International Marketing • The marketing of goods and services across national frontiers.
• It is the marketing function of multinational companies.
Special problems in International Marketing
• • • • • • • • • Political and Legal differences Cultural differences Economic differences Differences in the Currency Differences in the languages Differences in the Marketing Infrastructure Trade Restrictions High costs of Distance Differences in Trade practices
Objectives of International Business • • • • • • • • • • To sell out the surplus To achieve sales and production stability To pay for Imports To contribute to national goals To achieve growth and Development To lower costs of business To improve company image Nature of business Political reasons Economic incentives
International Marketing Decisions • International Marketing Decisions • Market Selection Decision • Entry and Operating Decision • Marketing Mix Decision • Marketing Organization Decision
Look at the international marketing environment Decide whether to enter Decide which markets to enter Decide how to enter Plan marketing programs Plan marketing organization ….the real issue here is what role national boundaries play in a firm’s strategic planning process.
Climate, topography, resources
US has big products…
Population, industry structure, stage of development
Lack of wholesalers in developing countries
Advertising restrictions Tariffs/non-tariff barriers Patents/Trademark protection
Language Attitudes Time Concepts Space Concepts How business is conducted Friendship
What influences the decision to enter?
Stability of government Stability of currency Tariffs/non-tariff barriers Crime/corruption Protection of property rights/technology
How to enter:
Export excess capacity Simplest, most direct
Firm in foreign market produces, distributes
How to enter (cont.):
Partly own firm in foreign market
As foreign investments grow, firm loses home country identity
Key is volume growth
Current market potential Future market potential …versus risk
Standardize versus adapt for each market
Based on entry strategy Requirement for in-country participation
FDI (Foreign Direct Investment) Policy on Foreign Direct Investment
India has among the most liberal and transparent policies on FDI among the emerging economies. FDI up to 100% is allowed under the automatic route in all activities/sectors except the following, which require prior approval of the Government:1. Sectors prohibited for FDI 2. Activities/items that require an industrial license 3. Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the same field 4. Proposals for acquisitions of shares in an existing Indian company in financial service sector and where Securities and Exchange Board of India (substantial acquisition of shares and takeovers) regulations, 1997 is attracted 5. All proposals falling outside notified sectoral policy/CAPS under sectors in which FDI is not permitted
• Most of the sectors fall under the automatic route for FDI. In these sectors, investment could be made without approval of the central government. The sectors that are not in the automatic route, investment requires prior approval of the Central Government. The approval in granted by Foreign Investment Promotion Board (FIPB). In few sectors, FDI is not allowed. • After the grant of approval for FDI by FIPB or for the sectors falling under automatic route, FDI could take place after taking necessary regulatory approvals form the state governments and local authorities for construction of building, water, environmental clearance, etc. • Manual for FDI brought out by the Department of Industrial Policy
• Procedure under Government Approval FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of Foreign Investment Promotion Board (FIPB). Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion. Application can be made in Form FC-IL. Plain paper applications carrying all relevant details are also accepted. No fee is payable. The guidelines for consideration of FDI proposals by the FIPB are at Annexure-III of the Manual for FDI.
• Prohibited Sectors The extant policy does not permit FDI in the following cases: i. Gambling and betting ii. Lottery Business iii. Atomic Energy iv. Retail Trading v. Agricultural or plantation activities of Agriculture (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations)
• General permission of RBI under FEMA Indian companies having foreign investment approval through FIPB route do no require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The companies are required to notify the concerned Regional Office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs
Industrial Licensing With progressive liberalization and deregulation of the economy, industrial license is required in very few cases. Industrial licenses are regulated under the Industries (Development and Regulation) Act 1951. At present, industrial license is required only for the following: -
• • •
Industries retained under compulsory licensing Manufacture of items reserved for small scale sector by larger units When the proposed location attracts locational restriction The following industries require compulsory license: -
• • • • •
Alcoholics drinks Cigarettes and tobacco products Electronic aerospace and defense equipment Explosives Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and di-isocynates of hydro carbon and derivatives
Procedure for obtaining an industrial license Industrial license is granted by the Secretariat for Industrial Assistance in Department of Industrial Policy and Promotion, Government of India. Application for industrial license is required to be submitted in Form FC-IL to Department of Industrial Policy and Promotion.
Locational restrictions Industrial undertakings to be located within 25 kms of the standard urban area limit of 23 cities having a population of 1 million as per 1991 census require an industrial license. Industrial license even in these cases is not required if a unit is located in an area designated as an industrial area before 1991 or non-polluting industries such as electronics, computer software, printing and other specified industries
Environmental Clearances • Entrepreneurs are required to obtain Statutory clearances, relating to Pollution Control and Environment as may be necessary, for setting up an industrial project for 31 categories of industries in terms of Notification S.O. 60(E) dated 27.1.94 as amended from time to time, issued by the Ministry of Environment and Forests under The Environment (Protection) Act 1986. This list includes petrochemicals complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes, papers etc., However, if investment in the project is less than Rs.1 billion (appox. $ 22.2 million), such Environmental clearance is not necessary, except in cases of pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated paint complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries. Setting up industries in certain locations considered ecologically fragile (e.g. Aravalli Range, coastal areas, Doon Valley, Dahanu etc.) are guided by separate guidelines issues by the Ministry of Environment and Forests.
SAARC ( South Asian Association for Regional Cooperation) • SAARC involves 7 countries namely India, Bangladesh, Pakistan, Nepal, Bhutan, Sri Lanka & Maldives The participants of the Summit affirmed that the birth of SAARC was a logical response to the problems facing the region. Mr. Rajiv Gandhi, PM of India described the opening day of the SAARC summit in December 1985 as an important day in the history of resurgent Asia. The participants of the summit affirmed that the birth of SAARC was a logical response to the problems facing the region. The fundamental goal of SAARC is to accelerate economic and social development through optimum utilization of their human and material resources.
According to Article I of the charter of the SAARC, the objectives of the Association are: • To promote the welfare of the people of South Asia & to improve their quality of life. • To accelerate economic growth, social progress and cultural development in the region & to provide all individuals the opportunity to live in dignity & to realize their full potentials. • To promote & Strengthen collective self-reliance among the countries of South Asia. • To contribute to mutual trust, understanding & appreciation of one another’s problems. • To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields. • To strengthen cooperative with other developing countries • To strengthen cooperation among themselves in international forums on matters of common interests, and • To cooperate with international and regional organizations with similar aims and purposes.
International Monetary Fund (IMF) • The IMF established on December 27,1945 with 29 countries and which began financial operations on March 1, 1947. The IMF is an organization of countries that seeks to promote international monetary cooperation, facilitate the expansion of trade, and thus, to contribute towards increased employment and improved economic conditions in all member countries. Membership in the IMF is open to every country that controls its foreign relations and is able and prepared to fulfill the obligations of membership. The IMF had a membership of 182 countries as on September 1, 2000.
The primary purposes of IMF are the following • • • Promote international monetary cooperation Facilitate the expansion and balanced growth of international trade Promote exchange stability arrangements among members. and maintain orderly exchange
Assist in establishing a multilateral system of payments in respect of current transactions between member countries and assist in eliminating foreign exchange restrictions that hamper the growth of world trade. Make available to members the IMP’S general resources on a temporary basis to enable them to correct balance of payments problems without resorting to measures that would harm national or international prosperity. Shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.
GATT (General Agreement on Trade & Tariffs)
• • The GATT, the predecessor of WTO was born in 1948 The GATT was transformed into a World Trade Organization (WTO) with effect from January, 1995. The establishment of an International Trade Organization (ITO) had also been recommended by the Bretton woods Conference of 1944 which had recommended the IMF and World Bank. The international trading system since 1948 was, at least in principle, guided by the rules and procedures agreed to by the signatories to the GATT which was an agreement signed by the contracting nations which were admitted on the basis of their willingness to accept the GATT disciplines. India is one of the founder members of the IMF, World Bank, GATT and the WTO
Objectives of GATT • The primary objective of GATT was to expand international trade by liberalizing trade so as to bring about all round economic prosperity. • Raising standard of living • Ensuring full employment and a large and steadily growing volume of real income and effective demand. • Developing full use of the resources of the world. • Expansion of production and international trade
GATT embodied certain conventions and general principles governing international trade among countries that adhere to the agreement. The rules or conventions of GATT required that: ---• Any proposed change in the tariff, or other type of commercial policy of a member country should not be undertaken without consultation of other parties to the agreement • The countries that adhere to GATT should work towards the reduction of tariffs and other barriers to international trade, which should be negotiated within the framework of GATT.
For the realization of its objectives, GATT adopted the following principles • Non-discrimination • Prohibition of quantitative restrictions • consultation
An Evaluation of GATT • When the GATT was signed in 1947, only 23 nations were party to it. • It increased to 99 by the time of the seventh round and 117 countries participated in the next, i.e., the Uruguay round. • In July 1995, there were 128 signatory with further 25 countries formally seeking accession to the WTO. • One of the principal achievement of GATT was the establishment of a forum for continuing consultations.