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 ASSIGNMENT SOLUTIONS GUIDE (2018-2019)
I.B.O.-2
International Marketing Management
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Authors for the help and guidance
of the student to get an idea of how he/she can answer the Questions given the Assignments. We do not claim 100%

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accuracy of these sample answers as these are based on the knowledge and capability of Private Teacher/Tutor. Sample
answers may be seen as the Guide/Help for the reference to prepare the answers of the Questions given in the assignment.
As these solutions and answers are prepared by the private Teacher/Tutor so the chances of error or mistake cannot be

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denied. Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/

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Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer and for up-to-date and exact
information, data and solution. Student should must read and refer the official study material provided by the university.

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Q. 1 (A) Distinguish between the following:

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(i) Multinational Marketing and Global Marketing
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Ans. Multinational Marketing: Multinational marketing means adaptation of the domestic marketing mix (product,

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price, promotion and place or channels of distribution) suitable to the market differences in each country of operation.

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When a company decides to respond to market differences, it evolves into a stage three multinational or multidomestic.
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Such a company formulates a unique strategy for each country subsidiaries are formed in each country or group of
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countries to handle all marketing operations in that country. Each foreign subsidiary is managed as if it were an independent
unit.
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Global Marketing: Global marketing means operating as if all the country markets in a company’s scope of
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operations (including the domestic market) are approachable as a single global market and standardising the marketing

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mix where culturally feasible and cost effective. A global company’s marketing plan has a standardised product with
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country specific advertising; or has a standardised theme in all countries with country/culture specific appeals to a
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unique market characteristic but adapted products to meet specific country needs and so on.
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(ii) International Marketing Information System and International Marketing Research
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Ans. International marketing information system refers to the system designed for regular collection of required
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data related to international markets and analysis. According to Samuel V. Smith, “marketing information system
is an interacting, continuing future-oriented structure of people, equipment and procedures. It is designed to
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generate and process an information flow to aid decision-making in a company’s marketing program.” The
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marketing information system is, thus much broader than marketing research. Marketing research, in fact, forms a

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part of the marketing information system.
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International marketing research may be defined as a systematic collection and analysis of data and information
on international marketing operations. The committee on Definitions of the American Marketing Association defines

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marketing research as “the systematic gathering, recording and analysing of data about problems relating to
the marketing of goods and services”.
International marketing research will cover the following aspects:
(i) Present and future size of the market for the relevant product(s)/service(s)
(ii) Nature, extent and source of competition
(iii) Consumer likes and dislikes and the reasons for the same
(iv) Marketing variables such as product, price, promotion, logistics, brand, packaging, etc.
(v) Marketing environment factors such as social, political, economical, economic, technological, infrastructural,
etc.
(vi) Relevant policies and procedures of the importing country and service.
(vii) Entry techniques.

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 International marketing research involves use of quantitative techniques, objective analysis and subjective
interpretation of data and information. Depending upon the circumstances and requirements, the volume and depth of
international marketing research may vary. Enterprises may themselves conduct international marketing research or
they may avail of the services of specialised marketing research agencies.
(B) Write short notes on the following:
(i) Impact of Developments in Information Technology on International Marketing
Ans. International Marketing and Information Technology: Information technology has been revolutionalising
market operations. Technology is a powerful driving force of globalisation. Several barriers to globalisation have been
removed or significantly reduced by technology advances. The Information technology revolution has made an enormous
contribution to the emergence of the global village. The information technology revolution has brought about following
significant changes in the business environment:

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(i) It provides new ways to design organizations that can lead to structure.
(ii) It creates new relationships between customers and suppliers who electronically link themselves together.

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(iii) It enables tremendous efficiencies in production and service industries through EDI.

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(iv) It changes the basis of competition and industry structure.
(v) It provides face to face communication and supervision.

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Thus effective use of information technology helps a company to identify customers, reach out to customers
quickly and make distribution system more efficient.
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(ii) Standardization of International Advertising
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Ans. Standardization: According to standardization strategy, advertising message and media strategy is not

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changed from region to region or country-to-country. According to this approach, people everywhere want the same

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products for the same reasons and, hence, companies adopt an uniform advertising campaign around the world.

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Standardization treats the entire market as its target by competing successfully using the same marketing mix. Such
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advertising is resorted to when the products have a broad based appeal. Standardization is tempting because it

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involves no additional expenditure. Economies of scale in advertising as well as improved access to distribution

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channels are advantages of standardization. But the disadvantage of standardization is that it may end up not appealing

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to any particular market.

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Proponents of standardization believe the era of global village is fast approaching, and the Lastes and preferences
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are converging. According to the standardization argument, since people everywhere want the same products for the
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same reasons, companies can achieve great economies of scale by adopting an uniform advertising campaign around
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the globe.

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Q. 2. Explain the steps involved in the International Market Process.
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Ans. Steps Involved In the International Marketing Process: A firm which plans to go international has to

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take a series of strategic decisions or steps. Following are the major steps in the process of international marketing:
1. Deciding to Internationalise

w 2. Market Selection
3. Product Selection
4. Selection of Entry Mode
5. Selection of Marketing Strategy
6. Selection of Marketing Organization

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1. Deciding to Internationalise: The first decision is whether the firm should take up international marketing

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or not. This decision is based on number of important factors:
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(a) Present and future overseas opportunities.
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(b) Present and future domestic opportunities.
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(c) Resources of the company.

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(d) Company objectives.

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International marketing offers a number of advantages. At the same time, international marketing is subject to

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a number of risks. The decision to internationalise requires the evaluation of international strengths, weaknesses,

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opportunities and threats. This is done by SWOT analysis. If the SWOT analysis is favourable to the firm, the firm

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should decide to venture into the foreign market.
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2. Market Selection: Once it has been decided to internationalise, the next important step is the selection of

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most appropriate market i.e., identifying the target customers. For this purpose, a thorough analysis of the potentials

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of the various overseas markets and their respective marketing environments is essential. A careful exercise to
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shortlist overseas markets becomes necessary since all products cannot be sold by the firm to all countries at all

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times. It is considered better to exert maximum pressure on a minimum area to achieve the best results. Following are
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some important criteria which may be used in the market selection:

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(i) Geographical proximity: The first criterion of market selection is the geographical proximity. Geographical
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proximity facilitates a firm to reach the product fast to a nearby country and service the market quickly and
more effectively. Besides, there will be low transportation cost leading to lesser price of the product.

w (ii) Market potential of the country: A company may select its target markets on the basis of market
potential of the country. Market potential of the country can be assessed by the prosperity of the country,
the size and growth of its imports, etc.
(iii) Market Access: Another yardstick that a country may use in market selection relates to the market
access. A country’s import policy is an important factor, because it may be biased in favour of some items
and/or some countries. It is advisable for a company to select countries which do not discriminate against
the country of the firm and whose import policy is not restrictive. It would be highly beneficial for a
company if it selects countries having good political and economic relationships with home country or
having some preferential trading arrangement also or having least restrictions on imports.
(iv) Market Characteristics: Another factor to be considered in the selection of the market is the market
characteristics of the country. A company would like a market having similar cultural factors, trade practices
and customs.

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 3. Product Selection: Once the market selection decision has been made, the next important task is to determine
the products for export. Following are some important criterion which may be used in the product selection:
(i) Elasticity of Supply: A company would not face any supply constraint in exporting the products having
elastic supply. Elastic supply is the result of natural resource endowment or acquired skills and assets. A
company may also select a product because the product is unique i.e., it has developed it by research and
development and it is likely to take some time before competitors come out with a suitable substitute. A
company should not prefer exports of the products which are heavily dependent on imported inputs.
(ii) Demand of the Products: A company should identify the products that are in demand and likely to
continue to be in demand in an overseas country. For this the company has to make the analysis of a
country’s imports and production of various commodities including substitutes and the likely future policies
and plans regarding such commodities.
4. Selection of Entry Mode: After the selection of market and product, the next important decision is to
determine the appropriate mode of entering the foreign market. At one extreme a company may decide to produce

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the product domestically and export it to the foreign market. In this case, the company need not make any investment
overseas. On the other extreme, the company may establish manufacturing facilities in the foreign country to sell the

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product there. This policy requires direct foreign investment by the company. In between these two extremes, there

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in the foreign markets:

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are several options each of which demand different levels of foreign investment. Following are various entry modes

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(i) Exporting: Exporting means sale of domestically produced goods in other country without any marketing

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or production or organization overseas. Exporting may be of two types:
(a) Direct exporting
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(b) Indirect exporting
Direct exporting means sale of goods abroad without involving middlemen. In case of indirect exporting, a
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firm sells its products abroad through middlemen.

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(ii) Licensing: Under licensing an international business firm (licensor) allows a foreign company (licensee)

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to manufacture its product for sale in the licensee’s country and sometimes in other specified markets.
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(iii) Franchising: Franchising is a special form of licensing in which an international business company
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(franchiser) grants another independent company (franchisee) right to do its (franchiser’s) business in a
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prescribed manner. Franchiser makes a total marketing programme available to the franchisee.
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(iv) Contract Manufacturing: Under contract manufacturing, an international marketing company enters into
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st contract with a local enterprise abroad to manufacture its product and undertakes the marketing responsibility
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on its own.
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(v) Joint Venture: An international joint venture is an enterprise formed abroad by the international business
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company sharing ownership and control with a local company in that foreign country.
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(vi) Strategic Alliance: Under strategic alliance, two or more competing firms pool their resources in a
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collaboration to leverage their critical capabilities for common gain. Although a new entity may be formed,
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(vii) Assembly: Under assembly an international business firm produces most of the components or ingredients
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in one or more countries and carries out the labour intensive assembling in the foreign country where labour

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(viii) Mergers and Acquisitions: Under merger, an international business firm absorbs one or more enterprises

w abroad by purchasing the assets and taking over liabilities of those enterprises on payment of an agreed
amount. Under acquisition, an international business enterprise takes over the management of an existing
company abroad by taking the controlling stake in the equity of that company at a pre-determined price.
Each of these strategies has certain advantages and disadvantages. Each of these strategies require different
levels of investment ranging from no additional investment to full investment in manufacturing facilities abroad and the
risks also increase with increase in the investment levels. Similarly, control over the market may be higher if the
company involves itself directly in manufacturing by investments in production facilities. Various entry strategies
must be analyzed in following respects:
(i) Expected sales
(ii) Costs of operations in a foreign country

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 (iii) Assets
(iv) Profitability
(v) Risk factors.
The selection of a company’s best method of entry into foreign markets depends on following factors:
(i) Number of markets covered
(ii) Level of penetration within markets
(iii) Degree of feedback available
(iv) Control
(v) Possibility of sales volume over a period of time.
5. Selection of Marketing Strategy or Marketing Mix Decision: The foreign market is characterised by
a number of uncontrollable variables. Marketing mix consists of internal factors which are controllable. The success
of the international marketing, therefore, depends to a large extent on the appropriateness of the marketing mix.
Following are the elements of the marketing mix:
(a) Product strategy
(b) Pricing strategy
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(c) Distribution strategy

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(d) Promotion strategy

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(a) Product Strategy: In the present day competitive global market environment marketing begins with customer

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and ends with the customer. The importers will import only those items which are in demand from the

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customers. The exporters have to, therefore, identify what the consumers in the overseas markets require.
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It is imperative that the product selected for exports should be unique, creative and innovative in comparison

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to the similar item being offered by the competitors. As the consumer preferences, tastes and regulations
governing product, quality, safety, health, environment protection, packaging and packing vary from one

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market to another, same item cannot be offered in all the markets. An analysis should be made of any
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modifications required in the products, packaging changes needed, labelling requirements, brand name and
after-sales services expected. Many products must undergo significant modifications if they are to satisfy
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consumer and market requirements abroad. Other products require changes at the discretion of the producer
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only to enhance their appeal on export markets. Products may be modified in respect of quality, size, shape,

ucolour, material etc. Product strategy includes packaging, branding and product service.
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(b) Pricing strategy: Pricing decision is one of the basic marketing decisions. Most importers would decide to
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buy the product finally on the basis of comparison of price of competing products. Pricing strategy is

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closely linked to the cost of the product and other factors influencing the cost. In setting the export price,
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the business firm should consider additional costs that do not enter into pricing for the domestic market.
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These include such items as international freight, insurance charges, product adaptation costs, import duties,
commissions for import agents and foreign exchange risk coverage. A company should decide whether it
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w eH a should charge the same net price for a particular product in all its markets or different prices in different
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markets. Export pricing analysis should begin with these questions: What value does the target market
segment place on the business firm’s product? How do differences in the product add to or to detract from

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its market value? In practice, these are difficult questions to research but analysing the prices and product
characteristics of existing competitive products may reveal critical information. In practice, it is not the cost

w that determines the product’s price but the customer’s perception of that value. A firm may not have much
choice in export pricing beyond a point because it has to match competitor’s price. Extension of credit is
part of the pricing strategy.
(c) Distribution Strategy : A company should work out its distribution strategy very carefully so that its
product reaches the consumer at the right place and right time with reasonable cost. The potential exporter
should consider the following distribution on options:
(i) Exporting through a domestic exporting firm that will take over full responsibility for finding sales
outlets abroad.
(ii) Setting-up its own export organization
(iii) Selling through representatives abroad
(iv) Using warehouses abroad
(v) Establishing a subsidiary

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 The choice of distribution channel will depend on the firm’s export strategy and export market. A company
should be very clear about the division of risks, responsibilities and privileges between it and the distributors
and the cost of distribution. Part of the distribution strategy relates to agency arrangements in overseas
countries. When it is intended to create greater awareness of the product, it is better to appoint an agent
who does not handle many products and can allocate the time needed to promote that product.
(d) Promotion Strategy: The company should decide on the optimum promotion mix i.e., advertisement,
personal selling and sales promotion. The export marketing plan should provide details on the following
aspects of the promotional strategy:
(i) Publicity methods
(ii) Advertising (who will be responsible for it and how much the firm can allocate to it)
(iii) Trade missions
(iv) Buyer’s visits
(v) Local export assistance.

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Promotion strategy to be adopted by the exporter should be in tune with the environmental rules and regulations
of the host country. Further, promotion strategy should take into account the culture of the target segment in terms of

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its practices, beliefs, likes and dislikes, religion etc.

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6. International Organization Decision: The last step involved in the international marketing process involves

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decision regarding the international organization. There are different organizational structures for doing international
business. The structure is determined by the following factors:

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(a) Extent of commitment of the organization to the international business.
(b) Nature of international orientation
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(c) Size of international business and expansion plans.
(d) Number and consistency of product lines Fr
(e) Characteristics of the foreign markets.

(i) creation of export department m

A firm may organize its international marketing operations in three ways:

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(ii) setting up an international division.

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(iii) development of a global organization.
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The export department is the simplest form of export organization and easiest to establish. A separate export

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department is established to take effective care of all the activities connected with the export business. The internal
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organizational structure of the export department may be based upon functions, territory, product or a combination of
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these. A separate export department may be located at the most suitable place which may not be the headquarters of
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the company.
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When the activities of the firm further expand, it may create a full-fledged international division. The international
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division may be organized in following three ways:
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(a) Geographical organization, where managers are responsible for the marketing activities of their respective
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(b) World product groups, where managers are responsible for sale of a particular product group.
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(c) International subsidiaries where managers are responsible for its sales and profits like a subsidiary.

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Now-a-days firms have preferred to develop itself as global organization where manufacturing and marketing
are planned globally.

w Q. 3. An Indian auto-ancillary company decided to enter into international markets with full-fledged
investment in production and marketing. Discuss various modes of entry available for the company, and
critically evaluate in which situation each of them is suitable.
Ans. An Indian auto-ancillary company wanted to enter into international market.
Following are the various modes of entry to foreign markets:
(i) Exporting
(ii) Licensing
(iii) Franchising
(iv) Contract manufacturing
(v) Assembly
(vi) Joint ventures

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 (vii) Strategic alliance
(viii) Merger and acquisitions.
(i) Exporting: Exporting is the simplest way to get involved in a foreign market. Occasional exporting is a
passive level of involvement where the company exports surpluses from time-to-time and sells goods to resident
buyers representing foreign companies. Active exporting takes place when the company makes a commitment to
expand exports to a particular market. Exporting may be of two types:
(a) Indirect Exporting: A company can hire independent international marketing middlemen. It is more
common in companies just beginning their exporting because it involves less risk and less investment.
(b) Direct Exporting: Direct exporting means that a company can handle its own exporting. In case of direct
exporting, investment and risk are somewhat greater but so is the potential return.
(ii) Licensing: When a Company is unwilling to take any risk for the sake of international business, it sometimes
opts for licensing as the mode of entry. Licensing is, simply put, nothing but entering into a contract to allow

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another firm to use an intellectual property, such as, patent or a trade mark. This definition clearly brings
out the fact that as an entry mode, this option is not available to all firms. Only those which have saleable
technology, know-how, can use the licensing route.

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The attraction of licensing lies in the fact that it involves no investment and very little up-front expenditures. And

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if successful, it can generate a fairly high rate of return.

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Under a licensing agreement, the holder of the knowledge (technology or know-how) transfers the same to

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the buyer for his use against the payment of a fixed amount, which can either be a one time lump-sum payment

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or a percentage of sales, or a combination of the two.
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Licensing arrangements suffer from several disadvantages from the standpoint of the licensor. First, the licensor

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does not have any management control over the licensee and is, therefore, unable to control either the quality or price.
An unscrupulous or inefficient licensee can therefore, cause damage to the long-term development of the market

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potential. Second, licensing is extremely limited in its scope. The licensor cannot have a share of the returns from the
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manufacturing and marketing operations of the licensee. Third, the life of the successful licensing arrangements is
normally short, as the licensee may develop his own manufacturing capability within a reasonable short period. But
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the most dangerous aspect of the licensing arrangement is that sometimes the licensees, after they
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internalise the technology and also in some cases improve upon it, turn into competitors of the licensors.

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(iii) Franchising: A similar method of entry is franchising which is globally very common in the food, soft
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drinks and fast food business. Franchising is a form of marketing, under which the parent company allows the
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franchisee to use its methods, symbols, trademarks and architecture. The contract will specify the place of

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operation of the franchisee and the period for which the arrangement will remain valid. Several forms of franchising
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are in operation. One form is hundred per cent franchisee ownership; the second form envisages a concept of area or
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master franchisee who in turn can appoint sub-franchisee(s). The third is where the franchise is in fact owned by the
parent firm itself. This happens essentially at the market-testing stage. The principal wants initially to find out the
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market potential himself before deciding whether large scale franchising will be profitable.
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The basic advantage of this entry method is akin to that of licensing. The upfront expenditure is minimal
while the return can be substantial. The disadvantage lies in the fact that unless strict monitoring is done, franchisees

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may default on quality and delivery, thus affecting the reputation of the principal.
(iv) Contract Manufacturing: Under contract manufacturing a foreign firm enters into contract with

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manufacturing firms in the host country for production of its products according to its specifications but itself managers
and controls marketing in the host market. This arrangement allows the firm an easy entry with low risk into the
foreign market. Under this arrangement profit on manufacturing cannot be reaped by the foreign company, Coca-
Cola, Pepsi, Procter and Gamble, Reckit and Colman, Kellogg are some of the companies that have adopted this
approach. Contract manufacturing has the drawback of less control over the manufacturing process and loss of
potential profits on manufacturing.
(v) Assembly: Typical assembly is the last stage of manufacturing and depends on the ready supply of
components or manufactured parts to be shipped from another country. Under assembly, most of the components or
ingredients are produced domestically and the finished product is assembled in the foreign country. Often the companies
want to take advantage of lower wage costs by shifting the labour intensive operation to the foreign market which
results in lower price of the final products. Another advantage is that the investment to be made in the foreign country
is very small. The political risks of foreign investment is, thus, not much.

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 (vi) Joint Venture: In this arrangement, foreign companies join with local companies or parties to establish a
local business in which foreign company or government shares ownership, management and control of the joint
venture business with local principals, i.e., party or government. Generally, in this arrangement, foreign investor joins
with local investor to build a new manufacturing facility or buys an interest in the local company or a local business.
Suzuki-Maruti, Modi Xerox, Hindustan Lever Limited, DCM Daewoo etc., are some of the joint ventures.
The greatest advantage of establishing a joint venture is that the local party is well acquainted with local markets,
competitors and the political and legal environment and the foreign investor has to invest less. Again, local party will
also have to spend less resources and it can have the advantage of the latest technology and managerial expertise of
foreign company. The disadvantage of joint venture is that there may be a clash of interest due to differences in their
management philosophies, goals, global marketing policies and aspirations. This may lead to management conflicts.
Furthermore, joint ownership can hamper a multi-national company from carrying out specific manufacturing and
marketing policies on a worldwide basis.
(vii) Strategic Alliance: Strategic alliance has been becoming more and more popular in international business.

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Also known by such names as entente and coalition, this strategy seeks to enhance the long-term competitive advantage
of the firm by forming alliance with its competitors, existing or potential in critical areas, instead of competing with

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each other. “The goals are to leverage critical capabilities, increase the flow of innovation and increase

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flexibility in responding to market and technological changes. ”

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Strategic alliance is used as a market entry strategy. For example, a firm may enter a foreign market by

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forming an alliance with a firm in the foreign market for marketing or distributing the former’s products. AUS

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pharmaceutical firm may use the sales promotion and distribution infrastructure of a Japanese pharmaceutical firm to

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sell its products in Japan. In return, the Japanese firm can use the same strategy for the sale of its products in the U.S.
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market. Strategic alliance, more than an entry strategy, is a competitive strategy.
Several areas of business–from R and D to distribution-provides scope for alliance. Whether it is in R and D,
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manufacturing or marketing, an important objective of the collaboration is to maximize marginal contribution to fixed
cost.
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(viii) Mergers and Acquisitions: Mergers and acquisitions is the strategy to enter foreign market for a
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company by investing directly, in the host country and creating a manufacturing or production facilities therein. In
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case of a merger, an international business firm absorbs one or more enterprises abroad by purchasing assets and
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taking over liabilities of those enterprises on payment of an agreed amount. In case of acquisition, an international

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business firm takes over the management of an existing company abroad by taking the controlling stake in the equity
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of that company at a predetermined price. Mergers and acquisitions are preferred as entry mode for large enterprises.
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The advantages of mergers are: avoidance of conflict of interest, as may happen in the case of joint ventures, and
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fullest exploitation of the market potential in terms of both manufacturing and marketing. But these advantages are to
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be evaluated against the large scale commitment of financial and managerial resources. Some firms which are
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anxious to keep their competitive edge under the strictest control, normally favour this entry mode. Examples are
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IBM and Coca-Cola. But the recent attempts of these funds to enter the Indian market reveal that such firms may opt
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for any other mode, such as, joint ventures, if that facilitates the process of entry.
Acquisitions can be considered as the entry mode if ‘greenfield’ projects are time consuming , especially when
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the corporate strategy dictates an earlier entry in the market. The success of acquisition mode is strictly dependent

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upon the parent firm’s ability to integrate the acquisition in its organizational framework. There are several instances
where the present firm failed miserably and had to sell the acquired firm later at a considerable loss.

w Q. 4. Explain the various stages in the international product life cycle. Discuss life cycle stretching
strategies.
Ans. Following are the four phases of international product life cycle:
1. Introduction and growth
2. Maturity
3. Decline
4. Import.
1. Introduction and Growth: The first phase of international product life cycle is introduction and growth
during which innovative (exporting) country’s export strength is evident. Product innovation is likely to be related to
the needs of the home market. The firm usually serves its home market first. The new product is produced in the
home market because, as the firm moves down the production learning curve, it needs to communicate with both

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suppliers and customers. After meeting the demand of the home country, the manufacturers start exporting foreign
market and exporting goods to them. Thus, export strength is evident by innovator country.
2. Maturity: The next phase of international product life cycle shows the stage where the production
activities start shifting from innovating country to other countries, i.e., foreign production starts. The importing
firms in the middle income country realise the demand potential of the product on the home market. The
manufacturers also become familiar in producing the goods. The growing demand of the products attracts the
attention of many firms. They are tempted to start production in their country and gradually start exporting to
the low income country. The large production in the middle income country reduces the export from the innovating
country.
3. Decline: Decline is the third phase in which foreign production becomes competitive in the export market.
The firms in low income country also realize the demand potential in the domestic market. They start producing the

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products in their home country by exploiting cheap labour. They gain expertise in manufacturing the commodity. They
become more efficient in producing the goods due to low cost of production. Gradually they start exporting the goods

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to other countries. The export from this country replaces the export base of innovating country, whose export has

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been already declining. This exhibits the declining stage of product life cycle for the innovator country. In this stage,

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the product gets widely disseminated and other countries start imitating the product.

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4. Import: In the last phase of international product life cycle, import competition begins. The producers in the
low income importing country gain sufficient experience in producing and marketing the products. They attain the
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economies of scale and gradually become more efficient than the innovator country. At this stage, the innovator

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country finds the import from this country advantageous. Hence, the innovator country finally becomes the importer

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of that product. In this fourth stage of product life cycle the product becomes completely standardised.
Following figure shows International product life cycle:

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Exporting

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LDCs
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0 1 2 3 4
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International product life cycle shows that advanced (initiating) countries play the innovative role in new product
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development. International product life cycle presents the following implications for planning of the product:
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(i) Innovative products carry significant potential for international marketing.

(ii) The marketer whose products face declining sales in one foreign market may find another foreign market

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with encouraging demand for his product; and

(iii) Innovative products improve the staying power of the international firm.

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Strategies to manage International Product Life Cycle: To resist the declining sales, the management has
the following alternatives:
(i) It may improve the product or revitalise it in some way.
(ii) It may review the marketing and production programmes to be sure that they are quite efficient.
(iii) It may streamline the product assortment by pruning out unprofitable size, styles, colours and models.
(iv) It may cut all costs to the bare minimum level that will optimize profitability over the limited remaining life
of the product; or
(v) Abandon the product.
The management should develop a systematic procedure for identifying and then phasing out its weak products.
Product Planning: Product planning consists of all activities which enable producers and intermediaries to
determine what should constitute a company’s line of products. Following are the major areas of product planning:
(i) Introduction and development of new products.

10
 (ii) Improvement of the existing products to meet the market requirements.
(iii) Weeding out the unprofitable items in the product line.
Q. 5. Compare and contrast the different approaches to budgeting for international advertising.
Ans. Following are the different approaches to budgeting for advertising:
1. Percentage of Sales or Gross Margin
2. All you can afford
3. Competitive parity and share of voice
4. Objective and Task.
1. Percentage of Sales or Gross Margin: A company may take a certain percentage of sales as advertising
budget. This percentage may be determined either or gross sales or net sales volume for the preceding year or on the
average sales volume for a period of years. In addition to it, an estimate of future sales may be combined with the
average and some are of the opinion that is an accurate estimate of the budget. Following are the arguments in favour
of this approach:

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(i) The advertisement expenditure does not remain fixed. It fluctuates direct with the sales.
(ii) The advertising cost, sale price and profit per unit are closely correlated and considered by the management

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in preparing the budget.

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The dangers of this method are:

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This is very common method used in India. But this method also is not scientific though it is simple.

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(i) This method is defective because sale under this method is the cause of advertisement and not the result of

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advertisement.

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(ii) The danger of such a method is very obvious if we consider the case when sales are declining. In such a
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case the amount on advertisement at a fixed percentage would be declined when in fact advertising
appropriation should perhaps be increased to arrest the decline in sales.
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(iii) Again this method would be inappropriate when a new product is introduced in the market. Introducing a

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new product requires an heavy initial advertising expenditure although the sales in the initial period may be

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(iv) No long-term advertising programme can be prepared because expenditure fluctuates with the sales.
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(v) There is no scientific method for determining the fixed percentage.
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2. All you can Afford: Under this approach the amount to be budgeted depends on what funds are available or

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what it can afford for advertising. A small business concern cannot spend much on advertisement because its
n o
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capacity to spend is limited. Firms with limited resources may decide to spend all they can reasonably allocate to
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advertising after other unavoidable expenditures have been allocated. This rule usually ensures that the advertising
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expenditure is not too heavy and that advertising monies is not being wasted. If the benefits of more advertising could
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be demonstrated, extra money could usually be raised. So the limitation is somewhat artificial. Some large firms also
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use this rule. They start with the sales forecast, and budget for all essential expenditures other than advertising. Then
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allocation for advertising budget is made from the remaining resources. Main advantage of this approach is that it
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generates a financial plan that usually looks neat and attractive in an accounting sense. As this approach is based on
the assumption that sales are independent of advertising expenditures, there is no realization of the fact that advertising
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influences sales and its absence would be difficult to justify.

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3. Competitive-Parity Approach: Matching competitors’ advertising outlays–the competitive-parity approach–
is used by some companies. Although it may offer the firm a feeling that it is not losing ground to its competitors, the

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merit of this approach is dubious in domestic operations and it is especially to be challenged in international marketing.
As a practical matter, in most markets the firm is not able to determine advertising figures of competitors.
Another danger in following the practice of competitors is that they are not necessarily right. In fact, the
international firm is almost always a heavier advertiser than national firms in the same industry. If anything, the
international firm sets the standard for national competitors to follow rather than the reverse. This was evident in
Procter & Gamble’s entry into Europe, for example. The fact that different competitors may employ different
promotional mixes also hampers the use of this approach. In the United States, for instance, Revlon is a heavy
advertiser, whereas Avon relies more on personal selling. Who should follow whom?
A final limitation to the competitive-parity approach in foreign markets is the difference in the situation of the
international firm. Since it is a foreigner in the market, its relationship with consumers may differ from that of national
companies. This would be reflected in its promotion. Its product line and marketing program are also likely to differ

11
from those of national competitors. For these reasons, it is improbable that matching competitors’ outlays would prove
to be a sound strategy in foreign markets.
4. Objective and Task Approach: It is known as “job to be accomplished” approach. Probably it is the best
approach of advertising budgeting. It fixes the advertising budget on the basis of what the advertising campaign is
required to achieve. Keeping in view the sale of the products for each area the amount of advertisement is fixed for
each segment of markets and then it is aggregated for the firm. Such approach may include a consideration of factors
such as goodwill, market development, aids to dealers or the accomplishment of any other purpose desired by the
proper officials. This approach allows a great deal of initiative on the part of the advertiser, makes it possible for him
to do some thinking for himself, to be free from domination of his competitor and to make use of any facts and figures
which may have been gathered and furnished, to him at considerable expense. This approach, therefore, considers
carefully the advertising objectives prescribed and then determines what is necessary in terms of the type of media,
frequency of advertising, etc., with a view to accomplish these objectives effectively.

this approach.

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This method is suitable when a new product is introduced in the market. The cost factor is not considered under

It is thus very clear from the study of different methods of appropriating the amount for advertisement that no

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one method is perfectly scientific. Fixing the amount for advertisement is not an exact science. It requires a mixture

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of knowledge, assumptions, experience and hopes. In preparing the advertising budget, co-operation of all other
managers must also be sought so that advertisement objectives may be achieved effectively.

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