`Grammar/needs revising Incomplete Completed `Grammar/needs revising..............................................................................................1 1. Review the Global Market Environment...................................................................3 1.1 Introduction..........................................................................................................3 1.

2 What is International Marketing?.........................................................................4 1.3 Evolution of Global Marketing............................................................................4 Activity 1.1 Foreign Approach...............................................................................5 1.4 What is the Difference Between Marketing Domestically and Internationally?..6 1.5 Organisations Motivations to Enter International Trade.....................................7 1.6 Drivers of International Trade and the Importance for Business.........................8 1.7 International Trade Patterns.................................................................................9 1.8 Australias Role The Facts..............................................................................13 1.9 What Happens When We Attempt to Enter Global Markets? ...........................15 Activity 1.2 International Marketing Differences................................................16 1.10 What is E-Commerce?.....................................................................................17 1.11 Benefits of E-Commerce to Business...............................................................17 Activity 1.3 E-Commerce Benefits .....................................................................18 1.12 Industries Embracing E-Commerce.................................................................19 1.13 Electronic Commerce and Transport................................................................21 Activity 1.4 Industries Online..............................................................................21 Activity 1.5 Internet-International?......................................................................22 1.14 Trading Liberalisation and Protectionist Arrangements .................................22 1.15 Trade Liberalisation and Protection in Australia.............................................23 1.16 Trading Blocs...................................................................................................24 1.17 Trade Agreements and Trade Organisations....................................................25 Activity 1.6 Trade Organisations and Agreements..............................................27 1.18 Australias Trade Policy...................................................................................29 1.19 Policy in the Current Trade Environment........................................................29 1.20 Benefits of Free Trade and Problems of Trade Barriers..................................30 Activity 1.7 Questions..........................................................................................30 ....................................................................................................................................31 2. Assess International Business and Ecommerce Market Factors.............................32 2.1 Economic and Political Factors in the International Market and the Impact on International Marketing Opportunities.....................................................................32 2.2 The International Financial System....................................................................32 2.3 Measuring Markets.............................................................................................33 2.4 Stages of Market Development..........................................................................35 2.5 The World Bank Classification..........................................................................36 2.6 Foreign Exchange Issues....................................................................................37

2.7 Political Understanding in Marketing................................................................38 2.8 The Role of Government in the Economy.........................................................39 2.9 Social and Cultural Factors and the Impacts on International Marketing Opportunities............................................................................................................39 2.10 Dealing with Culture in Marketing..................................................................40 2.11 Definition.........................................................................................................41 Activity 2.? What is Culture to Me?....................................................................41 2.12 Elements of Culture..........................................................................................42 Activity 2.?...........................................................................................................43 2.13 Cultural-Related Factors that Impact on Marketing.........................................43 2.14 Warning About Stereotyping...........................................................................44 2.15 Hofstedes Dimensions....................................................................................45 Activity 2.? Factual or Interpretive Knowledge...................................................46 Activity 2.? Collectivism in International Marketing..........................................47 Activity 2.?...........................................................................................................48 2.16 Cultural Levels.................................................................................................49 2.17 High vs. Low Context Cultures........................................................................50 2.18 International Negotiations................................................................................51 Class Activity 2.? In Context...................................................................................52 2.19 Social Aspects of International Marketing.......................................................53 2.20 International Market Trends And Developments Are Investigated To Identify Market Needs Relative To The Business.................................................................53 2.21 What Are New and Emerging Markets? .........................................................57 2.22 Where Are The Emerging Markets? ...............................................................58 2.23 Why Are They Important To Multinational Companies (MNCs)?..................59 2.24 What Are The Risks?.......................................................................................60

1. Review the Global Market Environment Do You Know Where Your Ford Was Made? The 1992 Ford cars get controllers for their antilock brakes from Germany, engine computers from Spain, shock absorbers from Japan, and key axle parts from England. Windshields, instrument panels, seats, and fuel tanks are made in Mexico.
1992, p.53 Source: Fortune, June 17,

1.1 Introduction Our evening news constantly reminds us that we are living in a global village. We hear about our neighbours and trade partners in China, New Zealand, Indonesia and other parts of the world everyday. This global village has also become a global marketplace in which the products of the world become available almost everywhere. Such international competition makes international marketing one of the most important skills for business survival in todays world economy. Few businesses can afford to think of their markets purely in terms of their domestic market. Foreign countries create opportunities as well as threats. The opportunities for a business entering international markets, arise from it being able to sell products in a market where the business may have a competitive advantage relative to domestic producers. The problems arise where those foreign producers themselves have competitive advantages, which challenge a firm in their own domestic market. The global marketing environment is always

changing, and understanding the environment calls for a great amount of research. Many businesses that attempt to expand globally have succeeded, but there have also been many failures. Global marketing is risky because of variable exchange rates, unstable governments, protectionist tariffs, trade barriers and several other factors. In evaluating international marketing opportunities, lets look at a definition of international marketing and then we can see what measures are necessary to market across multinational boundaries.

1.2 What is International Marketing? International Marketing is about successfully meeting customers needs and wants worldwide and doing it better than the competitors, whether they are local companies or foreign multinationals. The future of international marketing may be shaped by how global customer needs are changing and how global competition is evolving to satisfy those needs.

1.3 Evolution of Global Marketing When organisations develop into global marketing organisations, they usually evolve into this from a relatively small export base. Some firms never get any further than the exporting stage. Over time, however, the business may evolve with more of an international focus. For example, the company 7-Eleven, first started business in the United States in 1927. By 1963, there were over one thousand stores located across the country. In 1969, 7Eleven decided to enter the international market of neighbouring country, Canada. By the end of 1971, 7-Eleven had entered Mexico

and the European markets of Scotland and England. Today, they operate more than twenty-five thousand stores worldwide.

Described below, are a few different approaches to entering international markets: 1. Ethnocentrism marketing a standardised product anywhere in the world because of the perceived superiority of the home country (by management). In some cases, a company may set up an export division for international operations, as product is standardised. Examples of standardised items sold throughout the world: Chocolate and soft-drink manufacturer, CadburySchweppes, Coca Cola and Nestle. 2. Polycentrism acknowledgement by management that each country is different and a customised (adapted) marketing mix is prepared for each country. Example of customised products for the global market: McDonalds, Starbucks Coffee Company, Club Med (holiday resorts) and Mister Donut. 3. Regiocentricity the view that distinct regions of the world are similar (e.g. Asia, South America, Africa, Europe) and an integrated strategy is developed for marketing to the nations in that region. For example, cosmetic companies such as Shiseido and Max Factor market on a regional (certain countries/regions) level because consumers have similar skin tones and complexions within particular regions.

Activity 1.1 Foreign Approach Choose one of the following: ethnocentrism, polycentrism or regiocentricity, and provide an example of a company that has used this approach to market their product/s:

_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

1.4 What is the Difference Between Marketing Domestically and Internationally?

Marketing concepts are universal (the goal is to satisfy customer needs and wants, profitably) Whether it is domestic or international marketing, ALL environments (social, cultural, environmental etc) have to be taken into consideration when the marketing plan is developed and implemented (put into action) However, it would be from an entirely different environmental viewpoint. Aspects such as the legal environment, governmental controls, climate & weather, cultural beliefs, buyer behaviour (uncontrollable elements), must be considered more carefully. For instance, knowledge and understanding of the International Monetary Fund, General Agreement on Tariffs and Trade and other policies should be gained prior to entering new foreign markets. Even among countries that are geographically in the same region, or that have the same cultural heritage may vary in certain situations. For instance, the US and the UK are both English-speaking countries with strong economies, but they have different marketing environments.

1.5 Organisations Motivations to Enter International Trade

Foreign markets represent new market segments, which a firm may be able to serve with its existing range of products. By expanding overseas, a company that has developed a strong brand can stretch the coverage of that brand cost effectively. Saturation (over supplying the market) of its domestic market can force a company to seek foreign markets. Saturation can come about where a product reaches the maturity stage of its life cycle in the domestic market, while being at a much earlier stage of the cycle in less developed foreign markets. An important motivation for foreign expansion is being able to minimise the risk of product failure in one geographical market. Conducting business in international markets can allow a company to reduce its dependence on one geographical market. The nature of a product may require an organisation to become active in a foreign market (e.g. an airline flying an overseas route will inevitably become involved in marketing at the foreign end of its routes). Some companies supply goods and services to business buyers who themselves operate internationally and demand that one single supplier is able to meet their needs in all of the international markets in which they operate. There are also many cases where private consumers demand that goods and services are internationally available. Some products are highly specialised and the domestic market is too small to allow economies of scale to be exploited (developed). A company may have developed a product that is not suited to its domestic market, and therefore exporting is the only option for exploiting the product.

1.6 Drivers of International Trade and the Importance for Business In a global economy, countries rely on each other for supplies, as no nation is self-sufficient (independent). They are all involved at different levels in trade processes to sell what they produce, to acquire what they are short of or do not have and also to produce more efficiently in some economic sectors than their trade partners. Without international trade, few nations could maintain an adequate standard of living. With only domestic resources, each country could only produce a limited number of products. Global trade allows for an enormous variety of resources from Persian Gulf oil to Chinese low cost labour to be made more widely accessible. It also assists the distribution of many different manufactured goods that are produced in different parts of the world. Wealth is gained increasingly, through areas specialising in particular commodities. This way, production costs are lowered, productivity rises and surpluses (extra financial resources) are generated. The whole concept of international trade can only be achieved with the appropriate infrastructure, communication, logistics and resources along with many other factors in place. If one country has a comparative advantage for making washing machines, this does not benefit another country, unless there is suitable transportation available and the right infrastructure in place to deliver the washing machines. Significant progress in communications and transportation technologies are making it possible for efficient movements across borders. These improvements are also bringing people in closer reach of each other, as they can now move

with ease around the world both physically and virtually. International travel, migration, and the rise of mass media (technologies) are changing markets and helping to accelerate the spread of ideas and practices across borders. Rapid expansion of the Internet around the world is opening up new opportunities for businesses to engage in global exchanges to both reduce costs and increase revenues. Business processes can be transformed and are smoother in terms of efficiency; rapid communications with employees, partners, and customers can be supported; and new markets can be more easily penetrated (entered). With the growth of international trade and the globalisation of production, international transportation systems have been under increasing pressures to support the growing demands of freight flows. This could not have occurred without considerable technical improvements making it possible to transport or carry larger quantities of freight and people, and this more quickly and more efficiently.

1.7 International Trade Patterns Prior to the 1970s, three major poles, North America, Western Europe and Japan, dominated global trade flows. In the second half of the 20th century, international trade experienced a significant growth, especially after the 1970s. It was around this time that industrial development took place in many developing countries in Latin America (Mexico), Southeast Asia (Malaysia, Thailand, Indonesia) and East Asia (China, South Korea, Taiwan).

Many industrial processes which initially took place in developed countries, were relocated in new locations offering lower production costs, namely because of cheaper labour. As a result, global trade flows are now characterised by significant flows of merchandise from developing to developed countries. For example, Australia will be the host country for the Commonwealth Games in 2006. Seventeen thousand uniforms need to be made for the staff, so organisers are seeking suppliers who can provide the uniforms most cost effectively. China is able to provide cheap labour and low cost materials, but local Australian suppliers are arguing to have the products contracted out to Australian manufacturers only, in order to benefit the local economy. The volume of exchanged goods and services between countries is taking significant part in generating wealth. By 2000, international trade was accounting for about 15% of the global gross domestic product (GDP). GDP is the total value of goods and services produced in a country in one year. While developed countries still account for 73% of the global trade in 2000, developing countries have seen their share climb to 27%, up from 23% in 1970. The dominant factor behind this growth has been an increasing share of manufacturing activities taking place in developing countries as manufacturers are seeking low cost locations for many stages of the production chain. The geography of international trade reveals a dominance of a small number of countries, mainly in North America and Western Europe. Alone, the United States, Germany and Japan account for about 30% of all global trade (28.5% of exports and 32.1% of imports). The Group of Seven countries, the United States, Japan, Germany,

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France, Britain, Italy and Canada, known as G7, account for 45.7% of all global exports and for 49.0% of all imports. A growing share is being accounted by the developing countries of Asia, with China accounting for the most significant growth. Imports are a good indicator of the size of a national market as well as the flows of merchandise aiding the needs of an economy. The United States, Germany and Japan are the world's largest importers and as a result, the world's largest economies. The integration of China to the global economy has been accompanied by a growing level of participation to trade both in absolute and relative terms, making China the 5th largest exporter in 2002. Some countries, in particular, the United States, France, the United Kingdom and Hong Kong, have significant trading deficits (government spending more than government income). This aspect is strongly linked with service-oriented economies that have relocated their labour-intensive production activities to lower cost locations. Countries having a positive trading balance (surplus) tend to be export-oriented with a level of dependency on international markets. Germany, Japan, Canada and China are within this category. The graph below shows the worlds ten largest exporters and importers for 2002.

Worlds 10 Largest Exporters and Importers 2002

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Source: WTO

In February 2004, 40% of European Union (EU) imports came from developing countries. The EU are also the worlds largest importer of agricultural products from developing countries, absorbing more than the US, Canada and Japan taken together. In Asia, the top three leading exporting and importing countries are Japan, China and Hong Kong. The majority of exports (only) were to Japan, North America and Western Europe. Manufacturing, including textiles & clothing, machinery and transport and chemicals, accounted for most of the items being exported to these countries. The table on the next page shows the merchandise of products being exported from Asia in 2002. As can be seen on the table, Asia accounts for almost half of the worlds share in clothing exports with 44.8%.

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1.8 Australias Role The Facts The Australian government is committed to opening new trade markets and continued trade liberalisation by lowering trade barriers. As a medium-sized economy Australia benefits from a rules-based system of trade, including forming bilateral agreements (involving only 2 countries), regional trade arrangements and implementing multilateral reforms. Listed below are facts about Australias involvement in international trade: All figures are referring to the year 2003

In 2003, Australia's trade in goods and services totalled $306 billion. Australias trade now accounts for about 1 per cent of

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world trade. Overall our largest trading partners are the United States, Japan, China, and the United Kingdom. In 2003 Australia's top 10 merchandise export markets were: 1 - Japan $19. 7 billion, 2 - United States $9. 5 billion, 3 - China $9. 1 billion, 4 - New Zealand $8. 1 billion, 5 - Republic of Korea $8. 1 billion, 6 - United Kingdom $7. 4 billion, 7 - Taiwan $3. 7 billion, 8 - Singapore $3. 5 billion, 9 - India $3. 3 billion, 10 - Hong Kong $2. 9 billion. Merchandise exports to China increased by 8. 4 per cent and to India by 34 per cent. Major merchandise and service exports were: tourism, coal, crude petroleum, non-monetary gold, iron ore, aluminium, education, wheat, bovine meat, aluminium ores, passenger motor vehicles, wool & alcoholic beverages. In 2003 merchandise exports to the APEC region valued at $76 billion; East Asia $56 billion; European Union $15 billion and North America $11 billion. Coal ($ 11 billion), non-monetary gold ($ 6 billion) and iron ore $5 billion) were Australia' s largest individual merchandise export items. Service exports reached $33 billion in 2003 - 23 per cent of total exports. Australia is the world's fourth largest exporter of wine (after France, Italy and Spain) - exports topped $2. 4 billion in 2003.

The value of exports of passenger motor vehicles has more than doubled since 1998 to a total of $3. 1 billion in 2002 -

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one-third of all vehicles manufactured in Australia are now exported. The United States was Australias largest source of imports with $20.5 billion, or 15.8 per cent of the total, followed by Japan ($16.27 billion) and China ($14.3 billion). o Passenger motor vehicles ($10.7 billion), crude computers ($4.8 billion) and aircraft parts ($4.5 billion)
*Source: http://www.dfat.gov.au/trade/trade_fast_facts.html were Australia's largest import items.

1.9 What Happens When We Attempt to Enter Global Markets?

We examine the political, legal, cultural, economic and financial systems that are operating and estimate alternative futures We evaluate the infrastructure using reliable data sources We assess these against the core competencies of our company We use proven frameworks for analysis of markets and business entry, such as SWOT analysis, gap analysis, etc. We search for appropriate partners to conduct business with. When expanding internationally, many companies attempt to use alliances with major players such as the alliance of Apple with Hewlett Packard to facilitate foreign market expansion.

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Activity 1.2 International Marketing Differences 1. What are the differences between marketing domestically and internationally? _____________________________________________________________________ When targeting foreign markets, an understanding and awareness of the different _____________________________________________________________________ culture, both business-wise and socially, need to be gained. You'll need to _____________________________________________________________________ conduct research into accepted business and marketing practices in your foreign _____________________________________________________________________ target market. All the environmental factors, such as demographics, economic, _____________________________________________________________________ social conditions etc, will, as with any market segment, impact on the way _____________________________________________________________________ marketing practices and opportunities are handled. _____________________________________________________________________ _____________________________________________________________________

1. Why should a business operating in the New Zealand domestic market, be concerned with what is happening in the international business environment? _____________________________________________________________________ Understanding the global market is essential to most businesses even if they are not _____________________________________________________________________ going to enter foreign markets. From an exporting or importing view point, it is _____________________________________________________________________ wise to be aware of international trade patterns amongst those countries particularly _____________________________________________________________________ in your region and also outer regions, so that changes in the environment can be _____________________________________________________________________ managed with as minimal interruption as possible. If you are unaware of the _____________________________________________________________________ environment around you, often the impacts may be greater, and not always _____________________________________________________________________ welcomed. _____________________________________________________________________

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1.10 What is E-Commerce?

Electronic commerce is the exchange of business information and transactions using electronic methods. E-commerce includes all the ways by which activities and transactions are conducted in a space environment as compared to physical or traditional place environment. It covers the range of online business activities for products and services, both business-to-business (B2B) and business-toconsumer (B2C), through the Internet. Corporate Express is one of the worlds largest business-to-business suppliers of office and computer products and services, with stores located around the

globe. At Corporate Express Australia, e-procurement (the purchasing of goods and services using the Internet) has been incorporated into every aspect of the business since 1997. Internet orders account for 40% of Corporate Express Australias total sales. It is Australia's most transacted B2B site, with 50,000 users turning in 3,500 orders per day. Corporate Express experience in building the largest B2B site in Australia has reinforced its belief that ecommerce should not be a separate part of the business. It needs to be recognised as an alternate channel but must be fully incorporated with all business processes. 1 1.11 Benefits of E-Commerce to Business

Makes the size of a company irrelevant as large and small companies have the same access to customers and can create the same kind of Internet presence. Customers located anywhere with Internet facilities, can access the companys site. Support can be provided to customers outside of the companys geographic area.

CSO, (2001) Reclaiming E-Space, http://www.cio.com.au/index.php?id=711761977

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Teacher Note: Encourage students to consider and discuss other benefits that ecommerce has to an international marketing firm.

Activity 1.3 E-Commerce Benefits What other benefits does e-commerce provide to an international marketing firm?
Possibly low overhead costs initially during introductory stage of entry _____________________________________________________________________ Producing and distributing promotional material online _____________________________________________________________________ Market development in new regions suggest new customers and greater _____________________________________________________________________

potential for market share _____________________________________________________________________

Increases feedback as there is instantaneous access to your customer _____________________________________________________________________

responses through contact us links on company websites _____________________________________________________________________

These are followed by customer loyalty building, boosting revenues and a _____________________________________________________________________

new channel to the market _____________________________________________________________________

As customers have anonymity, they may purchase products they wouldnt _____________________________________________________________________

normally feel comfortable buying; this is encouraging for businesses _____________________________________________________________________ _____________________________________________________________________

Example of Ecommerce in Business: Micks Whips Overcomes Isolation Micks Whips founder, Michael Denigan, sells high quality-hand made leather products from an isolated property near Noonamah, 80km south of Darwin. Michael Denigan has been selling his whips online since 1996, three years before his property was connected to power, telephone and water. The Micks Whips Internet site is hosted at an Internet service provider in Darwin, which initially relayed orders via a 18

mobile telephone linked to a car battery. Since the workshop was connected to power and telephone lines, the business functions more efficiently and has tripled its workforce. The business does not simply sell online, it has appointed a US-based agent and distributor, and can now source raw materials more efficiently.

1.12 Industries Embracing E-Commerce New technologies have always played a significant part in the development and expansion of trade. Today, communications technology is having a major impact on international trade in terms of the amount of trade and the way it is conducted. The time and distance barriers affecting Australia are disappearing. Internet technology provides opportunities to develop new areas of international competitiveness and innovative capacity for firms. The emergence of the Information Superhighway has removed the geographic, time and financial barriers to a company marketing its products to a global market. Ecommerce does not need to be difficult or complex. It can be as simple as using the Internet as a business research tool or as complex as running an entire business online. However, the key challenge for Australian business is to move beyond the simple use of the Internet as an informationgathering tool and to integrate productivity enhancing software. In some cases, this may require considerable cultural and organisational change. Industry Example: Hospitality Industry Utilising Ecommerce A growing number of companies in the travel industry make use of the Internet platform as virtual shops for marketing and selling travel products and services. The followings are indications of the current trends in the hospitality industry:

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1. Many hotels have set up their own Web sites to market and sell their hotel rooms (e.g. Holiday Inn, Sheraton Hotels, the Marriott chain). Most sites allow visitors to check rates and availability, make reservations, and receive a confirmation number within a minute or so of the reservation request. 2. Airlines (e.g., Air-Mauritius, Qantas, Singapore Airlines) are selling tickets via their Internet portal at reduced prices. 3. Car rental companies do not hesitate in putting up Web sites to handle reservations (e.g. Hertz, Avis). 4. Travel companies compete with one another and various Internet travel portals by offering their own Internet e-shops that market their travel packages as well as provide reservation services for airfares, lodgings, and various travel products (e.g. Flight Centre, Harvey World Travel). 5. Internet portals that offer general travel information and related services (e.g. travel.yahoo.com, travel.lycos.com, travelocity.com) are quite common. 6. There are plenty of vertical portals that were set up to provide niche travel services. Some concentrate on offering reservation services for hotels and resorts in Asia (e.g. AsiaTravel.com, Ginz.com for the South-Pacific, NewZealand and Australia region), some specialise in providing discounted lodgings in the US (e.g. Travelscape.com), some specialise in air tickets booking worldwide (e.g. Airfares.com), and others cater specifically to travel needs of students and youths (e.g. STAtravel.com).

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1.13 Electronic Commerce and Transport A major cost of international trade is managing the paperwork required by freight forwarders, shippers, insurers, trade financiers, customs and quarantine agencies. The average international transaction involves 2730 different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times) and the re-keying of 6070 per cent of data at least once. E-business assists in reducing the time it takes to handle export documentation. Businesses can save time and money with e-business technologies by integrating information from the land transport provider to the many parties involved in shipping goods to overseas markets. Bills of landing, customs documentation and quarantine/sanitation clearances can be obtained electronically, meaning that freight moves faster and suppliers are paid earlier.

Activity 1.4 Industries Online List three industries that use ecommerce to conduct part of or all of their business. How is the Internet used in each of those industries? For example: Airline Industry: - E-commerce is used for online flight reservations, and payment of tickets can be completely performed online. (Do not use this example in your answer) _____________________________________________________________________ Music industry: Provides online music for consumers to sample or purchase; _____________________________________________________________________ Enables consumers to customise their CD with a selection of their favourite _____________________________________________________________________ songs; _____________________________________________________________________ Banking industry: Provides online banking facilities for customers to conduct _____________________________________________________________________ transfers, enquiries, balances etc; _____________________________________________________________________ Book industry: Sells books online, provides samples and excerpts from books; 21

_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

Activity 1.5 Internet-International? Do you think that ALL businesses involved in ecommerce, should be considered as international companies? Explain _____________________________________________________________________ Not all online companies service international markets. Just because Websites can _____________________________________________________________________ be accessed globally, it does not necessarily mean that the company intends to serve _____________________________________________________________________ all markets. Some companies may choose to have a website to serve only the local _____________________________________________________________________ or national market. For instance, your local electronics store may have a website _____________________________________________________________________ which allows consumers within a particular region/area to purchase products online _____________________________________________________________________ and includes home delivery. It may be accessed globally but that does not make it an _____________________________________________________________________ international company. _____________________________________________________________________

1.14 Trading Liberalisation and Protectionist Arrangements Technically, free trade means that there are no restrictions on trade between nations. This situation will never exist because all nations have very strict rules about trading in some items, such as narcotics and pornography, or may ban goods for quarantine reasons, such as meat products from countries with outbreaks of mad cow disease.

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Trade liberalisation is the movement to remove barriers that restrict imports. Liberalised trade lowers the cost of goods for consumers by removing tariffs and it frees up subsidy (funding) money for other social services. Trade protection exists when a country restricts the imports of goods and services from other countries in order to protect local producers from overseas competition. Trade protection can take a number of forms: Tariff (customs duty): a tax on imported goods or services, usually a percentage on the price, is collected at the entry point. Tariffs are the most common protection method and usually make imported goods or services more expensive than the local version. Quota: a limit on the quantity of a good that can be imported for a specific period. Embargo: a complete ban on the import of a product for economic, political, religious, security or quarantine reasons. Voluntary Export Restraint: an exporting country limits the quantity of exports of a product to a particular country. Subsidy: a benefit to local producers and export firms, for example, money to help lower costs, tax benefits and exemptions, and support. Anti-dumping rules and legislation: protect local producers from overseas producers who sell their goods in foreign markets at lower prices than at home or below production costs. Hidden barriers: quality, labelling, safety and packaging requirements that make it difficult for an importer to sell their products into a market. These add significantly to final costs. Some barriers are legitimate but many are intended to restrict imports.

1.15 Trade Liberalisation and Protection in Australia The Australian government is committed to opening new trade markets and continued trade liberalisation by lowering trade barriers. As a medium-sized economy Australia benefits from a 23

rules-based system of trade, including forming bilateral and regional trade arrangements and implementing multilateral reforms. Over the last 25 years the Australian government has significantly reduced the levels of assistance to Australian industry. In 19723 the average rate of assistance in manufacturing was 25 per cent with some sections much higher, but by 20001 the average rate was 5 per cent. The government calculates the rate of industry assistance in two ways. Firstly, the nominal rate of assistance shows the percentage increase in domestic prices from protection measures. Secondly, the effective rate of assistance measures the costs and benefits of protection on inputs as well as outputs. It gives a more complete picture of the rate of protection operating and its impact on prices.

1.16 Trading Blocs The world is increasingly divided into trade blocs. A trade bloc is a large free trade zone or near-free trade zone formed by one or more tax, tariff and trade agreements. There are a number of types of trade blocs:

Free Trade Areas Customs Unions Common Market Economic Union

For further information refer to page 34 of your prescribed text book.

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1.17 Trade Agreements and Trade Organisations Individual nations and groups of nations have responded in different ways to production, trade liberalisation and protection. Many countries and regions have formed trading blocs with agreements that allow them to trade more freely with one another. On a larger scale, world organisations and agreements play a role in world trade and the development of approaches to increase world trade, assist nations in their trading activity and to provide a rulesbased approach to world trade. We will now explore some of the trade agreements and organisations in brief detail: The World Trade Organisation The World Trade Organisation (WTO) is the international body that deals with the rules of international trade. The WTO agreements provide the legal ground-rules for international commerce. The Organisations main purpose is to increase global economic welfare by reducing barriers to international trade. One of the WTOs most important functions is to provide a forum for multilateral trade negotiations. The WTOs dispute settlement system is also vital to maintain these rules. According to the main principles of the WTO agreements, the world trading system should be:

Without discrimination: a country should not discriminate between its trading partners and it should not discriminate against foreign products and services Freer: with trade barriers and other distortions coming down through negotiation Predictable: foreign companies, investors and governments should be confident that Trade barriers (including tariffs, non-

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tariff barriers and other measures) should not be raised arbitrarily; more and more tariff rates and market opening commitments are bound in the WTO

Competitive: by discouraging unfair practices such as export subsidies and dumping products at below cost to gain market share More beneficial for less developed countries: by giving them more time to adjust, greater flexibility, and special privileges.

Besides the WTO, there are many other trade agreements and global economic organisations:

APEC Asia-Pacific Economic Cooperation ASEAN Association of South-East Asian Nations EU - European Union NAFTA - North American Free Trade Agreement Mercosur GATT General Agreement on Tariffs and Trade Cairns Group Agricultural group OECD Organisation for Economic Cooperation and Development UNCTAD United Nations Commission on Trade and Development World Bank IMF International Monetary Fund World Economic Forum

Teacher Note: Advise students to bring textbook to class for this activity. Internet access required also. Allocate a trade organisation OR agreement as listed on the previous page, to each group comprising of two to three students. Their task is to fill in the chart below and complete the questions. Students will then present the information to the class informally (no handouts required). The purpose is to increase student knowledge and awareness of different 26 trading organisations and agreements and to develop an understanding of how international markets are affected by such

Activity 1.6 Trade Organisations and Agreements The teacher will assign a trade organisation OR agreement to your group and you are required to investigate it. After completing the chart below, complete both questions. Present your findings to the class in a four to five minute talk. The information you are required to obtain is listed below: Organisations name Date formed Member nations (List countries) Brief history

Organisations goals

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Trade role

1. How does your selected trade organisation or agreement affect trading and international marketing opportunities for the member countries and non-member countries? __________________________________________________________________ Member countries of trade blocs are able to enter those foreign markets with __________________________________________________________________ minimal or no trade barriers, enabling companies to expand their business with __________________________________________________________________ more ease and reducing vulnerability of only servicing one market (home __________________________________________________________________ market). These countries that have been more open to trade and investment are __________________________________________________________________ able to achieve double the average annual growth than those countries with __________________________________________________________________ closed economies. Member countries have rules affecting investment, __________________________________________________________________ competition and standards, as well as environmental and labour policies. More __________________________________________________________________ individuals, firms and nations than ever before depend on the gains from trade __________________________________________________________________ and investment liberalisation. Non-member countries more barriers, therefore __________________________________________________________________ they will be facing tariff charges, quotas and other trade protectionist measures. __________________________________________________________________ __________________________________________________________________

2. Is it easy for non-members to join your trade bloc? What is involved? For example, do they need to be part of the region to join or is it based on something else? __________________________________________________________________ __________________________________________________________________ 28

__________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________

1.18 Australias Trade Policy Australias trade policy aims to:

Advance the interests of Australia and Australians internationally Contribute to the growth in Australias economy, employment and standard of living Foster public understanding of Australias trade policy and to project a positive image of Australia internationally

1.19 Policy in the Current Trade Environment We are now entering a challenging period for trade. A new WTO round was launched in Doha, Qatar in November 2001 with developing countries actively involved. China has joined the WTO and must now meet its obligations. The attack on the World Trade Centre on 11 September 2001 shook consumer and business confidence, causing an economic slowdown. Australia will meet these challenges through its multilateral, regional and bilateral strategies.

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1.20 Benefits of Free Trade and Problems of Trade Barriers 1. Protectionism keeps firms away from genuine competition. They may become lazy and inefficient 2. Free trade forces firms to produce quality goods and services as they face much foreign competition 3. If countries put up trade barriers then other countries are likely to retaliate 4. Free trade encourages firms to export and import. This should encourage a greater choice for consumers and a higher standard of living 5. Trade barriers increase the cost of trading. For example, a tariff would mean that firms and consumers may have to pay more for imports of raw materials or consumer goods

There are three popular trends that are likely to have the most impact on international business in the future: 1. Growth of the World Trade Organisation and region free trade areas (NAFTA, European Union, etc) 2. Trend of developing countries (such as Asia, Latin America, Eastern Europe) accepting the free market system 3. Impact of the Internet and other global media companies (CNN)

Activity 1.7 Questions 1. What is the difference between a tariff and a quota? _____________________________________________________________________ Refer to explanations on page 19 of this manual. _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

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2. Why are hidden barriers used as a protectionist measure? It makes it difficult for an importer to sell their products in a market because of the _____________________________________________________________________ costs involved to comply with standard and some not so standard or legitimate _____________________________________________________________________ barriers. _____________________________________________________________________ _____________________________________________________________________ 2. To what degree (amount of importance) is a global approach to international marketing appropriate to firms in Australia? _____________________________________________________________________ This depends at what stage the Australia firm is at in their international marketing, _____________________________________________________________________ and what level of experience the firm has in marketing overseas. For firms newer to _____________________________________________________________________ the business of international marketing, a global approach may not be appropriate. _____________________________________________________________________ A more cautious approach initially may be better suited until sufficient experience _____________________________________________________________________ is gained in multi country operations. _____________________________________________________________________ Firms that are better resourced in terms of time, money, people and capital may _____________________________________________________________________ launch into a full-scale global approach to international marketing, however, the _____________________________________________________________________ risks inherent in risking these resources for a global approach are great. _____________________________________________________________________

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2. Assess International Business and Ecommerce Market Factors

2.1 Economic and Political Factors in the International Market and the Impact on International Marketing Opportunities In the past fifty years the global economy has changed rapidly. Particularly marked has been the development of world economic integration and standardised products. Coca Cola, Nissan and Marlboro cigarettes are examples of products, which serve nearly every market. Economic progress is linked to world trade. Most industrialised nations trade with each other. This had led to their continued domination, particularly the USA, Western Europe and Japan, which between them have 66% of world gross national product (GNP) and trade. In 1985 industrialised trade to other industrialised countries accounted for 47% of trade, next came developing countries to industrialised (15%), and finally industrialised to developing countries (13%). Political influences can also be seen between trading partners, for example Zimbabwe's trade with China. Marketers need to identify trading patterns between nations and product trading patterns. East-West trade and West to the former communist bloc is likely to grow at the expense of North-South trade.

2.2 The International Financial System The International Monetary Fund deals with the international monetary system. The World Bank or

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International Bank for Reconstruction and Development (IBRD) deals with international capital. It provides long-term capital to aid economic development. The role of the World Bank has often been criticised especially on its conditionality for loans to Africa in funding structural adjustment and trade liberalisation programs. However many developing countries require institutional funding to help them with trade and balance payment problems. 2.3 Measuring Markets There are a number of different ways of assessing the size of economies in different countries. General indications of market size include population (growth rates and distribution), income (distribution, per capita, GNP) infrastructure, physical quality of life, debt and resources. A) Population In general, the larger the population, the bigger the market. However there is no correlation between income level and population. China has more than 1 billion people, India 1 billion, Zimbabwe 8 million. However, they do not have the same income per capita as the USA or UK. In 1993 the USA population of 252.2 million, the UK 57.4 million and Africa 400 million, were respectively 6%, 1.5% and 9% of the world's population. However the USA and UK had a substantially higher GNP per capita income than Africa, US$ 22,520, UK $17,300 and Africa $ 270 respectively. B) Income Income is the most important variable affecting market potential. Markets are not markets without money to spend. Countries are

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often classified according to levels of income and measured by GNP per head. The extent to which income varies between countries impacts on the ability of the country to fund future development. The degree to which average levels of personal income vary between countries also impacts on the ability of people to buy consumer goods. More than money makes up an economy's economic environment. Natural resources -raw materials now and in the future are important. If synthetic gold or tobacco were developed or, in the case of the latter, became unfashionable, Zimbabwe's economy would be ruined. C) Infrastructure Infrastructure is a very important element in considering whether to market in a country or not.

Commercial infrastructure is vital banks, accounts, advertising agencies and other services. Without these transaction facilities, exporting or international market entry cannot take place. Communications are essential. India has only some ten million telephones to a population of one billion people. Media availability is important. Energy consumption shows the overall industrialisation of a society as does its infrastructure. The less energy is consumer, the less likely the development of the market resulting in a not too attractive market proposition.

D) Physical Quality of Life This is a measure of the level of welfare in a country factoring into consideration:

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Life expectancy; Life mortality; Adult literacy rates.

E) Debt A nations level of external debt, that is, debt to other countries, indicates that capacity and propensity of that nation to borrow money to finance economic activity. Nations that have large external debt often export more than they import, hence, they could be an international target destination for a firms domestic product. F) Resources National resources are one indicator of a nations wealth. Access to these productive resources gives that nation (and its exporting firms) a certain competitive advantage that other nations dont have. For example, Australia has an abundance of relatively cheap land, which foreign direct investors may acquire with a view of establishing manufacturing facilities for marketing products within Australia.

2.4 Stages of Market Development Global markets are at different stages of development, which can be divided into five categories based on the criterion of GNP per capita: i) Preindustrial countries - incomes less than US$ 400 GNP per capita. Limited industrialisation, low literacy rates, high birth rates, heavy reliance on foreign aid, political instability. Parts of SubSaharan Africa. Little market potential. ii) Less developed countries - per capita between US$ 401 and US$ 1,635. Early stages of industrialisation, growing domestic market, mature product markets, increasing competitive threat. iii) Developing countries - per capita income between US$ 1,636 and US $ 5,500. Decrease in percentage of agricultural workers, 35

industrialisation, rising wages, high literacy rates, lower wage rates than developed countries, formidable competitors. iv) Industrialised countries - per capita income between US$ 5,501 and US$ 10,000. Moving towards post industrialisation, high standard of living. v) Advanced countries - per capita income in excess of US$ 10,000. Post industrialisation, information processors, knowledge based, less machine based. Product opportunities are in new products, innovations and raw materials plus fresh foods.

2.5 The World Bank Classification The World Bank has drawn up a classification of economies based on GNP per capita. i) Low income economies: China and India, other low-income-GNP per capita income of between US$ 675 or less, 41 nations including Tanzania, Kenya, Zambia and Malawi. ii) Middle income economies, lower middle income: GNP per capita of between US$ 676 and US$ 2,695, 40 nations including Zimbabwe, Mexico and Thailand. iii) Upper middle income: GNP per capita of between US$ 2,676 and US$ 8,355, 17 nations including Brazil, Portugal and Greece. iv) High income economies: OECD members and others, GNP per capita of between US$ 8,356 or more, 24 nations including UK and the USA. v) Other economies - communist bloc. In 1960, the American Economic Historian, WW Rostow suggested that countries passed through five stages of economic development:

Stage 1 Traditional society: little increase in productivity, no modern science application systematically, low level of literacy

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Stage 2 Transitional (the preconditions of takeoff): modern techniques in agriculture and production, developments in infrastructure and social institutions Stage 3 Takeoff: normal growth patterns, rapid agricultural and industrial modernisation, good social environment. Stage 4 Drive to maturity: modern technology applied to all fronts, international involvement, can produce anything Stage 5 High mass consumption: production of durable goods and services

These classifications enable marketers to assess where and how to operate in countries, which may display the stage characteristics. For example African exporters would look to stage 4 and 5 economies to obtain the greatest revenue opportunities for other produce.

2.6 Foreign Exchange Issues 1. Dynamics the risk that the exchange rate in a certain transaction will change significantly between the time the sale is made and the time the money/payment for the sale is received by the seller (international marketer). This could impact on the selling firms pricing strategy and profits. 2. Forecasting Economic and political factors are important in attempting to predict future exchange rates. Political stability of governments, political ideology, type of government (e.g. democratically elected or autocracy) Economic - the relative performance of a nations economy (for example interest rates, economic growth) at a given point in time

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3. Managing Foreign Exchange Risk Firms undertake a certain level of foreign currency risk when marketing internationally. This risk is either -: a) Transaction exposure the risk of not being paid; b) Translation exposure the effect of translation overseas results into domestic currency; c) Economic exposure Overseas economic circumstances impacting adversely on the prevailing exchange rate. 4. Multiple Exchange Rates involves the overseas government setting separate exchange rates for different economic sectors within a nation.

2.7 Political Understanding in Marketing The legal and political atmosphere varies across national borders. Different countries have different legal policies. There are laws to which a marketer must abide by when marketing internationally. Some countries enact laws to protect consumers or to preserve a competitive atmosphere in the marketplace. Since many countries maintain regulations concerning their products and packages, the wording or colour of a package can create difficulties. Certain issues in the political environment are particularly significant. Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means. Some countries have little tradition of democracy, and thus it may be difficult to implement. For example, even though Russia is 38

supposed to become a democratic country, the history of dictatorships by the communists and the czars has left a country of corruption and strong influence of criminal elements. Later on we will examine the political factors and risks involved when dealing with international markets.

2.8 The Role of Government in the Economy 1. Participator The government establishes state based trading companies and actively participates in the nations economy through various trading activities. Commonly found in countries with communist regimes. 2. Facilitator The government facilitates trade by (for example) offering tax concessions, rent free properties, concessional loans, etc., to attract foreign investment into the economy. 3. Regulator The government regulates economic activity in a country through its funding and taxation imperatives. These may include import/export embargoes, boycotts, and joint venture agreements.

2.9 Social and Cultural Factors and the Impacts on International Marketing Opportunities If you are considering the notion of entering international markets, cultural factors must be taken into account, as there may be little or no demand for your product, based on differences in culture between the home country and other countries. Before entering the international market, here are some questions to answer about the proposed market: 1.What is the dominant religion? 2.What are attitudes to foreign products and services?

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3.Does language impact upon the diffusion of products onto markets? 4.How much time do consumers have for leisure? 5.What are the roles of men and women within society? 6.How long are the population living? Are the older generations wealthy? 7.Do the population have a strong/weak opinion on green (environmental) issues?

2.10 Dealing with Culture in Marketing Conducting business across international borders requires the international marketing firm to appreciate and understand that their overseas trading partners and consumers may have different attitudes, beliefs, perceptions, values and language. All of these factors are elements of culture. Culture is a problematic issue for many marketers since it is quite vague and often difficult to understand. One may violate the cultural and social norms or customs of another country without being informed of this, and people from different cultures may feel uncomfortable in each others presence without knowing exactly why (for example, two speakers may unconsciously continue to attempt to adjust to reach an incompatible preferred interpersonal distance). It might not be easy for marketers from Western countries, which are defined as modern-based culture, to understand the market system in developing countries, which are categorised as traditionbased culture. This uneasiness could also happen within modernbased cultural societies. For instance, many American marketers find it difficult to understand the French governments actions restricting retail store size, especially after the success of efficient supermarkets. It suggests that the action by the French

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government to protect local small businesses, passing up the economic efficiencies of distribution obtained by large-scale retail distribution systems, may be cultural in nature. Problems that occur because of cultural differences, can be overcome, as long as the marketer has an awareness of and sensitivity to these cultural differences.

2.11 Definition Culture has many definitions. The textbook provides some of the dynamics that are included in the definition of culture. Teacher Note: Encourage students to develop their own definition and compare and contrast their definitions with fellow students.

Activity 2.? What is Culture to Me? Provide a meaning of what culture is to you. Do not worry about what your friends are writing; there will be opportunity to share responses at the end. Your definition: _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ Class definition: _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

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2.12 Elements of Culture A) Material This element consists of both technology (techniques required to produce goods) and economics (related to the level of demand for certain goods and services). This element of culture affects peoples work ethic, consumer practices, attitude towards new technology, and the transportation & storage of products. B) Social Institutions Includes family, educational providers, political parties, and social organisations. It considers how people relate to each other within or outside certain groups. This affects international marketing because there are different roles of men and women in different societies; needs and wants may vary a lot. C) Relations with the Universe This may include religious beliefs, symbolic meanings, and superstition. Religious beliefs can affect holidays, foods consumed, role of men and women, family attitudes and politics. Having an understanding and awareness of these differences can explain peoples behaviour. D) Aesthetics These are ideas concerning beauty and good taste. This includes art, music, drama, and dance all of which play a role in interpreting symbolic meanings in each culture. E) Language Language shapes peoples view of the world and provides a basis by which people of a culture not only communicate within that culture

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but also outside that culture. When dealing with foreign businesses, the communicator must be aware that literal translations of their words, advertising messages and so and, can often alter the message, resulting in quite a different, and sometimes inappropriate meaning.

Activity 2.? How could aesthetics, as an element of culture, affect marketing decisions in the international context? _____________________________________________________________________ Marketing decisions are affected by aesthetics because of peoples varying tastes in _____________________________________________________________________ music, art, drama, folklore, dancing, symbols (unlucky and lucky), preferred colour _____________________________________________________________________ and designs. International marketers should have an awareness and understanding of _____________________________________________________________________ these factors because they can influence a consumers purchase behaviour. Product _____________________________________________________________________ packaging, design and promotions will need to be altered accordingly; Distribution _____________________________________________________________________ channels selected carefully, for instance in Japanese consumers want goods from _____________________________________________________________________ stores with honoured reputations so it is important that appropriate distribution _____________________________________________________________________ channels are used. _____________________________________________________________________

2.13 Cultural-Related Factors that Impact on Marketing A) Knowledge Knowledge of another culture can be interpretive or factual. Interpretative knowledge is based on feelings, intuition and is often influenced by past experiences. Factual knowledge conveys meaning about a culture. It is accurate and true when interpreted within the context of a specific culture. For example, an Australia doing business in Indonesia and Malaysia would need to recognise

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that the Chinese community largely controls both countries. However there are differences in the way one would need to communicate and negotiate with each country. B) Sensitivity Cultural sensitivity involves being aware of the nuances of different cultures and having empathy towards those cultures. C) Collectivism In a collectivist culture, group norms and behaviours are more common than individualistic expression or behaviour. This impacts on consumer decision making for many varied products. D) Social Conventions Social conventions are amongst other things related to eating, diet and dining habits exhibited in overseas nations. They are behaviours and norms accepted by the greater community members which determine how to behave within a group and also how not to behave. It hopes to provide some stability and consistency within the social system. E) Cognitive Styles This concept relates to brand loyalty, and the degree to which a nations culture influences the likelihood that consumers in that nation switch brands. Similarly, cognitive styles also relates to the perception of risk associated with buying, owning and using products.

2.14 Warning About Stereotyping When observing a culture, one must be careful not to overgeneralise about traits that one sees. When there is often an ounce of truth to some of the perceived differences, the temptation to over-generalise is often strong. Note that there are often significant

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individual differences within cultures. Countries fall on a continuum of cultural traits. The most comprehensive attempt to measure cultural differences on a global basis was by Hofstede. Hofstedes research demonstrates a wide range between the most individualistic and collectivistic countries. 2.15 Hofstedes Dimensions Gert Hofstede, a Dutch researcher, was able to interview a large number of IBM executives in various countries, and found that cultural differences tended to centre around four key dimensions:

Individualism vs. collectivism: Describes the degree to which a culture relies on and has loyalty to the self or the group. In other words, to what extent do people believe in individual(individualism) responsibility and reward rather than having these measures aimed at the larger group (collectivism)? Contrary to the stereotype, Japan actually ranks in the middle of this dimension, while Indonesia and West Africa rank toward the collectivistic side. The U.S., Britain, and the Netherlands rate toward individualism. Power distance: To what extent is there a strong separation of individuals based on rank? Power distance tends to be particularly high in Arab countries and some Latin American ones, while it is more modest in Northern Europe and the U.S. Masculinity vs. femininity: Masculine values involve competition and conquering nature by means such as large construction projects, while feminine values involve harmony and environmental protection. Japan is one of the more masculine countries, while the Netherlands rank relatively low. The U.S. is close to the middle, slightly toward the masculine side. Uncertainty avoidance: This is the extent to which a structured situation with clear rules is preferred to a more ambiguous one; 45

in general, countries with lower uncertainty avoidance tend to be more tolerant of risk. Japan ranks very high. Few countries are very low in any absolute sense, but relatively speaking, Britain and Hong Kong are lower, and the U.S. is in the lower range of the distribution. Although Hofstedes original work did not address this, a fifth dimension of long term vs. short-term orientation has been proposed. In the U.S., managers like to see quick results, while Japanese managers are known for taking a long-term view, often accepting long periods before profitability is obtained.

Activity 2.? Factual or Interpretive Knowledge Instructors should identify three countries and ask students what factual knowledge they have about each country and what interpretive knowledge they have about these countries. How might this knowledge impact your view of the countries potential international competitiveness? _____________________________________________________________________ _____________________________________________________________________
Knowledge held about a country may be inaccurate or out of date, resulting _____________________________________________________________________

in poor decision making about international marketing opportunities _____________________________________________________________________ (country is viewed as a favourable market to enter based on out of date _____________________________________________________________________ information, when in fact it poses weak marketing opportunities) _____________________________________________________________________
Alternatively it may also lead to misinformation and marketing strategies _____________________________________________________________________

being based accordingly _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

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_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

Activity 2.? Collectivism in International Marketing i) List four countries that show signs of being a collectivist culture China, Taiwan, Hong Kong, Indonesia, Singapore, East Africa (Collectivism) _____________________________________________________________________ Extra Notes: US, Australia, New Zealand, Sweden Germany (Individualism) _____________________________________________________________________ ii) G&H Food Supplies are a company from New Zealand (NZ), who manufacture frozen food products. They have recently decided to export their line of frozen ready-to-heat-and-eat products to the major cities in Thailand, a country with a high degree of collectivism. NZ have a higher degree of individualism. Marketing activities for the frozen food products in Thailand will need to be altered to appeal to the Thai consumers lifestyle and cultural needs. How might the collectivist nature of the Thai people impact the marketing strategies for G&Hwhat the cultural values are of the Thai The company will need to find out Food Supplies? _____________________________________________________________________ consumers, so that these values can be reflected in the marketing activities. As _____________________________________________________________________ Thailand leans heavily towards collectivism, or more so than New Zealand, then _____________________________________________________________________ meal preparation with the family members may be considered quite a significant _____________________________________________________________________ part of the meal ritual. As frozen ready-to-eat meals, do not require any _____________________________________________________________________ preparation, marketers will need to appeal to other cultural values. Promoting _____________________________________________________________________ convenience in meal preparation, allows more time for families to spend time together, in-store promotions are a popular method of increasing product awareness in Thailand as consumers believe this is a strong testimonial of the product. 47

_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

Activity 2.? Identify one Asian country and discuss how social conventions can affect how an Australian firm conducts their business in this country. _____________________________________________________________________ Answers will vary depending on chosen country. _____________________________________________________________________ Example answer: _____________________________________________________________________ Negotiation techniques may differ _____________________________________________________________________ Appropriate conversation topics in business dealings might be different _____________________________________________________________________ amongst nations _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

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_____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

2.16 Cultural Levels Culture operates on three different levels: national, industry and organisational. A) National This level of culture impacts on dealings with foreign national governments. Reflected in the values on which laws and institutions are based. B) Industry Culture impacts on negotiations with a specific industry and is reflected in the norms and laws that govern the activities performed in that industry.

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C) Organisational Often referred to as corporate culture, organisational culture impacts on trade negotiations with overseas-based firms. It includes a code of ethics and attitudes towards employees.

2.17 High vs. Low Context Cultures Cultural meaning and communication can be understood in terms of the context in which the culture exists. In high context cultures, the communicators body language, tone of voice, facial expression, values and background, all play a role in communicating the message to the receiver, more so than the words by themselves. For example, in a high context culture such as Japan and Latin America, the words only convey a small portion of the message, and the rest is left for interpreting via non-verbal cues. In low context cultures such as North America and most of Western Europe, logic, facts and directness are valued. The communication relies on verbal cues to convey most of the message. For further explanation, refer to Figure 3.5 and Table 3.1 (Pg.73 textbook). In some cultures, what you see is what you get - the speaker is expected to make his or her points clear and limit ambiguity. This is the case in the U.S. - if you have something on your mind, you are expected to say it directly, subject to some reasonable standards of diplomacy. In Japan, in contrast, facial expressions and what is not said may be an important clue to understanding a speakers meaning. Thus, it may be very difficult for Japanese speakers to understand anothers written communication. The nature of languages may worsen this phenomenon - while the German language is very precise, Chinese lacks many grammatical features, and the meaning of words may

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be somewhat less precise; English ranks somewhere in the middle of this continuum.

2.18 International Negotiations Negotiation techniques will need to be altered when engaging in international business because of the cultural differences between countries:

Different approaches to thinking displays itself in the ways other cultures reach an agreement. Self Esteem and Face In negotiations give and take and the concept of face (especially in Confucian cultures of Asia) are crucial in trade negotiations as well as social settings. Value systems these differ from culture to culture and include heritage, history and tradition. Appropriate degree of formality Assumptions about the degree of formality needed in a particular social or negotiation setting can lead to embarrassment for the Australian exporters. It is useful to know before any negotiations take place how formal or informal the discussions will be. Harmony and Emotion In many Asian countries (especially Japan) harmony is greatly valued. This therefore critical that excessive display of emotion is not exhibited when conducting trade negotiations with these cultures.

Teacher Note: For activity 2.?, ask students to refer to pages 89-96 of text book for assistance. The whole class should work through this activity together, with the teacher leading discussion, alternatively it can be assigned for homework.

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Class Activity 2.? In Context Consider a situation where an Australian firm is sending a negotiation team to Japan for high-level trade negotiations. The key negotiator for the Australian firm is a woman. In Japan however, women are rarely included in business negotiations. The Japanese may seem offended that the Australian representatives have included a female in their team. How does the Australia team deal with this cultural issue? To leave the female behind would weaken their negotiation team. To bring her along may cause a cultural embarrassment. What would you do? _____________________________________________________________________ Learning as much as possible about every relevant issue, as well as Japanese _____________________________________________________________________ language and culture, can help in gaining acceptance. _____________________________________________________________________ Ensure that the Japanese colleagues are informed of the key negotiators status as _____________________________________________________________________ early as possible, otherwise they may assume that she is playing only a supportive _____________________________________________________________________ role. _____________________________________________________________________ Try to have a male colleague introduce the woman with her qualifications. When she _____________________________________________________________________ is introducing herself, she should state her name and title. _____________________________________________________________________ As a woman, shell have to work harder and be exceedingly more dedicated and _____________________________________________________________________ flexible. If she succeeds in establishing solid relationships, she may possibly achieve _____________________________________________________________________ success surpassing what could be accomplished in her own country. _____________________________________________________________________ The best way to overcome these cultural obstacles is to make a concentrated effort to _____________________________________________________________________ demonstrate your skills and professional competence; these qualities are respected _____________________________________________________________________ whether you are male or female. _____________________________________________________________________ Appearing overly confident, aggressive or extroverted may place you in a more _____________________________________________________________________ difficult position. _____________________________________________________________________

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2.19 Social Aspects of International Marketing A) Social Sensitivity Culture influences the way people behave in social settings. Understanding the social-cultural differences is as important to business dealings as is awareness of business culture. B) Lifestyle Trends People are often influenced by other actions and they will conform to the majority of society and how they behave. This also influences then what they buy and impacts upon their attitudes. C) Consumer Attitudes And Opinions Consumer attitudes and opinions will affect product choice. Consumers may have a set mind frame of what they think of foreign products, this can affect their desire to purchase certain products. D) Ethical considerations

2.20 International Market Trends And Developments Are Investigated To Identify Market Needs Relative To The Business Distribution channels, infrastructure, government assistance, incentives, political systems and so on are all important factors to bare in mind when assessing international business and ecommerce market opportunities. Understanding each foreign markets capabilities and policies, allows one to make a solid judgement of the market if they are to enter. For those businesses choosing exporting as their way of engaging in international business, making a careful selection of market segments and distribution channels is of the utmost importance. A strong and reliable relationship with an importer or 53

distributor is an absolute must in building up a profitable business. Depending on the products, it may be necessary in the long run to choose more than one importer, possibly even from different geographical areas, to reduce transportation costs once products are in the country. Distribution Channels A distribution channel refers to the process of making a product or service available for use or consumption by the consumer or business user. The ability of the firm to select, manage and motivate its distribution channel members in overseas countries is crucial to the survival of the firm in those foreign markets. These distribution channels provide links between the manufacturer and consumers of the product, yet they may operate differently from those in the domestic market for various cultural or competitive reasons. Products may be distributed through channels which are different to those used in the home country. For example, US based company The North Face (who produce performance climbing and backpacking equipment as well as clothing and accessories), distribute the products through their own stores, whereas in international markets such as Australia and Germany, they are distributed through specialty outdoor stores and boutiques. Technological and Telecommunications Infrastructure Infrastructure refers to physical structures that form the foundation for development. There are three main components:

Bricks n mortar infrastructure: public facilities, housing, transportation systems, power plants, transmission lines, and other improvements.

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Resource infrastructure: forests, parks, rivers, beaches, wetlands and energy sources that make up our natural assets and systems. Information infrastructure: technology and systems that provide access to the Internet, intellectual property, archives, digital content and the means to communicate information and ideas.

In addition to those above, there is also human infrastructure. This refers to the workforce and education. It is important to have an understanding of the technological and telecommunications infrastructure in a potentially new market, as this will affect the way business is conducted in that particular market place. The level of infrastructure impacts productivity, national growth, and development. It affects the choice of distribution channels, logistics, and whether or not the market offers any business opportunities. Countries with very limited infrastructure usually are not very competitive in the market place. Slow infrastructure development weakens market development, slows economic growth, and increases poverty. As poor infrastructure can lead to inefficiencies in the business environment, particularly in the international business environment, marketing opportunities are limited.

Government Assistance and Incentives In assessing the international business and e-commerce market factors, government assistance can be provided in several ways:

Training seminars and workshops Export opportunities and networking Government subsidies and grants

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Financial assistance directed towards setting up research and development programs Trade assistance and development

Government assistance is provided to improve the companys competitive position overseas and in the process enhance a nations competitiveness. The level and type of assistance a government can provide is restricted by the World Trade Organisation with the result that for the most part government assistance is restricted to back up services. Depending on trade policy and other factors, government intervention, varies between countries. There are a number of Australian state and federal government assistance programs available to export businesses. AusIndustry, the Commonwealth Governments business agency within the Department of Industry, Tourism and Resources, provides a range of incentives for businesses to foster investment and become more internationally competitive. Support is provided in the form of grants, tax concessions, duty concessions and access to venture capital. Other trade or international operations agencies provide market information, which offers assistance and strategic information about a series of key global markets. Included is information about the latest trade shows, fact sheets, and hints on how to do business, market trends, and so on. Political System A foreign countrys political-legal environment establishes the boundaries in which the international marketer can undertake marketing activity in that country. Whilst the laws overseas govern behaviour in walks of life, the aspects of the laws that are critical to the international marketing firm are those laws that relate to the

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marketing of goods and services, that is, the laws that specifically relate to the marketing mix.

2.21 What Are New and Emerging Markets? Assessing international business and ecommerce market factors involves exploring new and emerging markets. The term emerging market originally described a fairly narrow list of middle-to-higher income economies among the developing countries, with stock markets in which foreigners could buy securities. The terms meaning has since been expanded to include more or less all developing countries. Emerging countries account for approximately 80% of the worlds population, representing about 20% of the worlds economies. Countries whose economies fall into this category, varying from very big to very small, are usually considered emerging because of their developments and reforms. Hence, even though China is considered one of the worlds economic powerhouses, it is lumped into the category alongside much smaller economies with a great deal less resources, like Tunisia. Both China and Tunisia have begun to open up their markets and emerge onto the global scene. Emerging markets are considered to be fast growing economies. Emerging markets create new marketing opportunities for multinational corporations (MNCs) as new market segments evolve. The US Department of Commerce estimates that over 75 percent of the expected growth this decade will come from more than 130 developing and newly industrialised countries. A small core of these countries will account for more than half of that growth. They predict that the countries identified, as big emerging markets alone will be a bigger import market by the end of this decade than the

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European Union (EU) and will be importing more than the EU and Japan combined. With so many businesses in the developed world, investing in ecommerce like never before, many suppliers and partners of large corporations are forced to trade online. The cost savings are huge and the potential for global business is a viable (possible) option for many. Many of the big corporations have been willing to engage in ecommerce and make enormous changes to their business methods and networks. General Motors, for example, has indicated that in future it will only deal with those who can trade over the Internet. Similarly, Siemens (mobile phone manufacturer) has moved 70 per cent of its distribution partners to the Internet. BP, Shell and several other oil companies have joined together to form a global trading exchange.

2.22 Where Are The Emerging Markets? The countries considered as emerging markets by region:

Asia China, Hong Kong, Taiwan, Indonesia, India and South Korea Latin America Mexico, Argentina and Brazil Africa South Africa Europe Poland, Turkey

Vietnam, Thailand, Venezuela and Colombia can also be considered as newly emerging markets. Most of these emerging markets have similar traits:

Are physically large Have significant populations Represent considerable markets for a wide range of products

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Have all undertaken significant programs of economic reform Are all of major political importance within their regions Are regional economic drivers Will prompt further expansion in neighbouring markets as they grow

These markets are different from other developing countries because they import more than smaller markets and more than economies of similar size.

2.23 Why Are They Important To Multinational Companies (MNCs)? China has many market segments within the country defined both by geography and culture. Each of Chinas thirty-one provinces has its own characteristics and having a detailed knowledge of local culture is very useful. Currently, the interest by MNCs in China, for example, is mainly focused on the retail opportunity among Chinas 1.3 billion population and the potential for lower manufacturing costs. India is another country popular with MNCs, primarily for its lower cost but strong intellectual resources (high quality, well educated talent). With over twohundred and fifty million fluent English speakers and a far larger quantity of computer science graduates than anywhere else, it is not a surprise that in 2004, India was home to over half the worlds offshore business process outsourcing revenues. With growth rates of 22%, 74% and 146% in the fixed, mobile and Internet markets respectively over the last four years, India has not felt any of the worlds economic and telecommunications industry slowdown experienced in most other countries. 59

Russia is another significant emerging market. MNCs find this market attractive because of the graduates and the quality of software engineering in particular. These attractions have lead to long-standing investment by companies such as Hewlett-Packard, Sun and Nortel Networks.

2.24 What Are The Risks? Emerging markets are the livelihood of commerce and yet there are many risks. History provides many examples of failed attempts to capitalise on selling into a new population, out-tasking to make use of lower-cost labour or simply attempting to set up an effective presence in the chosen region. For all businesses there is a vital role in identifying and minimising the risks involved in international marketing. When a survey of over eighty MNCs worldwide, were asked the question, In which of the following emerging markets are you looking to expand your network in the next eighteen months? China, Russia and India came up as the most popular response for most MNCs. They did indicate however that entering these markets depended on the role technology played in achieving business goals and the availability and capabilities of existing technologies in such markets.

Which single country do you see as offering the greatest growth opportunity for your business over the next three years? (% Respondents; top six answers) China US India Russia Brazil UK 37 13 6 4 4 4

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Source: CEO Briefings Corporate Priorities for 2004, originally published by the Economist Intelligence Unit

Emerging market investments are exposed to several risks, including accelerated inflation, exchange rate changes, investment restrictions, macroeconomic and political distress. While individual country risks may be high, it is important to keep in mind that they have low association with each other. As a result, the overall performance of an emerging market portfolio can be quite stable if investments are spread out over several countries.

Activity 2.? Questions 1. The 130 developing and newly industrialised countries will account for more than __________ percent of expected world growth this decade. a) 50% b) 75% c) 65% d) 40% 2. i) What is meant by the term emerging market? The emerging markets comprise those nations whose economies are considered to be _____________________________________________________________________ developing or emerging from underdevelopment and usually include most or all of _____________________________________________________________________ Africa, Eastern Europe, Latin America, Russia, the Middle East and Asia excluding _____________________________________________________________________ Japan. _____________________________________________________________________ _____________________________________________________________________

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ii) List four countries, which are considered as an emerging market. Brazil, China, India, Russia, Argentina, Poland, Turkey etc. _____________________________________________________________________ _____________________________________________________________________

3.

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