INTERNATIONAL BUSINESS

UNIT I (OVERVIEW OF INTERNATIONAL BUSINESS AND FRAMWORK OF INTERNATIONAL MARKETING)
10/01/10 archna sukhija (lecturer-IB) 1

Definition
Kotler defines marketing as “human activity directed at satisfying needs and wants through exchange process.”  To be more explicit, “Marketing means working with markets, which, in turn, means attempting to actualize potential exchanges for the purpose of satisfying human needs and wants.”

10/01/10

archna sukhija (lecturer-IB)

2

Contd.. (1 of 2)
International Marketing can, therefore, be defined as “marketing carried on across national boundaries.”  According to Hess and Cateora, international marketing is “the performance of business activities that direct the flow of goods and services to consumers or users in more than one nation.”

10/01/10

archna sukhija (lecturer-IB)

3

FACTORS RELEVANT TO INTERNATIONAL MARKETING
 A. B. C. D. E. F. G.

Social Factors National legal regime Political situation Financial system Marketing infrastructure Culture Language Climate

10/01/10

archna sukhija (lecturer-IB)

4

Contd.. (1 of 4)
 1. 2. 3. 4.

Economic factors Commercial policy variables, e.g., tariffs, quotas, licensing, non-tariff barriers. Currency restrictions Internal demand management policies and instruments

10/01/10

archna sukhija (lecturer-IB)

5

Contd.. (2 of 4)
 1.

2.

3.

Competition Competition vis-à-vis producers in the importing country Competition vis-à-vis exporters from the competing countries Competition vis-à-vis other exporters from one’s own country

10/01/10

archna sukhija (lecturer-IB)

6

Contd.. (3 of 4)
 1. 2. 3. 4. 5. 6.

Logistics Availability of required type of transport (sea, air, freezer, space, etc.) Costs of transportation Risks Political risks Commercial risks Acts of God Acts of enemies, pirates, thieves, etc.

10/01/10

archna sukhija (lecturer-IB)

7

SCOPE OF MARKETING
Though international marketing is in essence export marketing, it has a broader connotation in marketing literature. It also means entry into international markets by:  Opening a branch/subsidiary abroad for processing, packaging, assembly or even complete manufacturing through direct investment.  Negotiating licensing/franchising arrangements whereby foreign enterprises are granted the right to use the exporting company’s know-how,, viz., patents, processes, or trade marks, with or without financial investment;

10/01/10

archna sukhija (lecturer-IB)

8

Contd.. (1 of 8)
Establishing joint ventures in foreign countries for manufacturing and/or marketing;  Offering consultancy services and undertaking turnkey projects abroad;  Sub-contracting and counter trade; and Importing for export production.  Depending upon the degree of a firm’s involvement, there may be several variations of these arrangements.

10/01/10

archna sukhija (lecturer-IB)

9

INTERNATIONAL MARKETING VS. DOMESTIC MARKETING
Both in domestic marketing as well as in international marketing, success depends upon satisfying the basic requirements of the consumers. This necessarily involves finding out what the buyers want and meeting their needs accordingly.

10/01/10

archna sukhija (lecturer-IB)

10

Contd.. (1 of 10)

It is necessary to build goodwill both in the domestic market as well as in the international market. If a firm has been able to develop goodwill of the consumers, its task will be much simpler than the one which has not able to do so. The days of caveat emptor have gone and the basic principle now is caveat vendor. In fact, to win over customers, liberal guarantees have to be given and facilitates of after-sales service may have to be provided on an extensive scale.

10/01/10

archna sukhija (lecturer-IB)

11

Contd.. (2 of 10)

Research and development for product improvement and adaptation is necessary both for international marketing and domestic marketing.

10/01/10

archna sukhija (lecturer-IB)

12

DIFFERENCES
 1. 2. 3. 4.  

SOVERIGN POLITICAL ENTITIES Tariffs or Customs Duties Quantitative Restrictions Exchange Controls Local Taxes DIFFERENT LEGAL SYSTEMS DIFFERENT MONETARY SYSTEMS

10/01/10

archna sukhija (lecturer-IB)

13

Contd.. (1 of 13)
LOWER MOBILITY OF FACTORS OF PRODUCTION  DIFFERENCES IN MARKET CHARACTERSTICS  DIFFERENCES IN PROCEDURES AND DOCUMENTATION  GREATER DEGREE OF RISK.

10/01/10

archna sukhija (lecturer-IB)

14

POLITICAL ENVIRONMNT POLITICAL SYSTEM A political system that includes the structures, processes, and activities by which a nation governs itself.
15

10/01/10

archna sukhija (lecturer-IB)

POLITICS AND CULTURE

10/01/10

archna sukhija (lecturer-IB)

16

POLITICAL PARTICIPATION It can be characterized by who participates in them and to what extent they participate. Participation occurs when people voice their opinions, vote, and show general approval or disapproval of the system. It can be :  Narrow  Wide
10/01/10 archna sukhija (lecturer-IB) 17

POLITICAL IDEOLOGIES World’s political systems as falling on two extreme:  One extreme-anarchism, the belief that only individuals and private groups should control a nation’s political activities. It views public government as unnecessary.  Other extreme-totalitarianism, the belief that every aspect of people’s lives must be controlled in order for a nation’s political system to be effective.  Between these above two extreme liespluralism, the belief that both private and public groups play important roles in a nation’s political activities. Pluralistic political systems include democracies, 18 archna sukhija (lecturer-IB) constitutional monarchies, and some aristocracies. 10/01/10

Two prevalent types of political systems Democracy  Totalitarianism 1. Democracy “It is the system in which government leaders are elected by the wide participation of the people or by their representatives.”

10/01/10

archna sukhija (lecturer-IB)

19

Contd.. (1 of 19)
1.1 Representative’s democracy In which citizens nominate individuals from their groups to represent their political needs and views.

10/01/10

archna sukhija (lecturer-IB)

20

DOING BUSINESS IN DEMOCRACY

10/01/10

archna sukhija (lecturer-IB)

21

2. Totalitarianisms “It is the system in which individuals govern without the support of the people, government maintains control over many aspects of people’s lives, and leaders do not tolerate opposing viewpoints.”
10/01/10 archna sukhija (lecturer-IB) 22

Contd.. (1 of 22)
Three features of totalitarian governments  Imposed authority  Lack of constitutional guarantees  Restricted participation

10/01/10

archna sukhija (lecturer-IB)

23

Contd.. ( 2 of 22)
Theocratic totalitarianism Theocracy  “Political system in which a country’s political leaders who enforce laws and regulations based on religious beliefs.”  “When a political system is under the religious leaders is called theocratic totalitarianisms.”
10/01/10 archna sukhija (lecturer-IB) 24

10/01/10

archna sukhija (lecturer-IB)

25

Contd.. (3 of 22)
Secular totalitarianism  “A political system in which political leaders rely on military and bureaucratic power is called secular totalitarianisms.”

10/01/10

archna sukhija (lecturer-IB)

26

Contd.. (4 of 23)
Three forms are there:  Communist totalitarianism  Tribal totalitarianism  Right wing totalitarianism

10/01/10

archna sukhija (lecturer-IB)

27

DOING BUSINESS IN TOTALITARIAN COUNTRIES

10/01/10

archna sukhija (lecturer-IB)

28

POLITICAL RISKS Confiscation  Expropriation  Nationalization  Domestication Another classification system of political risks is the one used by Root. Based on this classification, four sets of political risks can be identified:  General instability risk  Ownership/control risk  Operation risk  Transfer risk 29 archna sukhija (lecturer-IB) 10/01/10

INDICATORS OF POLITICAL INSTABILITY  Social Unrest  Attitude of Nationals  Policies of the Host Government

10/01/10

archna sukhija (lecturer-IB)

30

ANALYSIS OF POLITICAL RISK OR COUNTRY RISK

10/01/10

archna sukhija (lecturer-IB)

31

MEASURES TO MINIMIZE POLITICAL RISK
       

Stimulation of the Local Economy Employment of Nationals Sharing Ownership Being Civic Minded Political Neutrality Behind-the-Scenes Lobby Observation of Political Mood and Reduction of Exposure Other Measures
archna sukhija (lecturer-IB)

10/01/10

32

LEGAL SYSTEMS A country’s legal system consists of its laws and regulations, including the processes by which its laws are enacted and enforced, and the ways in which its courts hold parties accountable for their actions.
10/01/10 archna sukhija (lecturer-IB) 33

LEGAL SYSTEMS These are called legal traditions.  Common law  Civil law  Theocratic law
34

10/01/10

archna sukhija (lecturer-IB)

GLOBA LEGAL ISSUES
STANDARDIZATION 2. INTELLECTUAL PROPERTY 3. INDUSTRIAL PROPERTY 3.1. Patents: A patent is a right granted to the inventor of a product or process that includes others from making, using, or selling the invention. 3.2 Trademarks: Trademarks are the words or symbols distinguishing a product and its manufacturer. 3.3 Copyrights: Copyrights give creators of original works the freedom to publish or dispose of them as they choose
1.
35

10/01/10

archna sukhija (lecturer-IB)

A copyright holder has such rights as the following:  To reproduce the copyrighted work  To derive new works from the copyrighted work  To sell or distribute copies of the copyrighted work  To perform the copyrighted work  To display the copyrighted work publicly.
10/01/10 archna sukhija (lecturer-IB) 36

Taxation: National governments use income and sales taxes for many purposes. They use tax revenue to pay government salaries, to build military capacity, and to shifty earnings from people with high incomes to the poor. They also pass indirect taxes called consumption taxes, which serve two main purposes:
 To

help pay for the consequences of using a particular product.  To make imports more expensive.
  

Income tax and Sales tax Consumption tax
archna sukhija (lecturer-IB) 37

10/01/10

PRODUCT SAFETY LAWS Product liability holds manufacturers, sellers, and others including individual company officers, responsible for damage, injury, or death caused by defective products. 2. VALUE ADDED TAX (VAT) Tax levied on each party that adds value to a product throughout its production and distribution. 3. ANTITRUST LAWS Laws designed to prevent companies from fixing prices, sharing markets, and gaining unfair monopoly advantages.
1.

10/01/10

archna sukhija (lecturer-IB)

38

MULTIPLICITY OF LEGAL ENVIRONMENTS
There is multiplicity of legal environments: domestic, foreign and international. At their worst, laws can prohibit the marketing of a product altogether. There are many products that cannot be legally imported into most countries. A company’s production strategy can also be affected by the legal environment. The United States bans the importation of the so-called Saturday night specials- cheap, short-barreled pistols-because they are often used in violent crime.
10/01/10 archna sukhija (lecturer-IB) 39

Bribery

According to the Foreign Corrupt Practices Act (FCPA) of 1977, bribery is “the use of interstate commerce to offer, pay, and promise to pay, or authorize giving anything of value to influence an act or decision by a foreign government, politician or political party to assist in obtaining, retaining or directing business to any person.” A bribe is also known as “payoff”, “grease money”, “lubricant”, “little envelop”, and “under the table payment”, as well as by other terms. A bribe may take the form of cash, gifts, jobs, and free trips.

10/01/10

archna sukhija (lecturer-IB)

40

Bribe maker As giver

Improper payment

Bribe taker as receiver

Intermediary

Bribe maker As receiver

Favor

Bribe taker as giver
41

10/01/10

archna sukhija (lecturer-IB)

Among reasons why some businesspersons are willing and even eager to offer a bribe are: o To speed up the required work or processing. o To secure a contract. o To avoid the cancellation of the contract. o To prevent competitors from getting the contract.

10/01/10

archna sukhija (lecturer-IB)

42

Legal form of Organization
Firm doing business in Great Britain has three primary choices for the legal form of organization:  British Branch  Limited Company  Partnership In the United States, a business is able to select from among these forms:  Sole proprietorship  Partnership  Corporation

10/01/10

archna sukhija (lecturer-IB)

43

Branch v/s Subsidiary “A branch is the company’s extension or outpost at another location. Although physically detached, it is not legally separated from its parent.” “A subsidiary, in contrast, is both physically and legally independent. It is considered a separate legal entity in spite of its ownership by another corporation.”
archna sukhija (lecturer-IB) 44

10/01/10

Reasons why Subsidiary is preferred over branch?  Recruitment of Management  Gaining Quick Access  Flexibility  Tax benefits  Limited-liability

10/01/10

archna sukhija (lecturer-IB)

45

Counterfeiting

It is the practice of unauthorized and illegal copying of a product. In essence, it involves an infringement (it occurs when there is a commercial use without owner’s consent, with the intent of confusing or deceiving the public) on a patent or trademark or both. According to the U.S. Lanham Act, a counterfeit trademark is a “spurious trademark which is identical with or substantially indistinguishable form, a registered trademark.”

10/01/10

archna sukhija (lecturer-IB)

46

10/01/10

archna sukhija (lecturer-IB)

47

Grey-Market
A grey market exists when a manufacturer ends up with an unintended channel of distribution that performs activities similar to the planned channel-hence the term parallel distribution. In an international context, a grey market product is one imported by an unauthorized party. Products notably affected by this method of operation include watches, cameras, perfumes, automobiles, and electronic goods.

10/01/10

archna sukhija (lecturer-IB)

48

A grey market can acquire goods in two principle ways.  One method is to place an order directly with a manufacturer by going through an intermediary, in order to conceal identity and purpose.  Another method is to buy the merchandize for immediate shipment on the open market overseas. Asian countries in general and Hong Kong in particular are favorite targets because the wholesale prices there are usually much lower than elsewhere.
10/01/10 archna sukhija (lecturer-IB) 49

Reasons of Grey Market:
Parallel importation of trademarked products occurs for several reasons:  grey marketers can easily locate sources of supply because many trademarked products are available in markets throughout the world.  Price differences among these sources are great enough and  The legal and other barriers to moving goods are low
10/01/10 archna sukhija (lecturer-IB) 50

Grey-market goods are illegal?

10/01/10

archna sukhija (lecturer-IB)

51

Reactive Strategies to Combat Grey Market Activity: I. Strategic Confrontation II. Participation III. Price cutting IV. Supply interference V. Promotion of grey market product limitations VI. Collaboration VII. Acquisitions

10/01/10

archna sukhija (lecturer-IB)

52

Culture
Culture is acquired knowledge that people use to interpret experience and to generate social \ behavior. It is shared by members of a group, organization, or society. CULTURE IS LEARNED THROUGH BOTH EDUCATION AND EXPERIENCE
10/01/10 archna sukhija (lecturer-IB) 53

Contd.. (1 of 53)
Cultural Characteristics:  Learned  Shared  Trans generational  Symbolic  Adaptive

10/01/10

archna sukhija (lecturer-IB)

54

Contd.. (2 of 53)
Levels of culture  National culture:  Business culture:  Occupational and organizational culture:.

10/01/10

archna sukhija (lecturer-IB)

55

Contd.. (3 of 53)
Elements of culture
A. B. C. D. E. F. G.

Language Religion Values and attitudes Customs and manners Material culture Aesthetics Education

10/01/10

archna sukhija (lecturer-IB)

56

CULTURAL DIMENSIONs
Geert Hofstede, a Dutch researcher, has found four cultural dimensions that help to explain when and why people from various cultures behave as they do.  Power distance  Uncertainty avoidance  Individualisms  Masculinity

10/01/10

archna sukhija (lecturer-IB)

57

CUTURE AND STRATEGIC MANAGEMENT
Work attitudes  Achievement motivation  Time and future

10/01/10

archna sukhija (lecturer-IB)

58

INFLUENCE OF CULTURE ON CONSUMPTION

10/01/10

archna sukhija (lecturer-IB)

59

INFLUENCE OF CULTURE ON THINKING PROCESS

10/01/10

archna sukhija (lecturer-IB)

60

INFLUENCE OF CULTURE ON COMMUNICATION PROCESS

10/01/10

archna sukhija (lecturer-IB)

61

Assignment::::::::::::::::::::::::??????:::::::::: ?????:::::::: I. American Business Culture II. Japanese Business Culture III.Arab Business Culture

10/01/10

archna sukhija (lecturer-IB)

62

10/01/10

archna sukhija (lecturer-IB)

63

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.