Chapter Three

International Marketing Environmen

1.1. Introduction

What make markets are the differences in the marketing environment. Such strategic decisions as whether a
company should enter a given foreign market or not, what market entry strategy should it employ, what
strategy it should adopt in respect of product, promotion, pricing and distribution, etc. are based on two sets
of factors, viz., the company related factors and the foreign market related factors. The decision as to
whether to go international or not is based, in addition to the above two, on yet another set of factors, viz.,
the domestic marketing environment.
The company related factors refer to such factors as the company objectives, resources, and international
orientation. The domestic marketing environment consist of factors like growth prospects including the
competition, government policies etc. The foreign market related factors which are relevant to the
international business strategy formulation or which affect the international business are often described as
the international business environment.
What makes a business strategy which is successful in one market a failure in another market is often the
differences in the business environment. In other words, the differences in the business environment may call
for changes in the business strategies, i.e., there should be adaptation of the business strategy to suit the
environment of the market.
In short, it is the differences in the marketing environment which may make the
international business strategy different from the domestic one.
All marketers face the difficult task of identifying the important elements of the marketing environment for
their organization, assessing current and likely future relationships between these factors, and developing
effective strategies for a changing environment. This task has become increasingly difficult in recent years as
many elements of the marketing environment change rapidly and unpredictably. The objective of this chapter
is to help you understand the important elements and relationships in the marketing environment.
The best way to understand the marketing environment is to place yourself in the middle of the marketing
circle. You are now a marketer for some organization and must make decisions about the marketing
exchanges, strategies, activities, positions, and institutions employed by your organization. However, the
decisions you can control depend on factors and trends in the marketing environment that you cannot
control. Thus, your task as a marketer is largely to identify opportunities or threats in the marketing
environment and then make marketing decisions that capitalize on the opportunities and minimize the
threats.

Fig 2.1. The Environmental scanning approach

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1.2. Cultural Environment

Culture, an inclusive term, may be conceptualized in many different ways. Not surprisingly, the concept is
often accompanied by numerous definitions. In any case, a good basic definition of the concept is that
culture is a set of traditional beliefs and values that are transmitted and shared in a given society.
Culture is also the total way of life and thinking patterns that are passed from generation to generation.
Culture means many things to many people because the concept encompasses norms, values, customs, art,
and mores.
Characteristics of culture
 Culture is prescriptive: It prescribes the kinds of behavior considered acceptable in a society. As a
result, culture provides guidance for decision making. The prescriptive characteristic of culture simplifies
a consumer’s decision-making process by limiting product choices to those which are socially acceptable.
 Culture is socially shared: Culture, out of necessity, must be based on social interaction and creation.
It cannot exist by itself. It must be shared by members of a society.
 Culture facilitates communication: One useful function provided by culture is to facilitate
communication. Culture usually imposes common habits of thought and feeling among people. Thus,
within a given group, culture makes it easier for people to communicate with one another.
 Culture is learned: Culture is not inherited genetically – it must be learned and acquired. Socialization
or enculturation occurs when a person absorbs or learns the culture in which he or she is raised. In
contrast, if a person learns the culture of a society other than the one in which he or she was raised, the
process of acculturation occurs.
 Culture is subjective: People in different cultures often have different ideas about the same object.
What is acceptable in one culture may not necessarily be so in another. In this regard, culture is both
unique and arbitrary. As a result, the same phenomenon appearing in different cultures may be
interpreted in very different ways. (example: offering a dowry to a bride’s family)
 Culture is enduring: Because culture is shared and passed down from generation to generation, it is
relatively stable and somewhat permanent. Old habits are hard to break, and a person tends to maintain
its own heritage in spite of a continuously changing world.
 Culture is cumulative: Culture is based on hundreds or even thousands of years of accumulated
circumstances. Each generation adds something of its own to the culture before passing the heritage on
to the next generation.
 Culture is dynamic: Culture is passed on from generation to generation, but one should not assume
that culture is static and immune to change. Far from being the case, culture is constantly changing – it
adapts itself to new situations and new sources of knowledge.(Japanese tastes, for example, have been changing
from a diet of fish and rice to an accommodation of meat and dairy products)
Influence of Culture on Consumption
Consumption patterns, lifestyles, and the priority of needs are all dictated by culture. Culture prescribes the
manner in which people satisfy their desires.
Hindus and some Chinese do not consume beef at all, believing that it is improper to eat cattle that
work on farms, thus helping to provide foods such as rice and vegetables.
Not only does culture influence what is to be consumed, but it also affects what should not be purchased.
Jews require kosher (“pure”) food. Kosher rules about food preparation prohibit pork or shellfish,
and there is no mixing of milk and meat products. Coca-Cola was declared kosher in 1935.
Likewise, Muslims do not eat pork, and foods cannot be processed with alcohol and non-halal animal
products (e.g., lard/fat). Muslims do not purchase chickens unless they are halal. They also do not
smoke or use alcoholic beverages, a rule shared by some strict Protestants.
The marketing challenge is to create a product that fits the needs of a particular culture.

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 Moussy, a nonalcoholic beer from Switzerland is a product that was seen as being able to overcome
the religious restriction of consuming alcoholic beverages. By conforming to the religious beliefs of
Islam that ban alcohol, Moussy has become so successful in Saudi Arabia that half of its worldwide
sales are accounted for in that country.
Influence of Culture on Thinking Processes
In addition to consumption habits, thinking processes are also affected by culture. When traveling overseas, it
is virtually impossible for a person to observe foreign cultures without making reference, perhaps
unconsciously, back to personal cultural values. This phenomenon is known as the self-reference criterion
(SRC).
Americans and Europeans commonly treat dogs as family members, addressing the animals
affectionately and even letting dogs sleep on family members’ beds. Arabs, however, view dogs as
filthy animals. Hindus, in contrast, revere cows and do not understand how Westerners can eat beef.
Influence of Culture on Communication Processes
A country may be classified as either a high-context culture or a low-context culture. The context of a culture
is either high or low in terms of in-depth background information. This classification provides an
understanding of various cultural orientations and explains how communication is conveyed and perceived.
North America and Northern Europe (e.g., Germany, Switzerland, and Scandinavian countries) are examples
of low-context cultures. In these types of society, messages are explicit and clear in the sense that actual
words are used to convey the main part of information in communication. What is important, then, is what is
said, not how it is said and not the environment within which it is said.
Japan, France, Spain, Italy, Asia, Africa, and the Middle Eastern Arab nations, in contrast, are high context
cultures. In such cultures, the communication may be indirect, and the expressive manner in which the
message is delivered becomes crucial. The context of communication is high because it includes a great deal
of additional information, such as the message sender’s values, position, background, and associations in the
society.
Influence of Material Culture
Material culture relates to the way in which a society organizes and views its economic activities. It includes
the techniques and know-how used in the creation of goods and services, the manner in which the people of
the society use their capabilities, and the resulting benefits. When one refers to an 'industrialized' or a
'developing' nation, one is really referring to a material culture.
In Germany, the United States, Japan or other countries with high levels of technology, the general
population has a broad level of technical understanding that allows them to adapt and learn new
technology more easily than populations with lower levels of technology. Simple repairs, preventive
maintenance and a general understanding of how things work all constitute a high level of
technology.
The material culture of a particular market will affect the nature and extent of demand for a product. Whereas
a luxury item, such as a sophisticated piece of computer hardware, may have a ready market in a country such
as France, demand for it may be non-existent in a developing country which is hampered by inadequate
facilities and/or foreign exchange shortages. The material culture of a country may also necessitate
modifications to the product. Electrical appliances, for example, may have to be adapted to cater for
differences in voltage levels.
To illustrate this: the United States operates under a system of 110V in contrast to South Africa's
220V. Alternatively, weights and measurements may have to be converted to those applicable in the
importing country (again the US uses measures such as miles, gallons and pounds, whereas most
other parts of the world use the metric system - kilometers, liters and kilograms).
Material culture can also have a significant effect on the proposed marketing and distribution strategies. While
highways and rail transport are the principal means of moving goods within the United States, rivers and
canals are used extensively in certain European countries. If the company is planning to develop a
manufacturing operation in a foreign market, aspects such as the supply of raw materials, power,
transportation and financing need to be investigated.

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Influence of Aesthetics
A culture's aesthetics refer to its ideas concerning good taste and beauty as expressed in the fine arts - music,
art, drama and dance - and in the appreciation of color and form. Insensitivity to aesthetic values can not only
lead to ineffective advertising and package design for products, it can also offend prospective customers.
Aesthetics also embrace people's dress and appearance, i.e. their outward garments and adornments or
accessories.

The significance of different colors may vary considerably from one culture to another. For
example, in many societies, colors are often associated with emotions: "to see red", "to be green
with envy" or "to be feeling blue".
Green, a popular color in many Moslem countries, is often associated with disease in countries
with dense, green jungles. It is associated with cosmetics by the French, Dutch and Swedes and
increasingly with an environmentally world.
Various colors represent death. Black signifies death to Americans and many Europeans, but in
Japan and many other Asian countries, white represents death. (Obviously, white wedding gowns
are not popular in parts of Asia.) Latin Americans generally associate purple with death, but dark
red is the appropriate mourning color along the Ivory Coast. And even though white is the color
representing death to some, it expresses joy to those living in Ghana.
In many countries, bright colors such as yellow and orange express joy. To most of the world, blue
is thought to be a masculine color but it is not as mainly as red in the United Kingdom or France.
In Iran, blue represents a bad color. Although pink is believed to be the foremost feminine color by
Americans, most of the rest of the world considers yellow to be the most feminine color. Red is felt
to be blasphemous in some African countries but is generally considered to be a color reflecting
wealth or luxury elsewhere. A red circle has been successfully used on many packages sold in Latin
America, but it is unpopular in some parts of Asia. To them, it conjures up images of the Japanese
flag.(Source: D A Ricks, Big Business Blunders)

Changing Roles in the household

As more women enter the workforce and household compositions change, typical household roles are
altered. No longer are financially supporting the household and developing a career solely the responsibility
of men. No longer are household chores, child care, or grocery shopping solely the responsibility of women.
In many households, roles have shifted and distinctions have become blurred. More men spend time on
household and shopping chores, and many women are involved in career development and provide much or
most of the financial resources for a household. Tremendous market opportunities exist for firms that can
develop effective strategies for appealing to these changing roles.
1.3. Economic Environment

The economic environment includes factors and trends related to income levels and the production of
goods and services. Economic trends affect the purchasing power of the markets. Thus, it is not enough for
a population to be large or fast growing, as in many developing countries, to offer good market opportunities;
the economy must provide sufficient purchasing power for consumers to satisfy their wants and needs.
Economic trends in different parts of the world can affect marketing activities in other parts of the world.
For example, changes in interest rates in Germany affect the value of the dollar on world currency
markets, which affects the price, and subsequently sales, of Ethiopian exports and imports.
The economic environment is important to marketers because it affects the amount of money people have to
spend on products and services. One of the components of the economic environment is the distribution of
income. Decisions about how much of a product people buy and which products they choose to buy are
largely influenced by their purchasing power. If a large portion of a country's population is poor, the market
potential for many products may be lower than it would be if they were reasonable prosperous. If a country is
expected to enjoy rapid economic growth and large sectors of the population are expected to share in the

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increased wealth, sales prospects for many products would clearly be more promising than if the economy
were stagnating.
Below are some of the economic factors which should be of interest to the international marketer.
 Gross domestic product (GDP)
A widely accepted measure of a country's economic performance is its GDP, which is the total market value
of all final goods and services produced in a particular country within a year. The GDP measures the
productive resources of a country.
Changes in GDP indicate trends in economic activity. The US has the largest economy in the world,
followed by Japan, Germany, France, Italy, and Britain. Yet, the US ranks relatively low on economic
growth in recent years, surpassed by much higher growth in Hong Kong, China, and some countries
in Western Europe.
 Disposable income
For consumer goods, perhaps the most important factor influencing the per capita (or 'per head') demand for
a product in a given country is the real disposable income per capita. 'Real income' means the monetary value
of income adjusted for inflation. 'Disposable income' nets out tax liabilities from the gross income of
individuals. Presumably, the higher the per capita income in a particular market, the greater the demand for
(and the higher the price that can be charged for) goods and services in that region.
China is an example of a country whose economic growth has been increasing at a rapid pace over
the past few years, offering substantial opportunities. As incomes rise in China, so does the demand
for consumer products and the heavy machinery, agricultural and medical equipment, power plants,
and communication equipment needed by business and government organizations.
Samuel Chi-Hung Lee, President, International Marketing Consultants Company Limited, discusses the
marketing opportunities available in China:
‘‘The growth of the Chinese economy has produced tremendous market opportunities. Hong Kong
companies have taken advantage of opportunities in manufacturing, infrastructure, and property
development in the past. Now, opportunities in retailing, distribution, and other areas are being pursued.
For example, we are helping company export costume jewelry from Hong Kong to south China. I am
also considering the establishment of a series of entertainment/theme/amusement parks in China.’’
 Demographic factors
The demography of a region includes population size and composition, as well as key socio-economic
attributes such as literacy levels and wide or narrow disparities in a society's distribution of income.
Theoretically, the larger the total population in a region, the larger the potential market that will exist. In
addition, the composition of a population in terms of age and sex will also influence the potential demand for
specific products.
For example, if a company wishes to market disposable nappies abroad, the number of women in a
particular target market who are of child-bearing age is an important influence on the potential
demand for that product.
In effect, demographic factors such as literacy levels serve to stratify the total population into two different
segments - those people who are likely to be potential consumers and those who are not.
 Government policies toward foreign investment
The policies of foreign governments toward international trade and investment constitute one of the most
important influences on competitive conditions in foreign markets. Many governments, particularly in
developing countries, protect local producers with a combination of tariff and non-tariff barriers. This often
enables firms already established in a particular domestic industry to maintain their share of the local market
while charging prices substantially higher than the cost of production.
 Degree of government intervention
The international marketing strategies that you will put in place will almost certainly differ depending on
whether the target country/market is oriented towards a free market system or whether there is considerable
government intervention in the target country's economy.

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1.4. Political/legal environment

The political/legal environment encompasses factors and trends related to governmental activities and
specific laws and regulations that affect marketing practice. The political/legal environment is closely tied to
the social and economic environments. That is, pressures from the social environment, such as ecological or
health concerns, or the economic environment, such as slow economic growth or high unemployment,
typically motivate legislation intended to improve the particular situation. Regulatory agencies implement
legislation by developing and enforcing regulations. Therefore, it is important for marketers to understand
specific political processes, laws, and regulations, as well as important trends in each of these areas.
A government by its perspective on business enterprise influences the business environment. For any firm
involved in marketing, the role government assumes will influence its activities. The government may choose
to allow and in fact provide free and fair competition, choosing to let the economic direction of the country
be directed by business entities or it may choose to provide the economic direction itself.
The political environment in which the firm operates (or plan to operate) will have a significant impact on a
company's international marketing activities. The greater the level of involvement in a foreign markets, the
greater the need to monitor the political climate of the countries business is conducted. Changes in
government often result in changes in policy and attitudes towards foreign business.
Bearing in mind that a foreign company operates in a host country at the discretion of the
government concerned, the government can either encourage foreign activities by offering attractive
opportunities for investment and trade, or discourage its activities by imposing restrictions such as
import quotas, etc. An exporter that is continuously aware of shifts in government attitude will be
able to adapt export marketing strategies accordingly.
International Political Trends
In today’s world economy, international political events greatly affect marketing activities. Here are the trends
of the current global political environment:
 One significant trend is a move from government-dominated economies and socialist political systems
toward free market economies and, in many countries, democratic governments.
 A second important political trend is movement toward free trade and away from protectionism. One
approach is the development of trading blocs throughout the world. The aim is to eliminate trade
barriers and to promote easier access to the markets in each participating country. As this development
continues, trading blocs have the potential to generate many opportunities for marketers.
The free trade trend goes beyond trading blocs and encompasses a global perspective. The best
example of this perspective is the General Agreement on Tariffs and Trade, or GATT. This
agreement was signed by 124 countries in 1994 to eliminate trade barriers worldwide. The World

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 Trade Organization (WTO) was established as the watchdog organization, and a world court was set
up in Geneva to arbitrate trade disputes. Although results have been mixed, the WTO is making slow
but steady progress toward free trade around the world.
 A final trend is the use of embargoes or sanctions by the UN or individual governments to limit trade to
specific countries, a popular political weapon in recent years. For example, the US participated in
embargoes against Iraq, South Africa, Libya, and Vietnam. An embargo, of course, eliminates many
potential market opportunities. In contrast, the lifting of trade sanctions, as in the case of South Africa,
can release pent-up demand and produce tremendous opportunities.

Political Risks
The political environment is connected to the international business environment through the concept of
political risk. An international business entity is a guest of the host country and, therefore, the host country
reserves the right of not only allowing it access but also of expropriating it. It also can influence the scale and
dimensions of the operations through its policies. Political risk is thus the vulnerability of returns of a
project to the political acts of a sovereign government.
Political risk is determined differently for different companies, as not all of them will be equally affected by
political changes.
For example, industries requiring heavy capital investment are generally considered to be more
vulnerable to political risk than those requiring less capital investment. Vulnerability stems from the
extent of capital invested in the export market, e.g. capital-intensive extracting or energy-related
businesses operating in the foreign market are more vulnerable than manufacturing companies
exporting from a South African base.

Types of Political risks

1. Blockage of Funds
An issue associated very closely with the subject of political risk is a temporary or permanent blocking of
funds. Blockage of funds refers to the fact that although a business entity may own the funds and still
hold property rights, it cannot export its earnings. This was a common problem faced by Indians during
Idi Amin's rule in Uganda. Although the government did not formally make any announcements regarding
takeover of property, it had become almost impossible for the firms to repatriate their earnings in any form.
2. Expropriation
The most extreme case of political vulnerability is expropriation. Expropriation refers to the government
confiscation of property with or without proper reimbursement. Even where reimbursement is
forthcoming, it doesn't equate with the value of the firm, which is the summation of future earnings by a
firm. Reimbursement is often fixed keeping in mind the book value of assets. It may occur for a number of
reasons, including the desire to retain national assets, as a "hostage" situation in international disputes…
3. Confiscation
Confiscation is the process of a government’s taking ownership of a property without compensation. After
property has been confiscated or expropriated, it can be either nationalized or domesticated.
 Nationalization involves government ownership, and it is the government that operates the
business being taken over.
 In the case of domestication, foreign companies relinquish control and ownership, either
completely or partially, to the nationals. The result is that private entities are allowed to operate the
confiscated or expropriated property.
The French government, after finding out that the state was not sufficiently proficient to run
the banking business, developed a plan to sell thirty-six French banks.
Another classification system of political risks is the one used by Root. Based on this classification, four sets
of political risks may be identified: general instability risk, ownership/control risk, operation risk, and
transfer risk.

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 1. General instability risk is related to the uncertainty about the future viability of a host country’s
political system.
2. Ownership/control risk is related to the possibility that a host government might take action (e.g.,
expropriation) to restrict an investor’s ownership and control of a subsidiary in that host country.
3. Operation risk proceeds from the uncertainty that a host government might constrain the
investor’s business operations in all areas, including production, marketing, and finance.
4. Transfer risk applies to any future acts by a host government that might constrain the ability of a
subsidiary to transfer payments, capital, or profit out of the host country back to the parent firm.
The legal environment
The legal system is an inevitable component of the environment within which a business operates. The
commercial law existing within any country influences not only each and every variable of marketing mix but
also the environment within which a business operates.
The legal environment is derived partly from the political climate in a country and has three distinct
dimensions to it:
 The domestic laws of your home country
 The domestic laws of each of your foreign markets
 International law in general
Most issues in the legal/political environment center around the following:-
- Institutional environment - made up of political, social and legal ground rules within which the
global marketer must operate.
- Property rights - patents, trademarks.
- Taxation - what taxation schemes will be faced abroad?
- Recourse - possibility and length of action with the possibility of image damaging necessitating
arbitration.
- Movement of equity and expropriation threats - often necessitating protocols or the signing of
trade frame working agreements.
Legislation
Organizations must deal with laws at the international, federal, state, and local levels. Laws promoting
competition focus on outlawing practices that give a few firms unfair competitive advantages over others.
The specific impact of these laws depends on court rulings that may change over time or differ at the state
and national levels.
Legislations set by foreign governments mainly focused on Consumer protection laws that may include:
 Consumer protection laws generally indicate what firms must do to give consumers the information they
need to make sound purchasing decisions or to ensure that the products they buy are safe.
For example, the Fair Packaging and Labeling Act require packages to be labeled honestly; the Child
Protection Act regulates the amount of advertising that can appear on children’s television programs.
 Laws typically affect marketing activities by indicating what can or cannot be done.
Until recently, Germany had a law that forced most retail stores to close at 6:30 PM on weekdays and
2 PM on Saturdays, and it did not allow commercial baking on Sunday. This restricted the operations
of retailers. A new law expanded allowable shopping hours to 8 PM on weekdays and 4 PM on
Saturdays; it also allowed bakeries to sell fresh bread on Sunday mornings. Other stores must remain
closed on Sunday.

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1.5. Technological Environment

Technology can be defined as the method or technique for converting inputs to outputs in accomplishing a
specific task. Thus, the terms 'method' and 'technique' refer not only to the knowledge but also to the skills
and the means for accomplishing a task. Technological innovation, then, refers to the increase in knowledge,
the improvement in skills, or the discovery of a new or improved means that extends people's ability to
achieve a given task.
High technology has become like a force of nature. It transforms the economy, schools, consumer
habits, and the very character of modern life. Investors pour money into it; parents urge their
children to study it; communities vie to attract its factories; decorators adopt it as a style; politicians
push it as a panacea. (Source: Science Digest Magazine)
The technological environment includes factors and trends related to innovations that affect the development
of new products or the marketing process. Rapid technological advances make it imperative that marketers
take a technology perspective. These technological trends can provide opportunities for new-product
development; affect how marketing activities are performed, or both.
For example, advances in information and communication technologies provide new products for
firms to market, and the buyers of these products often use them to change the way they market
their own products. Using these technological products can help marketers be more productive. Fax
machines and cellular telephones are illustrative.
New technologies can spawn new industries, new businesses, or new products for existing business. To
compete successfully, firms must monitor developments in specific technologies.
Technological developments offer marketers both opportunities and threats. Although firms can offer
customers a wider array of advanced products, changes in technology also mean that there may be more than
one technical solution to a customer’s needs. Increased technological development accelerates the speed of
obsolescence. Marketers have to consider how their product may need to be developed over time, if it is to
remain competitive.
For example, Apple Computer gained an advantage over IBM and IBM compatibles through the use
of its Graphic User Interface (GUI), which meant that the users can manipulate pictures on the
computer screen rather than use complex commands.
The risks from technological changes have meant that firms are increasingly entering into ‘strategic alliances’
with customers, suppliers and even competitors. Indeed, there has been an increasing emphasis on open,
long-term relationships, based on trust between customers and suppliers. This is expected to help in the
development of products and the management of technological risks.