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– The balance of payment is divided into “current” and “capital” account. (a) Current account • Recurring trade in merchandise and service, private gifts, private consultations between the countries. (b) Capital account • All long term direct investment, portfolio investment, and other short tem or long term capital flows.
Balance of Payments
Intellectual Property: Patents And Trademarks
– Patents and trademarks that are protected in one country are not necessarily protected in another country. – Global marketers must ensure that patents and trademarks are registered in each country where the business is conducted.
⇒How companies exploit opportunities offered by patent and trademark laws in individual countries? →In France, designer Yves Saint Laurent was barred from marketing a new luxury perfume called Champagne because French laws allow the name to be applied to sparkling wines produced in Champagne region. →Saint Laurent launched Champagne in the U.S., England, Germany, and Belgium, as Champagne and other geographic names are not protected trademarks in these countries. →In France the perfume is sold without any name.
1. Counterfeiting - Unauthorized copying and production of a product.
Variety of copyright and trademark infringements
2. Associative counterfeit or imitation – Uses a product name that differs slightly from a well-known brand but is close enough that consumers will associate it with genuine product.
– – Unauthorized publication or reproduction of copyrighted work. Particularly damaging to the entertainment and software industries viz computer programmes, videotapes, cassettes, and compact discs as they relatively easy to duplicate illegally. 4
Consists of variety of agencies both governmental and nongovernmental that enforce laws or set guidelines for conducting business. – They create an infrastructure that foster trading relations. – A few of the regulatory agencies also referred to as International Economic Organizations. – These Initiatives fall into 3 areas: Need for International Capital (IBRD) International liquidity (IMF) Liberalization of International Trade and Tariffs (GATT/WTO)
– Official Name: International Bank for Reconstruction and Development (IBRD) – Has 130 member countries-Largest Shareholder is US – To provide finance and technical help for development of poorer countries. – Raise standard of living in poorer countries – Supports projects related to agriculture, education, industry, electricity, rural development, transportation, water supply and telecommunications. 6
• Loans are repayable over a 20 year period and as its funds are obtained on commercial basis world bank charges a commercial ROI. • This has led to DEBIT CRISIS as many countries bear heavy burden of debts.
INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)
• Poorer countries needed loans on much easier terms as compared to World Bank. • IDA was thus formed to meet this need. • Thus IDA was affiliated to World bank • Loans are generally granted for 15 years without interest except for small administration charges.
INTERNATION MONETARY FUND (IMF)
• The objective was to regain the stability in international exchange rates that had existed under the gold standard. • Main function is to provide short term international liquidity to countries with balance of payments deficit problems enabling them to continue trade internationally.
• The predecessor of World Trade Organization (WTO) was General Agreement of Trade and Tariffs (GATT) • GATT was founded in 1948. • GATT is a treaty and not an organization wherein many countries underlined their determination to reduce import tariff. • Prior to Uruguay Round (1993) there had many a series of 7 trade liberalization rounds. • GATT preached multilateral trade and succeeded in liberalizing world merchandising trade. • Each signatory of the GATT treaty promised to grant the same treatment to all other members on a nondiscriminatory basis.
• The Uruguay Round (Sep 1986) with 107 participants was widely seen as most ambitious round ever attempted as it was responsible for considering non-tariff barriers, protection of intellectual property rights and Government subsidies. • The final GATT treaty was signed in December 1993 where it was agreed to reduce the tariffs on a wide range of goods. • A New General Agreement of Trade in Services (GATS) Treaty for the first time agreed that principles of multitrade rules will be applied to services • 76 countries became signatories committing themselves to free market access to banking, insurance, and securities
World Trade Organization (WTO)
At Uruguay Round in 1995, WTO replaced GATT which is a permanent organization and is endowed with much more decision making power. Since its installation in 1995, the WTO has already dealt with 200 cases.
World Trade Organization (WTO)
– WTO came into existence on 1st January 1995. Provides a forum for trade related negotiations. – WTO has Disputes Settlement Body (DSB) that mediates complaints about unfair trade barriers and other issues between member countries and WTO. – Trade ministers representing the WTO member nations meet annually to work on improving world trade.
a. 60 days consultation period- parties to a complaint are expected to engage in negotiations and reach an amicable resolution. b. Failing above, complainant asks DSB to appoint a three-member panel of trade experts to hear the case behind closed doors. c. Panel issues it’s ruling within 9 months and DSB is empowered to act on the panel’s recommendation. d. The losing party if not satisfied has option to approach seven-member appellate body. e. If appellate body finds that WTO rules are being violated, country is asked to change those policies. f. If changes are not forthcoming, the WTO authorizes trade sanctions against the loser.
Process of settlements of disputes
World Trading Groups/International Trade Alliances
– Degree of economic cooperation ranges from agreement between two or more nations to reduce the trade barriers, to the full scale economic integration of two or more national economies.
– NAFTA-Canada, Mexico and United States – EU-Austria, Belgium, Britain, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden – FTAA-A agreement to create a free-trade area among 34 countries in North and South America – ASEAN-Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam – MERCOSUR-Argentina, Brazil, Paraguay, Uruguay – APEC-18 countries-Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand, 15 PNG, Philippines, Singapore, South Korea, Taiwan, Thailand,,
– Harmonization of business requirements such as import duties, packaging requirements, a common currency, and economic development. – Common currency helps consumers to easily compare pricing across countries and parity in economic development leads to more consumers who can afford to buy more products.
Degrees of International Economic Integration
Stages of Integration Abolition of Tariffs and Quotas Common Tariff and Quota System No Yes Yes Yes Removal of Restrictions on Factor Movements No No Yes Yes Harmonization of Economic, Social, and Regulatory Policies No No No Yes
Free trade Yes area Customs union Common market Economic union Yes Yes Yes
Free Trade Area
– – – A group of countries that have agreed to abolish all internal trade barriers to trade among themselves. Member countries belonging to a free trade area maintain independent trade policies with other non member countries. There are 3 nations-A, B and C-Under Free Trade Areathey agree to abolish all tariffs amongst themselves to permit free trade but beyond free trade area A, B and C may impose tariffs as they choose.
Examples: 6. EEA (European Economic Area) formed between EU, EFTA and LAFTA (Latin American Free Trade Area) 7. NAFTA Agreement 18 8. ASEAN Agreement
– In addition to eliminating the internal barriers to trade, members of custom union agree to establishment of common external barriers/tariffs. – There are 3 nations-A, B and C-Under Customs Union,. B would not be permitted to have a special relationship with country X-A,B,C would have a common tariff with X. ⇒The examples of Customs Union are: • The Central American Common Market (CACM) established in 1960, the member countries include Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. • South African Customs Union (SACU) established in 1969, the member countries are Botswana, Namibia, South Africa, and Swaziland.
– A common market goes beyond elimination of the internal tariff barriers and establishment of common external tariffs. – It permits the flow of factors viz. labour and capital within the market. – Common market creates an open market not only for goods but also for services and capital. – There are 3 nations-A, B and C. not only removes all tariffs and quotas amongst themselves and impose common tariff against other countries such as X, but would also allow capital and labor to move freely within their boundaries as if they are one country. – This means that, for example, a resident of country A is free to accept a position in Country C without a work permit. The examples of a Common Market are • Arab Common Market(ACM) formed in 1964, the members are Egypt, Iraq, Jordan, Lebanon, Libya, Syria and Mauritania. • Caribbean Common Market (CARICOM) formed in 1973 the member countries are Bermudas, Barbados, Dominica, Guyana, Jamaica, St.Kitts, St.Lucia, St.Vincent and Trinidad.
– Under and Economic Union agreement, Common Market Characteristics are combined with the harmonization of economic policy. – Member countries are expected to pursue common fiscal and monetary policies. – Ordinarily this means a synchronization of money supply, interest rates, regulation of capital market and taxes. – Involves creation of a unified central bank, the use of single currency. – Common policies on agriculture, social welfare, regional development, taxation, mergers, construction etc. →The EU is approaching its target to create a full economic union but still some hurdles remain. ⇒In nutshell, Economic union > Common Market> Customs Union > Free Trade Area. 21
– The population of region is approaching 460 million ranging from 278,000 in Iceland to 83.3 million in Germany. – Amongst the most prosperous countries of the world though income is unevenly distributed in the region. Portugal’s average per capita annual income is US$10,797 which is 30% of Switzerland The major impact on marketing throughout Western Europe, particularly in packaging and advertising, is language. →The major languages in the region are English, German, and Spanish. The major religion is Christianity.
Marketing Strategies in European Community
Marketing-mix elements Product Strategies Harmonization in product standards, packaging, labeling and processing, common patenting and branding, consolidation of production and achieving marketing economies. More competitive environments, withdrawal of restrictions to foreign products, widening of procurement market, high margin products, introducing low-cost brands. Simplification of documents, elimination of 23 customs formalities, centralized distribution.
Eastern and Central Europe
– Eastern and Central Europe include Albania, Bosnia, Bulgaria, Croatia, Romania, Slovenia, and Yugoslavia, the CIS, the Czech, and Slovak Republics, Hungary, and Poland. – In early 1990s, extraordinary political and economic reforms swept the region and focused attention on more open markets. – With wage rates much lower than those in Spain, Portugal, and Greece; Eastern and Central Europe represent attractive potential locations for low-cost manufacturing and are important developing markets. – Countries in this region are good markets for infrastructure development projects
– Consumer products require minimal adaptation for sales in Eastern Europe markets as many Eastern bloc consumers are familiar with Western brand names and view them as being of higher quality than domestic products. →A poor marketing infrastructure in Eastern Europe such as underdeveloped wholesalers, lack of proper warehousing and the monetary situation in CIS countries is still a deterrent to doing business
– Includes The United States, Canada and Mexico. – Combined GNP of the region surpasses $ 9,254 billion. – The U.S. market offers a combination of high per capita income, large population (276 million), vast space, and plentiful of natural resources. – Foreign companies get attracted to the sizable market and have greater access to 26 market than experienced in most countries.
– The bulk of Canada’s exports are unprocessed natural resources. – Canada takes 22 percent of American exports and the U.S. buys nearly 80 percent of Canada’s exports. – Economically, Mexico is rapidly changing. Between the periods 1997 to 2000 its net growth has been 2.6 percent and stands to benefit from its alliance in NAFTA, which it joined in 1993. – Companies wanting to do business in Mexico can set up a wholly owned subsidiary, a joint venture.
– Mexican government also allows manufacturing, assembly, or processing plants to import materials, components, and equipment duty free subject to their employing inexpensive Mexican labour to assemble the product. – On exports to the USA the manufacturer pays duty only on the value added in Mexico. →The official languages of the region are English, Spanish, and French. After English, the second language in the U.S. is Spanish and in Canada it is French.
– Consists of all countries of Asia (except Middle East), Australia and New Zealand. – 58 percent of region’s income is concentrated in Japan which has only 5 percent of the region’s population. – South Korea, Taiwan, Singapore, and Hong Kong rank among the high-income nations of the world. – Thailand, Malaysia, Indonesia, and China are behind the East Asian Tigers though Indonesia and Thailand have lagged behind due to Asian Flu/Internal disorder. – China with a population of 1.27 billion potential consumers, no marketer can afford to ignore. – Major languages are Mandarin Chinese and Hindi but there are many other languages and dialects spoken.
– The fact that it has approximately 15% of the world population is the motivating factor for many MNCs to enter in this market.. – China is one of the largest trading partners of the U.S. Imports by U.S. are mainly electrical machinery, toys/ games, power generation machinery, and apparels. U.S. exports to China are mainly aircrafts, and fertilizers. – Many foreign companies have made direct investments in China with varying degree of success. For instance, freightliner subsidiary of DaimlerChrysler pulled out after investing money 30 for three years without producing a single vehicle.
– 72 percent of Japan’s land area is mountainous and residential areas represent only 3 percent of the land area, industrial area occupy another 1.4 percent. – Land prices are one of the highest in the world. – The major barriers to entry are non-tariff barriers of expense, custom and tradition, practice and preferences.
Marketing Implications →The high cost of real estate has been a major financial obstacle to foreign automobile companies that need to create a dealer organization in Japan as a part of marketing strategy. →An organization wishing to compete in Japan must be committed to providing top quality products and services. →Japan accounts for nearly half of the world’s sales of luxury products such as designer clothes →Striking feature in its cultural orientation is the emphasis on group or nation as contrasted with 32 the U.S. which celebrates the individual.
– No barriers or border restrictions on trade between the two countries. – Per capita income is high in both the countries; $21,239 in Australia and $15,376 in New Zealand. – Its major exports consist of low value-added agricultural and mineral products. – Asia is Australia’s largest market; 20 percent of exports go to Japan, 16 percent go to the ASEAN countries and 9 percent goes to South Korea. – The major markets in Australia are widely dispersed across a vast continent thereby making distribution and communication more expensive. – Over 60 percent of exports from New Zealand consist of agricultural commodities. – Since 2000 there has been a decline in relative wealth of New Zealand because of its failure to respond quickly to the decline in the prices of agricultural commodities. 33
– Average per capita income ranged from high of $9,720 in Argentina- a high income country- to a low of $307 in Haiti, one of the lowest in the world. – After decades of stagnation, crippling inflation, increasing foreign debt and protectionism; privatization is on its way. – Except for Cuba and Haiti all Latin American Countries now have democratically elected governments. – Free markets, open economies, and deregulation have begun to replace the policies of the past in most countries. – Rapidly moving towards eliminating barriers to trade & investment.
– Latin American countries have also established regional economic groups viz. FTA and Common market. – Chile’s exports world class wines and Fish in several European countries. – Brazil is attracting substantial FDI. Telefonica-a Spanish telecommunication company entered Brazil and drove down the prices of cellular phones from approximately $1000 to $150 putting it within the reach of million of Brazilians.
– Business in the Middle East is driven by the price of oil. – Bahrain, Iraq, Iran, Kuwait, Oman, Qatar and Saudi Arabia hold more than 75 percent of the world’s resources. – Saudi Arabia is the most important market in the region having 25 percent of the world’s known oil reserves. – Middle East does not have a single societal type and hence can be differentiated on the basis of social classes, education, and degree of wealth. – Tribal pride and generosity towards the guests are the basic beliefs.
– Decision making is by consensus, and seniority has more weightage than educational expertise. Authority comes with the age and power is related to family size and seniority. – In business relations, Middle Easterners prefer to act through trusted third parties and prefer oral communications. – Most social customs are based on the Arab maledominated society an women do not form the prt of business or entertainment scene.
Marketing Implications – Establishing a personal rapport, mutual trust, and respect is the most important factor leading to successful business relationship. – Avoid bringing up subjects of business before getting to know your Arab host. – Avoid asking questions/ making comments concerning a man’s wife or female children. – Avoid topics like politics, religion and Israel.
– African continent is divided into three distinct areas viz. South Africa, North Africa, and Sub-Saharan Desert. – The market is large, developing. – South Africa with a GNP of $125 billion and per capita income of $ 536 suffers from slow growth, big families, and low investment. – Almost 45 percent of South Africa’ exports consist of gold and other minerals. – S.A. is an economic colossus with considerable promise but also with significant political risk. – Nigeria, the largest nation of Africa and is a major supplier of oil to the world. 39
– 30 percent of population lives below poverty line, which is defined as $1per day. – Stability of Nigeria’s general economic situation is highly dependant on the international market. – Doing business in Nigeria is difficult as the country’s government is one of the most incompetent, inefficient, and corrupt in the world. – In Somalia, almost 75 percent of population is malnourished. In Congo, Mozambique and Ethiopia, over 50 percent do not have enough to eat. – In North Africa, the 78 million Arabs are differentiated politically and economically as they are richer and more developed being benefited from large oil resources. – Culturally, countries of Africa are very different 40 from each other.
Marketing Implications – The challenge to marketing in the lowincome markets of Africa is not to stimulate demand for the products but to identify the most important needs of the society and develop the products that fit these needs. – An opportunity exists to develop unique products that fit the needs of the people of developing countries.
Market Information & Research
– In high income countries, the amount of information available far exceeds the absorptive capacity of an individual or an organization. – The problem is of superabundance and not of scarcity. – In case of LDCs, there is a lack of information available on the market characteristics.
Challenges for the Marketers
– From where to obtain the information, which subject areas to investigate and information to look for. – Different ways the information can be acquired. →For instance, India’s 16 languages, 200 dialects and low level of urbanization create special research challenges.
Framework of Information Systems
Category Markets Coverage Demand estimates, consumer behaviour, products, channels, availability of communication media and cost. Corporate, and functional strategies & plans. Balance of Payments, Interest rates, and attractiveness of country currency. Laws and regulations, concerning taxes, dividends both in host and home countries. earnings,
Competition Foreign Exchange
Availability of human, financial, information, an physical resources Overall review of sociocultural, political, technological environments.
– Keep your ears and eyes tuned for clues, nuggets of information, and insights from other people’s experiences. – Browsing through newspapers, magazines and surfing the Internet are ways to ensure exposure to information on a regular basis. – Viewing and monitoring programmes and commercials from around the world via satellite e.g. entry of a new player in global industry, say Samsung into automobiles.
Desk Research Sources of Intl. Market Information.
Information Import statistics Production statistics Tariffs & Quotas Currency restrictions Health restrictions Political situation Sources National trade statistics. Nation’s official statistics. Embassies, Chamber of Commerce. Banks and Embassies Embassies, Chamber of Commerce. Bank reports, press reports, IMF year 46 book.
Checklist on Overseas Market Research Survey
– – – – – – – (a) Demand Potential Annual consumption (production + imports-exports) (b) Projection, taking into account Growth in population Growth in income Income distribution Domestic distribution Changes in consumer preferences Introduction of substitute/new products.
– – – – – – – – – – – – –
(c) Market segment Per capita income Age Education Profession Ethnic background Geographic location (d) Trading Parameters Tariff rates Quotas Import licensing system Special product specific regulations e.g. relating to pharmaceuticals and edible items. Membership of customs union or similar trading arrangements. Multilateral preferential arrangements. Bilateral trade agreements.
– – – – – – – – –
(e) Pricing Prices of competing products Prices prevailing at various levels such as importers, distributors, wholesalers and retailers. Mark-up at each stage of the distribution channels. Agency commission Preferred method of quotation such as F.O.B; C&F; C.I.F. and the preferred currency. (f) Payment terms D/A D/P Letter of credit Credit period
– – – – – –
Transport packing Retail packaging Type of transportation possible Frequency of transportation. Freight rates Warehousing and cold storage facility (h) Promotion – Availability of media – Rates – Trade fairs and exhibitions.
– To secure best possible return out of limited time that can be spent in export market to conduct market research, the following steps are useful. (a) Advance planning of Time Frame • A complete list of respondents • Considering language difficulty or transport bottlenecks, it may not be possible to conduct more than two or three interviews a day. • Holiday pattern in the country also needs to be looked into. For instance, field surveys during Christmas in western countries and the month of Ramzan month in Middle Eastern countries should be avoided.
b) Planning of the Tour plan • Considering the cost of international travel, the number of prospective countries should be covered in one go. (c) Arranging Institutional Help • Embassies and High Commissions can help in arranging interviews, if they are contacted well in advance and the objectives of the interview communicated • Similarly, information can be obtained from various Import Promotion Centres.
Who are the respondents in International Mktg Research?
• Manufacturers/ Importers/ Distributors/ Wholesalers. • Chamber of Commerce, Industry and Trade Associations, Associations of Commercial Agents etc. • Institutions like Government Departments, Import Promotion Offices
Components of International Product Offer
• Product Benefits • Products Attributes • Marketing Support Services
Product Decisions in International Markets
The four product categories in local to global continuum are: (a) Local Products – A local product is available in a portion of a national market. – The product may be a new product introduced by the company as a part of roll out strategy or a product that is distributed exclusively in that region. (b) National Products – A particular company offers a product in one single national market. – Sometimes, a national product appears when a global company caters to the needs and preferences of a particular country markets.
Examples: • Coca Cola developed a non-carbonated, ginseng flavoured beverage for sale only in Japan. • Coca Cola developed a yellow, carbonated flavoured drink called Pasturina to compete with Peru’s favorites soft drink, Inca Cola. • Sony and other Japanese consumer electronics companies produce a variety of products that are not sold outside Japan.
(c) International Products
These are offered in multinational, regional markets.
Example: • Renault was for many years a European product; when it entered the Brazilian market, it became a multiregional company. • Renault has invested in Nissan and has taken control of the company. • The combination of Renault in Europe and Latin America, and Nissan in Asia, the Americas, Europe, the Middle East and Africa has raised Renault from multiregional to a global position.
Products and Global Brands A truly global product is offered in the Triad, in every world region, and in countries at every stage of development. Some global products are designed to meet the needs of a global market; others are designed to meet the needs of a national market as well as the needs of a global market. Personal sound systems or personal stereos are a category of global product while Sony is a global brand. Global brands are created by marketers that can advantageously be used as an umbrella for introducing new products. 58
Reasons for Adaptation of the Product
1. Cultural Products- E.g..: Kellog 2. Usage Factory-E.g..: Unilever and P& G have a large basket of products 3. Legal Factor: E.g.: Different systems and standards by MOH of each country 4. Product Accessibility and Ethical Issues: E.g.: After Sales Service 5. Shortened PLC 6. Effect of different Market Entry Methods: E.g.: Joint Ventures, Franchising. 7. Changes in Marketing Management
Reasons for Adaptation of the Product
8. Different physical conditions 9. Functional requirements may vary from market to market. 10.People in different places may use products differently or for different purposes. 11. Different cultural factors
A few examples: * A manufacturer of men’s suits exporting to France and Germany would have to take into account tha the arms of Frenchmen tend to be longer in proportion to the rest of their bodies than those o Germans. 60
Many products may require some adaptation in respect of certain technical factors making them suitable to foreign markets, such as differences in voltages (110 or 220); right hand drive or lef hand drive. Adaptation may pertain to • size • functions • materials • style • colour • tastes • standards
Environmental factors and Adaptation
Environmental Factors Level of technical skills Level of labour cost Design Change Product simplification Automation or manual operation of product Quality and price Change of tolerances Recalibration of products Improvement in durability
Level of income Level of maintenance Differences in standards Expensive repairs
Product adaptation /modification as a marketing strategy
⇒An adapted/modified product can have a better chance of succeeding in the market as is evident in following instances. 1. Westinghouse while exporting washing machines to Europe, realized that European housewives are accustomed to boiling clothes and prefer hot water in washing machines than their American counterparts. Therefore, Westinghouse installed special heating elements in its machines being exported to Europe. 2. Japanese companies like Cannon and Ricoh manufacturing photocopiers captured the lower end of the market at the expense of Xerox by using liquid ink or toner instead of powder preferred by Xerox. → This meant dispensing with the complex mechanism used to apply and fuse dry toner paper leading to the reduction in63 cost considerably.
The Product Standardization
The factors favouring international product standardization are: A. Economic Factors • Economies of scale in production- standardization leads to larger production run resulting into lower manufacturing costs. • Economies in product research and developmentproduct standardization leads to recovery of costs incurred on product R&D from the entire sales. Also, additional expenditure incurred on adapting product to each individual market can be avoided. • Economies in marketing- product standardization also leads to economies in terms of sales literature, inventory management and after-sales service requirements.
B. Marketing Factors * Consumer Mobility-
As the consumers are becoming more mobile and transcontinental travel becoming fairly common, the brand loyal consumer is likely to remain loyal even in a foreign country. * Made in Image- Sometimes the name of a country is associated with a high standard of quality in minds of consumers. A product manufactured in that country may enjoy a psychological premium in the foreign markets. * Impact of Technology-Generally, Industrial products tend to have standard specifications and do not require much adaptation for foreign markets, unless climatic and similar considerations call for it.
Similarities in Physical conditionsespecially for appliances, automobiles and similar equipments. “Indian equipments are finding greater acceptance as compared to products of advanced countries which have dominated so far the markets of Bangladesh because these are capable of withstanding the physical conditions peculiar to the sub-continent.” Indian equipments have been found to be good enough to take on sudden power cuts. Vehicles manufactured in India can withstand overloading unlike foreign ones. Indian equipments are easier to handle and maintain and are less sophisticated. These are cheaper than those of advanced countries. Spare parts, also, can be had from India at a short 66 notice.
D. Globalization of Markets • Powerful force of technology is driving the world towards a converging commonality. • As a result of above, global markets are emerging for standardized products. • This reality enables corporations to benefit from enormous economies of scale in production, promotion, and distribution. The examples are: 5. Revlon Cosmetics 6. Sony Televisions 7. Levi Jeans 8. Hollywood Movies →The customers would prefer world standardized products if the companies force the costs and thus the prices down and push quality and reliability up.
• Company has to identify benefit that consumer recognizes Eg: Sony Walkman, had competitive advantage of Technical breakthrough-Portable Music • Cost Benefit Analysis • Satisfy Immediate demand Advantages: 5. Rapid Recovery of investment, 6. Easier Organization, 7. Control of Product Management 8. Possibility of reducing cost through economies of scale and experience effect throughout most of the firms operation such as production, advertising, distribution.
SWYG Sell what You have Got It is mot common export strategy Objective is for most firms to fill production lines at home rather than meet a market need. SWAB Sell what People Actually Buy Eg: French in marketing their Cheddar Cheese in the UK Possible to penetrate one market at one time Difficult to compete with local firms on their own terms Tough to estalish credibility as a supplier of products which has strong domestic demand GLOB Sell the same thing GLOBally disregarding national frontiers Eg: Johnnie Walker, Heinz
Global Product Planning Strategic Alternatives
Different Communications Same
Product extension, Communications adaptation (Bicycles & Motor cycles)
Dual Adaptation (Greeting cards)
Dual Extension (Application software)
Product adaptation, Communication extension (Electrical products)
Strategy 1: Product/communication Extension (Dual extension) – One product, One Message Worldwide. – Companies pursuing this strategy sell exactly the same product, with same advertising and promotional appeals as used in the home country, in some or all world-market countries or segments. →Companies learn the hard way that dual extension approach does not wok in every market. For instance, Campbell soup tried to sell its tomato soup in the United Kingdom and realized after substantial losses that the English prefer a more bitter taste than Americans.
– The product/communication strategy achieves considerable savings in manufacturing economies of scale, standardizing marketing communications and eliminates duplicate product R&D costs. – For a company with world wide operations, the cost of preparing separate print and T.V. ads for each market can be enormous.
Strategy 2: Product Extension/ Communication Adaptation - Product remains the same, this strategy allows for adaptation of the communication/promotional effort to target either new customer segments or appeal to a particular tastes of individual countries. - For instance, Bicycles and Motor cycles satisfy the recreational needs in the US but serve as basic or urban or rural transportation in many other countries. 73
Strategy 3: Product Adaptation/ Communication Extension. – This strategy is used if a promotional campaign has achieved international appeal, but the product needs to be adapted because of the local needs. Examples: 1) Soap and detergent manufacturers have adjusted their product formulations to meet the local water and washing equipment conditions with no change in their basic communications approach. 2) Clothing has been adapted to meet fashion criteria. 3) Food products due to high degree of environmental sensitivity are often adapted such as Kellogg.
Strategy 4: Dual Adaptation – Marketers experience that environmental conditions and consumer preferences in the foreign markets are different when compared to home markets. – This calls for a different product offering as well as different receptivity to advertising appeals. Examples: →Because of decentralized structure of Unilever, product and marketing decisions were left to country managers, they chose names that had local-language appeal and selected package designs to fit local tastes
• In Europe the function of greeting cards is to provide for a space for a sender to write an individual message whereas U.S. cards contain a prepared message. • In Europe the cards are handled frequently by customers that make it necessary to wrap greetings cards in cellophane. →This calls for changing both product and communications in response to environmental differences.
Strategy 5: Product Invention – Product invention is adopted by firms usually from advanced nations who are supplying products to less well-developed countries. – Products are specifically developed to meet the needs of the individual markets. – For instance, in case of LDCs, potential customers have limited purchasing power, a company may need to develop an entirely new product, designed to satisfy the need at a price that is within the reach 77 of potential customer.
pursued this strategy in developing ‘Total’ a toothpaste brand whose formulation, imagery and ultimate consumer appeal have been designed catering to countries with different cultural profile.
→The product was tested in the Philippines, Australia, Colombia, Greece, Portugal, and the United Kingdom and is now sold in 100 countries.
– Traditionally, an important variable influencing international trade has been the distance. – The primary trading partners of every country are proximate neighbours e.g. for the US, they are Canada and Mexico, and for Canada and Mexico it is the US; for France it is Germany, and for Germany it is France. – However, improvement of transportation and communication technology has been a major driver pushing the world towards greater globalization. – Consumers anywhere in the world can communicate directly with the supplier, who can receive payments via credit card with card authorization and ship anywhere in the world via express delivery. – Reduction in shipping costs and decline in tariff and nontariff barriers has opened up world markets. – E-mail is instant, free to most users, and insensitive to 79 time zone.
– Objective of segmentation is to create a unique value offer for as many customers as possible. – WWW has forced marketers to reconsider the notion of segmentation. – With Internet, it has become possible to create marketing programmes to target a segment of one. – With IT and Internet, companies can now respond to the individual customer regardless of where he is located.
– Internet has opened up immense opportunities for creating relationships with global potential customers, suppliers and channel members. – End of segmentation would mean that a marketer can focus on delivering value to the individual customer and this can be achieved by creating a win-win relationship with the customer.
– Particularly true for on-line retailer who can use customer purchase behaviour information to tailor communications to their customers. →For instance, a customer who purchases sunscreen skin protection from an on-line retailer can be advised of other products that also provide sun protection.
Speed to Market
– Before Internet and IT created instant global communications, the pace of information and communications traveled slowly. – Products were introduced in one country at a time or at best one region at a time. Today, that has changed.
Impact of Technology on Costs
Impact of Technology on Costs
Advances in air travel and speedier loading and unloading of container shipments.
•Reduced cost of longdistance telecommunication. •Reduced cost of computer processing power.
New Business Models- A Few Examples
1. Amazon.com: Using a virtual network that seamlessly connects suppliers and customers the firm has changed he way books are traded. – Amazon not only offers books but also informs customers about new publications and encourages readers to post reviews of books they have read. – Virtual chat rooms and meetings with authors have established an Amazon community. 2. Dell computers has developed its business through ecommerce. 3. eBay offers on-line auction. – Customers provide the entire content, starting from goods on offer up to the background information on 85 these goods.
Changing rules of competition
(a) Dominant Market Position – It will be important for the companies to gain market share quickly in order to achieve strategic control. (b) Strategic Alliances – Move toward symbiotic alliances with external partners. – Involve legally and economically independent firms to fulfill various tasks leading to reduction of transaction costs. – Videoconferencing, offer companies involved in symbiotic alliances cost-efficient means of communication.
→Strategic Alliances can be of three different kinds b) Vertical cooperation- collaboration between the manufacturer and a retailer in marketing of an innovative product. c) Horizontal cooperation involves companies in the same industry, such as research and development cooperation of two or more microelectronic companies. d) Diagonal cooperation refers to situations in which companies from different industries collaborate. Driver of cooperation is desire to gain market access and market share.
Components of electronic value chain
(a) Context Suppliers – Known as portals support the use of electronic channel both for customers and the suppliers. – Main function is to offer access to the channel. – Important context providers are Internet on-line services such as America Online, NetScape Communicator, Microsoft explorer, and search engines such as Yahoo. (b) Sales Agents – Support suppliers through offering high-quality address banks of potential customers. – Metromail provides carefully sifted address banks of potential customers containing wealth of information about customers’ preferences, demographics, and other data. (c) Purchase Agents – Electronic purchase agents help the Internet shopper to find the desired goods or services. – Auto-By-Tel helps customers find the right car for the right price. – PriceSCAN helps consumers to find best price on thousands of computer hardware and software products.
(d) Market Makers – Mediators that bring together buyers and sellers and increase market efficiency. – Onsale and eBay have million of registered users and are part of the world’s leading person-to-person on-line trading community. (e) Payment & Logistics Specialists – One of the major stumbling blocks for the use of electronic markets is the means of payment via the Internet. – Physical distribution via Internet is possible for software product or information services such as stock market, database information. All other products have to be shipped via traditional channels. – Physical distribution aspect can be outsourced using international distribution experts such as UPS. – Logistic function of warehousing can also be outsourced to89 logistic experts
– Marketing communications refer to all forms of communication used by organization to inform, remind, explain, persuade, and influence the attitudes and buying behaviour of customers. – The elements of the promotional mix are advertising, public relations, personal selling, sales promotion, and direct marketing. – Eighteen year olds in Paris have more in common with 18 year olds in New York than with their parents. They buy the same products, go to the same movies, listen to the same music, and sip the same colas. Global advertising works on that premise. 90
– A global company successfully transforms a domestic campaign into a worldwide campaign i.e. suitable for multiple-country segments. – Since advertising is often designed to add psychological value to a product or brand, it plays more important communication role in marketing consumer products than in marketing industrial products. – Frequently purchased, low cost products generally require heavy advertising support to remind the consumers about the product. – Automobiles, personal care, and food are the top three global product categories measured by their advertising expenditure.
Global Advertising and Branding
– Companies are realizing the concepts of product culture hence are segmenting on the basis of global demography such as youth culture rather than ethnic or national culture. →Athletic shoes and other clothing products are being targeted to a worldwide segment of 18 to 25 year old males. →MTV is one of the media vehicles that enable people virtually anywhere to see how the rest of the world lives and to learn about products that are popular in other cultures.
Impact of global advertising on distribution channels
– A global brand supported by global advertising becomes quite attractive from retailer’s standpoint as a global brand is less likely to languish on the shelves. – In case where the shelf space is at premium it becomes easier for the global companies to convince retailers to carry its products rather than those of its competitors.
Global Advertising – Standardization versus Adaptation.
→Standardization is not always required or advised. For instance, Nestlé’s Nescafe is marketed as a global brand even though advertising messages and product formulation vary to suit cultural differences.
⇒The several criteria for selecting appropriate strategy are: • Type of the product: Certain products are sold on the basis of physical characteristics and consumers regard these characteristics as identical regardless of market differences. This suggests that same appeals will be effective in all the markets. The examples are razor blades, electric iron, automobile tyres, ballpoint pens etc. • Nature of markets: When the markets are homogenous in nature i.e. characteristic like income, education, and occupations are alike; the characteristics of individual customers such as attitudes and preferences may also be alike. This implies that the advertisers should use the 95 same selling points.
Major difficulties in Communication
– – 1. Message may not reach the intended recipient. Can occur because of advertiser’s lack of knowledge about the appropriate media for reaching certain types of audiences. For instance, effectiveness of television as a media to reach mass audiences will vary proportionately with the extent to which television viewing occurs within the country. 2. Message may reach the target audience but may not be understood or may be misunderstood. This is due to inadequate understanding of the target audience’s level of sophistication. 96
the target audience but still may not induce the recipient to take the desired action. – The above may happen due to lack of cultural knowledge about a target audience. 4. Effectiveness of message may get impaired by noise. – Noise may be competitive advertising, sales promotion programmes etc.
3. Message may reach and understood by
Arguments favouring Standardization Strategy
– In the era of global village, the tastes and preferences are converging worldwide. – People everywhere want the same products for the same reasons. – Companies can achieve economies of scale by unifying advertising around the globe.
Criticism of Standardization Strategy
– Coca Cola, the most global brand in the world, records radio spot in 40 languages with 140 different musical backgrounds. – Coca Cola assets that consumers differ from country to country and must be reached by advertising tailored to their respective countries.
Can we transfer the domestic advertising to foreign markets? →Whether or not such transfer is possible depends upon three factors namely • Markets • Culture • Media
– Benefits of global campaign in terms of substantial cost savings, increased control, and potential creative leverage of global appeal. – Advantage of localized appeals lies in its focus on most important attributes of a product in each nation or culture. →In the final analysis, when to use which approach depends on the product involved and the company’s objectives in a particular market.
Selecting an Advertising agency
⇒The issues to be addressed are 2. Whether to create ads in-house, 3. Use an outside agency, or 4. Combine both strategies. – When one or more outside agencies are used, they can serve product accounts on a multicountry or even global basis. – It may be beneficial to select a local agency in each national market or an agency with both domestic and overseas offices. For example, Coca Cola and Polaroid use local agencies. 102
– Companies tend to designate global agencies for product accounts in order to support the integration of the marketing and advertising functions. – Due to the above agencies are pursuing international acquisitions and joint ventures to extend their geographic reach and their ability to serve clients on a global account basis.
→In selecting an advertising agency, the
issues to be considered are:
(a) Company organization – Decentralized organizations may want to leave the choice to the local subsidiary. (b) National responsiveness – Is the global agency familiar with the local culture and buying habits in a particular country, or should the local selection be made?
(c) Area coverage – Does the agency markets?
(d) Buyer perception – What kind of brand image does the company want to project? If the product needs strong local identification, it would be best to select a national agency. →The companies with geocentric orientation adapt to global market requirements and select the best agency or agencies accordingly.
Problems encountered in global markets
1. Western companies find South Korea and Japan very complex. 2. Japanese and Korean agencies find it difficult to establish local agency presence in Western markets.
– Availability of television, newspapers, and other form of electronic and print media varies around the world. – The rapid use of Internet users is also changing global advertising. – In Japan, circulation of newspapers on a per capita basis is very high i.e. one newspaper for every two people. – In Europe, television advertising either does not exist or is very limited, as in Denmark, Sweden and Norway. – The time allowed for advertising each day varies from 12 minutes in Finland to 80 in Italy, with 12 minutes per hour per channel allowed in France and 20 in Switzerland, Germany, and Austria.
Global Media Considerations
– In Germany, advertising time slots are reserved and paid for one year in advance. – In Saudi Arabia, where all advertising is subject to censorship, regulations prohibit a long list o subjects, as indicated below: • Advertising of horoscopes or fortune-telling books, publications, or magazines are to be avoided. • Advertisements that frighten or disturb children are to be avoided. • Use of comparative advertising claims is prohibited.
• Non-censored films cannot be advertised. • Women may appear only in those commercials that relate to family affairs, and their appearance must be in decent manner that ensures their feminine dignity. • Female children under 6 years of age may appear in commercials provided that their roles are limited to a childhood-like activity. • Women should wear a long, suitable dress that fully covers their body except face and palms. Swimsuits or similar garments are not allowed.
Emerging Media Vehicles
– Global television channels such as MTV, ITN, and CNN are rapidly expanding. – An exploding advertising medium is the World Wide Web. – Organizations plant a flag on the net and if they are willing to create their Web site, they can establish a global presence.
Other Promotional Methods
⇒Direct Mailing • In context of a firm from developing country with a narrow sales base, advertising in national newspapers, T.V. and radio is an expensive proposition. • In case of specialized industrial items, national advertising campaign may not be required. →In such cases one of the most cost efficient methods of promotion are the direct mailing method. The features are: • The system is selective and personal. 111
• Generally less costly than conventional newspaper and magazine advertising. • Sufficient care needs to be taken to design the product brochures, catalogues, etc. ⇒ Stores promotion • Country’s merchandise is promoted by a chain or a department store.
⇒ Trade Fairs and Exhibitions • Trade fairs help reach people which may not be possible in any other way. The types of the trade fairs are:
1) General Fairs: • Exhibit all types of products and attract both business firms as well as household buyers. • Separate pavilion for separate product groups. • National pavilions exhibiting diverse products. →Milan Trade Fair is one such example. (2) Specialized Fairs • Only specific products are displayed e.g. leather fair in Paris or Book fair in Frankfurt. • Intended only for the trade and not for general public. 113
⇒ Objectives of such fairs are: – To have first hand knowledge of technical developments in that particular sector. – To identify business partners on a long term basis. – To get ideas for product development.
(3) Solo Exhibitions • Exhibition organized by the Government of the country of its export products in a market where the prospects are bright.
• Exhibition may be specialized one where only small number of related product groups are displayed, or • General exhibition showing all important export products of the country. (4) Company Exhibitions • Organized by an exporting firm to exhibit its own products. • Open to trade and consumers both.
Generic Promotion in International Marketing
→This has been used successfully in the marketing of agro-based products like tea and coffee. The generic promotion can be introduced as • National government promoting “Use Indian Spices”. • Several producing countries promoting “drink more coffee”.
International Pricing Decisions
The following are the pricing considerations for marketing outside the home country. • Does the price reflect the product’s quality? • Is the price competitive? • Should the firm pursue market penetration, or market skimming as a pricing objective? • What type of discount i.e. trade, cash, quantity and other allowances like advertisement or promotional be offered to the international customers? • Should prices differ by market segment? • Is the demand in the target market elastic or inelastic? • Are the firm’s prices likely to be viewed by the host-country government as reasonable or exploitative? • Do the target country’s dumping laws pose a problem?
Environmental Influences on Pricing Decisions
a. Currency Fluctuations – When currency fluctuations result in appreciation in the value of the currency of exporter’s country, companies make efforts to reduce their costs to protect their margins. – In short run, lower margins enable companies to hold prices in target markets. – In the long run, driving down costs enable them to improve operating margins. →A company with a strong competitive advantage in the market can pass on the price increase to customers without any significant decrease in sales volume. →In more competitive markets, companies in a strong-currency country will absorb any price increase by maintaining international market prices at pre-revision level.
How to reduce costs?
• Both manufacturer and distributor work together to maintain market share in international markets. • Either party, or may be both, may agree to work on a lower profit percentage. • Distributor may decide to buy more quantities to achieve volume discounts or alternatively,. • Distributors maintain leaner inventory if manufacturer can provide just-in-time delivery. – If exporter country’s currency weakens relative to trading partner’s currency, the exporter can cut export prices to hold market share or leave prices alone for healthier profit margins.
b. Exchange Rate Clauses • An exchange rate clause allows the buyer and seller to agree to supply and purchase at fixed price in each company’s national currency. • For instance, if the exchange rate fluctuates within a specified range, say plus or minus 5 percent, the fluctuations do not affect the pricing agreement.
Example of Exchange Rate Clause
• Purpose is to protect parties from unforeseen larger swings in currencies. • Exchange rate review is made quarterly to determine possible adjustments for next period. • Comparison basis is three month-daily average and the initial average.
(c) Government Controls and Subsidies – If government action limits the freedom of management of prices, maintenance of margins is definitely compromised. – Countries undergoing severe financial crisis such as foreign exchange shortage, impose selective price controls. – Government controls would include • Requirement of non-interest bearing cash deposits for a specific period of time, imposed on importers. • The above requirement creates an incentive for a company to minimize the price of imported products; lower prices mean smaller deposits. • Restrictions on the transfer of profits out of the country. • Government subsidies may force a company to make a strategic change in sourcing to be price competitive.
(d) Competitive Behaviour – If competitors do not adjust their prices in response to the rising costs, the exporting company will be severely restricted in its ability to adjust to the prices accordingly. – If competitors are manufacturing or sourcing in a lower-cost country, it may be necessary to cut prices to stay competitive. (e) Price and Quality Relationship – Do consumers perceive relationship between the price and quality? – Whether consumers perceive that they are getting value for money?
How Japanese Keep Costs Low?
United States Japan Market Research Market Research
Product Characteristics Design Engineering Supplier Pricing If cost is too high, return to design phase Design
Product Characteristics Planned Selling Price Less Desired Profit Target Cost Supplier Pricing
Periodic Cost Reduction
Target costs for each component force marketers, designers, and engineers from all departments and suppliers to struggle and negotiate trade-offs. Manufacturing Continuous Cost Reduction
Market Holding Strategy
– A strategy frequently adopted by companies that want to maintain their share of the market. – In a single-country marketing, it involves reacting to price adjustments by competitors. →For instance, when one airline announces special bargain fares, most competing carriers match the offer or risk losing passengers. → In global marketing, currency fluctuations trigger price adjustments. – Market holding implies that company must carefully examine all its costs to ensure that it will be able to remain competitive in target markets. • A strong home currency and rising costs in the home country may force a company to shift its procurement to foreign sources or third country manufacturing or licensing agreement rather than exporting from the home country to maintain market share. • When the country’s currency becomes weaker, imported products become expensive.
Cost Plus/Price Escalation Strategy
– Companies new to exporting use a strategy known as cost-plus pricing to gain a foothold in the global market place. – Cost plus pricing requires adding up all the costs required to get the product to where it must go, plus shipping and ancillary charges, and a profit percentage.
Merits – It is relatively easy to arrive at a selling price, assuming that all costs are readily available. Demerits – Ignores demand and competitive conditions in target markets. – These will be frequently either too high or too low in the light of market and competitive conditions. Price Escalation- is the increase in a product’s price as transportation, duty, and distributor’s margins are added to the factory price.
An example of c.i.f quotation of container cargo from Mumbai to Mombassa – Raw material costs+ Labour cost + Packaging + Inland transport cost + custom clearing expenses + Customs duty, if any + loading cost = Total Cost – Total Cost less Duty Drawback incentives, if any + Margin = FOB value, Mumbai – FOB, Mumbai + Ocean freight from Mumbai to Mombassa + Insurance=C.I.F. price, Mombassa
An example of Market-oriented pricing Market Price less Retail Margin on selling price= Cost of retailer. Cost of retailer less wholesaler’s mark up on his cost= Cost of the wholesaler. Cost of the wholesaler less Importer’s mark up on his cost= Cost of the importer Cost of the importer less Import duty=CIF price. CIF price less Freight and insurance charges= FOB realization of the exporter.
Gray Market Goods
– Branded goods that are exported from one country to another, where they are sold by unauthorized persons or organizations. – Quite often, gray marketers bring a product produced in one country e.g. French Champagne, in another country market in competition to authorized importers. – The gray marketers sell at prices that undercut those set by the legitimate importers. Parallel importing. – Parallel importing flourishes when a product is in short supply or when manufacturers attempt to set high prices. – The common examples of parallel importing in international markets are • French Champagne in the US. • Pharmaceuticals in European markets. – Gray market offers the opportunity to market the goods at lower prices than goods sold by authorized distributors or domestically produced goods thereby providing the customers benefit of lower prices and increased choice.
Dumping- An important global pricing strategy
– Dumping is defined as the sale of an imported product at a price lower than that normally charged in a domestic market or country of origin. – Many countries come out on their own policies and procedures for protecting domestic companies from dumping. →GOI considers dumping as an unfair trade practice that results in “injury, destruction, or prevention of the establishment of Indian industry.” →GOI considers dumping to have occurred when imports are sold in Indian market at price levels that are less than the cost of production or levels below those prevailing in the manufacturing country. →GOI imposes antidumping duty over and above customs duty over and above customs duty on such imported products to make them more expensive compared to local industry.
Global Pricing Policies
(a) Extension/Ethnocentric – Price of the product is the same around the world. – Importer absorbs freight and import duties. – Simple approach as no information on competitive market conditions is required. Does not respond to market conditions and therefore neither maximizes the company’s profits in each national market nor globally. (b) Adaptation/Polycentric – Permits subsidiary or affiliate managers to establish prices that are most desirable in their circumstances. (c) Geocentric – Recognizes unique local market factors that are used in arriving at pricing decisions. – Sensitive to local conditions where local costs plus a return on invested capital and personnel fix the floor price for long term. – Enterprising managers take advantage of price disparities by buying in lower-price market and selling in higher price markets.