International Marketing

(Indira) Revision 1

(Unit I)
Nature & Process Of International Marketing

The Chartered Institute Of Marketing, which is the world's largest marketing body, defines marketing as "The management process responsible for identifying,anticipating and satisfying customer requirements profitably."

International marketing is simply the application of marketing principles to more than one country

Other Definitions
International Marketing is the performance of business activities, that, direct the flow of a company's goods and services, to consumers or users in more than one nation, for a profit. At its simplest level, international marketing involves the firm in making one or more marketing mix decisions, across national boundaries. At its most complex level, it involves the firm in establishing manufacturing facilities overseas and coordinating marketing strategies, across the globe

International Business Do We Have A Choice ?

Even if a company does not desire to participate directly in international business, it can not escape the ever increasing influences of firms exporting, importing & manufacturing abroad. Neither can any firm ignore the effects of various M&As & consolidations of business, growth of regional trade areas, rapid growth of world markets & the increasing number of competitors, for global business.

International Business Do We Have A Choice ? (cont)

Four trends stand out as the most dynamic, affecting global business today & are likely to impact the growth of international business in the coming days:
Rapid Growth of WTO & regional free trade areas Acceptance of free market system, among developing countries in Latin America, Asia & Eastern Europe. Impact of internet & global media on the dissolution of national borders Mandate to properly manage the global resources & global environment for generations to come.

The Emerging Scenario

Today
Most business activities are global in scope Technology, research, capital investment, production & marketing, distribution & communication networks, have global dimensions Every business has to compete in an increasingly interdependent global economic & physical environment. As competition for world markets intensify, the number of companies operating solely on domestic markets will decrease and all businesses will subsequently become international in some form or other.

Concept Of International Marketing & Its Scope

Philip Kotler defines marketing as the human activity directed at satisfying needs & wants, through exchange process & achieving customer satisfaction is given the utmost importance in the marketing concept. In simple terms, International Marketing is defined as the marketing activities carried out across national boundaries. International Marketing is the performance of business activities designated to plan, price, promote & direct the flow of companys goods & services, to consumers or users, in more than one nation for a profit.

Concept Of International Marketing & Its Scope (cont)

The basic marketing activities in both domestic & international marketing remain the same. However, in international marketing these activities take place in more than one country or in another country. This apparently minor difference, in more than one country, accounts for the complexity & diversity found in international marketing operations. The uniqueness of foreign marketing comes from the range of unfamiliar problems & the variety of strategies, necessary to cope with different levels of uncertainty encountered in foreign markets.

Concept Of International Marketing & Its Scope (cont)

The complicities in international market arise due to the presence of a number of uncontrollable elements, which are
Social Environment Economic Environment Political Environment Legal Environment Logistics Issues Technology Environment Local Competition Marketing Channels.

These frequently affect the profitable outcome of good, sound marketing plans.

The answer lies in responding competitively to the above challenges by effective marketing strategies and ability to understand and respond quickly and amending our offer in terms of product, price, distribution & promotion .

International marketing is the multinational process of planning & executing the conception, pricing, promotion & distribution of ideas, goods & services to create exchanges that satisfy individual & organizational objectives.

Concept Of International Marketing & Its Scope (Framework)

What makes international marketing interesting is the challenge of molding the controllable elements of marketing decisions (product, price, promotion, distribution & research) within the framework of uncontrollable elements of the marketplace (competition, politics, consumer behaviour, level of technology & so forth) in such a way that marketing objectives are achieved.
The environment within which the marketer must implement market plans can change dramatically from country to country & region to region & the solution to a problem in country A, may not be applicable to a similar problem in market B

International Marketing Involves

Identifying the needs and wants of customers in international markets Taking marketing mix decisions related to product, pricing, distribution & communications, keeping in view the diverse consumer & market behavior across countries on one hand and firms goals towards globalization on the other hand. Penetration into international markets, using various modes of entry Responding competitively & quickly, to the dynamics of international marketing environment.

Challenges in International Marketing Domestic Environment Challenges

These domestic environment uncontrollable can have a direct effect on the success of a foreign venture:

Economic Environments :
Domestic tariff structure/ import duty exemptions/ schemes, determine cost of imported units, affecting total cost of the product and its competitiveness. Exchange rate & foreign exchange regulations also effect cost of imported goods and options available for making & receiving payments from international markets. Foreign Trade Policy, specifically for FDI determine the kind & magnitude of foreign investment in the country and entry mode of foreign firms. Economic conditions such as the Forex reserves, inflationary conditions etc. affect the countrys trade policies.

Challenges in International Marketing Domestic Environment Challenges (Cont)

Legal environment
Political forces within a country affect the international marketing decisions. Trade policies, fiscal policies, bilateral & multinational trades are made keeping in mind political priorities of the government in power. Environment legislations, effluent treatment requires in a country can substantially alter capital structure of an organization thereby affecting its sheer existence

Infrastructure
Development of physical, financial, human & institutional infrastructure has a positive impact on business and also encourages them to market internationally. Absence of these hinder marketing efforts & add to cost of logistics.

Overseas Environment Challenges

Political
Political stability & governmental policies: These make business environment predictable or unpredictable for an international marketer. Issues are complicated by the alien status of the company & it is seen as an exploiter & receive prejudiced or unjust treatment in the hands of politicians.

Overseas Environment Challenges (cont)

Economic
Economic stability in the target market facilitates international marketers task & economic uncertainties & hyper inflation generates serious problems related to certainty of payments & calls for specific strategy to manage delayed payments in inflationary conditions & forex risks. Situation is very grave in case payment is to be received in the currency of the imported country. Soundness of financial institutional system in the target market is a precondition for smooth flow of payments.

Overseas Environment Challenges (cont)

Cultural & Social
Countries with a similar culture / legal audience can generally be approached more readily. Product modifications may be required to suit cultural & social environments of the target country ( specifically garments & food-stuff) Social environments affect buying decisions and communications strategies have to be customized accordingly. The socio-cultural factors also greatly influence the buyerseller relationship in various markets ( e.g. USA aggressive, Japan formal & polite) Value of time has different meanings in different countries.

Overseas Environment Challenges (cont)

Legal
Well developed & sound legal systems reduces the marketing risks & the firm can expect an unbiased and fair treatment. Democratic governments & developed economies generally provide an independent legal system

Competition
Generally more severe & also includes local manufacturer, products imported from various countries & also manufacturers from ones own country. Market barriers- tariff & non-tariff.

Overseas Environment Challenges (cont)

Marketing Channels
Agencies/ distribution channels/ warehousing & logistics issues Packaging Negotiations with channel partners

Technology
Huge variations in technology levels between developed and emerging economies necessitate appropriate product selection Difficulties in obtaining output/ maintenance of machinery and unavailability of adequate & quality inputs/ spares support.

Motives Behind Going International (Benefits- Macro)

Uneven distribution of natural resources Oil, natural gas in gulf countries, iron ore, metallic ores in specific countries Difference in level of technologies High technology products are often confined to developed nations. Differences in costs of production Trade deficits : Countries have to emphasize on increasing exports to reduce bulging trade deficit Advances in Information technology Has created millions of new customers in developing countries and brand awareness

Motives Behind Going International (Benefits- Micro)

Growth saturation of domestic market potential, new
markets have to be developed to operate successfully.

Profitability- Price differential amongst different

markets

Economies of Scale- Large scale and economic

production capacity has to be backed by large market size

Risk Spread- Reduces dependence on one market Access to Imported Units- Lowers manufacture costs

Motives Behind Going International (Micro)

Uniqueness of Product/ Services- BPO/ IT Life Cycles- Extends life of the product Spreading R & D Costs- Ultimately reduces value of the
product

Opportunities via Foreign Aid Programmes.

Aid money to be utilized by procurement of goods from donors country.

Globalization Of Markets
Technology has homogenized worldwide & companies should produce standardized products globally marketable

Major Obstacles in International Business

Key to successful international marketing is adaptation to environmental differences from country to country. Adaptation is a conscious effort on the part of the international marketer to anticipate the influence of both the foreign & domestic uncontrollable factors on a marketing mix to minimize the efforts. Primary obstacles to success in international marketing are; Self Reliance Criterion Ethnocentrisms

Self Reliance Criterion (SRC)

SRC is an unconscious reference to ones own cultural values, experience & knowledge, as a basis of decisions When confronted with a set of facts, we react spontaneously on the basis of knowledge assimilated over a lifetime, which is a product of the history of our culture. When we face problems in another country, we react instinctively & refer to our SRC, for a solution. Our reaction is based on meanings, values, symbols & behaviors relevant to our own cultures & usually different from those of the foreign cultures. Such decisions are not often good ones. We need to redefine an issue without SRC influence & solve for optimum business goal situation.

Philip Morris lost a considerable amount of money when it tried to introduce a US cigarette to Canadian market. Management was under the erroneous impression that Canadians & Americans have similar smoking habits because they spoke the same language, had similar cultural heritages, dresses more or less the same & watched many of the same television programs.

Campbell soups lost $30m in Europe before it accepted the idea British & American soup consumers were different in three important ways. Firstly, British soup consumers have different taste preferences, Campbell soups made no attempt to modify the taste of their soups for the British palate. Second, British soup products were not educated to condensed soup concept because of the smaller can size. Third, British soup consumers did not respond the same way to US advertisement as US consumer did.

Ethnocentrism
The belief, that, ones own culture is superior to others, is termed as Ethnocentric Orientation Ethnocentric managers, believe, that, marketing strategy which has worked in their home country, will also work, in international markets. Overseas marketing is considered as an extension of domestic marketing & overseas operations are considered to be a means for disposing off surplus production. In initial stages of internationalization, most companies adopt ethnocentric orientations.

Stages Of International Marketing Involvement

On deciding to go international The company has to decide on the degree of marketing involvement & commitment it is prepared to take. These decisions must be made, after considerable study & analysis of market potential & company capabilities. However, most companies begin tentatively in international marketing growing as they gain experience & gradually changing strategy & tactics as they become more committed. Five stages (sometimes overlapping) may describe the involvement & the commitment of a company in international marketing. A firm may begin its international journey in any one stage or in more than one stage simultaneously.

Stages Of International Marketing Involvement ( Cont)

No Direct Foreign Marketing Company does not actively cultivate customers in the target market . However, its products may reach the market. Sales through trading companies/ domestic wholesalers or distributors or directly to foreign markets. Infrequent Foreign Marketing Selling temporary surpluses caused by variations in production levels or demands Sales to foreign markets when goods are available, with little or no intention of maintaining continuous market representation As domestic demand increases and absorbs surpluses, foreign sales activity is withdrawn No long term commercial relationship is nurtured.

Stages Of International Marketing Involvement (Cont)

International Marketing Fully committed & involved in international marketing activities. Generally entails not only marketing but also production of goods outside the home market At this stage, the company becomes an international or multinational marketing firm. Global marketing At the global marketing level, the most profound change is the orientation of the company towards markets and associated planning activities. Treat the world, including home market as one market. Market segmentation is defined by income levels, usage patterns or other factors that often spans countries or regions.

Global marketing (Cont)

Often this transition from international marketing to global marketing is catalyzed by a company crossing the threshold of more than half of its sales revenue coming from abroad. The entire operations, organizational structure, source of finance, production, marketing etc. begins to take on a global perspective Global marketing reflects the heightened competitiveness brought about by globalization of markets, interdependence of world economies & growing number of competing firms from emerging economies vying for the world markets. Global companies & global marketing are the terms frequently used to describe the scope of operations & marketing management orientation of companies in this stage.

Multinational Corporations
A multinational corporation (MNC) or transnational corporation (TNC), also called multinational enterprise (MNE) is a corporation or an enterprise that manages production or delivers services in more than one country. ILO has defined an MNC as a corporation that has its management headquarters in one country, known as the home country, and operates in several other countries, known as host countries. The first modern multinational corporation is generally thought to be the East Indian Company. Many corporations have offices, branches or manufacturing plants in different countries from where their original and main headquarters is located. Some multinational corporations are very big, with budgets that exceed some nations' GDPs & have a powerful influence in local economies, and the world economies, and play an important role in international relations & globalization.

Nearly all major multinationals are either American, Japanese or Western European, such as Nike, Coca-Cola, Wal-Mart, AOL, Toshiba, Honda and BMW. Advocates of multinationals say they create jobs and wealth and improve technology in countries that are in need of such development. On the other hand, critics say multinationals can have undue political influence over governments, can exploit developing nations as well as create job losses in their own home countries.

 TATA STEEL

Indian Global Companies Tata Steel

World sixth largest steel maker with capacity of 28M tons Ranked 315 in Fortune 500 club with revenues at $26 B (07-08) Worlds 2nd most diversified steel producer with operations in 24 countries and commercial presence in over 50 countries Investments in Corus, Millennium Steel (Thailand), Natsteel Asia (Singapore) Corus makes 18.3 M Tonnes of steel, has 140,000 employees & has production facilities in UK, Netherlands, Germany, France, Norway & Belgium. Natwest Asia makes 2M Tonnes of steel & has facilities in 7 countries in S.E. Asia, Millenium Steel makes 1.7 MT of steel. Has joint ventures in Thailand, Australia, Mozambique, Ivory Coast & Oman to ensure Raw Material Security Manufacturing facilities in South Africa for Carbon & ferro-chrome, Sri Lanka for Galvanized Wires & Thailand for Limestone.

 Excerpts from Chairmans speech dated 12th June, 2008

Indian Global Companies Reliance Industries

RIL s exports ($20.8B) made up for 60% of the turnover & have grown at 49% CAGR over the last 5 years. Polyester Business was the first business in reliance to make an overseas acquisition Trevira. Acquisition of assets of Hualon in Malaysia exemplifies this direction. This is the largest integrated textile facility globally. Global market share of reliance in polyester fibre & yarn business is 7% Reliance is poised to become the 3rd largest polypropylene player in the world this year. After commissioning of the new refinery at Jamnagar, 2% of worlds petroleum refinery capacity would be in one place- Jamnagar. This refinery will earn considerable forex by exports to USA, Europe & Asia. Reliance has taken majority stake & management control of Gulf Africa Petroleum Corporation (GAPCO) which has petroleum retail network in several African countries. Reliance & its 100% subsidiary in Dubai have been awarded 14 blocks with an acreage of 94,000 sq. km spread over 7 countries. In organized retailing, Reliance is developing strategic partnerships with Mark & Spencer (U.K), Pearle (Europe), Apple Inc. (USA) etc.

Process of International Marketing

Step I: Deliberate on the various motivators for international marketing like opportunities for growth, increase in profitability, extending life cycles of business & so on, vis a vis the organization's mission & vision and its capabilities & carry out a SWOT analysis Step II: Arrive at the decision to enter International markets & work out the initial involvement & commitment.

Process of International Marketing (cont)

Step III: Deliberate & arrive at the specific international
marketing decision, in terms of Market identification & targeting Entry mode selection Product decisions Distribution channel & market promotion decisions Step IV : Enter international markets

Step V : Review Performance Step VI : Consolidate marketing efforts

MAINTAIN A LOOP BETWEEN STEP VI & STEP III

Assignment
Tata Motors Infosys Vedanta Group Intel Suzuki General Motors McDonalds

Unit 2 Trade Distortions & Marketing Barriers

Protection Of Local industries Protectionism Tariff & Non- Tariff barriers WTO

Free Trade & Protectionism

Free trade is a system of trade policy that allows traders to act and or transact without interference from government. According to the law of comparative advantages, the policy permits trading partners mutual gains from trade of goods and services. Under a free trade policy, prices are a reflection of true supply & demand, and are the sole determinant of resource allocation. Free trade differs from other forms of trade policy where the allocation of goods and services amongst trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are the result of protectionism trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.

Protectionism is the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports, and prevent foreign take-over of native markets and companies.

Most states conduct trade policies that are to a lesser or greater degree protectionist.[1]

International Trading Environment

Pre World War I (up to 1914) Very few barriers- either tariff or non-tariff, resulting in rapid integration of economies & smooth trade flows, movement of capital and migration of people. Between 1st & 2nd World Wars (1915 to 1944) Creation of many barriers resulting in deceleration of pace of globalization. Post World War II (after 1945) Drive to create integration & cooperation between countries. Creation of blocks. Policy of self reliance & import substitution. Barriers were in abundance and smooth flow of Trade was greatly impeded.

Bretton Woods Agreements

To rebuild the international economic system, as world war II was still raging, 730 delegates from all 44 allied nations gathered at Bretton Woods, USA, for the UN Monetary & Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements, during the first three weeks of July 1944. Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Bank For Reconstruction & Development (IBRD) (now one of the five institutions in the World Bank Group) and the International Monetary Fund(IMF). These became operational in 1945, after ratification by a sufficient number of countries.

GATT, was established on a provisional basis after the Second World War, in the wake of other new multilateral institutions dedicated to international economic cooperation - notably the "Bretton Woods" institutions now known as the World Bank and the International Monetary Fund. The General Agreement on Tariffs and Trade (GATT) was negotiated during the UN Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was formed in 1947 and lasted until 1993, when it was replaced by the World Trade Organization in 1995.

GATT
GATT came into existence in 1947, when a combined package of trade rules and tariff concessions were negotiated and agreed by 23 countries. GATT membership increased from 23 countries in 1947 to 123 countries in 1994. Focused only on tariff reductions till 1973, but subsequently expanded its domain to trade in services, agriculture & textiles, intellectual property rights & capital inflows. GATT held a total of 8 rounds. First 5 rounds were devoted to tariff reductions. In the 6th round at Kennedy (1964), anti-dumping was also discussed. In the 7th round at Tokyo (1973) non-tariff matters were first introduced. Average tariff on manufactured goods in developed countries declined from 40% to 4% in 1994.

GATT- Uruguay Round 1986- 1994

Achievements
These fall into six different parts:
An umbrella agreement (the Agreement Establishing the WTO); Agreements for each of the three broad areas of trade that the WTO covers: goods and investment (the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures (TRIMS)), General Agreement On Trade In Services (GATS), and Agreement on Trade Related Aspects Of Intellectual Property Rights (TRIPS); Dispute settlement (DSU); Agreement On Customs Valuation and Reviews of governments' trade policies (TPRM).

WTO- Directing International Trade

(The Organization To Deal with Present Issues)
International organization dealing with global rules of trade between nations & came into existence in on 1.1.95 as a successor to GATT. Encompasses the GATT structures & extends it to new areas, not adequately covered in the past. Provides a permanent comprehensive forum to address the trade issues of 21st century global market. Main function is to ensure smooth flow of international trade as predictably and freely as possible & aims at evolving a liberalized trade regime under a rule based system. Has nearly 150 members accounting for 97% of world trade & decisions are made through consensus of participants and are ratified domestically by each member.

WTO (Continued)
It sets rules governing trade between members, provides a panel of experts to hear & rule on trade disputes & unlike GATT, issues binding decisions. All member countries have equal representation in the WTO ministerial conference, The WTO ensures, that, member countries agree to the obligations of all the agreements, not just the ones they like. China was accepted as a member in 2001, after it reduced tariffs on 5000 product lines, & eliminated a range of non-tariff barriers to trade, including quotas, licenses & forex controls.

WTO (Continued)
More than two third members of WTO are developing countries The main functions of WTO are: Facilitation of implementation, administration, operation of trade agreements Provides a forum for further negotiations among member countries Responsible for settlement of differences & disputes among its member countries Periodically reviews trade policies of member countries Assists developing countries in trade policy issues.

Principles Of WTO
Trade without discrimination:
No country can give special treatment to its trading partner, without giving the same treatment to other WTO members.. This principle is known Most Favored Nation Treatment. Some exceptions are FTAs, exclusive access to developing nations etc.

Free Trade; gradually through negotiation

Reducing trade barriers, quotas & other restrictions Acknowledges the importance of progressive liberalization, which will take time. Recognition that different countries may need different time frames to open up their economies.

Principles Of WTO
Predictability through binding agreements & transparency
Stability & predictability encourages investments & job creation, offers a much clearer view of future opportunities & promotes growth. WTO encourages national governments to bring in openness & clarity into their policies & practices.

Promoting fair competition

Through MFN implementation, discourages dumping & subsidies which gives undue advantage to exports.

Encouraging developments & economic reforms

Offers special assistance & trade concessions to developing countries

General Agreement Of Trade In Services (GATS)

GATS comprises 3 elements
General obligations & disciplines The rules for specific sectors Individual countries specific commitments to provide access to their markets, which involves on where the WTO member countries are not-applying themost favored nation principle of non-discrimination, temporarily. The agreement covers all internationally traded services such as banking,telecommunications, tourism, professional services. It classifies services into 4 modes ( ways)

Modes Of Supply Of Services Under GATS

Mode 1 Cross-border supply Supply of service from territory of one member to territory of another member

Mode 2 Mode 3

Consumptions abroad Commercial presence

Supply of service in the territory of one member to the consumer of service of another member (travel & tourism0 Supply of service by one member (provider) through commercial presence in territory of another (foreign banks) Supply of service by one member thru presence of natural persons in territory of another member ( consultants, models)

Mode 4

Movement of natural persons

Intellectual Property Rights(IPR)

Intellectual property (IP) is a term referring to a number of distinct types of legal monopoly over creations of the mind, both artistic and commercial, and the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property include copyrights, trademarks, patents, industrial design rights and trade secrets in some jurisdictions.

Trade Related Intellectual Property Rights (TRIPS)

WTOs agreement on TRIPS was negotiated in the Uruguay Round & covers 5 broad issues.
Application of basic principles of the trading system & other international intellectual property agreements Ways to protect intellectual property rights Ways to enforce those rights adequately in various countries Methods to settle disputes on intellectual property between members of WTO Special transitional arrangements during the period when the new system is being introduced.

Types Of Intellectual Property

Copyright & related rights Trademarks including service marks Geographical indications Industrial designs Patents Layout designs of integrated circuits Undisclosed information (including trade rights)

Trade Related Investment Measures (TRIMS)

Agreement on Trade Related Investment Measures (TRIMs) are rules that apply to the domestic regulations, a country applies to foreign investors, often as part of an industrial policy. The agreement was agreed upon by all members of the WTO. Policies such as local content requirements and trade balancing rules that have traditionally been used to both promote the interests of domestic industries and combat restrictive business practices are now banned.

Trade Related Investment Measures (TRIMS)

Examples of TRIMS explicitly prohibited by the TRIMS agreement
Local content requirement - Measures requiring the purchase or use by an enterprise of domestic products, Trade balancing requirements - Measures requiring that an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports. Foreign exchange restrictions Export restrictions (Domestic sales requirements) Measures restricting the exportation or sale for export by an enterprise of product

Generalized System of Preferences (GSP)

GSP non contractual instrument by which industrialized countries unilaterally extend tariff concessions & duty free concessions in some cases to developing countries. Covers manufactured goods & certain agricultural exports Autonomous & complimentary to GATT/WTO E.U. grants zero duty access to all non-sensitive items & 3.5% tariff concession to sensitive products & eligibility of beneficiary countries assessed on annual basis. US GSP provides preferential duty free entry to more than 4650 products from approximately 140 countries. The Global System of Trade Preferences(GSTP) was established in 1988 as a framework for exchange of trade concessions among members of developing countries (G77) in order to intradeveloping country trade

Political Economy & Trade

Governments Behavior
In most economic models, it is assumed that consumers maximize utility, firms maximize profit and governments maximize national welfare. Amongst the above, the one least likely to hold is the assumption about government's behavior. Political economy is a term that reflects the interaction between the economic system and the political system. Political economy models attempt to explain, more carefully, the decision making process of governments. Today, most governments can be best described as representative democracies. The key issue in political economy and trade models is to explain how political features in democratic economies affect the choice of trade policy.

Political Economy & Trade

Among the key questions are:
1) Why do countries choose protection so often, especially given that economists have been emphasizing the advantages of free trade for 300 or more years? In other words if free trade is as good as economists say, then why do nations choose to protect? 2) In discussions of trade policy, why is so much attention seemingly given to the policy effects on businesses or firms, and so little attention given to the effects on consumers? 3) Why do political discussions, even today, have a mercantilist spirit, wherein exports are hailed as beneficial while imports are treated as harmful to the country?

In the real world, all countries follow trade barriers in some form or other. However, choice of trade policy instruments are often ineffective. Decision of policy makers reflect their own policies & interests rather than interest of general public.

People in policy making are also driven by self interest

Politics can be viewed as a sort of a market where policy decisions are sold for political support & resource transfers. Trade policy is determined endogenously. Economic agents enter political markets to influence trade policy, which in turn affect their position on economic markets & incentives for influencing trade policy

Agricultural Subsidies & Development (an example of political economy)

Rich nations spend more than $300B to subsidize their farmers
To keep commodity prices low To support politically active farmers

Subsidies create surplus production leading to dumping & depressed prices U.N estimates producers in developing nations lose more than $50B export revenue because of depressed prices

Trade policy is a collection of rules & regulations through which the government expresses its political economy.

Things like import & export taxes, inspection regulations, quotas & various non-tariff barriers are part of nations trade policy.

Tariff Barriers
Tariffs- oldest form of trade policy Specific Ad-valorem Good for government Protects domestic producers Reduces efficiency Bad for consumers Increases cost of goods Government payment to a domestic producer Cash grants ; Low interest loans ; Tax breaks Government equity participation in the company Subsidy revenues are generated from taxes & encourage overproduction, inefficiency & reduced trade.

A tariff : Is a tax levied by the foreign government on goods imported into that country (or import duty).

The tariff increases the price at which the goods are sold in the importing country and therefore makes them less competitive with locally produced goods.

Types of Tariffs

(1) Ad valorem duty (calculated as a percentage of the value of the imported goods - for example, 10, 25 or 35 % of CIF value most commonly used) (2) Specific duty (so much local currency per unit of the goods imported, based on weight, number, length, volume or other unit of measurement. Specific duties are often levied on foodstuffs and raw materials.) (3) Alternative duty (both an Ad valorem duty and a Specific duty are prescribed for a product, with the requirement that the more onerous one shall be Ad valorem duty value plus 10 cents per kilo. (4) Compound duty (Are imposed on manufactured goods that contain raw materials that are themselves subject to import duty.)

Non-Tariff Barriers
Import quota Restriction on the quantity of goods imported into a country Voluntary export restraint Quota on trade imposed by exporting country typically at the request of the importing country Local content Requires some specific fraction of goods to be produced domestically Initially used by developing country to help shift from assembling to manufacturing Developed countries beginning to implement Benefits producers not consumers.

Non-Tariff Barriers
Administrative policies
Bureaucratic rules designed to make it difficult for imports to enter a country Japanese masters at making such rules

Anti-dumping duties
Defined as selling goods in a foreign market at below production prices or below fair market value Result of unloading excess production Remedy seek imposition of tariffs.

Non-Tariff Barriers
Export Taxes.
Indonesia uses taxes on palm oil, Russia on petroleum, Brazil once had a tax of 40% on export of sugar

Government procurement policies

Specific percent of purchase by state or federal government be made only from local producers

Health & safety standards

US has several regulations governing use of some goods specially pharmaceuticals These can an effect on trade patterns

Red tape barriers;

Administrative procedures required for import of foreign goods France once had a rule that VCRs could be imported through only one small port in the south of France, limiting imports.

Subsidy
A subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry, as a result of continuous unprofitable operations or an increase in the prices of its products or simply to encourage it to hire more labor (wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living. Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports & distort markets, impose large economic costs.

Specific examples of non-tariff barriers

Specific examples of non-tariff barriers:
Canadian Wheat Board monopoly on the purchase, sale and distribution of Canadian wheat, Mexico's policies preventing competition in its international telecommunications market, Japan's use of "standards or other administrative requirements" to limit agricultural imports, European Union ban on U.S. hormone-treated beef and China's use of standards and sanitary requirements to create import barriers.

Non- Tariff Barriers Imposed By US

(Economic Times Jan 1, 2010)
India will hold a fresh round of discussions with the US in the New Year on protectionist measures being taken by Washington in the backdrop of the global economic slowdown. Measures such as the proposed withdrawal of tax breaks for companies that outsource to countries like India and various non-tariff barriers imposed on imports in the form of stringent quality standards will be in focus.

The issues will be taken up by commerce minister Anand Sharma during his visit to the US in early 2010, a commerce department official has said.

Political Arguments For Intervention

Protecting jobs & industries Common agriculture policy of EU & VER National security Semiconductors Retaliation Punitive sanctions Protecting consumers Genetically engineered seeds & crops Hormone treated beef Protecting human rights MFN

Economic Arguments For Intervention

Infant industry
Oldest argument- 1792 Protected under WTO Only good if it makes the industry efficient Brazil automakers 10th largest in the world, wilted when protectionism was lifted Requires government financial assistance Today, if the industry is a good investment, global capital markets will invest.

Strategic Trade Policy

Government should use subsidies to protect promising firms in newly emerging industries with substantial scale economics Government benefit if they support domestic firms to overcome barriers to entry created by foreign firms

Arguments For
Protectionists argue that governments rightly enact policies into law to protect its citizens from the excesses of laissez-faire capitalism. Examples are: Child Labor Laws Environmental Protection Laws Product Safety Laws Anti-Trust Laws Occupational Safety Laws Equal Opportunity Laws Intellectual Property Laws Minimum Wage Laws

Arguments Against
Protectionism is frequently criticized as harming the people it is meant to help. Many mainstream economists instead support free trade. Economic theory, under the principle of comparative advantages, shows that the gains from free trade outweigh any losses as free trade creates more jobs than it destroys because it allows countries to specialize in the production of goods and services in which they have a comparative advantage. Protectionism results in deadweight loss; this loss to overall welfare gives no-one any benefit, unlike in a free market, where there is no such total loss. According to economist , the benefits of free trade outweigh the losses by as much as 100 to 1

Arguments Against
Alan Greenspan, former chair of the American Federal Reserve has criticized protectionist proposals as leading "to an atrophy of our competitive ability. ... If the protectionist route is followed, newer, more efficient industries will have less scope to expand, and overall output and economic welfare will suffer." Protectionism has also been accused of being one of the major causes of war. Proponents of this theory point to the constant warfare in the 17th and 18th centuries among European countries whose governments were predominantly mercantilist and protectionist, the American Revolution, which came about primarily due to British tariffs and taxes, as well as the protective policies preceding both World War I and World War II. According to Frederic Bastiat, "When goods cannot cross borders, armies will."

(Unit III) International Marketing Environment

Political, Legal, Cultural, Technological & Natural

The global business environment can be defined as

the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision making on resource use and capabilities.
This includes the social, political, economic, regulatory, tax, cultural, legal, and technological environments.

International Marketing Environment

The economic environment relates to all the factors, that, contribute to a country's attractiveness, for foreign businesses. The political environment in a country, influences the legislations and government rules and regulations, under which a foreign firm operates. Every country in the world follows its own system of law. A foreign company operating in that particular country, has to abide with its system of law, as long as it is operating in that country. The technological environment, comprises factors related to the materials and machines, used in manufacturing goods and services. Receptivity of organizations to new technology and adoption of new technology by consumers, influence decisions made in an organization.

As firms have no control over the external environment, their success depends upon how well they adapt to the external environment.

A firm's ability, to design and adjust its internal variables, to take advantage of opportunities offered by the external environment, and its ability to control threats, posed by the same environment, determine its success.

The Political Environment

The political situation. The political relations between a firms country of headquarters (or other significant operations) and another one may, through no fault of the firms, become a major issue.

For example, oil companies which invested in Iraq or Libya became victims of these countries misconduct that led to bans on trade. Similarly, American firms may be disliked in parts of Latin America or Iran where the U.S. either had a colonial history or supported unpopular leaders such as the former Shah.

Certain issues in the political environment are particularly significant. Some countries, such as Russia, have relatively unstable governments, whose policies may change dramatically if new leaders come to power by democratic or other means.

Some countries have little tradition of democracy, and thus it may be difficult to implement.

Political Environment
Types of Political Systems
Parliamentary type- elected ; dilemma of coalitions Absolutist type- come to power by force

Political Risk( political actions that have a negative impact on the firms performance)
Foreign Politics (country where firm is located) Domestic Politics (country where firm comes from) International Politics (relationship between host & parent country) Nature of Political Risk (non convertibility of currency, preventing repatriation of profits, nationalization, political violence)

Factors that Contribute to Political Risk

Social Unrest Attitude of Nationals Policies of the Host Government

Analysis of Political Risk (cause & effect relationship between political factors & business income) Management of Political Risk

Political Environment
The following aspects of political environment are of importance to an international marketer: Stability/ instability of prevailing government policies Continuity of the set of rules or the code of behaviour & the continuity of the rule of law. If there is a potential for profit & if permitted to operate within a country, MNCs can function under any type of government as long as there is long term stability & profitability. Knowledge of the philosophies of all major political parties is important. Economic & cultural nationalism, which exists in some degree in all countries, is another factor important in assessing business climate.

Political Environment
Indicators of political instability Social unrest caused by internal disorder, economic hardships, ideology, religious, racial or cultural differences etc. Attitudes of nationals; hospitable or antagonistic Policies of the host government; can affect the firm either internally or externally. Strategies to face political environment Take advantage of governments laws to achieve self objectives Anticipate government policy changes & create a win-win situation. Listen to country managers; they have the best knowledge of political environment & should be allowed to participate & contribute in strategy formulation

Minimization Of Political Risks

Stimulation of the local economy: Link business to host countrys local interests & make use of the services of local companies. Employment of nationals Hiring of local employees to the extent possible Sharing ownership Sell your shares to local nationals Being civil minded Political neutrality Let there be no ideological tags Behind the scenes lobby

Legal Environment

The global legal environment refers to the legal environment in international business.

The legal environment regulates the operations of firms in international markets.

Organizations operating in different countries need to know and comply with the laws of the domestic country as well as all the host countries they operate in. Governments impose laws to protect the home industry & different kinds of tariffs, enter into agreements and sign treaties. Governments can also impose heavy anti-dumping duties. To protect domestic industry, they can also impose non-tariff barriers and frame regulations on foreign investments.

International Legal Environment

Majority of the Legal Systems , world over, are derived from & on the basis of: Common Law : Based on English Law ( USA, India, Canada, etc) Civil or Code Law ( Found in Germany, Japan, France etc.) Islamic Law (Pakistan, Iran, Saudi Arabia etc.) Commercial Legal System ( In Marxist- socialistic economies)- Russia, China , Eastern Europe etc.

International Legal Environment (cont)

The international marketer must be concerned with the differences among Common Law, Code Law, Islamic Legislation & Commercial Legal System when operating between countries. Right of principals of contract of some legal document under one law may be significantly different from right of others. Jurisdiction Clause must be clearly and unambiguously stated in the contract & this clause should specify the name of the country whose laws will be valid.

Legal Environment International Disputes Resolution

When things go wrong in a commercial transaction, the first step should be to try to resolve the issue informally. If this fails, more resolute action is necessary, which can be conciliation, arbitration or as a last resort litigation. Conciliation ( Mediation)
Is a non- binding agreement between parties to resolve disputes by asking a third party to mediate the difference. Functions of a mediator is to carefully listen to each party & to explore, clarify & discuss the various practical options or possibilities for a solution. Conciliation activities are confidential & private & this is an effective method for resolving differences Conciliation is however not legally binding.

Legal Environment -Arbitration

In arbitration, usual procedure is to select a disinterested and informed party or parties, as referee, to determine the merits of the case & make a judgment, that, both parties agree to honor. Most arbitrations are conducted under the auspices of one or more formal domestic & international arbitration groups organized specifically to facilitate resolution of commercial disputes. In most countries, decisions reached in arbitration proceedings are enforceable by law. Most Indian companies prefer arbitrations to be held under auspices of International Chamber of Commerce London Court of Arbitration Provision for arbitration must be clearly mentioned in contract.

Cultural Environment

Different perspectives exist in different cultures on several issues

Symbols differ in meaning. While white symbols purity in the U.S., it is a symbol of death in China. Colors that are considered masculine and feminine also differ by culture. In the U.S. and much of Europe, agreements are typically rather precise and contractual in nature; in Asia, there is a greater tendency to settle issues as they come up. As a result, building a relationship of trust is more important in Asia, since you must be able to count on your partner being reasonable.

In terms of etiquette, some cultures have more rigid procedures than others.
In some countries, for example, there are explicit standards as to how a gift should be presented.

In some cultures, gifts should be presented in private to avoid embarrassing the recipient;
In others, the gift should be made publicly to ensure that no perception of secret bribery could be made.

Global Cultural Environment

Culture is the sum of values, symbols, beliefs & thought processes, that, are learned, shared by a group of people & transmitted from generation to generation. Individuals adapt to new cultures through socialization & adjustments. Individuals also absorb culture through role modeling or imitation of peers. People make decisions about consumption & production through application of their culture based knowledge. There are fundamental differences in cultural values, between people, which influence various types of business & market behavior.

Understanding the culture of a particular country and respecting its customs and traditions plays an important role in international business. There are various elements of culture, like customs and traditions, mannerisms, values and attitude, religion etc. that are of importance to international business.

All these elements have to be thoroughly understood before entering new markets.
The culture of the country influences the culture at the workplace. Culture has a major influence on the consumption patterns. Marketers have to study clearly the acceptability of the product and its advertisements in a particular culture.

Implications Of Culture In IB
Managing multiculturism is essential for every international firm as people of different cultures must essentially react all the time for achieving common goals. Spreading cross country literacy: Doing business in different cultures needs adaptation to nuances of that cultures. No firm is expected to change the local culture to suit its needs. Culture & competitive advantage : Norms & values prevalent in a society do influence the costs of doing business in that country & affect its competitive ability. Managing Diversity: Establishing a heterogeneous workforce to perform to its potential in an equitable work environment where no member has an advantage or a disadvantage.

Influence Of Culture
The cultural environment has influences on some of the other environments: the cultural environment strongly influences the labor environment and the socio-economic environment and the politics of the populace which effects the Political / Regulatory / Legal Environment..

What Influences Culture?

The cultural environment is in turn influenced by some of the other environments: the economic environment is the standard of living comfortable, or stressed the technological environment how people are able to do things do they walk to work, drive can they use a phone, access the internet the geographic environment effects weather growing food housing and living conditions

A US toothpaste manufacturer promised its customers that they would be more interesting, if they used the firms toothpaste. What the advertisement coordinators did not realize was that in Latin American countries, interesting is another euphemism for pregnant.

Chase & Sanborn met resistance when it tried to introduce its instant coffee in France. Consumption of coffee in France plays a ceremonial role than in English home. The preparation of real coffee is a touchstone in the life of the French housewife, so she will generally reject instant coffee because its casual characteristics do not fit into French eating habits.

In 2004, China banned a Nike television commercial showing U.S. basketball star LeBron James in a battle with animated cartoon kung fu masters and two dragons, because it was argued that the ad insults Chinese national dignity. In 2005 France's Catholic Church won a court injunction to ban a clothing advertisement (by clothing designers Marithe and Francois Girbaud) based upon Leonardo da Vinci's Christ's Last Supper.

An Example
One example of cultural differences in business is between the Middle Eastern countries and the Western countries, especially the United States. When negotiating in Western countries, the objective is to work toward a target of mutual understanding and agreement and 'shake-hands' when that agreement is reached - a cultural signal of the end of negotiations and the start of 'working together'. In Middle Eastern countries much negotiation takes place leading into the 'agreement', signified by shaking hands. However, the deal is not complete in the Middle Eastern culture. In fact, it is a cultural sign that 'serious' negotiations are just beginning. Imagine the problems this creates when each party in a negotiation is operating under diametrically opposed 'rules and conventions.'

Hofstedes Indices
Culture of various nations differed along four primary indices
(1) Individualism (IDV)
on the one side versus its opposite, collectivism, that is the degree to which individuals are integrated into groups. On the individualist side we find societies in which the ties between individuals are loose: everyone is expected to look after him/herself and his/her immediate family. On the collectivist side, we find societies in which people from birth onwards are integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and grandparents) which continue protecting them in exchange for unquestioning loyalty

Hofstedes Indices
(2)Power Distance Index (PDI) Extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. This represents inequality (more versus less), but defined from below, not from above. It suggests that a society's level of inequality is endorsed by the followers as much as by the leaders. Power and inequality, of course, are extremely fundamental facts of any society and anybody with some international experience will be aware that 'all societies are unequal, but some are more unequal than others'.

Hofstedes Indices
(3)Uncertainty Avoidance Index (UAI)
Deals with a society's tolerance for uncertainty and ambiguity & indicates to what extent a culture programs its members to feel either uncomfortable or comfortable in unstructured situations which are novel, unknown, surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility of such situations by strict laws and rules, safety and security measures, and on the philosophical and religious level by a belief in absolute Truth. People in uncertainty avoiding countries are also more emotional, and motivated by inner nervous energy. The opposite type, uncertainty accepting cultures, are more tolerant of opinions different from what they are used to; they try to have as few rules as possible, and on the philosophical and religious level they are relativist and allow many currents to flow side by side.

Hofstedes Indices
(4)Masculinity (MAS) versus its opposite, femininity, Refers to the distribution of roles between the genders which is another fundamental issue for any society. Studies revealed that (a) women's values differ less among societies than men's values; (b) men's values from one country to another contain a dimension from very assertive and competitive and maximally different from women's values on the one side, to modest and caring and similar to women's values on the other. The assertive pole has been called 'masculine' and the modest, caring pole 'feminine'. The women in feminine countries have the same modest, caring values as the men; in the masculine countries they are somewhat assertive and competitive, but not as much as the men, so that these countries show a gap between men's values and women's values.

Hofstedes Indices (India)

India has Power Distance (PDI) As the highest Hofstede Dimension for the culture, with a ranking of 77 compared to a world average of 56.5. This Power Distance score for India indicates a high level of inequality of power and wealth within the society. India has Masculinity As the third highest ranking Hofstede Dimension at 56, with the world average just slightly lower at 51. The higher the country ranks in this Dimension, the greater the gap between values of men and women. It may also generate a more competitive and assertive female population, although still less than the male population. India's lowest ranking Dimension is Uncertainty Avoidance (UAI) at 40, compared to the world average of 65. On the lower end of this ranking, the culture may be more open to unstructured ideas and situations. The population may have fewer rules and regulations with which to attempt control of every unknown and unexpected event or situation, as is the case in high Uncertainty Avoidance countries.

Hofstedes Indices (India)

Cultural Awareness
Knowing about the cultural circumstances of target country can either help save money, or prevent making mistakes - and no consumer products company can afford to make mistakes in a intensely competitive market. The degree to which we must be culturally aware in marketing international business products and services depends, to some extent, on whether the product/service is a consumer product or an industrial product.

Cultural Awareness
Consumer Products, by virtue of their marketing process o Mass advertising o Sales Promotion o Personal Selling tend to require a strong degree of Cultural Awareness since this knowledge relates to the human communication in selling process. Industrial Products have less requirements, for cultural awareness, (in some instances), since the negotiation is based on a situation of which there is little debate about any required cultural adaptations. What is important, to make this sale, is the price of the component and how it fits the specifications required by the component.

The belief that "the nation provides a workable definition of culture for international business ..." is no longer fully valid with the many alterations in various political boundaries

It is the opinion of many, in the millennium, many nations in the world cannot be strictly defined by their political boundaries, and the political boundaries of many places, are increasingly irrelevant to the mix of cultures contained by that boundary.

Rules for Doing Business Across Cultures

Be prepared : Use language, expressions & slang carefully Slow down :People take time to understand non birth languages Establish trust : be reliable & trustworthy about your actions Understand importance of language ;beyond dictionary meanings Respect the culture :titles, rank, formal, informal Understand surface culture & deep culture :some objects- taboo Be sensitive to different body languages & different meanings of gestures: Be sensitive while dressing or exposing parts of body Keep appropriate physical distance & eye contact during conversations : Understand that within each culture, there may be strong difference based on gender, education, religion. : Different casts amongst Hindus, Sikhs (Turban, kripan), Moslems,

Burger King apologizes for running offensive add

Burger King, which runs a global chain of hamburger fast food restaurants, in more than 70 countries, apologized for running an advertisement hurtful to the Hindu sentiments. The advertisement was released in Spain & drew the ire of Hindu American Foundation. BKC values & respects all its guests as well as the communities we serve. This in store advertisement was running to support only local promotion for three restaurants in Spain & was not intended to offend anyone. These have now been removed, said a BKC spokesman. (Times Of India, Pune, July, 10, 2009)

Technological Environment
Technology is the knowledge or methods that are necessary to carry on or to improve the existing production and distribution of goods, services, products or processes, and also includes entrepreneurial expertise and professional know-how.
The choice of technology for a company must depend on the type of competitive advantage it seeks to develop. Such a choice can complement the firm's competitive advantage. The technological environment consists of those forces that affect the technology & which can create new products, new markets & new marketing opportunities.

Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production levels & influence outsourcing decisions. Some technological factors include Recent technological developments & R & D activity Automation, technologys impact on product offering Impact on cost structure Impact on value chain structure Technology incentives Rate of technological change/ diffusion Life-cycle & speed of technological obsolescence Energy use & costs Changes in IT, mobile technology & internet.

Natural Environment
The natural environment includes all the natural resources, such as raw materials & energy sources, needed by or affected by marketers or marketing activities. Climate & weather are also part of natural environment Business has two relationships with natural environment.
First, the environment is the source of resource as raw material Secondly, it causes damage in the process of production as industries can be seen as the destroyer of the natural environment, while bringing economic prosperity. Thus they even increase the social cost.

Unit IV
Consumer Behavior In
International Markets Perspectives, Motivation, Learning, Personalities, Perception etc.

Consumer Behavior
The study of consumers helps firms and organizations improve their marketing strategies by understanding issues such as how
The psychology of how consumers think, feel, reason, and select between different alternatives (e.g., brands, products, and retailers); The psychology of how the consumer is influenced by his or her environment (e.g., culture, family, signs, media); The behavior of consumers while shopping or making other marketing decisions; Limitations in consumer knowledge or information processing abilities influence decisions and marketing outcome; How consumer motivation and decision strategies differ between products that differ in their level of importance or interest that they entail for the consumer; and How marketers can adapt and improve their marketing campaigns and marketing strategies to more effectively reach the consumer.

Perspectives On Consumer Behavior

The process & activities people engage in when searching for, selecting, purchasing, using, evaluating & disposing off products & services so as to satisfy their needs. Consumer decision process stages & the Psychological Processes (1) PROBLEM RECOGNITION ----------- MOTIVATION (2) INFORMATION SEARCH -------------- PERCEPTION (3) ALTERNATIVE EVALUATION -------- ATTITUDE FORMATION (4) PURCHASE DECISION & ---------- INTEGRATION (5) POST-PURCHASE EVALUATION ----- LEARNING

(Unit V) International Marketing Research & Information System

Introduction
The prime function of marketing research is to determine what buyers want & market research plays a critical role in determining success or failure of international marketing decisions. The role of marketing research is the same in domestic & international marketing. However, commitment of resources is much larger in international operations & marketing failures can have more disastrous consequences & set back the companys operations by several years. Importance of research therefore gains more significance.

Cross-cultural marketing behavior results in complexity in conducting international marketing research, as well as, interpretation, assimilation & drawing meaningful actionable inferences, from the data gathered.

Meaning Of Marketing Research

The term marketing research refers to gathering, analyzing & presenting information related to a well defined, specific problem or a project with a beginning & an end.
In contrast, marketing intelligence is evaluated information, whose credibility, meaning & importance have been established, gathered and analyzed on a continual basis.

Meaning Of Marketing Research (cont)

International marketing research, differs from domestic marketing research in three main ways:
Effect of international environment on the whole company as a profit oriented unit are considered.(e.g.nationalization of a subsidiary) Data for many concepts and frameworks (e.g market segmentation) are unavailable. Ethnocentric nature of marketing makes cultural differences among nations a significant factor.

Typical IMR Issues

Business issues
Which market to target? How the product should be developed & adapted
How to market the product? How to price the product? How to distribute the product?

Research on
Nature of cultural, legal environment; size of market; extent & nature of business Nature of customers in target market, choosing brand name, nature of prod/packaging, extent & nature of competition
Nature of cultural, legal & economic env.; developing advertisement copy, developing sales promotion techniques Price elasticity of demand, optimal price setting & discount options Availability & quality of distributors, distributors interest, shopping options, retail store site selection

Objectives Of IMR

To carry out country screening & selection To evaluate a countrys market potential To identify aspects of countrys environment that require further study To evaluate the components of marketing mix for possible adoption To facilitate in developing a strategic marketing plan

Challenges In International Marketing Research

Certain factors raise a variety of conceptual, methodological & organizational issues in IMR, such as, Complexity of research design caused by operation in a multicountry, multicultural & multilingual environment. Lack of secondary data for many countries & product markets. High cost of collecting primary data particularly in developing countries Problems associated with coordinating research & data collection in different countries The difficulties of establishing the comparability & equivalence of data & research conducted in different contexts. The economics of many international investments & marketing decisions.

Illustration
Home ownership in different countries have a different implication In UK people still believe that a mans home is his castle In US geographic & social mobility of the population means that regular exchange of homes is a commonplace occurrence during life-cycle of most families Therefore decision making pattern of husband & wife and the amount of effort spent in home buying , should be quite different in these countries

Illustration Local culture & market potential

A large American soft drink company decided to target Indonesia with a population of 180M(5th largest). They felt that this large potential market irresistible & worked out a bottling & distribution arrangement with a local company Unfortunately sales were terrible. The drink simply didnt sell. The marketing campaign flopped despite good initial research into local competition & government policies because of two major factors Basically Indonesians are poor & the market for the drink is only of about 8 M people in cities ( western tastes & money) Indonesians prefer sweet coconut based drinks & not aerated drinks- American style.

Framework / Process of IMR Defining The Problem

The first task, defining the problem, sounds deceptively simple but may be the pivotal task in the entire study. Two important considerations in defining the problem are market structure & product concept. Market structure refers to the size of the market, its stage of development, the number of competitors & their market shares & the channels through which the market can be approached. A product may be viewed differently in different cultures. Therefore, there is a need to understand the product concept, I.e. the meaning of the product in a particular environment. The same product may be viewed very differently in different cultural environments.

Framework / Process of IMR Identifying Alternative Information Sources

After the problem has been defined, where the necessary information is to be found & how to obtain it must be determined. In some cases, the study may be confined to secondary data, I.e. published information that has been collected elsewhere. Such data may be available free, for a price or through restricted distribution sources. In cases, where no amount of investigation of secondary sources provides the information, primary data must be collected, through interviews and other direct collection of information. Primary data may also be gathered in various ways from trade association representatives , governmental experts, managerial personnel or the buying public.

Framework /Process of IMR Data collection

The actual collection of data must be planned & executed carefully. Person with knowledge of the country should appraise the progress being made as otherwise search can go on with deceasing returns. Interview questions must be tested for their appropriateness so that they produce the desired results.A sound approach is to conduct professional level interviews in two phases
Collect basic data Explore interview questions not anticipated at the start of the project

Data collection (cont)

Once basic data has been collected, the process of cross checking can begin. Information collected has to be examined critically for their relevance. Criteria used by the team to determine reliability of collected data must be documented.

Framework /Process of IMR

Analysis , Interpretation & Report Preparation
Reports must be complete, factual & objective. Reliability as well as the limitations of facts must be presented clearly. Particular attention should be given to: Identification of data source, as different sources of data warrant varying degrees of confidence Data projections must be explained Identity of those interviewed, must be indicated as far as possible. Alternative courses of action developed from analysis & interpretation of data, must be labeled as such, clearly reserving to management, the responsibility for selection of appropriate course of action.

Analysis , Interpretation & Report Preparation For the final step, the preparation of the report, the data must be analyzed & interpreted. Here also, attention should be paid to a countrys cultural traits. (Beer)

Illustration
Monetary incentive on questionnaire response
Monetary incentives doubled Japanese responses but deceased the response from Hong Kong residents. Indicates a cultural difference either towards monetary incentives or towards replying to questionnaires.

Spaghetti consumption in Europe

RD in a study observed that French & Germans consume far more spaghetti that the Italians This however, proved absolutely wrong as study was conducted on packaged & branded spaghetti whereas Italians preferably consumed unbranded & unpackaged spaghetti

Illustration
Health Club in Singapore
A widely franchised health club opened a facility in Singapore With young urban population & a widespread appreciation of Western culture, Singapore seemed a site destined for success Facilities & equipment provided were as good as in US However, the club could not sign enough members Citizens of Singapore felt little enthusiasm for western type health clubs & were more attracted to western competitive sports or preferred to try traditional Asian forms of exercises.

Sonys Experience
Sony researched the market for a lightweight portable record player & the results showed that consumers wont buy a product that will not record. Chairman decided to introduce the Walkman anyway & the rest is history. Well known Japanese consumer goods companies are skeptical about the western style market research They put more faith on the information they get from their wholesalers & retailers in distribution channels They regularly track what is happening in the distribution channel

Information Requirements For International Marketers

Sort of information required to complete a marketing study may vary from one country to another. Environment determines what kind of information is required Market Information
Market Performance : Compare companys performance, against specific standards. Market Shares : Companys proportion of total sales in an industry, during a set time. Market share held by competitors can shape companys marketing strategy Sales Analysis & Forecasting : Can show profits accruing from each individual product. Sales forecasting is the basic data required for future budgeting.

Information Requirements For International Marketers (cont)

Product Information
Product research means both product line research & individual product research. This bears on when to add, delete or change the product. Determine the stage, in which, the product is, in its life-cycle.

Promotion Information
Promotion Research : For selecting appropriate advertising copy and make the best media selection.

Distribution Information
Distribution Research consists of channel research & location research. This tells us about the availability of channels & their desirability. Location research deals with warehousing, inventory and transportation.

Information Requirements For International Marketers (cont)

Price Information
Ability of consumers to pay, dealer reaction, effect of price on demand are the various aspects of price information sought be the marketer.

Environment Information.
Researchers must take into account the foreign countrys environment in all its aspects- legal, political, social, cultural & attitudinal as shown by the buying habits of its consumers as well as the business practices of its enterprises.

Information Requirements For International Marketers (cont) The amount of information to be gathered in a given case depends on the cost/benefit relationship of such information. Finally, the nature of information will vary on the objectives of the research

Illustrations
Who drinks more wine?
According to latest study, Italians drinks the most wine 116 litres per capita/yr, compared with French(77) & British (9) According to another study, French gets the 1st place,Italians 2nd. The difference could be the way population is defined or the question asked.

Questionnaire problems. (translate & retranslate back)

In India there are 14 major languages In Switzerland, German & French are main languages Translation is difficult & many points are entirely eclipsed In Spanish, there is no word equivalent to Value so question is do you think quality of food was equal to the price you paid?

Check this out

Translate out of sight, out of mind from English to another language & have it retranslated to English by a different person. This became invisible things are insane

Desk Research (Secondary Data)

There are two types of data - primary & secondary. Primary data are collected by the researcher. Secondary data are data that have been collected by someone else, either an individual or an organization . Characteristics of Secondary Data: From published sources or at the professional level collected by others Usually free or low cost Can be collected quickly May be biased or incomplete May be out of date at hand Requires careful analysis of limitations.

Some Sources of International Secondary Data (Other Than The Internet)

Import Statistics Production Statistics Tariffs & Quota Currency Restrictions Economic Data UN, OECD Trade Statistics, Embassies Embassies, Trade Associations, UN Statistical yearbook Embassies, Chamber of commerce Banks & embassies Banks, journals, IMF & OECD reports

Consumption of a product Official statistics, trade journals, Commodity reviews Trade associations Identification of agents, importers, producers Trade directories, embassies, trade associations

Information about specific ECGC, Exim Bank, D&B, Embassies companies Credit Terms Freight Banks, Clearing & Forwarding Agencies, Shipping Companies

Limitations Of Secondary Data

Availability : Availability of detailed secondary data is directly proportional to the state of market development in a particular country. While general data may be available, comprehensive market data may not be available on-line in the emerging economies. Reliability : Secondary data may be influenced by various environmental & cultural factors as well as by the bias of the data collection agency. Comparability : Data collected by various agencies may not be comparable because of different methodologies used in data collection. ( (DGCIS & RBI) Validity : Validity of the data collected depends on the purpose for which data was collected & the methodology.

Pitfalls In Comparing Data

Secondary data obtained from different countries are not readily comparable:
In Germany, TV purchases are considered expenditure for recreation & entertainment In US, they are in the category of furniture, furnishing & household equipment.

These discrepancies make brand share comparisons nearly impossible.

Problems of Non-response
There is no guarantee that interviewee will cooperate in furnishing desired information Cultural habits in many countries prohibit communication with a stranger particularly for women. In many countries certain matters (hygienic & food products) are too personal to share with a stranger.( shampoo, perfumes,) Some respondents think that interviewers are from Govt or tax authorities In some developing countries, middle class people are not ready to accept their status & may make false claims in order to fake life styles of wealthier people In many countries, respondent may be willing but too illiterate to understand the questions.

Advantages & Disadvantages Of Secondary Research

Secondary research can be conducted both at home & in the country targeted. It is less expensive & less time consuming. However, current information may not be available The foreign sources of information normally are: Government Sources: population statistics, consumption standards, industrial production figures, imports & exports, price levels, employment data etc. Private sources: Private consulting firms Research Institutes, trade associations, universities etc. Local business Indian Embassies

Marketing Research Process

(1) Determine management level: corporate/regional/local (2) Determine type of management research : decision/strategic/ tactical (3) Determine information requirements; primary/ secondary/ participatory (4) Develop research design : identify problem/ evolve sampling design/ identify variables/ design research instruments (5) Examine data banks: pooled sources/generic sources/ commercial sources (6) Collect data : personal interviews/ mail questionnaires/ focus groups

Marketing Research Process

(7) Update data bank ; revalidate data/ collect most recent data/ prune obsolete information (8) Analyze data; use statistical analysis/ test results/ adjust to models (9) Present reports; exhibit results from visuals/ illustrate the analysis results/ develop executive summary/ list action points for managers/ derive most appropriate inferences (10) Integrate results & recommendations to management decision making

IMR On The Web

International Marketing Research On The Web

Before the Internet, businesses had to invest considerable sums of money in international marketing research, Today, just about anyone with a PC can conduct a substantial amount of international marketing research all within a matter of hours. Small import-export businesses can now get almost all the research they need for successful world trade at a price they can easily afford. Information on the Web is available from many different sources ranging from personal home pages to corporate Web sites and professional statistical and information services

International Marketing Research On The Web (cont)

As a rule of thumb, we can find current, accurate, objective and in depth information from Web sites run by professional information services and government bodies. These reports congregate and categorize the information into easy to use formats, Their profit motive that drives them to make sure they provide the best information available To start off, begin with free resources that give you a cursory analysis of general market variables such as GNP, economic and social indicators, political analysis, and other summary country data.

International Marketing Research On The Web (cont)

CIA World Fact Book (odci.gov/cia/publications/factbook) gives a political, business, trade and economic fact sheet on all countries around the world. Other good resources for preliminary international marketing research include Web sites belonging to trade associations and government agencies worldwide. Once a country has been identified we need more detailed assessment of the industry market potential. At this stage, these resources should give you an indication of the demand and supply patterns, enable evaluation of regulations and standards, and identify the best market potential for specific products.

International Marketing Research On The Web (cont)

Web sites belonging to foreign trade associations, embassies and trade missions will get you started on foreign regulations and requirements, most often for free For evaluating demand and supply we can use several resources. The U.S. Department of Commerces STAT-USA service (www.stat-usa.gov) collects business, trade and economic information from 40 government agencies and is an invaluable source for country, industry and market intelligence and reports. (Discounted access to STAT-USA is available at www.accesstrade.com). Customs or port records of imports and exports flowing through a country gives the demand and supply patterns, & also the major buyers and suppliers in the industry.

International Marketing Research On The Web (cont)

The service that provides this is PIERS (Port Import Export Reporting Service), available online at the Global Business Intellibase (www.agte.telebase.com). Archives of business publications, industry journals and newspapers of a particular country give a picture on the trends, business practices and general environment These are available either directly from each publication#s Web site or from archive search services, such as the Global Business Intellibase (www.agte.telebase.com). The final stage in online international marketing research is the locating and detailed evaluation of potential foreign business partners to determine their capabilities and competitive standing

International Marketing Research On The Web (cont)

Getting a list of potential partners, buyers or suppliers can be done using traditional offline methods as well as using online resources such as the Access Global Business Toolkit (www.access-trade.com). Several services including Dun & Bradstreet, Hoppenstedt, Kompass, Teikoku and ICC can give detailed financial, historical and credit information and evaluations on companies worldwide. The cost is between $5 and $230 per report, depending on the level of detail required and the location of the company. All of these services can be accessed centrally from the Global Business Intellibase (www.agte.telebase.com).

( Unit VI)
International Market Entry Strategies

Basic Issues
An organization wishing to "go international" faces three major issues: i) Marketing - which countries, which segments, how to manage and implement marketing effort, how to enter - with intermediaries or directly, with what information? ii) Sourcing - whether to obtain products, make or buy? iii) Investment and control - joint venture, global partner, acquisition? Decisions in the marketing area focus on the value chain The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated.

Strategies
Cunningham (1986) identified five strategies used by firms for entry into new foreign markets: i) Technical innovation strategy - perceived and demonstrable superior products ii) Product adaptation strategy - modifications to existing products iii) Availability and security strategy - overcome transport risks by countering perceived risks iv) Low price strategy - penetration price and, v) Total adaptation and conformity strategy - foreign producer gives a straight copy.

Modes Of Entry
There are several different modes of entry for a company into foreign markets: The main strategies are: Exporting Counter trade/ bartering Licensing Contractual Agreements Joint Ventures Strategic Alliance Wholly owned subsidiary

Entry Strategy/ Exporting

Exporting
Exporting is the most traditional and well established form of operating in foreign markets, defined as the marketing of goods produced in one country into another Exporting domestically manufactured products either by responding to demands or by systematic development of demands in foreign markets. Requires minimal capital & is easy to initiate. Also minimizes risk involved & is also a good way to gain international experience. The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of control

Piggybacking
Piggybacking is an interesting development. The method means that organizations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk buying. Normally these would be geographically adjacent or able to be served, say, on an air route.

Counter trade means exchanging goods or services which are paid for, in whole or part, with other goods or services, rather than with money.
A monetary valuation can however be used in counter trade for accounting purposes.

Counter trading
By far the largest indirect method of exporting is counter trade. Competitive intensity means more and more investment in marketing. In this situation, the organization may expand operations by operating in markets, where competition is less intense but currency based exchange is not possible. Also, countries may wish to trade in spite of the degree of competition, but currency again is a problem. Counter trade can also be used to stimulate home industries or where raw materials are in short supply. It can, also, give a basis for reciprocal trade.

Foreign Direct Investment

Foreign direct investment (FDI) refers to long term participation by one country into another country. It usually involves participation in management, joint venture, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative). Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization.

Foreign Direct Investment

Consistent economic growth, de-regulation, liberal investment rules, and operational flexibility are factors that help increase the inflow of Foreign Direct Investment or FDI. FDI is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor. FDIs require a business relationship between a parent company and its foreign subsidiary & foreign direct business relationships give rise to multinational corporations. For an investment to be regarded as an FDI, the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates. The investing firm may also qualify for an FDI if it owns voting power in a business enterprise operating in a foreign country.

Foreign Direct Investment

Different economic factors encourage inward FDIs. These include interest loans, tax breaks, grants, subsidies, and the removal of restrictions and limitations. Factors detrimental to the growth of FDIs include necessities of differential performance and limitations related with ownership patterns. Foreign Direct Investment is guided by different motives. FDIs that are undertaken to strengthen the existing market structure or explore the opportunities of new markets can be called 'market-seeking FDIs.' 'Resource-seeking FDIs' are aimed at factors of production which have more operational efficiency than those available in the home country of the investor. Some foreign direct investments involve the transfer of strategic assets. FDI activities may also be carried out to ensure optimization of available opportunities and economies of scale. In this case, the foreign direct investment is termed as 'efficiencyseeking.'

FDI & FII Inflows To India

Sr.No
1 2 3 4 5 6

Year
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

FDI Inflows $Bn

6.051 8.961 22.826 34.835 35.180 34.167

FII Inflows $Bn

8.686 9.926 3.225 20.328 (-)15.017 24.831

Sources Attracting Highest FDI Equity Inflows

2007-08 2008-09 2009-10 Cumulative inflows 20012010 in $Bn % of total inflows

Services Sector (financial & non financial) Computer Software/ hardware Telecommunications Housing & real estate Construction activities

6.116 1.677 2.558 2.801 2.028

4.392 .919 2.554 2.844 2.868

23.610 9.872 8.931 8.357 8.059

21% 9% 8% 8% 7%

Other market entry strategies include licensing, joint ventures, contract manufacture, ownership and participation in export processing zones or free trade zones.

Market Entry Strategies/ Licensing

Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how etc.provided by licensor". Quite similar to the "franchise" operation Involves little expense and involvement. Good way to start in foreign operations and open the door to low risk manufacturing relationships Options to buy into partner/provision to take royalties in stock. Limited form of participation/ Licensees become competitors Requires considerable fact finding, planning, investigation & interpretation.

Market Entry Strategies Contractual Agreements

Patent-licensing Agreement : Fixed fee or royalty based agreement & includes managerial training. Turnkey Operations: Usually fixed fee or cost plus arrangements & includes plant construction, personnel training & initial production runs. Co production Agreements: Was common in the erstwhile Soviet Bloc countries where plants were built & paid for with part of the output.

Entry Strategy / Management Contracts

Management Contract: Currently widely used in Middle East, the Management Contract requires that the MNCs provide the key personnel to operate the foreign enterprise for a fee . Pioneered in India by TEL, who ran three large management contracts in Iraq & Saudi Arabia.

Entry Strategy - Joint Ventures

High risk alternative compared to licensing, needs direct investment. Involves sharing risks to accomplish mutual enterprise These are normally designed to take advantage of strong functions of the partners & supplement their weak functions. Provides mutually beneficial opportunity for domestic & foreign businesses to join force, share capital & risks & make use of each others technical strength. They counter the tendency, for rising economic nationalism Preempt availability of raw material such as petroleum or extractable material Developing export base in economic blocks, to gain from FTAs. Selling technologies in developing countries is easier through JVs

Entry Strategy / Strategic Alliance

Recent collaborative strategy in international business. Short of merger but deeper than arms length market exchange Involves mutual dependence & shared decision making. Encompass specific activities & formed for a specific period. Strategic goals pursued, like alliances are product exchange or supply alliances, learning alliances, market positioning alliances. In strategic alliances, flexibility & informality promotes efficiencies & access to new markets & technologies. Can be created & disbanded with minimum paperwork. Multiple parties share risks & expenses, while creating synergies. Partners can retain their independent brand identification. Alliances can take many forms , from simple R&D deals to big projects.

Entry Strategy/ Ownership

Wholly Owned Subsidiary Most extensive form of participation is 100% ownership Involves great commitment in capital and managerial effort. Repatriation of earnings and capital has to be carefully monitored. The more unstable the environment, the less likely is the ownership pathway an option. MNCs can also establish themselves in overseas markets by direct investment in a manufacturing or assembling subsidiary. Because of volatility of worldwide economic , social & political conditions, these wholly owned subsidiaries are the most risky form of overseas involvement.

Entry Strategy/ Export Processing Zones

Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. There are many examples of EPZ, which has found popularity with the Governments & corporate bodies

Conclusion
Firms must evaluate the risk & commitment involved in each entry & chose the entry mode that best suits its objectives & resources. Entry risk & commitment can be examined by considering the following five factors: Characteristics of the product The markets external macro- environment economic & political factors & demand & buying pattern characteristics. Firms competitive position & product life cycle stage Capital budgeting considerations Internal corporate perceptions.

(Unit VII)
International Product Strategies

Product Policy & Planning Introduction

A product is collection of physical, service & symbolic attributes which yield satisfaction or benefits to the user or buyer. Combination of physical attributes (size & shape) & subjective attributes (image or quality or brand image) The Product decision is among the first decisions, a marketing manager makes, to develop a marketing mix. The product decision in international marketing, has to be made keeping in mind the necessity of adaptation & customization of the product, to suit local conditions. Putting it differently, customers do not buy products in physical sense, they buy satisfaction, derived from the products attributes, various features and characteristics. This has important ramifications in defining product objectives.

International Product Planning

International product planning involves answering to the following questions : Which products to introduce into which markets? What modifications to make into the products? What new products to add? What brand name to use? What package designs to adopt? What guarantees & warranties to give? What after sales service to offer? When to enter the market? Most of the answers, will stem from the data, generated from marketing research activities

Illustration
Because of overall economic decline, Venezuelas overall liquor sales plummeted 9M cases in 94 to 7 M cases in 95 Sales of premium products were hit harder United Distillers refocused its marketing , advertising & distribution strategies to counteract the plunge in spending The company took control of Dewars White Label, Old Parr & Black Label brands, which had been licensed out. It shipped its product mix from premium scotches & whiskeys to rum, Gordons Gin & Vodka so as to achieve high volume & retain customers. It introduced a new relatively inexpensive Whiskey called Country Club, which very soon picked up sales of half M cases, equal to countrys whiskey sales.

Developing Products For International Markets - Approaches

Ethnocentric Approach: Based on assumption, that, consumer needs & market conditions are more or less homogeneous, in international markets as a result of globalization. Polycentric Approach Based on realization, that, each market is very different.. Regiocentric Approach Ascertaining product similarity within market clusters, based on geographical & psychic proximity. Done by companies, established in markets world over. Geocentric Approach: Endeavor to identify similarities in consumption patterns that can be targeted with a standard product around the world.

Product Life Cycle In International Markets

International markets follow a cyclical pattern of time due to a variety of factors. Factors like level of innovation & technology, resources, size of market & competitive structure influence the market patterns. In addition, the gap in technology, preferences, and ability of customers in international markets also determine the stage of international product life cycles. There are four stages of international lifecycle: Introduction, growth, maturity & decline. (Raymond Vernon)

In conclusion
A country that produces technically superior goods, will,
sell these first to its domestic market, then to other technically advanced countries.

In time, developing countries, will import and later manufacture these goods, By this stage, the original innovator, will have produced new products.

Market Segmentation
The purpose for segmenting a market is to allow your marketing/sales program to focus on the subset of prospects that are "most likely" to purchase your offering. If done properly this will help to insure the highest return for your marketing/sales expenditures. Depending on whether you are selling your offering to individual consumers or a business, there are definite differences in what you will consider when defining market segments. For segmentation to be practical, they should be evaluated against the following criteria Identifiable; Accessible; Substantial; Unique needs; durable A good market segmentation will result in segment numbers that are internally homogeneous & externally heterogeneous. Consumer markets can be segmented on the following customer characteristics geographic/ demographic/ psychographics/ behaviorilistic

Segmentation, Targeting, and Positioning

Segmentation is usually done at the customer level. However, in international marketing, it may sometimes be useful to see countries as segments to allow the decision maker to focus on common aspects of countries and avoid information overload. It should be noted that variations within some countries (e.g., Brazil) are very large and therefore, averages may not be meaningful. Country level segmentation may be done on levels such as geographybased on the belief that neighboring countries and countries with a particular type of climate or terrain tend to share similarities, demographics (e.g., population growth, educational attainment, population age distribution), or income. Segmenting on income is tricky since the relative prices between countries may differ significantly (based, in part, on purchasing power parity measures that greatly affect the relative cost of imported and domestically produced products).

Segmentation, Targeting, and Positioning Global Segmentation

There are two main approaches to global segmentation.
Macro level: Countries are seen as segments, given that country aggregate characteristics and statistics tend to differ significantly. E.g. there will only be a large market for expensive pharmaceuticals in countries with certain income levels, and Entry opportunities into infant clothing will be significantly greater in countries with large and growing birthrates Micro level: Here we look at segments within countries & there may be significant differences within countries. E.g. although it was thought that the Italian market would demand "no frills" inexpensive washing machines while German consumers would insist on high quality, very reliable ones, it was found that more units of the inexpensive kind were sold in Germany than in Italy Although many German consumers fit the predicted profile, there were large segment differences within that country

Segmentation, Targeting, and Positioning Global Segmentation

Microlevel segmentation may be Intramarket segmentation
involves segmenting each countrys markets from scratch i.e., an American firm going into the Brazilian market would do research to segment Brazilian consumers without incorporating knowledge of U.S. buyers.

Intermarket segmentation
involves the detection of segments that exist across borders. Note that not all segments that exist in one country will exist in another and that the sizes of the segments may differ significantly. For example, there is a huge small car segment in Europe, while it is considerably smaller in the U.S.

Segmentation, Targeting, and Positioning

Intermarket segmentation entails several benefits.
Products and promotional campaigns may be used across markets Introduces economies of scale, and learning that has been acquired in one market may be used in another e.g., a firm that has been serving a segment of premium quality cellular phone buyers in one country can put its experience to use in another country that features that same segment. Even though segments may be similar across the cultures, it should be noted that it is still necessary to learn about the local market.

Positioning across markets.

Firms often have to make a tradeoff between adapting their products to the unique demands of a country market or gaining benefits of standardization such as cost savings and the maintenance of a consistent global brand image. There are no easy answers here. E.g. while McDonalds has spent a great deal of resources to promote its global image; it has made significant accommodations to accommodate local tastes and preferences

Product Design Strategy Standardization Or Customization

An important question that multinational marketers need to answer is whether the product approach successful at home will be equally successful in foreign markets. A decision must be made as to which is the more appropriate of two design strategiesstandardization or customization Standardization means offering a common product on a national, regional or worldwide basis

Standardization Or Customization
Customization means adapting a product , that is making appropriate changes in it , to match local perspectives While there are potential gains in standardization, environmental differences between nations, necessitate product customization. Hence, all relevant criteria must be examined in order to decide the extent to which products should vary from country to country.

Illustration
Ponds cold cream, coca cola, Colgate toothpastes, MacDonald's, Levy jeans have been cited as evidence that an universal product & marketing strategy can win worldwide success However, this is clearly an exception than a rule. Those who argue that consumer products no longer require market tailoring because of globalization of the markets are not always correct.

Dominos Pizza Delivery

In Britain, customers dont like Dominos delivery man knocking on their doors. They think it is rude In Japan, houses are not numbered sequentially, so finding an address means searching among rows of houses numbered will-nilly In Kuwait pizza is more likely to be delivered to a waiting limousine than on so9meones door.

Product Design Strategy Decision Criteria

(1) Nature Of Product:
More standardization is feasible in industrial goods than consumer goods Amongst consumer goods, non-durables require greater customization because of appeal to tastes, habits & customs

(2) Market Development:

Different national markets for a given product, are in different stages of development Different marketing strategies & product attributes are appropriate in each stage. Appropriate changes in product design, are desirable to make an adequate product/market match.

Product Design Strategy Decision Criteria (cont)

(3) Cost/ Benefit Relationships The cost/ benefit analysis would determine the cost to customize and benefits expected in terms of market growth. Result of this analysis, should be compared to same analysis for standardization & the two results compared to determine the relative desirability (4) Legal Requirements Different countries have different laws about product standards, patent laws & tariffs & taxes. These laws may require product adaptation (5) Competition Competition from local manufacturers may compel MNEs to adapt their products to suit local requirements.

Product Design Strategy Decision Criteria (cont)

(6) Support System
Availability, performance & cost of support system (retailers, wholesalers, warehousing , transportation etc) profoundly affect the product design strategy

(7) Market Conditions

Cultural differences, economic prosperity & customer perceptions, country wise

(8)Physical Environment
Physical conditions ( climate, topography & resources) will require adaptation.

Standardization A Common practice

Other things being equal, companies opt for standardization Extremely high degree of standardization appears to exist in brand names, physical characteristics of products & packaging Benefits of standardization are realization of cost savings Standardization also makes it feasible to achieve consistency in dealing with customers & in product design & in brand building. Finally, standardization may be urged on the grounds that a product that has proved successful in one country should do equally well in other countries, that, present more or less similar markets & similar competitive conditions.

Adaptation
Although standardization offers benefits, too much attachment to standardization can be counterproductive All consumers are not alike & therefore adapting products to local situations may be necessary. Several patterns & various degrees of differentiation are adopted by firms to do business internationally.The most common are: Obligatory Minimal product adaptation, :minor changes in product design, introduced either because it is mandatory or because it is forced by external environmental factors. Discretionary Voluntary product adaptation : self imposed discipline & a deliberate move to build stable foreign markets.

Gillette In Japan
For Gillette Co the leading razor maker in most parts of the world, Japan ia always a sore spot. The company which averages 65% market share in 70% of its markets, has only 10% market share in Japan Rival American Warner Lambert has gained 62% of Japans market using Japanese style of marketing Now Gillette is emphasizing its Americanisms, airing the same ads run in USA & selling Sensor in same packs as in US with a brand name in bold English letters & a Japanese version only in tiny letters. Previously, Gillette had TV ads made just for Japanese markets though with foreign models & sports personalities.

Japanese Way
Fast food outlets in Japan are trying to become more Japanese, offering burgers dipped in teriyaki sauce & making buns our of rice McDonalds Japanese subsidiary, the countrys biggest fast food chain has added a sandwich of fried chicken soaked in soya sauce to its menu The company tested the 320 yen item called chicken tatsuta & found that it sold nearly as well as big Mac. Japanese burgers appeal to the consumers because they seem to be more healthy & tastes are also changing When US chains first entered Japan 2 decades ago, what Japanese consumers were looking for in a hamburger was America. Now they are asking for something different; some sandwiches are served with pork chops & a bowl of rice.

A Car For Emerging Markets

Suzuki is the car maker to the developing world Its small, rugged vehicles rule the roads in India & are popular in Eastern Europe & China, markets that US automakers have started targeting recently In Ho Chi Minh city, Suzuki cobbled up the Super Carry, $7,000/, pint sized cross between pickup & a van Suzuki vehicles are fuel efficient & inexpensive In markets such as Thailand & Indonesia, Suzukis leanness is its strength Its low cost plants,simple car models & frugal operating style, enables it to offer rock bottom prices at profit.

Developing An International Product Line

Composition of the product line, need to be periodically reviewed and changed to add new products and eliminate existing products. Addition to the product line may be by: Extension of domestic line Introducing additional products to the international line Introducing new products to a host country New products may be developed by R& D or acquired by M & A & offered as a offensive or defensive measure. The life-cycles of international products are becoming shorter, as they are rapidly outdated by rivals innovations. Primary attention is normally paid to product development & introduction. However, product elimination is an equally important decision & has strategic implications.

Coca-Cola company started marketing Coca-Cola in Japan in 1958 & as the market developed, it introduced additional beverages Fanta in 1968 Sprite in 1970. By 1983, those other products were outselling Coke. Japan Coca-Cola also markets two fruit drink products that it does not sell in US. It also sells potato-chips at Japan, a business unknown at home.

Marketing Of Services
Services are distinguished from products because they are generally produced at the same time they are consumed & can not be stored away or taken. An enhanced marketing mix is to be employed. Marketing characteristics of services Intangibility Inseparability (can not be separated from the provider) Heterogeneity (precise standardization is difficult) Perishability ( can not be stored- like hotel rooms) Ownership ( does not result in property transfer)

Marketing Of Services
The extended marketing mix for services People- the personnel Appearance; professionalism (police/doctors); attitude; skills commitment (clergyman); behavior (McDonald's), numbers (enough waiters) ; discretion (lawyers) Process- eg. The airlines Procedures ; information ; policies; mechanization; queuing ; accessibility ; speed (timing) Physical evidence Environment (ambience, furnishings); facilities (aircraft); tangible evidence (tickets, packaging) Personal selling & Front line workers- skills , attitude

Marketing Of Services
When service organizations plan global marketing of their services, they may face challenges such as Protectionism Cultural differences Difficulties in measuring customer satisfaction overseas. International professional services Internationalization of retailing International financial services Credit cards Charge cards ATM cards Debit cards International banking services Investment banking International insurance services

Brand Names & Trademarks

Corporate identification, is a valuable asset in marketing in both domestic and international markets. Firms face the choice of linking the company closely with its products & brands or of establishing market strength for each individual product line or brand. There are several choices Use one name with no adaptation to local markets Use one name but adapt and modify it for each local market Use different names in different markets for the same products Use the company name as brand name under one house style or the corporate umbrella approach. Private Branding by large retailers selling a variety of products under their house brand

Coca-Cola is marketed worldwide under its brand name Coke without any adaptation Shell & ICI sell their products under company names & are heavy corporate advertisers Unilevers however, promotes brands & products & does not emphasize its corporate names especially in areas outside its home territory.

International Packaging

International Packaging
Good marketing practice requires that products be offered to customers in serviceable shape & pleasing form. International packaging decisions ought to take into account the requirements of four groups of people- customers, shippers, distributors & host governments. (1) Customer requirements: (a) These vary from country to country based on socioeconomic culture factors. (b) Visual aesthetics of packaging, are very important in developing countries. Moreover, in developing countries, the overall physical quality of the package assumes great importance, as the package is most likely to be kept & used as a container.

International Packaging (Cont)

(d) Climate is another important consideration & the package must withstand climatic conditions to preserve the product during its usage. (e) Packaging has also to take into account the ecological considerations & the disposal of the package should not be hazardous.

(2) Shipper Requirements:

Two important aspects from the shippers point of view are (a) getting goods to their destination without damage or theft. This requires appropriate designing depending on distance,mode of transportation , transshipment or storage (b) This has to be done without any additional costs for transportation.

International Packaging (Cont)

(3) Distributor Requirements: Most of the requirements of channels of distribution in international marketing are similar to those of domestic marketing channels (4) Government Requirements: These are mostly related to labeling & marking. Labeling relates mostly to retail packing Can also be for industrial products Should provide information about the contents to assure them that both the package & the contents conform to the regulation in force in the market. Many countries require bilingual labeling.

(Unit VIII)
International Channels Of Distribution
Direct & Indirect Selling, Intermediaries Channel Development & Adaptation

Introduction
Distribution channels are the links between producers & consumers The selection, operation & motivation of effective channels of distribution, are often crucial factors, in a firms differential advantage, in international markets The diverse activities and culturally differentiated roles of channel intermediaries, makes the formulation of distribution strategies, a challenge for any firm entering foreign markets.

Introduction
The channels of distribution available in a country, are the result of culture and tradition. In developing countries, channels of distribution are scattered, small in scope , inefficient & insufficient. An international distribution system, must be adapted to the countrys established practices. Channel innovations ought to emerge from customer need, rather than an arbitrary attempt to streamline the system

Perspectives Of International Distribution Channels

Channels of distribution, depend on the stage of economic development, reflected in the per capita income, socio-psychological & cultural environments. : Developed nations have more levels of distribution, more specific stores, superstores, department stores & stores in rural areas. Influence of foreign import agent declines with economic development.

Perspectives Of International Distribution Channels

Thus changes in the channel structure of a country, can be introduced only, in response to, changes in economic & other environments. Channel changes can not be enforced, without due considerations to these factors Each country, rich or poor , has its own distribution system, evolved over time. International marketers, must carefully examine the various aspects of the countrys established distribution system, to determine how to obtain, distribution for their own products in that territory.

Perspectives Of International Distribution Channels

Manufacturer-wholesaler- retailer functions become separate with development. Financial functions of wholesalers declines and wholesale markups increase with increasing development. The number of small stores declines & the size of average store increases with increasing development. Retail margins increase with increasing economic development.

Perspectives Of International Distribution Channels

As distribution- structure is country specific, it would be nave for an international marketer, to enforce their own new distribution system, in another country. Distribution channels must be used as they are, and efforts must be made to fit into the country, through established partners. There are two forms of distribution - direct & indirect. While a direct distribution channel may appear more effective, in practice, it is better only if the customers are geographically homogeneous & have similar buying habits. Indirect channel is preferable , when customers & buying habits are heterogeneous.

Japanese Distribution System

Despite the fact that Japan is a leading economic power, its distribution system has been labeled outmoded, complex, cumbersome & inefficient. The Japanese system encompasses a wide range of wholesalers, agents, brokers & retailers, differing more in number than in function, than their American counterparts. There are myriad tiny retail shops & an even greater number of wholesalers supply goods to them, layered tier upon tier, many more than others would think necessary.

Japanese Distribution System

For example, soap may move through 3 wholesalers plus a sales company, after it leaves the manufacturer, before it even reaches the retail outlet. Japanese distribution system is built into the fabric of its society. It is sort of a welfare system, it provides living for so many people that the government does not have to pay welfare. In this way, this seemingly inefficient serves an important social function.

Japanese Distribution System

Another reason is that it serves Japanese companies & consumers well. Lacking much storage space in their small homes, Japanese homemakers shop several times a week & prefer convenient neighborhood stores.
The little shops often strengthen their position by doing more for their customers than just selling goods

In brief, Japanese distribution channels are more complex than comparable channels & the system suits the needs of Japanese customers

Channels Of International Distribution

Channels of distribution or marketing channels, are, the set of interdependent organizations, networked together & involved in the process of making a product or service available, to the end consumers, in international markets. Major functions, performed by distribution channels include: Physical flow of goods, to the end customer Transfer of ownership, to the ultimate customer Realization of payment, that, flows from ultimate customers through market intermediaries, to the producers Regular flow of information, from the customers Promotional flow, from the manufacturers, to the end customers and gathering customer feed-backs.

Selecting Channels Of International Distribution

The following criteria, may be used, for selecting a channel Channel availability in the target market Mode of distribution by competitors, in the select market International marketing objectives of the firm Financial resources Organizational structure Experience in international markets Firms marketing image Existing marketing channels of the firm Speed of market entry required Legal implications, if any Specific product need, if any

Types Of International Distribution Channels

International Distribution channels, may broadly be divided, into two categories, namely direct & indirect channels. Direct Channels Advantages for the firm are: a close relationship with its end- customers, Insight to market operations & Capability of developing more appropriate market strategies Control over the export process are far greater

Types Of International Distribution Channels

Indirect Channels
Marketing firm deals with domestic agents or market intermediaries Needs little investment & marketing expenditure Low-cost opportunity to test products in international markets However, feedback from market is limited as it does not deal directly The firm has to give higher share of profit margins, commissions, payments etc. Gets little insight into the market, even after operating for many years Does not develop its own contacts, with buyers in overseas markets.

Indirect Channels
(1) Agents: Broker / Commission Agents : Bringing buyer & seller together. Normally specialize in selected commodities Importers Buying Agents : Working on a commission basis for overseas firms & procure samples & subsequent supplies from competing producers. Country Controlled Buying Agents: Normally are appointed by an overseas government or a government organization.

Indirect Channels (cont)

(2) Buying Offices: Overseas firms make their permanent presence in the suppliers countries, by establishing a permanent buying office. Indicates a long term commitment, of the international firm, to source from such markets. A number of global retail chains have their procurement offices in India. They not only provide a marketing outlet for Indian firms, but also facilitate manufacturers of Indian goods to become globally competitive.

Indirect Channels(cont) Merchant Intermediaries

(3) Merchant Exporter
Collect produce from several producers & export directly in their name. Normally, have long standing relationships with their suppliers & work on profit margins.

(4) Export/ Trading Houses

These are domestic market based large firms, involved in export activities. In India, under the FTP, certain incentives are allowed to them. STC, MMTC are certain major Trading Houses in India.

The Big Six Of Japanese Trading

Mitsui, Mitsubishi, Sumitomo, Itochu, Marubeni & Nissho Iwai are the big 6 They had a combined sales of $1 trillion, equivalent to a quarter of Japans GDP They bring 68% of Japans imports & are responsible for 40% of its exports These 6 companies have 600 offices outside Japan

Indirect Channels (cont) Merchant Intermediaries

(5) International Trading Companies. These generally are large companies that accumulate, transport & distribute goods to various countries. As international trading companies are operating globally, they often have presence in exporting firms home country & provides an easy access to international markets. The largest trading companies are Japanese : Mitsubishi, Mitsui, Itochu, Sumitomo & Marubeni.

Direct Channels
(1) Agents: They do not take title of goods and operate on behalf of principal. (2) Overseas Based Commission Agent/ Broker: Generally in commodities & food products. Work on brokerage on deal to deal basis. (3) Overseas Based buying Agents: They have exclusive contracts with buyers but not sellers & deal with all types of goods for their principals.

Direct Channels (cont)

(4) Manufacturers Export Agent or Sales Representatives: They specialize in one or few markets & offer their services to a number of manufacturers, for noncompeting products. In recent years, professionals with wide exposure & market specialization, are working as export agents. They are normally employed by small manufacturers, who do not have their own distribution networks, in overseas agents.

Direct ChannelsMarket Intermediaries

(5) Merchant Importer Overseas based trading firms, that, take possession & title of goods & therefore assumes risks & responsibilities. ( Soda Ash Bangladesh) They further sell the product to wholesales or retailers, for a profit. Generally an effective marketing channel for industrial goods & bulk commodities.

Direct ChannelsMarket Intermediaries (cont)

(6) Distributor Purchase goods & subsequently sell them, to either market intermediaries or the ultimate customers. Take title of the goods & full risks & responsibilities Normally have contractual agreements, with the exporting manufacturers and deal on long term basis & authorized to represent manufacturers, in the assigned foreign territory. Normally exclusive & operate on margins. Level of control by the principal, are relatively higher. Selected based on several factors like firms size & financial strength, synergy with firms products, physical infrastructure, goodwill etc.

Direct ChannelsMarket Intermediaries ( Cont)

(7) Wholesaler:
Overseas based wholesalers, purchase the goods from merchant exporters or distributors, & generally sell them to retailers. Buy in bulk & break it into small lots, for subsequent sales .

(8) Retailer
Retailers buy goods from wholesalers & distributors & sell them to the ultimate customers Large organized retailers also buy directly from the overseas manufacturer and brand them & sell to customers. They carry inventory, display products at the outlets, do POP promotion & extends credit.

Direct ChannelsMarket Intermediaries (cont)

(9) E-Channels
These have been created, as a result of breakthrough in information technology Amazon.com (books) , Dell Computers sell computers through the internet to its global customers. They have a very efficient supply chain management system. IT service designs, call centers, back to back office work of global houses, knowledge based works, etc are common examples of e-channels.

Schick V/S Gillette In Japan

In Japan a products success often depends on the distribution network used. Schick which entered the razor blade market along with Gillette in Japan, decided to leave distributorship to Seiko Corp, who sells the product through 150,000 wholesalers. Gillette, on the other hand, tried to sell razors through their own salesmen, a strategy that failed, because Gillette didnt have the distribution network, available to Japanese companies.

Channel Management
Channel management means Selecting appropriate channels of distribution Making them work. Channel Selection involves Establishing channel objectives & feasible channel alternatives, Evaluation of alternatives Choice of appropriate channels:

Channel Management (cont)

(1) Establishing Objectives :
These are derived from the total marketing objectives in the foreign market & starts with a clear cut definition of the target customers. Does the company want intensive ( reaching mass market) or selective (distributing through so called elite distributors) or exclusive ( letting a channel do distribution on a monopoly basis) distribution ? Objectives must also specify the type of service to be rendered to the customers & the acceptable time lag between the receipt of the order & the delivery thereof.

Channel Management ( Cont)

(2) Establishing Feasible Channel alternatives is determined by

(a) Characteristics of customers:

If the number of customers is large or widespread & lot-size of purchase is small & at frequent intervals, company will opt for intensive distribution I.e. large number of channel outlet

(b) Product :
These influence the selection ; Perishable goods require direct channels. Bulky but inexpensive material can use long channel. Shorter channels are preferred when unit-value is high or when the product is custom made.

Channel Management ( Cont)

Kinds of channels available constrain channel selection. Evaluation of comparison of services rendered, channel location, credit granted , quality of sales force, warehousing facilities etc are relevant considerations Depending on factors like customer & product characteristics, the company will chose those channels, that, make the maximum impact in the market at the least cost. Intermediates Host countries trade practices concerning distribution of a particular product is another influential variable. Innovations are not easily accepted in markets.

Channel Management ( Cont)

(d) Marketing Environment of the host country Another variable in making a channel selection decision Economic structure affects the suitability of a particular channel. (e) Companys own strengths & weaknesses The final factor in evaluating channel alternatives is the companys own strengths & weaknesses in the overseas market. A well known company of long standing will tap channels more easily . All these factors serve as a basis for determining the feasible alternative channels of distribution & enable the company to decide between direct & indirect distribution .

Channel Management ( Cont)

Evaluation Of Alternative Channels :Each channel
alternative should be evaluated on the basis of three factors Coverage : Refers to both qualitative & quantitative coverage of customers Control : Refers to control over establishing prices, cooperative advertising Costs of distribution

Choosing the Channels : Often a subjective decision

Channel Control & Performance

Distribution through intermediaries, always entails compromise & loss of some control over the companys foreign marketing operations, in exchange for relatively low cost operation. The distributors performance in fulfilling the related tasks selling, servicing & providing market information, are often inadequate The independent distributor, represents an entity separate from the exporter, and their goals may not match exactly.

Channel Control & Performance(cont)

This raises the dilemma of how to encourage high performance, by channels, that, are not a part of the firms own network. Rather than depending on controls to optimize distributor performance, manufacturer should use motivational methods. Empirical study strongly recommends, that, high performance is associated with certain relational characteristics.

Physical Distribution
Physical distribution concerns the flow of goods, from the manufacturer to the customer. Essentially, there are three aspects of physical distribution warehousing, transportation & inventory management & they are related to one another. For optimum decision, they should be considered as a system

Physical Distribution
Physical distribution is one area, where cost savings through efficiency, are feasible provided the decision is systematically made. Transportation by sea, constitutes over 99% of cargo shipment, in volume terms, in international trade. Various types of ocean cargo include bulk, break bulk & containerized & the exporter may use a charter or a liner vessel, for international shipments. Containerization has facilitated multimode transportation of goods.

Unit IX
International Promotion Strategies

Promotion & Advertising

Promotion
An incentive, usually at the point of sale, intended to enhance the intrinsic value of the product or service It includes advertising, personal selling, sales promotion (samples, trading stamps, POP coupons, contests,gifts, allowances & displays) & publicity.

Advertisement
Any form of communication in the paid media Worldwide advertising expenditure is over US$ 375B

Promotional Objectives
Awareness Trial ( coupons are a way) Attitude towards the product induce positive ness for a known product) Temporary sales increase ( give temporary discounts food products etc)

International Sales Promotion Policy

Country Image Japanese electronics Trade shows & international fairs Personal selling
Building relationship with buyer Could be difficult in an overseas market

Direct marketing Event sponsorship Public relations

International Advertising
Entails dissemination of a commercial message to target audiences in more than one country Target audiences differ from country to country & how they perceive a message also differs Advertising can thus be viewed as communication process that takes place in multiple cultures that differ in terms of values, communication styles & consumption patterns They also involve advertisers & advertising agencies that create ads & buy media in different countries, thus creating a worldwide industry that is growing in importance.

Constraints On Global Communication Strategies

Language barriers;
Translating to local generic language as well as specific version spoken in the region This can distort the communication

Cultural barriers:
Subtle cultural differences may make an add that tested well in one country unsuitable in another. Symbolism & values differ between cultures. Eg. In USA The early bird gets the worm but in China The first bird in the flock gets shot down Eg. In US & Australia excelling above group is desirable but in Japan the nail that sticks out gets hammered down

Local attitudes towards advertisements differ widely

Accepted as a part of life in US but looked down in parts of Europe

Constraints On Global Communication Strategies

Media infrastructures Stages of development differ from country to country. Cable TV highly developed in US but newspaper ads preferred in Latin America Advertising regulations Countries have arbitrary rules on what can be advertised & what can be claimed Comparative advertisements are banned in majority of countries outside US Holland requires that toothbrush be exhibited in an ad for sweets Some countries rules state that ads to be shown in the country must be made there.

Advertisement Planning

Some Cultural Dimensions In Promotion

Directness V/s indirectness
Directness is an American symbol but considered too pushy by Japanese

Comparisons
Comparative advertising is banned in most countries and would probably be very counterproductive, as an insulting instance of confrontation and bragging, in Asia even if it were allowed. In the U.S., comparison advertising has proven somewhat effective as a way to persuade consumers what to buy.

Humor
While humor is appreciated, concept of fun differs universally.

Gender roles
some countries are even more traditionale.g., a Japanese ad that claimed a camera to be so simple that even a woman can use it was not found to be unusually insulting.

Some Cultural Dimensions In Promotion

Explicitness
Europeans tend to allow for considerably more explicit advertisements, often with sexual overtones, than Americans.

Sophistication.
Europeans, particularly the French, demand considerably more sophistication than Americans who may react more favorably to emotional appealse.g., an ad showing a mentally retarded young man succeeding in a job at McDonalds was very favorably received in the U.S. but was booed at the Cannes film festival in France.

Information content vs. fluff.

American ads contain a great deal of puffery, which was found to be very ineffective in Eastern European countries because it resembled communist propaganda too much. The Eastern European consumers instead wanted hard, cold facts.

Legal issues. Countries differ in their regulations of advertising, and some products are banned from advertising on certain media (large supermarket chains are not allowed to advertise on TV in France).

Other forms of promotion may also be banned or regulated. In some European countries, for example, it is illegal to price discriminate between consumers, and thus coupons are banned and in some, it is illegal to offer products on sale outside a very narrow seasonal and percentage range.

(Unit X) International Pricing Strategies

Importance Of Pricing
Pricing is a particularly critical & complex variable, in overseas marketing strategies & affects the organizations ability to remain in the market. Appropriate pricing aids growth, as development of mass market depends to a large extent on price. Important aspect is parent companys role in overseas pricing Pricing decision is to be made centrally or Delegated to the foreign subsidiaries. There are two distinct marketing strategies which may be pursued - product differentiation & quality or the price? In certain markets where there is considerable price consciousness & where products are not highly differentiated, price adjustments could lead to mass marketing opportunities.

Uniform Versus Differential Pricing

Question MNCs perpetually face: to what extent the setting of uniform prices is desirable in worldwide markets ? Some marketers argue for uniform prices, while others believe in differentiated marketing policy, in different overseas markets. Pricing in international markets, involves legal, economic , governmental & marketing aspects, both in the practice of differential pricing as well as in price uniformity. In theory, it is desirable on economic grounds, to set different prices in different markets, as demand & supply differ from country to country & it makes economic sense for the multinational firm to vary prices from market to market. However, such a strategy may cause the firm to be charged with dumping in the host country. So from a legal viewpoint, it may be desirable to set an uniform price globally.

Uniform Versus Differential Pricing (Cont)

Majority of the firms adapt prices according to local conditions justifying on the grounds of local manufacturing costs, competitors prices & taxes, all of which vary from country to country, making local market considerations a critical factor in pricing. Some firms try to standardize at least the relative price level, so as to ensure product positioning & control.

Uniform Versus Differential Pricing (Cont)

All in all, the decision between uniform & differential pricing would be dictated by such factors as competitive conditions, life cycle position of the product, product diffusion process, regulatory considerations, channel structure, company objectives & consumer price perceptions.

Uniform Versus Differential Pricing (Cont)

If the competitive position of firm does not vary from market to market, it may be worthwhile to pursue an uniform pricing policy. A firm essentially in a monopoly or differentiated position, may price its product uniformly on a global scale- Boeing planes Perspectives of pricing are also affected by local laws & tax structures, as well as by the efficiency or otherwise of local distribution channels and the price perceptions of the customers. ( eg Japanese electronic goods are more expensive than Korean)

A study has found that radios & TVs were priced lowest in Germany; prepared foods were more expensive in Italy & least expensive in Netherlands.

Such differences were attributed to retail structure. Where the channel structure is inefficient, additional distribution costs will be incurred, resulting in accelerating prices

Standardization v/s Customization

It is an illusion to believe, that, a globally identical brand can be sold in different markets at prices, which differ substantially. A global product & local prices are incompatible. One answer to international pricing problems, may be to introduce different brands in high-price, high-income countries & in low-price, low-income countries. Much larger price differences could thus be established. However, this runs contrary to economies of scale & global branding & a conscious trade off has to be made.

Pricing Factors
The factors in international pricing, exceed those in strictly domestic markets, not only in number, but also in ambiguity & risk. Domestic price is affected by such considerations as pricing objectives, cost, competition, customer & regulations. Internationally, in addition to these, multiple currencies, trade barriers & longer distribution channels, make the international pricing decisions more difficult. Each of these considerations comprises a number of components, that, vary in importance & interaction in different nations.

Pricing Factors (cont)

(1) Pricing Objectives
Pricing objectives should be clearly aligned to marketing objectives, which are derived from overall corporate objectives. Essentially objectives can be defined in terms of profit or volume. Some organizations also relate this to image building, stability & ethics. Two main questions in international pricing could be : Who should set the pricing objectives in different countries? Should there be common objective worldwide or should objectives vary by country?

Pricing Factors (cont)

Since market conditions differ in each country, it would be improper to set common pricing objectives globally Both parent & subsidiary inputs, should be properly reviewed, before making the pricing decision. Price the market will bear, should be properly related to parent corporations profit goal.

Pricing Factors (cont)

(2) Cost Analysis (most important factor as per study)
Cost is one of the most important considerations, in pricing & knowledge of fixed & variable costs of the product, are most relevant. The impact of costs on pricing, can be studied by considering the following three relationships: Ratio of fixed costs (high fixed costs are volume sensitive) to variable costs (high variable costs are price sensitive) The economies of scale (lower unit costs with increases of sales) & Cost structure of a firm vis a vis competition. (very difficult to compete with higher cost structure)

Pricing Factors (cont)

(3) Competition ( 2nd most important factor) Competitive environment can be categorized as Privileged position (High margins & profits) Leadership position ( Good margins & profits) Chaotic situation (Nobody making even acceptable profits) Stabilized competition ( Good or acceptable margins for all)

Pricing Factors (cont)

(4) Customer Perspectives
Demand analysis involves the relationship between price level & demand, simultaneously considering the effect of other variables on demand. Elasticity of demand or price sensitivity, when established, can indicate whether any variations in price, will have a major effect, on the volume of sales. In case of undifferentiated, standardized products, depending on elasticity of demand, a firm may decide to lower or maintain prices of its products. In the case of a differentiated product, market share may actually improve while maintaining higher prices.

Pricing Factors (cont)

(5) Government & Pricing Government rules & regulations, pertaining to pricing, must be taken into account, in setting prices Host countrys laws concerning price settings may range from broad guidelines to detailed procedures for arriving at prices, amounting to virtual control over prices.

Price coordination & industrial coordination is evident in countries like Japan In the summer, electrical fans that are identical in color, shape, quality & price are in the market, but are produced by different companies Even discounted prices seem to be coordinated. Numerous models of identical models of vacuum cleaners are offered at the same discounted prices, in the largest electrical market in Tokyo.

Pricing Orientations
(1) Cost approach Involves first computing all relevant costs and then adding the desired profit makeup to arrive at prices While this is the most popular & easily understood orientation, it has two basic drawbacks viz.
Difficulty in accurately computing the costs Secondly, it brings inflexibility into pricing.

Pricing Orientations (cont)

(2) Market approach Here pricing starts in the reverse fashion & first an estimate is made of the acceptable price in the target segment. An analysis is then done, to determine whether this price would meet companys profit objectives. If not, the alternatives are to either give up the business or to increase the price. This is widely used by Japanese companies.

Export Pricing
In addition to the cost & market considerations, export pricing is affected by three factors

(1) The price destination (who will pay the price) The final consumer, Independent distributors , A wholly owned subsidiary, Joint venture organization Some one else (2) The nature of the product Raw or semi-processed material, Components, finished or largely finished products or Services or Intangible property (patents, trademarks, patents etc)

Export Pricing (cont)

(3) The currency used for billing Currency of the purchasers country , Home country currency or a Leading international currency) Usually companies prepare separate price lists for different countries. The price list contains a profit margin and allows adjustments as per local conditions, including competitive prices, the governments incentives in some countries & the flexibility for competitive reductions wherever required.

Transfer Pricing

Transfer Pricing
(1) Transfer pricing refers to the pricing of goods or services, among units within the corporation. (2) It differs from market price, which measures exchange between a company & the outside world, for the net effect of transfer pricing is borne by the same organization. (3) Determination of transfer prices in MNCs, is an important issue, because a substantial proportion of international exchanges consists of transactions between a parent corporation & its affiliates. (over 55% of imports & exports, in case of US companies

Transfer Pricing ( cont)

(4) The principle objective of the parent corporation in setting intra-firm prices is to maximize the long term interests of the total corporation. (5) In this, one or more affiliates of the company may end up losing , which leads to conflicts within the organization, which must be resolved (6) Transfer pricing decisions are affected by Income tax liabilities in host & parent countries Tariffs & customs duties within host country Exchange control & profit repatriation restrictions in the host country. Quota restrictions within host & parent countries Joint venture constraints

Transfer Pricing ( cont)

(7) Importance of these factors vary from company to company & from country to country but tax liability was the most important variable influencing transfer pricing decisions. (8) The other two important variables are the profit repatriation & the exchange control constraints. (9) There are certain universal guidelines for setting transfer prices. (10) In India as well as in US, transfer prices must be set, as per arms length transaction principle

Japanese companies definitely conduct their business differently

Japan's number one computer maker, Fujitsu Ltd. won a contract to design a computer system, for the city of Hiroshima by bidding 1 yen. Their strategy was that if they give away the designing job, they will receive orders for citys equipment orders. In the past Fujitsu & NEC Corp had both submitted a 1 Yen bid to design a library computer system. They drew straws & Fujitsu won Their managerial philosophy is go for the long term

Dumping
Dumping is pricing exports at levels, lower than domestic price. Strictly as a business strategy, dumping is a way of setting differential prices to achieve certain objectives. In international market, dumping can destroy a domestic industry & a matter of concern, for the host country government Most countries have anti-dumping laws & countries normally lay a heavy penalty against dumping , which may cause the imported goods to be priced much higher, than the local market price. Problem of dumping is more prevalent in developed markets. Anti-dumping proceedings are regularly used as a non-tariff barrier,in various markets & Ministry of Commerce is responsible for investigating dumping cases.