Course Name: International Marketing

Course Code: MKT 421

Semester: 11th (Marketing)
Lecture Sheet: 03

Topic 1: Trade Barriers – An International Marketer’s Minefield

International marketing is not an easy task. International marketer faces different types of protectionism
criteria to trade internationally. Protection of local industries usually takes the following form:

 Keeping money at home

 Reducing unemployment
 Equalizing cost and price
 Enhancing national security
 Protecting infant industry

1.1 : Keeping money at home: Trade unions and protectionists often argue that international
trade will lead to an outflow of money, making foreigners richer and local people poorer.
Protectionist argument assumes that foreigners receive money without having to give
something of value in return. Whether local consumers buy locally made or foreign products,
they will have to have money to pay for such products.
1.2 Reducing unemployment: It is standard practice for trade unions and politicians to attack
imports and international trade in the name of job protection. The argument is based on the
assumption that import reduction will create more demand for local products and subsequently
create more jobs.
Points to be considered:

 What happens, if the local markets have no idea about their demand?
(Grameenphone)
 With higher prices at home, consumers become poorer and buy less, and the
economy suffers.

1.3 Equalizing cost and price: Some protectionists argue that foreign goods have lower prices
because of lower production costs. Therefore, trade barriers are needed to make prices of
imported products less competitive and local items more competitive.

Points to be considered:

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  Price differentiate among different countries is caused by availability of different
factors such as labor, raw materials, efficiency of recourses and so on .
 Trade between nations takes place due to price differentials; otherwise, there is no
incentive to trade at all.

1.4 Enhancing national security: Protectionists often use the patriotic theme. They usually claim that
a nation should be self-sufficient and even willing to pay for inefficiency in order to enhance national
security.

Points to be considered:
 A nation can never be completely self-sufficient because raw materials are not
found in the same proportion in all areas of the world.
 National security is achieved at the cost of higher product prices, and money could
be used for something more productive to the national interest.

1.5 Protecting infant industry: The necessity to protect an infant industry is perhaps the most
credible argument for protectionist measures. Some industries need to be protected until they become
viable. South Korea serves as a good example. It has performed well by selectively protecting infant
industries for export purposes.

Points to be considered:

There is a question of how long an “infant” needs to grow up to be an “adult.”

At first the government must identify deserving industries. Second, appropriate incentives
must be created to encourage productivity. Finally, the government has to make sure that
the resultant protection is only temporary.

Topic 2: MARKETING BARRIERS: TARIFFS:

Tariff:
Tariff, (derived from a French word meaning rate, price, or list of charges), is a customs duty or a
tax on products that move across borders. Tariffs may be classified in several ways. Such as:
 Direction: Import and Export Tariffs
 Purpose: Protective and Revenue Tariffs
 Lengths: Tariff Surcharge versus Countervailing Duty
 Rates: Specific, Ad Valorem, and Combined
 Distribution Point: Distribution and Consumption Taxes

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2.1: Major / common uses of Tariffs:

I. Import and Export Tariffs: Tariffs are often imposed on the basis of the direction of product
movement; that is, on imports or exports. When export tariffs are levied, they usually apply
to an exporting country’s scarce resources or raw materials (rather than finished
manufactured products).
II. Protective And Revenue Tariffs : The purpose of a protective tariff is to protect home
industry, agriculture, and labor against foreign competitors by trying to keep foreign goods
out of the country .The purpose of a revenue tariff, in contrast, is to generate tax revenues
for the government.

Topic 3: Marketing Barriers: Nontariff Barriers:

Nontariff barriers are more elusive or nontransparent. Nontariff barriers may be grouped into five major
categories. Each category contains a number of different nontariff barriers. These are:

 Government Participation in Trade

 Customs and Entry Procedures
 Quotas
 Product Requirement.
 Financial Control
3.1: Government Participation in Trade

 Administrative Guidance
 Government Procurement and State Trading
 Subsidies

3.2: Customs and Entry Procedures

 Classification
 Valuation
 Documentation
 License or Permit
 Inspection
 Health and Safety Regulations

3.3 Quotas

 Absolute Quotas
 Tariff Quotas
 Voluntary Quotas

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3.4: Product Requirements

For goods to enter a country, product requirements set by that country must be met. Requirements may
apply to product standards and product specifications as well as to packaging, labeling, and marking.

• Product standards :

Each country determines its own product standards to protect the health and safety of its
consumers. Many Mexican agricultural commodities are banned from entering the USA.
Japanese product standards are even more complex, and they are based on physical
characteristics rather than product performance.

• Packaging, Labeling, And Marking :

Packaging, labeling, and marking are considered together because they are closely interrelated.
Many products must be packaged in a certain way for safety and other reasons. Canada requires
imported canned foods to be packed in specified can sizes, and instructions contained within or
on packages must be in English and French.

• Product Testing

Many products must be tested to determine their safety and suitability before they can be
marketed. Such products as medical equipment and pharmaceuticals must go through elaborate
standard testing.

• Product specifications :

Specifications can be written in such a way as to favor local bidders and to keep out foreign
suppliers.

3.5: Financial control

• Exchange control: An exchange control is a technique that limits the amount of the currency
that may be taken abroad.

• Multiple exchange rates: Multiple exchange rates are another form of exchange regulation or
barrier. There is no single rate for all products or industries, but with the application of multiple
exchange rates, some products and industries will benefit and some will not. Spain once used
low exchange rates for goods designated for export and high rates for those it desired to retain
at home.

• Prior Import Deposits and Credit Restrictions: A government can require prior import deposits
(forced deposits) that make imports difficult by tying up an importer’s capital. Importers in Brazil

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 and Italy must deposit a large sum of money with their central banks if they intend to buy
foreign goods.

• Credit restrictions apply only to imports; that is, exporters may be able to obtain loans from the
government, usually at very favorable rates, but importers will not be able to receive any credit
or financing from the government.

• Profit remittance restrictions: Another form of exchange barrier is the profit remittance
restriction. Brazil uses progressive rates in taxing all profits remitted to a parent company
abroad.

Topic 4: MARKETING BARRIERS: PRIVATE BARRIERS:

• Private barriers are certain business practices or arrangements between or among affiliated
firms. While nontariff barriers are not as transparent as tariffs, private barriers are the worst in
terms of transparency (or the lack of it). It is difficult for an outsider to gain business if potential
buyers refuse to explain why they do not want to buy from a foreign firm.

• Japan is a good example of private barriers. Toyota Motor Corp. provided $83 million to help out
Tomen Corp., a money-losing trading firm.

• Mitsubishi even arranges for the executives of its affiliated companies to have lunch together so
as to discuss business dealings.

• In Germany, banks are strong and often take a leadership role. In the case of Deutsche Bank, it
owns at least 10 percent of some seventy companies, and its bank executives sit on some 400
corporate boards. As such, it is in a position to encourage its clients to do business with each
other – rather than wit outsiders.

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 International Marketing: An Overview of South Korea
South Korea is the world’s sixth largest manufacturer of automobiles, and it exports some 650,000 cars
annually. The country is also the world’s fastest growing car market. Hyundai Motors and its subsidiary
Kia have 75 percent market share. In 1999, Koreans bought almost one million new cars. Yet car imports
were so highly restricted that only 2401 imported cars were sold, amounting to about 0.3 percent of the
country’s domestic car sales (the lowest market penetration in the world). While GM sold sixty-eight
cars there, Volkswagen managed to sell two. Foreign carmakers have long complained about South
Korea’s highly protected market. Imported cars are subject to the 8 percent tariffs as well as the 15
percent acquisition tax on luxury cars. The government also restricts the number of automobile
showrooms and the exhibition space allowed to foreign-owned importers and dealers. Other problems
faced by foreign carmakers include restrictions on credit facilities and the tightly regulated advertising
market. Since most advertising time on TV and radio is controlled by broadcasting authorities through
contracts that may continue indefinitely, large Korean advertisers are able to lock up virtually all prime-
time TV spots or sponsored programs. In addition, Korean buyers of high-priced foreign cars can expect
special attention from tax officials. Consumer durables (e.g., refrigerators) are prohibitively expensive
because of tariffs and taxes. Even dried peas are classified as luxury goods. Foreign sausages do not
necessarily fare any better. Korean inspectors seized a shipment of American-made sausages and held it
for months. According to the inspectors, the sausages were incorrectly classified for years by customs
officials as a product with a ninety-day expiration period. The sausages are supposed to have only a
thirty-day expiration period. Ironically, that is about the length of time it takes for a shipment to reach
Korea and undergo the lengthy customs process. Korea’s foreign citrus-licensing system has kept out all
but the lowest grade oranges from abroad. When the first shipment of oranges arrived from California,
it was held in the hot sun for three weeks while awaiting clearance. After finally admitting the
containers, the government then proceeded to reject the oranges as substandard. California’s almond
growers similarly have to endure customs rules that keep shipments on Korean docks for weeks.

 Within the local market, Why South Korea create an aggressive attitude towards foreign
countries?
 How do they manage it?