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1
 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
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information, data and solution. Student should must read and refer the official study material provided by the university.

Attempt all the questions.

a d
e
Q. 1. (a) Distinguish between the following:
(i) High-Tech Positioning and High-Touch positioning

R
Ans. International Market Positioning: International market positioning refers to a process whereby a company

e
establishes an image for its product in the minds of consumers relative to the image of competitor’s product offerings.

in ks
Positioning facilitates the planning of a market strategy to reach the target. International market positioning attempts

l
to occupy an appealing space in consumers’ mind in relation to spaces occupied by the other competitive products.

n oo
Positioning decision provides guidelines for the marketing mix decision.

O b
There are two international market positioning strategies:

r -
(i) High-tech Positioning

o
(ii) High-touch Positioning.

f E
(i) High-tech Positioning: High-tech products are the products which are frequently purchased on the basis of

b d
concrete product features although image may also be important. High-tech positioning is effective in case of high-

u a n
tech products such as personal computers, video, stereo equipment, automobiles etc. Buyers typically already possess

H
or wish to acquire considerable technical information. High-tech products may be divided into three categories:
(a) Technical Products: Computers, chemicals, tires and financial services are just a sample of the product

e
categories whose buyers have specialized needs, require a great deal of product information and share a

h
common “language”. Computers buyers in Russia and the United States are equally knowledgeable about

T
microprocessors, 20-gigabyte hard drives, modems, and RAM (Random Access Memory). Marketing
communications for high-tech products should be informative and emphasize features.
(b) Special-Interest Products: Although less technical and more leisure or recreation- oriented, special-
interest products also are characterized by a shared experience and high involvement among users. Again,
the common language and symbols associated with such products can transcend language and cultural
barriers. Fuji bicycles, Adidas sports equipment and Canon cameras are examples of successful global
special- interest products.
(c) Demonstrable Products: Some products are highly demonstratable and are successful global products.
Such products speak for themselves in advertising of features and benefits and are globally well positioned.

2
 (ii) High-Touch Positioning: Marketing of high-touch products requires less emphasis on specialised
information and more emphasis on image. High-touch categories are highly involving for consumers. Buyers of
high-touch products also share a common language and set of symbols relating to themes of wealth, materialism and
romance. The three categories of high touch products are products that solve a common problem, global village
products and products with a universal theme.
(a) Products that solve a common problem: At the other end of the price spectrum from high tech, products
in this category provide benefits linked to ‘life’s little movements’. Ads that show friends talking over a
cup of coffee in a cafe or quenching thirst with a soft drink during a day at the beach put the product at the
center of everyday life and communicate the benefit offered in a way that is understood worldwide.
(b) Global Village Products: Channel fragrances, designer fashions, mineral water, and pizza are all examples
of products whose positioning is strongly cosmopolitan in nature. Fragrances and fashions have travelled as

g
a result of growing worldwide interest in high quality, highly visible, high price products that often enhance

i n
social status. However, the lower priced food products just mentioned show that the global village category

d
encompasses a broad price spectrum.

a
In global markets, products may have a global appeal by virtue of their country of origin. The

e
“Americanness” of Levis, Marlboro, and Harley-Davidson enhances their onymous with vaunted Japanese

R
quality; in automobiles, Mercedes is the embodiment of legendary German engineering.
(c) Products that use universal theme: As noted earlier, some advertising themes and product appeals are

e
thought to be basic enough that they are truly transnational. Additional themes are materialism, heroism

lin ks
(themes include rugged individuals or self-sacrifice), play (leisure/recreation), and procreation (images of

n oo
courtship and romance).

O b
(ii) Product and Service
Ans. The term “services” refers to the intangible and invisible goods that have the utility to satisfy the needs and

or -
requirements of the people. According to Payne “A service is an activity which has some element of intangibility

f E
associated within which involves some interaction with customers or with property in their possession, and does not

b d
result in transfer of ownership.”

u a n
The American Marketing Association defines services “as activities, benefits or satisfactions which are offered

H
for sale or are provided in connection with the sale of goods.” According to William Stanton services are those
separately identifiable, essential intangible activities which provide want satisfaction and are not necessarily tied to

h e
the sale of a product or another service.
Services have a number of characteristics that make them different from products. The characteristics of services
are as under:
T
(i) Intangibility: Services are to a large extent abstract and intangible. For example, teaching, entertainment.
(ii) Inseparability: In most of the cases a service cannot be separated from the person or firm providing it.
(iii) Heterogeneity: Services are non-standard and highly variable depending upon who is providing the service.
(iv) Perishability: Services cannot be stored and stacked like industrial products.
(v) Ownership: In case of a service, one pays for its use but one never becomes the owner of it.
As a result of above characteristics services are different from products. This difference may be shown as
under:

3
 Goods Services Resulting Marketing Implications
Tangible Intangible Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Standardised Heterogeneous Service delivery and customer satisfaction depend on employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered matches what was
planned and promoted.
Production Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.

g
consumption consumption Employees affect the service outcome.

n
Decentralisation may be essential.

Non-perishable Perishable
Mass production is difficult.

di
It is difficult to synchronize supply and demand with services.
Services cannot be returned or resold.

e a
R
(b) Write short notes on the following:
(i) Piggybackings

e
Ans. Piggybacking: Piggyback marketing is an innovation in international distribution that has received much

in ks
attention in recent years. This is an arrangement whereby one manufacturer obtains distribution of products through

l
another’s distribution channels. Both parties can benefit: The active distribution partner makes fuller use of its

n oo
distribution system capacity and thereby increases the revenues generated by the system. The manufacturer using

O b
the piggyback arrangement does so at a cost that is much lower than that required for any direct arrangement.

r -
Successful piggyback marketing requires that the combined product lines be complementary. They must appeal to

o E
the same customer, and they must not be competitive with each other. If these requirements are met, the piggyback

f
arrangement can be a very effective way of fully utilizing an international channel system to the advantage of both

b d
parties. A case in point is the Kauai Kookie Kompany, whose owners observed Japanese tourists stocking up on

n
u a
cookies before returning home from Hawaii. Now, the cookies are sold in a piggyback arrangement with travel

H
agencies in Japan. The cookies can be purchased from a catalog after travellers have returned home, thus, reducing
the amount of baggage.

h e
In piggybacking, one manufacturer uses its overseas distribution to sell another company’s product along with
its own. The firm actually doing the exporting, i.e., carriers is usually the larger firm with established export facilities

T
and foreign distribution. The new non-competitive product may round out a gap in its product line or it may mean
greater economies of scale, and profits come from piggybacking. By piggybacking, companies can please foreign
distributors by giving them a more complete line of products. Also, it can mean extra customer convenience by
offering related products. Finally, firms with seasonal sales may piggyback to keep their export operation working at
full capacity throughout the year. For the exporting firm, piggybacking is a sale of know-how and services rather
than a sale of products. The company using an export company to carry its products to foreign markets, i.e., the
wider offers established exports and distribution facilities and shared expenses, benefits similar to those offered by
Export Management Companies.

4
 (ii) EPRG Orientation
Ans. The form and substance of a company’s response to global market opportunities depend greatly on
management’s belief or assumption about the nature of the international marketing. The management of a company
has to decide the type of orientation that a firm should give to its overseas marketing operations. There are four types
of orientations towards international marketing:
(i) Ethnocentric orientation
(ii) Polycentric orientation
(iii) Regiocentric orientation
(iv) Geocentric orientation
(i) Ethnocentric Orientation: A person who assumes his or her home country is superior compared to the rest
of the world is said to have an ethnocentric orientation. The ethnocentric orientation means company personnel see
only similarities in markets and assume the products that succeed in the home country will, due to their demonstrated

g
superiority, be successful anywhere. At some companies, the ethnocentric orientation means that opportunities

n
outside the home country are ignored. Such companies are sometimes called domestic companies. Ethnocentric

di
companies that do conduct business outside the home country can be described as international companies; they
adhere to the notion that the products that succeed in the home country are superior and, therefore, can be sold
everywhere without adaptation.

e a
In the ethnocentric international company, foreign operations are viewed as being secondary or subordinate to

R
domestic ones. An ethnocentric company operates under the assumption that ‘tried and true’ headquarters’ knowledge

e
and organizational, capabilities can be applied in other parts of the world. Although, this can sometimes work to a

in ks
company’s advantage, valuable managerial knowledge and experience in local markets may go unnoticed. For a

l
manufacturing firm, ethnocentrism means foreign markets are viewed as a means of disposing of surplus domestic

n oo
production. Plans for overseas markets are developed utilizing policies and procedures identical to those employed

O b
at home. No systematic marketing research is conducted outside the home country and no major modifications are
made to products. Even if consumer needs or wants in international markets differ from those in the home country,

r -
those differences are ignored at headquarters.

o
f E
This approach appears most appropriate when overseas sales volume is insignificant compared to the total

d
sales of the firm. It entails minimum risk on the part of the firm. It does not require much investment. Ethnocentric

b n
approach is suitable to small firms just entering international operations. However, this approach is not suitable for

u a
companies which are planning to extend their international operations in a big way. Today in the era of globalisation,

H
this approach is not popular.

e
(ii) Polycentric Orientation: The polycentric orientation is the opposite of ethnocentrism. The term polycentric

h
describes management’s often unconscious belief or assumption that each country in which a company does business

T
is unique. This assumption lays the groundwork for each subsidiary to develop its own unique business and marketing
strategies in order to succeed; the term multinational company is often used to describe such a structure. Local
personnel and techniques are best suited to deal with local market conditions. Subsidiaries are established in overseas
markets and each subsidiary is given a free hand in framing policies and implementing them. Each subsidiary
operates independently of others and establishes its own marketing objectives and plans. The environment of each
market is considered while formulating the marketing strategy. According to James H. Taggart and Micheal C.
McDermett, “emphasis is put on local laws, custom and culture and great care is taken to understand the local way
of doing business. This usually results in the maximum degree of geographic decentralisation as local managers are
recognised as being psychologically close to markets, environments and customers.” Polycentric orientation is ideal

5
for firms seriously committed to international marketing and have the capacity to invest to the desired extent towards
achieving their objectives.
(iii) Regiocentric Orientation: In a company with regiocentric orientation, management views regions as
unique and seeks to develop an integrated regional strategy. For example, an Indian company that focuses on the
countries in the North America Free Trade Agreement (NAFTA)–the United States, Canada and Mexico has a
regiocentric orientation. Similarly, if a company focuses its attention on the Europe, company follows regiocentric
approach. A regiocentric orientation views different regions as different markets. A particular region with certain
important common marketing characteristics is regarded as a single market, ignoring national boundaries. Marketing
personnel are recruited from that region, regional channels of distribution are developed and policies in respect of
other areas such as product, price and promotion have a regional orientation. It is generally viewed as economical
and manageable.
(iv) Geocentric Orientation: A company with a geocentric orientation views the entire world as a potential

g
market. The basic assumption of this approach is that all human beings are alike. A geocentric company develops

i n
standardised marketing mix, projecting a uniform image of the company and its products for the global market. The

d
business of the geocentric company is characterised by sufficiently distinctive national markets that the ethnocentric

a
approach is unworkable, and where the importance of learning-curve effects in marketing, production technology

e
and management makes the polycentric philosophy substantially sub-optimal. Pricing is established on a worldwide

R
basis. Global channels of distribution are established and promotional policy is developed to project a uniform
image of the firm, and its products. Since this orientation implies global attitude to the development of marketing

e
policies, it provides for improved coordination and control. This approach is more successful in areas such as

in ks
production and research than in marketing.

l
In general, the desirability of a particular international orientation EPRG–tends to depend on several factors

n oo
which are as follows:

O b
(i) Size of the firm

r -
(ii) Experience gained in the given market

o
(iii) Size of the potential market

f E
(iv) Type of the product and its cultural dependency.

b d
The EPRG framework provides guidelines for the type of orientation a firm may have towards external marketing.

u a n
The suitability of EPRG orientation may differ not only from company to company but also from one marketing

H
decision area to another within the same firm.
Q. 2. What do you understand by international marketing, multinational marketing and global marketing?

e
Discuss how international marketing involvement and commitment of the company changes in the above

h
three contexts.

T
Ans. International Marketing: International marketing is the multinational process of planning and executing
the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy
individual and organizational objectives. International marketing consists of finding and satisfying global customer
needs better than the competition, both domestic and international, and of coordinating marketing activities within
the constraints of the global environment. Thus, international marketing is the coordinated marketing process
undertaken in several countries. The difference between domestic marketing and international marketing arise entirely
from the differences that exist in the national environment within which the marketing effort is directed and the
differences that arise in the organization and programme because of operations being conducted simultaneously in
different markets.

6
 Following terms are also used in the context of International Marketing:
1. Domestic Marketing: Domestic marketing is the marketing that is targeted exclusively on the home country
market.
2. Export Marketing: Export marketing is the first stage when a firm thinks of the exploring market opportunities
outside the country. In export marketing, there is no direct marketing effort in the foreign country. The emphasis is
on expanding the market size by exporting to other countries a firm involved in export marketing maintains a
department with international sales force in the organizational structure.
3. International Marketing: In International Marketing, the focus of a firm changes from just exporting to
marketing in foreign countries. A firm makes full-fledged marketing efforts in the foreign countries. The marketing
mix developed for the home market is extended into the foreign markets. An international company normally relies
on the international division structure for carrying out the international business. An international company establishes
subsidiaries in the foreign countries to undertake marketing operations.
Multinational Marketing: Multinational marketing means adaptation of the domestic marketing mix (product,

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

n
i
When a company decides to respond to market differences, it evolves into a stage three multinational or multi-domestic.

d
Such a company formulates a unique strategy for each country subsidiaries are formed in each country or group of

a
countries to handle all marketing operations in that country. Each foreign subsidiary is managed as if it were an independent

e
unit.

R
Global Marketing: Global marketing means operating as if all the country markets in a company’s scope of
operations (including the domestic market) are approachable as a single global market and standardising the marketing

e
mix where culturally feasible and cost effective. A global company’s marketing plan has a standardised product with

in ks
country specific advertising; or has a standardised theme in all countries with country/culture specific appeals to a

l
unique market characteristic but adapted products to meet specific country needs and so on.

n oo
INTERNATIONAL MARKETING INVOLVEMENT

O b
The degree and nature of involvement in international business or the international orientations of companies
vary very widely. The firm’s international marketing involvement is totally absent in domestic marketing and it

r -
gradually increases as we move from export marketing, international marketing, multinational marketing and global

o
f E
marketing. It may be summarised as under:

b d
International

n
Domestic Marketing Marketing

u a
(Focus on Domestic Market) Involvement
= Zero

H Export Marketing

e
(Focus on Domestic Market

h
+ Exports)

T International Marketing
(Marketing Operations in
various countries)

Multinational Marketing
(Unique Marketing strategy
for each country)

International
Global Marketing Marketing
(Global Marketing Strategy) Involvement
= Maximum

7
ORIENTATION TOWARDS INTERNATIONAL MARKETING
There are four stages in the evolution of international operations in a firm. These stages are as under:
1. Ethnocentric stage (Home Country Orientation): Foreign operations are treated as secondary to domestic
operations. Strategic planning for foreign markets is done in the home office, and marketing personnel are primarily
home-country nationals. The marketing mix follows domestic patterns. No major changes are made in the products
sold abroad. Promotion and distribution strategies are essentially the same as at home. The ethnocentric position is
likely to be adopted by a small company just entering the international market or by a larger firm whose foreign sales
are insignificant.
2. Polycentric stage (Host Country Orientation): Each foreign country is treated as a separate entity with its
own autonomous subsidiary organization. Each of these foreign subsidiaries does its own strategic marketing planning
and research. Products are changed to meet local needs. Each subsidiary does its own pricing and promotion.
Distribution is through channels and a sales force that are native to the country in question.

g
Today, most international executives probably view the polycentric position as the most desirable one. In

n
i
marketing it is very important to adapt to country by country differences and to employ local nationals in doing a

d
marketing job. Polycentrism is likely to create problems of coordinating and controlling the marketing activities

a
among the several countries.

e
3. Regiocentric stage (Regional Orientation): A given region is treated as a single market, regardless of national

R
boundaries. Marketing plans and programmes are set for the entire region. Personnel can come from anywhere.
Standardised products are used throughout the entire region. Distribution channels and promotion are developed on

e
a regional basis to project a uniform image of the company and its products.

in ks
4. Geocentric stage (World Orientation): The entire world is treated as a single market, so that this stage is
essentially an expansion of the regiocentric stage.
l
n oo
A regiocentric approach is probably more economical and manageable than a worldwide programme. From a

O b
practical point of view, however, national environmental constraints (viz., law, currencies, culture, life style) may

r -
severally limit either one of these broad marketing approaches.

o E
These orientations may be shown as under:

f
b d
Polycentric

u a n
Each host
country is unique;
sees differences

H
Ethnocentric in foreign
Home country countries
is superior;

e
sees similarities
in foreign countries

T h Regiocentric
Sees similarities
and differences
in a world region;
is ethnocentric or polycentric
in its view of
the rest of the world
Geocentric
Worldview;
sees similarities
and differences in
home and host countries

The adoption of the techniques EPR or G depends on the following:

(i) Size of the firm.
(ii) Experience in the overseas markets.

8
 (iii) Extent of heterogeneity of the potential market.
(iv) Nature of the product.
International Marketing–India’s Experience: India had a very protected foreign trade regime till 1990-91
as a result of a strong inward-oriented policy. Due to factors like export pessimism of the Indian planners, export
development was neglected in the First and Second Plans. Although several measures were taken since the Third
Plan for export promotion, they were not adequate enough to provide the needed incentives for exports. According
to some studies, exporting was unprofitable in absolute terms without export incentives and even with the incentives
they were relatively unprofitable for many Indian firms doing exporting. The high input costs due to protection,
production units of uneconomic size and certain other factors have increased the cost of exportables. In short, the
export pessimism and the resultant indifference to export development in the earlier plans resulted in the neglect of
several sectors with tremendous export potential. The period of about three decades 1961-91 is characterised by a
number of measures for export promotion like drawback of import duty, refund of excise duty, income tax concession,

g
export subsidies etc. The Export Policy Resolution 1970 reflected the government’s resolve:

i n
(i) to strengthen the domestic production base so as to generate more exportable surplus in a variety of

d
sectors;

a
(ii) to strengthen and develop the export marketing infrastructures;

e
(iii) to develop overseas markets; and

R
(iv) to provide incentives to give a boost to the export sector.
A number of measures were taken in the eighties to promote exports. These included liberalisations of industrial

e
and import policies to encourage production of export goods, development of export processing zones, promotion of

in ks
100% Export Oriented Unit (EOUs), rationalisation and simplification of schemes of export assistance and incentives

l
etc. During the Seventh Plan (1985-90) efforts were made to identify sectors, industries and products which have a

n oo
goods export potential and to provide a suitable policy framework. The government of India identified 14 broad

O b
sectors for making special thrusts in the overseas markets. These sectors included tea, processed foods, marine

r -
products, iron ore, leather manufacturers, handicrafts and jewellery, capital goods and consumer durables, electronic

o E
goods and computer software, basic chemicals, fabrics piece goods and made ups; readymade garments, woollen

f
fabrics and knit wear and projects and services. As a result of these measures and some other favourable factors, the

b d
export growth accelerated in the late 1980s.

u a n
The situation once again underwent almost a sea change with effect from mid 1991 when economic reforms

H
were introduced. The main objectives of the economic reforms or new economic policy were as under:
(i) Delicencing i.e., to free economy from bureaucratic controls and excessive regulatory mechanisms.

e
(ii) Privatisation i.e., to open areas hither to reserved for the public sector to the private sector.

h
(iii) Liberalisation i.e., to integrate Indian economy with world economy.

T
(iv) Direct foreign investment i.e., to remove restrictions on direct foreign investment.
(v) Phasing out subsidies and dismantling price controls.
Trade policy reform has been an integral part of the economic policy reform. The salient features of the trade
policy reform have been the following:
(i) Exchange rate adjustment.
(ii) Reduction in the subsidies.
(iii) Liberalisation of imports.
(iv) Procedural simplification.
(v) Convertability of the rupee.

9
 Alongwith the far reaching changes in the Indian environment, the international environment also underwent
changes. Regional trade blocs and economic groupings became a fact of life. At the same time, there were tremendous
advances in technology, cheaper and easier transport, communication and information links among countries. Changes
that have taken place in the domestic and external environments have brought about changes in the attitude of the
Indian corporate sector towards international marketing. Today we find that Indian firms moving with time and
accepting the challenges of the changed environment. Following are the ways in which Indian companies have
responded to the latest developments:
(i) Global approach.
(ii) Flexibility.
(iii) Encashing new opportunities.
(iv) Creativity in promoting their products abroad.

g
(v) Pro active approach.

n
(vi) Responding to environmental changes.
(vii) Working for long-term contracts.
(viii) Increasing emphasis on market research.
di
(ix) Advance action.
(x) Value added products.
e a
(xi) Niche marketing.
R
e
Niche Marketing: The concentrated marketing strategy sometimes takes the form of niche marketing. Niche

in ks
marketing means concentrating on a market segment that is not satisfactorily served or which is ignored by the major

l
players. Such a strategy avoids a direct and immediate competition with major firms. Philip Kotler observes that in

n oo
many cases the nicher achieves high margin whereas the mass marketer achieves a high volume. The market nicher

O b
ends up knowing the target customer group so well that it meets their needs better than other firms that are casually

r -
selling to this niche. As a result, the nicher can charge a substantial mark up over costs because of added value.

o E
Q. 3. An Indian tractor manufacturing company is planning to enter African markets in collaboration

f
with a local company in Africa. Discuss any two modes of international market entry suitable in this context,

b d
and comment on their relative merits and limitations.

n
u a
Ans. Following are the various modes of entry to foreign markets:

H
(i) Exporting
(ii) Licensing
(iii) Franchising

h e
(iv) Contract manufacturing
(v) Assembly
T
(vi) Joint ventures
(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:

10
 (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
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.
The attraction of licensing lies in the fact that it involves no investment and very little up-front expenditures.
And if successful, it can generate a fairly high rate of return.

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

n
buyer for his use against the payment of a fixed amount, which can either be a one time lump-sum payment or a
percentage of sales, or a combination of the two.

di
Licensing arrangements suffer from several disadvantages from the standpoint of the licensor. First, the licensor

e a
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

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market potential. Second, licensing is extremely limited in its scope. The licensor cannot have a share of the returns

e
from the manufacturing and marketing operations of the licensee. Third, the life of the successful licensing

in ks
arrangements is normally short, as the licensee may develop his own manufacturing capability within a reasonable

l
short period. But the most dangerous aspect of the licensing arrangement is that sometimes the licensees, after

n oo
they internalise the technology and also in some cases improve upon it, turn into competitors of the licensors.

O b
(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

fo E
franchisee to use its methods, symbols, trademarks and architecture. The contract will specify the place of
operation of the franchisee and the period for which the arrangement will remain valid. Several forms of franchising

b d
are in operation. One form is hundred per cent franchisee ownership; the second form envisages a concept of area or

n
u a
master franchisee who in turn can appoint sub-franchisee(s). The third is where the franchise is in fact owned by the

H
parent firm itself. This happens essentially at the market-testing stage. The principal wants initially to find out the

e
market potential himself before deciding whether large scale franchising will be profitable.

h
The basic advantage of this entry method is akin to that of licensing. The upfront expenditure is minimal

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while the return can be substantial. The disadvantage lies in the fact that unless strict monitoring is done, franchisees
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
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.

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 (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.
(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

g
markets, competitors and the political and legal environment and the foreign investor has to invest less. Again, local

n
i
party will also have to spend less resources and it can have the advantage of the latest technology and managerial

d
expertise of foreign company. The disadvantage of joint venture is that there may be a clash of interest due to

a
differences in their management philosophies, goals, global marketing policies and aspirations. This may lead to

e
management conflicts. Furthermore, joint ownership can hamper a multi-national company from carrying out specific

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manufacturing and marketing policies on a world-wide basis.

e
(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

l
of the firm by forming alliance with its competitors, existing or potential in critical areas, instead of competing with

n oo
each other. “The goals are to leverage critical capabilities, increase the flow of innovation and increase flexibility
in responding to market and technological changes. ”

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

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

o
f E
firm may use the sales promotion and distribution infrastructure of a Japanese pharmaceutical firm to sell its products

d
in Japan. In return, the Japanese firm can use the same strategy for the sale of its products in the U.S. market.

b n
Strategic alliance, more than an entry strategy, is a competitive strategy.

u a
Several areas of business–from R and D to distribution-provides scope for alliance. Whether it is in R and D,

H
manufacturing or marketing, an important objective of the collaboration is to maximize marginal contribution to

e
fixed cost.

h
(viii) Mergers and Acquisitions: Mergers and acquisitions is the strategy to enter foreign market for a company

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by investing directly, in the host country and creating a manufacturing or production facilities therein. In case of a
merger, an international business firm absorbs one or more enterprises abroad by purchasing assets and taking over
liabilities of those enterprises on payment of an agreed amount. In case of acquisition, an international business firm
takes over the management of an existing company abroad by taking the controlling stake in the equity of that
company at a predetermined price. Mergers and acquisitions are preferred as entry mode for large enterprises. The
advantages of mergers are: avoidance of conflict of interest, as may happen in the case of joint ventures, and fullest
exploitation of the market potential in terms of both manufacturing and marketing. But these advantages are to be
evaluated against the large scale commitment of financial and managerial resources. Some firms which are anxious
to keep their competitive edge under the strictest control, normally favour this entry mode. Examples are IBM and

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Coca-Cola. But the recent attempts of these funds to enter the Indian market reveal that such firms may opt 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
the corporate strategy dictates an earlier entry in the market. The success of acquisition mode is strictly dependent
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.
Q. 4. Differentiate between product standardization and adaptation in international marketing. Evaluate
the various factors of standardization and adaptation and suggest the conditions under which each of them
is suitable.
Ans. Standardisation means the offering of identical product lines at identical prices through identical distribution
systems supported by identical promotional programmes in several different countries. The theme of standardisation
is one product, one message worldwide. This strategy has been successfully employed by Pepsi. At the other extreme,

g
adaptation means the offering of different product versions to suit the foreign market conditions under adaptation the

n
i
product is modified to suit the foreign market conditions. The product will serve the same function in foreign

d
markets under different use conditions. This strategy is called for when differences exist in the environmental conditions

a
of use and in the function which a product serves. Following are the important factors which necessitate adaptation:

e
(i) Differences in the consumer tastes, consuming habits etc.

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(ii) Differences in the conditions of use of the product.

e
(iii) Differences in the use facility characteristics.

in ks
(iv) Differences in the purpose of use or need satisfaction.

l
(v) Differences in the cultural environment.

n oo
(vi) Differences in the natural environment like geo-physical characteristics, weather/climate conditions etc.
(vii) Differences in the regulatory environment.

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(viii) Differences in the income levels and standard of living.

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(ix) Differences in the competitive environment.

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f E
Standardisation involves offering a common product on a worldwide basis. However, a product may have huge

d
potential for export in one market; yet the same product offered in another market may draw a blank. The reasons for
this may be as under:
b
u a
(i) Different physical conditions
n
H
(ii) Different functional requirements

e
(iii) Different cultural factors

h
(iv) Different tastes

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(v) Different levels of skills and levels of technical development.
Due to above factors, a product would require changes to be made in the product offered in another market. The
product to be successful in other markets must be capable of the suitable changes in its design, colour, size, taste,
packaging etc. This process of change is known as product adaptation. Adaptation involves offering different product
versions to meet the specific needs of each of its different global markets.
Following are the important factors that influence the exporting firm decision in favour of product standardisation
and adaptations:
1. Customer Orientation
2. Stage of Market Development

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 3. Legal Considerations
4. Climate Conditions and Physical Environment.
1. Customer Orientation: The most important factor influencing the exporting firm’s decision in favour of
product standardisation and adaptation is customer orientation i.e., customer’s response to the product. Customer
orientation encompasses following elements:
(a) Purchasing power
(b) Tastes, preferences and habits
(c) Socio-cultural factors
(d) Literacy and education levels.
The implications of customer orientation for product design would be as under:
(i) Product range

g
(ii) Size

n
(iii) Brand name or mark
(iv) Labels
(v) Package colour
di
(vi) Use instructions.

e a
2. Stage of Market Development: Another factor affecting the firm’s decision in favour of standardisation or

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adaptation is stage of market development. Stage of market development is characterized by the following factors:

e
(i) Availability of infrastructure support facilities such as transportation, communication etc.

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(ii) Level of technical skills

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(iii) Maintenance.

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Stage of market development will have implications for product design in respect of product form, packing,

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product simplification and after sales service.

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3. Legal Considerations: A number of countries have specified product, packaging, and labelling standards

o E
for certain commodities. Such regulations have to be followed in all the cases. Legal considerations include the
following:
f
(i) Patent
b n d
u a
(ii) Safety standards

H
(iii) Commercial terms
(iv) Control requirements.

h e
Legal considerations affect the product in terms of brand name/mark, label, language, measurement units and
sizes, packaging and instructions for use.

T
4. Climatic Conditions and Physical Environment: Product decisions are also influenced by climatic
conditions and physical environment of foreign countries. Physical environment consists of hot or cold climate,
plains or hilly areas, living environment in home etc. Physical environment affects the product in following respect:
(i) Packaging protection
(ii) Package size
(iii) Product storage.
Q. 5. Discuss various sales promotion tools in international marketing to enthuse consumers, middlemen
and own sales force to buy/promote the product.

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 Ans. Consumer promotion tools are sales promotion directed at consumers with a view to increase the use of
products among existing consumers and to attract new consumers. Following are the main consumer promotional
tools:
1. Samples: Many a times free samples of products are distributed to customers. The sample may be distributed
in the shop or door to door. Such technique is popular in the case of drugs, cosmetics perfumes and other like
products. As distribution of samples is very costly, this technique is confined to the products of small value and of
repeat sales. It is an effective device of sales promotion because the consumers are provided with an opportunity to
examine the product and to see its merits before purchasing such product. Further it may be successfully used to
introduce new products in the market.
2. Premiums: A sales premium or bonus offer is the offer of an article free of cost or at a nominal price on the
purchase of a specified product. For example, one tooth brush may be given free on the purchase of an economy pack

g
of a tooth paste. The premium provides the inducement to purchase products on the part of consumers. According to

n
the mode of offering premiums, the premium scheme may fall into two categories:
(a) premium articles
(b) premium coupons.
di
e a
In case of premium article, a gift article is enclosed in the package of products in question and is available at the
point of purchase. The premium coupons attract rewards in exchange of a specified number of coupons.

R
3. Prize contests: Under this device, prize contests are organized for consumers to make them interested in the

e
product. Generally, the customers are invited to send suggestions regarding the best name for a product or arrange

in ks
the possible attributes or good points of the product. Handsome prizes offered in such contests attract a number of
people to use the product.
l
n oo
4. Demonstration: A new brand is promoted by this technique. Demonstrations are arranged at fairs and

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exhibitions, temple festivals or even on a door to door basis. These are most commonly employed for house- hold

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appliances and new beverages. Businessmen demonstrate their products explaining product’s special features and

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usefulness.
5. Goodwill Gifts: Items of personal use by the prospects such as diaries, desk trays, pen holders, calendars,

b d
rulers, purses, etc., can be usefully employed by the manufacturer and seller to remind them of the product and its

n
utility.
u a
H
6. Coupons: Coupons are generally supplied along with the product which entitle the holder to either a specified

e
savings on a product or a refund. Most coupons are designed for following purposes:

h
(i) To introduce a new product.

T
(ii) To increase sale of an established product.
(iii) To sell new and larger sizes of a product.
(iv) To induce customers to switch brands.
(v) To encourage repeat sales.
Coupons are used for consumer convenience goods. They may be distributed by mail or door to door, inserted
in packages or part of magazine and newspaper advertisements.
7. Rebates: Rebates are cash refunds after the purchase of a product. The marketer offers to refund a part of
price paid by the customer on production of some proof of purchase. For example a toilet soap manufacturer may
offer to refund Rs. 5 on sending the empty cover of the pack.

15
 8. Price Packs: Price packs are savings to the consumers off the regular price of a product. The reduced prices
are marked on the label or package. For example, “two for the price of one” sale or reduced price for two related
products if bought together (such as a shirt and a trouser).
9. Patronage Rewards: The marketer may offer rewards in cash or in kind to the regular users of its products
and services.
Sales promotion may be used to introduce a new brand of toilet soap in the market. Sales promotion may be of
following types:
(A) Consumers promotion
(B) Distributors promotion
(C) Sales force promotion.
(A) Consumers Promotion: Following are main consumers promotional tools:
1. Samples: Free toilet soap may be distributed among the prospective customers for arousing their interest in

g
the product. Sampling is an effective sales promotion device because the toilet soap is frequently purchased

n
i
convenience goods.

d
2. Coupons: Coupons are certificates that give the buyers a saving when they purchase toilet soap of the

a
company. Coupons may be supplied along with the toilet soap which entitle the holder to either a specified savings

e
on the product or a cash refund. Coupons may be distributed by mail or door to door or part of magazine or newspaper

R
advertisements.

e
3. Rebates: Rebates are cash refunds after the purchase of toilet soap.

in ks
4. Price Packs: Price packs offer savings to the consumers off the regular price of a product. The reduced

l
prices are marked on the label or package. For instance two toilet soaps for the price of one.

n oo
5. Premiums: When goods are offered at low cost as an incentive to buy a product, it is called premium.
Premium may be inside or outside the package of toilet soap. Toilet soap may be offered with a soap case.

O b
6. Specialities: Articles with the company’s name on them may be given as gifts to the customers. Such articles

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may include pens, key chains, purses, caps etc.

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f E
7. Patronage Rewards: Rewards may be given in cash or in kind by the company to the regular customers.

d
8. Contests: Contests may be conducted to attract customers by asking them to state in a few words why they

b n
prefer toilet soap. For entering into the contest, the customer is required to purchase the toilet soap and submit the

u a
evidence (e.g., a label or package or card attached to the product) with entry form for a contest.

H
(B) Distributors Promotion: Following are main distributors promotion:

e
1. Buying Allowance Discount: The buying allowance or discount is offered to the dealer to induce him to

h
buy the manufacturer’s product. Such discount may be either deducted on invoice price or on cash paid. Such

T
allowance or discount may be given at a fixed percentage on each minimum quantity of product purchased during a
stated period of time. It increases the profits of the dealer.
2. Buy-back Allowance: This method of promotion is practised to prevent a post deal sales decline. Under this
method, the manufacturer offer a certain amount of money for additional new purchases based on the quantity of
purchases made on the first trade deal.
3. Free Goods: It is an offer of a certain amount of product free of cost on purchases of a certain stated amount
of the same or another product.
4. Display and advertising Allowance: The allowance is offered to the dealer to display the manufacturer’s
product. The allowance is given on the basis of space provided to display the manufacturer’s product in the shop.

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 5. Dealer-listed Promotion: Under this method dealer name and address is given on the advertisement and
other publicity materials as calendars, diaries, etc. This type of promotion performs the twin functions of consumer
educations and convincing of retailers in the need for co-operation in the promotion.
6. Push Money or PM’s: This is an incentive payment in cash or in kinds to the retailer or salesman to push the
sale at a fixed rate for each article sold.
7. Sales Contests: It is a advice used to stimulate and motivate distributors, dealers and their sales staff. They
will be offered cash prizes for those who will win the sale contest, i.e., who will make the highest sales of the
company’s product. In view of the winning chance, sellers participate in the contest.
(C) Sales Force Promotions: Personal selling by far is the most important method of sales promotion. To
make it highly effective, sales force promotion schemes are felt necessary. The tools for sales force promotions are:
1. Bonus to Sales Force: A quota of sale is fixed for each salesman during a fixed stated period. Bonus is
offered on sales in excess of the quota fixed. In order to get the higher premium the salesman will try to sell more
quantities of goods.

n g
i
2. Sales Force Contest: Sales force contests are announced to stimulate company salesmen to redouble their

d
interest and efforts over a stated period with prices to be the top performer.

a
3. Sales Meetings, Salesmen’s Conventions and Conferences: These are conducted by the manufacturers

e
for the purpose of educating, inspiring and rewarding the salesmen. New products and new selling techniques are

R
described and discussed in such meetings.

e
lin ks
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O b
or -
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b n d
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H
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