CHAPTER ONE

AN OVERVIEW TO INTERNATIONAL MARKETING

Definition international marketing
 International Marketing' is defined as the exchange of goods and services across national borders to
meet the requirements of the customers. It includes customer analysis in foreign countries and

identifying the target market.

 International marketing may be defined as an activity related to the sale of goods and services of one

country in the other, subject to the rules and regulations framed by the countries concerned.

 In simple words, it refers to marketing activities and operations among the countries of the world

following different political and economic systems.

 International marketing is marketing abroad i.e., beyond the political boundaries of the country.
International marketing brings countries closer due to economic needs and facilitates understanding

and co-operation among them.

 International marketing can, therefore, be defined as, marketing carried on across national
boundaries.

 International Marketing is the multinational process of planning and executing the conception,
pricing, promotion and distribution of ideas, goods, and services to create an exchange that satisfy

individual and organizational objectives.

Distinction between Domestic Vs International Markets
i) Domestic market
One language, one nation, one culture

Market is much more homogeneous

Single currency

No problems of exchange controls, tariffs

Relatively stable business

Minimum government interference in business decision

Data in marketing research available, easily collected, and accurate etc.

ii) International Markets
 Many languages, many nations, many cultures

 Markets are diverse and fragmented

  Multiple currencies

 Exchange controls and tariffs normal obstacles

 Multiple and unstable business environments

 Due to national economic plans government influence usual in business decisions

 Marketing research very difficult, costly and cannot give desired accuracy, etc.

BENEFITS OF INTERNATIONAL MARKETING

1. To meet imports of industrial needs
The developing countries need imports of capital equipment’s, raw materials of critical nature,

technical knowhow for building the industrial base in the country with a view to rapid

industrialization and developing the necessary infrastructure.

2. Debt servicing

All most all underdeveloped countries have been receiving external aid over the years for their

industrial development. Hence it is necessary to aim at sufficient export earnings to cover both

imports and debt servicing.

3. Rapid economic growth
An expanding export trade can be a dynamic factor in a country’s development process. The

country should have to utilize domestic resources and to provide technological improvement and

improved production at lower costs.

The benefits include: -
 The foreign exchange earnings can be used for the import of agricultural implements

and fertilizers to raise the production of agricultural produce and that can provide a base

for many agriculture-based industries.

 Mitigate unemployment in labor – intensive industries

 Full utilization of idle resources

4. Profitable use of natural resources

Earning from exports can be utilized in establishing industrial unit based on different

natural resources available in the country by making the necessary imports of plant and

machinery for the purpose.

5. Facing competition successfully
Better quality and lower prices improve the image of the producer as well as of the
country in minds of foreign customers.
6. Increase in employment opportunities
In an effort to increase the export, many export oriented industrial units are established. In

underdeveloped countries, the problem of the employment and underemployment is very serious

that can be solved to some extent by increasing the level of export.

7. Role of exports in national income
Exports play an important role in the national income of the country and it can be increased to a

sizeable extent through organized export marketing.

8. Increase in the standard of living
Export marketing improves the standard of living of the countrymen in the following ways: -

 The imports of necessary item for consumption can be made which may help improve

standard of living. Exports increase the employment opportunities, which in turn,

increase the purchasing power of the people.

 Exports are responsible for the rapid industrialization of the country. New items are

produced for consumption in domestic market, which increases the level of standard of

living.

 In order to face the competition in the international market, the producer improves the

quality of the product by applying the latest technology. In this way, people get better

quality products at cheaper rates. It helps improve the standard of living of the people.
9. International collaboration
Export marketing results in international collaboration. Developed country fixes their import

quotas for different countries and for different commodities.

10. Closer cultural relations
International trade brings various countries closer. Better trade relations are established

among the countries.

11. Help in political peace
The economic relations between two countries help improve their political relations.

BARRIERS TO INTERNATIONAL MARKETING

The major legal, political and economic forces affecting international marketers are barriers

created by governments to restrict trade and protect domestic industries. Examples include the
following: -

1. Tariff: - a tax imposed on a product entering a country. Tariffs are used to protect

domestic producers and / or to raise revenue. E.g. Japan has a high tariff on imported rice.

2. Import quota: - a limit on the amount of a particular product that can be brought into a

country. Like tariffs, quotas are intended to protect local industry.

3. Unstable governments: - high indebt-ness(55.67 billion$), high inflation (34.7 to

36.6%), and high unemployment(21.30%) in several countries have resulted in high

unstable governments that exposed foreign firms in business risks and profit repatriation.

4. Foreign exchange problems: - high indebtedness and economic and political

instability decrease the value of a country’s currency. Profit repatriation for foreign firms

is not available in many markets.

5. Foreign government entry requirements and bureaucracy. Government places

many regulations on foreign firms. For example: - they might require joint ventures with

the majority share going to the domestic partner, a high number of nationals to be hired,

limits on profit repatriation etc.

6. Corruption: - officials in several countries require bribes to cooperate (87rank from

world). They award business to the highest briber rather than the lowest bidder. Etc.

7. Technological pirating (plagiarized): - a company locates its plant abroad worries

about foreign managers learning how to make its product and breaking away to compete

openly. I.e. machinery, electronics, chemicals, pharmaceuticals area.

Characteristics of International Marketing
1. Broader market is available
 A wide platform is available for marketing and advertising products and services.
 The market is not limited to some precise local market or for people residing in a
particular place, region or country but is free for all.
 People from different nations sharing different cultures and traditions can actively
participate in it.
2. Involves at least two set of uncontrollable variables
 By uncontrollable variables, we mean the geographical factors, political factors prevailing in
different countries. At the global level, all the companies have to face uncontrollable
 variables from different countries. While establishing business globally, a company has to
learn to deal with these variables.
3. Requires broader competence
 International market requires more expertise and special management skills and wider
competence to deal with various circumstances and handle different situations like changes in
the strategies of the government, the mindset of the people and many other such factors.
4. Competition is strong
 Competition is very tough in international market, as the organizations at the global level
have to compete with both competitors in their home countries and also in the foreign lands.
Competition is high because the clash is between developed & developing countries and both
have different standards and are unequal partners.
5. Involves high risk and challenges
 International marketing with its own advantages is also prone to different and tangible risks
and challenges. These challenges come in the form of political factors, regional and cultural
differences, changing fashion trends, and sudden war situation, revision in government rules
and regulations and communication barriers
6. Large-scale operation
 Large-scale operations involve relative amount of labor and capital to cater to the needs
such as transportation, and warehousing.
7. Domination of multinationals and developed countries
 International marketing is highly dominated by multinational corporations due to their
worldwide reach.
 These organizations apply efficient and effective business practices to all their business
operations.
 They have a stable position and with their global approach find themselves fitting into the
arena of international marketing.
8. International restrictions
 The international market needs to abide by different tariff and non-tariff constraints. These
constraints are regulated because different countries follow different regulations. All nations
tend to rationally abide by tariff barriers. All the imports and exports between the nations
participating in international marketing follow some restrictions in foreign exchange.
9. Sensitive character
 International marketing is highly sensitive and flexible. The demand for a product in a market
is highly influenced by political and economic factors. These factors can create as well as
decrease the demand for a product.
10. Importance of Advanced Technology
 International market is dominated by developed countries like the USA, Japan, and Germany
as they use highly advanced technology in production, marketing, advertising and establishing
a brand name.
11. Need for specialized institutions
 Marketing at global level is highly prone to risks & is very complex and knotty. It
undergoes lengthy and time taking procedures & formalities. Competent expertise is
required for handling various sections of international marketing.
12. Need for long term planning
International marketing calls for long term planning. Marketing practices differ from nation to
nation influenced by social, economic & political factors.
13. Lengthy & Time Consuming
 The activities in international marketing are very time-consuming and knotty or complex.
 The main cause of these difficulties are the local laws and policies enforced on different
nations, issues in payment as different countries use different currencies, distance between
the participating nations and time taking formalities involved therein.
FORMS OF ENTRY TO INTERNATIONAL MARKETS

Once a company decides to target a particular country, it has to determine the best mode of entry.

Its broad choices are indirect exporting, direct exporting, licensing, joint ventures and direct

investments. Each succeeding strategy involved more commitment, risk, control and profit

potential.
1. Indirect Export
Companies typically starts with indirect exporting that is they work through

independent intermediacies to export their products. There are four types of

intermediaries.
A. Domestic – based export merchant: Buys the manufacturer’s products and then
sells them abroad.
B. Domestic based export agent: Seeks and negotiate foreign purchases and is paid a

commission.
 C. Cooperative organization: Carries on exporting activities on behalf of several
producers and is partly under their administrative control. Often used by producers of
primary product – fruits, nuts and so on.

D. Export – Management Company: Agrees to manage a company’s export activities

for a fee.
Indirect export has two advantages: -
 It involves less investment and

 It involves less risk

2. Direct Export
 Companies eventually may decide to handle their own exports. The investment and risk are

somewhat greater. The company can carry on direct exporting in several ways;
A. Domestic based export department or division
 An export sales manager carries on the actual selling and draws market assistance as

needed. The department might evolve into a self – contained export department

performing all the activities involved in export and operating as a profit center.
B. Overseas sales branch or subsidiary
 An overseas sales branch allows the manufacturer to achieve greater presence and

programs control in the foreign market. The sales branch handles sales and distribution

and might handle warehousing and promotion as well. It often servers as a display center

and customer – service center also.

C. Traveling export sales representation

 The company sends home – based sales representatives abroad to find business.
D. Foreign – based distributors or agents
 The company can hire foreign based distributors or agents to sell the company’s goods.

These distributors and agents might be given exclusive rights to represent the

manufacturer in that country or only limited rights. Whether companies decide to enter

foreign markets through or indirect exporting, one of the best ways to initiate or extend

export activities is by exhibiting at an overseas trade show.

3. Licensing
 Licensing is a simple way for a manufacturer to become involved in international

marketing.
  The licensor license a foreign company to use a manufacturing process, trademark,

patent, or other item of value for a fee or royalty.

 The licensor thus gains entry into the foreign market at a little risk.

 The license gains production expertise or a well-known product or name without having

to start from scratch.

There are several forms of licensing arrangements:

a) Management contract
i) The company can sell a management contract to the owners of a foreign hotel, airport,

hospital or other organization to manage these businesses for a fee.

ii) Management contracting is a low risk method of getting into a foreign market, and it

yields income from a beginning. Management contracting prevents the company from

competing with its clients.

b) Contract manufacturing
 The firm engages local manufacturers to produce the product.

 Contract manufacturing has the drawback of giving the company less control over the

manufacturing process and the loss of potential profits on manufacturing. However, it

offers the company a chance to start faster, with less risk and with the opportunity to form

a partnership or to buy out of the local manufacturer later.

c) Franchising
 A company can enter a foreign market through franchising, which is a more complete form

of licensing. Here the franchiser offers a franchisee a complete brand concept and operating

system. In return, the franchisee invests in and pays certain fees to the franchiser.
d) Joint Venture
 Foreign investors may join with local investors to create a joint venture in which they share

ownership and control.

 Forming a joint venture might be necessary or desirable for economic or political reasons.

The foreign firm might lack the financial, physical or managerial resources to undertake the

venture alone. Or the foreign government might require joint ownership as a condition for

entry.
 Joint ownership has certain drawbacks. The partners might disagree over investment,

marketing or other policies. I.e. one partner might want to reinvest earnings for growth, and

the other partner might want to withdraw these earnings.

4. Foreign Direct Investment
 The ultimate form of foreign involvement is direct ownership of foreign-based assembly or

manufacturing facilities.

The foreign company can buy part or full interest in a local company or build its own facilities. As

a company gains experience in export, and if the foreign market appears large enough, foreign

production facilities offer distinct advantages, as enumerated below.

1. The firm could secure cost economies in the form of cheaper labor or raw materials,

foreign government incentives, freight savings and so on.

2. The firm will gain a better image in the host country because it creates jobs.

3. The firm develops a deeper relationship with government, customers, local suppliers,

and distributors, enabling it to adapt its products better to the local marketing

environment. Etc.

The main disadvantages of direct investment are that

 A firm exposes its large investment to risks such as blocked or devalued currencies,

worsening markets, or expropriation.

 The firm will find it expensive to reduce or close down its operations, since the best

country might require substantial severance pay to the employees.

CHARACTERISTICS OF MULTINATIONAL CORPORATION

 Several firms have passed beyond the international division – stage and have become truly

global organizations.

 They have stopped thinking of themselves as national marketers who have ventured abroad

and now think of themselves as global marketers. Their top corporate management and staff

plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical

systems.

 The global operating units report directly to the chief executives or executive committee, not

to the head of an international division. Executives are trained in worldwide operations; not

just domestic or international ones. Management is recruited from many countries;

 components and supplies are purchased where they can be obtained at the least cost; and

investment is made where the anticipated returns are greatest.

What is a Global industry?

global industry is an industry in which the strategic positions of competitors in major

geographic or national markets are fundamentally affected by their overall global positions.”

What is a Global firm?

global firm is a firm that operates in more than one country and captures R&D,

production, logistical, marketing, and financial advantages in its costs and reputation that are

not available to purely domestic competitors.

The mention of MNCS usually elicits mixed reactions. On the one hand, MNCS are associated

with exploitation and ruthlessness. They are often criticized for moving resources in and out of a

country, as they strive for profit, without much regard for the country’s social welfare.

On the other hand, MNCS have power and prestige. Additionally they create social benefits by

facilitating economic balance. As explained by Miller, “with resources, capital food, and

technology unevenly distributed around the planet, and all in short supply, an efficient instrument

of quick and effective production and distribution of a complex of goods and services is a first

essential.

According to Aharoni, an MNC has at least three significant dimensions: structural,

performance and behavior.

1. Structural
Structural requirements for definition as a MNC include the number of countries in which the firm

does business and the citizenship of corporate owners and top managers.
2. Performance
Definition by performance depends as such characteristics, as earnings, sales and assets. These

performance characteristics indicate the extent of the commitment of corporate resources to

foreign operations and the amount of rewards from the commitment.

3. Behavior

Behavior is somewhat less reliable as a measure of multinationals than either structure or

performance, though it is no less important. Thus a company becomes more multinational as its
management thinks more internationally. Such thinking, known as Geocentricity, must be

distinguished from the two other attitudes or orientations, known as ethnocentricity and

Polycentricity.

1. Ethnocentricity: - is a strong orientation toward the home country. Markets and consumers

abroad are viewed as unfamiliar and even inferior in taste, sophistication and opportunity.

Centralization of decision-making is thus a necessity. The usual practice is to use the home

base for the production of standardized products (i.e. without significant modification) for

export in order to gain some marginal business.

2. Polycentricity: - is the opposite of ethnocentricity, is or strong orientation to the host country.

The attitude places emphasize on differences between markets that are caused by variation

with in, such as income, culture, laws and politics. The assumption is that each market is a

unique and consequently difficult for outsiders to understand. Thus, managers from the host

country should be employed and allowed to have a great deal of discretion in market decision.

A significant degree of decentralization is thus common across the overseas divisions.

3. Geocentricity: - is a compromise between the two extremes of ethnocentricity and

polycentricity. Geocentricity is an orientation that considers the whole world rather than any

particular country as the target market. A geocentric company might be thought of as a

denationalized or supranational. As such, “international” or foreign departments or markets

do not exist because the company does not designate anything international or foreign about a

market.