UNIT-I and First half of second Unit. Define International Marketing? Ans.

International Marketing can be defined as exchange of goods and services between different national markets involving buyers and sellers. According to the American Marketing Association, International Marketing is the multinational process of planning and executing the conception, prices, promotion and distribution of ideal goods and services to create exchanges that satisfy the individual and organizational objectives. What are the Different concepts of International Marketing? Ans. Domestic Marketing: Domestic Marketing is concerned with marketing practices within the marketers home country. II. Foreign Marketing: It refers to domestic marketing within the foreign country. III. Comparative Marketing: when two or more marketing systems are studied, the subject of study is known as comparative marketing. In such a study, both similarities and dis-similarities are identified. It involves an analytical comparison of marketing methods practiced in different countries. IV. International Marketing: It is concerned with the micro aspects of a market and takes the company as a unit of analysis. The purpose is to find out as to why and how a product succeeds or fails in a foreign country and how marketing efforts influence the results of international marketing. V. International Trade: International Trade is concerned with flow of goods and services between the countries. The purpose is to study how monetary and commercial conditions influence balance of payments and resource transfer of countries involved. It provides a macro view of the market, national and international. VI. Global Marketing: Global Marketing consider the world as a whole as the theatre of operation. The purpose of global marketing is to learn to recognize the extent to which marketing plans and programmes can be extended world wide and the extent to which they must be adopted. Difference between domestic marketing and international marketing Characteristics International Marketing Culture Multi culture Domestic Marketing Single culture and in some cases multi culture Easy High

Data accessibility Data reliability

Very difficult Very Low

Control Consumer preferences Product mix Business operation Currency exposure

Difficult Vary from country to country Adaptability required More than one country Required

Relatively easy Vary in small extent Standardization required Home country only Required only if there is importing

SCOPE OF INTERNATIONAL MARKETING International Marketing constitutes the following areas of business:Exports and Imports: International trade can be a good beginning to venture into international marketing. By developing international markets for domestically produced goods and services a company can reduce the risk of operating internationally, gain adequate experience and then go on to set up manufacturing and marketing facilities abroad. Contractual Agreements: Patent licensing, turn key operations, co production, technical and managerial know how and licensing agreements are all a part of international marketing. Licensing includes a number of contractual agreements whereby intangible assets such as patents, trade secrets, know how, trade marks and brand names are made available to foreign firms in return for a fee. Joint Ventures: A form of collaborative association for a considerable period is known as joint venture. A joint venture comes into existence when a foreign investor acquires interest in a local company and vice versa or when overseas and local firms jointly form a new firm. In countries where fully owned firms are not allowed to operate, joint venture is the alternative. Wholly owned manufacturing: A company with long term interest in a foreign market may establish fully owned manufacturing facilities. Factors like trade barriers, cost differences, government policies etc. encourage the setting up of production facilities in foreign markets. Manufacturing abroad provides the firm with total control over quality and production. Contract manufacturing: When a firm enters into a contract with other firm in foreign country to manufacture assembles the products and retains product marketing with itself, it is known as contract manufacturing. Contract manufacturing has important advantages such as low risk, low cost and easy exit. Management contracting: Under a management contract the supplier brings a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership. Third country location: When there is no commercial transactions between two countries due to various reasons, firm which wants to enter into the market of another nation, will have to

operate from a third country base. For instance, Taiwans entry into china through bases in Hong Kong. Mergers and Acquisitions: Mergers and Acquisitions provide access to markets, distribution network, new technology and patent rights. It also reduces the level of competition for firms which either merge or acquires. Strategic alliances: A firm is able to improve the long term competitive advantage by forming a strategic alliance with its competitors. The objective of a strategic alliance is to leverage critical capabilities, increase the flow of innovation and increase flexibility in responding to market and technological changes. Strategic alliance differs according to purpose and structure. On the basis of purpose, strategic alliance can be classified as follows: i. Technology developed alliances like research consortia, simultaneous engineering agreements, licensing or joint development agreements. ii. Marketing, sales and services alliances in which a company makes use of the marketing infrastructure of another company in the foreign market for its products. iii. Multiple activity alliance involves the combining of two or more types of alliances. For instance technology development and operations alliances are generally multi- country alliances. On the basis of structure, strategic alliance can be equity based or non equity based. Technology transfer agreements, licensing agreements, marketing agreements are non equity based strategic alliances. Counter trade: Counter trade is a form of international trade in which export and import transactions are directly interlinked i.e. import of goods are paid by export of goods. It is therefore a form of barter between countries. Counter trade strategy is generally used by UDCs to increase their exports. However, it is also used by MNCs to enter foreign markets. For instance, PepsiCos entry in the former USSR. There are different forms of counter trade such as barter, buy back, compensation deal and counter purchase. In case of barter, goods of equal value are directly exchanged without the involvement of monetary exchange. Under a buy back agreement, the supplier of a plant, equipment or technology. Payments may be partly made in kind and partly in cash. In a compensation deal the seller receives a part of the payment in cash and the rest in kind. In case of a counter purchase agreement the seller receives the full payment in cash but agrees to spend an equal amount of money in that country in a given period. Modes of Entry in Foreign Market The various strategies available to Indian firms to enter the international environment are discussed as follows: 1. EXPORTING Exporting is perhaps the first step for a company to go global. It is the first of the attempts to understand the international environment develop markets abroad. Exporting can be direct or indirect. With direct exporting the company sells to a customer in

another country. This is the most common approach employed by companies taking their first international step because the risks of financial loss can be minimized. In contrast, indirect exporting usually means that the company sells to a buyer in the home country who in turn exports the product. Customers include large retailers like Wal-Mart or Sears, Wholesale supply houses, trading companies, and others that buy to supply customers abroad. In a global environment, the sourcing of finance, materials, managerial inputs etc. will also be global. However, with 0.5 percent share in the world trade, India is an insignificant player. There are a number of products with large export potential but these have not been tapped properly. With a more pragmatic and realistic export policy, procedural reforms and institutional support, with technological development, modernization and expansion of production facilities, India can definitely improve its share in the world trade from its present poor status. There are three strategies to increase export revenue. These are: 1. increase the average unit value realization, 2. increase the quantity of exports and 3. Export new products. Value added exports assume significance in the context of increasing the average unit value realization. The bulk of Indias manufactured exports constitute the low price segment of international markets. Quality improvement and aggressive marketing is required to enter the high price segments of the markets. This can be achieved by technology imports and or foreign collaborations. The size of Indias export basket needs to be expanded by adding new products. In order to identify new products for exports, export opportunities needs to be explored and products with high foreign demand also need to be identified. There are also market segments, and industries which are abandoned by the developed countries on account of factors such as environmental consideration, lack of competitiveness etc. For instance, developed countries are progressively vacating production of a range of chemicals due to higher expenditure on overheads and wages. Yet another strategy available to Indian Companies is Niche Marketing. 2. FOREIGN INVESTMENT It refers to investment in foreign country. Foreign investment by Indian Companies have been negligible because of factors such as assured domestic market, want of global orientation, protective government regulation etc. However, this inward orientation has undergone substantial change after the adoption of the new economic policy 1991. With the economic liberalization and growing global orientation, many Indian firms are setting up manufacturing, assembling and trading bases overseas. These facilities are either wholly owned or foreign partnership firms. Further, through acquisition route, Indian companies have made substantial investments abroad. The Aditya Birla Group has been pioneer in making foreign investments much before the adoption of the new economic credo. Indian companies are also setting up production bases in

foreign countries to get an easy entry into the regional trade blocks. For instance, a production facility in Mexico opens the doors to the NAFTA area for Arvind Mills. Yet another example is that of Cheminoor Drugs by Dr. Reddys Labs in New Jersey which is set up as a subsidiary. 3. MERGERS AND ACQUISITIONS In merger, two companies come together but only one survives and the other goes out of existence as it is merged in the other company. While in acquisition, one company (acquirer) gets control over the other company (acquired) at the willingness of each of the companies. Mergers and acquisitions is an important entry strategy in international business. Mergers and acquisitions can be used to acquire new technology, reduce the level of competition and provides quick access to markets and distribution network. Many Indian firms have resorted to the acquisition route to gain a foothold in the foreign market. For instance, Indian companies had spent $ 711.4 million in acquisitions abroad in 2000 in industries such as InfoTech, drugs and pharmaceuticals, paints, tele-communication, petroleum and broadcasting. Some of the major acquisitions include investments by Zee Telefilms, Leading Edge System BPL Software and Tata Tea. Dataline Transcription, Teamasia semiconductors, Goa Carbons, Wockhordt and Acro lab are few other firms to name from a long list. A very important acquisition has been the $ 271 billion leveraged buy out of Tetley by Tata Tea. With the acquisition of Tetley, Tata Tea, having been the largest integrated tea producer in the world, also got possession of the second largest global tea marketer. Indian companies have also acquired foreign brands. Nicholas Piramal India has acquired the Indian rights for three anti-infective brands from the US firm Eli Lilly. Ranbaxy interred the German pharma market by acquiring the generics business of Bager Ali. The Indian Rayon acquired Madura Garments; a subsidiary of the UK based coats Viyella and also acquired global rights for Coats Viyella brands such as Louis Phillipe, Allen Solly and Peter England. 4. JOINT VENTURES Joint Ventures as a means of foreign market entry have accelerated sharply since the 970s. Joint ventures refer to joining with foreign companies to produce or market the products or services. Besides serving as a means of lessening political and economical risks by the amount of the partners contribution to the venture, JVs provide a less risky way to enter markets that pose legal and cultural barriers than would be the case in an acquisition of an existing company. There are two types of JVs, namely: 1. Contractual JVs and 2. Equity based JVs. A contractual JV consists of a contractual arrangement between two or more companies in which certain assets and liabilities are shared for a specific purpose and time. Contractual JVs are common in the construction, extractive and consultancy services. An equity JV is a capital sharing arrangement between an MNC and a local company or another

MNC or even a foreign government. Each partner holds share in the subsidiary and shares the profits in proportion to its ownership share. The advantage of a JV for MNC is that it can spread its investment across locations, and thereby minimize its risks. The liberalization of policy towards the foreign investment by Indian firms along with the new economic environment seems to have given joint venture a boost. At the beginning of 1995 although there were 177 JVs in operation, there were 347 under implementation. Not only the number of JVs is increasing but also the number of countries and industries in the map of Indian JVs is expanding. Companies like Ranbaxy, Dr. Reddys Lab, Lupin etc. have taken the JV route to mark their presence in the overseas market. 5. STRATEGIC ALLIANCE: A Strategic International Alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective. It is an agreement between companies that is of strategic importance to one or both companies competitive viability. Strategy refers to the means to fulfill companys objectives. In every day business, the term strategic alliance is generally used to describe a wide variety of collaborations, irrespective of strategic importance. In a strategic alliance, a firm could establish relationships with organization that have the potential to add values. Bench marking, reengineering, outsourcing, merger and acquisition are examples of strategic alliance. On the basis of structure, strategic alliances can be classified into equity based and non- equity based. Non-equity based alliances such as licensing agreements, marketing agreements, technology transfer agreements etc. are found to be more dynamic, constructive and strategic. The scope of strategic alliance ranges from Research and Development to distribution. 6. LICENSING AND FRANCHISING: A means of establishing a foothold in foreign markets without large capital outlays is licensing. It is a favorite strategy for small and medium sized companies. International licensing helps a firm from one country (licensor) to permit another firm in a foreign country (licensee) to use its intellectual property such as patents, trademarks, copyrights, technology, technical know-how, marketing skill etc. in return for royal payments. Royal payments or license fee is regulated in most of the countries. The advantages of licensing are most apparent when: capital is scarce, import restrictions forbid other means of entry, a country is sensitive to foreign ownership, or it is necessary to protect trademarks and patents against cancellation of nonuse. An important risk of licensing is that the licensor may give birth to his own competitor i.e. the licensee can become a competitor after the expiry of the licensing agreement. The only anti-dote that is available to the licensor to pre-empt any potential or actual competition is continuous innovation. Only innovation will provide sustainable competitive advantage.

Franchising is a form of licensing in which a parent company (franchiser) grants another company (franchisee) the right to do business in a specific manner. Franchising can assume various forms such as selling the franchisers products, using the name of the franchiser, production and marketing techniques etc. Important forms of franchising are: 1. Manufacturer- retailer systems e.g. automobile dealership 2. Manufacturer- wholesaler system e.g. soft drink companies 3. Service firm- retailer systems e.g. lodging and fast food outlets. Potentially, the franchise system provides an effective blending of skill centralization and operational decentralization, and has become increasingly important form of international marketing.

Benefits of International Marketing

Survival and Growth Sales and Profits Diversification Inflation and Price Moderation Employment Standards of Living Understanding of Marketing Process Enhances the domestic competitiveness Takes advantage of international trade technology Extend sales potential of the existing products Enhance potential for expansion of your business Gains a global market share Reduce dependence on existing markets Stabilize seasonal market fluctuations

Theories of International Marketing

Theory of absolute advantage The Scottish economist Adam Smith first explained the theory of absolute advantage in 1776. He argued that a country has an absolute advantage in the production of a good when it can produce more of that good with a given amount of resources than another country. A simple economic model can be used to illustrate the principle of absolute advantage. The following economic model is based on the following assumptions and is just an example: There are only two countries, Australia and China. These two countries each produce only wheat and cloth. Each country has the same amount of resources (land, labor and capital), however the quality differs.

 Resources are transferable between the production of wheat and cloth. Production costs for each country are fixed. There are no trade barriers, such as tariffs between the two countries. Table 1 Absolute Advantage - Production before Specialization Wheat (units) Cloth (units) Australia 30 20 China 5 25 Total output 35 45 Table 1 shows the production for each country before specialization. With a given amount of resources Australia can produce 30 units of wheat and 20 units of cloth. While China can produce 5 units of wheat and 25 units of cloth. In this example Australia produces more wheat while China can produce more cloth. Australia then has an absolute advantage in the production of wheat and China an absolute advantage in the production of cloth. Table 2 Production gains after specialization Wheat (units) Cloth (units) Australia 60(+30) 0 (-20) China 0 (-5) 50 (+25) Total output 60 (+25) (net gain) 50 (+5) (net gain) When each country specializes in the production of the goods they have a comparative advantage in, greater production of both goods could occur. This is illustrated in Table 2, were the production of wheat has increased by 25 units and production of cloth by 5 units. It is quite realistic to think that one country has an absolute advantage over another country in the production of some goods. Finland has done this recently by specializing in the production and distribution of Nokia telephones. Criticism: According to this theory every country should be able to produce certain products at low cost compared to other countries and should product certain other products at comparatively high price than other countries. International trade takes place only under such condition. But, in reality most of the countries do not have absolute advantage of producing at lowest cost and commodity, yet they participate in international business. Theory of comparative advantage Adam Smith's theory of absolute advantage is a simple explanation of the benefits of international trade. However, if one country has an absolute advantage in the production all goods, can there be benefits from trade. In 1817, David Ricardo, a classical economist developed the principal of comparative advantage

to explain this situation. The principal is based on the relative efficiencies of production where each country has a comparative advantage in producing the commodity in which it has the lower opportunity cost. Opportunity costs are what must be given up in order to consume or produce another good. For example, going on an overseas holiday may involve giving up the purchase of a new car. The comparative advantage principle can be illustrated using Tables 3 and 4. Table 3 Comparative advantages: production before specialization Wheat (units) Cloth (units) Australia 20 10 China 5 5 Total Output 25 15 In Table 3, Australia has an absolute advantage in the production of both wheat and cloth. By using the theory of comparative advantage, both countries can gain from specialization and trade. Table 4 Opportunity costs Opportunity cost Country 1 unit of wheat 1 unit of cloth Australia 0.5 (10/20) units of cloth 2 (20/10) units of wheat China 1 (5/5) units of cloth 1 (5/5) units of wheat From Table 4: Australia has a comparative advantage in the production of wheat since it has to give up only 0.5 units of cloth to produce an extra unit of wheat, while China must give up 1 unit of cloth to produce an extra unit of wheat. So it is more practical for Australia to specialize in the production of wheat. China has a comparative advantage in the production of cloth since it has to give up only 1 unit of wheat to produce an extra unit of cloth, while Australia must give up 2 units of wheat to produce an extra unit of cloth. Consequently it is more practical for China to specialize in the production of cloth. Australia has a comparative advantage in the production of wheat and China cloth. Trade between the two countries should be beneficial because of the different opportunity costs for these commodities. Table 5 Production levels after specialization Wheat (units) Cloth (units) Australia 40 (+20) 0 (-10) China 0 (-5) 10 (+5) Total output 40 (+15) (net gain) 10 (-5) (net gain) From Table 5 we can see that total output has increased when countries specialize in the production of goods and services based on comparative advantage. As both countries are using their resources more efficiently, trade will lead to higher standard of living than would be otherwise possible. A modern approach to comparative advantage

Michael Porter The Comparative Advantage of Nations (London, Macmillan 1990), suggests that instead of different factor endowments being the basis for international trade much of the world's trade is taking place between nations with similar factor endowments. Factor endowments and comparative advantages are important in countries that have industries based on natural resources and where production does not rely on high levels of technology or where the labor force is relatively unskilled. Porter suggests that it is competitive advantage (based on lower costs, technological innovation and product differentiation) rather than comparative advantage that is becoming an important factor in determining the pattern and direction of international trade. Transnational corporations are playing a very important role in this development because they are able to coordinate their production activities by moving resources production components, investment funds, technology and labor across the world. Assumptions and Limitations a. It assumes countries are only driven by the maximization of production and consumption. b. It assumes only two countries are engaged in the production and consumption of two goods. c. It assumes no transportation costs. In reality, transportation costs are a major expense of international trade. d. It assumes labor is the only resource for production and is mobile within each nation but cannot be transferred. e. It assumes specialization does not result in gains in efficiency. In fact, specialization results in increased knowledge of a task and future improvements. The Opportunity Cost Theory Gottfried Harberler proposed the opportunity cost theory in 1969. The limitations of the comparative cost theory produced the basis of this theory. The opportunity cost is the value of alternatives, which have to be forgone in order to obtain a particular thing. For example Rs. 1000 is invested in the equity of Rama News Print Limited and earned a dividend of 6% in 1999, the opportunity cost of this investment is 10% interest, had this amount been deposited in a commercial bank for a term of one year. Another example is that, India produces textile garments by utilizing its human resources worth of Rs. 1 billion and exports to the US in 1999. The opportunity cost of this project is, had India developed software packages by utilizing the same human resources and exported the same to USA in 1999, the worth of the exports would have been Rs. 10 billion. Opportunity cost approach specifies the cost in terms of the value of the alternatives, which have to be forgone in order to fulfill a specific act. Thus, this theory provides the basis for international business terms of exporting a particular product rather than other products. The previous example suggests that it would be profitable to India to develop and export software packages rather than textile garments to USA. We slightly modify the previous example. For example, assume that India earned Rs. 15 billion by exporting the same software packages to UK in 1999 rather than to USA. This theory suggests that the opportunity cost of Indias software exports to USA in 1999 is Rs. 15 billion.

This. This theory also provides basis for international business of exporting a product to a particular country rather to another country. Other theories of International Trade 1. The Productivity Theory It is criticized that most of the comparative cost theories are not applicable to developing countries. Hence, H. Myint proposed productivity theory and the vent for surplus theory. The productivity theory points toward indirect and direct benefits. This theory emphasizes that the process of specialization involves adapting and reshaping the production structure of a trading country to meet the export demands. Countries increase productivity in order to utilize these gains of exports. This theory encourages the developing countries to go for cash crops, increase by enhancing the efficiency of human resources, adapting latest technology etc. Limitations However, this theory has also certain limitations. They are: Labour productivity did not increase after certain level. Increase in working hours Increase in the proportion of gainfully employed labour in proportion to disguised unemployed labour. 2. The Vent for Surplus Theory International trade absorbs the output of unemployed factors. If the countries produce more than the domestic requirements, they have to export the surplus to other countries. Otherwise, a part of the productive labour of the country must cease and the value of its annual produce diminishes. Thus, in the absence of foreign trade, they would be surplus productive capacity in the country. This surplus capacity is taken by another country and in turn gives the benefit under international trade. Appropriateness of this Theory for Developing Countries: According to this theory, the factors of production of developing countries are fully utilized. The unemployed labour of the developing countries is profitably employed when the vent for surplus is exported. International trade permits for more efficient use of capital and labour. Hence. J.S. Mill described this theory as, serving relic of the Mercantile Theory. 3. Mills Theory of Reciprocal Demand Comparative cost advantage theories do not explain the ratios at which commodities are exchanged for another. J.S. Mill introduced the concept of Reciprocal demand to explain the determinations of the equilibrium terms of trade. Reciprocal demand indicates a countrys demand for one commodity in terms of the other commodity; it is prepared to give up in exchange. Reciprocal demand determines the terms of trade and relative share of each country. Quality of a product exported by country A Equilibrium = ----------------------------------------------------Quality of another Product exported by country B

Assumptions: Assumptions of this theory are: Existence of two countries, trade in only two goods, both the goods are produced under the law of constant returns, absence of the transportation costs, existence of perfect competition and existence of full employment. Modern Trade Theories Modern theories focus on the concept of economies of scale as opposed to the assumption of constant returns of scale incorporated in other theories. This may mean that as a company produces on a larger scale, average costs fall (internal economies of scale), but also that costs (the establishment of good infrastructure, the presence of well-trained employees, etc.) will decline if numerous other businesses are established in the vicinity (external economies of scale). The company's earnings increase disproportionately to the increase in use of all factors of production (e.g. labour, machinery, capital). The company then gains an ever-increasing advantage over other firms in its sector and thereby ends perfect competition, which was an assumption of traditional theories. It should be clear that if economies of scale, regardless of their base, largely determine international competitiveness, it is mainly incidental factors or even chance that will decide why one country, for example, has a strong aircraft industry as a result of internal economies of scale and another country has acquired and electronics industry as a result of external economies of scale. A second implication of economies of scale is that even if countries have comparable supply structures (so that there are no comparative cost advantages and, according to traditional theory, no reason for specialization either), there are still reasons why one country specializes in one product and another in something else. If they do so, production costs can be reduced in both countries by economies of scale, and everyone involved in international trade can benefit. However, economies of scale need not include all stages of production. They may actually be important at the sub-process stage of production because production can be considered as a series of sub-activities ranging from design to assembly. The company can create economies of scale by concentrating on a few sub-activities such as design and production of certain components or assembly. Other sub-activities then take place elsewhere, e.g. abroad. And when it comes to explaining the location of these sub-activities, companies often resort to the concept of comparative costs (as used by traditional theorists): labour-intensive assembly takes place where labour is cheap, and the design takes place where there is plenty of technological know-how.

Write Notes on Political & Social Environment

Examine the various issues that needs to be considered by an international business organization while studying the political environment of a country. Answer - The International Marketing activities take place within the political environment of national political institutions such as the government, political executive, legislative and the judiciary.

Any company doing business overseas should Carefully study the political environment of he country it intends to operate and analyze issues such as the attitude of the political party in power toward (a) Sovereignty, (b) Political Risk, (c) Taxes, (d) Threat of Equity dilution and (e) Expropriation. Sovereignty: The sovereign political power of a country in a command economy may determine every aspect of economic life of the people. In contrast, in a market economy, the government may only play the role of a facilitator and a regulator. However, after the fall of the Soviet Union, the command economics around the world have progressed towards a market oriented system. Eastern European countries, countries in Central America, and most importantly, India and China have also adopted the free market system. With globalization and economic integration, political sovereignty of individual nation states is on the wane. However, erosion of political sovereignty is not without a quid pro quo. There are definite economic advantages in forging a regional economic union as exemplified in cases such as the European Union, NAFT A, ASEAN and others. Political Risk: There is always a political risk involved in making investments both within and without the country. The element of risk and its severity is relatively high in foreign countries. More objectively, the extent of political risk depends upon the political stability of the host country. An unstable country is fraught with investment risks. A country needs to be stable both internally and externally. Frequent changes in the government and attendant changes in the economic policy of the government will increase the element of uncertainty and adversely effect upon a company's ability to operate effectively in a foreign country. Investments in highly destabilized countries like Afghanistan and Iraq may be very attractive economically speaking but the political risks involved are overwhelming. Political instability is therefore a great .deterrent to foreign investment. In order to justify investment in a foreign country, risk assessment should be undertaken on a regular basis and investments should be made only when opportunities to make profits are much greater than the risks involved.

Taxes:

A company which is geographically diversified needs to take care of the tax laws of the countries in which it operates. Companies, generally minimizes their tax liability by shifting the location of their income. One method of reducing tax liability is called earnings stripping. Foreign companies reduce earnings by' making loans to their affiliates in a country rather than making direct foreign investment. The subsidiary company which takes the loan can deduct the interest it pays on such loans and reduce its tax burden. There is an absence of international laws to govern the levy of taxes on companies that are into international business. In order to provide fair treatment, governments in many countries have negotiated bilateral tax treaties to provide tax credits for taxes paid abroad. Generally foreign' companies are taxed by the host country up to the level imposed in the home country. Equity Stripping and Dilution of Control: In less developed countries, there is a general tendency to exert political pressure for governmental control of foreign companies. Host-nation governments may attempt to control ownership of foreign-owned companies operating in their Countries. For instance, foreign equity participation in industries such as insurance is limited to 74 percent in India and as a result, a foreign insurance company must team up with a local company to do insurance business in India. In industries where, the government wants to keep the ownership in the hands of Indian companies, foreign equity participation is less than fifty percent. The threat of equity dilution has forced companies to operate in host countries through joint ventures and strategic alliances. Expropriation: Expropriation is the ultimate threat that a government can pose toward a foreign company. Expropriation refers to governmental action to dispossess a company investor. Generally, compensation is provided to foreign investors. However, quite often, the compensation is not prompt, adequate and effective. If there is no compensation then the act of expropriation would be termed as confiscation. When severe limitations are imposed the activities of a foreign company, it is termed as creeping expropriation. Such restriction may include limitations on repatriation of profits, dividends, royalties, local content etc, quotas for hiring local nationals, price controls etc. All these restrictions and limitations adversely affects the profitability of foreign investment. Discriminating tariffs and non-tariff barriers, discriminating laws on patents and trademarks may also limit market entry of certain consumer and industrial goods manufacturing foreign firms. When governments expropriate foreign property, there are limitations on actions to reclaim the property. For instance, according to the United States act of State doctrine, if the government of a foreign State is involved in a specific act, the US court will not get involved. In such a situation, expropriated companies representatives may seek redressal through arbitration at the World Bank Investment Dispute Settlement Center. It is safe to buy expropriation insurance than to seek redressal through World Bank mechanism. In 1970 and

1971; some foreign copper companies in Chile resisted government efforts to employ local nationals in the managerial cadre of the companies. Such companies were expropriated by the Chilean government and companies which obliged were allowed to operate under joint management.

Illustrate the impact of social and cultural environment on the marketing of industrial products.

The social and cultural environment encompassing the religious aspects; language; customs; traditions and beliefs; tastes and preferences; social stratification; social institutions; buying and consumption habits etc are all very important factors for business. What is liked by people of one culture may not be liked by those of some other culture. One of the most important reasons for the failure of a number of companies in foreign markets is their failure to understand the cultural environment of these markets and to suitably formulate their business strategies. Many companies modify their products and/or promotion strategies to suit the tastes and preferences or other characteristics of the population of the different countries. Significant differences in the tastes and preferences may exist even within the same country, particularly when the country is very vast, populous and multi-cultural like India. For a business to be successful, its strategy should be the one that is appropriate in the sociocultural environment. The marketing mix will have to be so designed as best to suit the environmental characteristics of the market. In Thailand, Helene Curtis switched to black shampoo because Thai women felt that it made their hair look glossier. Even when people of different cultures use the same basic product, the mode of consumption, conditions of use, purpose of use or the perceptions of the product attributes may vary so much so that the product attributes, method of presentation, positioning, or method of promoting the product may have to be varied to suit the characteristics of different markets. The differences in language sometime pose a serious problem, even necessitating a change in the brand name. For instance, Chevrolets brand name Nova in Spanish means it doesnt go. In some languages, Pepsi-Colas slogan come alive translates as come out of the grave. The values and beliefs associated with colour vary significantly between different cultures. White indicates death and mourning in China and Korea; but in some countries, it expresses happiness and is the colour of the bridal dress. Boeing an United States based aero-space manufacturer has felt the impact of an unwritten buy national policy in Europe. As a result, the market share of Airbus for commercial planes which is a consortium of European countries grew to 50 percent. The market share of Boeing in Europe declined resulting in a loss. Boeing

attempted joint venture with Russian, Ukrainian and Norwegian partners and hired a designer to decorate a facility to watch the launch of the Sea Launch rocket. The designer decorated the facility in black which is considered as bad luck colour in Russia. The Russians were furious to see black colour. Boeing repainted the facility with a shade of blue to avoid a cultural blunder. While dealing with the social environment, we must also consider the social environment of the business which encompasses its social responsibility and the alertness or vigilance of the consumers and of society at large. Marketing people are at interface between company and society. In this position, they have the responsibility not merely for designing a competitive marketing strategy, but for sensitizing business to the social as well as the product, demand of the society.

Q.2 Write short notes on: a) Self-reference criterion: - A persons understanding or perception of market needs is determined by his or her own cultural experience. James Lee developed a systematic framework to reduce perceptual blockage and distortion. This framework is known as the selfreference criterion (SRC) which addresses the problem of unconscious reference to ones own cultural values. In order to reduce cultural myopia or short sightedness, James Lee proposed a four-step framework which is as below: (1) Define the problem or goal in terms of home-country cultural traits, habit and norms. (2) Define the problem or goal in terms of host culture, traits, habits and norms. Make no value judgments. (3) Isolate the self-references criterion influence and examine it carefully to see how it complicates the problems and (4) Redefine the problem without the self-references criterion influence and solve for the hostcountry market situation. An important skill that an international marketer needs to possess is that of unbiased perception. The framework of self-references criterion brings out this important skill to be learnt by international marketers. The use of SRC and the tendency towards ethnocentrism is widespread and it can become a strong negative form in international business. The international marketer must check this tendency to avoid misunderstanding and failure. In order to avoid SRC, a person needs to forget assumptions based on earlier experience and success and be prepared to acquire new understanding and knowledge about human behaviour and motivation. b) Communication and Negotiation: -Language is the medium through which any given culture is expressed and the subtleties of a culture can best be expressed only through a language that is home to a given culture. Cultural transliterations are only approximations and hence a

compromise on the meaning and essence of a certain context. The international marketer with a hold over multiple languages has an edge over those who do not. Whenever, languages and cultures change, communication challenges comes to the fore. For instance, yes and no are used differently in Japanese than in western languages. In English, the answer yes or no to a question is based on whether the answer is affirmative or negative. In Japanese, the answer yes or no may indicate whether or not the answer affirms or negates the question. For instance, in Japanese the question, Dont you like meat! would be answered yes. If the answer is negative, as in, Yes, I dont like meat. The word Wakarimashita means both I understand and I agree. In order to avoid misunderstandings, foreigners must learn to distinguish which interpretation is correct in terms of the entire context of conversation. The challenges of nonverbal communication are more formidable. c) Environmental Sensitivity: -Environmental sensitivity is the extent to which products must be adapted to the culture-specific needs of different needs of different national markets. Environmental sensitivity can be measured by viewing product on an environmental sensitivity continuum. At one end of the continuum are environmentally insensitive products that do not require significant adaptation to the environments of local markets in the world. At the other end of the continuum are products that are highly sensitive to different environmental factors. A firm with environmental insensitive products will spend less time determining the specific conditions of local markets as the product in question is universal in nature. In case of environmentally sensitive products, managers need to address country-specific economic, regulations, technological, social and cultural environmental conditions. The sensitivity of products can be represented on a two dimensional scare wherein the horizontal axis shows environmental sensitivity and the vertical axis shows the extent of need for product adaptation. Products showing low levels of environmental sensitivity such as technical products belong to the lower left of the figure. As we move to the right or the horizontal axis, the environmental sensitivity increases along with the need for adaptation. Computers have low levels of environmental sensitivity but variations in country voltage requirements require some adaptation. At the top right of the figures we have products with high environmental sensitivity. For example, food is highly sensitive to climate and culture.