International Marketing Defined Basic Trade Theories

d d
International marketing is the performance of
business activities designed to plan, price,
promote, and direct the flow of a company’s
goods and services to consumers or users in more
than one nation for a profit.

Theory of Absolute Advantage (Adam Smith 1776)
- Each country should specialize in the production and
export of that good which it produces most efficiently,
with the fewest labor-hours.

Theory of comparative advantage (David Ricardo 1819) -
Even if one country was most efficient in the production of two
products, it must be relatively more efficient in the production
of one good. It should then specialize in the production and
exportation of that good in exchange for the importation of the
other. U.S.

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Events and Trends Affecting Global Business Events and Trends Affecting Global Business

Collapse of communist economies. • The trend toward the acceptance of the free market system
Economic power of western nations. among developing countries in Latin America, Asia, and
Rise of newly industrialized nations.
eastern Europe
Free market economies.
Belief in open markets, trade and foreign investments as the road to economic • The rapid growth of the World Trade Organization and
development. regional free trade agreements
• The Globalization of Markets
• Big Emerging Markets
• The burgeoning impact of the Internet, mobile phones, and
other global media on the dissolution of national borders

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The Internationalization of U.S. Business

Trade Agreements
World Trade Organization (W.T.O) • Increasing globalization of markets LOL WUT
North American free Trade Area (N.A.F.T.A)
• Increasing number of U.S. companies are foreign controlled
 Central American Free Trade Agreement – (C.A.F.T.A)
- $9.6 trillion in foreign investment in the U.S. – $2.6 trillion more
European Union (E.U)
than American overseas investment
A.S.E.A.N. Free Trade Area (A.F.T.A.)
Southern Common Market (Mercosur) • Increasing number of foreign companies building and buying
Asia-Pacific Economic Cooperation (A.P.E.C) manufacturing plants in the U.S.
• Increasing difficulty for domestic markets to sustain customary
rates of growth

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 The International Marketing Task International vs. Domestic - Situation Analysis

• Insert Exhibit 1.3 More than one set of environmental variables.

Interactions between them - Trade and foreign policies, Tariffs and
other barriers, and Exchange rates.
Variables which are Especially Important- Infrastructure, Market
structure, and Socio/cultural variables

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The Self-Reference Criterion and

Environmental Adaptation Needed Ethnocentrism
• Be able to interpret effectively the influence and impact of the • The key to successful international marketing is adaptation to the
culture in which you hope to do business environmental differences from one market to another.
- Cultural adjustments • Primary obstacles to success in international marketing:
• Establish a frame of reference - SRC
• Avoid measuring and assessing markets against the fixed values - Associated ethnocentrism
and assumptions of your own culture SRC is an unconscious reference to
one’s own cultural values,
experiences, and knowledge as a
basis for decisions.

Ethnocentrism is the notion that

one’s own culture or company knows
best how to do things.

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The Self-Reference Criterion and

Ethnocentrism (continued)
• Dangers of the SRC:
- Failing to recognize the need to take action
- Discounting the cultural differences that exist among countries
- Reacting to a situation in a way offensive to your hosts
• Ethnocentrism and the SRC can influence an evaluation of the
appropriateness of a domestically designed marketing mix for a
foreign market.
• The most effective way to control the influence of ethnocentrism
and the SRC is to recognize their effects on our behavior.
International vs. Domestic - Marketing Mix.
Standardization/Differentiation mainly in terms of Product and
Promotions.
Product and Promotion Extension (Standardization)
Product Extension/Promotion Adaptation
Product Adaptation/Promotion Extension
Dual Adaptation (Differentiated)
Product Invention

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 Five International Product
and Promotion Strategies Strategic Orientation

• Domestic market extension orientation

Product
• Multidomestic market orientation
Do not change Adapt Develop new • Global market orientation
product product product
Do not change
Promotion

promotion
Straight Product
extension adaptation
Product
invention
Communi- Dual
Adapt cation adaptation
promotion adaptation

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Domestic Market Extension Multi-Domestic Orientation

Sales of domestic products in int. markets. Separate operations in each country - production, marketing etc.
Domestic orientation Different strategies and marketing mixes
International Market secondary
Very little interaction
Firm seeks markets similar to domestic.
Little adaptation of product or marketing mix. Markets could be very different.
Usually produced domestically

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Stages of International Marketing Involvement

Global-Marketing Orientation
Views the world as one market. • No direct foreign marketing
Develop product and marketing strategies for world markets. • Infrequent foreign marketing
Standardize as far as possible, adapt where necessary. • Regular foreign marketing
Economies of scale, transfer of knowledge and technology, global • International marketing
image, and better competitive position. • Global marketing

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 Reasons for Expanding into International
Protection Logic and Illogic
Markets
Domestic Market Saturated • Arguments concerning protectionism on trade:
Excess capacity - Protection of infant industry
Extend Product Lifecycle
- Protection of the home market
Higher Sales, Economies of Scale, Risk Diversification, transfer of knowhow,
global brands etc.
- Need to keep money at home
- Encouragement of capital accumulation
Growth Opportunities - Maintenance of the standard of living and real wages
Globalization of Market - Conservation of natural resources
- Industrialization of a low-wage nation
- Maintenance of employment and reduction of unemployment
- National defense
- Increase of business size
- Retaliation and bargaining

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Trade Barriers Trade Barriers.

• Tariffs
Tariffs – taxes based on the value of imported goods and services. Usually by product categories, sometimes
• Quotas countries. Revenue generating, discourage imports of undesirable products, ‘level the playing field’.
• Voluntary Export Restraints
Quotas – Restrictions on the number or monetary value of products that can be imported, (sometimes market
• Boycotts and Embargoes share). Usually product and country specific.
• Monetary Barriers
Voluntary Export Restraint – Country specific. Usually under pressure and severe threats. Designed to help
- Blocked currency domestic industries reorganize and restructure. Not subject to any previous trade accords.
- Differential exchange
Monetary Barriers – exchange control (government approval), blocked (nonconvertible) currency, differential
- Government approval exchange rates. Usually balance of payment problems (developing countries).

• Standards
• Local Content Requirements
• Investment Restrictions
• Bureaucratic Hurdles
• Antidumping Penalties

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Trade Barriers. Export promotion efforts.

Standards – Product specific. Health, Safety, Quality, Performance. Designed to protect consumers but are often Export information and advise
disguised barriers.
Production support.
Local Content Requirements – Designed to aid domestic economy by either increasing sales of local manufacturers Marketing support.
or encouraging foreign direct investment.
Finance and Guarantees - Export-Import Bank, Agency for International
Investment Restrictions – Restrictions on the percentage of ownership of local firms by foreign manufacturers. Development, Overseas private Investment Corp.
Designed to keep decision making and ownership in local hands.
Tax legislation.
Bureaucratic Hurdles – Licenses, Testing, Certification, Buy domestic campaigns, Boycotts etc.

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 Foreign Investment promotion efforts. Foreign Trade Zones (Pg. 451-452)

 Financial – land or buildings, loans or loan guarantees, new infrastructure. • Areas where goods can be
 Tax Incentives – credits or rebates, depreciation allowance, special deductions, tax imported for storage and/or
holidays.
processing with tariffs and
 Non-financial – Elimination of tariff and non-tariff barriers, protection from competition
through barriers, Job training programs, protection from unions. quota limits postponed until
 Foreign Trade Zones (customs privileged facilities). products leave the designated
areas.
• If goods processed and
exported than tariffs only
on value added.

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Four ongoing activities to support the growth of

Advantages of Foreign Trade Zones international trade:
- GATT
• Use of cheap labor or skilled workforce, and local content - The associated World Trade Organization (WTO)
without paying duties. - International Monetary Fund (IMF)
• Lower tariffs for parts and - The World Bank Group
lower transportation and
insurance costs.
• Stockpile products while
waiting for quotas or buyers.
• No duties on rejected or
unsold products.

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World Trade Organization (website) The International Monetary Fund

• An institution, not an agreement as was GATT • Created to assist nations in becoming and remaining economically
• Sets many rules governing trade between its 148 members viable.
• Provides a panel of experts to hear and rule on trade disputes between • Objectives of the IMF:
members. - Stabilization of foreign exchange rates
• Issues binding decisions - Establishment of freely convertible currencies to facilitate the
• All member countries have equal representation. Video on WTO with examples of its work expansion and balanced growth of international trade
• For the first time, member countries, undertake obligations to open their • Special Drawing Rights (SDRs)
markets and to be bound by the rules of the multilateral trading system. - “paper gold”
GATT became one of the agreements under WTO
- The General Agreement on Trade in Services (GATS)
- Trade-Related Investment Measures (TRIMs)
- Trade-Related Aspects of Intellectual Property Rights (TRIPs)

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 The World Bank Group Protests against Global Institutions

• Institution that has as its goal the reduction of poverty and the • The basic complaint against the WTO, IMF and others is the
improvement of living standards by promoting sustainable amalgam of unintended consequences of globalizing:
growth and investment in people. - Environmental concerns
• The World Bank has five institutions each of which performs - Worker exploitation and domestic job losses
- Cultural extinction
the following services:
- Higher oil prices
- Lending money to the government of developing countries
- Diminished sovereignty of nations
- Providing assistance to governments for developmental projects to
the poorest developing countries.
- Lending directly to the private sector
- Providing investors with investment guarantees against
“noncommercial risk.”
- Promoting increased flows of international investment

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