International Trade1

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Need for International Business
 International business:
◦ causes the flow of ideas, services, and
capital across the world
◦ offers consumers new choices
◦ permits the acquisition of a wider
variety of products
◦ facilitates the mobility of labor,
capital, and technology
◦ provides challenging employment
opportunities
◦ reallocates resources, makes
preferential choices, and shifts
activities to a global level
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Expansion of International Trade
 In the past 30 years, the volume of
international trade has expanded from
$200 billion to over $7.5 trillion.
 The sales of foreign affiliates of
multinational corporations are now twice
as high as global exports.

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 Global Links Today
 International business has created a
network of global links that bind
countries, institutions, and individuals
with trade, financial markets, technology,
and living standards.
◦ For example, a reduction in coffee production
in Brazil would affect individuals and
economies worldwide.

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The Global Business Environment
Trade relations between companies and
countries are affected by three factors.

Cultural and Political and

Economic
Social Legal

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Trade Relations

The relationships and

ties between companies global dependence
around the world have the concept that all
created global countries depend on
each other for trade
dependence.

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Trade Relations

Participants in
International Trade

Individual Consumers States and Provinces

Companies Countries

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Understanding International Marketing

 Market, Marketing, International marketing

 Domestic vs. International Marketing

◦ Strategic Orientation: domestic,

multidomestic, and global
◦ Marketing mix: 4 Ps
◦ Environmental forces: controllables vs.
uncontrollables
 Environment and the marketing mix

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 Internationalization Philosophies
Domestic Export Multinational Global
Marketing Marketing Marketing Marketing
Low or no Limited Substantial Extensive
international international international international
commitment commitment commitment commitment

Focus on Involves direct or Focus on Focus on

domestic indirect export different regions
consumers and international market segments
home country countries rather than
environment countries

Ethnocentric Regiocentric
Domestic focus Polycentric Geocentric

Raising commitment/ involvement to international markets

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The International Marketing Mix
Foreign environment
(uncontrollable)
Political/legal 1 Economic
forces forces
Domestic environment
(uncontrollable)
2
7 Competitive
Political/
legal (controllable) structure Competitive
Cultural Forces
forces
forces Environmental
Price Product
uncontrollables
7 3 country market A
Channels of
Promotion Environmental
distribution
6 uncontrollables
country
market B
Geography Level of
Economic climate Technology Environmental
and
Infrastructure uncontrollables
4
5 country
Structure of market C
distribution
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 International Expansion
Drivers
Business Environment Firm specific Drivers
Drivers
Competition Product Life Cycle
Regional Economic and Political High New Product
Integration Development Costs
Technology
Standardization
Improvements in Transportation
Economies of Scale
and Telecommunication
Cheap Labor
Economic Growth
Experience Transfers
Transition to Market Economy

Converging Consumer Needs


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International Expansion Drivers:
Business Environment (contd.)
Competition
 Example: McCann Erickson has been handling
the Coca-Cola account in 129 countries since
1942. Therefore the advertising agency,
follows longtime client, Coca Cola, Inc., to all
countries where Coke is present.
Nevertheless Coca-Cola moved the
management of its dedicated Red Lounge
China marketing unit from McCann Erickson to
Leo Burnett, a competing advertising agency
(2007). At the same time Leo Burnett lost
some international accounts of its longtime
client, McDonald's.
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International Expansion Drivers:
Business Environment (contd.)
Regional Economic and Political
Integration
• Example: Regional agreements such as
NAFTA, and the European Union (EU)
lower and eliminate barriers and promote
trade within these markets.
• Subsidiaries can be established in these
markets to take advantage of free trade
within the region.
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International Expansion Drivers:
Business Environment (contd.)
Technology
Examples:
 Consumers worldwide are exposed to

similar products, services, and

entertainment, and marketing
communications.
 The Web and the Internet have

revolutionized the way companies

conduct business.

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International Expansion Drivers:
Business Environment (contd.)
Transportation and
Telecommunications
• Lower cost and higher quality
communication due to satellite
technology, teleconferencing, and e-mail
• Efficient transportation due to
containerization and just-in-time
technology

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International Expansion Drivers:
Business Environment (contd.)

Economic Growth
• Emerging middle class with
increasing buying power in big
emerging markets such as Brazil
and India.
• Opening of new markets
previously closed, such as the
markets of China and Vietnam.
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International Expansion Drivers:
Business Environment (contd.)

Transition to a Market Economy

• Transition of the Eastern Bloc to a
market economy created important new
markets.
• Created opportunities to transform
inefficient government-owned
companies into successful enterprises.

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International Expansion Drivers:
Business Environment (contd.)

Transition to a Market Economy

Yum! Brands in
China and Taiwan
(e.g. Taco Bell,
KFC, Pizza Hut)
do well -
in spite of E.coli
(East coast) and
rat infestation in NY

Yum! Brands is omnipresent in China and Taiwan18

International Expansion Drivers:
Business Environment

Converging Consumer Needs

Uniform consumer segments emerging
worldwide:
 Global teenagers
 Global elite
 
                                                                  

Loyal to international brands (Nike,

Levi’s, Coca-Cola, Heineken, Ralph
Lauren, MTV, TV shows)

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International Expansion Drivers:
Business Environment

Converging Consumer Needs

Consumers traveling abroad bring

demand brands that may not be

 
with them product experiences and

available in the home-country market.

                                                                  

Bagel shop in Berlin (Potsdamer Platz)

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 Firm-Specific Drivers
(contd.)
Product Life Cycle Considerations: prolonging
product lifecycle by entering growth markets
e.g. Cigarette industry
in emerging markets

Intro Growth Maturity Decline

Sales
Sales

Profits
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 Firm-Specific Drivers (contd)

High New Product Development Costs

 Firm must look beyond home-country market

to recover investment costs.

 E.g. Nike: one year to develop a new product,

that last only half a year on the shelves in the

US

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 Firm-Specific Drivers

Standardization, Economies of
scale, Cheap Labor
Price competition during the maturity of the product life
cycle drives firm to new international markets in search
of cheap labor. The firm lowers costs—thus prices—due
to economies of scale and saving from standardization
processes.

Experience Transfers
Experience in one country serves as basis for strategies in
new international markets.
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Obstacles to
Internationalization
within the company outside
Finances Government Barriers

Psychological: Barriers imposed by

unknown environment International

Self-Reference Competition
Criterion

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 Obstacles to
Internationalization
Self-Reference Criterion
 Conscious and unconscious reference to own
national culture while operating in the host
country. (e.g. eye contact US-Japan)
 To counter the impact of the self-reference
criterion, the corporation must select
appropriate personnel for international
assignments and engage in sensitivity
training.

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 Obstacles to
Internationalization
Government Barriers
 Restriction placed on foreign corporations by
imposing tariffs, import quotas and other
limitations, such as restrictive import license
awards.

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Obstacles
to
Internationalization
Barriers imposed by International Competition
 Blocked channels of distribution
 Exclusive retailer agreements
 Cutting prices
 Advertising blitzes

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The World Economy

Rather than rising and falling

separately, national economies have
become interdependent and respond to
the same environmental forces

The international economy performs as

a single unit.
(e.g. Finance/ Banking crises
2008/2009, etc)

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Categories of countries
 First World (Developed countries), Second
World (Socialist countries), Third world
(Developing countries)
 United Nation: LLDCs Least developed
countries and lowest income) LDCs (less
developed and lower income) NICs (newly
industrialized countries e.g. Singapore,
South Korea, Hong Kong)
 World Bank (and here): Developed
Countries, Emerging Countries, Developing
Countries

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 Big Emerging Markets
 Present the greatest potential for international
trade and expansion
 Set the pace for the economy in the region.
 Examples: China, India, Argentina, Brazil,

Mexico

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 Characteristics of Emerging
Markets
• High political stability
• Sound currency, low inflation
• Pro business, fiscally-conservative, transparent
government policies
• Guarantees for the repatriation of dividends and
capital
• Sound corporate law
• Markets reflecting fair prices
• Work ethics and a culture of integrity

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 Political Environment
 At the basis of international law and international
relations: sovereignty (self determination and
independence from external interference, authority
over all nationals)
 International trade limits sovereignty.
 Governments can invoke sovereignty and jeopardize
firm’s operations.
 E.g. Iran, Cuba

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 Political Risk
 Evaluating Political Risk:
◦ Business periodicals (The Economist, Wall Street
Journal)
◦ Commercial sources (Country reports, Chase,
RUNDT’s)

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 Political Risk
 Political Risk Signals:
◦ Poor economic performance
◦ Repression of ethnic groups and/or general
repression by the elite
◦ Internal diversity and incongruent interests
◦ Radically changing government structures
◦ Fierce nationalist sentiment

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 Political Risk
Risk Element Example
Economic United Kingdom unemployment is increasing due to higher
performance immigration and falling levels of economic activity.
signal
Political Peaceful protest is not a right for Russians: violent clashes
repression signal between police and pro-democracy demonstrators in
Moscow and St. Petersburg are the norm.
Internal diversity Eastern European and Turkish migrants are flocking to the
and incongruent high-income countries of the European Union. They do not
interests acculturate easily and create divergent interests in Old
Europe.
Political instability Taiwan's ruling party, the DDP, endorses a separatist policy
and the instability relative to China, limiting access to Taiwan's market. The
of government opposition welcomes a closer relationship to China. The
policies parties have physical fights.

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 Political Risk
 Risks Related to Government Trade Policies:
◦ Tariffs,
◦ exchange-rate controls,
◦ quotas,
◦ export/import license requirements,
◦ other trade barriers (embargos, sanctions)

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 Political Risk (contd.)
 Risks Related to Government Economic
Policy:
◦ Controlling foreign investment through taxes
◦ transfer of assets from company to local
ownership:
 Confiscation (without compensation)
 Expropriation (some reimbursement)
 Creeping expropriation (paperwork, judicial
systems, regulations)
 Nationalization (local government takes over)
 Domestication (transfer to local enterprises)
 Risks Related to Labor and Action Groups
 Risks Related to Terrorism
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 Minimizing Political Risk
 Understand both ruling and opposition parties.
 Remain politically neutral.
 Be exemplary corporate citizens.
 Sell a quality product or service that is essential

for local development.

 Partner with local companies and create local

expertise.
 Use local suppliers.
 Obtain insurance coverage against

expropriation, nationalization, confiscation, and

terrorism.
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 Culture
 Culture is defined as a continuously
changing totality of learned and shared
meanings, rituals, norms, and traditions
among the members of an organization or
society.
 Culture is also defined as a society’s
personality.
 Culture
◦ Has a general influence on consumption
◦ Has an influence on the stakeholders
◦ Determines the manner in which individuals
respond to Marketing strategies

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 Example
The Turkish Client

You are in the middle of negotiations with a potential Turkish client in

Istanbul, over lunch, at the Conrad Hilton Hotel. You go to the self-
service buffet and pile on your plate some tasty pork chops from a
serving dish clearly marked "pork." You ask the waiter to bring a
bottle of wine and offer some to your potential Turkish client; he
declines. Your products are known for their quality in Turkey and
elsewhere in the world, and your client seems receptive to your price
quote.

After lunch, the potential client invites you to his home for coffee; you
decline and state that you need to stay at the hotel to get some work
done and bid him good-bye. You come back to your home country and
find that you cannot reach your Turkish client. His secretary always
claims he is not in, and he does not return your calls.

 What went wrong?

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 Constituents of Culture

 Ecology—The manner in which society adapts

to its habitat.
 Social Structure—The organization of society.
 Ideology—The manner in which individuals
relate to the environment and to others.

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 Elements of Culture

 Language
 Religion
 Cultural Values
 Cultural Norms

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 Language
 Spoken/Written Language
◦ Differences in meaning in different countries which
share the same language (nappies – diapers, trunk
– boot, vacuuming – hoovering)
◦ Dealing with multiple dialects
◦ High costs of translation
◦ High costs of translation blunders (e.g. ”Fresca”:
soda pop, Mexico: slang for lesbian)

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Language (contd.)

Non-verbal communication
◦ Proxemics (Physical ◦ Haptics ( Touch)
space) ◦ Kinesics (Gestures)
◦ Postures ◦ Paralinguistics
◦ Orientations (manners, (Intonation, accents,
conventions)
qualitiy of voice)
◦ Oculesics (eye
contact) ◦ Appearances
◦ Chronemics (Timing of◦ Olfactions ( smell)
verbal exchange)
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 Religion
 Society’s relationship to the supernatural determines
dominant values and attitudes.
 Examples:
◦ Protestant Religion—stresses hard work and frugality.
◦ Judaism—stresses education and development.
◦ Islam—focus on rules for social interaction. Bans the use
of interest rates. No pork or alcohol
◦ Hinduism—encourages family orientation and dictates
strict dietary constraints. Strictly hierarchical. No Beef.
◦ Buddhism—stresses sufferance and avoidance
of worldly desires.

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 Religion and Its Impact
on Business
 Business Days
 Gender Roles
 Gift Giving
 Marketing Practices

Monday Tuesday Wednes- Thursday Friday Saturday Sunday

day
Christian Business Business Business Business Business Business Religious
Islam Business Business Business Business Religious Business Business
Judaism Business Business Business Business Business Religious Business

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 Cultural Values

• Enduring beliefs about a specific mode of conduct or

desirable end-state.
• Guide the selection or evaluation of behavior.
• Ordered by importance in relation to one another to
form a system of value priorities.
Ultimately affecting product preferences
and perception of products

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 Learning New Cultures
 Enculturation
◦ Process by which individuals learn the beliefs and
behaviors endorsed by one’s own culture
 Acculturation
◦ Learning a new culture.
 Assimilation
◦ Full adoption and maintenance of the new culture,
and resistance to one’s old culture.

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 Cultural Norms
 Norms are derived from values and defined
as rules that dictate what is right or wrong,
acceptable or unacceptable.
◦ Imperative
 What an outsider must or must not do.
Minimum
requirement ◦ Exclusive
for a  What locals may do but an outsider cannot do.
“survival”
in a new ◦ Adiaphora
country  What an outsider may or may not do.

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 Cultural Norms
Imperatives Exclusives Adiaphorous
Business cards: Asia: Wearing a sticker from Eating with chopsticks
presentation and a political party in Asia.
receiving with both Drinking banana beer
hands. It has to stay in East Africa.
on the table, don’t
write on the card,
don’t put it in the back
pants pocket
In Saudi Arabia,
women are not
allowed to drive or
walk in public without
a man.

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National/Regional Character

 Time Orientation
 Business Hours
 Gift Giving
 Socializing
 Gender Roles
 Status Concern and
Materialism

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 Other Manifestations of National
and Regional Character
 Contact
◦ e.g., phone, e-mail, in person
 Access
◦ e.g., transportation by bicycle, personal
automobile, public transportation

Holland

Taiwan China 52
 Cultural Variability
 Term used to differentiate between cultures
on the Geert Hofstede Dimensions, which
are:
◦ Power Distance
 The manner in which interpersonal relationships
are formed when there are perceived differences
in power.

Germany Latin
U.S. Eastern America
Europe China

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Low High
 Cultural Variability (contd.)
 Term used to differentiate between
cultures (contd.)
◦ Uncertainty Avoidance
 The extent to which individuals are threatened by
uncertainty and risk and thus adopt beliefs and
behaviors that help them to avoid the uncertainty.

Japan
Germany
U.S. Central/ China
Eastern Europe

Low High 54
 Cultural Variability (contd.)
 Terms used to differentiate between
cultures (contd.)
◦ Masculinity/Femininity
 The extent to which a culture is characterized by
assertiveness / selfconfidence, rather than
nurturing.

China United
Canada
Sweden AustraliaStates
Argentina

Low High
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Masculinity Masculinity
 Cultural Variability (contd.)
 Terms used to differentiate between
cultures (contd.)
◦ Individualism/Collectivism
 The extent to which individuals prefer to act in the
interest of the group rather than in their own self-
interest.

Thailand
Latin America Australia United
GB States
China

Low High
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Individualism Individualism
 Cultural Variability (contd.)
 Hofstede later adds another point
◦ Long term Orientation/ short term
 Time horizon of planning in a society
 Values long term Orientation: frugality, insistency
 Values short term Orientation: flexibility, egoism

 www.culturegrams.com reports on more than 200 countries,

each U.S. state, and all 13 Canadian provinces and territories

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 High vs. Low Context
Cultures
 Low-Context Cultures
◦ What is said is precisely what is meant.
 High-Context Cultures:
◦ The context of the message is meaningful.
◦ Context:
 Message source
 The source’s standing in society or in the
negotiating group
 The source’s level of expertise, tone of voice, body
language

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 Cultural Change and
Marketing
Marketers need to integrate culture when designing a
marketing strategy by going through the following process:

Researching symbolic elements and cultural

meanings in consumers’ lives

Identifying cultural meanings of the product

Designing the product accordingly

Designing the marketing campaign using

symbolic cultural elements
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 Obstacles to Cultural
Understanding
• Ethnocentrism
 The belief that one’s own culture is superior to
another and that strategies that are used in the
home country will work just as well internationally.
• The Self-Reference Criterion:
 The unconscious reference to one’s own national
culture, to home-country norms and values, and
to their knowledge and experience in the process
of making decisions in the home country.

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 The Global Consumer
Culture
 Shared consumption-related symbols
and activities that are meaningful to
market segments
 A global consumer culture is attributed
to the diffusion of products from the
United States to the rest of the world.
◦ Entertainment (MTV, movies, CD’s)
◦ Hamburgers and pizza
◦ Jeans and running shoes, etc.

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 Global Consumer Culture
Trends
 Proliferation of transnational firms and the
related globalized capitalism
 Globalized consumerism and the desire for
material possessions
 Homogenization of global consumption
◦ Referred to as McDonaldization or
Cocacolonization

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 Positioning Based on Culture
 Global consumer culture positioning
◦ Positioning the product to appeal to individuals
who want to be part of a global consumer
culture.
 Local consumer culture positioning
◦ Positioning the product so that it is associated
with local cultural meanings.
 Foreign consumer culture positioning
◦ Positioning the product as symbolic of a desired
foreign culture.

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Technological Environment as an
influencing factor for IM

 New product development

 Networks, warehouse management, electronic

data interchange (EDI)

 Web/Internet

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 Technological Environment as
an influencing factor for IM
World Regions Population Population % Internet Usage, % Population
(2006 Est.) of World Latest Data (Penetration)
Middle East 1,105,295,089 17.0 52,148,100 13.8
and Africa
Asia 3,667,774,066 56.4 387,593,457 10.6

Europe 807,289,020 12.4 312,722,892 38.7

North America 331,473,276 5.1 232,057,067 70.0

Latin America/ 553,908,632 8.5 88,778,986 16.0

Caribbean
Oceania/ 33,956,977 0.5 18,430,359 54.3
Australia
WORLD 6,499,697,060 100.0 1,091,730,861 16.8
TOTAL

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Technological Environment as an
influencing factor for IM
 Opportunities Web/Internet:
◦ 200 million e-mail boxes in the United States. People
send more than 7 trillion e-mails each year in the
United States.
◦ The average e-mail user receives 31 e-mails per day.
◦ Business-to-business e-commerce in the United
States totals $1.3 trillion per year.
◦ Businesses will place orders totaling $3 trillion per
year worldwide via the Internet.
◦ Twenty-five percent of all business-to-business
purchases are placed through some type of Internet
connection.
◦ Internet retail sales account for almost 2.5 percent of
all retail sales
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Technological Environment as an
influencing factor for IM
 Threats Web/Internet
The payment mechanism is sometimes difficult:
◦ Different currencies
◦ Different method of payments (credit cards, debit
cards)
◦ Credit card theft
◦ Accepting credit cards from unknown buyers

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Natural Environment as a influencing
factor for IM

 Geology and Shortage of natural resources

(access to resources, e.g. oil)
 Topographies and access to Markets
 Hydrology
 Climate
 Population/ Human Capital
 Environmental Quality (regulations on the
natural environment, e.g. hormones,
pesticides, CO2-Levels)

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International Legal
Environment
 International Laws
 Host Country Laws
 Home Country Laws
 Legal Systems:

◦ Common law
◦ Code (Civil) law
◦ Islamic law

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 Jurisdiction
 Not automatic
◦ In EU: European Court of Justice
◦ Between Governments (UN): The International
Court of Justice
◦ Between international enterprises: host- or home-
or third country
MEDIATION ARBITRATION
Independent Third Independent Third
Instead of a Party Party
lawsuit
Non-Binding Binding

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Counterfeiting

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 Intellectual Property Rights
 Violation of intellectual property rights is a
significant threat to the competitiveness of
international corporations.
 Losses attributed to the violation of

intellectual property rights are estimated to

be $60 billion a year. (e.g. Software $11
billion, entertainment $8, pharmaceuticals
$1 billon)
 There is a saying in Shanghai: “We can copy

anything except your mother” (even fake

blood plasma) 72
 Intellectual Property
Protection
 Patent
◦ Protection of the rights of the inventor or of the firm
to use and sell the invention for a specified period
of time.
 Copyright
◦ Rights of owner of original work of art (literature,
music, film, design) to reproduce, sell, perform, or
film the work.

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 Intellectual Property
Protection
 Trademark
◦ Brand name, mark, symbol, motto, or slogan that
identifies a brand and distinguishes it from
competitors’ brands. (E.g. Rolex, Gucci, Fendi/
Design copying without the trademark is legal)
 Trade Secret
◦ Know-how, formulas, and special blends that are
not registered and are thus not protected by law.

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 Factors Influencing Intellectual
Property Violations
 Lack of appropriate legislation
 Lax enforcement
 Unavailability of authentic products
 High prices for authentic products that limit their

accessibility to local consumers

 Cultural Factors:

◦ Values that perceive imitation as a form of flattery

◦ Feelings of interpersonal distrust and not getting fair
deal
◦ Emphasis on material wealth
◦ Belief that technology is common domain

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 Protecting Intellectual
Property
 TRIPS Agreement (Trade-Related Aspects of
Intellectual Property Rights,): member
countries of the World Trade Organization,
must sign the TRIPS agreement: minimum
standards for the legal protection of property
rights
 Bilateral and multilateral conventions
 Enlisting home and host-country government
support

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