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Management initiatives for the agri-business sector in India

Paper on marketing challenges for local and international

Andukuri. Raj Shravanthi(
Sagar, B.T.(
India is basically an agrarian society where sole dependence has been on agriculture since
time immemorial. In the olden days, the agricultural produce was Iundamentally barter by
nature where Iarmers exchanged goods Ior goods and also against services. Gradually the
scenario changed with the changing times and agriculture produce began being sold with an
element oI commercial value. Trading oI agriculture produce began Ior exchange oI money.
The marketing as a term is broader than traditional trading. And agricultural marketing as a
concept is still evolving in the Indian agrarian society.
In India, there are network oI cooperatives at the local, regional, state and national levels that
assist in agricultural marketing. The commodities that are mostly handled are Iood grains,
jute, cotton, sugar, milk and areca nuts.
Currently large enterprises, such as cooperative Indian sugar Iactories, spinning mills, and
solvent-extraction plants mostly handle their own marketing operations independently.
Medium and small-sized enterprises, such as rice mills, oil mills, cotton ginning and pressing
units, and jute baling units, mostly are aIIiliated with cooperative marketing societies.
Indian agriculture contributes 21 oI India`s GDP, its importance in the country`s economic,
social, and political Iabric goes well beyond this indicator. The rural areas are still home to
some 72 percent oI the India`s 1.1 billion people, a large number oI whom are poor. Most oI
the rural poor depend on rain-Ied agriculture and Iragile Iorests Ior their livelihoods.
The sharp rise in Ioodgrain production during India`s Green Revolution oI the 1970s enabled
the country to achieve selI-suIIiciency in Ioodgrains and stave oII the threat oI Iamine.
The National Commission on Agriculture deIined agricultural marketing as a process which
starts with a decision to produce a saleable Iarm commodity and it involves all aspects oI
market structure oI system, both Iunctional and institutional, based on technical and
economic considerations and includes pre and post- harvest operations, assembling, grading,
storage, transportation and distribution. The Indian council oI Agricultural Research deIined
involvement oI three important Iunctions, namely
(a) Assembling (concentration)
(b) Preparation Ior consumption (processing) and
(c) Distribution.
Agricultural marketing can be deIined as the commercial Iunctions involved in transIerring
agricultural products consisting oI Iarm, horticultural and other allied products Irom producer
to consumer. Agricultural marketing also reIlect another dimension Irom supply oI produce
Irom rural to rural and rural to urban and Irom rural to industrial consumers. In the olden days
selling oI agricultural produce was easy as it was direct between the producer to the
consumer either Ior money or Ior barter. In brieI, it was selling not marketing. In the modern
world it became challenging with the latest technologies and involvement oI middlemen,
commission agents who keep their margins and move the produce Iurther. As it is well
known more the number oI mediatory more will be the costs as each transaction incurs
expenses and invites proIits. Ultimately when it comes to the producer the cost oI the produce
goes up steep. In the entire process oI marketing the producer gets the lowest price and the
ultimate consumer pays the highest as the involvement oI more middlemen in the entire
distribution process.
There are several complexities involved in agricultural marketing as agricultural produce
involves element oI risk like perishability and it again depends on the type oI produce. II the
agriculture produce happens to be a seasonal one it involves another kind oI risk. Like wise,
there are several risk elements involved in agricultural marketing. The pricing oI the produce
depends on Iactors like seasonality and perish ability and it depends on the demand and
supply also. And all these are interwoven and ultimately make a deep impact on agricultural

4Ps`, the acronym Ior price, product, place and promotion is the core principle oI marketing.
In the case oI agricultural marketing in India it is not exactly the marketing in the literal sense
and we can call it as distributive handling` and to go Iurther we may call it as distributive
handling` oI agricultural produce as there are number oI intermediaries who are involved in
marketing the agricultural produce. However with the liberalization, privatization and
globalization the economic scenario in India has changed drastically and tremendously. As a
result we have noticed the changes in the distributive handling` and again it reinvented and
evolved as agricultural marketing. It is basically because oI the rise oI retail giants who are
the major buyers in bulk quantity and who constantly look Ior diIIerentiated, graded,
standardized, processed and packaged products rather than undiIIerentiated ones. They also
look Ior qualitative and quantitative supply oI agricultural stocks continuously to beat the
competition in the retail sector.
Slow Down in Agricultural and Rural Non-Farm Growth: Both the poorest as well as the
more prosperous Green Revolution` states oI Punjab, Haryana and Uttar Pradesh have
recently witnessed a slow-down in agricultural growth. Some oI the Iactors hampering the
revival oI growth are:
O Poor composition of public expenditures: Public spending on agricultural subsidies
is crowding out productivity-enhancing investments such as agricultural research and
extension, as well as investments in rural inIrastructure, and the health and education
oI the rural people. In 1999/2000, agricultural subsidies amounted to 3 percent oI
GDP and were over 7 times the public investments in the sector.
O ver-regulation of domestic agricultural trade: While economic and trade reIorms
in the 1990s helped to improve the incentive Iramework, over-regulation oI domestic
trade has increased costs, price risks and uncertainty, undermining the sector`s
O Government interventions in labor, land, and credit markets: More rapid growth
oI the rural non-Iarm sector is constrained by government interventions in Iactor
markets -- labor, land, and credit -- and in output markets, such as the small-scale
reservation oI enterprises.
O Inadequate infrastructure and services in rural areas.
Inadequate Access to Land and Finance:
O Stringent land regulations discourage rural investments: While land distribution
has become less skewed, land policy and regulations to increase security oI tenure
(including restrictions or bans on renting land or converting it to other uses) have had
the unintended eIIect oI reducing access by the landless and discouraging rural
O Computerization of land records has brought to light institutional
weaknesses: State government initiatives to computerize land records have reduced
transaction costs and increased transparency, but also brought to light institutional

O Rural poor have little access to credit: While India has a wide network oI rural
Iinance institutions, many oI the rural poor remain excluded, due to ineIIiciencies in
the Iormal Iinance institutions, the weak regulatory Iramework, high transaction costs,
and risks associated with lending to agriculture.
Weak Natural Resources Management: One quarter oI India`s population depends on
Iorests Ior at least part oI their livelihoods.
O A purely conservation approach to forests is ineffective: Experience
in India shows that a purely conservation approach to natural resources management
does not work eIIectively and does little to reduce poverty.
O Weak resource rights for forest communities: The Iorest sector is also Iaced with
weak resource rights and economic incentives Ior communities, an ineIIicient legal
Iramework and participatory management, and poor access to markets.
Weak delivery of basic services in rural areas:
O Low bureaucratic accountability and inefficient use of public funds: Despite large
expenditures in rural development, a highly centralized bureaucracy with low
accountability and ineIIicient use oI public Iunds limit their impact on poverty. The
poor are not empowered to contribute to shaping public programs or to hold local
governments accountable.
1. Enhancing agricultural productivity, competitiveness, and rural growth
O Enhancing productivity. Creating a more productive, internationally competitive and
diversiIied agricultural sector would require a shiIt in public expenditures away Irom
subsidies towards productivity enhancing investments. Second it will require
removing the restrictions on domestic private trade to improve the investment climate
and meet expanding market opportunities. Third, the agricultural research and
extension systems need to be strengthened to improve access to productivity
enhancing technologies. The diverse conditions across India suggests the importance
oI regionally diIIerentiated strategies, with a strong Iocus on the lagging states.
O 2proving Water Resource and rrigation/Drainage Manage2ent. Increase
in multi-sectoral competition Ior water highlights the need to Iormulate water policies
and unbundle water resources management Irom irrigation service delivery. Other key
priorities include: (i) modernizing Irrigation and Drainage Departments to integrate
the participation oI Iarmers and other agencies in irrigation management; (ii)
improving cost recovery; (iii) rationalizing public expenditures, with priority to
completing schemes with the highest returns; and (iv) allocating suIIicient resources
Ior operations and maintenance Ior the sustainability oI investments.
O $trengthening rural non-far2 sector growth. Rising incomes are Iueling demand Ior
higher-value Iresh and processed agricultural products in domestic markets and
globally, which open new opportunities Ior agricultural diversiIication to higher value
products (e.g. horticulture, livestock), agro-processing and related services. The
government needs to shiIt its role Irom direct intervention and overregulation to
creating the enabling environment Ior private sector participation and competition Ior
agribusiness and more broadly, the rural non-Iarm sector growth. Improving the rural
investment climate includes removing trade controls, rationalizing labor regulations
and the tax regime (i.e. adoption oI the value added tax system), and improving access
to credit and key inIrastructure (e.g. roads, electricity, ports, markets).
. Improving access to assets and sustainable natural resource use
O alancing poverty reduction and conservation priorities: Finding win-win
combinations Ior conservation and poverty reduction will be critical to sustainable
natural resource management. This will involve addressing legal, policy and
institutional constraints to devolving resource rights, and transIerring responsibilities
to local communities.
O 2proving access to land: States can build on the growing consensus to reIorm land
policy, particularly land tenancy policy and land administration system. States that do
not have tenancy restrictions can provide useIul lessons in this regard. Over the longer
term, a more holistic approach to land administration policies, regulations and
institutions is necessary to ensure tenure security, reduce costs, and ensure Iairness
and sustainability oI the system.
O 2proving access to rural finance: It would require improving the perIormance oI
regional rural banks and rural credit cooperatives by enhancing regulatory oversight,
removing government control and ownership, and strengthening the legal Iramework
Ior loan recovery and the use oI land as collateral. It would also involve creating an
enabling environment Ior the development oI micro-Iinance institutions in rural areas.

. Strengthening institutions for the poor and promoting rural livelihood
!ro2oting Co22unity-ased Rural Develop2ent: State Government eIIorts in scaling up
livelihood and community-driven development approaches will be critical to build social
capital in the poorest areas as well as to expand savings mobilization, promote productive
investments, income generating opportunities and sustainable natural resource management.
Direct support to selI-help groups, village committees, user`s associations, savings and loans
groups and others can provide the initial `push` to move organizations to higher level and
access to new economic opportunities. Moreover, social mobilization and particularly the
empowerment oI women`s groups, through increased capacity Ior collective action will
provide communities with greater "voice" and bargaining power in dealing with the private
sector, markets and Iinancial services.
$trengthening Accountability for $ervice Delivery: As decentralization eIIorts are pursued
and local governments are given more prominence in the basic service delivery, the
establishment oI accountability mechanisms becomes critical. Local governments` capacity to
identiIy local priorities through participatory budgeting and planning needs to be
strengthened. This, in turn, would improve the rural investment climate, Iacilitating the
involvement oI the private sector, creating employment opportunities and linkages between
Iarm and non-Iarm sectors.
There are several challenges involved in marketing oI agricultural produce. There is limited
access to the market inIormation, literacy level among the Iarmers is low, multiple channels
oI distribution that eats away the pockets oI both Iarmers and consumers. The government
Iunding oI Iarmers is still at nascent stage and most oI the small Iarmers still depend on the
local moneylenders who are leeches and charge high rate oI interest. There are too many
vultures that eat away the beneIits that the Iarmers are supposed to get. Although we say that
technology have improved but it has not gone to the rural levels as it is conIined to urban
areas alone. There are several loopholes in the present legislation and there is no organized
and regulated marketing system Ior marketing the agricultural produce. The Iarmers have to
Iace so many hardships and have to overcome several hurdles to get Iair and just price Ior
their sweat.

The globalization has brought drastic changes in India across all sectors and it is more so on
agriculture, Iarmers and made a deep impact on agricultural marketing. It is basically because
oI majority oI Indians are Iarmers. It has brought several challenges and threats like
uncertainty, turbulence, competitiveness, apart Irom compelling them to adapt to changes
arising out oI technologies. II it is the dark cloud there is silver lining like having excellent
export opportunities Ior our agricultural products to the outside world.

The world that we are Iacing today is characterized by rapid and Iundamental change toward a new
global economic change. Geopolitical change, which is not easily predictable as to its direction as
well as its impact and the increasingly rapid development oI science and technology are quickly
driving the world economy into the era oI globalization.
Over the past three decades, the economy oI globality has grown enormously. The successes oI
GATT, APEC and other regional economic development, principally, produce agreement on opening
the market all over the world. The signiIicant action to achieve Iree trade is to reduce, step by step,
tariII and non-tariII barriers that is believed to be the trade barrier in the past world trade. We have
witnessed acceleration oI international Iinancial Ilows and massive growth oI Ioreign direct
investment, Iuelled by the opening oI world markets, all contributed to a signiIicant expansion oI the
size oI the global economy.
To compete in the international market, certain quality oI products has to meet the requirements oI the
standardization systems, such as the series oI ISO
9000. ThereIore, production and marketing management quality should be improved to conIorm to
international standards. World-class quality oI products increases competitiveness and access to
international markets. Accordingly, the agribusiness process should be market driven, in a sense that
businessmen should produce what the market wants rather than selling what they can produce.

Today the global market is characterized by Iree Ilow oI resources. With regard to the markets there
are two Iundamental revolutions: i) world markets are opening up, and ii) inIormation technology
becomes pervasive.
Twenty years ago halI oI the nations were closed to market economies.
Today, perhaps less than 10 countries can still be considered to be closed. The
People Republic oI China that recently became the WTO member will make world market more
competitive. The opening oI Irontiers goes in parallel with harmonization oI business rules worldwide
thorough regional agreement and global agreement such as GATT. Similar opening oI what used to be
closed industry such as telecom, and privatization also mirrors this trend. The consequences oI this
Iundamental trend are:
0There are more business opportunities than ever,
0There are more competitors than ever,
0Nations, enterprises and people alike are more vulnerable than ever.
The changing trends in global markets will aIIect agribusiness sector. As we are all aware, the basic
role oI agriculture remains important as a source oI IoodstuIIs, supports agro-based indutry, and as a
source oI employment especially in developing countries. In a more open economy, the external
sector becomes more important and thereIore international marketing oI agriculture products is
extremely important. Trading oI agricultural products is likely to continue to expand in coming
decades in response to rising populations and increasing Iood demand. A more open export markets in
the Iuture will provide market opportunities especially Ior the countries with production surplus.
According Pandey (1996) some oI processed commodities such as sugar and oil, Iruits and vegetables
have a higher response to income changes than that oI basic staples. Similarly, Food and Agrocultural
Organization (FAO) reveals that the processed products will dominate Iuture demand oI agricultural
Traditional commodities such as tropical products showed negligible growth, cereals and sugar
showed negative growth, and vegetable oils showed moderate growth. Table 1 shows the detail
Processed agricultural products do not only add the value but also relatively ease in trading since the
processed product have less price Iluctuations, easy to store, and last longer. In line with transparency
in tariII policy, escalation tariII on processed product in international markets will be reduced in the
Iuture, increasing their market opportunities.
The above table reveals that in the world markets, processed Ioods indicated the most rapid growth.
World markets Ior the traditional exports oI ASEAN countries have been particularly weak. World
exports oI tropical products grew by only 1.7 percent per annum over the past decade. The growth rate
oI vegetable oils has been somewhat higher at 4.8 percent per annum. Meanwhile, world trade in
higher valued products such as meats, Iruits and vegetables, Iish products, and other processed
products has been Iar more dynamic. Growth rates Ior many products have exceeded 10 percent per
annum over the past decade. This reIlects the high growth rates oI many emerging markets and high-
income elasticity oI demand Ior higher valued products, including processed Ioods.
Although in the Iuture international markets may be more in the Iorm oI processed products, demand
Ior Iresh Iood products remains high especially in the Japanese markets. Given this situation,
developing a system oI packaging that retains the quality oI the products meeting with the taste and
high standards required are absolutely necessary. Japan Ior instance, usually applies three domestic
laws regarding imported Ioods. Food SaIety Law basically covers the maximum content oI edible
chemical allowed such as additives or sweetener, and maximum content oI pesticide residues allowed
etc. Plant Protection Law applies sanitary and phytosanitary requirements, and Food Control Law
requires that all imported Ioods must have such a label inIorming the nutrition content, complete
addresses oI the manuIactures/producers and the local importer.
The European Union also applies stricter regulations on quality standards, sanitary and veterinary
controls Ior importing Iishery products. The European
Union, which has just ratiIied its agricultural reIorm ommon Agriculture Policy) will open their
market Ior organic and 'Iree pesticide' products. Organic farming will be more intensiIied in
European Union. The impact needs to be anticipated are controlling on the usage oI preservatives,
hormones, antibiotics, and pesticides. Market opportunity Ior organic foods will rise in accordance
with increasing demand Ior natural foods.
In Japan, demand Ior Irozen vegetables and processed Iish tend to increase. Demand Ior Irozen
vegetables has increased Irom 430,000 tons in 1993 to 700,000 tons in 1998. Most oI vegetables
demanded by Japanese market can be grown in many countries like egg plant, Chinese cabbage, okra,
melon, cucumber, paprika etc.--an opportunity to increase export earnings. Similarly, import Ior Iresh
and Irozen Iruits increase sharply in Japan. Fruit imports are mostly in Irozen Iorm due to strict
requirements Ior quarantine and Iood saIety law. Indonesian export share in Japan is still very low.
To accommodate this opportunity, a strong and eIIective Iood processing and other agro-based
industries sectors are considered to be important Ior diversiIication and commercialization oI
agriculture, improving rural income and employment, value addition and generation oI surplus Ior
export, reducing waste oI perishable products, as well as Ioster rural industrialization. The
government should provide massive thrusts and act as a catalyst Ior getting investments into
agribusiness including Iood processing sector, encouraging export and creating a general atmosphere
Ior a healthy growth oI the Iood processing and agro-based industry. Private initiative should be
continuously encouraged to undertake this role which the government plays as a Iacilitator, motivator
and regulator Ior investment and growth.
Although global market oIIers business opportunity. various Ioreign trade regulations are still
imposed variously among the countries. In addition to the international treaties and agreements
governing international trade such as WTO, general regulations are applied dealing with customs,
tariIIs, banking or Ioreign trade control, unjustiIied competition, anti dumping and anti trust. For
agricultural products, additional regulations are usually applied such as laws on Iood sanitation,
sanitary-phytosanitary, and Iood control. Some countries also apply
CITES, well known as Washington Agreement i.e. Convention on International
Trade in Endangered Species oI Wild Fauna and Flora. For Iishery products in the
United States, imported commodities should also honor the Marine Mammals Protection Act, Dolphin
SaIe treatments, and Environmental Protection Law.
Guarantee on product quality is not only based on Iinal products but also on the whole process oI
production. ISO standards, FAO/WHO Codex Alimentarius standards, and Hazard Analysis Critical
Control Point (HACCP) are the common requirements in the current global trade signaling the era oI
quality revolution.
Japan requires imported agricultural products meet with the Japan
Agricultural Standards (JAS) applying to beverages, processed Ioods, Iorest products, agricultural
commodities, livestock products, oils and Iats, products oI Iishing industry, and processed goods
made Irom agricultural, Iorestry, and Iishing raw materials. European Union requires speciIic
containers to carry Iood products.
The US market applies HACCP treatment Ior imported IoodstuIIs. This requirement is regulated
within the Uruguay Round on Technical Barrier to Trade and Sanitary and Phytosanitary Agreement,
so that integrated quality improvement pattern is absolutely required to compete in the international
As discussed beIore, agribusiness development has a very promising prospect in the Iuture. However,
competition will also be more severe to share the existing business opportunity (Table 2). To compete
with other countries, our export commodities must have good competitive advantages. So Iar,
commodities with comparative and competitive advantages are produced Irom the activities
characterized by the combination oI resource base and low-wage labor rather than that oI
technological base or capital base.
Characteristics oI the market might also shiIt toward -uyers market, and thereIore, consumer
bargaining power becomes stronger. In this situation, eIIiciency and competitive advantages appear to
be more important. Business competition spreads to various aspects, and every enterprise tries to win
business competition. Up to 1970's, enterprises generally adopted Iour marketing mix i.e Iour P'S :
price, place, product, and promotion to gain advantages. Commencing in
1980's an additional P, 'that is power' was introduced, which was actually related to monopoly power,
or "brand name", or "identity and image", owned by the enterprises.
Since 1990's, the Iive P-Iormula became irrelevant and insuIIicient, as the enterprises have to use
Iour-R Iormula i.e Right Product (R.1), Right Place (R-2), Right Price (R-3) and Right Time (R-4) to
dominate the international market. It is noted that R-4 is the most diIIicult to implement, because the
right time here is Irom the point oI view oI consumers and is not that oI producers. Right Time (R-
4) also implies a dynamic element oI agribusiness, which includes continuity oI production.
The element oI Right Product (R-1) implies that product characteristics must conIorm to consumer
preIerences. Well-educated consumers will put emphasize on the importance oI nutritional value and
hygiene. The element oI Right Place (R-2) means that we have to identiIy the right market segment to
which our product has greater chance to be accepted. For example, young proIessional in urban areas
is a potential market segment Ior Iresh Iruit and vegetables, which can be penetrated through
supermarket chain. The Right Price (R-3) involves pricing strategy, and usually price leader is a
common strategy to penetrate the market. For Asia PaciIic products to compete in international
market, it has to respond to the Iuture challenges:
a. Superior quality. This is the most diIIicult to IulIill. Many countries now impose Sanitary and
Phytosanitary Measures. Japan enacts 3 measures Ior its agricultural imports: Japan Agriculture
Standard (JAS), Food SaIety Law (FSL), and Plant Protection Law (PPL). United States imposes
Hazard Analysis Critical Control Point (HACCP), Australia applies similar standard.
b. Anticipation of market trends. Consumer preIerences change dynamically. A more environment
Iriendly and processed products will dominate market in the Iuture.
c. Superior market distribution. Exporters must develop market distribution abroad by establishing
cooperation with Ioreign company. EIIicient distribution system will ensure on time delivery Irom
producers to customers. Farmer groups can build their own distribution system with the support Irom
government, or do contract with processors. The agribusiness terminal that is introduced in Indonesia
can Iacilitate Iarmers in distribution.
d. Product Development. The product liIe cycle tends to be shorter. When the product reach
saturation point, new product must be developed to meet consumer satisIaction and maintain market
e. Promotion. This is an important element commonly neglected by our entrepreneurs. The Kiwi
story is a good example oI the importance oI promotion.
I. Continuity of Supply. Maintaining a continue supply is crucial in order to provide goodwill to the
g. Market Research and Market Information System. Market research and inIormation is essential
to analyze consumer preIerences and competitors. Market inIormation is necessary to penetrate
market. With the advance oI inIormation technology, enterprises can easily develop an on-line
marketing inIormation system. Ministry oI Agriculture has developed an on-line market inIormation
system to assist agribusiness in marketing. The site can be accessed through
To answer the Iuture challenges, countries must show positive responses to increase competitiveness
by improving productivity, eIIiciency and produce world-class quality products, with continuous
supply. In the era oI globalization, consumer preIerences will determine what to produce. This means
that we have to concentrate our attention on all sub-systems oI agribusiness.
A series oI improvement programs to produce superior products with good marketing prospect, meet
market standard, and continuously supplied at a competitive price. This requires a long period oI
adjustments. By next year,
Southeast Asian countries have to Iace AFTA. ThereaIter, in 2005, developing countries have to have
selI-adjustment to be in the Iramework oI WTO, and in 2020 to that oI APEC. So, within less than
two year, we have to Iinalize the programs on increasing the competitiveness oI our country (macro)
and the competitiveness oI our business (micro).
As discussed previously, a more open international market oIIer greater opportunity and challenges.
Agricultural marketing relates to export and domestic markets. However, eIIorts to penetrate export
markets are much more diIIicult compare with domestic markets and thereIore the Iollowing
discussion will Iocus on export markets. Exporters, especially in developing countries are still Iacing
some external and internal problems. Below is the list oI problems Iacing by domestic exporters:
a. International Trade Barriers Extremely strict import regulations imposed by some developed
countries pose diIIiculty to enter the market. This Iorm oI new protectionism which is legalized by the
GATT/WTO is implemented through HACCP or sanitary and phytosanitary measures. Bilateral
approach is needed to resolve the problem.
Not many companies really understand regulations imposed in WTO, so that government must
conduct training Ior these companies.
b. Macro policy: credit availability, high interest rate, and Iluctuating exchange rate
Since the deep crisis hit many Asian countries, credit became scarce combining with high interest
rate. Many opportunities could not be realized because oI lacking oI working capital particularly Iaced
by small enterprises.
Developing Iinancial institution Ior SMEs would alleviate the problem. This problem is exaggerated
by Iluctuating exchange rate, making exporters diIIicult to plan.
c. Trade Policy: export tax, import tax Ior raw materials

Some Indonesian competitive products are still conIronted by export tax. Crude Palm Oil (CPO),
rattan, and log Ior example are subject to export tax, which lower proIit received by Iarmers. Export
tax must be ended. On the other hand import tariII Ior some input required by Iarmers and Ior Iood
processing are still applied.
d. Red Tapes Practices
In some countries, Illegal retribution Iees are still charged by government oIIicials (#etri-usi
Pungutan Hasil Pertanian in Indonesian case).
e. High Transport Costs
Shipping cost using domestic company Ior export is much higher compared with that abroad (Ior
example Taiwanese ship is cheaper). Domestic shipping companies sometimes practices hidden
I. Raw Materials with Good Quality and Continue Supply
Lack oI knowledge and seasonally is a critical Iactor here. Asia PaciIic agriculture, except USA is
characterized by small scale. It is diIIicult to maintain a homogenous quality. Partnership between
exporters and Iarmers should be encouraged to overcome the problem. Unlike other industries,
agroprocessing depends on a regular supply oI high quality raw materials.
g. Lack oI Supporting Facility
Among the most important is cooling storage the shipping ports, and irrigation in the Iarm Iields. The
idea oI developing agribusiness terminals in production centers could also help overcoming the export
and domestic problems. Agribusiness terminal is also Iunction as a distribution network.
h. InsuIIicient Distribution System
Distribution system is very crucial in connecting Iarm produce to customer centers. Poor distribution
system is common in almost all developing countries. The idea oI building wholesale markets in large
cities, and terminals in production areas will Iacilitate distribution, reduce post harvest loss, and
improve bargaining position oI Iarmers. Government may provide subsidy to initiate the idea.
i. Lack oI ProIessional Managers
To penetrate international market exporting company would need proIessional managers. A rigorous
knowledge oI international market, regulation, competitors, harvest time, communication, and
strategic alliances abroad and with Iarmers is really needed to make agribusiness more competitive.

The comparative advantage theory holds that a country will gain most by exporting commodities that
it produces using its abundant Iactors oI production most intensively. Factors oI production include
land, other natural resources, labor, and capital. Many developing countries like Indonesia are rich oI
natural resources and labor with low wage level. Yet, they could not compete in international market.
Other countries like Japan, Korea, Germany, and Switzerland with poor natural resources and
expensive labor wage could compete in international market and experience much higher economic
growth than those with rich natural resources. It does not imply however that comparative advantage
is useless. Abundance natural resources and labor is important in international trade but not sufficient,
It is a necessary condition. The comparative advantage could not explain competitiveness oI a
The Ioregoing discussion reveals that comparative advantage based on supply side is insuIIicient to
compete in international market. The competitive advantage reIers to a-ility of a country/company to
maintain and increase its market share sustaina-le through utili:ation of its comparative advantage
(Porter, 1985; Martin et al. 1991; Tweeten, 1992). A more operational deIinition oI competitive
advantage is the ability to supply goods and services at time, place, and Iorm determined by
customers, in domestic and international market, at the same or better price than those oIIered by
competitors to have proIit at least as opportunity cost oI resources (Cook and Bredahl, 1991).
The above deIinition implies three Iundamental points to increase competitiveness: Firstly, the ability
to produce a commodity cheaper than competitor (comparative advantage) is not suIIicient to compete
in international market. Secondly, the ability to produce product that conIorms to consumer
preIerences will determine competitiveness in international market. Thirdly, competitiveness is
determined by the ability to utilize comparative advantage (Irom up-stream industry to down-stream
industry) in producing a product to meet consumer preIerences. This most recent deIinition oI
competitive advantage is consistent with market driven paradigm. The concept oI competitiveness can
be used to improve marketing and distribution oI agricultural products. Below are some suggested
Market Intelligence
Agribusinesses oIten lack inIormation on which to base sound investment and pricing decisions. The
Government should identiIy appropriate inIormation that should be made available to businesses
either as a public service or on a IeeIor- service basis. Some examples are:
0Some agroprocessors lack strategic information on international market conditions and prices.
This makes it more diIIicult Ior them to negotiate Iavorable prices with international brokers. Data
banks on overseas prices Ior some commodities are now available through international reporting
services. The Government should review these data banks and determine whether it would be
worthwhile to make this inIormation available to agribusiness on a Iee-Ior-service basis.
0 Few, iI any, agribusinesses seem to know the implications of the Uruguay Round Ior their
commodities. Yet, the Uruguay Round could have a major impact on Iuture market trends, and a list
oI all Uruguay Round country commitments is now available. Government oIIicials need to learn how
to interpret these commitments. The inIormation should then be summarized and disseminated to the
0 The Government needs to review current mechanism Ior relaying inIormation on product
standards to processors. Agroprocessors generally rely on their buyers or joint venture partners Ior
inIormation on the processing techniques needed to meet standards in export markets. However, this
inIormation is generally not available Ior alternative markets, and changes in standards are sometimes
relayed to processors aIter production runs are already in progress.
This can lead to large losses.
0Tariff schedules Ior most oI export markets are apparently available on CDroom. The Government
could review this inIormation and examine the Ieasibility oI making this data available to the public
on a Iee-Ior-service basis.
0 Many non-tariff barriers (NTBs) remain on commodities oI export interest to many developing
countries (e.g. canned pineapples in Japan, canned tuna and mushrooms in the European Union,
automatic detention Ior some products in the USA). A Iull list oI these barriers should be compiled
and made available to senior Government oIIicials. All NTBs should be reviewed Ior their legality
under the GATT. When Iound to be oI questionable legality, the Government should vigorously
pursue GATT mechanisms to have them removed.
The Government should conduct a comprehensive review oI planned investment in ports and other
inIrastructure such as Iarm roads, agribusiness terminals, with a view towards expanding investment
considerably. 2proved infrastructure could be the single 2ost i2portant factor leading to
i2proved expolts of agroindustrial products. In practice, publicly provided inIrastructure services
have oIten delivered poor quality and inadequate coverage. Government should increase private sector
provision through regulatory reIorm to increase productivity. However, some companies report
transportation costs that were as much as one-third higher Irom Indonesia than Irom Thailand. In a
Iew cases, this may be the most important Iactor inIluencing a company's competitiveness vis-avis
Thailand. The high cost oI shipping also aIIects the cost oI raw materials and packaging (corn in the
case oI poultry, cans in the case oI processed Ioods.).
Strengthen Marketing Institution Capacity
The quality oI marketing institution becomes increasingly important as the Iocus oI agricultural
development shiIts away Irom low-value to higher value export crops and perishable commodities.
Marketing cooperatives and commodity associations need continuous improvement in marketing.
Improve Productivity
To gain marketing eIIiciency, policy must be designed to improve eIIiciency at all subsystems oI
agribusiness: Iarming practices, processing, market structure, product development, promotion,
extension, and access to technology. There are ample opportunities that can be done here. Market
reIorm to induce competition, promotion to connect markets, inIormation transparency will increase
productivity and reduce marketing costs.
Human Resource Development
Considering that there is limited number oI big enterprises involving in agribusiness, the government
should encourage the partnership program between big companies with Iarmers applying nucleus-
plasma mechanism. Basically, nucleus are to provide working capital and other production inputs,
agroprocessing and marketing, while the plasma conducts production process based on the agreement
oI both parties on quality, quantity and other treatments. The nucleus also provides extension and
necessary education to the plasmas. To ensure that the plasmas will gain Iair treatment, especially Ior
marketing oI their products, the agreement is legalized in a binding contract.

Below are the certain measures that can be aIIected to bring out the reIorms in agricultural
marketing so as to ensure just and Iair price Ior the Iarming community.
Provide loans to the Iarmer at low rate oI interest so that they will be Ireed Irom the clutches
oI local moneylenders who squeeze them. It is said that Iarmer in born into debt, lives in debt
and dies in debt. Right Irom the beginning oI the liIe, the poor Iarmers approach money
lenders Ior investing into cultivation who levies very high rate oI interest and who takes away
the maximum amount oI the share Irom the produce. In case iI the crop Iails due to natural
calamities then the situation would be worse as the Iarmer is not in a position to pay his
loans. And ultimately he is Iorced to sell the land at throw away price to the money lender.
It is essential to provide subsidized power supply and loans to the Iarmers as the expenses
towards power consumption takes considerable amount oI investments.
Generate a new distribution network that connects the Iarmers directly to the consumers to
get maximum returns as the present channel oI distribution involves multiple mediatory who
take away the major portion oI proIits which otherwise the Iarmers is supposed to get.
Elimination oI the existing loopholes in the present legislations is warranted.
There should be stringent action against black marketers and hoarders who buy the stocks
Irom Iarmers at cheap prices and create artiIicial demand and then sell the stocks at higher
Creating local outlets at each village where the Iarmers sell their stocks directly to the
consumers or the authorized buyers at Iixed prices would help to a great extent. Intervention
oI government in this network is essential to bring the Iruits to the Iarmers.
At the village level there should be counseling centers Ior Iarmers about the worth oI their
stocks so that they can get Iair price. The crucial role oI Non-Governmental Organizations
(NGOs) is needed in this context.
The existing legislations are outdated and are not in tune with the changing trends and
technological inventions and the same need to be updated Iorthwith.
The retail revolution has brought several changes in the retail sector where the retail giants
buy in bulk directly Irom the suppliers and sell to the consumers directly and in this process
they pass the beneIits to the consumers as well. In the past the consumers were paying more
Ior less as there were many channels oI distribution system and now the consumers pay less
Ior more.
The government is already IulIilling the objective oI providing reasonable prices Ior the
basic Iood commodities through Public Distribution System with a network oI 350,000 Iair-
price shops that are monitored by state governments. It is more eIIective in states like Punjab,
Haryana and some parts oI Uttar Pradesh. And the same needs to be strengthened across the
Government should levy single entry tax in stead oI levying multiple entry taxes either
directly or indirectly Ior the transactions and activities that are involved in agricultural
marketing such as transportation, processing, grading etc., as it would beneIit both Iarmers
and consumers directly.
Direct marketing oI the agricultural produce is the need oI the hour. EIIorts may be made to
provide Iacilities Ior liIting the entire stock that Iarmers are willing to sell with incentive
price. There should be provision Ior storing the stocks such as godowns and warehouses. It
helps the Iarmers to hold the stocks till the prices are stabilized. Usually immediately just
aIter the harvest the prices would be low and iI the Iarmers are patient in holding the same Ior
some time it would Ietch better prices. The brokers play the games during the trading oI the
agricultural stocks which the Iarmers do not know and realize because oI improper
inIormation about the market prices. The brokers without any investment and with their
negotiation skills transIer stocks by buying at low prices and selling at higher prices to the
other end. The Iarmers need to be educated in this regard.
There should be all-round rationalization and standardization oI the prices through legislative
means. Presently there is vast gap between the marketing strategies oI agricultural produce in
India and abroad and the same needs to be bridge. Remove the various malpractices prevalent
in the present system. There is need to set up marketing committees which has the
representation oI growers, merchants, local bodies, traders and nominees Irom the govt.
There should be collective and integrative eIIorts and energies Irom all quarters Ior ensuring
just and price Ior Iarmers.
1. There is no doubt that in any marketing there is a motive towards proIit involved and
at the same time the marketing is to be based on certain values, principles and
philosophies such as oIIering just and Iair prices to the Iarmers who toil hard to till.
2. Bringing necessary reIorms coupled with proper price discovery mechanism through
regulated market system will help streamline and strengthen the agricultural
3. In order to avoid isolation oI small-scale Iarmers Irom the beneIits oI agricultural
produce they need to be integrated and inIormed with the market knowledge like
Iluctuations, demand and supply concepts which are the core oI economy.
4. Marketing oI agriculture can be made eIIective iI it is looked Irom the collective and
integrative eIIorts Irom various quarters by addressing to Iarmers, middlemen,
researchers and administrators.
5. It is high time we brought out signiIicant strategies in agricultural marketing with
innovative and creative approaches to bring Iruits oI labor to the Iarmers.
Economics of International Trade
Exchange rates come in two Iorms:
loating`here, currencies are set on the open market based on the supply oI and demand
Ior each currency. For example, all other things being equal, iI the U.S. imports more Irom
Japan than it exports there, there will be less demand Ior U.S. dollars (they are not desired Ior
purchasing goods) and more demand Ior Japanese yenthus, the price oI the yen, in dollars,
will increase, so you will get Iewer yen Ior a dollar.
ixed`currencies may be 'pegged to another currency (e.g., the Argentine currency is
guaranteed in terms oI a dollar value), to a composite oI currencies (i.e., to avoid making the
currency dependent entirely on the U.S. dollar, the value might be 0.25*U.S.
dollar4*Mexican peso50*Japanese yen0.2*German mark0.1*British pound), or to some
other valuable such as gold. Note that it is very diIIicult to maintain these Iixed exchange
ratesgovernments must buy or sell currency on the open market when currencies go outside
the accepted ranges. Fixed exchange rates, although they produce stability and predictability,
tend to get in the way oI market IorcesiI a currency is kept artiIicially low, a country will
tend to export too much and import too little.
Trade balances and exchange rates.
When exchange rates are allowed to Iluctuate, the currency oI a country that tends to run a
trade deIicit will tend to decline over time, since there will be less demand Ior that currency.
This reduced exchange rate will then tend to make exports more attractive in other countries,
and imports less attractive at home.
Measuring country wealth.
There are two ways to measure the wealth oI a country. The nominal per capita gross
domestic product P) reIers to the value oI goods and services produced per person in a
country iI this value in local currency were to be exchanged into dollars. Suppose, Ior
example, that the per capita GDP oI Japan is 3,500,000 yen and the dollar exchanges Ior 100
yen, so that the per capita GDP is (3,500,000/100)$35,000. However, that $35,000 will not
buy as much in JapanIood and housing are much more expensive there. ThereIore, we
introduce the idea oI purchase parity adfusted per capita GDP, which reIlects what this
money can buy in the country. This is typically based on the relative costs oI a weighted
'basket oI goods in a country (e.g., 35 oI the cost oI housing, 40 the cost oI Iood, 10
the cost oI clothing, and 15 cost oI other items). II it turns out that this measure oI cost oI
living is 30 higher in Japan, the purchase parity adjusted GPD in Japan would then be
($35,000/(130) $26,923. (The Gross Domestic Product (GPD) and Gross National
Product (GNP) are almost identical Iigures. The GNP, Ior example, includes income made
by citizens working abroad, and does not include the income oI Ioreigners working in the
country. Traditionally, the GNP was more prevalent; today the GPD is more commonly
usedin practice, the two measures Iall within a Iew percent oI each other.)

In general, the nominal per capita GPD is more useIul Ior determining local consumers`
ability to buy imported goods, the cost oI which are determined in large measure by the costs
in the home market, while the purchase parity adjusted measure is more useIul when products
are produced, at local costs, in the country oI purchase. For example, the ability oI
Argentinians to purchase micro computer chips, which are produced mostly in the U.S. and
Japan, is better predicted by nominal income, while the ability to purchase toothpaste made
by a U.S. Iirm in a Iactory in Argentina is better predicted by purchase parity adjusted
It should be noted that, in some countries, income is quite unevenly distributed so that these
average measures may not be very meaningIul. In Brazil, Ior example, there is a very large
underclass making signiIicantly less than the national average, and thus, the national Iigure is
not a good indicator oI the purchase power oI the mass market. Similarly, great regional
diIIerences exist within some countriesincome is much higher in northern Germany than it
is in the Iormer East Germany, and income in southern Italy is much lower than in northern
Political and Legal Influences
The political situation.
The political relations between a Iirm`s country oI headquarters (or other signiIicant
operations) and another one may, through no Iault oI the Iirm`s, become a major issue. For
example, oil companies which invested in Iraq or Libya became victims oI these countries`
misconduct that led to bans on trade. Similarly, American Iirms may be disliked in parts oI
Latin America or Iran where the U.S. either had a colonial history or supported unpopular
leaders such as the Iormer shah.
Certain issues in the political environment are particularly signiIicant. Some countries, such
as Russia, have relatively unstable governments, whose policies may change dramatically iI
new leaders come to power by democratic or other means. Some countries have little
tradition oI democracy, and thus it may be diIIicult to implement. For example, even though
Russia is supposed to become a democratic country, the history oI dictatorships by the
communists and the czars has leIt country oI corruption and strong inIluence oI criminal
Laws across borders.
When laws oI two countries diIIer, it may be possible in a contract to speciIy in advance
which laws will apply, although this agreement may not be consistently enIorceable.
Alternatively, jurisdiction may be settled by treaties, and some governments, such as that oI
the U.S., oIten apply their laws to actions, such as anti-competitive behavior, perpetrated
outside their borders (extra-territorial application). By the doctrine known ascompulsion, a
Iirm that violates U.S. law abroad may be able to claim as a deIense that it was Iorced to do
so by the local government; such violations must, however, be compelledthat they are
merely legal or accepted in the host country is not suIIicient.
The reality of legal systems.
Some legal systems, such as that oI the U.S., are relatively 'transparentthat is, the law
tends to be what its plain meaning would suggest. In some countries, however, there are laws
on the books which are not enIorced (e.g., although Japan has antitrust laws similar to those
oI the U.S., collusion is openly tolerated). Further, the amount oI discretion leIt to
government oIIicials tends to vary. In Japan, through the doctrine oIadministrative guidance,
great latitude is leIt to government oIIicials, who eIIectively make up the laws.
One serious problem in some countries is a limited access to the legal systems as a means to
redress grievances against other parties. While the U.S. may rely excessively on lawsuits, the
inability to eIIectively hold contractual partners to their agreement tends to inhibit business
deals. In many jurisdictions, pre-trial discovery is limited, making it diIIicult to make a case
against a Iirm whose internal documents would reveal guilt. This is one reason why personal
relationships in some cultures are considered more signiIicant than in the U.S.since
enIorcing contracts may be diIIicult, you must be sure in advance that you can trust the other
Legal systems of the World.
There are Iour main approaches to law across the World, with some diIIerences within each:
ommon law, the system in eIIect in the U.S., is based on a legal tradition oI precedent.
Each case that raises new issues is considered on its own merits, and then becomes a
precedent Ior Iuture decisions on that same issue. Although the legislature can override
judicial decisions by changing the law or passing speciIic standards through legislation,
reasonable court decisions tend to stand by deIault.
ode law, which is common in Europe, gives considerably shorter leeway to judges, who are
charged with 'matching speciIic laws to situationsthey cannot come up with innovative
solutions when new issues such as patentability oI biotechnology come up. There are also
certain diIIerences in standards. For example, in the U.S. a supplier whose Iactory is hit with
a strike is expected to deliver on provisions oI a contract, while in code law this responsibility
may be nulliIied by such an 'act oI God.
Islamic law is based on the teachings oI the Koran, which puts Iorward mandates such as a
prohibition oI usury, or excessive interest rates. This has led some Islamic countries to ban
interest entirely; in others, it may be tolerated within reason. Islamic law is ultimately based
on the need to please God, so 'getting around the law is generally not acceptable. Attorneys
may be consulted about what might please God rather than what is an explicit requirements
oI the government.
Socialist law is based on the premise that 'the government is always right and typically has
not developed a sophisticated Iramework oI contracts (you do what the governments tells you
to do) or intellectual property protection (royalties are unwarranted since the government
ultimately owns everything). Former communist countries such as those oI Eastern Europe
and Russia are trying to advance their legal systems to accommodate issues in a Iree market.

U.S. laws of particular interest to firms doing business abroad.
Anti-trust. U.S. antitrust laws are generally enIorced in U.S. courts even iI the alleged
transgression occurred outside U.S. jurisdiction. For example, iI two Japanese Iirms collude
to limit the World supply oI VCRs, they may be sued by the U.S. government (or injured
third parties) in U.S. courts, and may have their U.S. assets seized.
The oreign orrupt Influences Act came about as Congress was upset with U.S. Iirms`
bribery oI Ioreign oIIicials. Although most iI not all countries ban the payment oI bribes,
such laws are widely Ilaunted in many countries, and it is oIten useIul to pay a bribe to get
Ioreign government oIIicials to act Iavorably. Firms engaging in this behavior, even iI it
takes place entirely outside the U.S., can be prosecuted in U.S. courts, and many executives
have served long prison sentences Ior giving in to temptation. In contrast, in the past some
European Iirms could actually deduct the cost oI Ioreign bribes Irom their taxes! There are
some gray areas hereit may be legal to pay certain 'tips known as 'Iacilitating
paymentsto low level government workers in some countries who rely on such payments
as part oI their salary so long as these payments are intended only to speed up actions that
would be taken anyway. For example, it may be acceptable to give a reasonable (not large)
Iacilitating payment to get customs workers to process a shipment Iaster, but it would not be
legal to pay these individuals to change the classiIication oI a product into one that carries a
lower tariII.
Anti--oycott laws. Many Arab countries maintain a boycott oI Israel, and Ioreigners that
want to do business with them may be asked to join in this boycott by stopping any deals they
do with Israel and certiIying that they do not trade with that country. It is illegal Ior U.S.
Iirms to make this certiIication even iI they have not dropped any actual deals with Israel to
get a deal with boycotters.
Trading With the Enemy. It is illegal Ior U.S. Iirms to trade with certain countries that are
viewed to be hostile to the U.S.e.g., Libya and Iraq.

Culture is part oI the external inIluences that impact the consumer. That is, culture represents
inIluences that are imposed on the consumer by other individuals.
The deIinition oI culture oIIered one text is 'That complex whole which includes knowledge,
belieI, art, morals, custom, and any other capabilities and habits acquired by man person as a
member oI society. From this deIinition, we make the Iollowing observations:
Culture, as a 'complex whole, is a system oI interdependent components.
Knowledge and belieIs are important parts. In the U.S., we know and believe that a person
who is skilled and works hard will get ahead. In other countries, it may be believed that
diIIerences in outcome result more Irom luck. 'Chunking, the name Ior China in Chinese,
literally means 'The Middle Kingdom. The belieI among ancient Chinese that they were in
the center oI the universe greatly inIluenced their thinking.
Other issues are relevant. Art, Ior example, may be reIlected in the rather arbitrary practice
oI wearing ties in some countries and wearing turbans in others. Morality may be exhibited
in the view in the United States that one should not be naked in public. In Japan, on the other
hand, groups oI men and women may take steam baths together without perceived as
improper. On the other extreme, women in some Arab countries are not even allowed to
reveal their Iaces. Notice, by the way, that what at least some countries view as moral may in
Iact be highly immoral by the standards oI another country.
Culture has several important characteristics: (1) Culture is comprehensive. This means that
all parts must Iit together in some logical Iashion. For example, bowing and a strong desire
to avoid the loss oI Iace are uniIied in their maniIestation oI the importance oI respect. (2)
Culture is learned rather than being something we are born with. We will consider the
mechanics oI learning later in the course. (3) Culture is maniIested within -oundaries oI
acceptable behavior. For example, in American society, one cannot show up to class naked,
but wearing anything Irom a suit and tie to shorts and a T-shirt would usually be acceptable.
Failure to behave within the prescribed norms may lead to sanctions, ranging Irom being
hauled oII by the police Ior indecent exposure to being laughed at by others Ior wearing a suit
at the beach. (4) Conscious awareness oI cultural standards is limited. One American spy
was intercepted by the Germans during World War II simply because oI the way he held his
kniIe and Iork while eating. (5) Cultures Iall somewhere on a continuum between static and
dynamic depending on how quickly they accept change. For example, American culture has
changed a great deal since the 1950s, while the culture oI Saudi Arabia has changed much
Dealing with culture.
Culture is a problematic issue Ior many marketers since it is inherently nebulous and oIten
diIIicult to understand. One may violate the cultural norms oI another country without being
inIormed oI this, and people Irom diIIerent cultures may Ieel uncomIortable in each other`s
presence without knowing exactly why (Ior example, two speakers may unconsciously
continue to attempt to adjust to reach an incompatible preIerred interpersonal distance).
Warning about stereotyping.
When observing a culture, one must be careIul not to over-generalize about traits that one
sees. Research in social psychology has suggested a strong tendency Ior people to perceive
an 'outgroup as more homogenous than an 'ingroup, even when they knew what members
had been assigned to each group purely by chance. When there is oIten a 'grain oI truth to
some oI the perceived diIIerences, the temptation to over-generalize is oIten strong. Note
that there are oIten signiIicant individual diIIerenceswithin cultures.
Cultural lessons. We considered several cultural lessons in class; the important thing here is
the big picture. For example, within the Muslim tradition, the dog is considered a 'dirty
animal, so portraying it as 'man`s best Iriend in an advertisement is counter-productive.
Packaging, seen as a reIlection oI the quality oI the 'real product, is considerably more
important in Asia than in the U.S., where there is a tendency to Iocus on the contents which
'really count. Many cultures observe signiIicantly greater levels oI Iormality than that
typical in the U.S., and Japanese negotiator tend to observe long silent pauses as a speaker`s
point is considered.

Cultural characteristics as a continuum. There is a tendency to stereotype cultures as
being one way or another (e.g., individualistic rather than collectivistic). Note, however,
countries Iall on a continuum oI cultural traits. HoIstede`s research demonstrates a wide
range between the most individualistic and collectivistic countries, Ior examplesome Iall in
the middle.
Hofstede`s Dimensions. Gert HoIstede, a Dutch researcher, was able to interview a large
number oI IBM executives in various countries, and Iound that cultural diIIerences tended to
center around Iour key dimensions:
Individualism vs. collectivism: To what extent do people believe in individual responsibility
and reward rather than having these measures aimed at the larger group? Contrary to the
stereotype, Japan actually ranks in the middle oI this dimension, while Indonesia and West
AIrica rank toward the collectivistic side. The U.S., Britain, and the Netherlands rate toward
Power distance: To what extent is there a strong separation oI individuals based on rank?
Power distance tends to be particularly high in Arab countries and some Latin American
ones, while it is more modest in Northern Europe and the U.S.
Masculinity vs. femininity involves a somewhat more nebulous concept. 'Masculine values
involve competition and 'conquering nature by means such as large construction projects,
while 'Ieminine values involve harmony and environmental protection. Japan is one oI the
more masculine countries, while the Netherlands rank relatively low. The U.S. is close to the
middle, slightly toward the masculine side. ( The Iact that these values are thought oI as
'masculine or 'Ieminine does not mean that they are consistently held by members oI each
respective genderthere are very large 'within-group diIIerences. There is, however, oIten
a large correlation oI these cultural values with the status oI women.)
Uncertainty avoidance involves the extent to which a 'structured situation with clear rules is
preIerred to a more ambiguous one; in general, countries with lower uncertainty avoidance
tend to be more tolerant oI risk. Japan ranks very high. Few countries are very low in any
absolute sense, but relatively speaking, Britain and Hong Kong are lower, and the U.S. is in
the lower range oI the distribution.
Although HoIstede`s original work did not address this, a IiIth dimension oI long term vs.
short term orientation has been proposed. In the U.S., managers like to see quick results,
while Japanese managers are known Ior take a long term view, oIten accepting long periods
beIore proIitability is obtained.
High vs. low context cultures: In some cultures, 'what you see is what you getthe
speaker is expected to make his or her points clear and limit ambiguity. This is the case in
the U.S.iI you have something on your mind, you are expected to say it directly, subject to
some reasonable standards oI diplomacy. In Japan, in contrast, Iacial expressions and what
is not said may be an important clue to understanding a speaker`s meaning. Thus, it may be
very diIIicult Ior Japanese speakers to understand another`s written communication. The
nature oI languages may exacerbate this phenomenonwhile the German language is very
precise, Chinese lacks many grammatical Ieatures, and the meaning oI words may be
somewhat less precise. English ranks somewhere in the middle oI this continuum.
Ethnocentrism and the self-reference criterion. The self-reference criterionreIers to the
tendency oI individuals, oIten unconsciously, to use the standards oI one`s own culture to
evaluate others. For example, Americans may perceive more traditional societies to be
'backward and 'unmotivated because they Iail to adopt new technologies or social
customs, seeking instead to preserve traditional values. In the 1960s, a supposedly well read
American psychology proIessor reIerred to India`s culture oI 'sick because, despite severe
Iood shortages, the Hindu religion did not allow the eating oI cows. The psychologist
expressed disgust that the cows were allowed to roam Iree in villages, although it turns out
that they provided valuable Iunctions by oIIering milk and Iertilizing Iields. Ethnocentrism is
the tendency to view one`s culture to be superior to others. The important thing here is to
consider how these biases may come in the way in dealing with members oI other cultures.
It should be noted that there is a tendency oI outsiders to a culture to overstate the similarity
oI members oI that culture to each other. In the United States, we are well aware that there is
a great deal oI heterogeneity within our culture; however, we oIten underestimate the
diversity within other cultures. For example, in Latin America, there are great diIIerences
between people who live in coastal and mountainous areas; there are also great diIIerences
between social classes.
Language issues. Language is an important element oI culture. It should be realized that
regional diIIerences may be subtle. For example, one word may mean one thing in one Latin
American country, but something oII-color in another. It should also be kept in mind that
much inIormation is carried in non-verbal communication. In some cultures, we nod to
signiIy 'yes and shake our heads to signiIy 'no; in other cultures, the practice is reversed.
Within the context oI language:
There are oIten large variations in regional dialects oI a given language. The diIIerences
between U.S., Australian, and British English are actually modest compared to diIIerences
between dialects oI Spanish and German.
Idioms involve 'Iigures oI speech that may not be used, literally translated, in other
languages. For example, baseball is a predominantly North and South American sport, so the
notion oI 'in the ball park makes sense here, but the term does not carry the same meaning
in cultures where the sport is less popular.
Neologisms involve terms that have come into language relatively recently as technology or
society involved. With the proliIeration oI computer technology, Ior example, the idea oI an
'add-on became widely known. It may take longer Ior such terms to 'diIIuse into other
regions oI the world. In parts oI the World where English is heavily studied in schools, the
emphasis is oIten on grammar and traditional language rather than on current terminology, so
neologisms have a wide potential not to be understood.
Slang exists within most languages. Again, regional variations are common and not all
people in a region where slang is used will necessarily understand this. There are oIten
signiIicant generation gaps in the use oI slang.
Writing patterns, or the socially accepted ways oI writing, will diIIers signiIicantly between
In English and Northern European languages, there is an emphasis on organization and
conciseness. Here, a point is made by building up to it through background. An introduction
will oIten Ioreshadow what is to be said. In Romance languages such as Spanish, French,
and Portuguese, this style is oIten considered 'boring and 'inelegant. Detours are expected
and are considered a sign oI class, not oI poor organization. In Asian languages, there is
oIten a great deal oI circularity. Because oI concerns about potential loss oI Iace, opinions
may not be expressed directly. Instead, speakers may hint at ideas or indicate what others
have said, waiting Ior Ieedback Irom the other speaker beIore committing to a point oI view.
Because oI diIIerences in values, assumptions, and language structure, it is not possible to
meaningIully translate 'word-Ior-word Irom one language to another. A translator must
keep 'unspoken understandings and assumptions in mind in translating. The intended
meaning oI a word may also diIIer Irom its literal translation. For example, the Japanese
word hai is literally translated as 'yes. To Americans, that would imply 'Yes, I agree. To
the Japanese speaker, however, the word may mean 'Yes, I hear what you are saying
(without any agreement expressed) or even 'Yes, I hear you are saying something even
though I am not sure exactly what you are saying.
DiIIerences in cultural values result in diIIerent preIerred methods oI speech. In American
English, where the individual is assumed to be more in control oI his or her destiny than is
the case in many other cultures, there is a preIerence Ior the 'active tense (e.g., 'I wrote the
marketing plan) as opposed to the passive (e.g., 'The marketing plan was written by me.)
Because oI the potential Ior misunderstandings in translations, it is dangerous to rely on a
translation Irom one language to another made by one person. In the 'decentering method,
multiple translators are used. The text is Iirst translated by one translatorsay, Irom German
to Mandarin Chinese. A second translator, who does not know what the original German text
said, will then translate back to German Irom Mandarin Chinese translation. The text is then
compared. II the meaning is not similar, a third translator, keeping in mind this Ieedback,
will then translate Irom German to Mandarin. The process is continued until the translated
meaning appears to be satisIactory.
DiIIerent perspectives exist in diIIerent cultures on several issues; e.g.:
Monochronic cultures tend to value precise scheduling and doing one thing at a time;
in polychronic cultures, in contrast, promptness is valued less, and multiple tasks may be
perIormed simultaneously. (See text Ior more detail).
Space is perceived diIIerently. Americans will Ieel crowded where people Irom more
densely populated countries will be comIortable.
Sym-ols diIIer in meaning. For example, while white symbols purity in the U.S., it is a
symbol oI death in China. Colors that are considered masculine and Ieminine also diIIer by
Americans have a lot oI quite shallow Iriends toward whom little obligation is Ielt; people in
European and some Asian cultures have Iewer, but more signiIicant Iriends. For example,
one Ph.D. student Irom India, with limited income, Ielt obligated to try buy an airline ticket
Ior a Iriend to go back to India when a relative had died.
In the U.S. and much oI Europe, agreements are typically rather precise and contractual in
nature; in Asia, there is a greater tendency to settle issues as they come up. As a result,
building a relationship oI trust is more important in Asia, since you must be able to count on
your partner being reasonable.
In terms oI etiquette, some cultures have more rigid procedures than others. In some
countries, Ior example, there are explicit standards as to how a giIt should be presented. In
some cultures, giIts should be presented in private to avoid embarrassing the recipient; in
others, the giIt should be made publicly to ensure that no perception oI secret bribery could
be made.

Cross-Cultural Market Research
Primary vs. secondary research. There are two kinds oI market research: Primary research
reIers to the research that a Iirm conducts Ior its own needs (e.g., Iocus groups, surveys,
interviews, or observation) while secondaryresearch involves Iinding inIormation compiled
by someone else. In general, secondary research is less expensive and is Iaster to conduct,
but it may not answer the speciIic questions the Iirm seeks to have answered (e.g., how do
consumers perceive our product?), and its reliability may be in question.
Secondary sources. A number oI secondary sources oI country inIormation are available.
One oI the most convenient sources is an almanac, containing a great deal oI country
inIormation. Almanacs can typically be bought Ior $10.00 or less. The U.S. government also
publishes a guide to each country, and the handbook International Business Information.
How to ind It, How to Use It(HF 54.5.P33 |1998| in the ReIerence Department oI the
Gelman Library), provides leads on numerous sources by topic. Stat-USA, a database
compiled by the U.S. Department oI Commerce and available through the Gelman Library
(you can access it through the 'Links section oI my web-site), contains a great deal oI
statistical inIormation online. Excellent Iull text searchable indices to periodicals include
Lexis-Nexis and RDS Business and Industry, also available through Gelman.
Several experts may be available. Anthropologists and economists in universities may have
built up a great deal oI knowledge and may be available Ior consulting. Consultants
specializing in various regions or industries are typically considerably more expensive. One
should be careIul about relying on the opinions oI expatriates (whose views may be biased or
outdated) or one`s own experience (which may relate to only part oI a country or a certain
subsegment) and may also suIIer Irom the limitation oI being a sample oI size 1.
Hard vs. soft data. 'Hard data reIers to relatively quantiIiable measures such as a
country`s GDP, number oI telephones per thousand residents, and birth rates (although even
these supposedly 'objective Iactors may be subject to some controversy due to diIIering
deIinitions and measurement approaches across countries). In contrast, 'soIt data reIers to
more subjective issues such as country history or culture. It should be noted that while the
'hard data is oIten more convenient and seemingly objective, the 'soIt data is Irequently as
important, iI not more so, in understanding a market.
Data reliability. The accuracy and objectivity oI data depend on several Iactors. One
signiIicant one is the motivation oI the entity that releases it. For example, some countries
may want to exaggerate their citizens` literacy rates owing to national pride, and an
organization promoting economic development may paint an overly rosy picture in order to
attract investment. Some data may be dated (e.g., a census may be conducted rarely in some
regions), and some countries may lack the ability to collect data (it is diIIicult to reach people
in the interior regions oI Latin America, Ior example). DiIIerences in how constructs are
deIined in diIIerent countries (e.g., is military personnel counted in people who are
employed?) may make Iigures oI diIIerent jurisdictions non-comparable.
Cost of data. Much government data, or data released by organizations such as the World
Bank or the United Nations, is Iree or inexpensive, while consultants may charge very high
Issues in primary research. Cultural Iactors oIten inIluence how people respond to
research. While Americans are used to market research and tend to Iind this relatively un-
threatening, consumers in other countries may Iear that the data will be reported to the
government, and may thus not give accurate responses. In some cultures, criticism or
conIrontation are considered rude, so consumers may not respond honestly when they dislike
a product. Technology such as scanner data is not as widely available outside the United
States. Local customs and geography may make it diIIicult to interview desired respondents;
Ior example, in some countries, women may not be allowed to talk to strangers.

Country Entry: Decisions and Strategies
Segmentation, Targeting, and Positioning. Segmentation, in marketing, is usually done at
the customer level. However, in international marketing, it may sometimes be useIul to see
countries as segments. This allows the decision maker to Iocus on common aspects oI
countries and avoid inIormation overload. It should be noted that variations within some
countries (e.g., Brazil) are very large and thereIore, averages may not be meaningIul.
Country level segmentation may be done on levels such as geographybased on the belieI
that neighboring countries and countries with a particular type oI climate or terrain tend to
share similarities, demographics (e.g., population growth, educational attainment, population
age distribution), or income. Segmenting on income is tricky since the relative prices
between countries may diIIer signiIicantly (based, in part, on purchasing power parity
measures that greatly aIIect the relative cost oI imported and domestically produced
The importance of STP. Segmentation is the cornerstone oI marketingalmost all
marketing eIIorts in some way relate to decisions on who to serve or how to implement
positioning through the diIIerent parts oI the marketing mix. For example, one`s distribution
strategy should consider where one`s target market is most likely to buy the product, and a
promotional strategy should consider the target`s media habits and which kinds oI messages
will be most persuasive. Although it is oIten tempting, when observing large markets, to try
to be "all things to all people," this is a dangerous strategy because the Iirm may lose its
distinctive appeal to its chosen segments.
In terms oI the "big picture," members oI a segment should generally be as similar as possible
to each other on a relevant dimension (e.g., preIerence Ior quality vs. low price) and as
diIIerent as possible Irom members oI other segments. That is, members should respond in
similar ways to various treatments (such as discounts or high service) so that common
campaigns can be aimed at segment members, but in order to justiIy a diIIerent treatment oI
other segments, their members should have their own unique response behavior.
Approaches to global segmentation. There are two main approaches to global
segmentation. At the macro level, countries are seen as segments, given that country
aggregate characteristics and statistics tend to diIIer signiIicantly. For example, there will
only be a large market Ior expensive pharmaceuticals in countries with certain income levels,
and entry opportunities into inIant clothing will be signiIicantly greater in countries with
large and growing birthrates (in countries with smaller birthrates or stable to declining
birthrates, entrenched competitors will Iight hard to keep the market share).
There are, however, signiIicant diIIerences within countries. For example, although it was
thought that the Italian market would demand "no Irills" inexpensive washing machines while
German consumers would insist on high quality, very reliable ones, it was Iound that more
units oI the inexpensive kind were sold in Germany than in Italyalthough many German
consumers Iit the predicted proIile, there were large segment diIIerences within that country.
At the micro level, where one looks at segments within countries. Two approaches exist, and
their use oIten parallels the Iirm`s stage oI international involvement. Intramarket
segmentation involves segmenting each country`s markets Irom scratchi.e., an American
Iirm going into the Brazilian market would do research to segment Brazilian consumers
without incorporating knowledge oI U.S. buyers. In contrast, intermarket segmentation
involves the detection oI segments that exist across borders. Note that not all segments that
exist in one country will exist in another and that the sizes oI the segments may diIIer
signiIicantly. For example, there is a huge small car segment in Europe, while it is
considerably smaller in the U.S.

Intermarket segmentation entails several beneIits. The Iact that products and promotional
campaigns may be used across markets introduces economies oI scale, and learning that has
been acquired in one market may be used in anothere.g., a Iirm that has been serving a
segment oI premium quality cellular phone buyers in one country can put its experience to
use in another country that Ieatures that same segment. (Even though segments may be
similar across the cultures, it should be noted that it is still necessary to learn about the local
market. For example, although a segment common across two countries may seek the same
beneIits, the cultures oI each country may cause people to respond diIIerently to the "hard
sell" advertising that has been successIul in one).
The international product liIe cycle suggests that product adoption and spread in some
markets may lag signiIicantly behind those oI others. OIten, then, a segment that has existed
Ior some time in an "early adopter" country such as the U.S. or Japan will emerge aIter
several years (or even decades) in a "late adopter" country such as Britain or most developing
countries. (We will discuss this issue in more detail when we cover the product mix in the
second halI oI the term).
Positioning across markets. Firms oIten have to make a tradeoII between adapting their
products to the unique demands oI a country market or gaining beneIits oI standardization
such as cost savings and the maintenance oI a consistent global brand image. There are no
easy answers here. On the one hand, McDonald`s has spent a great deal oI resources to
promote its global image; on the other hand, signiIicant accommodations are made to local
tastes and preIerencesIor example, while serving alcohol in U.S. restaurants would go
against the Iamily image oI the restaurant careIully nurtured over several decades,
McDonald`s has accommodated this demand oI European patrons.
The 1apanese eiretsu Structure. In Japan, many Iirms are part oI a keiretsu,or a
conglomerate that ties together businesses that can aid each other. For example,
a keiretsu might contain an auto division that buys Irom a steel division. Both oI these might
then buy Irom a iron mining division, which in turns buys Irom a chemical division that also
sells to an agricultural division. The agricultural division then sells to the restaurant division,
and an electronics division sells to all others, including the auto division. Since the steel
division may not have opportunities Ior reinvestment, it puts its proIits in a bank in the center,
which in turns lends it out to the electronics division that is experiencing rapid growth.

This practice insulates the businesses to some extent against the business cycle, guaranteeing
an outlet Ior at least some product in bad times, but this structure has caused problems in
Japan as it has Iailed to "root out" ineIIicient keiretsumembers which have not had to "shape
up" to the rigors oI the market.
Methods of entry. With rare exceptions, products just don`t emerge in Ioreign markets
overnighta Iirm has to build up a market over time. Several strategies, which diIIer in
aggressiveness, risk, and the amount oI control that the Iirm is able to maintain, are available:
Exporting is a relatively low risk strategy in which Iew investments are made in the new
country. A drawback is that, because the Iirm makes Iew iI any marketing investments in the
new country, market share may be below potential. Further, the Iirm, by not operating in the
country, learns less about the market (What do consumers really want? Which kinds oI
advertising campaigns are most successIul? What are the most eIIective methods oI
distribution?) II an importer is willing to do a good job oI marketing, this arrangement may
represent a "win-win" situation, but it may be more diIIicult Ior the Iirm to enter on its own
later iI it decides that larger proIits can be made within the country.
Licensing and Iranchising are also low exposure methods oI entryyou allow someone else
to use your trademarks and accumulated expertise. Your partner puts up the money and
assumes the risk. Problems here involve the Iact that you are training a potential competitor
and that you have little control over how the business is operated. For example, American
Iast Iood restaurants have Iound that Ioreign Iranchisers oIten Iail to maintain American
standards oI cleanliness. Similarly, a Ioreign manuIacturer may use lower quality ingredients
in manuIacturing a brand based on premium contents in the home country.
Contract manuIacturing involves having someone else manuIacture products while you take
on some oI the marketing eIIorts yourselI. This saves investment, but again you may be
training a competitor.
Direct entry strategies, where the Iirm either acquires a Iirm or builds operations "Irom
scratch" involve the highest exposure, but also the greatest opportunities Ior proIits. The Iirm
gains more knowledge about the local market and maintains greater control, but now has a
huge investment. In some countries, the government may expropriate assets without
compensation, so direct investment entails an additional risk. A variation involves a joint
venture, where a local Iirm puts up some oI the money and knowledge about the local market.
Entry Strategies
Methods of entry. With rare exceptions, products just don`t emerge in Ioreign markets
overnighta Iirm has to build up a market over time. Several strategies, which diIIer in
aggressiveness, risk, and the amount oI control that the Iirm is able to maintain, are available:
Exporting is a relatively low risk strategy in which Iew investments are made in the new
country. A drawback is that, because the Iirm makes Iew iI any marketing investments in the
new country, market share may be below potential. Further, the Iirm, by not operating in the
country, learns less about the market (What do consumers really want? Which kinds oI
advertising campaigns are most successIul? What are the most eIIective methods oI
distribution?) II an importer is willing to do a good job oI marketing, this arrangement may
represent a "win-win" situation, but it may be more diIIicult Ior the Iirm to enter on its own
later iI it decides that larger proIits can be made within the country.
Licensing and Iranchising are also low exposure methods oI entryyou allow someone else
to use your trademarks and accumulated expertise. Your partner puts up the money and
assumes the risk. Problems here involve the Iact that you are training a potential competitor
and that you have little control over how the business is operated. For example, American
Iast Iood restaurants have Iound that Ioreign Iranchisers oIten Iail to maintain American
standards oI cleanliness. Similarly, a Ioreign manuIacturer may use lower quality ingredients
in manuIacturing a brand based on premium contents in the home country.
Turnkey Projects. A Iirm uses knowledge and expertise it has gained in one or more markets
to provide a working projecte.g., a Iactory, building, bridge, or other structureto a buyer
in a new country. The Iirm can take advantage oI investments already made in technology
and/or development and may be able to receive greater proIits since these investments do not
have to be started Irom scratch again. However, getting the technology to work in a new
country may be challenging Ior a Iirm that does not have experience with the inIrastructure,
culture, and legal environment.
Management Contracts. A Iirm agrees to manage a Iacilitye.g., a Iactory, port, or airport
in a Ioreign country, using knowledge gained in other markets. Again, one thing is to be able
to transIer technologyanother is to be able to work in a new country with a diIIerent
inIrastructure, culture, and political/legal environment.
Contract manuIacturing involves having someone else manuIacture products while you take
on some oI the marketing eIIorts yourselI. This saves investment, but again you may be
training a competitor.
Direct entry strategies, where the Iirm either acquires a Iirm or builds operations "Irom
scratch" involve the highest exposure, but also the greatest opportunities Ior proIits. The Iirm
gains more knowledge about the local market and maintains greater control, but now has a
huge investment. In some countries, the government may expropriate assets without
compensation, so direct investment entails an additional risk. A variation involves a joint
venture, where a local Iirm puts up some oI the money and knowledge about the local market.

Product Issues in International Marketing
Products and Services. Some marketing scholars and proIessionals tend to draw a strong
distinction between conventional products and services, emphasizing service characteristics
such as heterogeneity (variation in standards among providers, Irequently even among
diIIerent locations oI the same Iirm), inseperability Irom consumption, intangibility, and, in
some cases, perishabilitythe idea that a service cannot generally be created during times oI
slack and be 'stored Ior use later. However, almost all products have at least some service
componente.g., a warranty, documentation, and distributionand this service component
is an integral part oI the product and its positioning. Thus, it may be more useIul to look at
the product-service continuum as one between very low and very high levels oI tangibility oI
the service. Income tax preparation, Ior example, is almost entirely intangiblethe client
may receive a Iew printouts, but most oI the value is in the service. On the other hand, a
customer who picks up rocks Ior construction Irom a landowner gets a tangible product with
very little value added Ior service. Firms that oIIer highly tangible products oIten seek to add
an intangible component to improve perception. Conversely, adding a tangible element to a
servicee.g., a binder with inIormationmay address many consumers` psychological need
to get something to show Ior their money.
On the topic oI services, cultural issues may be even more prominent than they are Ior
tangible goods. There are large variations in willingness to pay Ior quality, and oIten very
large diIIerences in expectations. In some countries, it may be more diIIicult to entice
employees to embrace a Iirm`s customer service philosophy. Labor regulations in some
countries make it diIIicult to terminate employees whose treatment oI customers is
substandard. Speed oI service is typically important in the U.S. and western countries but
personal interaction may seem more important in other countries.
Product Need Satisfaction. We oIten take Ior granted the 'obvious need that products
seem to Iill in our own culture; however, Iunctions served may be very diIIerent in others
Ior example, while cars have a large transportation role in the U.S., they are impractical to
drive in Japan, and thus cars there serve more oI a role oI being a status symbol or providing
Ior individual indulgence. In the U.S., Iast Iood and instant drinks such as Tang are intended
Ior convenience; elsewhere, they may represent more oI a treat. Thus, it is important to
examine through marketing research consumers` true motives, desires, and expectations in
buying a product.
Approaches to Product Introduction. Firms Iace a choice oI alternatives in marketing their
products across markets. An extreme strategy involvescustomi:ation, whereby the Iirm
introduces a unique product in each country, usually with the belieI tastes diIIer so much
between countries that it is necessary more or less to start Irom 'scratch in creating a
product Ior each market. On the other extreme, standardi:ation involves making one global
product in the belieI the same product can be sold across markets without signiIicant
modiIicatione.g., Intel microprocessors are the same regardless oI the country in which
they are sold. Finally, in most cases Iirms will resort to some kind oI adaptation, whereby a
common product is modiIied to some extent when moved between some marketse.g., in the
United States, where Iuel is relatively less expensive, many cars have larger engines than
their comparable models in Europe and Asia; however, much oI the design is similar or
identical, so some economies are achieved. Similarly, while Kentucky Fried Chicken serves
much the same chicken with the eleven herbs and spices in Japan, a lesser amount oI sugar is
used in the potato salad, and Iries are substituted Ior mashed potatoes.
There are certain beneIits to standardization. Firms that produce a global product can
obtain economies of scale in manufacturing, and higher quantities produced also lead to a
faster advancement along the experience curve. Further, it is more feasi-le to esta-lish a
glo-al -rand as less conIusion will occur when consumers travel across countries and see the
same product. On the down side, there may be signiIicant diIIerences in desires between
cultures and physical environmentse.g., soItware sold in the U.S. and Europe will oIten
utter a 'beep to alert the user when a mistake has been made; however, in Asia, where oIIice
workers are oIten seated closely together, this could cause embarrassment.
Adaptations come in several Iorms. Mandatory adaptations involve changes that have to be
made beIore the product can be usede.g., appliances made Ior the U.S. and Europe must
run on diIIerent voltages, and a major problem was experienced in the European Union when
hoses Ior restaurant Irying machines
1. Comparative advantage, discussed in more detail in the economics notes, suggests
trade between countries is beneIicial because these countries diIIer in their relative
economic strengthssome have more advanced technology and some have lower
2. The International Product LiIe Cycle suggests that countries will diIIer in their timing
oI the demand Ior various products. Products tend to be adopted more quickly in the
United States and Japan, Ior example, so once the demand Ior a product (say, VCRs)
is in the decline in these markets, an increasing market potential might exist in other
countries (e.g., Europe and the rest oI Asia).
3. Internalization/transaction costs reIers to the Iact that developing certain very large
scale projects, such as an automobile intended Ior the World market, may entail such
large costs that these must be spread over several countries.