L J INSTITUTE OF MANAGEMENT STUDIES

5 YEAR INTEGRATED MBA (IMBA)

SEMESTER 9 (MARKETING)

INTERNATIONAL MARKETING

SUBJECT CODE: 4190542

 International Marketing

International Marketing is the application of marketing principles in more than a nation.

International marketing involves making one or more marketing mix decisions across
national borders. International marketing involves establishing production facilities overseas and
coordinating marketing strategies across the world.

Definition: "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."

It refers to the firm-level marketing practices across the border including market identification and
targeting, entry mode selection, marketing mix, and strategic decisions to compete in international
markets

The nature of International business

• International businesses are those businesses whose products or services travel

international boundaries and have their presence felt. Their production bases are present
across the globe. The firm has high diversity of human resources.
• Investment in international services (banks, advertising, tourism, retailing…) and
• Transactions involving intellectual properties (trademark, copyrights, patents and process
technology)

Benefits of International marketing

1. Reduces cost: If a company is manufacturing a good in larger quantities it automatically reduces

its cost. So if companies operate in international market it gains cost competency in local and global
market.
2. Can deal with seasonal fluctuations: A company manufacturing winter wears will have a market
demand for a limited time if it is operating in just one market. So to deal with such kind of situations
companies need to go globally to create demand for their products.
3. Increases profit: more sales equals to more profit. So it is beneficial for companies to enter
international markets.
4. Earns foreign exchange: operating in other countries helps a company earn foreign exchange for
the country.
5. Employment: it helps create employment home country and host country.

What is Internationalization?
Define Internationalization.

Internationalization is the process which encourages firms to enter the international markets by
increasing involvement of the enterprise in the global markets.

Internalization theory tries to explain whether Multi National Company’s use leasing or licensing
methods for the sale of their products abroad or they produce products abroad through FDI by
themselves. It therefore explains the rationale of the company and its reasons to prefer FDI instead
of producing in the home country and then exporting it.
Discuss the characteristics of Internationalization
Internationalization of businesses has four major characteristics which makes the firm more global
or less global:
1. Globalization of market presence
2. Internationalization of supply chain
3. Internationalization of capital base
4. Internationalization of corporate mindset

Globalization of market presence

This defines the extent of the reach of the firm in the global markets and to make the company’s and
its products within its industry throughout the world.

Internationalization of supply chain

The company utilizes its supply from across the world most optimally. The market presence may not
be high but the supply chain can be highly globalized. Eg. Toyota has a good supply chain. The diesel
engines are from Thailand, capital goods and technology information is from Japan and other intra
firm flow from South - East Asian firms.

Internationalization of capital base

It is accessing optimal sources of capital on a worldwide basis. The company can also have a
globalized presence inspite of the domestic or global capital bases of the company.

Internationalization of corporate mindset

This is the ability of the company to integrate diversity across cultures, and markets. Companies with
a global mindset have a diverse and highly globalized workforce and corporate culture.

A true global company has all the four characteristics but there is a possibility of the firm to be either
high or low on any characteristics.

Advantages and other benefits of Internationalization,

1. Better organizing capability

2. More growth and profitability of the company
3. Better use of company's knowledge
4. the ability to access cheap finance and
5. Government helps to buy under performing companies

The Disadvantages of Internationalization

1. Not having the complementary goods

2. Not enough resources for a large-scale operation
3. Might not have the ability to transfer their competitive advantage
4. strong barrier to enter certain markets
The various foreign entry market strategies

A few major decisions are to be taken when companies decide to expand and extend their domestic
marketing to International markets. The decisions could be on

1. Deciding whether to go global

2. Deciding which markets to enter
3. Deciding how to enter the market
4. Deciding on the marketing program and
5. Deciding on the marketing organization.

After deciding to go global, the companies decide the markets to enter on the basis of volumes of
foreign sale, number of countries to enter and the type of countries to enter. The different
marketing strategies to enter an international market are :

1.Trade related Entry Modes:

Exporting
Direct Exporting is selling domesticated produced products to buyers in other
countries It is the most popular modes to test the markets for further entering the
new markets

Indirect exporting

Domestic- based Export Merchant

Domestic- based Export Agents
Co operative organizations
Export management companies
International sub-contracting
Firms having surplus capacity to manufacture their products and can supply
materials, semi-finished products and components to host company for producing
final goods that will be bought by the foreign company
Countertrade
It is the exchanging of goods between countries for little or no cash)

Management contract
Management contract are agreements where MNC’s train local employees for a fee
inorder to manage their foreign based facilities.

2.Transfer Related Entry modes

These modes of entry are transferring of ownership from one party to another for royalty payment.
a) International Leasing
Leasing, internationally happens when the owner of the company leases his
used equipment or facility to a local company to manage for a fee. The
ownership is retained and the firm obtains possession of the property and
uses the idled machines and facility.

Benefits:
Easy access to target markets
Earnings from idled machinery
 Obtain assets without investments
Minimized operational and investment risk

b) International Licensing
One firm permits another company to use its intellectual property for a
compensation called royalty.

Benefits:
No capital investments
Generates royalty
Good funding for Research
Moderates risk

c) International Franchising

It is granting of a company to another to do a business in a specified

manner. This gives the right to use the logo, processes and production and
marketing techniques to do business. Eg. KFC, McDonald’s

Benefits:
Business operations are already set and tested, it only needs
implementation
The brand is already known

d) Built-operate-Transfers

These are also called the turnkey operations. The foreign company assumes
responsibility to design and set the entire operations for the business. On
completing, the trained personnel take over and the owner manages the
foreign operations.

3. FDI related entry modes

a. Joint Ventures

Foreign investor joins hands with local investors to create a Joint Venture in which they share
ownership and control.

Advantages:
To reach a larger and technological market
Diversify Investments and Risks
Share brand values, maintain brand consistency

Eg. Maruti –Suzuki, Coca Cola and Nestle

b. Direct Investment

A foreign company can buy part or full interest in local companies or build its own manufacturing or
service facilities. Eg. Cisco in Bangalore, Honda in UK
 Advantages
– Creates cost economy
– Strengthens its image in the host country
– Enables better adaptation of its products to the local environment
– Retains full control over its investment
– Assures access to the market, in case the host country insists locally purchased
goods have domestic content.

Disadvantages
Exposes a large investment to risks such as blocked or devalued currencies, worsening
markets, or expropriation

c. Branch office
Opening a branch in a foreign country

The various types of tariffs/classification of tariffs as international barriers.

The Barriers to Trade are classified as

a. Tariff barriers
These are barriers in terms of tariff on import and export of goods. This tariff is a tax
imposed on goods involved in international trade.

Types of Tariff barriers are:

Export Tariff (taxes on export of goods)
Import Tariff (taxes on import of goods)
Transit Tariff (taxes on goods travelling from one country to another)

b. Non-tariff barriers
These barriers are not transparent; they do not come under laws and government
regulations. Some barriers are difficult to detect like the size standards of goods. Loan waivers andn
subsidies are too common.

Types of Non-tariff barriers

a. Quotas
Numerical limits on the goods that can be imported in a country, or the value of the
goods that can be imported. It is established on the basis of market share. This is levied
to protect domestic producers.
b. Subsidies

Is a payment to the producers made by the government, It can be in the form of cash
grants, low interest loans, tax breaks, and equity participation. Generally the
government gives subsidies to agriculture sector, like electricity, seeds and fertilizers.

c. Others
Producing and testing standards

 Is a non-tariff barrier, to meet a country’s domestic product

to testing standards
before it is ready to sold in that country.
  Forming technical and environmental standards with
relation to safety,
pollution and technical standards.
Embargoes and boycotts
Is a complete ban on trade in one or more products with a particular
country.

Administrative delays
Regulatory control on bureaucratic rules
Currency controls
Restrictions on the convertibility of a currency into other currencies
Cartels
This is a group of industries forming a collusion with an informal
identity to operate as an a single or individual unit. It can be in the
form of lowering prices, co-operate in tenders and price fixing.

Explain Production possibility curve and principle of absolute advantage

A nation would have to manufacture all types of products, if it was not involved in trade. The trading
country looks up to the other countries to gain something from their partners.

The production possibility curve, is about the decision to make on the maximum number of units
made when two products for example automobiles and computers are produced in various
combinations. Since one product can be substituted for the other, within the limit of available
resources.

The country may elect to specialize or put all its resources into making either computers (pt A) or
automobiles (pt B) as in the diagram .
At C the product specialization has not been chosen, and thus a specific number of each product will
be produced.

Diagram 1: PPC curve

Each country has a unique set of PPC,

Regardless of the opportunity cost in the international trade, a country must determine the proper
mix of any two products and must decide whether it wants to specialize in one of the two
Production Possibility curves determining what to export and what to import.
Trade enables consumption outside the production possibility frontier. The world PPF is made up by
combining countries’ PPFs. When countries’ autarkic productions are added (when there is no
trade), the total quantity of each good produced and consumed is less than the world’s PPF under
free trade (when nations specialize according to their comparative advantage). This shows that in a
free trade system, the absolute quantity of goods available for consumption is higher than the
quantity available under autarky.

Absolute advantage

It refers to the ability of a country to produce a good more efficiently than other countries. In other
words, a country that has an absolute advantage can produce a good with lower marginal cost
(fewer materials, cheaper materials, in less time, with fewer workers, with cheaper workers, etc.).
Absolute advantage differs from comparative advantage, which refers to the ability of a country to
produce specific goods at a lower opportunity cost.
A country with an absolute advantage can sell the good for less than a country that does not have
the absolute advantage. For example, the Canadian economy, which is rich in low cost land, has an
absolute advantage in agricultural production relative to some other countries. China and other
Asian economies export low-cost manufactured goods, which take advantage of their much lower
unit labor costs.
Imagine that Economy A can produce 5 widgets per hour with 3 workers. Economy B can produce 10
widgets per hour with 3 workers. Assuming that the workers of both economies are paid equally,
Economy B has an absolute advantage over Economy A in producing widgets per hour. This is
because Economy B can produce twice as many widgets as Economy B with the same number of
workers.

Absolute Advantage: Party B has an absolute advantage in producing widgets. It can produce more
widgets with the same amount of resources than Party A.
If there is no trade, then each country will consume what it produces. Adam Smith said that
countries should specialize in the goods and services in which they have an absolute advantage.
When countries specialize and trade, they can move beyond their production possibilities frontiers,
and are thus able to consume more goods as a result.

Therefore Absolute advantage of

• A country that has an absolute advantage can produce a good at lower marginal cost.
• A country with an absolute advantage can sell the good for less than the country that does
not have the absolute advantage.
• Absolute advantage: The capability to produce more of a given product using less of a given
resource than a competing entity.
Explain Leontiff Paradox

In one of the most widely discussed tests of the factor proportions theory, Leontief
attempted to reveal the relative factor proportions structure of U.S. participation in
international trade.
It was considered that a country will tend to export those commodities which use its
abundant factors of production intensively and import those which use its scarce factor
intensively.
By common consent the United States is the only country that is most abundantly endowed
with capital. Therefore, one would expect the United States to export capital intensive goods
and import labour intensive goods.

According to the Factor Endowment theory, the factors are land, labour and capital on a
basic level and factors such as management, technological skills and specialized distribution
networks. The countries allocates its production as per its factor endowments.

• Thus countries are expected to use factors on relative availability of diff. factors in each
country. Hence the countries get an advantage to sell at prices less than the international
markets.
• Besides factor differentials the taste preference also matters.
• Eg. Leather imported goods--- Italian leather products, deluxe automobiles, French wine are
valuable for their quality, prestige or panche.
• On the whole it has a high common sense appeal and looks at trade as a national welfare
and the prices of production like the case of TATA Steel
 

•WW Leontiff studied the exports and imports in US. This contradicted the Factor
Endowment theory. As it is in variance it is called the Leontiff Paradox.
• In clarifying the paradox, he explained that the factor endowments are not
homogenous, they differ in parameters other than relative abundance.

• Variances are in Labour-------skilled to unskilled

• Production methods----technically more sophisticated or advanced in diff. locations
within a country

• Hence US exports heavy labor intensive goods like software and imports /buys high
capital products like manufacturing processes.

WTO framework has smoothened the business complexities? Describe its benefits to INDIA?

The World Trade Organisation (WTO) came into being on January 1, 1995 which holds a great
promise for the entire world economy in respect of international trade. This world trade
organisation will administer the new global trade rules establishing the rule of law in international
trade. It amounted to nearly five million dollar last year for goods and services.
The Preamble of the World Trade Organisation (WTO) states that “there is a need for positive
efforts to ensure that developing countries and especially the least developed among them, secure
a share in the growth of international trade commensurate with the needs of their economic
development.”

WTO as smoothening Business Process

It aims for sustainable development to protect the environment in a manner consistent with the
different stages of economic development.

It recognises the need for special measures to ensure a higher proportion of growth where the
developing countries will benefit from the increased exports and better treatment with respect to
measures taken by other WTO members.

Technical assistance is to be provided to developing countries to assist them in assuming their

obligation and more effectively realising the benefits of the multilateral trading system under WTO.

It aims to ensure that developing countries secure a better, balance in the sharing of the advantages
resulting from the expansion of international trade corresponding to their developmental needs.

To enhance competitiveness among all trading partners so as to benefit consumers and help in
global integration

To increase the level of production and productivity with a view to ensuring level of employment in
the world and to expand and utilise world resources to the best

To improve the level of living for the global population and speed up economic development of the
member of nations

World Trade Organisation: India is one of the (out of 104) founder members of the WTO. The impact
of the WTO on the Indian economy can be analysed on the basis and general concepts.

BENEFITS TO INDIA

The GATT secretariat estimated that largest increase in the level of merchandise trade in goods (in
general, it would be US $ 745 billion .by the end of 2005) will be in the areas of clothing (60 per
cent), agriculture, forestry and fishery products (20 per cent) and processed food and beverages (19
per cent). India's competitive advantage lies in these fields. Hence, it is logical to believe that India
will obtain large gains in these sectors.

India's textile and clothing exports will increase due to the phasing out of Multi-fibre An'angement
(MFA)

· The reduction in agricultural subsidies and barriers to export of agricultural products, agricultural
exports from India will increase .

· The multilateral rules and disciplines relating to anti-dumping, subsidies and countervailing
measures, safeguards and disputes settlement machinery will ensure greater security and
predictability of international trade. This would be favourable environment for India's international
business .
· India along with other developing countries has the market access to a number of advanced
countries due to the imposition of the clauses concerning to trade without discrimination.

Therefore the WTO helps developing countries like India Increase its export revenues and the service
sector industries.
DISADVANTAGE TO INDIA

Despite the benefits of WTO to India, many economists and sociologists argue that, India would be in
a disadvantageous position by becoming a member of WTO.

1. Trade Related Intellectual Property Rights (TRIPs) : Protection of intellectual property rights
(patents, copyrights, trademarks etc.) has been made stringent. The duration of patents
under TRIPs is 20 years .

2. Introduction of product patents in India will lead to hike in drug prices by the MNCs who
have the product patent. This will hit the poor people who will not have the generic open
option open

3. Patenting has also been extended to a large area of micro-organisms .

4. Services : Service sector like insurance, banking, telecommunications, transportation is

backward in India compared to that of developed countries. Therefore, inclusion of trade in
services is detrimental to the interest of India. Liberalisation of service sector would be
under tremendous pressure.

Module 2:

Define Culture. What are the characteristics of culture? Describe and discuss the different
elements of culture

Definition: Culture consists of thought and behavioural patterns that members of a society learn
through languages and other forms of symbolic interactions like the customs, habits, beliefs, values
and other common viewpoints.

The different characteristics of culture are

Culture is
Learned –culture is not inherited or biologically based, it is acquired by learning and experience.
Shared – people as members of a group, organization or society share culture, it is not specific to
specific individuals
Transgenerational – Culture is passed from one generation to another, It is transgenerational
Symbolic – Culture is based on human capacity to symbolize or use one thing to represent another
Patterened – Culture has structure and is integrated, a change in one part will bring changes in
another.
Adaptive – Culture is based on the human capacity to change or adapt, as opposed to the more
genetically driven adaptive process.
Purpose – Culture has a purpose in terms of achieving common objectives. Perceived success will
reinforce the culture and can make it stronger.
Pervasive - Every individual has a culture, irrespective of his race, ethnicity, or religion. These habits,
customs are largely influenced by the culture he is part of.

Elements of Culture
The different elements of culture are gathered to be

Language
Language and culture go hand in hand and both are important as language is essential to understand
a culture. They are both interconnected.

The influence of language on culture:

1. Languages include speech, written characters, numerals, symbols and non verbal characters
which can influence culture by sending and receiving messages. Each language is different
and hence the same message is expressed and understood differently
2. Language reveals a basic value structure like the individualistic like Americans or collectivists
like Japanese

High and Low-context languages

When languages are explicitly expressed it is Low-context languages and if

Languages are expressed implicitly or imply then they are high –context languages

Languages are essential in international marketing as it

It provides a clear understanding of the situation. It helps to conduct businesses directly without the
help of interpreter.
When conducting business in the local language, the companies are excited to communicate and
better explain themselves of their requirements in business.
It also helps understand all nuances and cliché’

Customs and manners

Attitudes and Culture

Attitudes are positive and negative evaluations , feelings and tendencies which makes an individual
behave in a certain way.
Attitudes are also opinions and it is an important aspect as it effects the motivation, morale and job
satisfaction and productivity.
An international business firm should devise their compensation system keeping all these aspects in
mind. Eg. The Indian workers have earned a reputation for their sincerity to work, loyalty and
honesty.

Aesthetics and Culture

Aesthitics refers to the artistic taste of culture. Aesthetics values of People vary from one culture to
another culture.
International managers should be able to understand the local aesthetics.
Music, colour, structures and architecture are the aesthetic tastes which differs in other countries.
Eg. White colour in India is for mourning whereas in the western world, it symbolizes purity, and joy.

Religion and Culture

Religion is a set of institutionalized beliefs and practices generally agreed upon by a number of
persons and sects. Each set has a different set of beliefs and practices. The different sects of popular
religion followed across the world is Hindusim, Islam, Christianity, Buddhism and Confusianism.

Religion affects international businesses in the following ways:

Specific religious laws- eg. Islam cannot charge interest on the money, hence banking systems are
different,
Eg. Confusians, on the other hand emphasize on honesty, loyalty and high moral code and it teaches
the follower to lower the cost of businesses

Education and Culture

Education is a process where people gain knowledge and develop skills , ideas, values and norms and
attitudes which may share with other members of years an individual spends with other members of
the society. Hence education acts as a transmitter of culture.

Education also has economic implications.

The countries with educational facilities attract high wage industries. ,
the market potential of a country depends on education.

Supernatural beliefs
This indicates the social and physical environments of the people of different countries. There are
some supernatural belifs like the belief in vaastu which decides the entry of the house, the place
where the CEO should sit, in which direction should the machines be place and many more such
beliefs.

Discuss the political factors affecting the international markets

The environmental forces like political-legal, cultural, technological and economic forces are
affecting India and other countries. The international businesses are therefore affected by all the
environmental factors affecting their domestic and international markets.

Political environment refers to the influence of the system of government and judiciary in a nation
on international business. The type and structure of a government existing in a country decides,
promotes, fosters, encourages, shelters, directs and controls the business of that country.
The businesses look for politically stable, honest, transparent actions, efficient and dynamic political
participation of the government which ensures safety to its citizens.
This encourages economic development of the markets.

All countries with a reasonable honest and stable government have a satisfactory economic
progress. The two major types of governments found across the globe are: a. democracy and b.
Totalitarian.

In a democratic government the power lies in the hands of the citizens, where they are given the
right to choose and vote in any matter, ideally. The leader too is chosen and elected by the people
for the people and of the people. The citizens have the right to re-elect if their leader does not
perform as expected.
Businesses and companies under such political parties have the freedom to invest, produce and sell
for economic growth. It also ensures security to the people giving a stable atmosphere to do
business.

On the other hand, in the totalitarian government or the authoritarian is when the individual
freedom is completely reduced to the power of the authority in individual hands or a small group of
people. In such political societies, there is no fear of opposition from the rival government. The
disadvantage is that if the government refuses, then the company may incur losses. The government
officials may need to even pay bribe and face kick backs from the government officials.

Businesses may also face ethical issues in military type governments like in China. The investments
by MNC’s in such governments may suppress MNC’s to justify their actions. To gain access, corrupt
practices like paying bribes may become common for economic entries or gains.

All types of political environment are not enough to ensure a smooth functioning of an organization,
there are many risks associated with it.

The two major political risks encountered faced are

a. Macro Political Risk

b. Micro Political Risk

Macro Political Risk

There are risks of expropriation or seizure of private assets of the firm without any compensation. In
national interest, the companies may also be taken over to restructure economy. There may be
cases of boycotts which will harm the economic growth of the companies. The other macro risks are
Loss of technology and other intellectual property
Civil wars
Inflation, Recession, currency devaluation
Strikes and labour disputes
Poverty
Natural calamities

Micro Political Risk

These are risks affecting specific foreign businesses. These include industry regulations, taxes,
kidnapping and terrorist threat. Cancellation of licences, fines, imposing taxes on specific industry is
also a micro political risk. Caps on FDI and kidnapping are other micro risks.

Module 3

Elaborate the advantages and disadvantages of standardization and customization of products in

International markets.

Definition : A product is anything offered to a market to satisfy a want or need. A product is

multidimensional and all its features determine the bundle of satisfaction to the consumer. The
product features are also accepted on the basis of the cultural, physical and mandatory features of
the product.

The market acceptance of the product is focussed on

Core component
 Packaging component and
Support services component

The components include all tangible and intangible elements and provides the bundle of
utilities the market receives from the use of the product.

• Product designing should be ideal

• Strict quality specifications
• Packaged attractively and
• Positioned intelligently and
• Branded catchily
• Eg. Red Bull (In 2010, 4204 cans were sold worldwide)

Product strategies:

Standardization or Adaptation of the product depends on level of modifications desired to

the product component model.
The product component level and its features are

1. CORE COMPONENTS:
Production platforms
Design platforms and
Functional features
2. PACKAGING COMPONENET
Price
Quality
Package
Styling
Trademark
Brandname

3. SUPPORT SERVICES COMPONENT

Deliveries
Warranty
Spare parts
Repairs and maintenance
Installations
Instructions
Other related services

The core component consists of the physical product, design and physical features on
which variations can be done to adapt to the local tastes. Similarly the functional
features can also be eliminated or included as per the local specifications and
requirements. Eg. Washing machines have a heater as a functional feature.
The levels of variation on the basis of physical product and its functional features can be
used for adaptation of the product. The levels of change for adaptations vary.

• Little , if any modification required : Heavy equipment, Electronic watches, notebook

computers, cameras, cigarettes
• Moderate modification: Automobiles, clothing, appliances, pharmaceuticals, aircraft, beer
 • Extensive modification: Cosmetics, packaged foods, advertising, health services.

Factors encouraging adaptation

• Difference in Technical standards (GE in Saudi Arabia..2m long cord for electrical appliances)
• Consumer and personal use products(adapts to local tastes)
• Variation in consumer needs and differing use conditions ( like climate, skill level, road
conditions for cars etc.)
• Variation in ability to buy (bicycles as transport or for exercise)
• Cultural differences (cosmetics…language, color, symbol of elephant in china and in US)
• Influence of governments (prohibition on imports)

In standard product, the product is sold in all countries with the same physical features, functional
features, packaging and service support.

Factors encouraging standardization:

• High cost of adaptation eg. Whirlpool in Scandinavian countries
• Industrial products (less customization) eg. Dams, power plants
• Convergence and similar tastes (European markets)
• Predominant use in Urban environment
• Marketing for predominantly similarly markets
• Centrally management and operations
• Country-of-origin effects (tags like made in Japan )
• Economies of scale(cost and price)
• Economies in R&D (cost and time)
• Economies in marketing (high production vol, lower services, promotional costs

Module 4:

Discuss the various intermediaries in the International distribution system. What are the factors
affecting the choice of intermediaries

Intermediaries in an International distribution system are those middlemen who make available the
products to the end customers.

(The bullet points can be discussed more in answer paper. The concepts are parallel to the domestic
Distribution concepts)

1. Middlemen
There are different patterns of middlemen services:
– Line breadth, Costs and margins, Channel length, Non-existent channels, blocked
channels, stocking, power and competition

2. Direct Marketing
by mail, telephone, door-to-door, catalogs

3. Alternative middleman choices

Agent , merchant middlemen, manufacturer’s retail stores, export management companies
(Disney), global retailers(walmart)
4. Trading Companies
5. Complementary marketing(piggybacking)
6. Home-country brokers
7. Buying offices
8. Selling groups
9. Distributors
10. Dealers
11. Import Jobbers, wholesalers and Retailers

The factors affecting choices of channels or the distribution system are :

• Identify target markets within and across markets

• Specify marketing goals in terms of volume, market share and profit margin requirements
• Specify financial and personal commitments to the development of International distribution
• Identify, control, length of channels, terms of sale and channel ownership

What are the factors affecting pricing decisions?

Pricing is one the four major P’s of marketing. This is an important P representing the Price of the
product which is the revenue generator. The factors affecting the pricing decisions of products in the
international markets are

• Transportation costs
• Tariffs
• Exchange rate
• Distribution system(Japan has more number of distribution levels resulting in increased price
of the product and in Australia, the distribution levels of the product are minimum and
therefore the prices are low)
• Diversity of markets
• Competition
• Rigidity in price structures (aim to maintain high unit margins with smaller sales volume)

(These are the main head points which can be evaluated and explained with examples for better
understanding to the examiner)

The IPLC theory and its implications

IPLC, the International Product life cycle explains the development of the products and its life span in
the markets. The IPLC also explains the export possibility of the product. This is explained in the four
stages of product development of the company.
 Quantity

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Consumption
Export Import Innovator
Production

Production
Export Imitato
Consumption r
Import
O Time

Diagram 2
The stages include
1. Innovation,
2. growth,
3. maturity and
4. decline.

The 5th stage only suggests the consumption and production details which suggests the need too
impoprt or export the products. This gives rise to the innovators industries or the imitators

1. Innovation

In this stage, the firm introduces an innovation product in response to a felt need in the domestic
market. As the product introduced is new, the sales are unknown, therefore the company produces
in small or limited quantities.

Production and market location : The products are generally introduced in the domestic
markets or also called as the innovating country . The profits are not yet realized

Competitive factors : The sales are based on the uniqueness of the product and not based
on the price. The product features are still evolving. It enjoys a near Monopoly stage.

Production Technology: The production inpits are small and coincides with the product
evolution, The labour costs, labour inputs, the capital expenditure are all very high in this stage of
IPLC.

2. Growth :

The sales of the growth tend to increase. There is heavy competition, as others firms enter
the area for production of the product and the product becomes standardized. The firm also starts
subsidiaries in different countries and starts producing.

Production and market location: This stage is the growth of the product in the domestic and
other industrial countries.
There is a shift in export markets as foreign production replaces exports in some markets.
 Competitive factors: The demand for the product is growing fast.
The no of competitors increases. Some competitors begin price cutting, products becoming more
standardized.

Production Technology
The capital inputs increases and the methods are more standardized.
3. Maturity

As the product comes to the maturity stage, exports from home countries decreases. The production
in the home country comes down but the production in the subsidiaries increases. Foreign
manufacturing facilities are put in place to manufacture to and counter competition. Price becomes
a major factor for competition. Efforts are towards reducing manufacturing costs.

Production and market location:

The products are present in multiple countries
Exports in home countries reduces, exports from subsidiaries goes up.

Competitive forces
Stabilized product demand
No. of competitors decreases
Price is an important factor

Production Technology
Long production runs using high capital inputs
Highly standardized
Less labour skill needed

4. Decline

In this stage the product has entered the declining stage. The new competitors have achieved levels
of scale economies in the production that are equivalent to the manufacturing country.

Production and market location

Maturity in developing countries
Many in developing countries but some developing country exports

Competitive forces
Overall declining demand
Price is an important tool for increasing sales
The number of producers decline

Production Technology
Unskilled labour
Long production runs

Describe the Promotions in international markets.

Promotion increases all efforts by an international business to enhance the desirability of its
products among potential buyers
 • Promotions is the most culture-bound ‘P’ in the International marketing
• Communication has to be clear and the meaning clear for the host country.
• Blending of promotional mix gives an effective result

• Promotional Mix are

– Advertising
– Personal selling
– Sales promotion
– Public Relations
• Advertising is any paid form of non-personal presentation and promotion of goods or
services by an identified sponsor

Benefits of advertising:
• It promotes the goods and services
• Creates jobs
• Reduces prices by stimulating competition

Issues of any one promotional mix in the International market.

• Issues in advertising:
– Language
– Government controls
– Agency availability
– Economic differences
– Cultural Diversity

• Language
– Different languages
– Linguistic nuances and vernacular
– Local knowledge necessary to convey messages well
– Can rely on employees to help understand the customers else dependence is on
advertising agency
• Governmental Controls
– Face issues in the message, budget and agency ownership
– General products under the government scanner are: tobacco, alcohol, drugs,
– Regulations imposed on : the language used, ad budgets, restrictions on ownership
of ad agencies

• Agency Availability
– Availability of agencies is difficult
– Some countries have only one ad agency like Bermuda, Ireland.
– Services are based on the growth and size of its economy
– Economic differences
– Income levels
– Literacy levels eg. Electronic media cannot be effective in countries when a large
number of people cannot read or write
– Cultural Diversity
– Knowledge and communication in local language a must
– Eg. Breakfast eating habits, youth and the culture vs older people, urban and rural
residents
– Eg. Drinking coffee, cereal eating,
Documentation
Discuss the various shipping documents and collection documents
• Export document
• Consular Invoice or certificate of origin
• Bill of lading (establishes legal ownership and facilitates financial transactions. It serves
– As a contract for shipment
– Receipt for shipment
– Certificate of ownership or title to the goods
• Commercial Invoice
• Insurance policy of Certificate
• Licenses
• Other documents
– Sanitary and health inspection certificate for agri -products
– Packing lists with correct weights
Commercial payments
• Letters of credit
• Bills of Exchange

Resources:
1. International marketing by Cateora, Gilly and Graham, Pearson, 15th edition
2. International marketing, Analysis and Strategy by Onkvisit and Shaw , Routledge, 4 th
edition
3. International marketing by Czinkota, Eight edition