International Marketing

Unit 2

Unit 2

International Marketing Environment

Structure: 2.1 Introduction Objectives 2.2 Political Environment Political systems Political risk analysis 2.3 Legal and Regulatory Environment Legal Forms of organisations Intellectual property 2.4 Socio-cultural Environment Elements of culture Cultural dimension 2.5 Economic Environment Economic systems The international economic system Income and purchasing power parity around the globe 2.6 Technological Environment Internet Modems High speed digital stream Satellite imaging 2.7 Challenges in Global Marketing Change Complexity Competition Social responsibilities 2.8 Summary 2.9 Terminal Questions 2.10 Answers

2.1 Introduction
You learnt the basics of international marketing in the previous unit. In this unit you will learn about the environmental factors that affect the marketing environment. Environmental factors are external effects that cannot be
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managed. Because environmental factors cannot be managed they must be anticipated and analyzed. The ability to predict or "guess" the future state of the environment enables the marketer to position the firm defensively against environmental threats or to seize opportunities that are created by the environment. Before entering into international market, a company must analyse the international marketing environment very carefully because the future of the company depends on this analysis only. However, you must note that this analysis should not be done at the beginning but throughout the life of the business as the international marketing environment changes really fast. A company needs to analyse the political, legal and regulatory, sociocultural, economic, and technological environment in order to understand the international marketing environment. Objectives After studying this unit, you will be able to: Assess the importance of political, legal and regulatory environment Discuss the socio-cultural framework Examine the relevant aspects of the economic environment Evaluate the role of technological developments Identify the challenges in global marketing

2.2 Political Environment

Majority of the MNCs have to face complex political environmental problems because they must cope with the politics of more than one nation. That complexity forces MNCs to consider three types of political environment: foreign, domestic and international. The developing countries and the Least Developed Countries (LDCs) often view foreign firms and foreign capital investment with distrust and even resentment, owing primarily to a concern over potential foreign exploitation of local natural resources. Dependency Theory explains why Latin American countries are reluctant to welcome foreign-based MNCs. According to this theory, the ongoing economic, political and social transformations have made it necessary for Latin America to rely on the capitalistic system. Let us know some more about political environment, discussed in following subsections.
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2.2.1 Political systems In order to appraise the political environment of a country, the knowledge of the form of government of that country is essential. Basically, the government can be classified into two categories parliamentary (open) or absolutist (closed). In the parliamentary form of government, the citizens are supposed to be consulted from time to time for learning about their opinions and preferences. In this type of government the policies are thus intended to reflect the desire of the majority segment of society. Most of the industrialised nations and democratic countries can be classified as parliamentary. The absolutist governments include monarchies and dictatorships. In the absolutist system, the ruling regime dictates government policies without considering citizens needs or opinions. The United Kingdom is a good example of a constitutional hereditary monarchy. Despite the monarch, the government is still classified as parliamentary. Political system of many countries does not fall neatly into these two categories. Some monarchies and dictatorships like Saudi Arabia and North Korea have parliamentary elections. The erstwhile Soviet Union had elections and mandatory voting but was not classified as parliamentary because the ruling party never allowed any alternative on the ballot. Countries such as the Philippines under Marcos and Nicaragua under Somoza held elections but the results were suspect because of the governments involvement in fraud. At the international political level, the governments can be classified in a number of ways. However, the best way to classify the government is through the political parties. The classification could be based on four types of governments (i) Two party, (ii) Multiple party, (iii) Single party, and (iv) Dominated by one party. In a two party system, there are mainly two parties that control the government, turn by turn, which-so-ever in a majority and the other parties are also allowed to support any one of the two parties. The classic examples are the United States and the United Kingdom. Both the parties have different philosophies, which change the government policy when one of the parties is elected to form the government.

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In a multi party system, there are a large number of parties, however, none of them are strong enough to gain control of the government. There have been cases when the larger parties, in spite of having a thin majority, cannot control the government because it needs support from other parties. The government, in this case, can only be formed through coalition of likeminded parties each one of which would like to protect its own interest. The coalition government largely depends upon the cooperation of its allies. There have been instances when the governments have fallen because one of the parties in the coalition government withdrew its support. A change in a few votes may be sufficient to bring the coalition government down. In such cases fresh elections are called for. In a single party system, there may be a number of parties functioning in a country, however, one party has so much of majority that there is very little opportunity for others to elect representatives to govern the country. India is again a classic example of single party rule after independence and after the formulation of the constitution in 1952. It was the Indian National Congress that ruled the country, being the single largest party, till 1982. In a dominated one party system, the dominant party does not allow any opposition resulting in no alternative for the people. In contrast, a single party system does allow some opposition parties. The former Soviet Union, Cuba and Libya are good examples of dominated one party system. Such a system tends to easily transform itself into dictatorship. Democratic political system is a pre requisite for political stability also. India, the largest democracy in the world, possesses a sound political infrastructure and political institutions that have withstood many crises over the years. 2.2.2 Political risk analysis There are a number of political risks which are to be faced by international marketers. The risks, which the marketers face from the host government, are: Confiscation is the process of a governments taking ownership of a property without compensation. For example, the Chinese government seized American property after the Chinese communists took power in 1949.
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Expropriation differs from confiscation in that there is some compensation though not necessarily just compensation. More often than not, a company whose property is being expropriated agrees to sell its operations not by choice but rather because of some explicit or implied coercion. Nationalisation involves government ownership and it is the government that operates the business being taken over. Myanmars foreign trade, for example, is completely nationalised. In domestication, foreign companies relinquish control and ownership either completely or partially to the nationals. The result is that private entities are allowed to operate the confiscated or expropriated properties. The French government, after finding out that the state was not sufficiently proficient to run the banking business, developed a plan to sell 36 French banks. Self Assessment Questions 1. If classified on the number of political parties, USA has a two party system. (True/False) 2. The process in which a company is totally taken over by the government is called domestication. (True/False)

2.3 Legal and Regulatory Environment

As there is a multiplicity of political environments, there are various legal environments: domestic, foreign and international. If laws are not handled properly they can prohibit the marketing of a product altogether. To most business people, laws act as an inconvenience. For example, Club Meds policy of rotating its international staff every six months is hampered by the US immigration law, which makes the process of rotation both time consuming and costly. A few issues related to legal aspect of business are discussed in the subsequent sub-sections. 2.3.1 Legal forms of organisations Every country has its own legal forms of organisations to deal with business. Firms doing business in United Kingdom have three primary choices for the legal form of organisation: British Branch, Limited Company, or Partnership. India also follows an almost similar organisation to deal with the business firms. If a limited company is the choice, more decision is needed. A limited company may either be a Public Limited Company (PLC), which can raise
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capital by selling securities to the public or a private company, which is not allowed to offer shares or debentures to the public. In general, a public company must meet a number of equirements in terms of registration and capital structure, subscription for shares and profits and assets available for distribution. In the US, a business is able to select from among these forms: sole proprietorship, partnership and corporation. For firms involved in international trade, the most common choice is the corporation because of the limited liability associated with corporate form, its relatively permanent structure and its ability to raise funds by selling securities. Most large US firms have a corporation or Inc. nomenclature as part of their trade name. The nomenclature indicating incorporation is different in other countries. For most British commonwealth countries, the corporate name includes limited or limited company to indicate that the liability of the company is limited. Equivalencies in civil law countries include the following: In France, SA (Societe Anonyme or Sociedad Anonima) for formal corporation/stock company and Saral (Soiete a responsibiliti limitee) for an informal corporation/limited liability company; in Germany and Switzerland, AG (Aktiengesellschaft) for a stock company and GAMBH (Gesellschaft Mit Beschrankter Haphung) for a limited liability company. In Japan, KK (Kabushikikaisha) for a stock company; in Sweden AB and in Netherlands NV. In order to eliminate confusion and ensure some uniformity, European countries are now encouraging the use of PLC instead of other nomenclatures to indicate that the company is incorporated. 2.3.2 Intellectual property The intellectual property is the creation of human mind, the human intellect, hence the designation Intellectual Property. It includes copyright, patent and industrial designs. Copyright relates to the rights of creators of literary, scientific and artistic works. Patents give exclusive rights to inventors; however, inventions can be patented only if they are new, known as obvious, capable of industrial applications, industrial designs are new or original aesthetic creation determining the appearance of industrial products. Intellectual property also includes trade marks, service marks and appellations of origin (geographic indications). In case of these property

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rights, the aspect of intellectual creation although existent is less prominent. Copyrights and related rights The subject matter of copyright protection includes works in the literary, scientific and artistic domain, whatever the mode or form of expression. For a work to enjoy copyright protection, however, it must be an original creation. The idea in the work does not need to be new but the form, be it literary, artistic or scientific, in which it is expressed, must be the original creation of the author. Copyright owners have the reproduction rights (copying and reproducing the work); performing rights (performing the work in public, e.g. play or concert); recording rights (making a sound recording of the work); motion pictures rights (making a motion picture often called a cinematography work); broadcasting rights (broadcasting the work by radio or television) and translation and adaptation rights. Trade mark is a sign that serves to distinguish the goods (as does the service mark with regard to services) of industrial or commercial enterprise from those of other enterprises. Such a sign may consist of one or more distinctive words, letters, names, numerals, figurative elements and combination of colours. Such a sign may combine any of the above mentioned elements. As the basic purpose of a trade mark is to distinguish, the laws of most countries provide that any product to be marked should be distinctive. Counterfeiting Once a business has obtained intellectual property protection, it then faces the far more difficult problem of enforcing those property rights in the worldwide market-place. The most significant problem is one of pirated or counterfeit products, especially for popular products. Both governments and individual businesses, have interests in stopping piracy and some grey market practices. Intellectual property piracy has three consequences for the legitimate trade mark, patent or copyright holder. First, it deprives the owner of revenue from the creation of the product, since the bootlegger pays no royalties. Second, when the quality of the counterfeit goods is poor, buyers who thought they
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were getting the real product will think poorly of the company that owns the intellectual property rights. Finally, the bootleg sales deprive the legitimate dealers of sales, which affect the success of the distributors relationships with the right owner. Grey market Intellectual property owners face an additional problem in preserving their property rights. The problem is that, under some circumstances, legitimate goods will enter a market through unauthorised channels. Such goods are known as grey market goods. Grey market goods appear either because a seller has priced goods differently in different markets or because currency values change, making it profitable to acquire goods in other markets and import them. For example, if the value of the dollar is high against the German mark, it may make sense to buy German cars directly from German sellers, rather than through the authorised American distributors. Activity 1: Find out about the different legal forms of businesses in China, Mexico and Australia. Also write a note on major laws governing international business in these countries. Self Assessment Questions 3. Intellectually property is the creation of technology. (True/False) 4. Firms doing business in UK have two basic choices in form of firmlimited company and partnership. (True/False)

2.4 Socio-cultural Environment

Though society and culture do not appear to be a part of business situations, yet they are actually key elements in showing how business activities will be conducted, what goods will be produced, and through what means they will be sold to establishing industrial and management patterns and determining the success or failure of a local subsidiary or affiliate. Let us learn various aspects of international cultural environment, discussed in the subsequent subsections.

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2.4.1 Elements of culture There are too many human variables and different types of international business functions for an exhaustive discussion about culture. The main elements of culture are: 1. Attitudes and Beliefs: The set of attitudes and beliefs of a culture will influence nearly all aspects of human behaviour, providing guidelines and organisation to a society and its individuals. 2. Attitudes towards Time: Everywhere in the world people use time to communicate with each other. In international business, attitudes towards time are displayed in behaviour regarding punctuality, responses to business communication, responses to deadlines, and the amount of time that is spent waiting in an outer office for an appointment. 3. Attitude towards Work and Leisure: Peoples attitudes towards work and leisure are indicative of their views towards wealth and material gains. These attitudes affect the types, qualities and numbers of individuals who pursue entrepreneurial and management careers as well. 4. Attitude towards Achievement: In some cultures, particularly those with high stratified and hierarchical societies, there is a tendency to avoid personal responsibility and to work according to precise instructions received from supervisors that are followed by the latter. In many industrial societies, personal responsibility and the ability to take risks for potential gain are considered valuable instruments in achieving higher goals 5. Attitudes towards Change: The international manager must understand what aspects of a culture will resist change and how the areas of resistance differ among cultures, how the process of change takes place in different cultures and how long it will take to implement change. 6. Attitude towards Job: The type of job that is considered most desirable or prestigious varies greatly according to different cultures. Thus, while medical and legal professions are considered extremely prestigious in the United States, civil service is considered the most prestigious occupation in several developing countries including India.
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2.4.2 Cultural dimension The influences of the religious, family, educational and social systems of a society on the business system comprise the cultural dimension of our picture. Because cultural attitudes vary so much among countries, it is harder to find general patterns here than for the economic dimension. The French and the Germans, for example, though their economic levels are similar, are culturally quite different. Thus, to determine the cultural aspects of markets, we must, in large measure, analyse each society by itself without the benefit of guiding generalisations. There are, however, a few common threads that run through the cultures of groups of countries. Religion is one, for, a few major religions have spread over large areas. In northern Europe and the Anglo-Saxon countries (the United States, Canada, and Australia), the Protestant influence has generally been dominant, though other religions existing alongside have moderated its importance. Religions are a major determinant of the moral and ethical standards that play a large part in the business process. It is difficult, however, to develop any generalisations about their nature in each region. The basic codes of religions the entire Bible, the Kuran, etc. exhort their followers to be honest, truthful and otherwise to act in a good manner. In practice, however, all business systems are characterised to varying degrees by false claims, dishonesty and other moral shortcomings. So the specific character of each society must be analysed as a distinct entity in this regard. Family systems fall into three general categories. One, especially prevalent in Moslem areas, traditionally places the wife in a subordinate and secluded role, with few rights and little control over the affairs of the family. This general pattern still prevails over much of the Middle-east, though in many Moslem countries, like Turkey and Pakistan, women have achieved a high degree of emancipation. A second pattern is particularly common in Latin America. The wife is still definitely a junior member of the partnership, the husband having the final authority in all but minor matters. The third type of relationship is found in varying forms throughout most of Europe and the Anglo-Saxon countries. The basic code in this pattern is equality, though there are many variations in actual practice. In other respects, cultural attitudes related to the family system differ widely among countries. Such
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matters as the way in which the sexes attract each other bear both on products sold and advertising methods, and they are subject to a host of local codes. So far as educational systems are concerned, the obvious marketing factors are the literacy rate and the general level of education, both of which generally run parallel to the pattern of economic development. There are also differences in educational methods common to large areas. Activity 2: Find out the cultural differences between India, France, Indonesia, Japan and Canada. Also try to find out a few similarities. Self Assessment Questions 5. Attitudes and beliefs are but time is not an element of culture that concerns the international marketer. (True/False) 6. The basic pattern of the family relationships in the Latin American countries is based on equality. (True/False) 7. Region and religion, both are important determinants of cultural values. (True/False)

2.5 Economic Environment

Perhaps the most important characteristic of the international market environment is the economic dimension. With money, all things (well, almost all!!) are possible. Without money, many things are impossible for the marketer. Luxury products, for example, cannot be sold to low-income consumers. Hypermarkets for food, furniture, or durables require a large base of consumers with the ability to make large purchases of goods and the ability to drive away with those purchases. Sophisticated industrial products require sophisticated industries as buyers. Let us learn more about economic environment, discussed in the following sub-sections. 2.5.1 Economic systems There are three types of economic systems: capitalist, socialist, and mixed. This classification is based on the dominant method of resource allocation: market allocation, command or central plan allocation, and mixed allocation, respectively.
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Market allocation A market allocation system is one that relies on consumers to allocate resources. Consumers write the economic plan by deciding what will be produced by whom. The role of the state in a market economy is to promote competition and ensure consumer protection. The United States, most Western European countries, and Japan the triad countries that account for three quarters of gross world product are examples of predominantly market economy. Command allocation In a command allocation system, the state has broad powers to serve the public interest. These include deciding which products to make and how to make them. Consumers are free to spend their money on what is available, but state planners make decisions about what is produced and, therefore, what is available. Because demand exceeds supply, the elements of the marketing mix are not used as strategic variables Mixed system There are, in reality, no pure market or command allocation systems among the worlds economies. All market systems have a command sector and all command systems have a market sector; in other words, they are mixed. In a market economy, the command allocation sector is the proportion of Gross Domestic Product (GDP). 2.5.2 The international economic system Several factors have contributed to the growth of the international economy post World War II. The principal forces have been the development of economic blocs like the European Union (EU) and then the economic pillars the World Bank (or International Bank for Reconstruction and Development to give its full name), the International Monetary Fund (IMF) and the evolution of the World Trade Organisation from the original General Agreement on Tariffs and Trade (GATT). Until 1969 the world economy traded on a gold and foreign exchange base. This affected liquidity drastically. After 1969 liquidity was eased by the agreement that member nations to the IMF accept the Special Drawing Rights (SDR) in settling reserve transactions. Now an international reserve facility is available. Recently, the World Bank has taken a very active role in

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the reconstruction and development of developing country economies, a point which will be expanded on later. Until the General Agreement on Tariffs and Trade (GATT) after World War II, the world trading system had been restricted by discriminating trade practices. GATT had the intention of producing a set of rules and principles to liberalise trade. The most favoured nation concept (MFN), whereby each country agrees to extend to all countries the most favourable terms that it negotiates with any country, helped reduce barriers. The round of talks began with Kennedy in the 60s and Tokyo of the 70s. The latest round, Uruguay, was recently concluded in April 1994 and ratified by most countries in early 1995. Despite these trade agreements, non-tariff barriers like exclusion deals, standards and administrative delays are more difficult to deal with. A similar system exists with the European Union, the Lom convention. Under this deal, African and Caribbean countries enjoy favoured status with EU member countries. No doubt a great impetus to global trade was brought about by the development of economic blocs, and, conversely, by the collapse of others. Blocs like the European Union (EU), ASEAN, the North American Free Trade Agreement (NAFTA) with the USA, Canada and Mexico has created market opportunities and challenges. New countries are trying to join these blocs all the time, because of the economic, social and other advantages they bring. Similarly, the collapse of the old communist blocs have given rise to opportunities for organisations as they strive to get into the new market based economies rising from the ruins. This is certainly the case with the former Soviet bloc. 2.5.3 Income and purchasing power parity around the globe When a company charts a plan for global market expansion, it often finds that, for most products, income is the single most valuable economic variable. After all, a market can be defined as a group of people willing and able to buy a particular product. Ideally, GNP and other measures of national income converted to U.S. dollars should be calculated on the basis of purchasing power parities (i.e. what the currency will buy in the country of issue) or through direct comparisons of actual prices for a given product. This would provide an actual comparison of the standards of living in the countries of the world.
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The top 10 nations ranked as per capita income and purchasing parity are: (In Order) USA, China, Japan, India, Germany, UK, France, Italy, Brazil and Russia. Activity 3: Identify 10 countries where you would like to set up a textile business. Also identify 10 countries where you would like to just set up a manufacturing plant and not operate or sell. Self Assessment Questions 8. Countries where the government decides the market prices are called ___________ economies. 9. A ______________ is defined as a group of people willing to buy a particular product. 10. India holds the ________________ place in the rankings based on purchasing power parity.

2.6 Technological Environment

Pervasive are diversified in scope, technological changes affect many parts of societies. These effects occur primarily through new products, processes, and materials. The technological segment includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes and materials. Given the rapid pace of technological change, it is vital that firms carefully study different elements in the technological segment. The marketers need to identify the speed with which substitute technologies are likely to emerge and the timing of any major technological changes. Some new technologies that have helped international marketers are discussed in the following subsections. 2.6.1 Internet A technology with important implications for business in the Internet sometimes referred to as "the information superhighway." The Internet is a global web of more than 25,000 computer networks. It provides a quick, inexpensive means of global communication (i.e. with strategic alliance partners) and access to information.

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For example, GE engineers often use the Internet to communicate with their counterparts when doing development work for other companies. The Internet provides access to experts on such topics as chemical engineering and semi-conductor manufacturing, to the library of Congress, and even to satellite photographs. 2.6.2 Modems Modems are important for connecting personal computers to phone lines that help gain access to the Internet. The technology in the manufacture of modems has advanced rapidly. Their speed may only be curtailed by the limits of conventional phone lines. Encyclopedia Britannica Inc. is using the Internet to revive its business. For example, the firms now offer a free search engine with sites screened by its editors. As Encyclopedia Britannica's actions demonstrate, the Internet can allow a firm to be both flexible and innovative with its product introductions. 2.6.3 High speed digital stream To obtain technology to deliver a high-speed digital stream that can be viewed as movies, Web sites or advertising on televisions with its equipment. Oracle Corporation, through its unit Network Computer, Inc., is developing a rival design for a cable box, which was given a significant boost by support from Intel. 2.6.4 Satellite imaging Another new technology that is gaining rapid popularity is satellite imaging. Several aerospace companies have invested up to $1 billion in corporate earth imaging systems. For example, Space Imaging, Inc., a joint venture for Lockheed Martin, E-Systems, Mitsubishi Corporation, and Eastman Kodak Company, is a $500 million venture that provides from an advanced satellite. Many expect this technology to compete in the global information trade industry and some anticipate that it will create a revolution. There are a number of uses for this technology.

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Self Assessment Questions 11. _____________ are instruments that connect computers to the phones that help access the internet. 12. _________ is sometimes referred to as the information super highway.

2.7 Challenges in Global Marketing

In striving to develop a strategy that will make it more competitive, the firm must grapple with four interrelated challenges of global marketing strategy change, complexity, competition and conscience. 2.7.1 Change Rapid change pervades all aspects of operations in global markets as well as the context in which they take place. Not only are the rates of technological evolution, knowledge obsolescence and the intensity of competition increasing at an alarming pace in many industries, but unforeseen events are dramatically changing the political and economic context in which markets develop and strategies are formulated. Technological change renders product development, production processes, and experience rapidly obsolete and contributes to escalating investment costs as well as heightened competitive pressures. At the same time, as customers become more mobile and are exposed to new ideas and patterns of behaviour through the new global media, the diffusion of new products and innovation takes place more rapidly. 2.7.2 Complexity A second challenge arises from the increasing complexity of managing international operations. Technological advances, on the one hand, enable management to direct, coordinate, and control operations on a much broader and diverse geographic scale and scope than previously possible. Yet at the same time, such advances add further complexity, as management has to master the tools and skills required to handle the burgeoning international infrastructure. As the geographic scope and scale of operations extends further and further, management is faced with the task of directing and controlling diverse and far-flung activities at various stages in the value chain, often in widely divergent environmental contexts.

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2.7.3 Competition Increasing intensity of competition in global markets constitutes yet another challenge facing companies at all stages of involvement in international markets. As markets open up, and become more integrated, the pace of change accelerates, technology shrinks distances between markets and reduces the scale advantages of large firms, new sources of competition emerge, and competitive pressures mount at all levels of the organization. 2.7.4 Social responsibilities The fourth challenge relates to the firm's moral and social responsibilities in the global marketplace. A host of such responsibilities can be identified, covering a broader spectrum of social and corporate issues. Companies have become increasingly aware of the need to take measures to limit destruction of the environment. These include measures to limit pollution of the atmosphere through the emission of gases and other toxic substances, to conserve resources such as paper and plastic, whose production results in environmental destruction, and to produce and design products and packaging which are environmentally friendly. Another area of social responsibility of particular relevance in international markets is concern with customer education and general well-being. Product safety standards should also meet the most exacting international standards, even in countries where no such regulation exists. This is especially critical in the case of products such as pharmaceuticals, where substantial health risks are present. Activity 4: Suppose you are the Marketing Head of a shoe manufacturing company. Your company wants to enter the African market. Identify the challenges that you might face in the process. Self Assessment Questions 13. Due to ___________________ change, the product development and production process become obsolete. 14. To provide right and adequate consumer education is a ____________ of the organisation.

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2.8 Summary
Majority of the MNCs have to face complex political environmental problems because they must cope with the politics of more than one nation. In order to analyse the political scenario of the nations the companies must know the type of political system that exists in that nation. As there is a multiplicity of political environment, there are various legal environments: domestic, foreign and international. The companies must know the legal system that exists in a nation in which it wishes to enter. Society and culture influence every aspect of overseas business of an MNC and successful MNC operations whether it is marketing, finance, production, or personnel have to be acutely aware of the predominant attitudes, feelings and opinions in the local environment. The most important characteristic of the international market environment is the economic dimension. It includes the analysis of the world economic systems, development status of the countries, the purchasing power across nations and income of the population. Given the rapid pace of technological change, it is vital that firms carefully study different elements in the technological segment. The major challenges facing the international marketers today are coping with change, understanding complexity of the changing markets, dealing with competition and performing social responsibilities. Glossary Parliamentary Government: in this, the citizens are consulted from time to time to know their opinions Absolutist Government: in this, the ruling government dictates the policies without considering citizens opinions Counterfeiting: to make a copy of, usually with the intent to defraud Purchasing Power Parity: it states that the exchange rate between one currency and another is in equilibrium when their domestic purchasing powers at that rate of exchange are equivalent Gross National Product: it is the total value of all final goods and services produced within a nation in a particular year

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2.9 Terminal Questions

1. How relevant is the political environment in international business? Enumerate different types of political systems that exist around the globe. 2. Write short notes on: Counterfeiting and Grey Marketing. 3. Though society and culture do not appear to be a part of business situations, yet they are actually key elements in showing how business activities will be conducted. Discuss. 4. What are the different types of economic systems? Explain with suitable examples. 5 How has the development of new technologies helped international business? How can it pose a challenge for marketer?

2.10 Answers
Answers to Self Assessment Questions 1. True 2. False 3. False 4. False 5. False 6. False 7. True 8. Mixed 9. Market 10. 4th 11. Modem 12. Internet 13. Technological 14. Social responsibility Answers to Terminal Questions 1. Refer to 2.2 The international businesses must cope up with the political system that exists in a nation otherwise they wont survive. 2. Refer to 2.3 Counterfeiting and grey marketing pose big problems for any international marketer. Piracy and marketing through unauthorised channels are big threats.

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3. Refer to 2.4 Society and culture often mould attitudes towards fundamentals of life such as time, money, productivity and achievement that are important for businesses. 4. Refer to 2.5 Market system, command allocation and mixed system are major economics systems. 5. Refer to 2.6 and 2.7 Technology makes the business tasks simpler and saves time but organisations needed to keep track of the fast changing technology. Mini-Case Trouble in paradise The biggest threat that India is facing today is the slow economic growth because of two great factors. First, terrorism from across the border in Jammu and Kashmir and other parts of the country which is dissuading the MNCs for foreign direct investment in the country and second, poor labour legislation. Unless higher and fire system in the labour legislation is brought, foreign companies will not like to come to India for investments. The greatest risk that any foreign company faces today is the instability of a government due to terrorism in the country. Though the government is stable in the country and is running smoothly and efficiently, however, the threat of terrorism is making the MNCs to avoid investing in a big way. It is, therefore, essential that terrorism is curbed at all levels for which the government must go all out to ensure the safety and integrity of the people and the property of the country. India, after 1990, opened its economy to international institutions through modernisation, privatisation and globalisation. There is hope now that the economic growth of the country will touch 6.5 % of GDP as envisaged by the Reserve Bank of India Annual Report for the year 2003-04. Question How has terrorism affected the growth of international business? Hint answer: Businesses refrain from entering countries or regions with terror scare which inhibits the growth of the region as well as the business. Source: International marketing 3rd edition, PK Vasudeva, Excel Books.

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