is right. Contract manufacturing
enables the firm to develop and control R&D, marketing, distribution, sales and servicing of its products in
international markets, while handing over responsibility for production to a local firm.
Advantages Disadvantages
© No local investment (cash, © Transfer of production know-how is
Contract time and executive talent) difficult.
Manufacturing with no risk of nationalization © Contract manufacture is only
(seen from the or expropriation. possible when a satisfactory and
contractor’s © Retention of control over reliable manufacturer can be found –
viewpoint) R&D, marketing and sales or not always an easy task.
after-sales service. © Extensive technical training will
© Avoids currency risks and often have to be given to the local
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 financing problems. manufacturer’s staff.
© A locally made image, which © As a result, at the end of the
may assist in sales, especially contract, the subcontractor could
to government or official bodies. become a formidable competitor.
© Entry into markets otherwise © Control over manufacturing quality
protected by tariffs or other is difficult to achieve despite the
barriers. ultimate sanction of refusal to accept
© Possible cost advantage if local substandard goods.
costs (primarily labor costs) are
© Possible supply limitation if the
lower.
production is taking place in
© Avoids intra-corporate transfer-
pricing problems that can arise
developing countries.
with a subsidiary.

CHAPTER FOUR
INTERNATIONAL MARKETING PRODUCT POLICY
Basic Product Concepts
Product is anything which is offered to the market to satisfy consumer needs and want. A product is
a good, service, or idea with both tangible and intangible attributes that collectively create value for
a buyer or user. A product’s tangible attributes can be assessed in physical terms, such as weight,
dimensions, or materials used. Consider, for example, a flat-panel TV with an LCD screen that
measures 42 inches across. The unit weighs 50 pounds, is 5 inches deep, is equipped with four high-
definition media interface (HDMI) connections... Intangible product attributes, including the status
associated with product ownership, a manufacturer’s service commitment, and a brand’s overall
reputation or mystique, are also important. When shopping for a new TV, for example, many people
want “the best”: They want a TV loaded with features (tangible product elements), as well as one
that is “cool” and makes a status statement (intangible product element).
Product Types
♪ Consumer goods ♪ Industrial goods
4.1 Planning and Development of Products For Foreign Markets
4.1.1 International Product Planning
International product planning involves determining which products to introduce into which
countries; what modifications to make in the products; what new products to add; what brand names
to use; what package designs to use; what guarantees and warranties to give; what after sales

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services to offer; and finally, when to enter the market. All these are crucial decisions requiring a
variety of informational inputs. Basic to these decisions are three other considerations (1) product
objectives, (2) coordination of product planning activities between headquarters and subsidiary, and
(3) foreign collaboration.
A company interested in an international market should first define its business intent based on the
objectives of both the corporation and the host country. The product objectives of a company would
flow from the definition of its business. Ultimately, the offering should provide satisfaction to the
customer, which would be reflected in the realization of the goals of both the corporation and the
host country.
4.1.2 The International New Product Development
For most companies, new products are the bread-and-butter of their growth strategy. Unfortunately,
developing new products is a time-consuming and costly endeavor, with tremendous challenges.
The new product development process becomes especially a major headache for multinational
organizations that try to coordinate the process on a regional or sometimes even worldwide basis.
The steps to be followed in the global new product development (NPD) process are by-and-large
very similar to domestic marketing situations. In this section, we will focus on the unique aspects
that take place when innovation efforts are implemented on a global scope.
1. Identifying New Product Ideas
Every new product starts with an idea. Sources for new product ideas are manifold. Companies can
tap into any of the so-called 4 C’s—company, customers, competition and collaborators (e.g.,
distribution channels, suppliers)—for creative new product ideas. Obviously, many successful new
products originally started at the R&D labs.
Other internal sources include salespeople, employees, and market researchers. Multinational
companies often capitalize on their global know-how by transplanting new product ideas that were
successful in one country to other markets. A good source to spot new product ideas is the
competition.
2. Screening of Ideas
Ideas must be acknowledged and reviewed to determine their feasibility. To determine suitability, a
new product concept may simply be presented to potential users, or an advertisement based on the
product may be drawn and shown to focus groups to elicit candid reactions. As a rule, corporations
usually have predetermined goals that a new product must meet.
Possible criteria include:
♪ The fit with existing products ♪ Probably market size
♪ Probable resource implications
3. Concept Development and Testing
Identify whether:
 The product's benefits are clear and  It will have an attractive price value
measurable combination
 It will fit a strategic and/or tactical need  You would be able to develop, launch and
 Existing products satisfy these needs defend the product
 The probably market is big enough
4. Outline the Probable Marketing Strategy
To include:

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 Short and long-term objectives  Positioning decisions
 The structure of the mix
5. Detailed Business Analysis
It is necessary to estimate product features, cost, demand, and profit. Several competing teams of
designers produce a prototype, and the winning model that meets preset goals then goes to the
“product development” team.

6. Product Development
It involves lab and technical tests as well as manufacturing pilot models in small quantities. At this
stage, the product is likely to be handmade or produced by existing machinery rather than by any
new specialized equipment. Ideally, engineers should receive direct feedback from customers and
dealers.
7. Test Marketing
It helps to determine potential marketing problems and the optimal marketing mix.
Focus on:
Ü How many areas should be covered? Ü What should be tested?
Ü How long should the test be? Ü How should the results be used?
Two options based on test marketing:
Ü Drop because the results suggest failure
Ü Modify the product and/or marketing campaign
8. Full-Scale Commercialization
Finally, assuming that things go well, the company is ready for full-scale commercialization by
actually going through with full-scale production and marketing. In any case, so many new products
are tested and marketed each year according to the feedback taken from the users.
4.2 Product Standardization Versus Adaptation
4.2.1 Product Standardization
Product standardization means that a product designed originally for a local market is exported to
other countries with virtually no change, except perhaps for the translation of words and other
cosmetic changes.
Standardization- deals a firm produces similar (uniform) product for all market in the world.
 Premise-- consumers share some common values, beliefs, and consumption patterns.
 Advantages: economies of scale and scope, price competitiveness, uniform image.
Factors Encouraging Standardization
1. High costs of adaptation 5. Centralized management and operating via
2. Industrial products exports
3. Convergence and similar tastes in diverse 6. Economies of scale in production
country markets 7. Economies in Research and Development
4. Marketing to predominantly similar 8. Economies in marketing
countries

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 Benefits of Standardization
By its very definition, standardization is aimed at achieving maximum overall economy. Standards
provide benefits to different sectors of society. Some of the benefits of standardization are as
follows:
For manufacturers:
♥ Rationalize the manufacturing process.
♥ Eliminate or reduce wasteful material or labor.
♥ Reduce inventories of both raw material and finished products.
♣ Reduce the cost of manufacture.
♣ Are convenient for settling disputes, if any, with suppliers.
For customers:
♣ Assure the quality of goods purchased and services received.
♣ Provide better value for money.
For traders:
♪ Provide a workable basis for acceptance or rejection of goods or consequential disputes, if any.
♪ Minimize delays, correspondence, etc., resulting from inaccurate or incomplete specification of
materials or products.
For technologists:
Ü Provide starting points for research and development for further improvement of goods and
services.
4.2.2 Product Adaptation/Modification/
Product Adaptation- means company produces different products for different market segments.
Making suitable for the given market by customizing to the target market. Or modifying product to
reflect characteristics of a market.
 Premise-- consumers are not the same.
 Advantages: improved fit between product and consumer, expanded penetration.
Product adaptation is necessary under several conditions. Some are mandatory, whereas others are
optional. In addition, firm characteristics and environmental characteristics have a significant
impact on a firm’s overall performance and marketing mix strategy.
A. Mandatory Product Modification
The mandatory factors affecting product modifications include the following: government’s
mandatory standards (i.e., country’s regulations), electrical current standards, measurement
standards, and product standards and systems.
Products must be modified to compensate for differences in electrical current standards. In many
countries there may even be variations in electrical standards within the country. The different
electrical standards (phase, frequency, and voltage) abroad can easily harm products designed for
use.
Measurement systems can also vary from country to country. Some countries employ system of
measurement (feet, pounds), most countries employ the metric system, and product quantity should
or must be expressed in metric units.
Such mandatory standards make the adaptation decision easy: a marketer must either comply or
remain out of the market.
B. Optional Product Modification

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A more complex and difficult decision is optional modification, which is based on the international
marketer’s discretion in taking action. The conditions that may make optional modification
attractive are;
Ü Physical distribution, and this involves the facilitation of product transportation at the lowest
cost.
Ü Local use conditions, including climatic conditions. The hot/cold, humid/dry conditions may
affect product durability or performance.
Ü Space constraint. For instance: Sears’ refrigerators were redesigned to be smaller in
dimensions without sacrificing the original capacity, so that they could fit into the compact
Japanese home.
Ü Consumer demographics as related to physical appearance can also affect how products are
used and how suitable those products are. Local use conditions include users’ habits.
C. Environmental Characteristics
 Examples are endless. Detergents should be reformulated to fit local water conditions.
 Price may often influence a product’s success or failure in the marketplace. This factor becomes
even more crucial abroad because of difference of foreign consumers’ incomes.
 One reason that international marketers often voluntarily modify their products in individual
markets is their desire to maximize profit by limiting product movement across national
borders.
 Perhaps the most arbitrary yet most important reason for product change abroad is because of
historical preference, or local customs and culture, and so forth.
4.3 International Trade Product Life Cycle and Implications
The international product life cycle (IPLC) theory, developed and verified by economists to explain
trade in a context of comparative advantage, describes the diffusion process of an innovation across
national boundaries. The life cycle begins when a developed country, having a new product to
satisfy consumer needs, wants to exploit its technological breakthrough by selling abroad. Other
advanced nations soon start up their own production facilities, and before long LDCs do the same
Efficiency/comparative advantage shifts from developed countries to developing nations. Finally,
advanced nations import products from their former customers. The moral of this process could be
that an advanced nation becomes a victim of its own creation.
Stages and characteristics
There are five distinct stages (stage 0 through Stage 4) in the IPLC.
Table 1.1 IPLC stages and characteristics (for the initiating country)
Stage Import/Export Target Market Competitors Production Costs
0 Local None USA Few: Local Initially High
Innovation Firms
1 Overseas Increasing USA & Advanced Few: Local Decline Owing to
Innovation Export Nations Firms Economies of Scale
2 Maturity Stable Export Advanced Nations Advanced Stable
& LDCs Nations
3 Worldwide Declining LDCs Advanced Increase Owing to
Imitation Export Nations Lower Economies
of Scale

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4 Reversal Increasing USA Advanced Increase Owing to
Import Nations & Comparative
LDCs Disadvantage
Other Advanced Nations
Exportin

LDC’s
g

1 2 3 4
0
Time Tim
Importing

USA (Initiating Country)

Figure 4.1 IPLC Curves

1. Stage 0 – Local Innovation

Stage 0, depicted as time 0 on the left of the vertical importing/exporting axis, represents a regular
and highly familiar product life cycle in operation within its original market. Innovations are most
likely to occur in highly developed countries because consumers in such countries are affluent and
have relatively unlimited wants. From the supply side, firms in advanced nations have both the
technological know-how and abundant capital to develop new products.
2. Stage 1- Overseas Innovation
As soon as the new product is well developed, its original market well cultivated, and local demands
adequately supplied, the innovating firm will look to overseas markets in order to expand its sales
and profit. Thus, this stage is known as a “pioneering” or “International Introduction” stage. The
technological gap is first noticed in other advanced nations because of their similar needs and high
income levels.
Competition in this stage usually comes from US firms, since firms in other countries may not have
much knowledge about the innovation. Production cost tends to be decreasing at this stage because
by this time the innovating firm will normally have improved the production process. Supported by
overseas sales, aggregate production costs tend to decline further because of increase economies of
scale. A low introductory price overseas is usually not necessary because of the technological
breakthrough; a low price is not desirable because of the heavy and costly marketing effort needed
in order to educate consumers in other countries about the new product.
3. Stage 2 – Maturity
Growing demand in advanced nations provides an impetus for firms there to commit themselves to
starting local production, often with the help of their governments’ protective measures to preserve
infant industries. Thus, these firms can survive and thrive in spite of relative inefficiency. The
innovating firm’s sales and export volumes are kept stable because LDCs are now beginning to
generate a need the product. Introduction of the product in LDCs helps offset any reduction in
export sales to advanced countries.

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4. Stage 3 – World Wide Imitation
This stage means tough times for the innovating nation because of its continuous decline in export.
There is no more new demand anywhere to cultivate. The decline will inevitably affect the US
innovating firm’s economies of scale and its production costs thus begin to rise again.
Consequently, firms in other advanced nations use their lower prices (coupled with product -
differentiation techniques) to gain more consumer acceptance abroad at the expense of the US firm.
As the product becomes more and more widely disseminated, imitation picks up at a faster pace.
5. Stage 4 – Reversal
Not only must all good things end, but also misfortune frequently accompanies the end of a
favorable situation. The major functional characteristics of this stage are product standardization
and comparative disadvantage. The innovative country’s comparative advantage has disappeared,
and what is left is comparative disadvantage. This disadvantage is brought about because the
product is no longer capital – intensive or technology – intensive but instead has become labor –
intensive - a strong advantage possessed by LDCs. Thus, LDCs – the last imitators – establish
sufficient production facilities to satisfy their own domestic needs as well as to produce for the
biggest market in the world, the United States. US firms are now undersold in their own country.
VALIDITY OF THE IPLC
Several products have conformed to the characteristics described by the IPLC. For e.g. at one time
the US used to be an exporter of typewriters, cash registers, B/W Televisions etc. but with passage
of time, these simple machines are now being imported, while US firms exports only the
sophisticated, electronic version of such machines.
Marketing Strategies:
For industries suffering the imitation stage or maturity stage things are likely to get worse rather
than better. Companies can understand the implications of the IPLC and adjust marketing strategies
accordingly.
I. Product Policy:
a. Automation: The IPLC emphasizes the importance of cost advantage. If for innovating firms it
is difficult to match labor costs in low-wage nations (it happens generally with countries like US
where labor cost is too high) the firms can cut labor costs through automation and robotics. For
e.g. IBM has converted its Kentucky plant into one of the most automated plants thereby cutting
labor costs.
b. Outsourcing: Another way to cut the cost of product is to outsource the product. Outsourcing is
the practice of buying the parts or whole product from other manufacturers while allowing a
buyer to maintain its own brand name.
Another modified version of outsourcing is having various components produced under contract
in different countries. That way, a firm takes advantage of the most abundant factor of
production in each country before assembling components into final products for worldwide
distribution. IBM’s PC system consists of components made in low-cost countries-monochrome
monitor in South Korea; Floppy disk drives in Singapore, and printer, keyboard, power supply
in Japan. The final assembly takes place in USA.
c. Manufacturing in other country: The innovator may use local manufacturing in other
countries as an entry strategy. The company not only can minimize transportation costs but can
also slow down potential local competition.

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d. New Technology: Once in the maturity stage, the innovator’s comparative advantage is gone;
the firm should switch from producing simple versions to producing new technologies in order
to remove itself from cutthroat competition.
II. Pricing Policy:
Stage – 1: At this stage, firm can afford to behave as a monopolist, charging a premium price for its
innovation. But this price must be adjusted downward in the second and third stage of IPLC to
discourage potential new comers and to maintain market share. For e.g. IBM was slow in reducing
prices for its PC models. They believed that the IBM PC was too complex for Asian imitators. This
proved to be a costly error as the basic PC hardly changed for several years. As a result other Asian
companies came out with their own brands.
Stage – 4: In the last stage, it is not practical for the innovating firm to maintain low price due to
competitor’s cost advantage. But the firm’s above-the-market price is feasible only if it is
accompanied by top-quality product.
III. Promotion Policy:
Promotion and pricing are highly related in IPLC. In the starting, the marketer must plan for a non-
priced promotional strategy such as providing technical support, or offering after-sales-service or
giving warranty for a particular period after the product is offered. The concentration should be
towards meeting consumer’s demand. Positioning is another important point at the beginning. The
marketer should try to position the product as a high-quality product having good reputation. One
thing the company must never do is to allow its product to become a commodity item with prices as
the only buying motive as such products can easily be duplicated by other firms. Throughout four
stages product differentiation, not price is most important for protecting a company from the
crowded, low-profit market segment.
IV. Place:
A strong dealer network can provide the innovating firm with a good defensive strategy. Because of
its monopoly situation at the beginning, the firm is in a good position to be able to select only the
most qualified agents and the network should be expanded further as the product becomes more
diffused. General Motor’s old policy of limiting its dealer from carrying several GM brands
inadvertently encouraged those dealers to start carrying imports, thereby creating alternative channel
for GM which threatened the existing channel.
Once a product is in the final stage of its life cycle, the innovating firm should strive to become a
specialist not a generalist, by concentrating its efforts in carefully selected market segments, where
it can distinguish itself from foreign competitors. To achieve distinction in product, the innovating
firm can add product features or offer more service.

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 CHAPTER FIVE
PRICING IN INTERNATIONAL MARKETING
Simply, price is the amount of money and/or other items with utility needed to acquire a product.
Utility is an attribute that has the potential to satisfy wants. Price is significant to the economy, to an
individual firm and in the consumer's mind.
5.1 Pricing Objectives
In general, price decisions are viewed two ways: pricing as an active instrument of accomplishing
marketing objectives, or pricing as a static element in a business decision. If prices are viewed as an
active instrument, the company sets prices (rather than following market prices) to achieve specific
objectives, whether targeted returns on profit, targeted sales volumes, or some other specific goals.
The company that follows the second approach, pricing as a static element, probably exports only
excess inventory, places a low priority on foreign business, and views its export sales as passive
contributions to sales volume.
The objectives of pricing strategies include: gaining market share, achieving financial performance,
(re)positioning the product, stimulating demand, and/or influencing competition.
5.1 Determination of International Price
A number of variables influence the level of export prices. Some of these are internal to the firm;
others are factors that are external to the firm. A major internal variable is the cost that is to be
included in the export price. The typical costs associated with exports include market research,
credit checks, business travel, product modification, special packaging, consultants, freight
forwarders, and commissions (Anonymous, 1993). An additional cost is the chosen system of
distribution. The long distribution channels in many countries are often responsible for price
escalation. The use of manufacturers’ representatives offers greater price control to the exporter.
Another internal variable is the degree of product differentiation, that is, the extent of a product’s
perceived uniqueness or continuance of service. Generally, the higher the product differentiation a
firm enjoys, the more independent it can be in its price-setting activities.
The external forces that influence export pricing include the following:
♣ Supply and demand
The pricing decisions for exports are subject to the influence of the supply of raw materials, parts,
and other inputs. In a competitive economy, any increase in demand is followed by a higher price,
and the higher price should, in turn, moderate demand. It is often stated that exports of
manufactured goods exhibit the same price characteristic as primary products, their prices varying
with the state of world demand and supply (Silberston, 1970). The classical supply and- demand
approach—whereby price acts as an allocating device in the economy and supply equals demand at
an equilibrium price—is largely based on certain assumptions: perfect buyer information,
substitutability of competing goods, and marginal cost pricing. The classical assumption that
reducing prices increases demand ignores the interpretation of price changes by buyers. Studies
have shown that consumers perceive price as an indicator of quality and may interpret lower product
prices as a sign of poor quality (Piercy, 1982). If a product has a prestigious image, price can be
increased without necessarily reducing demand.

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♣ Location and environment of the foreign market
Climatic conditions often require product modification in different markets, and this is reflected in
the price of the export product. Goods that deteriorate in high-humidity conditions require special,
more expensive packaging. For example, engines that are to be exported to countries in the tropics
require extra cooling capacity.
♣ Economic policies such as exchange rates, price controls, and tariffs also influence export
pricing
Exchange rate depreciation (a drop in the value of a currency) improves price competitiveness, thus
leading to increased export volumes and market shares.
♣ Government regulations in the home country
Different regulations in the home country have a bearing on export pricing. For example, U.S.
government action to reduce the impact of its antitrust laws on competition abroad has enhanced the
price competitiveness of American companies.
5.1 Delivery Terms and Price Quotations
5.1.1 Delivery Terms /Terms of Sale
A number of terms covering the condition of the delivery are commonly used in international trade.
The internationally accepted terms of trade are known as INCOTERMS (INTERNATIONAL
COMMERCIAL TRADE TERMS). Every commercial transaction is based on a contract of sale,
and the trade terms used in that contract have the important function of naming the exact point at
which the ownership of merchandise is transferred from the seller to the buyer. INCOTERMS have
given some uniform export terms for delivery which are used all over the world. They indicate:
(a) The charge and expense, which must be paid by the seller
(b) Place of delivery of goods
(c) The point of time where the goods and their transit risks are transferred.

The export price quotations can be made with reference to the above terms. The common terms in
use are:
Group E Departure EXW Ex-Works
Group F Main carriage unpaid FCA Free Carrier
FAS Free Alongside Ship
FOB Free On Board
Group C Main carriage paid CFR Cost and Freight
CIF Cost, Insurance and Freight
CPT Carriage Paid To
CIP Carriage and Insurance Paid To
Group D Arrival DAF Delivered At Frontier
DES Delivered Ex-Ship

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 DEQ Delivered Ex-Quay
DDU Delivered Duty Unpaid
DDP Delivered Duty Paid
At one extreme, the EXW term imposes the minimum responsibility on the seller and a
corresponding maximum liability on the buyer (the seller’s delivery obligations are ended when
he/she makes the goods available to the buyer at his/her premises).At the other extreme the D terms
impose the maximum obligation on the seller with a corresponding diminution of responsibility on
the part of the buyer, because these terms oblige the seller to deliver the goods to an agreed
destination in the buyer’s country. (The term which is most onerous of all where the seller is
concerned is the DDP term.) The intermediate terms in categories F and C impose intermediate
levels of obligation on each party; C is more onerous where the seller is concerned than is F.
♪ Ex-Works or Ex – Named Point of Origin
‘Ex-works’ means that the seller fulfils his/her obligation to deliver when he/she has made the
goods available at his/her premises (i.e. works, factory, warehouse, etc.) to the buyer. In particular,
he/she is not responsible for loading the goods on the vehicle provided by the buyer or for clearing
the goods for export, unless otherwise agreed. The buyer bears all costs and risks involved in taking
the goods from the seller’s premises to the desired destination. This term thus represents the
minimum obligation for the seller. This term should not be used when the buyer cannot carry out
directly or indirectly the export formalities. In such circumstances, the FCA term should be used.
♪ Free Carrier (FCA)
FCA requires that the seller deliver the goods to the carrier nominated by the buyer, at the specified
place, after having cleared them for export. Once delivery has been effected, the seller has fulfilled
his/her delivery obligations. The term is suitable for all forms of transport and for multi-modal
operations.

♪ Free Alongside Ship (FAS) (…Named Port of Shipment)

‘Free alongside ship’ means that the seller fulfils his/her obligation to deliver when the goods have
been placed alongside the vessel on the quay or in lighters at the named port of shipment. This
means that the buyer has to bear all costs and risks of loss of or damage to the goods from that
moment. The FAS term requires the buyer to clear the goods for export. It should not be used when
the buyer cannot carry out directly or indirectly the export formalities. This term can only be used
for sea or inland waterway transport.
♪ Free On Board (FOB) (…Named Port of Shipment)
‘Free on board’ means that the seller fulfils his/her obligation to deliver when the goods have passed
over the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs
and risks of loss of or damage to the goods from that point. The FOB term requires the seller to
clear the goods for export. This term can only be used for sea or inland waterway transport. When
the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic,
the FCA term is more appropriate to use.
♪ Cost, Insurance and Freight (CIF) (…Named Port of Destination)
‘Cost, insurance and freight’ means that the seller has the same obligations as under CFR but with
the addition that he has to procure marine insurance against the buyer’s risk of loss of or damage to
the goods during the carriage. The seller contracts for insurance and pays the insurance premium.

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The buyer should note that under the CIF term the seller is only required to obtain insurance on
minimum coverage. The CIF term requires the seller to clear the goods for export. This term can
only be used for sea and inland waterway transport. When the ship’s rail serves no practical
purposes such as in the case of roll-on/roll-off or container traffic, the CIP term is more appropriate
to use.
♪ Carriage Paid To (CPT)
The carriage paid to (CPT) term requires the seller to organize and pay for carriage to the agreed
destination named in the contract; to deliver the goods to the carrier (or first carrier, if there is more
than one); and to obtain export clearance. The risks and costs divide at the point of delivery to the
carrier.
♪ Carriage and Insurance Paid To (CIP) (…Named Place of Destination)
‘Carriage and insurance paid to…’ means that the seller has the same obligations as under CPT but
with the addition that the seller has to procure cargo insurance against the buyer’s risk of loss of or
damage to the goods during the carriage. The seller contracts for insurance and pays the Insurance
premium.
♪ Delivered At Frontier (DAF) (…Named Place)
‘Delivered at frontier’ means that the seller fulfils his/her obligation to deliver when the goods have
been made available, cleared for export, at the named point and place at the frontier, but before the
customs border of the adjoining country. The term ‘frontier’, may be used for any frontier including
that of the country of export. Therefore, it is of vital importance that the frontier in question be
defined precisely by always naming the point and place in the term. The term is primarily intended
to be used when goods are to be carried by rail or road, but it may be used for any mode of
transport.
♪ Delivered Ex-Ship or DES (…Named Port of Destination)
Delivered ex-ship (DES)is confined to contracts involving carriage by sea or inland waterway. It
requires the seller to deliver the goods to the agreed port (which usually will be in the buyer’s
country). The goods are to be placed by the seller at the disposal of the buyer (on the ship). The
seller completes his/her delivery obligation at the port; thus, he/she must contract for (main)
carriage. He/she must also clear the goods for export; but the buyer has responsibility for import
clearance. The DES term places the seller at risk during the voyage (unlike the C class terms, such
as CIF, where delivery is earlier).
♪ Delivered Ex-Quay (Duty Paid)/ (DEQ) (…Named Port of Destination)
The delivered ex-quay (duty paid) is only for use where the main carriage is to be by ship or inland
waterway. DEQ parallels DES (which has just been reviewed) but it has two points of distinction—
it imposes additional obligations upon the seller, i.e.:
a.The seller must make the goods available on the quay (or wharf) at the named port of destination
(i.e. he must unload from the ship); and
b. The seller must organize and pay for import clearance. The buyer’s obligation to take delivery
arises when the goods are duly delivered on the quay.
♪ Delivered Duty Unpaid (DDU) (…Named Place of Destination)
‘Delivered duty unpaid’ means that the seller fulfils his/her obligation to deliver when the goods
have been made available at the named place in the country of importation. The seller has to bear
the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official

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charges payable upon importation) as well as the costs and risks of carrying out customs formalities.
The buyer has to pay any additional costs and to bear any risks caused by his/her failure to clear the
goods for import in time.
♪ Delivered Duty Paid (DDP) (…Named Place of Destination)
DDP is, from the seller’s viewpoint, the most demanding of all of the Incoterms. The DDP term is
identical to DDU with one exception: the seller must, additionally, procure import clearance and pay
for it (the corollary is that this obligation has been dropped from the buyer’s obligations). The term
is apt if the seller can readily obtain import clearance; otherwise, if the buyer can more readily effect
this, the DDU should be used. Also, DDU may be preferred if clearing the goods for import
involves the payment of a VAT or equivalent tax which can only be deducted for tax purposes by a
resident of the country of importation.
The seller’s DDP obligations then, broadly, are to deliver the goods at the point specified in the
named place of destination in the import country. He/she must arrange both export and import
clearance and pay for these, and likewise organize and pay for the fulfilment of any customs
formalities where carriage is to be through a third country or countries. He/she has to organize and
pay for main carriage. He/she is at risk until the goods are delivered, and must bear the costs until
this point. The buyer’s main obligations are to pay the contract price and to take delivery.

5.1.2 Price Quotations

An “export offer” or “quotation” is the basis of any export transaction. Whenever an exporter writes
a formal letter to an importer with an offer of his export goods, the importer, if replies in
affirmative, needs to have any one of the following methods for an export quotation or order.
1. Proforma Invoice: An exporter prepares this after he receives an order from an importer. It is a
standardized proforma, which is applicable throughout the world. It is similar to a document known
as “Commercial Invoice”. It indicates the price as well as other charges as per terms of contract
incurred in shipment. This is an exact duplicate of the invoice, which will be sent to the importer
just before the export of goods. A point to remember here is that proforma invoice is required by the
importer to obtain the import license or allotment of foreign exchange. It should, therefore, be very
accurate. It also contains the terms of payment, i.e., LC/DP/DA, etc. Besides this, it contains the
mode of shipment and the price based on FOB/WEF.
2. Global Price List: The offer may be made in response to a public global tender floated by a
buyer. Such offers should be comprehensive covering all the conditions of the tender and listing out
the price together with other charges such as freight, insurance, etc., and should also include
escalation clause.
3. Price List: An offer may also be in the form of a printed price list where the goods have a
standard export price. The other terms and conditions to which the prices are subjected may be
either included in the price list or stated specifically in the accompanied letter.
4. Letter Indicating the Price: An offer can be given in the form of a letter indicating the price,
terms of payment and the delivery of goods. Whatever may be the mode of offer, it should be
written in a simple and easily understandable style. Care should be taken to ensure that there is no
scope for any different interpretation or for any misunderstanding. It should clearly state the price
and other terms and conditions to which the price is subjected.
5.2 International Pricing Policies and Strategies

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Prices may differ from market to market due to various reasons, viz., political influence, buying
capacity, financial and import facilities, total market turnover and other pricing and non-pricing
factors, etc., in order to make the local price of the product competitive. Thus, different strategies
may be used in different markets. In some markets prices may be higher, in some others the product
may be sold at cost price or in many others, it may be sold at less than the cost price. Normally, the
following pricing strategies are used in the export market.

1. Market Penetration Strategy

Under this strategy, exporters offer a very low introductory price to speed up their sales and,
therefore, to widen their market base. It aims at capturing the products in the market especially if the
quality of the product is proved with its wide acceptance.
2. Probe Pricing Strategy
Fixing low price for its product may have an adverse effect on the image of the firm and of the
product. It may raise doubts in the minds of the buyers about the quality of the product if it is lower
than the price of competitors or if it is reduced subsequently. When no information is available on
the extent of the competition or the likely preferences of the buyers, sufficiently higher prices may
be quoted on the first few offers. No business is really expected to grow except feedback
information. Hence, the prices may be adjusted accordingly.
3. Follow the Leader Pricing Strategy
In a competitive world market or where adequate market information is not available, it may be
useful to follow the leader, in the market. After comparing its product with that of the leader, the
exporter may then fix the price of its product. In such cases, the price of the product is lower than
the leader’s product. However, this price has no rational or scientific base.
4. Skimming Pricing Strategy
Under this strategy, a very high introductory price is fixed to skim the cream of the demand at the
very outset. This policy is generally introduced when there is no competition in the market. Such
prices continue to be high till competitors enter the foreign market. As soon as competitors enter the
market, the exporter reduces the price.
5. Standard Worldwide Price
The standard worldwide price may be the same price regardless of the buyer (if foreign product
or foreign marketing costs are negligible) or may be based on average unit costs of fixed, variable,
and export-related costs.
6. Dual Pricing(Cost-Plus Method and Marginal Cost Method)
In dual pricing, domestic and export prices are differentiated, and two approaches, to pricing export
products are available: the cost-plus method and the marginal costmethod. The cost-plus strategy is
the true cost, fully allocating domestic and foreign costs to the product. Firms following this
strategy insist that no unit of a similar product is different from any other unit in terms of cost and
that each unit bears its full share of the total fixed and variable cost. Although this type of pricing
ensures margins, the final price may be so high that the firm’s competitiveness may be
compromised.
The marginal cost method considers the direct costs of producing and selling products for
export as the floor beneath which prices cannot be set. Fixed costs for plants, R & D, and domestic
overhead, as well as domestic marketing costs, are disregarded. In marginal cost pricing method the

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firm is concerned only with the marginal or incremental cost of producing goods to be sold in
overseas markets. Such firms regard foreign sales as bonus sales and assume that any return over
their variable cost makes a contribution to net profit.
Firms following marginal cost method may be able to price most competitively in foreign
markets, but because they are selling products abroad at lower net prices than they are selling them
in the domestic market, they may be subject to charges of dumping. In that case, they
openthemselves to antidumping tariffs or penalties that take away from them their competitive
advantage.
7. Market-Differentiated Pricing
It calls for export pricing according to the dynamic conditions of the marketplace. For these firms,
the marginal cost strategy provides a basis, and prices may change frequently due to changes in
competition, exchange rate changes, or other environmental changes.
8. Cheaper Price for Original Equipment and Higher Price for Spare Parts
In certain cases it might be useful to quote lower prices for the original equipment and charge higher
prices for spares and replacement parts to be exported later as and when required. This strategy is
useful where only the supplier of the original equipment can supply standard spare parts. This
strategy could be used for tractors, telephone equipment, defense armaments, railway equipment
and so on.
Thus, different pricing strategies may be adopted in different markets taking into account the level
of competition, the marketing characteristics and the philosophy of the management. Profitability
anyhow cannot be ignored completely in the long run. However, exports may be continued in the
short run even below the marginal cost.
5.3 Transfer Pricing
Transactions between unrelated parties and prices charged for goods and services tend to reflect
prevailing competitive conditions. Such market prices cannot be assumed when transactions are
conducted between related parties, such as a group of firms under common control or ownership. If
a parent company sells its output to a foreign marketing subsidiary at a higher price, it moves
overall gains to itself. It if charges a lower price, it will shift more of the overall gains to the
subsidiary. Even though transfer prices do not affect the combined income or absolute amount of
gain or loss among related persons or “controlled group of corporations,” they do shift income
among related parties in order to take advantage of differences in tax rates.
Transfer Pricing Methods
A number of factors are considered in the determination of comparable prices between parties
dealing at arm’s length transactions: contractual terms, such as provisions pertaining to volume of
sales, warranty, duration or extension of credit, functions performed such as marketing, R & D, etc.,
and risks assumed including responsibility for currency fluctuations, credit collection, or product
liability. Other factors include economic market conditions (similarly of geographical market,
competitive conditions in industry and market) as well as nature of property or services transformed.
In the case of sale of tangible goods between related parties, arm’s length charge is determined by
using the following methods:
♪ The comparable uncontrolled price method: prices on the sale of similar goods to unrelated
parties.
♪ Resale price method: resale price to unrelated parties using gross profit margin.

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♪ Cost plus method: cost plus method is used in situations in which products are manufactured and
sold to related parties.
♪ Comparable profits method: this method uses profit level indicators such as rate of return on
operating assets, etc., of uncontrolled parties to adjust profit levels of each group.
♪ Profit split method: allocation of profit between related parties based on the relative value of the
contribution to the profit of each party.
In the performance of services to related parties, the regulations do not require that a profit be made
on the change for services unless the services are an integral part of the business activity of the
providing party, that is, the principle activity of the service provider is that of rendering such
services to related or unrelated parties.
Tax Treaties
Income tax treaties are entered into by countries to reduce the burden of double taxation on the same
activity and to exchange information to prevent tax evasion. Tax treaty partners generally agree on
rules about the types of income that a country can tax and the provision of a tax credit for any taxes
paid to one country against any taxes owed in another country.
5.4 Pricing Under Counter Trade
Counter-trade is one of the oldest forms of trade in the government mandate to pay for goods and
services with something other than cash. It is a practice that requires a seller as a condition of sale to
commit contractually to reciprocate and undertake certain business initiatives that compensate and
benefit the buyer. In short, a good-for-goods deal iscounter-trade.Countertrade is an umbrella term
used to describe unconventional trade-financing transactions that involve some form of non-cash
compensation.
Types of Counter-trade
There are several types of counter-trades including barter, counter purchase, compensation trade,
switch trading, offsets and clearing agreements.
a. Barter
It is the simplest of many types of counter-trades. It is a onetime direct and simultaneous exchange
of products of equal value (one product for another). By removing money as a medium of exchange,
barter makes it possible for cash tied countries to buy and sell. Although price must be considered in
any counter-trade, price is only implicit and best in the case of barter.
b. Counter purchase
It occurs when there are two contracts or a set of parallel cash sale agreements, each paid in cash.
Unlike barter, which is a single transaction with an exchange price only implied, counter purchase
involves two separate transactions—each with its own cash value. A supplier sells a facility or
product at a set price and orders unrelated or non-resultant products to offset the cost to the initial
buyer. Thus, the buyer pays with hard currency whereas supplier agrees to buy certain products
within a specified period. Therefore, money does not need to change hands. In fact, the practice
allows the original buyer to earn back the currency.
c. Compensation trade (Buyback)
A compensation trade (Buyback) requires a company to provide machinery, factories or technology
and to buy products made from this machinery over an agreed on period. Unlike counter purchase,
which involves two unrelated products, the two contracts in a compensation trade are highly related.

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Under a separate agreement to the sale of plant or equipment, a supplier agrees to buy part of the
plant’s output for a number of years.
d. Switch trading
It involves a triangular rather than bilateral trade agreement. When goods, all or part, from the
buying country are not easily useable or saleable, it may be necessary to bring in a third party to
dispose of the merchandise. The third party pays hard currency for unwanted merchandise at a
considerable discount.
e. Offset
In an offset, a foreign supplier or manufacturer is required to assemble the product locally and
purchase local components as an exchange for the right to sell its products locally. In effect, the
supplier has to manufacture at a location that may not be optimal from an economic point of view.
Offsets are often found in purchases of aircraft and military equipment.
f. Clearing agreement
Clearing agreement is clearing account barter with no currency transaction required.With a line of
credit being established in the central banks of two countries, the trade in this case is continuous and
the exchange of products between two governments is designed to achieve an agreed on value or
volume of trade. Therefore, two governments agree to import a set specified value of goods from
one another over a given period. Each party sets up an account that is debited whenever goods are
traded. Imbalances at the end of the contract period are cleared through payment in hard currency or
goods.
Motives behind Countertrade
Companies engage in countertrade for a variety of reasons.
♪ Gain access to new or difficult markets
♪ Overcome exchange rate controls or lack of hard currency
♪ Overcome low country creditworthiness
♪ Increase sales volume
♪ Generate long-term customer goodwill
Shortcomings of Countertrade
 No ‘‘in-house’’ use for goods offered by customers. Exporters often face the problem of what to
do with the goods they are offered. Goods that cannot be used in-house need to be resold.
 Timely and costly negotiations
 Uncertainty and lack of information on future prices
 Transaction costs. Cost of finding buyers for the goods (if there is no in-house use), commissions
to middlemen (if any), insurance costs to cover risk of faulty or non-delivery, hedging costs to
protect against sinking commodity prices.

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 CHAPTER SIX
INTERNATIONAL DISTRIBUTION
6.1 Distribution Channels and Intermediaries For International Market
6.1.1. Channel of Distribution
Channel of Distribution is a set of interdependent organizations (intermediaries) involved in the
process of making a product or service available for use or consumption.
A distribution channel consists of the set of people and firms involved in the transfer of title to a
product as the product moves form producer to ultimate consumer or business user. A channel of
distribution always includes both the producer and the final customer for the product in its present
form as well as any middlemen such as retailers and wholesalers.
Direct and Indirect Selling Channel
A manufacturer can sell directly to end users abroad, but generally it is not suitable for most
consumer goods. In effect, it is common for a product to go through several parties before
reaching the final consumer in foreign market.
In general, companies use two principal channels of distribution when marketing abroad:
(1) Direct selling and
(2) Indirect selling channel
1. Direct Selling Channel
• Direct selling is employed when a manufacturer develops an overseas channel.
• The manufacturer is deal directly with a foreign party without intermediary in the home country.
• The manufacturer set up the overseas channel and exports through its own internal export department or
organization. Thus, they take care of the business activities between the countries and responsible for
shipping the product to foreign markets.
Advantage
• Active market exploitation
• Greater control

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• The channel improves communication and allows the company’s policy to be followed more uniformly.
Disadvantage
 Difficult to manage if the manufacturer is unfamiliar with the foreign market.
 The channel is time consuming and expensive.
 Without a large volume of business, the manufacturer may find it too costly to maintain the channel.

Types of Direct Channel Intermediaries

A. Foreign Distributor
It is a foreign firm that has exclusive rights to carry out distribution. The distributor purchases
merchandise at a discount and then resells or distributes the merchandise to retailers and sometimes
to final consumers. The length of association between the manufacturer and its foreign distributor is
established by a contract.
In some situations, the foreign distributor is merely a subsidiary of the manufacturer. For instance,
Seiko USA., is a distributor for its Japanese parent (Hattori Seiko), which manufactures Seiko
watches. Nevertheless, more frequently a foreign distributor is an independent merchant. A
distributor sometimes takes on the name of the brand distributed, though the distributor is an
independent operator and not owned by the manufacturer.
Benefits of using a foreign distributor
 The distributor is a merchant who buys and maintains merchandise in its own name. This
simplifies the credit and payment activities for the manufacturer.
 To carry out the distribution function, the foreign distributor is often required to warehouse,
adequate products, parts, and accessories and to make facilities and personnel immediately
available to service buyers and users.
B. Foreign Retailer
Foreign retailers are used for consumer product rather than an industrial product.
There are several means by which a manufacturer may contact foreign retailers and interest them in
carrying a product, ranging from a personal visit by the manufacturer’s representative to mailings of
catalogs, brochures, and other literature to prospective retailers. The use of personal selling or a
visit, al-though expensive because of travel costs and commissions for the manufacturer’s
representative provides for a more effective sales presentation as well as for better screening of
retailers for the distribution purpose. The use of direct mail, although less expensive, may not
sufficiently catch the retailers’ attention.
C. State-Controlled Trading Company
For some products, particularly utility and telecommunication equipment, a manufacturer must
contact and sell to state-controlled companies. For example: Hungary has about one hundred state
trading organizations for a variety of products, ranging from poultry to telecommunication
equipment and for both imported and exported products.
D. End User
Sometimes, a manufacturer is able to sell directly to foreign end users with no intermediary
involved in the process. This direct channel is a logical and natural choice for costly industrial

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products. For most consumer product the approach is only practical for some products and in some
countries. A significant problem with consumer purchases can result from duty and clearance
problems. A consumer may place an order without understanding his or her country’s import
regulations. When the merchandise arrives, the consumer may not be able to claim it. As a result,
the product may be seized or returned on a freight-collect basis. Continued occurrence of this
problem could become expensive for the manufacturer.
2. Indirect Selling Channel
Indirect selling, also known as the local or domestic channel. It is employed when a manufacturer
markets its product through another local firm/middlemen/. The manufacturer has no need to set up
an international department. The middleman, acting as the manufacturer’s external export
organization, usually assumes responsibility for moving the product overseas.
Advantages of indirect channel
 Simple and inexpensive
 The manufacturer incurs no start-up cost for the channel
 It is comforted of the responsibility of physically moving of the goods overseas.
Limitations indirect channel
@ The manufacturer has given up control over the marketing of its product. This situation may
affect the product’s success in the future.
@ The manufacturer may become vulnerable, if its intermediary is not aggressive, especially
where competitors are careful about their distribution practices.
@ The intermediary can easily discontinue handling a manufacturer’s product if there is no profit
or if a competitive product offers a better profit.
Types of Indirect Channel Intermediaries
There are many kinds of local sales intermediaries, all can be grouped under two broad categories:
(1) Domestic agents and (2) Domestic merchants.
The basic difference between the two is ownership (title) rather than just the physical possession of
the merchandise. Domestic agents never take title to the goods, regardless of whether the agents
take possession of the goods or not. Domestic merchants, on the other hand, own the merchandise,
regardless of whether the merchants take possession or not.
(1) Domestic Agents
Domestic agents can be further classified as those represent the buyer and the manufacturer’s
interest.
Ä Those who work for the manufacturer are:
a. Export brokers c. Export management companies, and
b. Manufacturer’s export agents or sales d. Cooperative exporters
representative
Ä Agents who look after the interests of the buyer include: Purchasing (buying) agents/offices and
Country-controlled buying agents.

a. Export brokers
The function of an export broker is to bring a buyer and a seller together for a fee. It negotiates the
best terms for the manufacturer but cannot conclude the transaction without the principal’s approval
of the arrangement. As a representative of the manufacturer, the export broker may operate under its

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own name or that of the manufacturer. An export broker does not take possession or title to the
goods.
Export Broker Useful:
• For its extensive knowledge of the market supply, demand, and foreign customers that
enables them to negotiate the most favorable terms for the principal.
• For highly specialized goods and seasonal products that do not require constant distribution.
b. Manufacturer’s Export Agent or Sales Representative
This is an independent businessperson who usually retains his or her own identity by not using the
manufacturer’s name. A sales representative have more freedom than the manufacturer’s own
salesperson. It may represent manufacturers of related and noncompeting products. Like a broker,
the manufacturer’s export agent works for commission. Unlike the broker, the relationship with the
manufacturer is continuous and more permanent. The manufacturer retains some control because the
contract defines the territory, terms of sale, method of compensation, and so on.
c. Export Management Company (EMC)
An EMC is also known as combination export manager (CEM) because it may function as an
export department for several allied but noncompeting manufacturers. The EMC has greater
freedom and considerable authority than export brokers and manufacturer’s export agents and
provides extensive services, ranging from promotion to shipping arrangement and documentation
and responsible for all of the manufacturer’s international activities. The EMC handles all, not just a
portion, of its principal’s products and faces a dilemma because of a double risk: it can easily be
dropped by its clients either for doing a poor job or for making the manufacturer’s products too
successful. EMC compensation is in the form of a commission, salary, or retainer plus commission.
Many EMCs are also traders (i.e., export merchants) as both agents and merchants.
d. Cooperative Exporter
A cooperative exporter is a manufacturer with its own export organization that is retained by other
manufacturers to sell in some or all foreign markets. The cooperative exporter functions like any
other export agents:
• Operate as an export distributor for other suppliers,
• Also acting as a broker, because it arranges shipping and takes possession of goods but not
title.
A problem may arise if the principal decides to market a new product that competes directly with
the cooperative exporter’s own product or those of the exporter’s other clients.
e. Purchasing/Buying Agent
A purchasing/buying agent represents a foreign buyer. It is also known as commission agent, buyer
for export, export commission house, and export buying agent. By residing and conducting business
in the exporter’s countries and seek a product that matches the foreign principal’s preferences and
requirements. Client pays a fee or commission for the services rendered. The relationship with either
seller or buyer is not continuous. The transaction between the manufacturer and the buying agent
may be completed as a domestic transaction in the sense that the agent will take care of all shipping
arrangements. Otherwise, the manufacturer will have to make its own arrangements.
f. Country-Controlled Buying Agent
They performs exactly the same function as the purchasing/ buying agent, the only distinction being
that a country-controlled buying agent is actually a foreign government’s agency or quasi-

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governmental firm where they: are empowered to locate and purchase goods for its country, may
have a permanent office in major suppliers, and may make formal visits to supplier countries when
the purchasing need arises.
g. Resident Buyer
It is an independent agent that is usually located near highly centralized production industries.
Unlike purchasing agent, the resident buyer is retained by the principal on a continuous basis. It can
offer a favorable opportunity for a suppliers as long as they are competitive in terms of price,
service, style, and quality. The resident buyer offers the purchasing, follow up function, for a
foreign buyer.
(2) Domestic Merchants
They all take title; they are distinguished by other features, such as physical possession of goods and
services rendered.
i. Export Merchant
They seeks out needs in foreign markets and makes purchases from manufacturers in its own
country to fill those needs. Usually handles staple goods, undifferentiated products, or those in
which brands are unimportant. Export merchant resells the goods in its own name. The merchant
assumes all risks associated with ownership. May or may not offer a steady business relationship to
his/her supplier.
ii. Export Drop Shipper
It is also known as desk jobber or cable merchant, is a special kind of export merchant. Drop
shippers purchase product whenever they receive orders from overseas. It is common for bulky
products of low unit value (e.g., coal, lumber, construction materials).
Reasons why the foreign buyer use export drop shipper
When buyer’s order may be too small to attract the manufacturer to deal directly
Highly specialized in knowing the sources of supply and markets
The drop shipper also has information and advice about the needed product and can arrange all
details for obtaining it.
iii. Export Distributor
Deals with the manufacturer on a continuous basis. Has exclusive right to represent and to sell in
some or all foreign markets. It pays for goods in its domestic transaction with the manufacturer and
handles all financial risks in foreign trade. It operates in its own name or in that of the manufacturer.
It handles all shipping details, thus relieving the manufacturer of having to pay attention to
overseas activities. It represents several manufacturing firms; it is sometimes regarded as a form of
EMC.
iv. Trading Company
Those that want to sell and buy often have no knowledge of each other or no knowledge of how to
contact each other. Trading companies thus fill this void. Many of them are large and have branches
wherever they do business. A trading company may buy and sell as a merchant.
6.1.2. Channel Decisions
As domestic market, the international market requires a marketer to make at least three channel
decisions:
1. Channel length is concerned with the number of times a product changes hands among
intermediaries before it reaches the final consumer: The channel is long - several middlemen & the

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channel is short- when the product has change hands only once or twice.
2. Channel width is related to the number of middlemen at a particular point or step in the
distribution channel. It is a function of the number and kind of wholesalers used, as well as a
function of the number and kind of retailers used.
The channel is wider and more intensive- as more intermediaries or more types are used & the
channel is selective- a few qualified intermediaries are needed to provide product. The channel is
exclusive- if one intermediary of one type is used in that particular area.
3. Another decision that concerns the manufacturer is the number of distribution channels to be
used. The manufacturer may employ many channels to move its product to consumers. For example,
it may use a long channel and a direct channel simultaneously.
6.1.3. Determinants of Channel Types
Factors that must be taken into account to assist a manufacturer in making a good channel decision
include:
@ Legal Regulations @ Local Customs
@ Product Image @ Control
@ Middlemen’s loyalty and conflict @ Power and Coercion

6.2 Selection, Motivation and Control of Foreign Middlemen

In the beginning of a market entry, partnerships with local distributors make good sense:
Distributors know the distinctive characteristics of their market, and most customers prefer to do
business with local partners. Arnold (2000) propose the following guidelines to the international
marketer (manufacturer) in order to anticipate and correct potential problems with international
distributors:
@ Select distributors – do not let them select you.
@ Look for distributors capable of developing markets, rather than those with a few obvious contacts.
@ Treat the local distributors as long-term partners, not temporary market-entry vehicles.
@ Support market entry by committing money, managers, and proven marketing ideas.
@ From the start, maintain control over marketing strategy.
@ Make sure distributors provide you with detailed market and financial performance data.
@ Build links among national distributors at the earliest opportunity
Once the basic design of the channel has been determined the international marketer must begin to
fill it with the best available candidates, and must secure their cooperation.
6.2.1. Screening and Selecting Intermediaries (Channel Members)
Table 6.1 Criteria for evaluating foreign distributors
Financial and Product Factors Marketing Commitment Facilitating
Company Strengths Skills Factors

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• Financial soundness  Quality and ©Marketing ♪ Willingness to invest ÄConnections
• Ability to finance sophistication management in sales training with influential
initial sales and of product lines expertise and ♪ Commitment to people (network)
subsequent growth  Product sophistication achieving minimum ÄWorking
• Ability to raise complementarit ©Ability to sales targets experience/relati
additional funding y (synergy or provide ♪ Positive attitude onships with
• Ability to provide conflict?) adequate towards the other
adequate promotion  Familiarity geographic manufacturer’s manufacturers
& advertising funds with the coverage of product program (exporters)
• Product & market product the market ♪ Undivided attention to ÄTrack record
expertise  Technical ©Experience product with past
• Ability to maintain knowhow at with target ♪ Willing to commit suppliers
inventory staff level customers advertising resources ÄKnowledge of
• Quality of  Conditions of ©Customer ♪ Willing to drop the particular
management team physical service competing product business
• Reputation among facilities ©On time lines ÄGovernment
current & past  Patent security deliveries ♪ Volatility of product relations
customers ©Sales force mix ÄProficiency in
• Ability to formulate ©Market share ♪ Percentage of business English
& implement 2 to 3 ©Participation accounted by a single
years marketing plan in trade fairs supplier
©Member in ♪ Willing to keep
trade sufficient inventory
associations
Source: Adapted from Cavusgil et al. (1995).
Table 6.2 An example of distributor evaluation by the use of selection criteria from the above
table
Criteria Weight Distributor 1 Distributor 2 Distributor 3
(No ranking implied) Rating Score Rating Score Rating Score
Financial and Company Strengths:
Financial soundness 4 5 20 4 16 3 12
Ability to finance initial sales and subsequent
3 4 12 4 12 3 9
growth
Product Factors:
Quality and sophistication of product lines 3 5 15 4 12 3 9
Product complementarity (synergy or
3 3 9 4 12 2 6
conflict?)
Marketing Skills:
Marketing management expertise and
5 4 20 3 15 2 10
sophistication
Ability to provide adequate geographic
4 5 20 4 16 3 12
coverage of the market
Commitment:
Willingness to invest in sales training 4 3 12 3 12 3 12
Commitment to achieving minimum sales
3 4 12 3 9 3 9
targets

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Facilitating Factors:
Connections with influential people
3 5 15 4 12 4 12
(network)
Working experience/relationships with other
2 4 8 3 6 3 6
manufacturers (exporters)
Score 143 122 94
Scales:

Weighting
Rating 5: Critical success factor 2: Of some importance
5: Outstanding 2: Below average
4: Prerequisite success factor 1: Standard
4: Above average 1: Unsatisfactory
3: Average 3: Important success factor
6.2.2. Motivating
Agents and distributors can be motivated in many ways to do the best possible job of marketing and
promoting the firm’s product. This could be accomplished by, for example, developing good
communications through regular visits from the home office, the organization of conferences, or
providing inexpensive free trips for representatives during a given period. It is also important to
inform representatives, the company’s goals and principles, and to keep them abreast of new
developments in the product line, supplies, and promotion strategies, and to assist in training and
market development. Firms could also motivate representatives through provision of better credit
terms or price adjustments based on sales volume or other performance based criteria.

6.2.3. Controlling
Control problems are reduced substantially if intermediaries are selected carefully. However,
control should be sought through the common development of written performance objectives.
These performance objectives might include some of the following: sales turnover per year, market
share growth rate, introduction of new products, price charged and marketing communications
support. Control should be exercised through periodic personal meetings.
Evaluation of performance has to be done against the changing environment. In some situations
economic recession or fierce competition activity prevents the possibility of objectives being met.
However, if poor performance is established, the contract between the company and the channel
member will have to be reconsidered and perhaps terminated.
In addition, differences in expectations and goals between the company and its foreign
intermediaries can lead to channel conflict. To deal with this, companies must actively manage the
relationship between themselves and their intermediaries, and often among intermediaries
themselves, in an effort to create a harmonious relationship characterized by loyalty, trust,
cooperation, and open communication.
6.1 Global Logistics Issues and Planning
6.3.1. Definition of Logistics
Logistics: The process of strategically managing the movement and storage of materials, parts and
finished inventory from supplier through the firm and on the customers.
Global logistics is defined as the design and management of a system that directs and controls the
flows of materials into, through and out of the firm across national boundaries to achieve its
corporate objectives at a minimum total cost. Global logistics encompasses the entire range of
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operations concerned with products or components movement, including both exports and imports
simultaneously.
Global logistics, like domestic logistics, encompasses materials management, sourcing, and physical
distribution.
♪ Materials management refers to the inflow of raw materials, parts, and supplies in and through the firm.
♪ Physical distribution refers to the movement of the firm’s finished products to its customers, consisting
of transportation, warehousing, inventory, customer service/order entry, and administration.
♪ Sourcing strategy refers to an operational link between materials management and physical distribution,
and deals with how companies manage R&D (e.g., product development and engineering), operations
(e.g., manufacturing), and marketing activities.

Figure 6.1 Global Logistics

6.3.2. Importance of Logistics to International Trade
1. Efficient allocation of resources.
2. Expansion of economic growth and employment.
Logistics Functions
Labeling, packing, traffic management, inventory, and storage.
6.3.3. External Influences on Logistics Decisions
a. Regulations: Export controls, tariffs, nontariff barriers, privatization and deregulation of transportation
and communications.
b. Competition: Competitive pressures on firms to examine logistics systems, that is, to reduce costs etc.
c. Technology: New technologies now enable importers to know the date of shipment, location of cargo on
transit and expected date of arrival.
6.3.4. Transportation
Finally, transportation decisions concern the method, or mode, a company should utilize when
moving products through domestic and global channels. The word mode implies a choice, and the
major SIX transportation mode choices are air, truck, water, rail, pipeline, and Internet—are widely
used in global distribution.
Table 6.3 Comparison of Major International Transportation Modes

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Containerization was a key innovation in physical distribution that facilitates intermodal
transportation.

CHAPTER SEVEN
INTERNATIONAL PROMOTION
Promotion refers to techniques of communicating information about products. Promotion includes a
combination of personal selling and/or non-personal selling, including advertising, sales promotion,
public relations/publicity, trade fairs/exhibition/ and others.
Promotional objectives: how business aims and translate into marketing objectives (E.g. raising
awareness of product/service, creating distinctive market presence, increasing market share);
targeting relevant audience (attitudes, interests, opinions, aspirations, demographics (E.g. Age,
gender)); Business to Business (B2B); Business to Consumer (B2C); segmentation (E.g. First-time
buyers)…..
7.1 Complexities and Issues In International Promotion
All effective marketing communication has four elements: a sender, a message, a communication
channel and a receiver (audience). To communicate in an effective way the sender needs to have a
clear understanding of the purpose of the message, the audience to be reached and how this
audience will interpret and respond to the message. However, sometimes the audience cannot hear
clearly what the sender is trying to say about its product because of the ‘noise’ of rival
manufacturers making similar and often contradictory claims about their products.
Another important point to consider in the model is the degree of ‘fit’ between medium and
message. For example, a complex and wordy message would be better for the press than for a visual
medium such as television or cinema.
Difficulties associated with international promotion are also includes:-
♪ Availability of agencies, media, research facilities;
♪ Control issues - control of agency, campaign, expenditure;
♪ Message difficulties E.g. message not getting through to intended recipient - message getting through but
not understood; message getting through, understood but no action resulting;
♪ Lack of support from retailers, etc.
♪ Market issues - location, dispersion, buying power, reachability.
Other factors affecting the communication situation
Ü Language differences: A slogan or advertising copy that is effective in one language may mean
something different in another language. Thus the trade names, sales presentation materials and

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 advertisements used by firms in their domestic markets may have to be adapted and translated when used
in other markets.
Ü Economic differences: In contrast to industrialized countries, developing countries may have radios but
not television sets. In countries with low levels of literacy written communication may not be as effective
as visual or oral communication.
Ü Sociocultural differences: Dimensions of culture (religion, attitudes, social conditions and education)
affect how individuals perceive their environment and interpret signals and symbols. For example, the
use of color in advertising must be sensitive to cultural norms. In many Asian countries white is
associated with grief; hence an advertisement for a detergent where whiteness is emphasized would have
to be altered for promotional activities in, say, India.
Ü Legal and regulatory conditions: Local advertising regulations and industry codes directly influence
the selection of media and content of promotion materials. Many governments maintain tight regulations
on content, language and sexism in advertising. The type of product that can be advertised is also
regulated. Tobacco products and alcoholic beverages are the most heavily regulated in terms of
promotion. However, the manufacturers of these products have not abandoned their promotional efforts.
Camel engages in corporate image advertising using its Joe Camel. Regulations are found more in
industrialized economies than in developing economies, where the advertising industry is not yet as
highly developed.
Some of the legal and regulatory issues also include: For instance: Comparative advertising, specific
product prohibitions, use of media, and truth in advertising…..
Ü Competitive differences: As competitors vary from country to country in terms of number, size, type
and promotional strategies used, a firm may have to adapt its promotional strategy and the timing of its
efforts to the local environment.
Ü Technology: The technology is in place for global communication efforts, but difficult challenges still
remain in the form of cultural, economic, ethnic, regulatory, and demographic differences in the various
countries and regions.
Ü Standardization: Standardization of any magnitude requires sound management systems and excellent
communication to ensure uniform strategic and tactical thinking of all the professionals in the overseas
marketing chain. One marketer has suggested the development of a worldwide visual language that
would be understandable and that would not offend cultural sensitivities.
7.1 Promotion Tool For International Markets
7.1.1 Advertising In The Global Situations
Meaning
Advertising: Any paid form of non-personal presentation of ideas, goods, or services by an
identified sponsor, with predominant use made of mass communication, such as print, broadcast, or
electronic media, or direct communication that is pinpointed at each business-to-business customer
or ultimate consumer using computer technology and databases.
7.1.1.1 International Advertising Decisions
The international advertiser must ensure appropriate campaigns for each market and also to get
coordination among the various national programs. There are eight decision areas in international
advertising: (1) Advertising objectives (2) determining the budget, (3) choosing the message, (4)
selecting the media, (5) selecting the agency (or agencies), (6) organizing for advertising, and (7)
deciding whether to engage in cooperative adverting abroad, (8) evaluating advertising
effectiveness.
1. Advertising objectives
It can be classified according to whether their aim is to inform, persuade, or remind:

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a) Informative advertising: figures heavily in the pioneer stage of a product life category, where all
objectives is to build primary demand.
b) Persuasive advertising: becomes important in the competitive stage, where a company's objective
is to build selective demand for a particular brand. Some persuasive advertising has moved into
the category of comparative advertising, which seeks to establish the superiority of one round
through specific compression of one or more attributes with one or more brands in the product
class.
c) Reminder Advertising: is highly important with mature products. A related form of advertising is
reinforcement advertising, which seeks to assure current purchasers that they have made the
right choice.
2. Setting the International Advertising Budget
Among the controversial aspects of advertising is determining the proper method for setting the
advertising budget. This is a problem domestically as it is internationally. Yet because the
international advertiser must try to find an optimum outlay for a number of markets, the problem is
more complex on the international level.
Firms have developed practical guidelines to determine advertising budget.
a. Percentage-of-sales /Affordable/ Approach. An easy method for setting the advertising
appropriation in a country is based on percentage of sales. Whereby the firm automatically
allocates a fixed percentage of sales to the advertising budget.
b. Competitive-parity Approach. Involves estimating and duplicating the amounts spent on
advertising by major rivals. Matching competitor’s advertising outlays.
c. Objective-andTask Approach. The weaknesses of the above approaches have led some
advertisers to the objective-and-task method, which begins by determining the advertising
objectives, expressed in terms of sales, brand awareness, or something else, then ascertaining the
tasks needed to attain these objectives, and finally estimating the costs of performing these tasks.
3. Choosing the Advertising Message
This concerns decisions about what unique selling proposition (USP) needs to be communicated,
and what the communication is intended to achieve in terms of consumer behavior in the country
concerned. These decisions have important implications for the choice of advertising medium, since
certain media can better accommodate specific creative requirements (use of color, written
description, high definition, demonstration of the product, etc.) than others.
A major decision for the international marketer is whether the firm should use national or
international advertising appealsa localized or standardized approach. The goal in either case
is to fit the market.
4. Selecting the Media
Media is a vehicle through which an advertiser communicates their message to likely customers or
prospects with a view to influencing them in terms of the advertising objectives. The appeal and the
target audience determine the message and the choice of media.
Furthermore, media selection can be based on the following criteria:
Ü Reach. This is the total number of people in a target market exposed to at least one advertisement in a
given time period (‘opportunity to see’, or OTS).
Ü Frequency. This is the average number of times within a given time period that each potential customer
is exposed to the same advertisement.

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Ü Impact. This depends on compatibility between the medium used and the message. Penthouse magazine
continues to attract advertisers for high-value-added consumer durables, such as cars, hi-fi equipment
and clothes, which are geared primarily to a high-income male segment.
The following are the media generally used for advertising purposes: Broadcast and Print Media
o Television o Magazines
o Radio o Direct mail o Stadium
o Newspapers o Screen (Cinema) o Media Mix
o Internet o Directories o Outdoor advertising
Outdoor advertising includes posters/billboards, shop signs and transit advertising. This medium
shows the creative way in which space can be sold to customers.
Directories are books that provide listings of people, professions, and institutions. The yellow page
telephone directories, with a listing of various types of companies, are a prime example. Directories
may be sold or given away free of charge.
Advertisers need to make decisions at each of three successive levels to determine which specific
advertising media to use:-
Ü Which type of media will be used? Newspaper, television, radio, magazine, or direct mail?
What about the less prominent media of billboards, and yellow pages?
Ü Which category of the selected medium will be used? Television has network and cable.
Magazines include general interest and special interest categories. And there are national as well
as local newspaper.
Ü Which specific media vehicles will be used? An advertiser that decides first on radio and then
on local stations must determine which stations to use each city.
Media selection involves finding the most cost effective media to deliver the desired number of
exposure to the target audience.
Here are some general factors that will influence media choice:-
a. Objective of the advertisement c. Requirements of the message
b. Audience Coverage d. Media Cost
5. Selecting the Agency
Many marketing functions are performed within the company. With advertising, the firm almost
always relies on expertise from the advertising agency. Agency selection is usually the first
advertising decision the marketer has to make. Two major alternatives are open: (1) an international
agency with domestic and overseas offices or (2) local agencies in each national market.
The criteria relevant to the choice of a national or an international agency include the following:
♪ Policy of the company. ♪ Type of product.
♪ Nature of the advertising to be undertaken.
6. Organizing for International Advertising
The firm has basically three organizational alternatives:
1) It can centralize all decision making for international advertising at headquarters; (2) it can
decentralize the decision making to foreign markets; or (3) it can use some blend of these two
alternatives. Of course, the question of organizing for international advertising cannot be separated
from the company’s overall organization for international business. The firm is unlikely to be highly
centralized for one function and decentralized for another.
8. Using Cooperative Advertising

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A firm that sells through licensees or distributors can choose one of three ways to advertise in its
foreign markets: (1) It can handle such adverting itself; (2) it can cooperate with the local
distributor; or (3) it can try to encourage the distributor or licensee to do such advertising by itself.
The last alternative is not really feasible, so the choice is primarily between going it alone or
cooperating.
7. Evaluating International Advertising Effectiveness
Testing advertising effectiveness is even more difficult in international markets than in the domestic
market. Because marketers have less contact with foreign markets, their ability to investigate
advertising effectiveness is limited. Many firms use sales results as the measure of advertising
effectiveness.

7.1.1.2 Advertising Standardization Versus Local Adaptation

Standardization allows the realization of economies of scale in the production of advertising
materials, reducing advertising costs and increasing profitability. Unified advertising refers to the
policy where the advertising in domestic market is extended to foreign markets in its forms, appeals
and other selling propositions.
On the other hand, in diversified advertising strategy, the advertising is not the same as in the
domestic market but it requires proper adaptation of the advertising strategy to various elements
such as religion, culture, traditions, etc., of diverse nature peculiar to the foreign market or market
segment.

In reality it is not a question of either/or for the internationally oriented firm it is more a question of
the degree of standardization/localization. A study by Hite and Frazer (1988) showed that a majority
(54 per cent) of internationally oriented firms were using a combination strategy (localizing
advertising for some markets and standardizing advertising for others). Many of the global
companies using standardized advertising are well known (e.g. Coca-Cola, Intel, Philip Morris/
Marlboro).
Points in Favor of Standardized/Unified Advertising Strategy
♪ It is sometimes argued that within certain geographical areas the customs, cultures, traditions
and demand structure are increasingly becoming standardized or uniform due to extensive
information flow and increased international travel.
♪ Consumer differences are diminishing sharply due to increased travelling from one country to
another and, therefore, common advertisements can be used in different countries with slight
modifications to suit the local requirements.
♪ One of the proponents of the unified advertisement strategy feels that consumer motivation, that
is better living for himself and his family, is the same in all parts of the world.
Points in Favor of Diversified/Local Adaptation Advertising Strategy
International marketer must keep in mind the following factors that favor the diversified advertising
strategy:
a. The cultural background of a consumer in a foreign market may be quite different
b. The choice of wrong media in the target market may fail the campaign

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7.2.2 Personal Selling
Personal selling: The process of assisting and persuading a prospect to buy a good or service or to
act on an idea through use of person-to-person communication with intermediaries and/or final
customers.
Personal selling is two-way, face-to-face, personal communication between a company
representative and a potential customer as well as back to the company. The salesperson's job is to
correctly understand the buyer's needs, match those needs to the company's product(s), and then
persuade the customer to buy. Effective personal selling in a salesperson's home country requires
building a relationship with the customer; global marketing presents additional challenges because
the buyer and seller may come from different national or cultural backgrounds. It is difficult to
overstate the importance of a face-to-face, personal selling effort for industrial products in global
markets.

7.2.2.1. The International Sales Force Organizational Structure

Structure Factors favoring choice of Advantages Disadvantages
organizational structure
Geographic  Distinct languages or  Clear, simple  Breadth of customers
cultures  Incentive to cultivate  Breadth of products
 Single product line local business and
 Underdeveloped personal ties
markets  Travel expenses
Product ♪ Established ♪ Product knowledge ♪ Travel expenses
market ♪ Overlapping territories or
♪ Broad product customers
lines ♪ Local business and personal
ties
Customer* Broad product lines Market/customer Overlapping territories/products
knowledge Local business and personal ties
Travel expenses
Combination o Large sales volume o Maximum flexibility o Complexity
o Large/developed o Travel expenses o Sales management
markets o Product/market/geography
o Distinct language overlap
cultures
*By type of industry, size of account, channel of distribution, individual company.
7.2.2.2. Type of International Sales Force
Ü Expatriate salespersons. These are viewed favorably because they are already familiar with the
firm’s products, technology, history and policies. Thus the ‘only’ kind of preparation they would
need is a knowledge of the foreign market.
Ü Host country nationals. These are personnel who are based in their home country. As native
personnel they have extensive market and cultural knowledge, language skills and familiarity
with local business traditions.
Ü Third country nationals. These are employees transferred from one country to another. They
tend to be born in one country, employed by a firm based in another country and working in a
third country.

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Advantages and disadvantages of sales force types
Category Advantages Disadvantages
Expatriate Product knowledge Highest costs
High service levels High turnover
Train for promotion High training cost
Greater home control
Host country Economical Needs product training
High market knowledge May be held in low esteem
Language skills Importance of language skills
Best cultural knowledge declining
Implement actions sooner Difficult to ensure loyalty
Third country Cultural sensitivity Face identity problems
Language skills Blocked promotions
Economical Income gaps
Allows regional sales coverage Needs product/company training
May allow sales to country in Loyalty assurance
conflict with the home country

7.2.2.3. Selling Process

The selling process is typically divided into several stages: prospecting,
pre-approaching/problem solving, approaching, presenting, handling objections, closing the
sale, and following up. The relative importance of each stage can vary by country or region.
Experienced sales representative know that persistence is one tactic often required to win an order in
the market; however, persistence often means tenacity, as in "don't take 'no' for an answer."
♪ Prospecting is the process of identifying potential purchasers and assessing their probability of
purchase. Successful prospecting requires problem-solving techniques, which involve
understanding and matching the customer's needs and the company's products in developing a
sales presentation.
♪ The purpose of the pre-approach or problem solving stage is to gather information on a
prospective customer's problem areas and tailor a presentation that demonstrates how the
company's product can solve these specific problems.
♪ The next two steps, the approach and the presentation, involve one or more meetings between
seller and buyer.
In global selling, it is absolutely essential for the salesperson to understand cultural norms and
proper protocol. In some countries, the approach is drawn out as the buyer-gets to know or takes the
measure of the salesperson on a personal level with no mention of the pending deal. In such
instances, the presentation comes only after rapport has been firmly established.
♪ During the presentation, the salesperson must deal with objections. Objections may be of
business or personal nature. A common theme in sales training is the notion of active listening;
naturally, in cross-cultural selling, verbal and nonverbal communication barriers present special
challenges for the salesperson.

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♪ When objections are successfully overcome, the salesperson moves on to the close and asks for
the order.
♪ A successful sale does not end there however; the final step of the selling process involves
following up with the customer to ensure his or her ongoing satisfaction with the purchase.

8.2.3 Sales Promotion

Sales promotion: Direct inducements that provide extra product value or incentive to the sales
force, intermediaries, or ultimate consumers.
Sales promotions refer to a collection of short-term incentive tools that lead to quicker and/or larger
sales of a particular product by consumers or the trade. Sales promotion refers to any consumer or
trade program of limited duration that adds tangible value to a product or brand. The success of a
sales promotion may depend on local adaptation. Major constraints are imposed by local laws,
which may not permit premiums or free gifts to be given.
The main objectives of sales promotion activities are as under:
1. Providing Information 4. Reducing Seasonal Decline
2. To stimulate nonusers to sample a 5. Developing Preferences and Conviction
product of Buyers
3. Increase in Sales 6. To Keep Memory Alive
Sales promotion laws and usage vary around the world but may consist of any of the following two
kinds of sales promotion:
1. Consumer Oriented Sales Promotion that target end-users (e.g., coupons, sweepstakes, and
rebates)
A. Sampling
Sampling involves a variety of procedures whereby consumers are given some quantity of a
product for no charge to induce trial.
B. Couponing
Coupons are certificate that gives buyers a saving when they purchase a specified product
mailed, enclosed in other products or attached to them, or inserted in magazine and newspaper
ads.
C. Premiums (Gifts)
A premium is an offer of an item of merchandise or services either free or at a low price that is
an extra incentive for purchasers.
D. Contests and Sweepstakes
♪ A contest is a promotion where consumers compete for prizes or money on the basis of skills or
ability. The winner is predetermined by some criteria.
♪ A sweepstakes is a promotion where winners are determined purely by chance; it cannot require
a proof of purchase as a condition for entry. E.g. Game.
E. Cash Refund Offer (Rebates)
Refunds (also known as rebates) are offers by the manufacturer to return a portion of the
product purchase price, usually after the consumer supplies some proof of purchase.
F. Price Packs (Rupees-Off Deals)
Offers to consumers of savings off the regular price of a product, flagged on the label or
package.

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2. Trade Oriented Sales Promotion that are aimed at wholesalers, retailers, distributors, agents,
brokers (e.g., volume discounts, advertising allowances).
A. Contests and Incentives
Contests or special incentives are often targeted at the sales personnel of the wholesalers,
distributors/dealers, or retailers.
B. Trade Allowances
A discount or deal offered to retailers or wholesalers to encourage them to stock, promote, or
display the manufacturer’s products. Types of allowances offered to retailers include buying
allowances and promotional or display allowances.
C. Sales Training Programs
Sales training programs for reseller personnel.
D. Trade Shows
A forum where manufacturers can display their products to current as well as prospective
buyers.
E. Free Goods
Offers of extra units or packs of merchandise to intermediaries who buy a certain quantity or
who feature a certain flavor or size.

7.2.3Public Relations/Publicity
7.2.3.1 Public Relations
♣ Public relation may be defined as follows:
A public is any group that has an actual or potential interest in or impact on a company's ability to
achieve its objectives.

Public relation (Sponsorship): The practice of promoting the interests of the company by
associating it with a specific event (typically sports or culture) or a cause (typically a charity or a
social interest). PR involve a variety of programs designed to promote and/or protect a company's
image or its individual products. This means that public relations is a management tool designed to
favorably influence attitudes toward an organization, its products, and its policies. It is often
overlooked form of promotion. In most organizations this promotional tool is typically a stepchild,
relegated far behind personal selling, advertising, and sales promotion. There are several reasons for
management's lack of attention to public relations:

Public relation departments perform the following five activities, not all of which support
marketing objectives.
1. Press relation-Presenting news and information about organization in the most positive light.
2. Product publicity- Sponsoring various efforts to publicize specific products.
3. Corporate communication-Promoting understanding of the organization with internal and
external communications.
4. Lobbying-Dealing with legislators and government officials to promote or defeat legislation and
regulation.
5. Counseling- Advising management about public issue and company positions and image. This
includes advising in the event of a product mishap when the public confidence in a product is
shaken.

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Public relations personnel also are responsible for fostering goodwill, understanding, and
acceptance among a company’s various constituents and publics.
7.2.3.1 Publicity
Publicity: Any form of nonpaid, commercially significant news or editorial comment about ideas,
products, or institutions.
OR
Publicity is any communication about an organization, its products, or policies through the media
that is not paid for by the organization. Publicity usually takes the form of a news story appearing in
a mass medium or an endorsement provided by an individual, either informally or in a speech or
interview.
Publicity is the non-personal stimulation of demand that is not paid for by a sponsor that has
released news to the media. Advertising and publicity are guile similar in the sense that both require
media for a non-personal presentation of the promotional message. One difference between the
two is that with publicity a company has less control over how the message will be used by the
media. Another difference is that publicity is presumed to be free in the sense that the media are
not paid for the presentation of the message to the public.
The vehicles for gaining good publicity are:
1. Prepare a story (called a news release) and circulate it to the media. The intention is for the
selected newspapers, television stations, or other media to report the information as news.
2. Feature Articles: Larger manuscripts composed and edited for a particular medium.
3. Press Conferences: Meetings and presentations to invited reporters and editors.
4. Special Events: Sponsorship of events, teams, or programs of public value.
Publicity can help to accomplish any communication objective. It can be used to announce new
products, publicize new policies, or report financial performance. If the message, person, or group,
or event is viewed by the media as news worthy.
8.2.3. Exhibitions/Trade Fairs
A trade fair (TF) or exhibition is a concentrated event at which manufacturers, distributors and
other vendors display their products and/or describe their services to current and prospective
customers, suppliers, other business associates and the press.
Trade fairs can enable a company to reach in a few days a concentrated group of interested
prospects that might otherwise take several months to contact. Potential buyers can examine and
compare the outputs of competing firms in a short period at the same place. They can see the latest
developments and establish immediate contact with potential suppliers. TFs also offer international
firms the opportunity to gather vital information quickly, easily and cheaply. For example, within a
short period a firm can learn a considerable amount about its competitive environment, which would
take much longer and cost much more to get through other sources (e.g. secondary information).
Whether a marketer should participate in a trade fair depends largely on the type of business
relationship it wants to develop with a particular country. A company looking only for one-off or
short-term sales might find the TF expense prohibitive, but a firm looking for long-term
involvement may find the investment worthwhile.

Trade Show Selection:

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♣ Number of International Shows ♣ Number of Regional Shows
♣ Number of National Shows ♣ Emphasis on Show Types

7.3 Developing The Promotion Campaign For Foreign Markets

Be able to create a simple promotional campaign….
Ü Campaign brief objectives. E.g. Target audience, budget
Ü Creative brief objectives. E.g. To reach a given audience
Ü Selection of content: Communication of promotional message E.g. Features, performance, benefits,
quality, reliability
Ü Campaign tactics: Reach given target group; selection of appropriate media; selection or design of
suitable promotional materials/images; text and script according to media type; target audience;
objectives; budget; selection of images. E.g. Color, impact, visibility, style, pace; other sensory
dimensions; presentation; focus groups; stages – use of storyboards e.g. mock-up, final proof, review,
planning of next stage
Ü Developing a promotion plan: Choosing promotion mix; objectives; integration into wider marketing
mix; timing; frequency; cost; using promotion plan; media mix; use of internet
Planning Promotional Campaigns
The planning for promotional campaigns consists of the following seven stages, which usually
overlap or take place concurrently, especially after the basics of the campaign have been agreed on:
1. Determine the target audience 5. Determine the message
2. Determine specific campaign objectives 6. Determine the campaign approach
3. Determine the budget 7. Determine campaign effectivenes
4. Determine media strategy

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