DEFINITION OF INTERNATIONAL MARKETING International Marketing can be defined as exchange of goods and services between different national markets

involving buyers and sellers. According to the American Marketing Association, “International Marketing is the multi-national process of planning and executing the conception, prices, promotion and distribution of ideal goods and services to create exchanges that satisfy the individual and organizational objectives.”

CONCEPTS OF INTERNATIONAL MARKETING I. Domestic Marketing: Domestic Marketing is concerned with marketing practices within the marketer’s home country. II. Foreign Marketing: It refers to domestic marketing within the foreign country. III. Comparative Marketing: when two or more marketing systems are studied, the subject of study is known as comparative marketing. In such a study, both similarities and dis-similarities are identified. It involves an analytical comparison of marketing methods practiced in different countries. IV. International Marketing: It is concerned with the micro aspects of a market and takes the company as a unit of analysis. The purpose is to find out as to why and how a product succeeds or fails in a foreign country and how marketing efforts influence the results of international marketing. V. International Trade: International Trade is concerned with flow of goods and services between the countries. The purpose is to study how monetary and commercial conditions influence balance of payments and resource transfer of countries involved. It provides a macro view of the market, national and international. VI. Global Marketing: Global Marketing consider the world as a whole as the theatre of operation. The purpose of global marketing is to learn to recognize the extent to which marketing plans and programmes can be extended world wide and the extent to which they must be adopted.

Need for International Marketing:

(1) International interdependence of countries and growing world population: Self-sufficiency in all respects is not attained by any country in the world. Due to geographical and other factors, no country can produce all its requirements. There is international interdependence due to which

every country has to import certain goods and export goods, in order to pay for imports. The awareness of mutual dependence favors the growth of international marketing. (2) No uniform geographic and climatic conditions: there is any uniformity of geographic and climatic conditions in all countries. A country does not have the capacity to produce all the goods required by it. Due to natural and other economic factors, a country can import the goods, which it is not in a position to produce. (3) No uniform production cost:International marketing is needed because the production cost in all countries is not the same. Every country can produce certain commodities with low production cost because of some favourable factors. Exchange of goods on the basis of comparative cost is beneficial to all countries. (4) Increasing needs and better standard of living:International marketing is needed to fulfill the increasing needs of consumers for production and improved products and for providing good standard of living to the people. (5) Need of developing closer economic and cultural cooperationInternational marketing is needed for developing closer economic and cultural co-operation between different countries. Thus, the global resources can be used fully at the global level. International marketing is required for economic integration among the countries of the world. (6) Problem of surplus production and scarce production in some countries:International marketing is needed because ofsurplus production in some countries and scarce production in some other countries. Some countries have huge unutilized production capacity. Some countries have no capacity to fulfill even their domestic requirements. This problem can be solved by international marketing which helps in exchange of goods according to the requirements of different countries. (7) Bridging gap between developed and developing nations: International marketing is needed to bridge the gap between developed and developing nations. International marketing helps in exchange of goods and services and helps in transfer of technical know-how and skills, thereby accelerating the development of developing countries. (8) Economic growth of developing countries and peace in the world:International marketing is needed for quick economic growth of developed and developing countries. It helps in transfer of technology and quick industrial development in developing countries. The developed countries provide help to developing countries. International marketing develops co-operation among countries and thereby world peace and prosperity. OBJECTIVES OF INTERNATIONAL MARKETING

• To bring countries closer for trading purpose and to encourage large scale free trade among the countries of the world. • To bring integration of economies of different countries and there by to facilitate the process of globalization of trade. • To establish trade relations among the nations and thereby to maintain cordial relations among nations for maintaining world peace. • To facilitates and encourage social and cultural exchange among different countries of the world. • To provide better life and welfare to people from different countries of the world. In addition, to provide assistance to countries facing natural calamities and other emergencies situations. • To provide assistance to developing countries in their economic and industrial growth and thereby to remove gap between the developed and developing countries. • To ensure optimum utilization of resources (including surplus production) at global level.

• To encourage world export trade and to provide benefits of the same to all participating countries. • To offer the benefits of comparative cost advantage to all countries participating in international marketing. • To keep international trade free and fair to all countries by avoiding trade barriers.

Difference between International and Domestic Marketing International Marketing Domestic Marketing It refers to those activities which results It refers to those activities which into transfers of goods and services results into transfers of goods and from one country to another. services inside the country itself. International trade is characteristics by Domestic marketing has no such tariff and non tariff barriers. restrictions. It involves exchange on the basis of It involves exchange in the basis of different currencies. same currencies. Exchange takes place under Government in interference is zero or government rules and regulations. minimum only incase of essential There is high degree of government commodities. interference. Trade should be done taking diverse Culture does not affect in domestic

1. Meaning

2. Barriers 3. Currencies 4.Government Interference

5. Culture

into consideration. Even things like colour combination can be affect the trade. 6.Mode of Payment Letter of credit is normally as mode of payment. 7.Mobility of Factors Factors of Production are relatively of Production immobile as compared to domestic marketing. 8. Competition International Trade is subject to intense competition. 9. Documentation International Marketing is subject to complex documentation 10. Risk International Marketing is subject to high risk. Political, foreign exchange risk, bad debt risk are few of them.

marketing.

Cash, Cheques, DD’s are the most common. Domestic Trade enjoys greater mobility in factors of production. Competition is not as intense as it is in international marketing. Domestic trade does not involve much of documentation. Domestic Marketing is also subject to risk but not as high as international marketing.

SCOPE OF INTERNATIONAL MARKETING International Marketing constitutes the following areas of business:•

Exports and Imports: International trade can be a good beginning to venture into international marketing. By developing international markets for domestically produced goods and services a company can reduce the risk of operating internationally, gain adequate experience and then go on to set up manufacturing and marketing facilities abroad. Contractual Agreements: Patent licensing, turn key operations, co – production, technical and managerial know – how and licensing agreements are all a part of international marketing. Licensing includes a number of contractual agreements whereby intangible assets such as patents, trade secrets, know – how, trade marks and brand names are made available to foreign firms in return for a fee. Joint Ventures: A form of collaborative association for a considerable period is known as joint venture. A joint venture comes into existence when a foreign investor acquires interest in a local company and vice versa or when overseas and local firms jointly form a new firm. In countries where fully owned firms are not allowed to operate, joint venture is the alternative. Wholly owned manufacturing: A company with long term interest in a foreign market may establish fully owned manufacturing facilities. Factors like trade barriers, cost differences, government policies etc. encourage the setting up of production facilities in

It is therefore a form of barter between countries. Manufacturing abroad provides the firm with total control over quality and production. It also reduces the level of competition for firms which either merge or acquires.country alliances. Contract manufacturing has important advantages such as low risk. will have to operate from a third country base. Strategic alliance differs according to purpose and structure. Counter trade strategy is generally used by UDCs to increase their exports. sales and services alliances in which a company makes use of the marketing infrastructure of another company in the foreign market for its products. new technology and patent rights. For instance. ii. On the basis of purpose. simultaneous engineering agreements. However. Strategic alliances: A firm is able to improve the long term competitive advantage by forming a strategic alliance with its competitors. There are different forms of . Multiple activity alliance involves the combining of two or more types of alliances. increase the flow of innovation and increase flexibility in responding to market and technological changes. Taiwan’s entry into china through bases in Hong Kong. licensing agreements. it is also used by MNCs to enter foreign markets. On the basis of structure. licensing or joint development agreements. distribution network. Technology transfer agreements. Technology developed alliances like research consortia. strategic alliance can be equity based or non equity based.foreign markets. low cost and easy exit. Third country location: When there is no commercial transactions between two countries due to various reasons. it is known as contract manufacturing. strategic alliance can be classified as follows: • • • • i. iii.e. firm which wants to enter into the market of another nation. For instance technology development and operations alliances are generally multi. The objective of a strategic alliance is to leverage critical capabilities. For instance. • Counter trade: Counter trade is a form of international trade in which export and import transactions are directly interlinked i. Marketing. import of goods are paid by export of goods. marketing agreements are non equity based strategic alliances. Management contracting: Under a management contract the supplier brings a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership. PepsiCo’s entry in the former USSR. • Contract manufacturing: When a firm enters into a contract with other firm in foreign country to manufacture assembles the products and retains product marketing with itself. Mergers and Acquisitions: Mergers and Acquisitions provide access to markets.

However. in another market. However. (5) Marketing Infrastructure Differences: The availability and nature of marketing facilities available in different countries may differ widely. besides the problems of exchange rate fluctuations. the supplier of a plant. For example. In case of barter. equipment or technology. Even when the same language is used in different countries. The complexity generally increases as the number of countries in which a company does business increases. (2) Cultural differences: Cultural differences pose one of the most difficult problems in international marketing. goods of equal value are directly exchanged without the involvement of monetary exchange. an advertising medium very effective in one market may not be available. For example. many domestic markets. the political and legal environment is not exactly the same in all the states of India. buy back. (6) High Costs of Distance: When the markets are far removed by distance. (4) Language differences: An international marketer often faces problems due to language differences. compensation deal and counter purchase. (3) Currency unit differences: The currency unit differs from nation to nation. In case of a counter purchase agreement the seller receives the full payment in cash but agrees to spend an equal amount of money in that country in a given period. the multiple languages in India. the transport cost becomes high and the time required for the delivery tends to become longer. Under a buy back agreement. are also not free from cultural diversity. There may be differences also in the monetary system and regulations. For example. . Problems in International Marketing (1) Political and Legal Differences: The political and legal environment of foreign markets is different. the language problem is not something peculiar to international marketing. In a compensation deal the seller receives a part of the payment in cash and the rest in kind. or may be underdeveloped. This may sometimes cause problems of currency convertibility. It is essential to understand cultural differences to formulate successful marketing strategies.counter trade such as barter. the same words or terms may have different meanings. Payments may be partly made in kind and partly in cash. Distance tends to increase certain other costs also. The political and legal environment is not the same in all provinces of many home markets.

promote. Domestic Uncontrollables • Political / Legal o Political decisions involving domestic foreign policy o Any country has a right to restrict foreign trade when it adversely affects the security or economy of the country o Conversely there may be positive effects when there are changes in foreign policy and countries are given favored treatment (MFN) • Domestic Economic Climate o Home based uncontrollable element o Direct impact on the capacity to invest in plants and facilities o Capital generated in the home country and then mobilized o Internal economic conditions will result in restrictions against foreign investment in order to strengthen the domestic economy • Competition o In the home country – Eg. Kodak & Fuji Foreign Uncontrollables • Political / Legal Forces o E. China – communist legal system where all the deals were done with the state to a commercial legal system • Level of Technology o Technical expertise may vary . and direct the flow of company’s goods & services to consumers in more than one nation for profit. price.INTERNATIONAL MARKETING NOTES International Marketing Definition: International marketing is the performance of business activities designed to plan.g. Adaptation of the controllables (marketing mix elements) to the uncontrollable elements determines the ultimate outcome of the marketing enterprise.

g.Vicks / Germany Maharaja Mac Stages of International Marketing • No direct foreign Marketing o No activity in cultivating customers outside domestic market o Distributors / Dealers / Foreign Customers coming directly to the firm o Web Pages (Indication) • Infrequent Foreign Marketing o Product surplus in domestic market o No intention of maintaining continuous market representation o Few companies fir this model as customers always look for long term commitment . experiences and knowledge Culture Values Meanings History Beliefs Symbols E.Unconscious reference to ones own cultural values.g. SRC – Self Reference Criterion . . Coke • Cultural Forces • Distribution • Competitive forces (Soft Drink) For Global marketing to be a success environmental adjustments are needed.o Technical Knowledge o Special training • Alien Status of Foreign businesses o Foreigner control the business o Alien in the culture of the host country o E.

or money between residents of two different countries or between different countries. The fundamental question that arises for most of us at the thought of international trade is why should a business firms of one country should to the another country. and classical trade theory. These theories discuss and analyze different nuances of trade for the trading partners and deal with the financial dynamics of the trading activity between two countries Theory of absolute advantage . theory of comparative advantage. when the industries of that country also produce goods and market them. What is the basis of international business? A number of theories have been developed to explain the basis for international trade. store. of dependable quality.• Regular Foreign Marketing o Marketing goods on a continuous basis to foreign markets o Overseas Middlemen / Own Sales force / Sales subsidiary o Adaptation of the product to the foreign market • International Marketing / Multinational Marketing o Fully committed & involved in international marketing o Markets all over the world o Production & marketing activities outside the home market o The company formulates a unique strategy for every country with which it conducts business E. processes o Wherever necessary due to cultural differentiation adaptations are made (Multidomestic & Global Marketing can exist simultaneously) International trade involves voluntary exchange of goods. Balsara – Mint / Cinamint • Global Marketing o At this stage. companies treat the world. assets. including their home market as one o Maximize returns through global standardization of its business activities o Efficiency of scale by developing a standardized product. services. image. The different trade theories include theory of absolute advantage. to be sold at a reasonable price to a global market o The company standardizes its logo.g.

In this example Australia produces more wheat while China can produce more cloth. Finland has done this recently by specializing in the production and distribution of Nokia telephones. • Resources are transferable between the production of wheat and cloth. Table 1 Absolute Advantage . • There are no trade barriers. Criticism: According to this theory every country should be able to produce certain products at low cost compared to other countries and should product certain other products at comparatively . • Each country has the same amount of resources (land. He argued that a country has an absolute advantage in the production of a good when it can produce more of that good with a given amount of resources than another country. were the production of wheat has increased by 25 units and production of cloth by 5 units. • These two countries each produce only wheat and cloth. Australia then has an absolute advantage in the production of wheat and China an absolute advantage in the production of cloth. While China can produce 5 units of wheat and 25 units of cloth. such as tariffs between the two countries. • Production costs for each country are fixed.The Scottish economist Adam Smith first explained the theory of absolute advantage in 1776. This is illustrated in Table 2. A simple economic model can be used to illustrate the principle of absolute advantage. Australia and China. With a given amount of resources Australia can produce 30 units of wheat and 20 units of cloth. The following economic model is based on the following assumptions and is just an example: • There are only two countries. It is quite realistic to think that one country has an absolute advantage over another country in the production of some goods. however the quality differs. labor and capital). greater production of both goods could occur. Table 2 Production gains after specialization Wheat (units) Cloth (units) Australia 60(+30) 0 (-20) China 0 (-5) 50 (+25) Total output 60 (+25) (net gain) 50 (+5) (net gain) When each country specializes in the production of the goods they have a comparative advantage in.Production before Specialization Wheat (units) Cloth (units) Australia 30 20 China 5 25 Total output 35 45 Table 1 shows the production for each country before specialization.

yet they participate in international business. going on an overseas holiday may involve giving up the purchase of a new car. However. if one country has an absolute advantage in the production all goods. David Ricardo. Table 3 Comparative advantages: production before specialization Wheat (units) Cloth (units) Australia 20 10 China 5 5 Total Output 25 15 In Table 3. both countries can gain from specialization and trade. Australia has an absolute advantage in the production of both wheat and cloth. in reality most of the countries do not have absolute advantage of producing at lowest cost and commodity.high price than other countries. The principal is based on the relative efficiencies of production where each country has a comparative advantage in producing the commodity in which it has the lower opportunity cost. So it is more practical for Australia to specialize in the production of wheat.5 (10/20) units of cloth 2 (20/10) units of wheat China 1 (5/5) units of cloth 1 (5/5) units of wheat From Table 4: • Australia has a comparative advantage in the production of wheat since it has to give up only 0. But. Opportunity costs are what must be given up in order to consume or produce another good. can there be benefits from trade. For example. a classical economist developed the principal of comparative advantage to explain this situation. By using the theory of comparative advantage. • China has a comparative advantage in the production of cloth since it has to give up only 1 unit of wheat to produce an extra unit of cloth. while Australia must give up 2 units of wheat to . while China must give up 1 unit of cloth to produce an extra unit of wheat. Table 4 Opportunity costs Opportunity cost Country 1 unit of wheat 1 unit of cloth Australia 0. International trade takes place only under such condition. The comparative advantage principle can be illustrated using Tables 3 and 4.5 units of cloth to produce an extra unit of wheat. In 1817. Theory of comparative advantage Adam Smith's theory of absolute advantage is a simple explanation of the benefits of international trade.

c. Trade between the two countries should be beneficial because of the different opportunity costs for these commodities. Consequently it is more practical for China to specialize in the production of cloth. It assumes labor is the only resource for production and is mobile within each nation but cannot be transferred. investment funds. Assumptions and Limitations a. It assumes countries are only driven by the maximization of production and consumption. e. d. Factor endowments and comparative advantages are important in countries that have industries based on natural resources and where production does not rely on high levels of technology or where the labor force is relatively unskilled.produce an extra unit of cloth. It assumes specialization does not result in gains in efficiency. As both countries are using their resources more efficiently. the . The opportunity cost is the value of alternatives. technology and labor across the world. The Opportunity Cost Theory Gottfried Harberler proposed the opportunity cost theory in 1969. transportation costs are a major expense of international trade. It assumes no transportation costs. 1000 is invested in the equity of Rama News Print Limited and earned a dividend of 6% in 1999. Australia has a comparative advantage in the production of wheat and China cloth. A modern approach to comparative advantage Michael Porter The Comparative Advantage of Nations (London. specialization results in increased knowledge of a task and future improvements. For example Rs. In fact. b. Transnational corporations are playing a very important role in this development because they are able to coordinate their production activities by moving resources production components. Table 5 Production levels after specialization Wheat (units) Cloth (units) Australia 40 (+20) 0 (-10) China 0 (-5) 10 (+5) Total output 40 (+15) (net gain) 10 (-5) (net gain) From Table 5 we can see that total output has increased when countries specialize in the production of goods and services based on comparative advantage. The limitations of the comparative cost theory produced the basis of this theory. which have to be forgone in order to obtain a particular thing. It assumes only two countries are engaged in the production and consumption of two goods. Porter suggests that it is competitive advantage (based on lower costs. trade will lead to higher standard of living than would be otherwise possible. suggests that instead of different factor endowments being the basis for international trade much of the world's trade is taking place between nations with similar factor endowments. Macmillan 1990). technological innovation and product differentiation) rather than comparative advantage that is becoming an important factor in determining the pattern and direction of international trade. In reality.

15 billion by exporting the same software packages to UK in 1999 rather than to USA. Opportunity cost approach specifies the cost in terms of the value of the alternatives. 1 billion and exports to the US in 1999. this theory has also certain limitations. assume that India earned Rs. had this amount been deposited in a commercial bank for a term of one year. increase by enhancing the efficiency of human resources. India produces textile garments by utilizing its human resources worth of Rs. Countries increase productivity in order to utilize these gains of exports.opportunity cost of this investment is 10% interest. Limitations – However. the worth of the exports would have been Rs. This theory suggests that the opportunity cost of India’s software exports to USA in 1999 is Rs. The productivity theory points toward indirect and direct benefits. adapting latest technology etc. Thus. which have to be forgone in order to fulfill a specific act. this theory provides the basis for international business terms of exporting a particular product rather than other products. They are: ¬ Labour productivity did not increase after certain level. This. The Productivity Theory It is criticized that most of the comparative cost theories are not applicable to developing countries. The opportunity cost of this project is. Hence. The Vent for Surplus Theory . 15 billion. Other theories of International Trade 1. ¬ Increase in working hours ¬ Increase in the proportion of gainfully employed labour in proportion to disguised unemployed labour. 2. For example. had India developed software packages by utilizing the same human resources and exported the same to USA in 1999. 10 billion. Myint proposed productivity theory and the vent for surplus theory. This theory emphasizes that the process of specialization involves adapting and reshaping the production structure of a trading country to meet the export demands. This theory also provides basis for international business of exporting a product to a particular country rather to another country. This theory encourages the developing countries to go for cash crops. Another example is that. We slightly modify the previous example. H. The previous example suggests that it would be profitable to India to develop and export software packages rather than textile garments to USA.

Quality of a product exported by country A Equilibrium = ----------------------------------------------------Quality of another Product exported by country B Assumptions: Assumptions of this theory are: Existence of two countries. for example. Otherwise. Reciprocal demand indicates a country’s demand for one commodity in terms of the other commodity. The unemployed labour of the developing countries is profitably employed when the vent for surplus is exported. it is mainly incidental factors or even chance that will decide why one country. but also that costs (the establishment of good infrastructure. the presence of well-trained employees. average costs fall (internal economies of scale). J. This may mean that as a company produces on a larger scale. has a strong aircraft industry as a result of internal economies of scale and another country has acquired and electronics industry as a result of external economies of . they would be surplus productive capacity in the country. existence of perfect competition and existence of full employment. both the goods are produced under the law of constant returns.) will decline if numerous other businesses are established in the vicinity (external economies of scale). largely determine international competitiveness. regardless of their base. a part of the productive labour of the country must cease and the value of its annual produce diminishes. Mill described this theory as. Thus. Mill introduced the concept of “Reciprocal demand” to explain the determinations of the equilibrium terms of trade. It should be clear that if economies of scale. Reciprocal demand determines the terms of trade and relative share of each country. it is prepared to give up in exchange. Appropriateness of this Theory for Developing Countries: According to this theory. in the absence of foreign trade. labour. If the countries produce more than the domestic requirements.International trade absorbs the output of unemployed factors. which was an assumption of traditional theories. trade in only two goods.g. International trade permits for more efficient use of capital and labour. The company then gains an ever-increasing advantage over other firms in its sector and thereby ends perfect competition. “serving relic of the Mercantile Theory. J. This surplus capacity is taken by another country and in turn gives the benefit under international trade. Mill’s Theory of Reciprocal Demand Comparative cost advantage theories do not explain the ratios at which commodities are exchanged for another.S. The company's earnings increase disproportionately to the increase in use of all factors of production (e.S. capital). etc. absence of the transportation costs. the factors of production of developing countries are fully utilized. they have to export the surplus to other countries. Hence. machinery. Modern Trade Theories Modern theories focus on the concept of economies of scale as opposed to the assumption of constant returns of scale incorporated in other theories.” 3.

experience. economies of scale need not include all stages of production. INTERNATIONAL MARKETING DECISIONS International Marketing presents a more complex task than domestic marketing because of the uncontrollable international marketing environment and their heterogeneity. Other sub-activities then take place elsewhere. Company resources and objectives may not permit a company to do business in all the overseas markets. Further. a thorough study of potentials of the various overseas markets and their respective marketing environment is essential. the resources of the company in terms of skills. International marketing decision: The first decision a company has to make. However. is whether to take up international marketing or not.scale. . present and future domestic market opportunities. A second implication of economies of scale is that even if countries have comparable supply structures (so that there are no comparative cost advantages and. and it may be suicidal to waste company resources in such markets. Hence.g. e. A proper selection of the overseas markets therefore is very important. And when it comes to explaining the location of these sub-activities. 2. there are still reasons why one country specializes in one product and another in something else. Entry and Operating Decisions: Once the market selection decision has been made. For this purpose. 3. companies often resort to the concept of comparative costs (as used by traditional theorists): labour-intensive assembly takes place where labour is cheap. production and marketing capabilities and finance. some markets are not potentially good. on the basis of this decision. such as the present and future overseas opportunities. If they do so. company objectives etc. making international marketing decision is generally more challenging. no reason for specialization either). and everyone involved in international trade can benefit. This decision is based on a serious consideration of a number of important factors. though the basic marketing decisions to be made are similar in international and domestic marketing. broadly five strategic decisions. In international marketing. according to traditional theory. abroad. and the design takes place where there is plenty of technological know-how. 1. direct manufacturing plant etc. They may actually be important at the sub-process stage of production because production can be considered as a series of sub-activities ranging from design to assembly. the next important task is to determine the appropriate mode of entering the foreign market such as export. Market Selection Decision: Once it has been decided to do international marketing. The company can create economies of scale by concentrating on a few sub-activities such as design and production of certain components or assembly. the next important step is the selection of the most appropriate market. contract manufacturing. production costs can be reduced in both countries by economies of scale. a company has to make.

• Coca Cola had to withdraw its 2 liters bottle from Spain market as Spaniards were not having refrigerator having larger compartments. Among the non-veg. • Johnson’s floor wax was doomed to failure in Japan as it made the wooden floors very slippery and Johnson failed to take into account the custom of not wearing shoes inside the home. So they had to change the name to “KEE KOU KEELE” which meant “joyful taste and happiness. McDonald’s realize that they need to serve Indians more than just burger. Knowledge and awareness of these complexity and implications for international marketing is must. CULTURE: Culture describes the kind of behaviour considered acceptable in society. SLEPT (Social. 4. • Coca Cola when introduced in china the name sounded like “KOOKE – KOULA” meant thirsty mouth. Also their love for spicy food was required to be considered. in International marketing also. which can be consumed till longer period . In 1995 / 6 India’s vegetarian market was 40%. Marketing Mix Decision: As in the domestic marketing. Economical. a burger that satisfies Indians taste. SOCIAL AND CULTURAL Influences a. full of candle wax. eaters.” • In Japan. the success highly depends upon the applicability of proper Marketing Mix. b. The same feature creates problems for those products. promotion. religion and culture determines whether the customers are similar or dissimilar across the globe. SOCIAL: Difference in social conditions.proper arrangements must be made to continue the activities of marketing. their disliking towards pork and beef among mean eater was very well known. price and physical distribution should be suitably designed so that they may be adapted to the characteristics of the overseas market. The prescriptive characteristic of culture simplifies a consumer’s decision-making process by limiting product choices to those which are socially acceptable. Legal. Marketing Mix plays a major role. • The size of refrigerators in USA is very big compared to Indian refrigerators. which are not in time with culture. White face is associated with death of mask. Political and Technological)◊ The important environmental analysis model 1. McDonald’s had to understand the same in India when they had to enter such huge market with its burger. as women there believe in storing vegetables and other eatable items. The elements of marketing mix – product. INTERNAL AND EXTERNAL INTERNATIONAL MKTG CONCEPT The key difference between domestic and international marketing is the multi-dimensionality and complexity of foreign country markets a country may operate in. These vegetarians preferred that the burger should be made in a clean and separate kitchen.

In high income countries there is a good market for a large variety of consumer goods. Green is a favorite color in Muslims. Such differences suggest that same marketing mix can not be used for all markets. The tendencies of governments to change regulations can seriously affect an international strategy providing both opportunities and threat. A successful marketer will modify his marketing strategies in accordance with such variations. in Germany environmental laws mean a firm is responsible for the retrieval and disposal of packaging waste it creates and must produce packaging which is recyclable. There are variations in the levels of income and living standards. ECONOMIC ENVIRONMENT: The economic situation varies from country to country. and labeling regulations in foreign markets. if the information does not appear in both French and English. Laws affect the marketing mix in terms of products. price. Blue considered as feminine and worm in Holland. interpersonal distribution of income. But in lowincome countries where a large segment does not have sufficient income even for their basic necessities. the goods may be confiscated. it is associated with illness. packaging.g. Many MNCs have found it difficult to break such hard structure. but in Malaysia. 3. Political risk is defined as being: “A risk due to a sudden or gradual change in a local political . Although. Even the value and beliefs associated with color vary significantly between different cultures. For e. For many firms such laws are burdensome regulations. 2. How ever. The level of development in a country and the nature of its economy will indicate the type of products that may be marketed in it and the marketing strategy that may be employed in it. is seen as masculine and cold in Sweden. POLITICAL ENVIRONMENT: The political environment of international marketing includes any national or international political factor that can affect the organization’s operations or its decision-making. the situation is quite different. Legal Environment: Legal systems vary both in content and interpretations. occupational structure and so on. 4. economic and legal risks. the same color expresses happiness and is color of wedding dress of the bride in English country. An international Marketer should learn about the advertising. In Canada.) An unstable political climate can expose firms to many commercial. These factors affect market conditions. White is associated with death and mourning in China. distribution and promotional activities quite dramatically. economic organization.of time. (1992’s liberalization policy by Narsimha Rao Govt. Foreign companies are often viewed with suspicion. bureaucratic delays and lots of official procedures. some firms have been innovative in overcoming difficulties. Korea and in some traditions in India. India has been seen by many firms to be an attractive emerging market having many legal difficulties.

It maintains complete industrial organizations including R & D and manufacturing facilities. every new technology replaces an old technology. and cancer cures. It operates in many countries at different levels of economic development. and examples are so on. However. their business has declined. Although MNC took birth in the early 1860s. Any international marketer.environment that is disadvantageous to foreign firms and markets. It has direct investment base in different countries. 4. Generally. Scientists today are researching a wide range of promising new products and services ranging from solar energy.” 5. It derives from 20 % to 50 % or more of its net profits from foreign operations. Companies that do not keep up with technological changes. 2. 3. 1. All these researches give a marketer an opportunity to set his products as per the current desired standard. New technologies create new markets and opportunities. Thus. Xerography hurt carbon-paper industry. Its local subsidiaries are managed by nationals. MULTINATIONAL CORPORATIONS (MNCs) A Multinational Corporation is a business unit which operates simultaneously in different part of world either by manufacturing or marketing or both by keeping its headquarter elsewhere as a strategic nerve centre. an MNC meets five criteria. An international marketer should very well keep in his mind the change taking place in technology and thereby affecting the product. soon find their products outdated. the marketer should watch the technological environment closely. TECHNOLOGICAL ENVIRONMENT: The Technological Environment is perhaps the most dramatic force now shaping our destiny. computer hurt typewriter industry. 5. electric car. CLASSIFICATIONS OF MNCS Pyramid Model Umbrella Model Inter/ Conglomerate MNC MNC MNC . The United States leads the world in research and development spending. The challenge in each case is not only technical but also commercial that means manufacture a product that can be afforded by mass crowd. in several countries. it was after the Second World War that the Multinationals have grown rapidly. when ignored or forgot new technologies.

E.g. Multi products and Multi countries.g. This model of MNC is very power conscious. (Syrup – pharmaceutical companies. Ideas and money flow freely. Both HQ and subsidiaries are very strong.g. The licensor generally keeps supervisor in the plant of licensee. For E. McDonalds. to set up a project either in home country or host or 3rd country with a commitment of joint risk taking and joint profit sharing. printed circuit boards to electronic items. c. Pyramid Model MNC: These organizations have strong Headquarters and weak subsidiaries. E. P & G. 4. McDonalds. The BAT does not provide any raw material but just the brand name is given. money is main aim.g. E. Price water house. Turnkey projects: MNCs undertake to complete the whole project and handover the same when ready to the host country. Brand 555 is the licensed user of British American Tobacco company.g.g. Brooke Bond and Lipton are taken over by HLL. And company pays 5% of the total sales to BAT (licensor) as license fees. This company took 45 years to establish. It has the market of 600 cr. In India it is manufactured by ITC (the licensee). The decision making capacity is also not centralized. E. Head Quarter is rude. The license is given against payment of fee which acts as source of income to the MNCs. 2. Inter conglomerate Model MNC: ¬ For such organizations. Problems: These organizations are very image conscious. b. International Franchising: the licensor not only provides the brand name but also the raw material. Making money and using power is not the primary motto of the organizations. Marks & Spencer etc. ¬ Such companies try to acquire monopoly and take over its competitors there by reducing competition. International Licensing: MNC permits the domestic company to use its trademark. ¬ No loyalty towards any subsidiary countries. IBM. strong actions are taken for that. arrogant and gives no powers to its subsidiaries. 3. Modi Luft – Modi and Lufthansa . Joint Ventures: “Like marriage.a.” E. ¬ Companies enter any segment and adapt the approach of Multi segments. essence – cold drink companies (Pepsi gives its essence to Punjab Agro). Such projects provide new opportunity to expand the business activities. There is a relationship of mutual help between the Head quarter and the subsidiary. Multi markets. Head quarters give full freedom to the subsidiaries.g. KPMG etc. HLL. binding between home country representative and host country representative. If anything damages their image. How MNCs expand their business: 1. Such project may be supplied on tender basis. E. Johnson & Johnson. Siemens. ¬ Investment and Rate of Investments are very high. Umbrella Model MNC: This model is very good among others. Unilever etc. brand name or technical know-how for manufacturing and marketing purpose.

(it is not possible to have collaboration in consumer products and FMCG. 7. Enables maximum use of resources. either finance or technology collaboration. 4. on world wide.Kinetic Honda Collaborations are time bound and not permanent. Adverse effect on life style / culture in host countries. . MNCs ruin domestic companies. MNCs stimulate domestic employment. there are trade blocs among the countries of the world. 8. the plants. 3. MNCs contribute enormously to technology transfer between rich and poor countries. Merits of Multinational Corporations: 1. and Bharat Petroleum. 9. Collaborations: It deals with any one part of management function. Hero Honda . Efforts should be made to remove such trade blocs so as to have free trade among the nations of the world. Taj group of hotels with Russian government. To the host countries. TRADE BLOC Along with trade barriers. Some of the Indian MNCs: IOC. 2. 5. and technical know how necessary for its operations which is not available otherwise is made available thru MNCs. MNCs create employment opportunities in the host countries. Unfortunately. 10. 4.g. Promotes exports and reduce imports by raising domestic productions. ONGC. Reddy. MNCs involvement often results in the lack of development of local research and development. DEMERITS OF MNCs (Students please elaborate the following points) 1. It happens generally with medicines. Provides out-dated technology. Ranbaxy. Use of capital-intensive technology reduces jobs in local country. efforts in this direction by WTO are not effective. Charge very high fees.Successful JVs: Indo Gulf fertilizer – Birla group. Change and progress: MNCs are said to be the agents of change and progress. 5.) E. 3. Helps removal of monopoly and improve the quality of domestic made products. Wipro. Bajaj – Kawasaki. MNCs exploit local labour by paying relatively lesser rates. Goods are made available at cheaper price due to economies of scale. equipments. technological products. 6. Local recruitment of Junior Managers creates a pool of managerial talent in the host country. Infosys. 5. Dr. these trade blocs are harmful to the growth of free international trade. Provides benefits of R & D. Hindustan Petroleum. 6. These blocs offer special concessions to members of the group but impose restrictions on the imports from the non-member countries. As a result. 2. 7.

USA. political. ¬ Common Market: A Common Market is a step ahead of custom union.g. Canada and Mexico. is allowed to determine its own trade policies with regard to non-members. the Andean Common Market. Thus. Each country however. a common Market allows free movement of factors necessary to production.B.) ¬ To remove or at least to reduce trade barriers among the member-countries of the group. ¬ Custom Union: A Custom Union represents the next stage in economic cooperation. ¬ To maintain cordial economic. Member countries here not only remove trade restrictions for members but also adopt a uniform commercial policy (Common external tariff) against non-members. In an ideal free trade area.Trade blocs are groups of countries that have established special preferential arrangements governing trade between members. For e. no discriminatory tariffs. Latin America possesses three common markets: The Central American Common Market (CACM). OBJECTIVES OF TRADE BLOCS (REASONS OF FORMING T. ¬ Economic Union: It is a step ahead to common market. and the Southern Cone Common Market. Custom Union exists between France and Monaco. ¬ To bring integration of economies of member countries through free transfer of labour. there is a free trade agreement known as NAFTA (The North American Free Trade Agreement) between three counties. to name some examples. ¬ To impose common external tariff and non-tariff barriers on non-member countries. TYPES OF ECONOMIC INTEGRATION / TRADE BLOCS ¬ FREE TRADE AREA: In Free Trade Area all barriers to the trade of goods and services among member countries are removed. ¬ To provide assistance to member countries of the group in all possible ways in solving their current economic problems. It has all features of common market and also uniformity in respect of monetary and fiscal policy of member countries. a common market is a common marketplace for goods as well as for services. quotas. capital and other factor of production. subsidies o administrative impediments would be allowed to distort trade between member countries. adopts a set of common external tariffs and removes all restrictions on free flow of capital and labor among member nations. It eliminates all tariffs and other restrictions on internal trade. . cultural and social relations among the members of the group. A customs union brings more economic integration as compared to free trade area. Member countries are expected to pursue common fiscal and monetary policies. Unlike a custom Union. Italy and San Marino. Although in some cases the preferences-such as lower tariff duties or exemptions from quantitative restrictions the general purpose of such arrangements is to encourage exports by bloc members to one another-sometimes called intra-trade.

Indonesia. investment. Also.DETAILS OF IMPORTANT TRADE BLOCS 1. Venezuela and Bolivia. Brunei Darussalam joined on 8 January 1984. which reduces tariffs on products traded among member countries. In 1992. Paraguay. Columbia. These efforts include an ASEAN finance corporation. the ASEAN Industrial Joint Ventures Programme (AJIV) etc. social progress and cultural development in the region through joint endeavors. Malaysia. ASEAN developed a Common Effective Preferential Tariffs (CEPT) plan to reduce tariffs systematically for manufactured and processed products. namely. agricultural and technical development projects and to increase foreign investments in their economies. Peru. OBJECTIVES The ASEAN Declaration states that the aims and purposes of the Association are: (i) To accelerate the economic growth. Mexico. (ii) To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the United Nations Charter. The members have also established a series of co-operative efforts to encourage joint participation in industrial. India’s trade with ASEAN countries is satisfactory in recent years. Laos and Myanmar on 23 July 1997. . Chile. 2. (iii) To maintain close cooperation with the existing international and regional organizations with similar aims. ASEAN nations have introduced some programmes for greater diversification in their economies. LAFTA (LATIN AMERICAN FREE TRADE ASSOCIATION) LAFTA was established in February 1960 under the Treaty of Montevideo. and Thailand. The ASEAN countries are offering co-operation to India in the field of trade. Brazil. Association of South East Asian Nations The Association of Southeast Asian Nations or ASEAN was established on 8 August 1967 in Bangkok by the five original Member Countries. Singapore. India and ASEAN India is interested in maintaining close economic relations with the members of ASEAN. Philippines. Uruguay. as these countries are closer to India. science and technology and training of personnel. and Cambodia on 30 April 1999. The member countries of the association are Argentina. Vietnam on 28 July 1995. Ecuador. WORKING OF ASEAN The member countries of ASEAN have Preferential Trading Arrangements (PTA).

Objectives of the EU: Its principal goal is to promote and expand cooperation among members states in economics. Lithuania and Slovenia. Greece. Germany. Portugal. Slovakia. Spain. LAFTA as a trade bloc wants to stimulate intra-Latin American trade and also to increase Latin American’s declining share in world trade. Netherlands. the integration among the member countries is not effective. 4th. Czech Republic. Thus EU presents an enormous export and investor market that is both mature and sophisticated. UK. Political instability among the member countries is another cause responsible for making this union weak and ineffective. 5th. defence. France. Italy and Spain. In recent years. Poland.1 % by the US. valued at US$ 3. Andean countries made a renewed effort to revive regional co-operation with new measures. France. In 1989. social issues. and 9th largest economies in the world. the advising bank notifies the beneficiary of the terms of the credit. In 2002. the European Union (EU) is second only to the United States. Belgium. EU accounted for 35. Belgium. Austria. Italy. The member countries have been competing among themselves for promoting their exports. Luxembourg.5 % for the US and 12. Malta. This constituted 26. and judicial matters. Finland. it is a bloc of 25 counties with a population of over 450 mn. The achievements of LAIA are also moderate. In 2004. on behalf of the issuing bank. However. GDP of EU was US$ 8531 bn. services and . trade. which introduced a single currency. LAFTA could not emerge as a powerful economic union due to non-cooperation among the member countries. Ireland.6 % of the global GDP as compared to 32.1 % of global merchandise exports as compared to 11. UK. Denmark.The main objective of the association is to build up a common market for South American countries and thereby to bring about a gradual reduction in trade barriers among member countries. and. the Latin American debt crisis has eroded some of the industrial progress that the countries had made and has forced them to rely on primary product exports to patch up their debt. The EU also includes Germany. The EU has its headquarters in Brussels.2 % for Japan. An 'advising bank' is a correspondent of a bank which issues a letter of credit. Hungary. Another major goal of the EU is to implement the Economic and Monetary Union. LAFTA was replaced (renamed) by the Latin American Integration Association (LAIA) with the signing of the Montevideo Treaty of 1980. About the EU: The EU is an organization of European Countries dedicated to increasing economic integration and strengthening cooperation among its members.300 bn. security. which are respectively 3rd. 7th. Due to lack of understanding and mutual trust. 3. Sweden. The Single Market and Common Commercial Policy: The single market refers to the creation of a fully integrated market within the EU. The union consists of 25 members namely. foreign policies. EUROPEAN UNION: As a major center of power in the global economy. Latvia. which allows for free movement of goods. Estonia. Cyprus. Today after a number of Eastern European Countries joined the EU. the Euro for the EU members. without engagement on its part to pay or guarantee the credit.

4 bn to 28. and abuse of monopoly. agriculture and marine products. leather and electronics products. ¬ Under the same trade there is an agreement on sugarcane. THEORY OF INTERNATIONAL PRODUCT LIFE CYCLE (IPLC) . collusion (secret agreement). 3. the prices are fixed annually. Trade between the European Union and India India was one of the first Asian nations to accord recognition to the European Community in 1962. Top items of trade between India and EU India’s exports to EU % India’s Imports from EU % Textile and clothing 35 Gemstones and jewellery 31 Leather and leather products 25 Power generating equipment 28 Gemstones and jewellery 12 Chemical products 15 Agriculture products 10 Office machinery 10 Chemical products 9 Transport equipment 6 ¬ India is EU’s 17th largest supplier and 20th largest destination for exports.4 bn US$. from India at guaranteed price. EU – India trade has grown from 4. ¬ Tariff and non-tariffs have been reduced. raw or white. Some of the policies are given below: Competition Policy: The main competition lied in energy and transport sector. Free movement of goods: A custom union covering all trade in goods was established and a common customs tariff was adopted with respect to countries outside the union. Services: Any member nation has a right to provide services in other Member States. gems and jewellery. The EU. in conjunction with Member States.factors of production. ¬ India’s strength lies in its traditional exports like textiles. The EU has undertaken to buy and import a specific quantity of sugarcane. has a number of policies designed to assist the functioning of the market. The EU is India’s largest partner and biggest source community in 1962. Over the years. Free movement of persons: Any citizen of EU member state can live work in any other EU member state Capital: There are no restrictions on the movement of capital and on payments with the EU and between member states and third countries. it accounts for 26% of India’s exports and 25% of its imports. It is a major contributor of developmental aid and an important source of technology. but compared to International standards they are still high. ¬ Under the Bilateral trade between India and EU. The union designed this strategy to prevent price fixing. The EU is India’s largest trading partner and biggest source of FDI.

describes the diffusion process of an innovation across national boundaries. The advanced nation becomes a victim of its own creation. on the left of the vertical importing / exporting axis. net import results for that particular country. import products from their former customers. From the supply side. with the US as the developer of the innovation in question. Finally. its original market well cultivated. the innovating firm will look to overseas markets in order to expand its sales and profit. no longer costeffective. net export results when the curve is above the horizontal line.The International Product Life Cycle (IPLC) theory explains trade in a context of comparative advantage. and local demands adequately supplied. Time is relative. as the time needed for a cycle to be completed varies from one kind of product to another. advanced nations. Innovations are most likely to occur in highly developed countries because consumers in such countries are affluent and have relatively unlimited want. Efficiency shifts from developed countries to developing nations. (5) Reversal Increasing import USA Advanced nations & LDCs Increase owing to comparative disadvantage Stage 1 – Local Innovation: Stage 1. if under the horizontal line. represents a regular and highly familiar product life cycle in operation within its original market. this stage is known as a “Pioneering” or “International Introduction” stage. For each curve. IPLC stages and characteristics for the initiating country STAGE IMP / EXP TARGET MARKET COMPETITORS PRDTN COST (1) Local Innovation None USA Few: Local Firms Initially High (2) Overseas innovation Increasing export USA & Advanced Nations Few: Local Firms Decline owing to economies of scale (3) Maturity Stable export Advanced Nations & LDCs Advanced Nations Stable (4) Worldwide imitation Decline export LDCs Advanced nations Increase owing to lower eco. The technological gap is first noticed in other advanced nations because of their similar needs and high-income levels. As the innovation moves through time. . having a new product to satisfy consumer needs. Stage 2 – Overseas Innovation: As soon as the new product is well developed. Stages and characteristics There are 5 distinct stages in the IPLC stage 0 through 4. firms in advanced nations have both the technological know-how and abundant capital to develop new products. The next exhibit shows three life-cycle curves for the same innovation: One for the initiating country. Thus. one for the other advanced countries and one for LDCs. wants to exploit its technological breakthrough by selling abroad. The given below table shows the major characteristics of the IPLC stages. Of scale. Other advanced nations soon start up their own production facilities and before long LDCs do the same. directions of all three curves change. The life cycle begins when a developed country.

The innovating country’s comparative advantage has disappeared and what is left is comparative disadvantage. often with the help of their government’s protective measures to preserve infant industries. Thus. For e. a low price is not desirable because of heavy and costly marketing effort needed to educate consumers in other countries about the new products. The innovating firm’s sales and export volumes are kept stable because LDCs are now beginning to generate a need for the product. Stage 5 – Reversal: The major characteristics of this stage are product standardization and comparative disadvantage. US export declines to nothing and any US production still remaining is basically for local consumption. This disadvantage is brought about because the product is no more capital-intensive or technology-intensive but instead has become labor-intensive for LDCs. while US firms exports only the sophisticated. A low introductory price is not necessary because of the technological breakthrough. The decline will certainly affect the US innovating firm’s economies of scale. since firms in other countries may not have much knowledge about innovation. these simple machines are now being imported. Towards the end of this stage. Development in competition does not mean that the initiating country’s export level will immediately suffer. but with passage of time. the black and white televisions are now no more manufactured in USA as many Asian firms can produce them much less expensively than any US firms. these firms can survive and succeed in spite of relative inefficiency. imitation picks up at a faster pace. Production cost tends to be decreasing at this stage because by this time the innovating firm will normally have improved the production process. cash registers. electronic version of such machines. Stage 4 – Worldwide imitation: This stage means tough times for the innovating nation because of its continuous decline in exports. Companies can understand the implications of the IPLC and adjust marketing strategies accordingly. Stage 3 – Maturity: Growing demand in advanced nations provide a movement for firms there to commit themselves to starting local production.g. B/W Televisions etc. . Consequently. LDCs now can establish sufficient productive facilities to satisfy their own domestic needs as well as to produce for biggest market in the world. As the product becomes more and more widely aware. firms in other advanced nations use their lower prices to gain more consumer acceptance abroad at the expenses of the US firm. Marketing Strategies: For industries suffering the imitation stage or maturity stage things are likely to get worse rather than better. aggregate production costs tend to decline further because of increased economies of scales. VALIDITY OF THE IPLC Several products have conformed to the characteristics described by the IPLC. and its production cost thus begin to rise again. Introduction of the product in LDCs help offset any reduction in export sales to advanced countries. There is no more new demand anywhere to cultivate.Competition in this stage comes from usually US Firms.g. Supported by overseas sales. at one time the US used to be an exporter of typewriters. For e.

II. keyboard.I. c. The company not only can minimize transportation costs but can also slow down potential local competition. IBM has converted its Kentucky plant into one of the most automated plants thereby cutting labor costs. I. power supply in Japan. In the starting. Another modified version of outsourcing is having various components produced under contract in different countries. Product Policy: I. Outsourcing is the practice of buying the parts or whole product from other manufacturers while allowing a buyer to maintain its own brand name. Floppy disk drives in Singapore. This proved to be a costly error as the basic PC hardly changed for several years. The concentration should be towards meeting consumer’s demand. the marketer must plan for a non-priced promotional strategy such as providing technical support. The marketer should try to position the product as a highquality product having good reputation. That way. and printer. the firm should switch from producing simple versions to producing new technologies in order to remove itself from cutthroat competition. If for innovating firms it is difficult to match labor costs in low-wage nations (it happens generally with countries like US where labor cost is too high) the firms can cut labor costs through automation and robotics. For e.g. d. Outsourcing: Another way to cut the cost of product is to outsource the product. But this price must be adjusted downward in the second and third stage of IPLC to discourage potential new comers and to maintain market share. The final assembly takes place in USA. As a result other Asian companies came out with their own brands. charging a premium price for its innovation. One thing the company must never do is to allow its . But the firm’s above-the-market price is feasible only if it is accompanied by top-quality product. Positioning is another important point at the beginning. the innovator’s comparative advantage is gone. Stage – 4: In the last stage.g. I. III Promotion Policy: Promotion and pricing are highly related in IPLC. a. New Technology: Once in the maturity stage. a firm takes advantage of the most abundant factor of production in each country before assembling components into final products for worldwide distribution. For e. IBM was slow in reducing prices for its PC models. it is not practical for the innovating firm to maintain low price due to competitor’s cost advantage. IBM’s PC system consists of components made in low-cost countries-monochrome monitor in South Korea. They believed that the IBM PC was too complex for Asian imitators. I. or offering after-sales-service or giving warranty for a particular period after the product is offered. Automation: The IPLC emphasizes the importance of cost advantage. Pricing Policy: Stage – 1: At this stage. manufacturing in other country: the innovator may use local manufacturing in other countries as an entry strategy. b. firm can afford to behave as a monopolist.

not price is most important for protecting a company from the crowded. for instance. This explains the existence of so-called lowcost. capital resources. there by creating alternative channel for GM which threatened the existing channel. These factors can be grouped into human resources (qualification level. or the start-up culture in the United States (well developed venture capital market). which are relevant for competition in particular industries. infrastructure. Each country has its own particular set of factor conditions. cost of labor.. as a rule competitive advantage of nations is the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. Once a product is in the final stage of its life cycle. technological progress or socio-cultural changes. which are subsequently built upon.). Porter points out that these factors are not necessarily naturemade or inherited. agricultural countries (large countries with fertile soil). by concentrating its efforts in carefully selected market segments. etc. Home . Factor Conditions The situation in a country regarding production factors. GM’s old policy of limiting its dealer from carrying several GM brands inadvertently encouraged those dealers to start carrying imports. vegetation.product to become a commodity item with prices as the only buying motive as such products can easily be duplicated by other firms. and infrastructure. Home Demand Conditions Describes the state of home demand for products and services produced ¬ in a country. deregulation of labor markets. IV Place: A strong dealer network can provide the innovating firm with a good defensive strategy. knowledge resources. where it can distinguish itself from foreign competitors. or liquidity of national stock markets.). the innovating firm can add product features or offer more service. hence. low-profit market segment. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe. They may develop and change. in each country will develop those industries for which the particular set of factor conditions is optimal. Through out four stages product differentiation. These can be influenced in a pro-active way by government. material resources (natural resources. To achieve distinction in product. PORTERS NATIONAL DIAMOND FOR COMPETATIVE ADVANTAGE According to Porter. may shape national factor conditions. space etc. These national factors often provide initial advantages.countries (low costs of labor). Because of its monopoly situation at the beginning. They also include factors like quality of research on universities. commitment etc. Political initiatives. the innovating firm should strive to become a specialist not a generalist. the firm is in a good position to be able to select only the most qualified agents and the network should be expanded further as the product becomes more diffused. like skilled ¬ labor.

A typical example is the shoe and leather industry in Italy. Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale.or even push . Structure. The role of government in the Diamond Model of Porter The role of government in the Diamond Model of Porter is to act as a catalyst and challenger. Italy is not only successful with shoes and leather.companies to raise their aspirations and move to higher levels of competitive performance. working morale. Family-business based industries that are dominated by owner-managers will behave differently than publicly quoted companies. it is to encourage . These are industries that can use and coordinate particular activities in the value chain together. Normally. Related and Supporting Industries The existence or non-existence of internationally competitive ¬ supplying industries and supporting industries. and Rivalry The conditions in a country that determine how companies are ¬ established.demand conditions influence the shaping of particular factor conditions. design. factors like management structures. In different nations. or that are concerned with complementary products (e. related industries are of importance. According to Porter. home demand is determined by three major characteristics: their mixture (the mix of customers needs and wants). hardware and software). Besides suppliers. but with related products and services such as leather working machinery. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. are organized and are managed. to stimulate early demand for advanced products. or interactions between companies are shaped differently. etc. . Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. Porter states that a country can achieve national advantages in an industry or market segment. They have impact on the pace and direction of innovation and product development. and the mechanisms that transmit domestic preferences to foreign markets. cultural aspects play an important role. and that determine the characteristics of domestic competition Here. This will provide advantages and disadvantages for particular industries. if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors. home markets have a much higher influence on an organization's ability to recognize customers’ needs than foreign markets do. They must encourage companies to raise their performance. They are heavily influenced by structures of ownership and control.g. their scope and growth rate. One internationally successful industry may lead to advantages in other related or supporting industries. Firm Strategy. to focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

The five Cultural Dimensions of Hofstede The cultural dimensions model of Geert Hofstede is a framework that describes five sorts (dimensions) of differences / value perspectives between national cultures: . Even the word 'management' has different origins and meanings in countries throughout the world. Rogers identified five types of purchasers as the product moves through its life cycle stage. HOFSTEDES THEORY According to Geert Hofstede. Late Majority make up another 34% of sales and usually purchase the product at the late stages of majority within the life cycle. there is no such thing as a universal management method or management theory. They are the ‘wait and see’ group. He suggested: 1. They are not afraid of trying new products that suit their lifestyle and will also pay a premium for that benefit. Rogers in 1962 and simply looks who adopts products at the different stages of the life cycle. 4. 2.5% of purchases. bargain hunters! CULTURAL FACTORS 1. at school. Management is not a phenomenon that can be isolated from other processes taking place in society. in politics.5% of all purchases of the product. They early majority usually have some status in society. spurring on later purchasers. 3. They wait to see if the product will get cheaper. Some may call Laggards. Innovator who make up 2. Early Majority make up 34% of purchases and have been spurred on by the early adopters. purchase the product at the beginning of the life cycle. Early Adopters make up 13. and government. This group of purchasers are crucial because adoption by them means the product becomes acceptable. they are usually opinion leaders and naturally adopt products after the innovators. It interacts with what happens in the family. They wait to see if the product will be adopted by society and will purchase only when this has happened. 5. valid across the whole world.Diffusion of innovation This extension of the product life cycle was developed by Everett M. It is obviously also related to religion and to beliefs about science. Usually when they purchase the product a new version is already on the market. Laggards make up 16% of total sales and usually purchase the product near the end of its life.

feelings and the quality of life. The degree of inequality among people which the population of a country considers as normal. The extent to which people feel they are supposed to take care for. even when confronted with basic problems of society. and act very differently from yourself. . Your family is probably an example of a high context environment. Versus a culture which is more conducive to people. However. Long-term: values oriented towards the future. one should have both knowledge and empathy with the entire local scene. Individualism versus collectivism. assertiveness and acquisition of things. HIGH AND LOW CONTEXT CULTURE The general terms "high context" and "low context" (popularized by Edward Hall) are used to describe broad-brush cultural differences between societies. Short-term: values oriented towards the past and present. Low context refers to societies where people tend to have many connections but of shorter duration or for some specific reason. High context refers to societies or groups where people have close connections over a long period of time. less written/formal information • More internalized understandings of what is communicated • Multiple cross-cutting ties and intersections with others • Long term relationships • Strong boundaries.Power distance. Uncertainty avoidance. relational. High Context • Less verbally explicit communication. To understand management in a country. Masculinity versus femininity. often around a central person who has authority. The degree to which people in a country prefer structured over unstructured situations. like respect for tradition and fulfilling social obligations. their families or organizations they belong to. Long-term versus short-term orientation. the scores of the unique statistical survey that Hofstede carried out should make everybody aware that people in other countries may think. Many aspects of cultural behavior are not made explicit because most members know what to do and what to think from years of interaction with each other. like saving and persistence. • Decisions and activities focus around personal face-to-face relationships.who is accepted as belonging vs who is considered an "outsider" • Knowledge is situational. cultural behavior and beliefs may need to be spelled out explicitly so that those coming into the cultural environment know how to behave. In these societies. The extent to which a culture is conducive to dominance. feel. or to be cared for by themselves.

family gatherings. Material culture introductions into a country may bring about cultural changes which may or may not be desirable. brand names and media messages. attitudes and values and social organisation. a cafeteria. Aesthetic differences affect design. Language Language reflects the nature and values of society. packaging. It is best to learn the language or engage some one who understands it well. art. aesthetics. Language can cause communication problems . the brand name FAVCO . For example. media availability and distribution. There may be many sub-cultural languages like dialects which may have to be accounted for.especially in the use of media or written material. African music is different in form to Western music. colours. expensive gourmet restaurants and neighborhood restaurants with a regular clientele. of relationships • More interpersonal connections of shorter duration • Knowledge is more often transferable • Task-centered. Aesthetics Aesthetics refer to the ideas in a culture concerning beauty and good taste as expressed in the arts -music. a motel. Some countries have two or three languages. refrigerated transport does not exist in many African countries. Before marketing in a foreign culture it is important to assess the material culture like transportation. regular pick-up games. power. Low Context • Rule oriented. a party with friends. people play by external rules • More knowledge is codified. and accessible. undergraduate oncampus friendships. Decisions and activities focus around what needs to be done. CULTURAL DIMENSIONS: The major elements of culture are material culture. In Nigeria. All aspects of marketing are affected by material culture like sources of power for products. sports where rules are clearly laid out. some linguistic groups have engaged in hostile activities. Examples: large US airports. division of responsibilities. public.English. Input-output tables may be useful in assessing this. drama and dancing and the particular appreciation of colour and form. artifacts and technology. hosting a friend in your home overnight. of activities. Material culture Material culture refers to tools. a chain supermarket. For example. a convenience store. language. external. • Sequencing. Shona and Ndebele with numerous dialects. unless explained. religion. In Zimbabwe there are three languages . of space. communications and so on. separation--of time.Examples: Small religious congregations. education.

therefore. Chinese and Indian cultures making market segmentation • • ensitivity is needed to be alert to religious differences. Religion can affect marketing in a number of ways: • • religious holidays .difficulty in getting to different costs for segmentation/niche marketing • • joint and extended families . Education levels. and it may be better to relate products to traditional values rather than just new ones. Religion Religion provides the best insight into a society's behaviour and helps answer the question why people behave rather than how they behave. Many African societies are risk averse.would mean nothing to Western importers. for example. • • institution of the church . or lack of it.Islam • • caste systems . Attitudes and values Values often have a religious foundation. "Western" images • • market segments .Iran and its effect on advertising. for example the local university can build up an economy's performance. • • support sources .finance. affect marketers in a number of ways: • • advertising programmes and labelling • • girls and women excluded from formal education (literacy rates) • • conducting market research • • complex products with instructions • • relations with distributors and. Education can transmit cultural ideas or be used for change. Education Education refers to the transmission of skills. in Zimbabwe most people would instantly recognise FAVCO as the brand of horticultural produce.fish for Catholics on Friday • • economic role of women . The UN agency UNESCO gathers data on education information. • • consumption patterns . advancing agencies etc.Maylasia . ideas and attitudes as well as training in particular disciplines.Hinduism and organizational structures. and attitudes relate to economic activities. Also "change" may not be needed.Ramadan cannot get access to consumers as shops are closed. Attitudes are always precursors of human behaviour and so it is essential that research is done carefully on these. For example it shows in Ethiopia only 12% of the viable age group enrol at secondary school.Malay. but the figure is 97% in the USA. . It is essential to ascertain attitudes towards marketing activities which lead to wealth or material gain. entrepreneurialism may not always be relevant. or even wanted. in Buddhist society these may not be relevant.

trademark. In Zimbabwe. Besides exporting. There are other aspects of culture. Exporting can be defined as the marketing of goods produced in one country into another. units. It is quite similar to the "franchise" operation. For example. the agents and Dutch flower auctions are in a position to dictate to producers. The only cost is signing the agreement and policing its implementation. United Bottlers have the licence to make Coke. know-how or some other skill provided by the licensor".Social organisation Refers to the way people relate to each other. joint ventures. processing. Licensing gives the following advantages: • Good way to start in foreign operations and open the door to low risk manufacturing . but the above covers the main ingredients. other market entry strategies include licensing. Other forms of groups may be religious or political. extended families. for example. Licensing involves little expense and involvement. in the exporting of African horticultural products. ownership and participation in export processing zones or free trade zones. In one form or another these have to be taken account of when marketing internationally. The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of control has to be weighed against the advantages. kinship. In some countries kinship may be a tribe and so segmentation may have to be based on this. STRATEGIES TO ENTER GLOBAL MARKETS There are a variety of ways in which organisations can enter foreign markets. caste and so on. age. All these groups may affect the marketer in his planning. Coca Cola is an excellent example of licensing. it is less risky than overseas based • gives an opportunity to "learn" overseas markets before investing in bricks and mortar • reduces the potential risks of operating overseas. contract manufacture. Exporting Exporting is the most traditional and well established form of operating in foreign markets. Licensing: Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing. The advantages of exporting are: • manufacturing is home based thus.

investigation and interpretation.to length of agreement. then many problems can be overcome. The disadvantages are: • • Limited form of participation . planning. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. Pricing products . as mentioned earlier.overcome by having cross technology transfer deals and • • Requires considerable fact finding. Ownership: The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. Olivine industries has a joint venture agreement with HJ Heinz in food processing. This can be done through joint ventures with the licensee. If the partners carefully map out in advance what they expect to achieve and how. Joint ventures give the following advantages: • • Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process • • Joint financial strength • • May be only means of entry and • • May be the source of supply for a third country. In Zimbabwe.relationships • Linkage of parent and receiving partner interests means both get most out of marketing effort • not tied up in foreign operation and • Options to buy into partner exist or provision to take royalties in stock. Those who decide to license ought to keep the options open for extending market participation. process or trademark • • Potential returns from marketing and manufacturing may be lost • • Partner develops know-how and so licence is short • • Licensees become competitors . They also have disadvantages: • • Partners do not have full control of management • • May be impossible to recover capital if need be • • Disagreement on third party markets to serve and • • Partners may have different views on expected benefits. The more unstable the environment the less likely is the ownership pathway an option. Joint ventures Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". specific product. Joint ventures are a more extensive form of participation than either exporting or licensing. However. repatriation of earnings and capital has to be carefully monitored.

. Otherwise it is basically used for increasing corporate profitability.Three basic factors determine the boundaries of the pricing decision . This gives a valuable foothold. These include high value added products like ostrich. which fall in a predeterminable range. income levels and local marketing strategy. The only control is setting transfer prices within the corporate system. dumping problems. Extension: The same global price. bounded by product cost. transportation costs. It prevents problems of arbitrage when the disparities in local market prices exceed the transportation and duty costs separating markets. Transfer pricing is used to motivate profit centre managers.the price floor. a function of demand and the cost of supplying the product. Global pricing There are three possible global pricing policies . • • Transfer at a price derived from end market prices: very useful strategy in which market based transfer prices and foreign sourcing are used as devices to enter markets too small for supporting local manufacturers. taken of government tax policies. Prices may be unrealistic so this method is seldom used. Similar to that in transfer at cost. A very simple method but does not respond to market sensitivity. This takes cognisance of any unique market factor (s) like costs. In addition. • • Transfer at an "arm's length": this is the price that would have been reached by unrelated parties in a similar transaction. competition. which recognises foreign affiliates contribute to profitability by operating domestic scale economies. in price setting cognisance must be. Innovation : A mix of a) and b).extension (ethnocentric). bounded by competition and the market and the optimum price. or minimum price. Whilst many agricultural products are at the mercy of the market (price takers) others are not. Across national boundaries the system gets complicated by taxes. Profits are show at every stage. There are four basic approaches to transfer pricing. the price ceiling or maximum price. Adaptation : Different prices in different markets. The problem is identifying a point "arm's length" price for all products other than commodities. • • Transfer at direct cost plus overheads and margin. adaptation (polycentric) and invention (geocentric). In addition it recognises the fact that headquarters price coordination is necessary in dealing with international accounts and arbitrage and it systematically seeks to embrace national experience. middlemen and so on. where demand outstrips supply at present. resale prices. Transfer pricing Transfer pricing is more appropriate to those organisations with decentralised profit centres. joint ventures. Prices are required to be competitive in the international market. provide divisional flexibility and also further corporate profit goals. Pricing at "arm's length" for differentiated products results not in a specific price but prices. crocodile products and hardwoods. • • Transfer at cost: few practise this. attitudes of governments and so on.

etc. This type of strategy is used in case of fashionable and novelty items. Market Holding strategy: in this type of strategy. This pricing strategy can be followed in case of products where the exporter is assured of large market and continuous sale. In reality. Price escalation One major feature of international pricing is the increase on the price due to the application of duties. It is used by organizations who have non differentiated products or have large marketing systems in place. the goal is to maintain the market share. the exporter raises the prices of the product and recovers the losses suffered in the initial period. the exporter charges a lower price in the initial stages since the main objective of the exporter is to capture a large market share and create brand loyalty among the consumers. Such type is also required due to the price and currency flutuations in different countries. It is used for price adjustment against competitors. increase in costs of transportation and distribution margin increase. the exporter keeps his profit margin very high. as it cannot be predicted. Estimated cost approaches are based on assumptions of production volume (depending on process) which will be a principal factor determining costs. the organization usually keeps a similar price with that of the competitors in the initial stage. the historical accounting cost method and the estimated future cost method. It is usually done by organizations to capture the market share. In this strategy. There are anti dumping legislations used by the government to protect local industries since it affects development of local economy. Dumping: It is the sale of an imported good or product at a price lower than normally charged in domestic market or country of origin than the country of sale. Here. Cost plus pricing: There are basically two types under this heading. In the later stages. Penetration Price strategy: In this type of pricing strategy. It is used to match the demand and supply of early adopters and reinforce customers perception of high value products. Again difficulties may lie in trying to estimate production levels.Pricing Strategies: Skimming Price strategy: Skimming price strategy is strategy in which the manufacturer charges a very high price in the initial stage of the PLC from the consumers. The exporter has also to incur very high promotional expenses since the product the newly introduced in the market. perishable items and consumer durables which are introduced for the first time in the market. The former includes direct and indirect costs and has the disadvantage of ignoring demand and competitive position in the target market. both price discrimination and injury must be proved. . It is not possible for any exporter to follow this export pricing strategy for a long time. costs may be a useful starting point but should never be used as a final arbiter. To be convicted. increase with the length of distribution channel. This type of strategy is particularly useful if the exporter enters in the international market for a short term and his main motive is profit maximization.

Even though an industry may have below-average profitability. the firm can maintain some profitability while the competition suffers losses. For example. or below the average industry prices to gain market share. Some of the ways that firms acquire cost advantages are by improving process efficiencies. other firms may be able to lower their costs as well. The cost leadership strategy usually targets a broad market. Each generic strategy has its risks. These strategies are applied at the business unit level. including the low-cost strategy.GENERIC STRATEGIES If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates. the firm may be able to sustain a competitive advantage based on cost leadership. If competing firms are unable to lower their costs by a similar amount. Additionally. the competition may be able to leapfrog the production capabilities. The following table illustrates Porter's generic strategies: Cost Leadership Strategy This generic strategy calls for being the low cost producer in an industry for a given level of quality. and focus. an important secondary determinant is its position within that industry. . Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. • Skill in designing products for efficient manufacturing. this investment represents a barrier to entry that many firms may not overcome. In the event of a price war. Firms that succeed in cost leadership often have the following internal strengths: • Access to the capital required to make a significant investment in production assets. They are called generic strategies because they are not firm or industry dependent. gaining unique access to a large source of lower cost materials. • High level of expertise in manufacturing process engineering. • Efficient distribution channels. the firms that can produce more cheaply will remain profitable for a longer period of time. making optimal outsourcing and vertical integration decisions. Even without a price war. having a small component count to shorten the assembly process. differentiation. A firm positions itself by leveraging its strengths. for example. thus eliminating the competitive advantage. The firm sells its products either at average industry prices to earn a profit higher than that of rivals. as the industry matures and prices decline. three generic strategies result: cost leadership. a firm that is optimally positioned can generate superior returns. or avoiding some costs altogether. As technology improves. By applying these strengths in either a broad or narrow scope.

Because of their narrow market focus. firms pursuing a differentiationfocused strategy may be able to pass higher costs on to customers since close substitute products do not exist. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty. Additionally. • Highly skilled and creative product development team. The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Differentiation Strategy A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. A Combination of Generic Strategies . other focusers may be able to carve out sub-segments that they can serve even better. firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. Finally. However. and this entrenched loyalty discourages other firms from competing directly. Firms that succeed in a differentiation strategy often have the following internal strengths: • Access to leading scientific research. it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Some risks of focus strategies include imitation and changes in the target segments. • Strong sales team with the ability to successfully communicate the perceived strengths of the product. Focus Strategy The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. Furthermore. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. • Corporate reputation for quality and innovation.several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share. various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments. Because of the product's unique attributes. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily. Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.Stuck in the Middle? .

the firm would risk projecting a confusing image. For this reason. a firm must select only one of these three generic strategies." However. . By separating the strategies into different units having different policies and even different cultures. convenience. For example. style. Even if the quality did not suffer. if a firm differentiates itself by supplying very high quality products. Michael Porter argued that to be successful over the long-term. Otherwise.These generic strategies are not necessarily compatible with one another. Generic Strategies and Industry Forces These generic strategies each have attributes that can serve to defend against competitive forces. and price. it risks undermining that quality if it seeks to become a cost leader. there exists a viewpoint that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality. in this attempt it may achieve no advantage at all. The following table compares some characteristics of the generic strategies in the context of the Porter's five forces. Porter argued that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. If a firm attempts to achieve an advantage on all fronts. There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers. a corporation is less likely to become "stuck in the middle. with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage.

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