Chapter 1

1. An overview of the concepts of International

Marketing
1.1 Definitions and distinctions  of IM
 What is International Marketing?
One way to understand the concept of international
marketing is to examine how international marketing
differs from such similar concepts as domestic marketing,
foreign marketing, comparative marketing, international
trade and multinational marketing.

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• Domestic marketing is concerned with the marketing
practices within marketer’s home country.  
• Foreign marketing encompasses the domestic acts within a
foreign country.
• A study becomes comparative marketing when its purpose is
to contrast two or more marketing systems rather than
examine in particular country’s marketing system for its
own sake.
• International Trade covers the areas of imports and exports,
including transfer of technology and international financing
for projects.
• International Marketing refers to the strategy, process and
implementation of the marketing activities in international
arena.
• IM may be considered as an activity related to the sale of
goods and services of one country to the other, subject to the
rules and regulations framed by the countries concerned.

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• A definition adopted by the AMA (American
Marketing Association) is used as a basis for
the definition of international marketing give
here: International Marketing is the
multinational process of planning and
executing the conception/notion of pricing,
promotion, and distribution of ideas, goods
and services to create exchanges that satisfy
individual and organizational objectives.
• International marketing brings countries closer
due to economic needs, facilities,
understanding and co-operation among them.

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 1.2 Domestic vs. International Marketing
• The basic nature of marketing does not changed
when it extends beyond national boundaries, but
international marketing, unlike domestic
marketing it requires to operating at the same
time in more than one kind of environment.
• Operations in the different environments must be
coordinated, and the experience gained in one country
be used for making decisions in another country.
• International marketers not only must be
sensitive/ aware to different marketing
environments internationally, but also must be
able to balance marketing moves worldwide to
seek optimum results for the company.

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Similarities :-
The following points of similarities may be observed
between international and domestic marketing:-
• In both markets- domestic as well as international,
satisfying the basic needs of the consumers is prime
importance.
• Creation of goodwill - is necessary in both markets. If a
firm is able and win the faith/loyalty of consumers in the
market, the task of marketing will be much simpler and
easier in comparison to those who are not able to do so.
• Research & development- with a view to product
improvement & adoption is necessary for both
international and national marketing.
• The technique of marketing- i.e. non-human factors
such as product, price, costs etc is similar to both
markets.
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 1.3 International Trade Concepts
What is Trade ?
• Trade is the voluntary exchange of goods,
services, assets or money between one
person/organization with another. Because trade
is voluntary, both parties to the transaction must
believe that they will gain from the exchange or
moreover they will not complete it.
International Trade Theory
• International trade is trade between the residents
of two countries. The residents may be
individuals, firms, non-profit organizations or
other forms of associations.
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 1.5 Strategic Concept of Marketing
• The Strategic marketing concept has
developed from the original/ creative
concept, which focused marketing on the
product post 1990.
• The objective was profit, and the means
to achieving the objective was through
selling, or persuading the potential
customer to exchange his or her money
for the company‘s product & mutually
beneficial relationship
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 Changing Concept of Marketing
Marketing Old New Strategic
Concept

Era Pre-1960 1960-1990 post - 1990

Focus Product Customer Way of Doing
Business

Means Telling & Selling Integrated Knowledge &

marketing mix Experience

End Profit Value Mutually

beneficial
relationship

Marketing is. Selling A Function Everything

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• The means of the strategic marketing concept is
strategic management, which integrates marketing
with the other management functions.
• One of the tasks of strategic management is to make
a profit, which can be a source of funds for investing
in the business and for rewarding shareholders and
management.
• Thus, profit is still a critical objective and measure of
marketing success, but it is not an end in itself. The
aim of marketing is to create value for stakeholders,
and the key stakeholder is the customer.
 

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• Absolute Advantage: If a country or individual
absolutely more efficient at production of a
good than another country or individual, then we
say that country or individual has absolute
advantage in the production of that good.
• Comparative Advantage: If a country or
individual is relatively more efficient in the
production of a good than another country or
individual then we say that country or individual
has comparative advantage in production of that
good.
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 Absolute Cost Advantage
• Adam Smith (1723-1790) was one of the most
famous economists of the late 1700’s. Smith’s
theory was that trade between countries was
based on who had the absolute advantage in
producing a good or service.
• An absolute advantage exists when a country can
produce an item more economically than another
country. The assets that a country has to produce
goods and services including land, labor, capital,
technology and law, are called factor
endowments.
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• Some countries are better endowed/gifted
than others to produce goods and
services. The reason may be a country’s
natural resources, labor supply, etc.
• Absolute advantage is defined as the
ability to produce a product more
efficiently or economically than any
other nation.
• Countries will get a more benefit if they
specialize in the product that they
produce. 12
• Instead of looking at the cost of production as the
theory of absolute advantage does, the theory of
comparative advantage looks at opportunity cost.
• Whenever an individual or a country decides to
do one thing they are also choosing not to do
something else, since countries and individuals
have limited time and resources.
• Opportunity cost is the value of what could not
be done because of energy and resources have
been spent in doing something else.
• Comparative advantage is the ability of a nation to
produce a specific product more efficiently than
any other product. 13
 1.8 International Product Life Cycle
• Many products go through a trade cycle wherein
one nation is initially an exporter, then loses its
export markets, and finally may become an
importer of the product.
• Outlined below are the four phases in the
production and trade cycle, with our country
Ethiopia as an example. We'll assume an Ethiopian
firm has come up with a new product.

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Phase 1: New product (Ethiopia’s export
strength is evident): In Phase 1, product
innovation is likely to be related to the
needs of the home market. As it begins to
fill home-market needs, the firm begins to
export the new product, seizing on its first-
mover advantages. (We assume the
Ethiopian firm is exporting to say Europe,
US and Asia.)

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Phase 2: Maturing product (Foreign
production starts): In Phase 2, importing
countries gain familiarity with the new
product. Gradually, producers in wealthy
countries begin producing the product for
their own markets. (Most product
innovations begin in one rich country and then
move to other: rich countries.) Foreign
production will reduce the exports of the
innovating firm. (We assume that the
Ethiopian firm's exports to Europe are
replaced by production within Europe.)
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• Phase 3: Standardized product (Foreign
production becomes competitive in export
markets): In Phase 3, foreign firms gain
production experience and move down the
cost curve. If they have lower costs than the
innovating firm (the Ethiopian Firm), which is
frequently the case, they export to third-
country markets, replacing the innovator's
exports there. (We assume that European
firms are now exporting to Asia and US
taking away the Ethiopian firm's export
markets there.)
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Phase 4: More standardized product (Import
competition begins): In Phase 4, the foreign
producers now have sufficient production
experience and economies of scale to allow them to
export back to the innovator's home country. (We
will assume the European producers have now
taken away the home market of the original
Ethiopian innovator).

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 1.9 Concepts of Foreign Exchange Market
and Balance of Payments
• Foreign Exchange (Forex)
Foreign exchange is a financial asset involving a cash
claim by residents of one country against the
residents of other countries.
• Foreign exchange can be held in different forms such
as:
• Currency (paper money and coin)
• Cheques (e.g., travelers cheque)
• Letter of credit
• Bill of exchange=dd for payment=I nvoice
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• Foreign exchange transactions involve the purchase
or sale of one national currency against another.
• The easiest way to understand this type of transaction is
to view money as just another product that customers
are willing to buy and sell.
• Like other products, money can be considered as
branded, and the Ethiopian= birr, the U.S. =dollars,
French= franc, Japanese= yen, and so on are simply
some of the brand names for a money “product.” Some
of these brand names carry more prestige and are
more desirable than others, much like brand names of
consumer products.

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• People often wonder why it is necessary to have
many different currencies.
• Obviously , it would be preferable to have just
one worldwide currency that could be used
anywhere on Earth, similar to the U.S. dollar’s
being used and accepted in all fifty states.
• But a global currency is presently impossible
because of two uncontrollable factors—
national sovereignty and inflation.

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• Would the American public be willing to abandon/dump
the dollar and replace it with a new global currency?
• The fact that the United States is so unwilling to
embrace the metric system in spite of its demonstrated
superiority underscores this point clearly.
• Because of national pride, no nation wants to give up
its identity and sovereignty, and this includes its
national currency.
• A less emotional but often uncontrollable issue is
inflation, which reduces the value of money (i.e.,
purchasing power). Since it is impossible for all
nations to have an identical inflation rate, the effect
of inflation on the value of various currencies is
uneven. 22
 Exchange Rate
• Purchase of foreign goods and services can be thought
of as involving two sequential transactions: purchase of
foreign currency and purchase of foreign goods.
• Purchase of foreign currency is made through the
foreign exchange rate.
• Thus, an exchange rate is the rate at which one
currency is converted into another, or a ratio that
measures the value of one currency in terms of
another currency. With it, one is able to compare
domestic and foreign prices.

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• The exchange rate affects the cost of
imported goods and exported goods; the
country’s rate of inflation; and a firm’s
profit, output, and employment.
• Much like the price of any other product, the
price of a currency is determined by the demand
and supply of that currency. When the currency
is in demand, its price will increase. But if a
currency’s supply increases without any
corresponding increase in demand, its value
declines.
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• With the excess of imports comes an excess of
supply of money because a large volume of money
must be generated to pay for all the imports.
• With excess money in circulation, the business
community, as well as the general population, begins
having doubts about its value, making the currency
appear overvalued.
• In contrast, excess export results in too much
demand for the exporting nation’s currency, since
foreign buyers require large amounts to pay for
goods.
• The currency then becomes expensive because of its
scarcity, and its real value increases. 
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The demand of a currency is determined
by several factors:
Some of these include the following:
• Domestic and foreign prices of goods
and service
• Trading opportunities within a country
• The country’s export and import
performance

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 Balance of payment
It is a record of all payments or monetary transactions b/n a
particular country and other nations during a specific time
period.
It is the method that countries use to monitor all international
monetary transactions at a specific period of time.
All trades conducted by both the private and public sectors are
accounted for in the BOP in order to determine how much money
is going in and out of a country.
If a country has received money, this is known as a credit, and, if a
country has paid or given money to other nation , the transaction
is counted as a debit. Theoretically, the BOP should be zero,
meaning that assets (credits) and liabilities (debits) should
balance.
If a country has balance of trade deficit ,it imports more than its
exports, and if it has a balance of trade surplus it exports more
than its imports
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• The BOP is divided into three main categories:
the current account, the capital account and
the financial account. Within these three
categories are sub-divisions, each of which
accounts for a different type of international
monetary transaction.

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The Current Account
The current account is used to mark the inflow and outflow of goods and
services into a country. Earnings on investments, both public and
private, are also put into the current account.
• Within the current account are credits and debits on the trade of
merchandise, which includes goods such as raw materials and
manufactured goods that are bought, sold or given away (possibly in the
form of aid). Services refer to receipts from tourism, transportation (like
the levy that must be paid in Egypt when a ship passes through the Suez
Canal), engineering, business service fees (from lawyers or management
consulting, for example), and royalties from patents and copyrights.
• When combined, goods and services together make up a country's
balance of trade (BOT). The BOT is typically the biggest bulk of a
country's balance of payments as it makes up total imports and exports.
• If a country has a balance of trade deficit, it imports more than it
exports, and if it has a balance of trade surplus, it exports more than it
imports.

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• Receipts from income-generating assets
such as stocks (in the form of dividends)
are also recorded in the current account.
• The last component of the current
account is unilateral transfers. These are
credits that are mostly worker's
remittances, which are salaries sent back
into the home country of a national
working abroad, as well as foreign aid
that is directly received.

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• The Capital Account

The capital account is where all international

capital transfers are recorded. This refers to the
acquisition or disposal of non-financial assets
(for example, a physical asset such as land)
and non-produced assets, which are needed for
production but have not been produced, like a
mine used for the extraction of diamonds.

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• The capital account is broken down into the
monetary flows branching from debt
forgiveness, the transfer of goods, and
financial assets by migrants leaving or entering
a country, the transfer of ownership on fixed
assets (assets such as equipment used in the
production process to generate income), the
transfer of funds received to the sale or
acquisition of fixed assets, gift and inheritance
taxes, death levies, and, finally, uninsured
damage to fixed assets.

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• The Financial Account

In the financial account, international monetary

flows related to investment in business, real
estate, bonds and stocks are documented.
Also included government-owned assets such as
foreign reserves, gold, special drawing rights
(SDRs) held with the International Monetary
Fund, private assets held abroad, and direct
foreign investment. Assets owned by foreigners,
private and official, are also recorded in the
financial account.
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