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Submitted by
Meenakshi Singh
PGDM IB (II) SEM
International Marketing

UNIT 1
Objectives of International Marketing - Challenges and opportunities in International Marketing
- Quality considerations in International Marketing - Underlying forces of International
Marketing - Global marketing environment - Economic Environment, Socio-cultural
Environment - Legal and Statutory Framework
WHAT IS INTERNATIONAL MARKETING?
International marketing or global marketing refers to marketing carried out by companies
overseas or across national borderlines. This strategy uses an extension of the techniques used in
the home country of a firm. It refers to the firm-level marketing practices across the border
including market identification and targeting, entry mode selection, marketing mix, and strategic
decisions to compete in international markets.
At its simplest level, international marketing involves the firm in making one or more marketing
mix decisions across national boundaries. At its most complex, it involves the firm in
establishing manufacturing/processing facilities around the world and coordinating marketing
strategies across the globe. At one extreme there are firms that opt for international marketing
simply by signing a distribution agreement with a foreign agent who then takes on the
responsibility for pricing, promotion, distribution and market development.
For E.g. - There are huge global companies such as Ford with an integrated network of
manufacturing plants worldwide and who operate in some 150 country markets. Thus, at its most
complex, international marketing becomes a process of managing on a global scale.
Thus, International Marketing would involve:
i)
Identifying needs and wants of customers in international markets.
ii)
Taking marketing mix decisions related to product, pricing, distribution and
communication keeping in a view the diverse consumer and market behavior across
different countries on one hand and firms goals towards globalization on the other
hand.
iii)
Penetrating into international markets using various modes of entry.
iv)
Taking decisions in view of dynamic international marketing environment.
MEANING OF INTERNATIONAL MARKETING:
International marketing is the performance of business activities design to plan, price, promote
and direct the flow of companys goods and services to consumers and users in more than one
nation for a profit. On the other hand it is the multinational process of planning and executing the
conception, pricing, promotion and distribution of ideas, goods and services to create exchanges
that satisfy individual and organizational objectives.

DEFINITION OF INTERNATIONAL MARKETING:

According to the American Marketing Association (AMA)
"International marketing is the multinational process of planning and executing the conception,
pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy
individual and organizational objectives."
Global Marketing Management is the process of focusing the resources (people, money &
physical assets) and objectives of an organization on global market opportunities and threats
By Warren J Keegan
"International marketing is the process of identifying the needs, wants and demands of global
customers, making the product/service available to them either through own manufacturing or
outsourcing and distributing the product/service at the places convenient for consuming.
By M.V.Kulkarni
INTERNATIONAL MARKETING ORIENTATIONS
The managements thinking, philosophy and guiding principles towards the internationalization
of the companys operations will decide the level of involvement of the firms resources,
including its marketing activities and talents. Generally ther are four types of International
Marketing orientations viz. EPRG, details are as below:
Ethocentric Approach:
The ethnocentric approach is mainly associated with the Domestic marketing, which involves the
company manipulating a series of controllable variables such as price, advertising, distribution
and the product/service attributes in a largely uncontrollable external environment that is made
up of different economic structures, competitors, cultural values and legal infrastructure within
specific political or geographic country boundaries.
For example Metro Tyers, Hero Cycles and Atlas Cycles develop their products on the basis of
the requirements of local customers. Their research and development lays emphasis on
developing high quality products to cater to the discerning domestic customer but, at the same
time, these firms look towards the export markets only as an add-on and an extension of the local
market.
Polycentric Approach:
The polycentric approach is concerned with Multi-Domestic Marketing or International
Marketing which involves operating across a number of foreign country markets in which not
only do the uncontrollable variables differ significantly between one market and another, but the
controllable factors in the form of cost and price structures, opportunities for advertising and
distributive infrastructure are also likely to differ significantly. It is these sorts of differences that
lead to the complexities of international marketing. The marketer here believes that each market
is unique and needs to be addressed individually and differently. The plans are devised to operate
through individually established business, i.e. either by wholly-owned subsidiaries or through
marketing subsidiaries, separately in each country, allowing complete autonomy to units to
operate as separate profit centers independent of head office. Such firms conduct their own

business research; plan their own product adaptation, price positioning and promotional strategy
to suit local needs.
For example Ford Motors, Toyota, Suzuki and General Motors, all develop locally adapted
models of their automobiles to suit each countrys consumer-specific needs. However, a firm
may not be able to take advantage of the economies of scale. Research also may not be lead to
any kind of international customers, resulting in higher end cost to consumers.
Regiocentric Approach:
The marketing firms here segment the markets on the basis of regional similarities, for example
economic, political, cultural and even geographic similarities, in order to cater to a large size of
potential consumers. Just as India, Bangladesh and Pakistan, along with other smaller nations
like Bhutan and Nepal, etc., could form one group, China and Japan could be other group,
Europe forms a different regiocenter for many companies. Both, Pepsi and Coke cater to such
segments as single markets as single markets and accordingly, while devising their product and
promotion policies, national boundaries hold no meaning. The approach is to ensure that the
regional office coordinates all local marketing activities to achieve its objectives through
independent local units.
Another example is Goodyear International, the tyre major, too operates on regiocentric basis,
where its regional offices handle and coordinate some of the activities of Asian-Pacific
Countries. Europe forms another region, while the other parts of the world are divided into Latin
America, Middle East and Africa. North America also serves as a separate region.
Geocentric Approach:
The entire world is perceived as a single market and, in their quest to become world leaders,
manufacturers offer homogenous, identifiable and often interchangeable services and products in
order to integrate them for world wide operational efficiency. Such manufacturers often extend
the benefits of similar but low cost products and services world wide.
For example Companies in the insurance sector, banking sector and food chains, such as
McDonalds, Pizza Hut and Cookie Man, offer similar ambience worldwide in their offices and
establishments. McDonalds, Pizza Hut and Cookie Man even go to the extent of offering similar
taste to customers even as they use local produce and manpower to prepare their burgers, pizzas
and coffees.
OBJECTIVES OF INTERNATIONAL MARKETING
1) Identifying the needs, wants and demands of global customer Undertaking international
marketing research and analyzing market segments, seeking to understand similarities
and differences in customer groups across the countries.
2) Achieving global customers satisfaction Adapting products/services and other elements
of marketing mix like channels & promotion & price to satisfy different customer needs
across the states regions and countries.
3) Staying ahead of the competitors by providing better products/services Assessing,
monitoring & responding to global competition by offering better value, developing
superior brand image and product positioning, broader product range, competitive prices,
high quality, good performance and superior distribution, advertising and after sales
service.

4) Co-coordinating marketing activities Co-coordinating and integrating marketing

strategies, implementing the strategies across the countries, regions and the global
markets, which involve centralization, delegation, standardization and local
responsiveness.
5) Recognizing the constraints of the global environment Understanding that the global
environment includes :
Complex variation due to government, protectionist strategies and industrial
policies
Cultural and economic differences
Marketing infrastructure difference
Financial constraints due to exchange rate and variation and differences in
inflation rates.
6) To exploit market potential and growth to the optimum extent.
7) To learn from the leading markets through technology, innovation and competition.
8) To increase competitive pressure in stronghold markets to make space for survival and
sustenance.
9) To explore the scope of diversification of products, service4 and markets.
10) To gain comprehensive knowledge on doing overseas business successfully, especially
with regard to cross cultural differences.
QUALITY CONSIDERATIONS IN INTERNATIONAL MARKETING
International Markets would generate healthy sales volume/revenue and healthy bottom line
provided the exporter is willing to utilize substantial part of his profits on product design and
quality. If a local manufacturer spending 3-5% of sales turnover on researching and maintaining
quality, exporter has to spend almost 10% of sales on quality management because international
quality standards are stringent.
Product quality is defined as a set of features and characteristics of a good or service that
determines its ability to satisfy needs. If a company follows the principle of quality first, its
profits will increase in the long-run. If a company pursues the goal of attaining a short-term
profits, it will lose competitiveness in the international market, and will lose profit in the long
run. Besides establishing an accepted quality level of their products, as set out by the
specifications of a particular product vs. customer segment, an international marketing firm will
have to establish, in each market, the value a customer will associate with the products tangible
and intangible quality features as against the price he pays for the product. Hence, quality is the
totality of features and characteristics of a product or service that bear on its ability to satisfy
stated or implied needs.
Examples:
Mercedes Benz, Bentley Cars and Hyundai Sonata are high value products that give a different
high to the buyers all around the world.
Some of the Indian companies too have been able to establish international quality standards.
MRF Tyres, the TVS group, CEAT Tyres, Hero Motors are some of the Indian companies that
have associated their names with international excellence in their respective fields.

CHALLENGES IN INTERNATIONAL MARKETING

The international business landscape is rife with fast changes and new developments. As the
world is getting into the fruition of going global, there are plenty of factors that have to be
addressed first so that success in the global commercial trade is ensured. With technological
developments leading the pack of marketing challenges, the global marketing atmosphere is like
a wild horse that should be tamed with flexibility. Hence, we will tackle below the importance of
cultural issues, the factors affecting costs, and the foreign regulations as well as the typical
competition issues when joining the global marketing playing field.
1) Cultural issues:
Typically, a consumer who already knows the quality of a particular product will, of
course, buy it again. The same thing applies if an enterprise is selling a superb service,
and then there are bigger chances that a client will go back for more. This behavior is in a
way similar to a consumers preference of products and services due to culture and
tradition which have become part of his or her life. This is one of the challenges that a
company must face if it really wants to fare well in the global market. The business must
be able to incorporate the local taste and climate with that of their global strategy so that
it will stay in the minds of consumers. Hence, the global marketer must give due
consideration to the political, local, social and business cultures when devising his
marketing strategy.
2) The Cost:
With the different monetary values as well as the economic fluctuations from country to
country, it is just natural that prices of a specific brand will differ in various places.
Accordingly, the cost of launching a product in a foreign country will of course differ too,
along with many economic and financial factors. If you are a small to medium enterprise,
then proper business plans must be prepared because going global entails a large amount
of money for your operating budget. If you fail to appropriately allocate the right sums
along with the entailed expenses, then you might get lost in the middle of seemingly
insurmountable global marketing challenges. Look for the most cost-effective methods in
the operation and distribution of your product to have lower overhead expenses.
3) Foreign Government Regulations
Another challenge that a company faces when selling products globally are the foreign
regulations imposed by governments of respective countries. While there are countries
that give lieu to foreign investors, there are other governments that tend to protect their
local businessmen by creating stricter custom and trade laws for foreign companies.
Hence, appropriate feasibility studies must be undertaken if a certain country will be
more friendly to foreign investors or not. Take for instance the heavy taxations imposed
on tobacco manufacturers in the U.S., which in turn makes the pricing of cigarettes there
higher compared to third-world countries. Thus, certain trade barriers pose another
challenge to the global marketer and it is up to his capabilities how to use them to his
own advantage.

4) Competition Issues
When you have finally leapt into the global market, the competition can quite quickly
change,
too. It will certainly increase and proliferate into something very diverse that
your company may have a hard time guarding your product from all fronts. The current
competitors will naturally react to the new player and the entrance of new comers into a
particular target market will all the more make the competition very stiff. The type of
competition will also vary from one market to another, creating a domino effect in other
markets or market segments. Hence, the wise marketer will take advantage of these
interdependencies to gain a competitive edge over other global business players.
5) Technological Changes:
Rapid and radical developments in science and technology, particularly in the fields of
computing, telecommunications and information sciences (consider the impact of cellular
phones and the internet)
6) To build a truly global service organization:
The most important problem facing any large business today is how to build a truly
global service organization that draws on economies of scale, yet meets unique and
constantly changing local demands.
7) Expanding role of Brand:
Brand is meant to make identifying and differentiating a product easier. It came to
embrace a performance or benefit promise, for the product, certainly, but eventually also
for the company behind the brand. Today, brand plays a much bigger role. Brands have
been co-opted as powerful symbols in larger debates about economics, social issues, and
politics. The power of brands to communicate a complex message quickly and with
emotional impact and the ability of brands to attract media attention, make them ideal
tools in the hands of activists.
OPPORTUNITIES IN INTERNATIONAL MARKETING
1) Maximum utilization of Resources:
The international trade offers a wider market to exploit in order to use the resources at
our disposal to the fullest extent, i.e. the new markets affords opportunity to serve the
requirements of a foreign market by using our resources which are untapped so far.
2) Technological updating:
The competition from international companies both within the country and in export
market, forces the companies to develop technology and update it with the latest
developments in the field.

3) Foreign Exchange Earnings:

In addition to government compulsions to earn more foreign exchange for improving the
balance of payment, the companies also need foreign exchange to import latest
machinery and technology for development.
4) Consistency in brand image:
Whereas traditional marketing is largely about getting a brands message out there,
eMarketing facilitates conversations between companies and consumers. With a two way
communication channel, companies can feed off of the responses of their consumers,
making them more dynamic and adaptive.
5) Opportunity from the Company point of view:
To earn more profit
To increase sales turn-over
To achieve economies of scale
To sell surplus product and to utilize full capacity
To increase market share
To develop new products
To diversify the markets
6) Opportunity from the Country point of view:
Top develop industry and economy
Creation of employment
A major source of National Income
Greater Quality consciousness and competition
Political Relationship and Trade Relationship
Underlying forces of International Marketing
In the last 50 years the global economy has expanded in leaps and bounds. Companies from
different parts of the world during most of those decades in different industries achieved great
success by pursuing international, multinational, or global strategies. During the 1990s, changes
in the business environment have presented a number of challenges to established ways of doing
business. Following are the factors which affects the
1) Driving Forces
Converging market needs and wants, technology advances, pressure to cut costs,
pressure to improve quality, improvements in communication and transportation
technology, global economic growth, and opportunities for leverage all represent
important driving forces; any industry subject to these forces is a candidate for
globalization.
2) Technological Forces
Once a technology is developed, it soon becomes available everywhere in the world.
Technology is a universal factor that crosses national and cultural boundaries. Once a

technology is developed, it soon becomes available everywhere in the world.

Concerning the emergence of global markets for standardized products this phenomenon
supports Levitts products. In his landmark Harvard Business Review article, Levitt
anticipated the communication revolution that has, in fact, become a driving force
behind global marketing. Satellite dishes, globe-spanning television networks such as
CNN and MTV, and the Internet are just a few of the technological factors underlying
the emergence of a true global village. In regional markets such as Europe, the
increasing overlap of advertising across national boundaries and the mobility of
consumers have created opportunities for marketers to pursue pan-European product
positioning.
3) Economic Agreements: Regional
The pace of global integration has been accelerated by number of multilateral trade
agreements. NAFTA is already expanding trade among the United States, Canada, and
Mexico. The General Agreement on Tariffs and Trade (GATT), which was ratified by
more than 120 nations in 1994, has been replaced by the World Trade Organization to
promote and protect free trade, but it has come under attack by developing countries. In
Europe, the expanding membership of the European Union is lowering barriers to trade
within the region.
4) Needs and Wants of Market
Around the world a person studying markets will discover cultural universals as well as
cultural differences. The common elements in human nature provide an underlying basis
for the opportunity to create and serve global markets. The word create is deliberate.
Most global markets do not exist in nature: They must be created by marketing effort.
For example, no one needs soft drinks, and yet today in some countries per capita softdrink consumption exceeds the consumption of water. Marketing has driven this change
in behavior, and today the soft-drink industry is a truly global one. Evidence is mounting
that consumer needs and wants around the world are converging today as never before.
This creates an opportunity for global marketing. Multinational companies pursuing
strategies of product adaptation run the risk of being overtaken by global competitors
that have recognized opportunities to serve global customers.
Marlboro is an example of a successful global brand. Targeted at urban smokers around
the world, the brand appeals to the spirit of freedom, independence, and open space
symbolized by the image of the cowboy in beautiful, open western settings. The need
addressed by Marlboro is universal, and, therefore, the basic appeal and execution of its
advertising and positioning are global. Philip Morris, which markets Marlboro, is a
global company that discovered years ago how the same basic market need can be met
with a global approach.
5) Improvement in Transportation and Communication

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Over the past 100 years the time and cost barriers associated with distance have fallen
tremendously. The jet airplane revolutionized communication by making it possible for
people to travel around the world in less than 48 hours. Tourism enables people from
many countries to see and experience the newest products being sold abroad. One
essential characteristic of the effective global business is face-to-face communication
among employees and between the company and its customers. Without modern jet
travel, such communication would be difficult to sustain. In the 1990s, new
communication technologies such as e-mail, fax, and teleconferencing and
videoconferencing allowed managers, executives, and customers to link up electronically
from virtually any part of the world for a fraction of the cost of air travel.
In transportation technology a similar revolution has occurred. Physical distribution has
declined in terms of cost; the time required for shipment has been greatly reduced as well.
A letter from China to New York is now delivered in eight daysfaster than domestic
mail is delivered within many countries. The per-unit cost of shipping automobiles from
Japan and Korea to the United States by specially designed auto-transport ships is less
than the cost of overland shipping from Detroit to either U.S. coast.

6) Costs of Product Development

When new products require major investments and long periods of development time the
pressure for globalization is intense. The Pharmaceuticals industry provides a striking
illustration of this driving force. According to the Pharmaceutical Manufacturers
Association (PMA), the cost of developing a new drug in 1976 was Rs 2408.4 million; by
1982, the cost had increased to Rs 3880.2 million. By 1993, the cost of developing a new
drug had reached Rs 16011.4million. Such costs must be recovered in the global
marketplace, as no single national market is likely to be large enough to support
investments of this size. As noted earlier, global marketing does not necessarily mean
operating everywhere; in the Rs 8920 billion pharmaceutical industry, for example, seven
countries account for 75 percent of sales.

7) Quality of Products
A global and a domestic company may each spend 5 percent of sales on research and
development, but the global company may have many times the total revenue of the
domestic because it serves the world market. Global marketing strategies can generate
greater revenue and greater operating margins, which, in turn, support design and
manufacturing quality. Global companies "raise the bar" for all competitors in an
industry. When a global company establishes a benchmark in quality, competitors must
quickly make their own improvements and come up to par. Global competition has forced
all companies to improve quality. For truly global products, uniformity can drive down
research, engineering, design, and production costs across business functions. Quality,

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uniformity, and cost reduction were all driving forces behind Ford's development of its
"World Car," which is sold in the United States as the Ford Contour.

8) Trends in world Economy

In the expansion of the international economy and the growth of global marketing there
are three reasons why economic growth has been driving force. First, growth has created
market opportunities that provide a major incentive for companies to expand globally. At
the same time, slow growth in a company's domestic market can signal the need to look
abroad for opportunities in nations or regions with high rates of growth.
Second, economic growth has reduced resistance that might otherwise have developed in
response to the entry of foreign firms into domestic economies. When a country is
growing rapidly, policy makers are likely to look favorably on outsiders. A growing
country means growing markets; there is often plenty of opportunity for everyone. It is
possible for a "foreign" company to enter a domestic economy and to establish itself
without taking business away from local firms. Without economic growth, global
enterprises may take business away from domestic ones. Domestic businesses are more
likely to seek governmental intervention to protect their local position if markets are not
growing .To limit access by foreigners to domestic markets the worldwide recession of
the early 1990s predictably created pressure in most countries.
Toward deregulation and privatization the worldwide movement is another driving force.
The trend toward privatization is opening up formerly closed markets significantly;
tremendous opportunities are being created as a result. For example, when a nation's
telephone company is a state monopoly, it is much easier to require it to buy only from
national companies. An independent, private company will be more inclined to look for
the best offer, regardless of the nationality of the supplier. Privatization of telephone
systems around the world is creating opportunities and threats for every company in the
industry.
9) Leverage
To develop leverage a global company possesses a unique opportunity .Leverage is
simply some type of advantage that a company enjoys by virtue of the fact that it
conducts business in more than one country. Four important types of leverage are
experience transfers, scale economies, resource utilization, and global strategy.
A) Scale economies - The global company can take advantage of its greater manufacturing
volume to obtain traditional scale advantages within a single factory. Also, finished
products can be produced by combining components manufactured in scale-efficient
plants in different countries. Japan's giant Sony Electric Company is a classic example of
global marketing; it achieved scale economies by exporting videocassette recorders
(VCRs), televisions, and other consumer electronics products throughout the world from

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world-scale factories in Japan. The importance of manufacturing scale has diminished

somewhat as companies implement flexible manufacturing techniques and invests in
factories outside the home country. However, scale economies were a cornerstone of
Japanese success in the 1970s and 1980s. Leverage from scale economies is not limited
to manufacturing. Just as a domestic company can achieve economies in staffing by
eliminating duplicate positions after an acquisition, a global company can achieve the
same economies on a global scale by centralizing functional activities. The larger scale of
the global company also creates opportunities to improve corporate staff competence and
quality.

B) Experience transfers - A global company can leverage its experience in any market in
the world. It can draw on management practices, strategies, products, advertising appeals,
or sales or promotional ideas that have been tested in actual markets and apply them in
other comparable markets.For example, Asea Brown Boveri (ABB), a company with
1,300 operating subsidiaries in 140 countries, have considerable experience with a welltested management model that it transfers across national boundaries. The Zurich-based
company knows that a company's headquarters can be run with a lean staff. When ABB
acquired a Finnish company, it reduced the headquarters staff from 880 to 25 between
1986 and 1989. Headquarters staff at a German unit was reduced from 1,600 to 100
between 1988 and 1989. After acquiring Combustion Engineering (a U.S. company
producing power plant boilers), ABB knew from experience that the headquarters staff of
800 could be drastically reduced, in spite of the fact that Combustion Engineering had a
justification for every one of the headquarters staff positions.

C) Global strategy - The global company's greatest single advantage can be its global
strategy. A global strategy is built on an information system that scans the world business
environment to identify opportunities, trends, threats, and resources. When opportunities are
identified, the global company adheres to the three principles identified earlier: It leverages
its skills and focuses its resources to create superior perceived value for customers and
achieve competitive advantage. The global strategy is a design to create a winning offering
on a global scale. This takes great discipline, much creativity, and constant effort. The
reward is not just successit is survival.

D) Resource utilization - A major strength of the global company is its ability to scan the
entire world to identify people, money, and raw materials that will enable it to compete
most effectively in world markets. This is equally true for established companies and
start-ups. For example, British Biotechnology Group, founded in 1986, raised $60 million
from investors in the United States, Japan, and Great Britain. For a global company, it is
not problematic if the value of the "home" currency rises or falls dramatically, because
for this company there really is no such thing as a home currency. The world is full of

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currencies, and a global company seeks financial resources on the best available terms. In
turn, it uses them where there is the greatest opportunity to serve a need at a profit.

10) Restraining Forces

Several restraining forces may slow a companys efforts to engage in global marketing
despite the impact of the driving forces identified earlier. Three important restraining
forces are management myopia, organizational culture, and national controls. As we have
noted, however, in today's world the driving forces predominate over the restraining
forces. That is why the importance of global marketing is steadily growing.

11) Controls and Barriers

By maintaining control over market access and entry in both low and high-tech industries
and advertising every country protects local enterprise and interests. Such control ranges
from a monopoly controlling access to tobacco markets to national government control of
broadcast, equipment, and data transmission markets. Today, tariff barriers have been
largely removed in the high-income countries, thanks to the World Trade Organization
(WTO), NAFTA, and other economic agreements. However, non-tariff barriers (NTBs)
still make it more difficult for outside companies to succeed in foreign markets. The only
way global companies can overcome these barriers is to become "insiders" in every
country in which they do business. For example, utility companies in France are
notorious for accepting bids from foreign equipment suppliers but, in the end, favoring
national suppliers when awarding contracts. When a global company such as ABB
acquires or establishes a subsidiary in France, it can receive the same treatment as other
local companies. It becomes an "insider."Global advertising and promotion are also
hampered by government regulations. It is illegal in some countries to use comparative
advertising. In some countries, such as Germany, premiums and sweepstakes are illegal.
Also working against global advertising is the use of different technical standards around
the world. Videotape players in the Americas and Japan use the NTSC standard, whereas
in Europe (except for France, which uses SECAM), the PAL system is used.
12) Management Myopia and Organizational Culture
Myopia is also a recipe for market disaster if headquarters attempts to dictate when it
should listen. In many cases, management simply ignores opportunities to pursue global
marketing. A company that is "nearsighted" and ethnocentric will not expand
geographically. Global marketing does not work without a strong local team that can
provide information about local market conditions. Executives at Parker Pen once
attempted to implement a top-down marketing strategy that ignored experience gained by
local market representatives. Costly market failures resulted in Parker's buyout by
managers of the former U.K. subsidiary. Eventually, the Gillette Company acquired

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Parker. In companies in which subsidiary management "knows it all," there is no room

for vision from the top. In companies in which headquarters management is all-knowing,
there is no room for local initiative or an in-depth knowledge of local needs and
conditions. Executives and managers at successful global companies have learned how to
integrate global vision and perspective with local market initiative and input. A striking
theme emerged during interviews conducted by the author with executives of successful
global companies. That theme was the respect for local initiative and input by
headquarters executives, and the corresponding respect for headquarters' vision by local
executives.

GLOBAL MARKETING ENVIORNMENT

DEMOGRAPHIC ENVIRONMENT
Consumers' perceptions are highly subjective, and consumers can be quite unpredictable.
The complex nature of consumers makes the study and understanding of consumer
behavior imperative. This environment included the psychological and social dimensions
and these include motivation, learning, personality, psychographics, perception, attitude,
social class, group, family, opinion leadership, and the diffusion process of innovations.
1) Perspectives on Consumer Behavior
Consumer behavior can be defined as a study of human behavior within the consumer
role and includes all the steps in the decision-making process. Marketing scholars have
employed a variety of techniques and concepts, including the cultural approach, to study
consumer behavior.
The major behavioral sciences relevant to consumer study are psychology, sociology, and
cultural anthropology. Psychology, with the individual as its central unit of analysis, is the
study of individual and interpersonal behavior. Behavior is governed by a person's
cognitions, such as values, attitudes, experiences, needs, and other psychological
phenomena. Purchase, then, becomes a function of the psychological view of products,
and the consumer buys a product not only for consumption but also because of a
perception of how a product can be used to communicate with other people. Some
psychological concepts relevant to the study of consumer behavior are motivation,
learning, personality, perception, and attitude.
Sociology is a study of groups and human interactions. The unit of analysis is not the
individual but rather the group. The group, consisting of a set of individuals who interact
over time, is important because it can exert a significant influence on a person's
preferences and consumption behavior. In many instances it may be useful for a marketer
to think of consumers as a group.
For example, a family, not an individual, often makes a purchase decision that affects all
members of the family group. Important sociological concepts are reference group and

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family. Cultural anthropology is the study of human culture. Thus, the analytic
perspective may be quite large. Culture involves an aggregate, social category level (i.e.,
a large group), and the social categories are significant in the sense that they influence
consumers' cognitive and personality development. The concepts from this discipline
usually included in the analysis of consumer behavior are culture, subculture, and social
class.
2) Motivation
Motivation is fundamental in initiating consumer behavior. Motivation can be thought of
as a drive that is directed by a motive formed in relation to a particular goal. Once the
motive-drive relationship is developed, the consumer initiates some forms of motivated
behavior to satisfy a previously recognized need.
Consumer motives are largely determined by buying habits, though motives can vary and
it is important to recognize the various types of motives. Motives can be classified as
rational and non rational. Examples of rational motives are price, durability, and economy
in operation. Non rational appeals, in comparison, include prestige, comfort, and
pleasure.
The problem with the conventional classification (i.e., rational vs. emotional) is that a
consumer may not recognize emotional motives and may have the tendency to rationalize
personal behavior by assigning only rational and socially acceptable motives. In addition,
the process of classification is not always straightforward. Convenience, for instance, can
be both rational and non rational at the same time.
In the end the success of a product is greatly affected by whether its target customers are
properly motivated. Whether a motive is rational or irrational is not particularly
important. What is important is to identify specific motives relevant for marketing
purposes.
3) Learning
Learning is a change in behavior that occurs over time relative to a given set of external
stimulus conditions. A marketer can play a significant role in facilitating the learning
process by using a variety of rewards to encourage learning.
For Example - Baskin-Rob-bins, as the first fast-food franchise in Vietnam, had to teach
the Vietnamese about the concept of fast food. When the ice cream parlor first opened,
most Vietnamese customers walked in and sat down, expecting to be waited on. When
(hey were asked to go to the counter, some felt insulted and left. Also the Vietnamese are
accustomed to linger at cafe tables and are thus not used to having to pay immediately.
Naturally, a number of them got angry and felt that Baskin-Robbins did not trust them by
asking them to pay for the ice cream immediately. Interestingly, one learned behavior is
that the rum-raisin flavor, not that popular in the plain vanilla U.S. market, is quite
popular among the Vietnamese as well as many other Asians.

16

4) Personality
Personality, derived from a Latin word meaning "personal" or "relating to person," is the
individual characteristics that make a person unique as well as consistent in adjustments
to a changing environment. Personality is an integrated system that holds attitude,
motivation, and perception together. Personality traits are relatively stable qualities, but
they do vary in degree from person to person. Because personality study applies to a
person rather than a group, it is difficult to make generalizations about personality traits
among people of a particular country. Nevertheless, it is useful to consider the concept of
national character, which states that "people of each nation have a distinctive, enduring
pattern of behavior and/or personality characteristics.
CULTURAL AND SOCIOECONOMIC FACTORS
1) Psychographics
Psychographics is a quantitative analysis of consumers' lifestyles and activities with the
purpose of relating these variables to buying behavior. Because of the disappointing
results in using personality to predict purchase behavior, marketers have turned to other
meaningful purchase variables that might be used in conjunction with personality
characteristics. This area of purchase behavior study is known as psychographics, also
known as lifestyle or AIO (activities, interests, and opinions) study.
2) Perception
Perception goes beyond sensation by providing meaning to sensory stimulations; it is the
process of interpreting nervous impulses or stimuli received that the brain must organize
and give meaning through cognitive interpretations.
One's culture greatly affects one's perception and behavior. Americans, for example,
generally prefer steak on the "rare" side, in order to maintain moisture and flavor. Asians,
on the other hand, would not dream of eating steak this way, believing that meat in that
condition is raw and unsafe. Furthermore, Americans prefer to cook a big piece of meat,
to be cut up or sliced on a serving plate at me dining table when they are ready to eat. The
Chinese, however, prefer to cut the meat into small, bite-sized pieces before cooking and
thus have no need for a knife at the dining table.
3) Attitude
Attitude is the learned tendency to respond to an object in a consistently favorable or
unfavorable way. Attitude is a complex and multidimensional concept. It consists of three
components: cognition, affect, and conation (behavioral intention). Based on this
definition, a few properties of attitude can be identified. First, the relationship between an
individual and an object is not neutral: the reaction to the object is either favorable or

17

unfavorable. Most people, for example, have favorable attitudes toward such automobiles
as Mercedes-Benz, BMW, and Rolls-Royce, viewing them as status symbols.
Second, attitudes are relatively enduring and patterned and not temporary or transient. As
a person becomes older, attitudes become more established. This becomes a challenge for
international marketers who want to introduce change. A new product often involves a
change in a long-held attitude. Finally, attitude is not innateit must be learned. One's
attitude about an object is formed by one's experience with the object, either directly or
indirectly.
4) Social Class
Social class implies inequality. Even in the United States, where all are supposed to be
equal, some people seem to be much more equal than others. Social class exists because
it provides for and ensures the smooth operation of the society. For a society to exist
many functions must be performedsome of which are not very pleasant. In this regard,
members of society are not that different from the bees of a hive different types of bees
exist for different purposes (e.g., working bees, queen bees, soldier bees, and so on.). In
Japan, even though the government long ago abolished the social caste system to allow
for the mixing and reshuffling of people at all social levels, the selective access to higher
education still impedes certain individuals from becoming career officials within the
government.
Many societies see nothing wrong with the existence of a social hierarchy. As a matter of
fact, many Asian and Middle East countries view status differences positively. Elders and
superiors command respect. Connections with-socially acceptable persons are often
important in securing business.
The criteria used to assign people into social classes vary from country to country. A
study of Chinese social classes found that income, occupation, education, residence, and
family background, as components of class standing, affect purchase behavior.37 In the
United States, relevant characteristics usually used in the construction of a social class
index for classification purposes are occupation, source of income, house type and
dwelling area. In other countries, occupation and/or amount of income (rather than source
of income) are the dominant discriminating variables. In some societies, royalty
affiliation is employed as well to distinguish one social class from another.
5) Group
A group consists of two or more persons who share a set of norms and have certain
implicitly or explicitly defined relationships with one another in such a way that their
behavior is interdependent. Originally formed for defense and survival, a group now
serves its members more for needs of social and psychological satisfaction. An individual
cannot operate well in isolation because all persons are biologically and socially
interdependent. An individual needs to belong to a group to interact with those who can

18

provide identification and help meet needs in a more efficient manner. The influence of a
reference group is derived in part from its rapacity to disseminate information.
The relevance and strength of influence of a reference group is not constant across
product categories. Its influence is determined in part by the conspicuousness of the
product in question. A product can be conspicuous in two ways: by having the qualities of
visibility and by standing out. The more the product is visible and stands out, the more
conspicuous it becomes. Product conspicuousness allows a reference group to operate in
exerting its influence on consumer behavior. For example, Philip Morris's Galaxy brand
was at one time perceived as a "diet" cigarette, and for that reason, Brazilians became
ashamed to be seen with it because social and personal pressures were placed on those
who smoked Galaxy.
The relevance of group appeal may be dictated by cultural norms. In contrast to
Americans, who are more individually oriented, the Japanese are more committed to
group membership and are consensus oriented. Group pressure is very great in Japan. The
Fishbein behavioral intentions model was found to reflect cultural differences (i.e., the
collectivist culture of Korea and the individualistic culture of the United States). The
greater importance of subjective norm in Korea and of attitude toward an act in the
United States indicates that social pressures, while having a relatively weak influence on
Americans, play a major role in the formation of Koreans' behavioral intentions.
Therefore, international marketers operating in Confucian cultures should keep in mind
that a product may not be evaluated independently of group conformity and face saving.
A marketing mix program should take into account these social factors.
6) Family
In the United States, the word family has a narrow meaning because it encompasses .only
the husband, wife, and their offspring (if any). This family is known as a nuclear or
conjugal family. In the other parts of the world, the word has a much broader meaning
because it is based on the concept of an extended or consanguine family. A family can be
vertically extended when it includes several generations. It can also be horizontally
extended when such family members as uncles, aunts, and cousins are included. Thus
non-Americans count vertical and horizontal relatives of either the husband or wife or
both as part of their family. It is not uncommon for a son to live in his parents' home even
after getting married. When his parents become old, it will become his responsibility to
take care of his parents, the home, and the business. In such a country, nursing homes are
relatively rare, and the placement of elderly or ill parents in homes for the aged is
disdained.
7) Opinion Leadership
Within each social -group, there are some individuals who are able to exert a significant
influence on other members in such a way as to affect their thinking and behavior in a
desired direction. These individuals are known as opinion leaders. In the context of
consumer behavior, their opinions about products can affect subsequent purchases made

19

by others. In marketing products overseas, MNCs should attempt to appeal to opinion

leaders. In general, these are likely to be people who command respect from others. In
Ghana, government health workers gain better cooperation and reception by asking for
village witch doctors' approval before inoculating people or spraying huts to fight
malaria. In developing countries it is a good strategy to market new ideas to teachers,
monks, or priests first, because their opinions influence the acceptance of these ideas by
others.
POLITICAL ENVIORNMENT
The political environment of international marketing includes any national or international
political factor that can affect the organizations operations or its decision making. Politics has
come to be recognized as the major factor in many international business decisions, especially in
terms of whether to invest and how to develop markets.
Politics is intrinsically linked to a governments attitude to business and the freedom within
which it allows firms to operate. Unstable political regimes expose foreign businesses to a
variety of risks that they would generally not face in the home market. This often means that the
political arena is the most volatile area of international marketing. The tendencies of
governments to change regulations can have a profound effect on international strategy,
providing both opportunities and threats. The invasions of Afghanistan and Iraq have brought
market development opportunities for some but market devastation for others and higher political
risk in neighboring markets for all. The instability in the Middle East and the continued threat of
global terrorism have served to heighten firms awareness of the importance of monitoring
political risk factors in the international markets in which they operate. Lesser developed
countries and emerging markets pose particularly high political risks, even when they are
following reforms to solve the political problems they have. The stringency of such reforms can
itself lead to civil disorder and rising opposition to governments, as has been seen recently in
Indonesia, Venezuela, Brazil and Argentina.
Political risk is defined as a risk due to a sudden or gradual change in a local political
environment that is disadvantageous or counter productive to foreign firms and markets. The
types of action that governments may take which constitute potential political risks to firms fall
into three main areas:
Operational restrictions. These could be exchange controls, employment policies, insistence on
locally shared ownership and particular product requirements.
Discriminatory restrictions. These tend to be imposed on purely foreign firms and, sometimes,
only firms from a particular country. The USA has imposed import quotas on Japan in protest at
non-tariff barriers which they view as being imposed unfairly on US exporters. They have also
imposed bans on imports from Libya and Iran in the past. Such barriers tend to be such things as
special taxes and tariffs, compulsory subcontracting, or loss of financial freedom.
Physical actions. These actions are direct government interventions such as confiscation without
any payment of indemnity, a forced takeover by the government, expropriation, nationalization
or even damage to property or personnel through riots and war. In 2001 the Nigerian government
claimed ownership of Shells equipment and machinery without any prior warning.

20

LEGAL STATUTORY ENVIORNMENT

Legal systems vary both in content and interpretations. A successful marketer will modify
his marketing strategies in accordance with such variations. Laws affect the marketing
mix in terms of products, price, distribution and promotional activities quite dramatically.
For many firms such laws are burdensome regulations.
For e.g. in Germany environmental laws mean a firm is responsible for the retrieval and
disposal of packaging waste it creates and must produce packaging which is recyclable.
In Canada, if the information does not appear in both French and English, the goods
may be confiscated. An international Marketer should learn about the advertising, packaging, and
labeling regulations in foreign markets.
India has been seen by many firms to be an attractive emerging market having many
legal difficulties, bureaucratic delays and lots of official procedures. Many MNCs have
found it difficult to break such hard structure. Foreign companies are often viewed with
suspicion. How ever, some firms have been innovative in overcoming difficulties. It is important,
therefore, for the firm to know the legal environment in each of its markets. These laws
constitute the rules of the game for business activity. The legal environment in international
marketing is more complicated than in domestic markets since it has three dimensions: (1) local
domestic law; (2) international law; (3) domestic laws in the firms home base.
1) Local domestic laws. These are all different! The only way to find a route through the legal
maze in overseas markets is to use experts on the separate legal systems and laws pertaining in
each market targeted.
2) International law. There are a number of international laws that can affect the organizations
activity. Some are international laws covering piracy and hijacking; others are more international
conventions and agreements and cover items such as the International Monetary Fund (IMF) and
World Trade Organisation (WTO) treaties, patents and trademarks legislation and harmonization
of legal systems within regional economic groupings, e.g. the European Union.
3) Domestic laws in the home country. The organizations domestic (home market) legal system
is important for two reasons. First, there are often export controls which limit the free export of
certain goods and services to particular marketplaces, and second, there is the duty of the
organisation to act and abide by its national laws in all its activities, whether domestic or
international. It will be readily understandable how domestic, international and local legal
systems can have a major impact upon the organizations ability to market into particular
overseas countries. Laws will affect the marketing mix in terms of products, price, distribution
and promotional activities quite dramatically. For many firms, the legal challenges they face in
international markets are almost a double-edged sword. Often firms operating internationally
face ethical challenges in deciding how to deal with differing cultural perceptions of legal
practices. In many mature markets they face quite specific and, sometimes, burdensome
regulations.
For Example 1) In Germany, for instance, environmental laws mean a firm is responsible

21

for the retrieval and disposal of the packaging waste it creates and must produce packaging
which is recyclable, whereas in many emerging markets there may be limited patent and
trademark protection, still evolving judicial systems, non-tariff barriers and an instability through
an ever-evolving reform programme.
2) China earned notoriety in the past for allowing infringements of copyright and blatent piracy.
However, this is now changing. Some governments are reluctant to develop and enforce laws
protecting intellectual property partly because they believe such actions favour large, rich, and
multinationals. Anheuser Busch (USA) and Budvar (Czech Republic) have been in constant
litigation over the right to use the name Budweiser in the European Union and both companies
have recently been legally deemed the right to use it.
TECHNOLOGICAL ENVIRONMENT
The Technological Environment is perhaps the most dramatic force now shaping our
destiny. An international marketer should very well keep in his mind the change taking
place in technology and thereby affecting the product.
New technologies create new markets and opportunities. However, every new
technology replaces an old technology. Xerography hurt carbon-paper industry,
computer hurt typewriter industry, and examples are so on. Any international marketer,
when ignored or forgot new technologies, their business has declined. Thus, the
marketer should watch the technological environment closely. Companies that do not
keep up with technological changes, soon find their products outdated.
The United States leads the world in research and development spending. Scientists
today are researching a wide range of promising new products and services ranging
from solar energy, electric car, and cancer cures. All these researches give a marketer
an opportunity to set his products as per the current desired standard. The challenge in
each case is not only technical but also commercial that means manufacture a product
that can be afforded by mass crowd.
DISTINGUISH BETWEEN INTERNATIONAL MARKETING AND DOMESTIC
MARKETING
Domestic marketing vs. International marketing
Domestic marketing and International marketing are same when it comes to the fundamental
principle of marketing. Marketing is an integral part of any business that refers to plans and
policies adopted by any individual or organization to reach out to its potential customers. A web
definition defines marketing as a process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods and services to create exchanges that satisfy
individual and organizational goals. With the world shrinking at a fast pace, the boundaries
between nations are melting and companies are now progressing from catering to local markets
to reach out to customers in different parts of the world. Marketing is a ploy that is used to
attract, satisfy and retain customers. Whether done at a local level or at the global level, the
fundamental concepts of marketing remain the same.

22

Domestic Marketing
The marketing strategies that are employed to attract and influence customers within the political
boundaries of a country are known as Domestic marketing. When a company caters only to local
markets, even though it may be competing against foreign companies operating within the
country, it is said to be involved in domestic marketing. The focus of companies is on the local
customer and market only and no thought is given to overseas markets. All the product and
services are produced keeping in mind local customers only.
International Marketing
When there are no boundaries for a company and it targets customers overseas or in another
country, it is said to be engaged in international marketing. If we go by the definition of
marketing given above, the process becomes multinational in this case. As such, and in a
simplified way, it is nothing but application of marketing principles across countries. Here it is
interesting to note that the techniques used in international marketing are primarily those of the
home country or the country which has the headquarters of the company. In America and Europe,
many experts believe international marketing to be similar to exporting. According to another
definition, international marketing refers to business activities that direct the flow of goods and
services of a company to consumers in more than one country for profit purposes only.
Difference between domestic marketing and international marketing
As explained earlier, both domestic as well as international marketing refer to the same
marketing principles. However, there are glaring dissimilarities between the two.
Scope The scope of domestic marketing is limited and will eventually dry up. On the other end,
international marketing has endless opportunities and scope.
Benefits As is obvious, the benefits in domestic marketing are less than in international
marketing. Furthermore, there is an added incentive of foreign currency that is important from
the point of view of the home country as well.
Sharing of technology Domestic marketing is limited in the use of technology whereas
international marketing allows use and sharing of latest technologies.
Political relations Domestic marketing has nothing to do with political relations whereas
international marketing leads to improvement in political relations between countries and also
increased level of cooperation as a result.
Barriers In domestic marketing there are no barriers but in international marketing there are
many barriers such as cross cultural differences, language, currency, traditions and customs.

23

MULTIPLE CHOICE QUESTIONS

1) Which of the following cannot be classed as a market structure?
a. Communism
b. Monopolistic competition
c. Oligopoly
d. Perfect competition
2) Income and population are two variables that can be used in ______ segmentation:
a. Demographic
b. Psychographic
c. Lifestyle
d. Behavioral
3) Strong exchange rates can:
a. drive imports to become cheaper
b. help predict change in lifestyle across Europe
c. predict the evolution of sales for particular brands.
d. help estimate consumer purchasing power.
4) BERI stands for:
a. Business Economic Rating International
b. Business Economic Risk Index
c. Business Environment Risk Index
d. Business Education Rating Indicator
5)
When an organization selling electric and electronic household goods evaluates
international markets in view of entering them, a crucial factor taken into account is
represented by:
a. the economic factors
b. the technological factors
c. the cultural factors
d. the demographic characteristics
6) A marketing director for a car manufacturer is given particular responsibility for the
Far East markets. Which information will the marketing director require as a priority
in order to analyze and screen these markets?
a. Competition levels in each country
b. Price levels in each country.
c. The number of cars sold and income distribution per country
d. All of the above
7) One of the following is not a variable within demographic segmentation:
a. birth rates
b. income
c. consumer lifestyles

24

d. gender.
8) Which of the following are positive reasons for internationalization?
a. Market diversification
b. International competitiveness.
c. Economies of scale
d. All of the above.
9) Which economic factors should be analyzed by organizations wishing to expand in
international markets?
a. Employment
b. Purchasing power
c. Interest rates
d. All the above
10) How can a marketer use the age distribution of the population in a market?
a. The marketer can use it to identify lifestyle patterns within various age groups.
b. The marketer can use it to identify the potential number of customers in various age
groups
c. The marketer can use it to identify behavioral patterns within each age group.
d. The marketer can use it to identify the purchasing power of the population in each
country
11) The ______ is based upon the identification of relative changes in international
import shares among various countries.
a. international balance of trade
b. FDI index
c. profit-share mode
d. shift-share approach
12) The study of international marketing should focus primarily on:
a. Product
b. Place
c. Promotion
d. Pricing
e. all of the above
13) This kind of international marketing study contrasts two or more marketing systems to
identify similarities and differences.
a. foreign marketing
b. domestic marketing
c. comparative marketing
d. extensive marketing
14) For practical purposes, the difference between the concept of international marketing and
the concept of multinational marketing is:
a. Significant
b. Insignificant

25

c. Meaningful
d. Adequate
15) Marketing is not needed in:
a. socialist countries
b. communist countries
c. less developed countries
d. developed countries
e. marketing is needed in all countries
16) This country is the world's largest exporter.
a. USA
b. Germany
c. China
d. Japan
17) A strong orientation toward the home country is an indication of:
a. Ethnocentricity
b. Polycentricity
c. Egocentricity
18) This is the feeling within a culture that its values are superior to those of foreign cultures.
a. Ethnocentricity
b. Polycentricity
c. Egocentricity

19) When a firm uses the same marketing strategies abroad as that used at home, it probably
is:
a. Ethnocentric
b. Polycentric
c. Geocentric
d. Unicentric
20) Because of trade (and imports), inflation:
a. Increases
b. Decreases
c. Moderates
d. Disappears
21) As a result of international trade and global interdependence, countries' inflation rates
tend to:
a. Increase
b. Moderate
c. be unpredictable

26

d. be unstable
22) Increasing affluence and demand mean consumers will
a.
b.
c.
d.
e.

make purchases regardless of price

become less selective
actively seek out choices
become less sensitive to choice
seek more expensive items

23) When the whole organization is focused upon the selection and exploitation of global
marketing opportunities, this is an aspect of
a.Export marketing
b.International marketing
c.Global marketing
d.Multi-domestic marketing
e.Mono-domestic marketing
24) Which of the following would you consider to be a socio-cultural influence on
international marketing?
a.Language
b.Religion
c.Social organisation
d.Values and attributes
e.All of the above
25) Legal aspects of environmental analysis include
a.Operational restrictions
b.The electronic superhighway
c.Discriminatory restrictions
d.International law
e.None of the above
26) Why is it important to understand domestic laws in an internationally
focused organisation?
a. There is an obligation to act by domestic laws in all of its activities
b. Export controls could limit the transfer of goods to other markets
c. Legal construct is the same everywhere, and by understanding
domestic laws it makes understanding international legal systems
much easier
d. a, b and c
e. a and b

27

27) A risk that can be due to a sudden or gradual change in a local political
environment that is disadvantageous or counter productive to foreign firm and
markets is termed a ______ risk.
a. political
b. local
c. domestic
d. marketing
e. trading
28) Which of the following is an aspect of international marketing planning?
a.Stakeholder expectations
b.Control and feedback
c.Individual small business unit strengths and weaknesses
d.Setting relevant standards
e.All of the above are aspects of planning
29) The market-oriented system is called:
a. Capitalism
b. Socialism
c. Communism
d. modified communism
30) Countries all over the world have been moving in the direction of this
economic system.
a. Capitalism
b. Socialism
c. Communism
d. modified communism

28

QUESTION BANK:
Q1.Define the concept of International Marketing. Discuss the challenges that
firms faces in International Marketing.
Q2.Discuss nation as an element of culture. What cultural elements
differentiate one nation from another? Use examples to explain.
Q3.How does language becomes an element of culture? As a marketer, how
will you read the silent and non-verbal language of nations to devise your
marketing strategy? Explain with the help of examples.
Q4.Explain what kind of political risks an international marketing firm faces
in the international political environment. How can an international firm
safeguard its interests?
Q5.How does international marketing differs from domestic marketing?
Explain.
Q6. Discuss the diving and restraining forces affecting international
marketing?
Q7.Explain the environment factors affecting International trade?
Q8.What is the similarities and differences between domestic and
international marketing research? Explain giving suitable examples.
Q9. Mention the various opportunities in International Marketing?
Q10. Explain various types of orientations with respect to International
Marketing.
Q11. What is International Marketing? Point out the objectives also.

29

UNIT 2
Global Marketing Information System and Research- Planning for International Marketing Market Analysis
Foreign Market Entry Strategies - their merits and demerits
WHAT IS GLOBAL MARKETING INFORMATION SYSTEM
A Global Marketing Information System can be defined as a system in which Global marketing
information is formally gathered, stored, analyzed and distributed to managers in accord with
their informational needs on a regular basis.
Set of procedures and practices employed in analyzing and assessing marketing information,
gathered continuously from sources inside and outside of a firm. Timely marketing information
provides basis for decisions such as product development or improvement, pricing, packaging,
distribution, media selection, and promotion.
The term is sometimes defined in a limited way to refer to a computer based system intended for
use by particular marketing personnel at any functional level for the purpose of solving
Marketing Problems. Alternatively it can be defined in a far broader sense as 'People, equipment
and procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate
information to marketing decision makers'
DEFINITION OF GLOBAL MARKETING INFORMATION SYSTEM
Philip Kotler defines MIS as a system that consists of people, equipment and procedures to
gather, sort, analyze, evaluate and distribute needed, timely and accurate information to
international marketing decision makers
GMIS is an integrated network of global information designed to provide International
Marketing Managers with relevant & useful global information at the right time & place for
planning, global decision making and control.
CHARACTERISTICS OF GMIS
1) It is a planned system developed to facilitate smooth and continuous flow of information.
2) It provides pertinent information, collected from sources both internal and external to the
company, for use as the basis of marketing decision making.
3) It provides right information at the right time to the right person.
4) A well designed MIS serves as a companys nerve centre, continuously monitoring the market
environment both inside and outside the organization. In the process, it collects lot of data and
stores in the form of a database which is maintained in an organized manner. Marketers classify
and analyze this data from the database as needed.

30

BENEFITS OF GMIS
1) It helps management identify global opportunities.
2) Make the marketer aware of global markets problem and then it also facilitates the marketer
to develop international marketing plan.
ELEMENTS OF GMIS
A) Information subject list:
1) International Marketing decision related information
Different types of information are needed to take the critical decision as to whether to go
international or not. These include information about the prospects of the foreign
markets, competition, other characteristics of the foreign market, domestic market
prospects etc.
2) Market selection related information
Information on a large number of factors is needed for evaluation and selection of the
markets. There are many general factors like political and economic stability, currency
stability, government policy and regulations, etc. about which information is required.
3) Product related information
This includes consumer tastes and preference about the product like unit size/quantity,
shape, color, product form, packaging etc. mode, time, frequencies and rates of
consumption, purpose of uses etc, regulatory aspects and so on.
4) Price related information
It include prevailing price ranges, price trends, margins, pricing practices, government
policies and regulations, price elasticity of demand, role of price as a strategic marketing
variable etc.
5) Promotion related information
For formulating the promotion strategy data on many aspects like media availability and
effectiveness, government regulations, customs/practices of promotion in the market
concerned, competitive behavior etc. are required.
6) Distribution related information
This information includes factors like channel alternatives and characteristics, relative
effectiveness, of different channels, customs and practices of the trade, power and
influence of channel members etc.
7) Competition related information
A company will also need information about the competitive environment including the
extent of competition, major competitors, relative strengths and weakness of competitors,
strategies and behavior of competitors etc.

31

B) SCANNING MODES
After all related information field is decided, the next task is framing the information
system is collection of information. The process of gathering information is called as
scanning. The two important modes in scanning are surveillance and search.
During surveillance, the scanner is oriented towards collecting relevant information
which is contained in message and reports. The scanner seeks the information informally
or through structured study research.
The marketing information systems and its subsystems

WHAT IS MARKETING RESEARCH

The shortest definition of the term marketing is meeting the needs profitably. According to the
American marketing association i.e. AMA, marketing is an organizational function and set of
processes for creating, communicating and delivering value to the customers and managing the
customer relationships in ways that benefit the organization and its stakeholders.
Before getting into any market, every business entity is required to conduct some research about
the potential of the market. This process of conducting a market research is known as marketing
research. Marketing research is basically a field that helps in understanding the needs of the
people by directly communicating with them.
Marketing Research is " the function that links the consumer, customer, and public to the
marketer through information information used to identify and define marketing opportunities

32

and problems; generate, refine, and evaluate marketing actions; monitor marketing performance;
and improve understanding of marketing as a process. Marketing research specifies the
information required to address these issues, designs the method for collecting information,
manages and implements the data collection process, analyzes the results, and communicates the
findings and their implications." Marketing research is the systematic gathering, recording, and
analysis of data about issues relating to marketing products and services. The goal of marketing
research is to identify and assess how changing elements of the marketing mix impacts customer
behavior. The term is commonly interchanged with market research; however, expert
practitioners may wish to draw a distinction, in that market research is concerned specifically
with markets, while marketing research is concerned specifically about marketing processes.
DEFINITION OF MARKETING RESEARCH
According to American Marketing Association, Marketing Research is the function that links
the consumer, customer and public to the marketer through information-information used to
identify and define marketing opportunities and problems, generate, refine and evaluate
marketing actions; monitor marketing performance; and improve understanding of marketing as
a process.
WHAT IS INTERNATIONAL MARKETING RESEARCH
International marketing research is research that evaluates consumer, export, and import statistics
in other parts of the world. International marketing research often reflects the way in which
spending patterns differ across the globe and are related to a regions culture, customs, and other
socioeconomic influences. International marketing research can be especially challenging when
attempting to gather data from remote parts of the world, where language differences and limited
accessibility to outsiders pose communication barriers.
International marketing research is especially critical to companies that are planning to export
their goods to other countries. Prior to embarking on international sales, a company will want to
determine whether or not there is a demand for their product in other regions. The company will
also want to research any potential cultural conflicts that could impede the profitability of the
product or service they intend to export. For example, the popularity of self-tanning products in
many parts of North America and Europe would not likely be a profitable export to China
where a suntanned appearance is generally not considered attractive and where products are in
fact sold to reverse or clean off a sun tan.
Marketing research methods
Methodologically, marketing research uses the following types of research designs:
Based on questioning:

Qualitative marketing research - generally used for exploratory purposes small number of respondents - not generalizable to the whole population statistical significance and confidence not calculated - examples include focus
groups, in-depth interviews, and projective techniques

33

Quantitative marketing research - generally used to draw conclusions - tests a

specific hypothesis - uses random sampling techniques so as to infer from the
sample to the population - involves a large number of respondents - examples
include surveys and questionnaires. Techniques include choice modelling,
maximum difference preference scaling, and covariance analysis.

Based on observations:
Ethnographic studies -, by nature qualitative, the researcher observes social
phenomena in their natural setting - observations can occur cross-section ally
(observations made at one time) or longitudinally (observations occur over several
time-periods) - examples include product-use analysis and computer cookie
traces..
Experimental techniques -, by nature quantitative, the researcher creates a quasiartificial environment to try to control spurious factors, then manipulates at least
one of the variables - examples include purchase laboratories and test markets
Researchers often use more than one research design. They may start with secondary research to
get background information, and then conduct a focus group (qualitative research design) to
explore the issues. Finally they might do a full nation-wide survey (quantitative research design)
in order to devise specific recommendations for the client.
International marketing research characteristics

Marketing research is systematic. Thus systematic planning is required at all the stages
of the marketing research process. The procedures followed at each stage are
methodologically sound, well documented, and, as much as possible, planned in advance.
Marketing research uses the scientific method in that data are collected and analyzed to
test prior notions or hypotheses.
Marketing research is objective. It attempts to provide accurate information that reflects
a true state of affairs. It should be conducted impartially. While research is always
influenced by the researcher's research philosophy, it should be free from the personal or
political biases of the researcher or the management. Research which is motivated by
personal or political gain involves a breach of professional standards. Such research is
deliberately biased so as to result in predetermined findings. The motto of every
researcher should be, "Find it and tell it like it is." The objective nature of marketing
research underscores the importance of ethical considerations

Scientific method. Effective marketing research uses the principles of the scientific
method: careful observation, formulation of hypotheses, prediction, and testing.

Research creativity. At its best, marketing research develops innovative ways to solve a
problem.

Multiple methods. Competent marketing researchers shy away from over-reliance on

any one method, preferring to adapt the method to the problem rather than the other way

34

around. They also recognize the desirability of gathering information from multiple
sources to give greater confidence.

Interdependence of models and data. Competent marketing researchers recognize that

the facts derive their meaning from models of the problem. These models guide the type
of information sought and therefore should be made as explicit as possible.

Value and cost of information. Competent marketing researchers show concern for
estimating the value of information against its cost. Value/cost evaluation helps the
marketing research department determine which research projects to conduct, which
research designs to use, and whether to gather more information after the initial results
are in. Research costs are typically easy to quantify, while the value is harder to
anticipate. The value depends on the reliability and validity of the research findings and
management's willingness to accept and act on its findings. In general, the most valuable
information tends to cost the most because it requires more intensive methods, but of
course it is easy to spend a great deal of money on poorly conceived research.

Healthy skepticism. Competent marketing researchers will show a healthy skepticism

toward assumptions made by managers about how the market works.

Ethical marketing. Most marketing research benefits both the sponsoring company and
its consumers. Through marketing research, companies learn more about consumers'
needs, and are able to supply more satisfying products and services. However, the misuse
of marketing research can also harm or annoy consumers. There are professional ethical
standards guiding the proper conduct of research.

Stages of marketing research process

Marketing research process is a set of six steps which defines the tasks to be accomplished in
conducting a marketing research study. These include problem definition, developing an
approach to problem, research design formulation, field work, data preparation and analysis, and
report generation and presentation.
Step 1: Problem Definition
The first step in any marketing research project is to define the problem. In defining the problem,
the researcher should take into account the purpose of the study, the relevant background
information, what information is needed, and how it will be used in decision making. Problem
definition involves discussion with the decision makers, interviews with industry experts,
analysis of secondary data, and, perhaps, some qualitative research, such as focus groups. Once
the problem has been precisely defined, the research can be designed and conducted properly.
Step 2: Development of an Approach to the Problem
Development of an approach to the problem includes formulating an objective or theoretical
framework, analytical models, research questions, hypotheses, and identifying characteristics or

35

factors that can influence the research design. This process is guided by discussions with
management and industry experts, case studies and simulations, analysis of secondary data,
qualitative research and pragmatic considerations.

Step 3: Research Design Formulation

A research design is a framework or blueprint for conducting the marketing research project. It
details the procedures necessary for obtaining the required information, and its purpose is to
design a study that will test the hypotheses of interest, determine possible answers to the research
questions, and provide the information needed for decision making. Conducting exploratory
research, precisely defining the variables, and designing appropriate scales to measure them are
also a part of the research design. The issue of how the data should be obtained from the
respondents (for example, by conducting a survey or an experiment) must be addressed. It is also
necessary to design a questionnaire and a sampling plan to select respondents for the study.
More formally, formulating the research design involves the following steps:
1. Secondary data analysis
2. Qualitative research
3. Methods of collecting quantitative data (survey, observation, and experimentation)
4. Definition of the information needed
5. Measurement and scaling procedures
6. Questionnaire design
7. Sampling process and sample size
8. Plan of data analysis
Step 4: Field Work or Data Collection
Data collection involves a field force or staff that operates either in the field, as in the case of
personal interviewing (in-home, mall intercept, or computer-assisted personal interviewing),
from an office by telephone (telephone or computer-assisted telephone interviewing), or through
mail (traditional mail and mail panel surveys with prerecruited households). Proper selection,
training, supervision, and evaluation of the field force help minimize data-collection errors.
Step 5: Data Preparation and Analysis
Data preparation includes the editing, coding, transcription, and verification of data. Each
questionnaire or observation form is inspected, or edited, and, if necessary, corrected. Number or
letter codes are assigned to represent each response to each question in the questionnaire. The
data from the questionnaires are transcribed or key-punched on to magnetic tape, or disks or

36

input directly into the computer. Verification ensures that the data from the original
questionnaires have been accurately transcribed, while data analysis, guided by the plan of data
analysis, gives meaning to the data that have been collected. Univariate techniques are used for
analyzing data when there is a single measurement of each element or unit in the sample, or, if
there are several measurements of each element, each RCH variable is analyzed in isolation. On
the other hand, multivariate techniques are used for analyzing data when there are two or more
measurements on each element and the variables are analyzed simultaneously.

Step 6: Report Preparation and Presentation

The entire project should be documented in a written report which addresses the specific research
questions identified, describes the approach, the research design, data collection, and data
analysis procedures adopted, and present the results and the major findings. The findings should
be presented in a comprehensible format so that they can be readily used in the decision making
process. In addition, an oral presentation should be made to management using tables, figures,
and graphs to enhance clarity and impact.
For these reasons, interviews with experts are more useful in conducting marketing research for
industrial firms and for products of a technical nature, where it is relatively easy to identify and
approach the experts. This method is also helpful in situations where little information is
available from other sources, as in the case of radically new products.
PROBLEMS IN GLOBAL MARKETING RESEARCH
1) Lacking similarity
International market is not identical from one country to another, as such the
research must be intelligent enough to identify the different errors that may arise
in replicating a study multinational. Conducting research for global markets is
quite expensive. Moreover the expenses are controlled by respective country
government. Hence normally the steps upped personal interview to be entrusted to
local research agency, and also the analysis part to be completed in home country
to save expenses and adhere to govt. regulations.
2) Problems with secondary data
The most import source of secondary data is govt. organizations. The govt. is
always politically biased. Moreover govt. officers are sluggish. Just by writing a
letter or meeting only once to an officer may not suffice the purpose. Many times
the govt. organization do not collect, maintain and disseminate the market data
with similar objective as a business firm.
3) Comparing Several Market

37

When exporter starts comparing market data from many nations on specific
product(s), he finds that the data is rarely comparable. This could be due to
different year of comparison, the definitions or meanings of some of the key
terminologies may not be same. For E.g., though M&M and Toyota calls Scorpio
& Qualis as family car, it is multi-utility vehicle.
4) Problem with Primary Data
Collecting data through telephone interviews could be best suited for European
countries & North American countries because each house has at least landline
telephone connection. Whereas telephone interviews in many African, Latin
American countries as well as in many Asian countries may not be justifiable.
5) Infrastructure Bottlenecks
Exporter may need to tap rural markets along with urban markets. The rural
markets may not be accessible through mail or telephone due to poor
infrastructure. Moreover in many countries even roads may not have been
developed for rural areas and if it is existing, it looses identity in rainy season. In
such cases, the research may have to limit the study only up to urban sector.
INTERNATIONAL MARKETING RESEARCH REPORT SHOULD CONTAIN
FOLLOWING KEY INFORMATION
i)

Profile of the country

Information on population, per capita income, income disparity, cultural groups,
languages spoken, tastes & preferences.

ii)

Economic base of the country

Contribution of Agriculture, Services & Industry to the GDP and the trends.

iii)

Target Markets
In terms of Market segments, OEMs, Actual Users, Resellers & Govt. markets.
For each target customer, the purchase procedure must be detailed.

iv)

Competitive Activity
Product specific information must be highlighted.

v)

Entry routes & Alternatives

The cost of each possible entry route must be highlighted. The relative merits of
each route must be compared with entry cost.

38

vi)

Pricing
Most of the western markets are observing non-price competitive-more emphasis
on quality and delivery. Hence long term & short term pricing policies suiting to
each country must be recommended.

vii)

Marketing Communication
Various constraints on promotion of a product or service must be mentioned.
Availability of various media, its tariff rates, reach, media habits etc must be
covered.

viii)

Multi-Lateral Trade Agreements

The impact of various MLTA like GATT, WTO, GSP on the trade must be
covered.

ix)

Incentives
Various export incentives, Tax benefits, subsidies, concessions in marketing
research expenses etc. must be identified.

PLANNING FOR INTERNATIONAL MARKETING

Planning involves where the organisation would like to be and how to get there, which involves
goal setting and strategy determination. As already pointed out earlier, the marketing plan must
be developed at two levels i.e. at the country level and the corporation level.
At the country level the marketing plan resembles any domestic marketing plan in the sense that
it lays down the strengths, weaknesses of the organisation and opportunities and threats faced by
it. It proceeds to define the organisation objective along with the assumptions. Having
undertaken the above steps it lays down the broad action plan, the organisation structure and
control system necessary for accomplishing the above plan.
The international marketing plan is more than a mere integration of the country plans, for it seeks
to direct and co-ordinate the activities of the corporation on a global basis and at country levels.
This involves a number of variables viz.
Knowledge of the market
Knowledge of the product
Knowledge of the marketing systems
The corporation must decide how it will obtain information about all these variables on a global
and country basis. This information will then be formalized into a marketing plan to provide
guidance to each country manager.

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ISSUES IN FRAMING INTERNATIONAL MARKETING PLAN

One of the issues most commonly faced in framing the international marketing plan is with
regard to the approach to be followed. Every organisation must address this issue. It mist decide
whether to follow a standardized or a multidomestic marketing approach or a blend of the two
approaches. A brief description of the two approaches has been presented below.
Standardized Approach
This refers to standardization in four major decision areas of marketing viz. product decision,
price decision, promotion decision and the distribution decision for achieving the competitive
and sales objectives of the corporation. The organisation through policy directives can achieve
this. The underlying premise of this strategy recognizes the globalization of markets. Levitt in his
article on 'The Globalization of Markets' points out that because of technological and
communication revolution consumers would know about the quality products that exist and seek
to procure them through formal or informal channels. Once this assumption is accepted it
become possible for an organisation to encase the advantages of standardization which include
cost saving in all areas right from manufacturing (because of longer production runs and learning
curve effect) to promotion (because the message becomes common). The corporation also has
the advantage of maintaining the international customer, for wherever he goes in the world a
similar product will be available, a class which is growing as demonstrated by the increase in
international air traffic. However, this approach is not free from limitations. Although
theoretically a corporation may demand standardization, in practice it is not always possible
because of heterogeneity of the markets. Thus, dumping laws and retail price maintenance laws
may prevent standardization of price variables, non-availability of media vehicles may prevent
standardization of promotion variables and entry regulations by various countries may prevent
standardization of distribution approach has however found many advocates within practicing
managers. They attempt in standardizing variables partially. Thus. In case of promotion variables
the messages are unified, very often even the movies shot are standardized. The brand variable is
also standardized. Similarly in case of products, certain major parts are standardized so that they
can take advantage of cost savings and at the same time take into account the heterogeneous
characteristics of the market.
Multi Domestic Approach
The multi domestic approach to market planning emanates from the assumption that markets are
heterogeneous and therefore the marketing mix decision in each country should specifically
cater to the needs of the country. This approach by some advocators has been rated as the true
marketing approach. This approach however, fails to explain the existence of the multinational
giants like Coca Cola. In reality it must be accepted that markets are heterogeneous and at the
same time standardization is possible in many decision areas. The existence of common brand
names like IBM, Levis etc. proves this. But even these organizations do cater to the specific
needs of the heterogeneous markets. Multi-domestic approach takes into account the subtleties
of local conditions; however they are usually costly and resource consuming.
FRAMEWORK FOR IN'T'ERNATIONAL MARKETING PLANNING

40

As noted earlier planning in the international context is a more difficult process, partly because
there are many, unknowns in this case. It encompasses all the steps used in the process for any
typical marketing plan. To reiterate, any marketing plan consists of:
a. Diagnosis of the situation
b. Identification of corporate strengths and weaknesses as well as environmental
opportunities, and threats.
c. Definition of the objectives
d. Forecasted estimates of sales, costs, profits
e. Designing an appropriate marketing program base:' on objectives and estimates
f. Deciding on the relevant appropriations for the plan
Definition of the objectives is considered by some as the first step in the marketing planning
process. Others feel that objectives cannot be decided without a situation and SWOT analysis,
which would generate information to enable objective definition. What is, however, important to
bear in mind is that since marketing planning is an iterative process, it requires monitoring
revaluation and adaptation of objectives and strategy in the light of constantly changing
marketing environment?
Strategic planning in the international marketing context comprises following decision
areas.
1) The commitment decision: Considering the resource position of the firm and its home market
situation, does the international market offer an attractive
opportunity worth striving for?
2) Area of operation decision: Which country/countries present the most attractive alternative(s)
as potential target markets?
3) Entry mode and operations decision: What could be the most effective strategy for entering
the international markets and conducting the marketing
operations?
4) Marketing organisation decision: What is the best possible organizational arrangement of
facilities and personnel to enable the firm to have local
flexibility and corporate control?
5) Marketing mix decision: Which possible combination of the marketing mix elements would
be most suitable for the given foreign market
environment?
All the above decisions are interlinked and interdependent. Combining these decision areas with
the general planning process steps generates an international marketing planning matrix given in
Exhibit 15.2. Each cell in the matrix represents step in the iterative process of the overall
strategic planning function. Some of them (as you will note) are part of the review and
reassessment process that must be carried on till a final plan emerges.

41

International Marketing Planning Matrix

International
Planning
Decisions

Diagnosis
Ofthe
Situation

SWOT
Analysis

Objectives

Sales/Cost
Profit

Marketing
Budget
Programme

forecasts
International
Planning
Decisions
Commitment
decision
Area of
operation
decision
Entry mode
and
operations
Marketing
Organisation
Marketing
Mix
The matrix given above provides an overall framework for planning. Detailed marketing
information would need to be generated and analyzed in order to fill in the matrix and evolve the
marketing plan relevant to a given international situation. Given below are the checklists
(adapted from International Marketing Strategy by Hans B. Thorelli and S. Tamer Cavusgil) of
information pertaining to each decision area that must be generated/utilized to evolve the
marketing plan. The lists are not exhaustive; they merely illustrate the type of information that
forms the data basic for such a plan.
1) The Commitment Decision-Checklist
The commitment decision is based upon valid and defensible reasons for entering international
markets. The reasons must include an analysis of corporate objectives, resources, philosophy and
the sources of differential advantages sought in going international. Following are the factors that
need to be considered while making the commitment decision.
a) Reasons for entering international markets
Saturation in domestic markets
Greater profitability

42

Pre-empting competition
Excess liquidity
As an alternative growth strategy
Better utilization of current resources and differential advantage
Excess or obsolescent inventory
Securing sources of supply
b) Own resources, strengths and weaknesses
Domestic operations under control
o Differential advantages
o Image for high quality
o Cost advantages
o Manpower skills
Finances
o Patents
o Marketing expertise
c) Own objectives and philosophy
Growth objectives
Growth strategies followed (e.g. growth through market expansion or product
development, in current products or unrelated products, growth through reinvested
earnings. attitude towards mergers and acquisitions)
Profitability, required return on investment
Attitude and preferences regarding risk
Liquidity preferences
Market share desired
d) Country preference
Developed, industrialized countries
Developing countries
Definition of the above variables would help finalizing the commitment decision, and enable
determination of the type and extent of commitment in a given area of operation.
2) The Area of Operation Decision-Checklist
Once in the context of the commitment decision, the type of country preferred has been decided,
the specific country alternatives must be evaluated. Unless specific reasons compel choice of a

43

particular country, several alternatives within a given type must be analysed with respect to both,
the international and the local marketing environment. The factors that must be considered for
this analysis may include
a) International environment

Relations between domestic country and country chosen (say country X)

Tariffs and non-tariff barriers in country X
Currency stability and currency control
Infrastructural costs (e.g. transportation, communication)
Counter trade requirement

b) Local environment
Government stability
Economic development, growth rate, developmental/policies
Inflation
Government controls and regulations
Local business culture
Philosophy towards cooperation, competition
Business ethics
Respect for contracts
Cartelization
c) Marketing infrastructure

Availability and reliability of marketing data, research skills

Literacy
Media
Ad agencies
Distributive network facilities
Availability and reliability of communication system
Transportation availability and costs
Market structure and demand
Consumption pattern and buyer behavior

d) Financial need and analysis:

-

Short Term
Investment needs
Sales volume forecast
Profitability estimate, return on investment
- Long Term

Taxation
Currency stability and convertibility
Profit, dividend remittance and repatriation prospects

44

e) Overall suitability
Country X fits in a regional approach
Country X as part of a global market portfolio

3) Entry Mode and Operations Decision-Checklist

This checklist helps determine the appropriate mode of market entry, the first part of the
international operations plan. It is essential that the plan incorporate the general assumptions and
specific forecasts on which it is based and that it be prepared in written form, especially if it is a
first or "initial" plan.
a) Objectives

Sales volume expected during initial period: market share

Profitability, return on investment (note: the larger the scale of operations, the more likely
negative profits during a build-up period)
Permissible risk exposure
Going in for a fast profit and then leave vs. aiming for a lasting commitment
Philosophy of ownership vs. joint ventures, etc.
Data feedback for future decisions: Test marketing or other marketing research,
acquisition of data to determine desirability and form of long-term commitment-all
the while keeping costs of data generation and analysis in mind

b) Local marketing environment

Local government view of the firm's kind of production
Could the firm and should the firm obtain favored treatment from Government?
c) Market structure and demand analysis
Detailed industry and company sales forecast
d) Resources
Expected sources of differential advantage (see checklist (b) of Commitment decision)
Local validity of own patents and trademarks
Availability of company personnel with prior local experience
Tasks to be performed by company, tasks to be contracted out; marketing research,
advertising, distribution may all be contracted out, if desired, given sufficient local
infrastructure
Available sources of supply relative to expected sales volume, supply from headquarters
or from other subsidiaries or from outside firms. Adequacy of sources and their ability
to adjust to possible fluctuations in demand

45

e) Mode of market entry

Direct exports from home base

Indirect exports through home country channels
Direct exports through outside distribution channels
Direct exports and sales through local sales branch
Licensing, franchising, technology transfer
Foreign direct investment (FDI) in joint venture
FDI in wholly-owned assembly or integrated production facilities.

4) Marketing Mix Strategy-Checklist

Assuming the international commitment decision has been made, the country or countries
selected, and the most likely mode of entry determined, this checklist enumerates the strategic
aspects in the overall marketing plan. These include the underlying strategic concept, rationale,
general thrust, and consideration of appropriate and matching marketing mix variables.
a) Strategy

Overall concept of our international marketing strategy. Strategy should be explicitly

related to local objectives and to our notion of differential advantage. Include definition
of market niche, if nichemanship is sought.
Rationale for contemplated differentiation from domestic strategy, if any. Such deviations
are often desirable or even inevitable. As they do lessen synergy their justification should,
however, be made explicit.
Homogenization or segmentation of local demand

46

b) Marketing mix implication of strategy

Product: opinions, models to be marketed, modifications for local market, if any, product
simplification, invention
Price: skimming vs. penetration. Price relative to current and potential competition; price
relative to the firm's policies elsewhere. If price is very high compared to domestic price
due to tariffs, freight, high distributor margins, etc. justify belief that it will be accepted
locally. If planned local price is very low, contemplate side-effects on company
operations elsewhere.
Promotion and intelligence: budget, theme, media, timing. If substantial resources are to
be committed, include plan for measurement of promotional effectiveness. Labelling,
consumer information. Feedback from the market place, marketing research
Distribution channels: Mode of market entry, functions to be performed by channel
members or distributors, exclusive vs. selective distribution, margins, promotional
allowances (i f any), short term vs. long-tern commitments.
Customer service: Post-transaction service, service and warranty system, spare parts:
locally manufactured or procured vs. imported from home country or subsidiary, handling
of customer complaints. Net working and trust: plan for the build-up of goodwill and
customer confidence. The larger the operations and the longer its time perspective the
more important is trust relative to the firm's policies elsewhere. If price is very high
compared to domestic price due to tariffs, freight, high distributor margins, etc. justify
belief that it will be accepted locally. If planned local price is very low, contemplate sideeffects on company operations elsewhere.
Promotion and intelligence: budget, theme, media, timing. If substantial resources are to
be committed, include plan for measurement of promotional effectiveness. Labeling,
consumer information. Feedback from the market place, marketing research
Distribution channels: Mode of market entry, functions to be performed by channel
members or distributors, exclusive vs. selective distribution, margins, promotional
allowances (i f any), short term vs. long-tern commitments.
Customer service: Post-transaction service, service and warranty system, spare parts:
locally manufactured or procured vs. imported from home country or subsidiary, handling
of customer complaints. Net working and trust: plan for the build-up of goodwill and
customer confidence. The larger the operations and the longer its time perspective the
more important is trust
5) International Marketing Organisation-Checklist
To bring the plan into fruition requires adequate marketing organization. This Checklist includes
among organizational factors the type and nature of coordination between headquarters and
international units, scheduling, performance evaluation (audit), and preview of subsequent
planning periods.
a) Headquarters service and coordination
Manpower allocation at headquarters (HQ) and overseas
Organizational adjustments at HQ, if any
Identification of areas of HQ direction, assistance and consultation. Areas of local
autonomy

47

Reporting arrangements
Pricing and other policies for intra -company transfers
b) Schedules
Step-by-step timing of activities and the attainment of sub-targets. PERT or flow
diagram techniques may be helpful here
Budgeting
Master budget
Projected profit and loss statements for each reporting period
Performa balance sheets for each reporting period
Cash flow projections in each reporting period
c) Action potential at the end of the planning period
This is an advance audit of operational performance, assuming full realization of the plan. The
end of the period a post-audit should be undertaken, including re-evaluation of the commitment
decision and its future implication. These management audits should comprise items of the type
indicated below
Resource profile, including personnel skills
Differential advantage
Data about the market structure and demand
Trust and goodwill
Patents and trademarks
Standing arrangements with local suppliers and customers
Competitive position
Performance relative to budget
Performance relative to other aspects of objectives and plan
Impact on host country
d) Contingency plan: Contingency planning is the standby plan for emergencies. It may be a
strike, an import prohibition, currency devaluation, failure to obtain local financing if
planned for, or simply the fact that some vital assumption about the future might be
mistaken.
e) Long-term plan: Assuming that the substance of the initial plan will be realized, the long-term
plan should at least present a sketch of the next three to five years.

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MARKET ANALYSIS
Market analysis is the process by which the company develops a clear understanding of each
individual market and then evaluates its significance for the company and for other markets in
which the business operates. As the international business environment becomes more
competitive, dynamic and complex, there is a greater need for individual managers to be aware
not simply of their immediate situation, but also of the possible impact of changes taking place in
surrounding areas too. While doing the market analysis following are the points which has to be
considered:
1) Threat of New Entrants:
New entrants might add manufacturing capacities, thus enhancing installed capacities.
New marketer normally goes for low prices to get immediate market acceptance. Low
prices mean low profitability. Thus industry profitability reduces. However, every new
marketer has to pass following 8 entry barriers:
i)

Economies of scale:
It means decline in product cost per unit as the volume of production increases.
Earlier it was considered that the economies of scale can be only for production,
but now it can be organized for distribution, research and development and
procurement also.

ii)

Product Differentiation:
High degree of product differentiation, established brand loyalty due to effective
promotion is another barrier for new entrants. Eg. ITCs Gold Flake and Wills
Cigarettes.

iii)

Capital requirement:
Funds are required for production, Marketing, R&D and promotion and
distribution. Ex. Pharma Products, Automobiles etc

iv)

Retaining Partners Cost:

Marketers rely on many partners like vendors, distributors, banks etc. The cost
includes retaining existing vendor vs developing new source if existing do not
perform and so also for distributors and banks.

v)

Access to marketing channels:

If existing marketing channels are already 100% occupied, the new entrant may
have to create his own channel of distribution.

vi)

Government Policy:
Government of a specific country may restrict entry to any particular company.

vii)

Cost Leadership:
Existing companies might have cost leadership not exclusively because of access
to raw materials, favorable locations, better technology, and government
subsidies.

49

viii)

Competitor response:
New entrant may logically expect the competitors to respond and strongly to his
entry. Thus competitors response is also a major threat.

2) Threat of Substitute Products:

Due to the availability of large number of substitute products, the price of the product
comes under limitation and hence the profitability and growth also affected.
Example Mosquito coil / liquid, Mobile service etc.
3) Bargaining Power of Buyers:
Any industries that produces goods or services intends paying as less as possible to
vendors for the procurement of raw materials, sub assemblies, lubricants, coolants,
consumables etc. The buyer or the manufacturer or the exporter will be able to buy at
lowest price, provided he is buying quite huge quantity per transaction and hence the
supplier industry depend on the buyer for survival.
4) Bargaining Power of Suppliers:
If suppliers have enough strength or power to dominate the industry, they can raise the
prices to enhance the profitability and influence adversely to profitability of their
institutional/organizational customers. The ability of the supplier industry to dominate is
determined by many facts such as:
a) Suppliers size is large and Supplier industries few suppliers exist in the industry
b) Supplier industries products are key inputs to firms products
c) The products are brands and carry huge switching over costs
d) The supplier industries products are not challengeable by substitute products.
e) The ability of the supplier industry to forward integrate and develop its own products,
if it does not get favorable terms from manufacturers.
5) Rivalry among Competitors:
Rivalry is the reason for the fair or unfair competition with price, promotion, product
features, distribution etc. So long as the competition among corporate improves industry
profitability and facilities stability within the industry, it act as a positive force. The
extreme side of rivalry could be driving down the prices and hence profitability and thus
causing for sickness for many industries is treated as negative force. The reason for
intense rivalry o negative force could be:
a) Slow growth rates of the industry concerned
b) Firm giving more importance to market share and trying to grow at others costs
c) Excess installed capacities
d) The lack of product differentiation and hence negligible switching over cost
e) The big size corporate to justify its investment with sales volume tries to dominate the
market by launching unrealistic prices and grabs the market.

50

FOREIGN MARKET ENTRY STRATEGIS

Exporting
Exporting is the process of selling of goods and services produced in one country to other
countries. There are two types of exporting: direct and indirect.
Direct exports
Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in
production concentrated in the home country and affording better control over distribution.
Foreign demand is treated as an extension of domestic demand. Direct export works the best if
the volumes are small. Large volumes of export may trigger protectionism. Direct exporting
relies on two principal channels: the foreign distributor channel, and the foreign subsidiary
channel. A third, less common channel, is direct contact between the manufacturer and the final
buyers in the target market.
Types of Direct Exporting.

Sales representatives represent foreign suppliers/manufacturers in their local

markets for an established commission on sales. Provide support services to a
manufacturer regarding local advertising, local sales presentations, customs

51

clearance formalities, legal requirements. Manufacturers of highly technical

services or products such as production machinery, benefit the most form sales
representation.

Importing distributors purchase product in their own right and resell it in their
local markets to wholesalers, retailers, or both. Importing distributors are a good
market entry strategy for products that are carried in inventory, such as toys,
appliances, prepared food.

Advantages of Direct Exporting:

Control over selection of foreign markets and choice of foreign representative

companies
Good information feedback from target market

Better protection of trademarks, patents, goodwill, and other intangible property

Potentially greater sales than with indirect exporting.

Disadvantages of Direct Exporting:

Higher start-up costs and higher risks as opposed to indirect exporting

Greater information requirements

Longer time-to-market as opposed to indirect exporting.

Indirect exports
An indirect export is the process of exporting through domestically based export intermediaries.
The exporter has no control over its products in the foreign market.
Types of Indirect Exporting:

Export trading companies (ETCs) provide support services of the entire export
process for one or more suppliers. Attractive to suppliers that are not familiar with
exporting as ETCs usually perform all the necessary work: locate overseas trading
partners, present the product, quote on specific enquiries, etc.

Export management companies (EMCs) are similar to ETCs in the way that
they usually export for producers. Unlike ETCs, they rarely take on export credit
risks and carry one type of product, not representing competing ones. Usually,
EMCs trade on behalf of their suppliers as their export departments.

Export merchants are wholesale companies that buy unpackaged products from
suppliers/manufacturers for resale overseas under their own brand names. The
advantage of export merchants is promotion. One of the disadvantages for using
export merchants result in presence of identical products under different brand

52

names and pricing on the market, meaning that export merchants activities may
hinder manufacturers exporting efforts.

Confirming houses are intermediate sellers that work for foreign buyers. They
receive the product requirements from their clients, negotiate purchases, make
delivery, and pay the suppliers/manufacturers. An opportunity here arises in the
fact that if the client likes the product it may become a trade representative. A
potential disadvantage includes suppliers unawareness and lack of control over
what a confirming house does with their product.

Nonconforming purchasing agents are similar to confirming houses with the

exception that they do not pay the suppliers directly payments take place
between a supplier/manufacturer and a foreign buyer.

Advantages of Indirect Exporting:

Fast market access

Concentration of resources for production

Little or no financial commitment. The export partner usually covers most

expenses associated with international sales

Low risk exists for those companies who consider their domestic market to be
more important and for those companies that are still developing their R&D,
marketing, and sales strategies.

The management team is not distracted

No direct handle of export processes.

Disadvantages of Indirect Exporting:

Higher risk than with direct exporting

Little or no control over distribution, sales, marketing, etc. as opposed to direct
exporting

Inability to learn how to operate overseas

Wrong choice of market and distributor may lead to inadequate market feedback
affecting the international success of the company

Potentially lower sales as compared to direct exporting, due to wrong choice of

market and distributors by export partners].

Those companies that seriously consider international markets as a crucial part of their success
would likely consider direct exporting as the market entry tool. Indirect exporting is preferred by
companies who would want to avoid financial risk as a threat to their other goals.

53

Licensing
An international licensing agreement allows foreign firms, either exclusively or non-exclusively
to manufacture a proprietors product for a fixed term in a specific market.
Summarizing, in this foreign market entry mode, a licensor in the home country makes limited
rights or resources available to the licensee in the host country. The rights or resources may
include patents, trademarks, managerial skills, technology, and others that can make it possible
for the licensee to manufacture and sell in the host country a similar product to the one the
licensor has already been producing and selling in the home country without requiring the
licensor to open a new operation overseas. The licensor earnings usually take forms of one time
payments, technical fees and royalty payments usually calculated as a percentage of sales.
As in this mode of entry the transference of knowledge between the parental company and the
licensee is strongly present, the decision of making a international license agreement depend on
the respect the host government show for intellectual property and on the ability of the licensor
to choose the right partners and avoid them to compete in each other market. Licensing is a
relatively flexible work agreement that can be customized to fit the needs and interests of both,
licensor and licensee.
Following are the main advantages and reasons to use an international licensing for expanding
internationally:

Obtain extra income for technical know-how and services

Reach new markets not accessible by export from existing facilities

Quickly expand without much risk and large capital investment

Pave the way for future investments in the market

Retain established markets closed by trade restrictions

Political risk is minimized as the licensee is usually 100% locally owned

Is highly attractive for companies that are new in international business.

On the other hand, international licensing is a foreign market entry mode that presents some
disadvantages and reasons why companies should not use it as:

Lower income than in other entry modes

Loss of control of the licensee manufacture and marketing operations and
practices dealing to loss of quality

Risk of having the trademark and reputation ruined by a incompetent partner

The foreign partner can also become a competitor by selling its production in
places where the parental company is already in.

54

Franchising
The Franchising system can be defined as: A system in which semi-independent business
owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the
right to become identified with its trademark, to sell its products or services, and often to use its
business format and system.
Compared to licensing, franchising agreements tends to be longer and the franchisor offers a
broader package of rights and resources which usually includes: equipments, managerial
systems, operation manual, initial trainings, site approval and all the support necessary for the
franchisee to run its business in the same way it is done by the franchisor. In addition to that,
while a licensing agreement involves things such as intellectual property, trade secrets and others
while in franchising it is limited to trademarks and operating know-how of the business.
Advantages of the international franchising mode:

Low political risk

Low cost

Allows simultaneous expansion into different regions of the world

Well selected partners bring financial investment as well as managerial

capabilities to the operation.

Disadvantages of the international franchising mode:

Franchisees may turn into future competitors

Demand of franchisees may be scarce when starting to franchise a company,
which can lead to making agreements with the wrong candidates

A wrong franchisee may ruin the companys name and reputation in the market

Comparing to other modes such as exporting and even licensing, international

franchising requires a greater financial investment to attract prospects and support
and manage franchisees.

Turnkey Projects
A turnkey project refers to a project in which clients pay contractors to design and construct new
facilities and train personnel. A turnkey project is way for a foreign company to export its
process and technology to other countries by building a plant in that country. Industrial
companies that specialize in complex production technologies normally use turnkey projects as
an entry strategy.
One of the major advantages of turnkey projects is the possibility for a company to establish a
plant and earn profits in a foreign country especially in which foreign direct investment
opportunities are limited and lack of expertise in a specific area exists.

55

Potential disadvantages of a turnkey project for a company include risk of revealing companies
secrets to rivals, and takeover of their plant by the host country. By entering a market with a
turnkey project proves that a company has no long-term interest in the country which can
become a disadvantage if the country proves to be the main market for the output of the exported
process.
Wholly Owned Subsidiaries (WOS)
A wholly owned subsidiary includes two types of strategies: Greenfield investment and
Acquisitions. Greenfield investment and acquisition include both advantages and disadvantages.
To decide which entry modes to use is depending on situations.
Greenfield investment is the establishment of a new wholly owned subsidiary. It is often
complex and potentially costly, but it is able to full control to the firm and has the most potential
to provide above average return. Wholly owned subsidiaries and expatriate staff are preferred in
service industries where close contact with end customers and high levels of professional skills,
specialized know how, and customization is required. Greenfield investment is more likely
preferred where physical capital intensive plants are planned. This strategy is attractive if there
are no competitors to buy or the transfer competitive advantages that consists of embedded
competencies, skills, routines, and culture.
Greenfield investment is high risk due to the costs of establishing a new business in a new
country. A firm may need to acquire knowledge and expertise of the existing market by third
parties, such consultant, competitors, or business partners. This entry strategy takes much time
due to the need of establishing new operations, distribution networks, and the necessity to learn
and implement appropriate marketing strategies to compete with rivals in a new market.
Acquisition has become a popular mode of entering foreign markets mainly due to its quick
access Acquisition strategy offers the fastest, and the largest, initial international expansion of
any of the alternative.
Acquisition has been increasing because it is a way to achieve greater market power. The market
share usually is affected by market power. Therefore, many multinational corporations apply
acquisitions to achieve their greater market power require buying a competitor, a supplier, a
distributor, or a business in highly related industry to allow exercise of a core competency and
capture competitive advantage in the market.
Acquisition is lower risk than Greenfield investment because of the outcomes of an acquisition
can be estimated more easily and accurately. In overall, acquisition is attractive if there are well
established firms already in operations or competitors want to enter the region.
On the other hand, there are many disadvantages and problems in achieving acquisition success.

Integrating two organizations can be quite difficult due to different organization

cultures, control system, and relationships. Integration is a complex issue, but it is
one of the most important things for organizations.

56

By applying acquisitions, some companies significantly increased their levels of

debt which can have negative effects on the firms because high debt may cause
bankrupt.

Too much diversification may cause problems. Even when a firm is not too over
diversified, a high level of diversification can have a negative effect on the firm in
the long term performance due to a lack of management of diversification.

Joint Venture
There are five common objectives in a joint venture: market entry, risk/reward sharing,
technology sharing and joint product development, and conforming to government regulations.
Other benefits include political connections and distribution channel access that may depend on
relationships. Such alliances often are favourable when:

The partners' strategic goals converge while their competitive goals diverge
The partners' size, market power, and resources are small compared to the
Industry leaders

Partners are able to learn from one another while limiting access to their own
proprietary skills

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing,
technology transfer, local firm capabilities and resources, and government intentions. Potential
problems include:

Conflict over asymmetric new investments

Mistrust over proprietary knowledge

Performance ambiguity - how to split the pie

Lack of parent firm support

Cultural clashes

If, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:

Strategic imperative: the partners want to maximize the advantage gained for the
joint venture, but they also want to maximize their own competitive position.
The joint venture attempts to develop shared resources, but each firm wants to
develop and protect its own proprietary resources.
The joint venture is controlled through negotiations and coordination processes,
while each firm would like to have hierarchical control.

57

Strategic Alliance
A Strategic Alliance is a term used to describe a variety of cooperative agreements between
different firms, such as shared research, formal joint ventures, or minority equity participation..
The modern form of strategic alliances is becoming increasingly popular and has three
distinguishing characteristics:
1. They are frequently between firms in industrialized nations
2. The focus is often on creating new products and/or technologies rather than
distributing existing ones
3. They are often only created for short term durations
Advantages of a Strategic Alliance
Technology Exchange

This is a major objective for many strategic alliances. The reason for this is that
many breakthroughs and major technological innovations are based on
interdisciplinary and/or inter-industrial advances. Because of this, it is
increasingly difficult for a single firm to possess the necessary resources or
capabilities to conduct their own effective R&D efforts. This is also perpetuated
by shorter product life cycles and the need for many companies to stay
competitive through innovation. Some industries that have become centers for
extensive cooperative agreements are:

Telecommunications

Electronics

Pharmaceuticals

Information technology

Specialty chemicals

Global Competition

There is a growing perception that global battles between corporations be fought

between teams of players aligned in strategic partnerships. Strategic alliances will
become key tools for companies if they want to remain competitive in this
globalized environment, particularly in industries that have dominant leaders,
such as cell phone manufactures, where smaller companies need to ally in order to
remain competitive.

Industry Convergence

58

As industries converge and the traditional lines between different industrial

sectors blur, strategic alliances are sometimes the only way to develop the
complex skills necessary in the time frame required. Alliances become a way of
shaping competition by decreasing competitive intensity, excluding potential
entrants, and isolating players, and building complex value chains that can act as
barriers.

Economies of Scale and Reduction of Risk

Pooling resources can contribute greatly to economies of scale, and smaller

companies especially can benefit greatly from strategic alliances in terms of cost
reduction because of increased economies of scale.

In terms on risk reduction, in strategic alliances no one firm bears the full risk, and cost of, a
joint activity. This is extremely advantageous to businesses involved in high risk / cost activities
such as R&D. This is also advantageous to smaller organizations whom are more affected by
risky activities.
Alliance as an Alternative to Merger

Some industry sectors have constraints to cross-border mergers and acquisitions,

strategic alliances prove to be an excellent alternative to bypass these constraints.
Alliances often lead to full-scale integration if restrictions are lifted by one or
both countries.

Disadvantages of Strategic Alliances

The Risks of Competitive Collaboration
Some strategic alliances involve firms that are in fierce competition outside the specific scope of
the specific scope of the alliance. This creates the risk that one or both partners will try to use the
alliance to create an advantage over the other. The benefits of this alliance may cause unbalance
between the parties, there are several factors that may cause this asymmetry:

The partnership may be forged to exchange resources and capabilities such as

technology. This may cause one partner to obtain the desired technology and
abandon the other partner, effectively appropriating all the benefits of the alliance.

Using investment initiative to erode the other partners competitive position. This
is a situation where one partner makes and keeps control of critical resources.
This creates the threat that the stronger partner may strip the other of the
necessary infrastructure.

Strengths gained by learning from one company can be used against the other. As
companies learn from the other, usually by task sharing, their capabilities become
strengthened, sometimes this strength exceeds the scope of the venture and a

59

company can use it to gain a competitive advantage against the company they
may be working with.

Firms may use alliances to acquire its partner. One firm may target a firm and ally
with them to use the knowledge gained and trust built in the alliance to take over
the other.

MULTIPLE CHOICE QUESTIONS:

1) Which of the following would be considered a mode of indirect exporting?

a. Joint ventures
b. Acquisition
c. Assembly
d. Management contracts
e. Piggybacking
2) Which of the following is not a form of direct exporting?
a. Distributors
b. Agents
c. Trading companies
d. Franchising
e. Management contracts
3) Countertrade is where ______
a. Sales into one market are paid for by taking other products from
that market in exchange.

60
b.
c.
d.
e.

All transactions are conducted in the open, as in over the counter.

Transactions are carried out through intermediaries.
Goods are traded between three different countries at the same time.
Exports are paid for and collected within the country of origin by the
importer.

4) Distributors do not ____________

a. Expect a high percentage return on products that they trade.
b. Organize both selling and distribution.
c. Usually seek exclusive rights for a specific sales territory.
d. Take the market risk on unsold product.
e. Distributors do all of the above.
5) Which of the following is not a benefit for licensees from a licensing agreement?
a. A relatively low outlay.
b. The ability to capitalize on existing know-how.
c. Limited risk.
d. Initial start-up funding from the licenser.
e. No market development costs.
6) Drafting agreement carefully to include duration, royalties, trade secrets, quality
control and performance measures, limiting the product and territorial coverage and
retaining patents, trademarks, copyrights are all ways of minimizing the potential
problems of;
a. franchising
b. contract manufacture
c. partnerships
d. licensing
e. joint ventures
7) Which is likely to be the most expensive method of market entry?
a. Franchising
b. Licensing
c. Opening a foreign subsidiary
d. Direct marketing
e. Direct exporting
8) The market entry method that could give rise to a potential for inheriting a
demotivated labour force, a poor image and reputation and out of date products and
processes;
a. a. Merger
b. b. Acquisition
c. c. Licensing
d. d. Franchising

61

e. e. Setting up a wholly owned subsidiary

9) Acquisition by a large international firm is often associated with;
a. Rapidly increasing profitability
b. Job losses
c. A stimulation of the order book
d. Restructuring
e. Job creation
10) Which of the following statements about companies that export is not
true?

a. Companies that export have a higher rate of taxation than those that
do not.
b. Companies that export grow faster than those that do not export.
c. Companies that export are more productive than those that do not export.
d. Companies that export have employees that tend to earn more.
11) The top country in terms of marketing research expenditures is:
a. the United Kingdom
b. the United States
c. Germany
d. Japan
12) This kind of information is collected firsthand to answer specific, current research questions:
a. primary data
b. secondary data
c. selective data
d. relevant data
13) Information that has already been collected for other purposes is called:
a. primary data
b. principal data
c. secondary data
14) This is not a characteristic of a good test market
a. Representativeness
b. self-contained media
c. expanded trading area
d. market isolation
15) This step of MIS development involves the investigation of all users' needs:
a. system analysis
b. system design
c. system implementation
d. system investigation
16) The desirable characteristics of an international marketing information system do not
include:

62

a.
b.
c.
d.
e.

time dependence
location independence
linguistic compatibility
legal compatibility
multicurrency

17) This market entry strategy maximizes a profit potential while tolerating a higher degree of
risk:
a. foreign indirect investment
b. foreign direct investment
c. foreign semi-direct investment
d. home-country investment
18) This kind of capital flow is the most stable:
a. FDI flows
b. portfolio flows
c. money market funds
19) The share of developing countries as recipients of FDI has been:
a. Increasing
b. Decreasing
c. Stable
20) Developed countries are:
a. largest recipients and largest sources of FDI
b. largest recipients and moderate sources of FDI
c. moderate recipients and largest sources of FDI
d. moderate recipients and moderate sources of FDI
21) The world's top recipient of FDI is:
a. China
b. Japan
c. India
d. the United States
22) This strategy involves selling a product from a home base, usually without any product
modification:
a. Exporting
b. Licensing
c. joint venture
d. manufacturing
23) This entry strategy involves having an agreement that permits a foreign company to use
industry property, technical knowhow, or engineering design in a foreign market:
a. Exporting
b. Licensing
c. joint venture

63

d. manufacturing
24) This is not an advantage of licensing:
a. protection of patent
b. degree of risk
c. amount of capital required
d. amount of profit
25) Disney (US do not own the Disneyland amusement park in Japan but receives royalties
because of this type of arrangement:
a. Exporting
b. joint venture
c. licensing
d. manufacturing
26) The least profitable entry strategy is:
a. Licensing
b. joint venture
c. manufacturing
d. foreign direct investment
27) Sony and Pepsi joined together to market Wilson sporting goods in Japan This strategy is:
a. Exporting
b. Licensing
c. joint venture
d. assembly operations
28) A partnership at corporate level is:
a. Licensing
b. joint venture
c. management contract
d. turnkey operation
29) Joint ventures may not overcome this problem
a. amount of resources
b. legal requirements
c. social requirements
d. control
30) This market entry strategy should be used when a company faces high tariffs but does not
want to lose control of its operations:
a. management contract
b. licensing
c. exporting
d. joint venture
e. manufacturing

64

31) This strategy involves manufacturing operations in a host country for the purpose of
exporting a product made there to a company's home country or to other third countries:
a. Sourcing
b. joint venture
c. assembly
d. licensing
32) This market entry strategy offers the largest potential profits and control:
a. Exporting
b. joint venture
c. licensing
d. manufacturing
33) This entry mode happens when an investor's transferred resources dominate over those
provided by an acquired firm
a. Assembly
b. Brownfield
c. Greenfield
d. Redfield
34) Strategic alliances do not necessarily require:
a. a new legal entity
b. joint ventures
c. an equity-based investment
d. none of the above is always required
35) Which of the following is not a strategic alliance?
a. Mergers
b. Acquisitions
c. joint ventures
d. licensing agreements
e. sole ventures
36) This entry strategy is usually the most effective:
a. Exporting
b. Licensing
c. joint venture
d. manufacturing
e. none of the above
37) The future of free trade zones lies in:
a. Warehousing
b. Manufacturing
c. Sorting
d. Salvaging

65

38) Free trade zones do not offer this benefit:

a. cash flow
b. export facilitation
c. production costs
d. duties
e. all of them are benefits

QUESTION BANK
Q1.Define international marketing research. What are the major objectives of international
marketing research?
Q2.Outline basic steps of international marketing research process for an international project.
Q3. Discuss the different marketing entry strategies of international marketer.
Q4. What is Global Marketing Information system? Mention its characteristics.
Q5. Explain briefly the various elements of GMIS?
Q6. What is meant by International Marketing Research? Describe the various types of methods
in IMR.
Q7. Define international marketing research. Also explain the problems in IMR.
Q8. What are the contents in International Marketing Report?

66

Q9. Write short notes on:

A. Licensing
B. Franchising
C. Turnkey Projects
D. Wholly owned subsidiaries
Q10. What is Direct and Indirect Exporting? Discuss its advantages and disadvantages. Also
differentiate between them.

UNIT 3
Pricing- Factors influencing pricing decisions - Physical distribution for International Marketing
- Channels for Distribution, Use of Virtual Channels in International Marketing Inventory
decisions- Uniform pricing V/s Market by market pricing.Global Advertising Issues and
challenges, Push V/s Pull Strategies for International Markets.

INTRODUCTION:
Price is the currency value a customer is asked to pay for the product or service offered for
sale by the seller. This price determines the profitability, the competitive positioning and the
relative quality perception customers will assume for the product. Pricing is an exercise for the
products to be marketed. Manufacturers make use of three basic factors to fix their prices. The
first factor is the product cost, which includes the basic cost of raw material, the conversion cost
and the related sales cost.

67

A firms international pricing strategy will additionally be shaped and influenced by many other
factors, such as fiscal and exchange controls of other countries, exchange fluctuations, subsidies
provided and duties imposed by other countries governments, dumping undertaken by
international marketing firms from other countries and the impact of grey markets or smuggled
goods.
METHODS OF PRICING
1-Cost-plus pricing (mark-up pricing)
This is a commonly used pricing technique, because it is simple to understand and implement
and it appeals to organizations which are risk-averse. Cost-based pricing is when the price of the
product is decided by its costs of production. The firm calculates the average cost of production
and then adds a predetermined (agreed) percentage mark-up or profit margin. If successful this
will ensure a certain amount of profit per unit sold.
The exact nature of this profit mark-up will depend on the market, but as a generalisation it is
likely that high volume items will have a relatively low mark-up, whereas low volume items are
likely to have a higher mark-up. This percentage is often governed by a corporate strategy on
what is an acceptable return on the capital invested to make the product.
Ideally the firm will attempt to maximize its Profit Margin.
A cost-based pricing strategy ignores the effect of pricing levels on demand patterns and does not
take into account market conditions and the pricing strategies of competitors.
Cost-plus pricing is a pricing method used by companies. It is used primarily because it is easy
to calculate and requires little information. There are several varieties, but the common thread is
that one first calculates the cost of the product, then includes an additional amount to represent
profit. It is a way for companies to calculate how much profit they will make. Cost-plus pricing
is often used on government contracts (Cost-plus contracts), and has been criticized as promoting
wasteful expenditures.
The method determines the price of a product or service that uses direct costs, indirect costs, and
fixed costs whether related to the production and sale of the product or service or not. These
costs are converted to per unit costs for the product and then a predetermined percentage of these
costs is added to provide a profit margin.
Advantages of cost-plus pricing
1. Easy to calculate
2. Minimal information requirements
3. Easy to administer
4. Tends to stabilize markets - insulated from demand variations and competitive factors
5. Insures seller against unpredictable, or unexpected later costs

68

6. Ethical advantages
7. Simplicity
8. It is readily available
9. Price increases can be justified in terms of cost increases
Cost-based pricing problems
The focus of cost-based pricing is internal, not based on the needs of its customers. It also
ignores the competition and the nature of the demand for the product. Will the market bear this
price? To price in this way is very inflexible and unresponsive to market changes. One might
assume that this method guarantees a profit, but this is far from true. If the price is too high,
demand will fall. This will make indirect costs per unit higher. The firm may respond to this by
raising price.
So the key disadvantages of cost-plus pricing are:

Lack of responsiveness to market demand (and to the price elasticity of demand).

Difficulties with calculation of costs - in particular the indirect cost element. Which costs
should be attributed to the calculation and how much of each indirect cost is arte to
allocate?

Little attention paid to any investment that has taken place or is required. How will this
be funded and how will any return on capital be included in the pricing?

Little or no account is taken of what price is being charged by competitors, which may
result in under-pricing or more likely over-pricing.

2-Competition-based pricing
Setting the price based upon prices of the similar competitor products.
Competitive pricing is based on three types of competitive product:

Products have lasting distinctiveness from competitor's product. Here we can assume

The product has low price elasticity.

The product has low cross elasticity.

The demand of the product will rise.

Products have perishable distinctiveness from competitor's product, assuming the product
features are medium distinctiveness.

Products have little distinctiveness from competitor's product. assuming that:

69

The product has high price elasticity.

The product has some cross elasticity.

No expectation that demand of the product will rise.

3-Creaming or skimming
Selling a product at a high price, sacrificing high sales to gain a high profit, therefore skimming
the market. Usually employed to reimburse the cost of investment of the original research into
the product: commonly used in electronic markets when a new range, such as DVD players, are
firstly dispatched into the market at a high price. This strategy is often used to target "early
adopters" of a product or service. These early adopters are relatively less price-sensitive because
either their need for the product is more than others or they understand the value of the product
better than others. In market skimming goods are sold at higher prices so that fewer sales are
needed to break even.
This strategy is employed only for a limited duration to recover most of investment made to
build the product. To gain further market share, a seller must use other pricing tactics such as
economy or penetration. This method can come with some setbacks as it could leave the product
at a high price to competitors.
Skim pricing attempts to "skim the cream" off the top of the market by setting a high price and
selling to those customers who are less price sensitive. Skimming is a strategy used to pursue the
objective of profit margin maximization.
Skimming is most appropriate when:

Demand is expected to be relatively inelastic; that is, the customers are not highly price
sensitive.
Large cost savings are not expected at high volumes, or it is difficult to predict the cost
savings that would be achieved at high volume.
The company does not have the resources to finance the large capital expenditures
necessary for high volume production with initially low profit margins.

4-Limit pricing
A limit price is the price set by a monopolist to discourage economic entry into a market, and is
illegal in many countries. The limit price is the price that the entrant would face upon entering as
long as the incumbent firm did not decrease output. The limit price is often lower than the
average cost of production or just low enough to make entering not profitable. The quantity
produced by the incumbent firm to act as a deterrent to entry is usually larger than would be
optimal for a monopolist, but might still produce higher economic profits than would be earned
under perfect competition.

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The problem with limit pricing as strategic behavior is that once the entrant has entered the
market, the quantity used as a threat to deter entry is no longer the incumbent firm's best
response. This means that for limit pricing to be an effective deterrent to entry, the threat must in
some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to
produce a certain quantity whether entry occurs or not. An example of this would be if the firm
signed a union contract to employ a certain (high) level of labor for a long period of time.
5-Loss leader
A loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate other
profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a
pricing strategy. A loss leader is often a popular article. Sometimes leader is now used as a
related term and means any popular article, in other words one sold at a normal price.
Example: The razor and blades business model, pioneered by American businessman King
Gillette, is similar to the loss leader business model. Razor handles are given away for free or
sold at a loss, but sales of disposable razor blades are very profitable. Since the late 1990s, this
model has proven very popular and successful for inkjet printer manufacturers, where profit is
derived from the sale of expensive ink cartridges.
6-Market-oriented pricing
Setting a price based upon analysis and research compiled from the targeted market.
7-Penetration pricing
Setting the price low in order to attract customers and gain market share. The price will be raised
later once this market share is gained.
Penetration pricing pursues the objective of quantity maximization by means of a low price. It
is most appropriate when:

Demand is expected to be highly elastic; that is, customers are price sensitive and the
quantity demanded will increase significantly as price declines.
Large decreases in cost are expected as cumulative volume increases.

The product is of the nature of something that can gain mass appeal fairly quickly.

There is a threat of impending competition.

8-Price discrimination
Setting a different price for the same product in different segments to the market. For example,
this can be for different ages or for different opening times, such as cinema tickets. Price
discrimination or price differentiation exists when sales of identical goods or services are

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transacted at different prices from the same provider.[2] In a theoretical market with perfect
information, perfect substitutes, and no transaction costs or prohibition on secondary exchange
(or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopolistic and
oligopolistic markets, where market power can be exercised. Otherwise, the moment the seller
tries to sell the same good at different prices, the buyer at the lower price can arbitrage by selling
to the consumer buying at the higher price but with a tiny discount. However, product
heterogeneity, market frictions or high fixed costs (which make marginal-cost pricing
unsustainable in the long run) can allow for some degree of differential pricing to different
consumers, even in fully competitive retail or industrial markets. Price discrimination also occurs
when the same price is charged to customers which have different supply costs.
9- Premium pricing
Premium pricing is the practice of keeping the price of a product or service artificially high in
order to encourage favorable perceptions among buyers, based solely on the price. The practice
is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that
expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.
10-Predatory pricing
Aggressive pricing intended to drive out competitors from a market. It is illegal in some places. n
business and economics, predatory pricing is the practice of selling a product or service at a
very low price, intending to drive competitors out of the market, or create barriers to entry for
potential new competitors. If competitors or potential competitors cannot sustain equal or lower
prices without losing money, they go out of business or choose not to enter the business. The
predatory merchant then has fewer competitors or is even a de facto monopoly, and
hypothetically could then raise prices above what the market would otherwise bear.
11- Contribution margin-based pricing
Contribution margin-based pricing maximizes the profit derived from an individual product,
based on the difference between the product's price and variable costs (the product's contribution
margin per unit), and on ones assumptions regarding the relationship between the products
price and the number of units that can be sold at that price. The product's contribution to total
firm profit (i.e., to operating income) is maximized when a price is chosen that maximizes the
following: (contribution margin per unit) X (number of units sold)..
12- Psychological pricing
Pricing designed to have a positive psychological impact. For example, selling a product at $3.95
or $3.99, rather than $4.00.

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13-Dynamic pricing
A flexible pricing mechanism made possible by advances in information technology, and
employed mostly by Internet based companies. By responding to market fluctuations or large
amounts of data gathered from customers - ranging from where they live to what they buy to
how much they have spent on past purchases - dynamic pricing allows online companies to
adjust the prices of identical goods to correspond to a customers willingness to pay. The airline
industry is often cited as a dynamic pricing success story. In fact, it employs the technique so
artfully that most of the passengers on any given airplane have paid different ticket prices for the
same flight.
14-Price leadership
An observation made of oligopic business behavior in which one company, usually the dominant
competitor among several, leads the way in determining prices, the others soon following.
15-Target pricing
Pricing method whereby the selling price of a product is calculated to produce a particular rate of
return on investment for a specific volume of production. The target pricing method is used most
often by public utilities, like electric and gas companies, and companies whose capital
investment is high, like automobile manufacturers.
Target pricing is not useful for companies whose capital investment is low because, according to
this formula, the selling price will be understated. Also the target pricing method is not keyed to
the demand for the product, and if the entire volume is not sold, a company might sustain an
overall budgetary loss on the product.
16-Absorption pricing
Method of pricing in which all costs are recovered. The price of the product includes the variable
cost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricing.
17-High-low pricing
Method of pricing for an organization where the goods or services offered by the organization
are regularly priced higher than competitors, but through promotions, advertisements, and or
coupons, lower prices are offered on key items. The lower promotional prices are targeted to
bring customers to the organization where the customer is offered the promotional product as
well as the regular higher priced products.

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18-Premium Decoy pricing

Method of pricing where an organization artificially sets one product price high, in order to boost
sales of a lower priced product.
19-Marginal-cost pricing
In business, the practice of setting the price of a product to equal the extra cost of producing an
extra unit of output. By this policy, a producer charges, for each product unit sold, only the
addition to total cost resulting from materials and direct labor. Businesses often set prices close
to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of
$1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price
to $1.10 if demand has waned. The business would choose this approach because the incremental
profit of 10 cents from the transaction is better than no sale at all.
Marginal cost-plus pricing/ mark- up pricing is a method of determining the sales price by adding
a profit margin on to either marginal cost of production or marginal cost of sales.
Whereas a full cost- plus approach to pricing draws attention to net profit and the net profit
margin, a variable cost-plus approach to pricing draws attention to gross profit and the gross
profit margin, or contribution.
The advantages of a marginal cost-plus approach to pricing are as follows.:
1) It is a simple and easy method to use.
2) The mark-up percentage can be varied, and so mark- up pricing can be adjusted to reflect
demand conditions.
3) It draws management attention to contribution, and the effects of higher or lower sales
volumes on profit. In this way, it helps to create better awareness of the concepts and
implications of marginal costing and cost volume-profit analysis. For example, if a product
costs Rs 10 per unit and a mark up of 150 % is added to reach a price of Rs.25 per unit,
management should be clearly aware that every additional Rs.1 of sales revenue would add 60
pence to contribution and profit.
4) In practice, mark-up pricing is used in businesses where there is a readily identifiable basic
variable cost. Retail industries are the most obvious example, and it is quite common for the
prices of goods in shops to be fixed by adding a mark- up (20% or 33.3%,say ) to the purchase
cost.
There are, of course, drawbacks to marginal cost- plus pricing:
1) Although the size of the mark-up can be varied in accordance with demand conditions, it does
not ensure that sufficient attention is paid to demand conditions, competitors' prices and profit
maximization.
2) It ignores fixed overheads in the pricing decision, but the sales price must be sufficiently high
to ensure that a profit is made after covering fixed costs.
3) Approach to pricing might be taken when a business is working at full capacity, and is

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restricted by a shortage of resources from expanding its output further. By deciding what target
profit it would like to earn, it could establish a mark-up per unit of limiting factor.
20) Value Based pricing
Pricing a product based on the perceived value and not on any other factor. pricing based on the
demand for a specific product would have a likely change in the market place.
21Transfer Pricing:
Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made
between related parties for goods, services, or use of property (including intangible property).
Transfer prices among components of an enterprise may be used to reflect allocation of
resources among such components, or for other purposes. OECD Transfer Pricing Guidelines
state, Transfer prices are significant for both taxpayers and tax administrations because they
determine in large part the income and expenses, and therefore taxable profits, of associated
enterprises in different tax jurisdictions.
Many governments have adopted transfer pricing rules that apply in determining or adjusting
income taxes of domestic and multinational taxpayers. Most tax treaties and many tax systems
provide mechanisms for resolving disputes among taxpayers and governments in a manner
designed to reduce the potential for double taxation. Many systems also permit advance
agreement between taxpayers and one or more governments regarding mechanisms for setting
related party prices. Many systems impose penalties where the tax authority has adjusted related
party prices. Some tax systems provide that taxpayers may avoid such penalties by preparing
documentation in advance regarding prices charged between the taxpayer and related parties.
Some systems require that such documentation be prepared in advance in all cases.
22-Dumping:
In economics, "dumping" can refer to any kind of predatory pricing. However, the word is now
generally used only in the context of international trade law, where dumping is defined as the act
of a manufacturer in one country exporting a product to another country at a price which is either
below the price it charges in its home market or if it can be proven that there has been a
substantial increase of a specific good; Dumping large surpluses into a market will substantially
lower the market price as will introducing lower than market priced goods.
A standard technical definition of dumping is the act of charging a lower price for a good in a
foreign market than one charges for the same good in a domestic market. This is often referred to
as selling at less than "fair value". Under the World Trade Organization (WTO) Agreement,
dumping is condemned (but is not prohibited) if it causes or threatens to cause material injury to
a domestic industry in the importing country.

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Factors Affecting Pricing Decision

For the remainder of this tutorial we look at factors that affect how marketers set price. The final
price for a product may be influenced by many factors which can be categorized into two main
groups:

Internal Factors - When setting price, marketers must take into consideration several
factors which are the result of company decisions and actions. To a large extent these
factors are controllable by the company and, if necessary, can be altered. However, while
the organization may have control over these factors making a quick change is not always
realistic. For instance, product pricing may depend heavily on the productivity of a
manufacturing facility (e.g., how much can be produced within a certain period of time).
The marketer knows that increasing productivity can reduce the cost of producing each
product and thus allow the marketer to potentially lower the products price. But
increasing productivity may require major changes at the manufacturing facility that will
take time (not to mention be costly) and will not translate into lower price products for a
considerable period of time.
External Factors - There are a number of influencing factors which are not controlled by
the company but will impact pricing decisions. Understanding these factors requires the
marketer conduct research to monitor what is happening in each market the company
serves since the effect of these factors can vary by market.

Below we provide a detailed discussion of both internal and external factors.

Internal Factors: Marketing Objectives
Marketing decisions are guided by the overall objectives of the company. While we will discuss
this in more detail when we cover marketing strategy in a later tutorial, for now it is important to
understand that all marketing decisions, including price, work to help achieve company
objectives.
Corporate objectives can be wide-ranging and include different objectives for different functional
areas (e.g., objectives for production, human resources, etc). While pricing decisions are
influenced by many types of objectives set up for the marketing functional area, there are four
key objectives in which price plays a central role. In most situations only one of these objectives
will be followed, though the marketer may have different objectives for different products. The
four main marketing objectives affecting price include:

Return on Investment (ROI) A firm may set as a marketing objective the requirement
that all products attain a certain percentage return on the organizations spending on
marketing the product. This level of return along with an estimate of sales will help
determine appropriate pricing levels needed to meet the ROI objective.
Cash Flow Firms may seek to set prices at a level that will insure that sales revenue
will at least cover product production and marketing costs. This is most likely to occur
with new products where the organizational objectives allow a new product to simply
meet its expenses while efforts are made to establish the product in the market. This

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objective allows the marketer to worry less about product profitability and instead directs
energies to building a market for the product.

Market Share The pricing decision may be important when the firm has an objective
of gaining a hold in a new market or retaining a certain percent of an existing market. For
new products under this objective the price is set artificially low in order to capture a
sizeable portion of the market and will be increased as the product becomes more
accepted by the target market (we will discuss this marketing strategy in further detail in
our next tutorial). For existing products, firms may use price decisions to insure they
retain market share in instances where there is a high level of market competition and
competitors who are willing to compete on price.

Maximize Profits Older products that appeal to a market that is no longer growing may have a
company objective requiring the price be set at a level that optimizes profits. This is often the
case when the marketer has little incentive to introduce improvements to the product (e.g.,
demand for product is declining) and will continue to sell the same product at a price premium
for as long as some in the market is willing to buy. Marketing strategy concerns the decisions
marketers make to help the company satisfy its target market and attain its business and
marketing objectives. Price, of course, is one of the key marketing mix decisions and since all
marketing mix decisions must work together, the final price will be impacted by how other
marketing decisions are made. For instance, marketers selling high quality products would be
expected to price their products in a range that will add to the perception of the product being at
a high-level.
It should be noted that not all companies view price as a key selling feature. Some firms, for
example those seeking to be viewed as market leaders in product quality, will deemphasize price
and concentrate on a strategy that highlights non-price benefits (e.g., quality, durability, service,
etc.). Such non-price competition can help the company avoid potential price wars that often
break out between competitive firms that follow a market share objective and use price as a key
selling feature.
Internal Factors: Costs
For many for-profit companies, the starting point for setting a products price is to first determine
how much it will cost to get the product to their customers. Obviously, whatever price customers
pay must exceed the cost of producing a good or delivering a service otherwise the company will
lose money.
When analyzing cost, the marketer will consider all costs needed to get the product to market
including those associated with production, marketing, distribution and company administration
(e.g., office expense). These costs can be divided into two main categories:

Fixed Costs - Also referred to as overhead costs, these represent costs the marketing
organization incurs that are not affected by level of production or sales. For example, for
a manufacturer of writing instruments that has just built a new production facility,
whether they produce one pen or one million they will still need to pay the monthly
mortgage for the building. From the marketing side, fixed costs may also exist in the

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form of expenditure for fielding a sales force, carrying out an advertising campaign and
paying a service to host the companys website. These costs are fixed because there is a
level of commitment to spending that is largely not affected by production or sales levels.
Variable Costs These costs are directly associated with the production and sales of
products and, consequently, may change as the level of production or sales changes.
Typically variable costs are evaluated on a per-unit basis since the cost is directly
associated with individual items. Most variable costs involve costs of items that are either
components of the product (e.g., parts, packaging) or are directly associated with creating
the product (e.g., electricity to run an assembly line). However, there are also marketing
variable costs such as coupons, which are likely to cost the company more as sales
increase (i.e., customers using the coupon). Variable costs, especially for tangible
products, tend to decline as more units are produced. This is due to the producing
companys ability to purchase product components for lower prices since component
suppliers often provide discounted pricing for large quantity purchases.

Determining individual unit cost can be a complicated process. While variable costs are often
determined on a per-unit basis, applying fixed costs to individual products is less straightforward.
For example, if a company manufactures five different products in one manufacturing plant how
would it distribute the plants fixed costs (e.g., mortgage, production workers cost) over the five
products? In general, a company will assign fixed cost to individual products if the company can
clearly associate the cost with the product, such as assigning the cost of operating production
machines based on how much time it takes to produce each item. Alternatively, if it is too
difficult to associate to specific products the company may simply divide the total fixed cost by
production of each item and assign it on percentage basis.
External Factors: Elasticity of Demand
Marketers should never rest on their marketing decisions. They must continually use market
research and their own judgment to determine whether marketing decisions need to be adjusted.
When it comes to adjusting price, the marketer must understand what effect a change in price is
likely to have on target market demand for a product.
Understanding how price changes impact the market requires the marketer have a firm
understanding of the concept economists call elasticity of demand, which relates to how purchase
quantity changes as prices change. Elasticity is evaluated under the assumption that no other
changes are being made (i.e., all things being equal) and only price is adjusted. The logic is to
see how price by itself will affect overall demand. Obviously, the chance of nothing else
changing in the market but the price of one product is often unrealistic. For example, competitors
may react to the marketers price change by changing the price on their product. Despite this,
elasticity analysis does serve as a useful tool for estimating market reaction.
Elasticity deals with three types of demand scenarios:

Elastic Demand Products are considered to exist in a market that exhibits elastic
demand when a certain percentage change in price results in a larger and opposite

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percentage change in demand. For example, if the price of a product increases (decreases)
by 10%, the demand for the product is likely to decline (rise) by greater than 10%.
Inelastic Demand Products are considered to exist in an inelastic market when a
certain percentage change in price results in a smaller and opposite percentage change in
demand. For example, if the price of a product increases (decreases) by 10%, the demand
for the product is likely to decline (rise) by less than 10%.
Unitary Demand This demand occurs when a percentage change in price results in an
equal and opposite percentage change in demand. For example, if the price of a product
increases (decreases) by 10%, the demand for the product is likely to decline (rise) by
10%.

For marketers the important issue with elasticity of demand is to understand how it impacts
company revenue. In general the following scenarios apply to making price changes for a given
type of market demand:

For elastic markets increasing price lowers total revenue while decreasing price
increases total revenue.
For inelastic markets increasing price raises total revenue while decreasing price lowers
total revenue.
For unitary markets there is no change in revenue when price is changed.

External Factors: Customer Expectations

Possibly the most obvious external factors that influence price settings are the expectations of
customers and channel partners. As we discussed, when it comes to making a purchase decision
customers assess the overall value of a product much more than they assess the price. When
deciding on a price marketers need to conduct customer research to determine what price
points are acceptable. Pricing beyond these price points could discourage customers from
purchasing.
Firms within the marketers channels of distribution also must be considered when determining
price. Distribution partners expect to receive financial compensation for their efforts, which
usually means they will receive a percentage of the final selling price. This percentage or margin
between what they pay the marketer to acquire the product and the price they charge their
customers must be sufficient for the distributor to cover their costs and also earn a desired profit.
External Factors: Competitive and Other Products
Marketers will undoubtedly look to market competitors for indications of how price should be
set. For many marketers of consumer products researching competitive pricing is relatively easy,
particularly when Internet search tools are used. Price analysis can be somewhat more
complicated for products sold to the business market since final price may be affected by a
number of factors including if competitors allow customers to negotiate their final price.

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Analysis of competition will include pricing by direct competitors, related products and primary
products.

Direct Competitor Pricing Almost all marketing decisions, including pricing, will
include an evaluation of competitors offerings. The impact of this information on the
actual setting of price will depend on the competitive nature of the market. For instance,
products that dominate markets and are viewed as market leaders may not be heavily
influenced by competitor pricing since they are in a commanding position to set prices as
they see fit. On the other hand in markets where a clear leader does not exist, the pricing
of competitive products will be carefully considered. Marketers must not only research
competitive prices but must also pay close attention to how these companies will respond
to the marketers pricing decisions. For instance, in highly competitive industries, such as
gasoline or airline travel, competitors may respond quickly to competitors price
adjustments thus reducing the effect of such changes.
Related Product Pricing - Products that offer new ways for solving customer needs may
look to pricing of products that customers are currently using even though these other
products may not appear to be direct competitors. For example, a marketer of a new
online golf instruction service that allows customers to access golf instruction via their
computer may look at prices charged by local golf professionals for in-person instruction
to gauge where to set their price. While on the surface online golf instruction may not be
a direct competitor to a golf instructor, marketers for the online service can use the cost of
in-person instruction as a reference point for setting price.
Primary Product Pricing - As we discussed in the Product Decisions tutorial, marketers
may sell products viewed as complementary to a primary product. For example,
Bluetooth headsets are considered complementary to the primary product cellphones. The
pricing of complementary products may be affected by pricing changes made to the
primary product since customers may compare the price for complementary products
based on the primary product price. For example, companies that sell accessory products
for the Apple iPod may do so at a cost that is only 10% of the purchase price of the iPod.
However, if Apple were to dramatically drop the price, for instance by 50%, the
accessory at its present price would now be 20% of the of iPod price. This may be
perceived by the market as a doubling of the accessorys price. To maintain its perceived
value the accessory marketer may need to respond to the iPod price drop by also lowering
the price of the accessory.

External Factors: Government Regulation

Marketers must be aware of regulations that impact how price is set in the markets in which their
products are sold. These regulations are primarily government enacted meaning that there may
be legal ramifications if the rules are not followed. Price regulations can come from any level of
government and vary widely in their requirements. For instance, in some industries, government
regulation may set price ceilings (how high price may be set) while in other industries there may
be price floors (how low price may be set). Additional areas of potential regulation include:
deceptive pricing, price discrimination, predatory pricing and price fixing.

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Finally, when selling beyond their home market, marketers must recognize that local regulations
may make pricing decisions different for each market. This is particularly a concern when selling
to international markets where failure to consider regulations can lead to severe penalties.
Consequently marketers must have a clear understanding of regulations in each market they
serve.
Pricing Objectives
The firm's pricing objectives must be identified in order to determine the optimal pricing.
Common objectives include the following:

Current profit maximization - seeks to maximize current profit, taking into account
revenue and costs. Current profit maximization may not be the best objective if it results
in lower long-term profits.
Current revenue maximization - seeks to maximize current revenue with no regard to
profit margins. The underlying objective often is to maximize long-term profits by
increasing market share and lowering costs.

Maximize quantity - seeks to maximize the number of units sold or the number of
customers served in order to decrease long-term costs as predicted by the experience
curve.

Maximize profit margin - attempts to maximize the unit profit margin, recognizing that
quantities will be low.

Quality leadership - use price to signal high quality in an attempt to position the product
as the quality leader.

Partial cost recovery - an organization that has other revenue sources may seek only
partial cost recovery.

Survival - in situations such as market decline and overcapacity, the goal may be to
select a price that will cover costs and permit the firm to remain in the market. In this
case, survival may take a priority over profits, so this objective is considered temporary.

Status quo - the firm may seek price stabilization in order to avoid price wars and
maintain a moderate but stable level of profit.

For new products, the pricing objective often is either to maximize profit margin or to maximize
quantity (market share). To meet these objectives, skim pricing and penetration pricing strategies
often are employed. As the product lifecycle progresses, there likely will be changes in the
demand curve and costs. As such, the pricing policy should be reevaluated over time.
The pricing objective depends on many factors including production cost, existence of
economies of scale, barriers to entry, product differentiation, rate of product diffusion, the firm's
resources, and the product's anticipated price elasticity of demand.

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Price Discounts
The normally quoted price to end users is known as the list price. This price usually is discounted
for distribution channel members and some end users. There are several types of discounts, as
outlined below.

Quantity discount - offered to customers who purchase in large quantities.

Cumulative quantity discount - a discount that increases as the cumulative quantity
increases. Cumulative discounts may be offered to resellers who purchase large quantities
over time but who do not wish to place large individual orders.

Seasonal discount - based on the time that the purchase is made and designed to reduce
seasonal variation in sales. For example, the travel industry offers much lower off-season
rates. Such discounts do not have to be based on time of the year; they also can be based
on day of the week or time of the day, such as pricing offered by long distance and
wireless service providers.

Cash discount - extended to customers who pay their bill before a specified date.

Trade discount - a functional discount offered to channel members for performing their
roles. For example, a trade discount may be offered to a small retailer who may not
purchase in quantity but nonetheless performs the important retail function.

Promotional discount - a short-term discounted price offered to stimulate sales.

Pricing Strategy
One of the four major elements of the marketing mix is price. Pricing is an important strategic
issue because it is related to product positioning. Furthermore, pricing affects other marketing
mix elements such as product features, channel decisions, and promotion.
While there is no single recipe to determine pricing, the following is a general sequence of steps
that might be followed for developing the pricing of a new product:
Develop marketing strategy - perform marketing analysis, segmentation, targeting,
and positioning.
Make marketing mix decisions - define the product, distribution, and promotional
tactics.
Estimate the demand curve - understand how quantity demanded varies with price.
Calculate cost - include fixed and variable costs associated with the product.

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Understand environmental factors - evaluate likely competitor actions, understand

legal constraints, etc.
Set pricing objectives - for example, profit maximization, revenue maximization, or
price stabilization (status quo).
Determine pricing - using information collected in the above steps, select a pricing
method, develop the pricing structure, and define discounts.
These steps are interrelated and are not necessarily performed in the above order. Nonetheless,
the above list serves to present a starting framework.

INVENTORY DECISION
To be successful, most businesses other than service businesses are required to carry inventory.
In these businesses, good management of inventory is essential. The management of inventory
requires a number of decisions. Poor decision making regarding inventory can cause:
1. Loss of sales because of stock outs.
2. Depending on circumstances, inadequate production for a period of time.
3. Increases in operating expenses due to unnecessary carrying costs or loss from discarding
obsolete inventory.
4. An increase in the per unit cost of finished goods.
Of all the activities in a manufacturing business, inventory creation is the most dynamic and
certainly the most visible activity. In one sense, inventory involves all production activity from
the purchase of raw materials to the delivery of finished goods inventory to the customer. The
financial accounting for inventory is concerned primarily with determining the correct count and
the assignment of historical cost. However, from a management accounting viewpoint, the
central focus is on manufacturing the right amounts at the lowest cost consistent with a quality
product. Finished goods inventory represents the companys product for available for sale at a
given point in time. A certain amount of inventory must be available at all times in order to have
an effective marketing operation. The poor management of inventory, including finished goods,
is often reflected in the use of terms such as such as stock outs, back orders, decrease in
inventory turnover, lost sales, and inadequate safety stock.
The existence of inventory results in expenses other than the cost of inventory itself which
typically are categorized as:
1. Carrying costs
2. Purchasing costs.

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Inventory is a term that may mean finished goods, materials, and work in process. To have
finished goods inventory, production must take place at a rate greater than sales. Inventory
decisions have a direct impact on production. For example, a decision to increase safety stock
means that the production rate must increase until the desired level of safety stock is achieved.
PHYSICAL DISTRIBUTION FOR INTERNATIONAL MARKET
On the demand side of the organization, products and services need to be communicated or
moved to the customer. In the case of manufacturing operations, this involves the physical
transportation of the goods from the manufacturing operation to the customer. In the case of high
customer contact service, the service is created in the presence of the customer. Here we limit
ourselves to manufacturing operations that need to distribute their physical products to customers
(and implicitly to those transportation operations, such as trucking companies, whose primary
concern is physical distribution).
Sometimes the term logistics is used as being analogous to physical distribution management.
Originally the term related to the movement and coordination of troops and military supplies.
More recently is has been used to describe physical distribution management beyond the
immediate customer, through to the final customer in the chain.
Distribution plays an important role in the implementation of the international marketing
programme as it enables the products and services to reach the ultimate customer. And
international marketing firm has the option of managing its distribution function either directly
or indirectly through middleman or a suitable combination of the two.

Examples of International Distribution Channels

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Due to physical distance, and also the differences in geographical, cultural and market
characteristics of the trading countries, use of middlemen is found quite prevalent in international
marketing. In fact, distribution is one such primary functions of marketing which makes use of
the services of external independent agencies that bind the firm in a long term relationship.

INTERNATIONAL DISTRIBUTION CHANNELS

Distribution has two elements, the institutional and the physical. Physical distribution aspects
cover transport and warehousing.
The longer the channel, the more likely that producer's profits will be indirectly reduced. This is
because the end product's price may be too expensive to sell in volume, sufficient for the
producer to cover costs. Yet cutting channel length may be impossible, as country infrastructure
requirements may dictate them being there.
As already mentioned international marketers have the options of organizing distribution of their
goods in foreign markets through the use of indirect channels, i.e. using intermediaries, direct
channels or a combination of the two in the same or different markets.

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1. Indirect Distribution
Indirect channels are further classified based on whether the international marketer makes use of
domestic intermediaries. An international marketer therefore, can make use of the following
types of intermediaries for distribution in foreign markets.
a) Domestic Overseas Intermediaries
Commission buying agents
Country-controlled buying agents
Export management companies (EMCs)
Export merchants
Export agents
Piggy backing
b) Foreign Intermediaries
Foreign Sales Representatives
Foreign Sales Agents
Foreign Stocking and Non-Stocking Agents
State Controlled Trading Companies
2. Direct Distribution
The options available to international marketer in organizing direct distribution include sending
missionary skies representatives abroad from the headquarter, setting up of local sales/branch
office in the foreign country or for a region, establishing a subsidiary abroad, entering into a joint
venture or franchising agreement.

INTERNATIONAL DISTRIBUTION POLICY

The international distribution policy of a firm according to Cateora, should cover the following
factors:
1) Question of control, size of margins, length of channels, terms of sale and channel
ownership.
2) Resource (money and personnel) commitment plans for the distribution function
management keeping profit goals in a foremost position.
3) Specific market goals expressed in terms of volume, market share and margin
requirements, to be accomplished.
4) Return on investment, sales volume and long run potential as well as guidelines
for solving routine distribution problems, and

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5) The relationship between long-and short-term goals, the extent of the company's
involvement in the distribution system as well as the extent of its ownership of
middlemen.
The following trends help to illustrate the need to the above analysis for suitable adaptation of
the distribution patterns:
In the US, there has been a rapid expansion of large supermarkets and other retail chains,
and also the deep-vertical integration into wholesale and manufacturing by large retail
houses:
In Sweden, a powerful consumer-oriented cooperative movement handles a substantial
business in food, petroleum, etc.
In Mexico, there is a modern retail distribution for the urban people, and traditional
outlets and public distribution system exists for the poor.
In China, wholesalers mainly control the Chinese distribution system.
In Japan, large trading companies, handle half of Japanese trade while a large number of
wholesale and retail outlets help products to penetrate in its market.
In Saudi Arabia, a small number of hands approved by the royal family control its
manufacturer-wholesaler retailer distribution system.
In Peru, importers act as distributors or wholesalers, and retaining is done typically
through retail chains and street merchants.

SELECTING DISTRIBUTION CHANNELS AND CHANNEL MEMBERS

Channels are an integrative part of the marketer's activities and as such are very important. They
also give a very vital information flow to the exporter. A channel is an institution through which
goods and services are marketed. Channels give place and time utilities to consumers. In order to
provide these and other services, channels charge a margin. The, longer the channel the more
margins are added.
Within the overall international distribution policy of the firm, the factors of :. (1) capital
requirements; (2) level of distribution costs; (3) desired extent of control over distribution
channel; (4) depth of market coverage; (5) product-market distribution pattern characteristics; (6)
competitive practices; (7) legal requirements; and (8) short-tern versus long-term involvement of
the firm in international marketing govern the choice of distribution channels.
Basically the choice comes down to two alternatives, the producer /seller selling direct or
through an international merchant or agent.
This is followed by the development of a criteria for the selection of specific intermediaries. The
criteria generally includes factors as financial soundness, local government contacts, business
reputation, distribution network, technical support and infrastructural facilities (esp. relating to
heavy industrial goods), business experience and managerial expertise, commercial terms, and
extent of exclusivity to the international marketer. As the selection of the channel members

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commit the marketer to them for a relatively long period of time, their selection involves a
cautious process and a careful analysis and referencing.
Items to include in an Agreement with Foreign Channel Members

Name and address of both parties

Date when the agreement goes into effect
Duration of the agreement
Provisions for extending or terminating the agreement
Description of sales territory
Establishment of discount and/or commission schedules and determination of when and
how paid.
Provisions for revising the commission or discount schedules
Establishment of a policy governing resale prices
Maintenance of appropriate service facilities
Restrictions to prohibit the manufacture and sale of similar and competitive products
Designation of responsibility for patent and trademark negotiations and/or pricing
The assign ability or non-assign ability of the agreement and any limiting factors
Designation of the country and state of contract jurisdiction in the case of dispute

Types of Channel Intermediaries

There are many types of intermediaries such as wholesalers, agents, retailers, the Internet,
overseas distributors, direct marketing (from manufacturer to user without an intermediary), and
many others. The main modes of distribution will be looked at in more detail.
1. Channel Intermediaries - Wholesalers
They break down 'bulk' into smaller packages for resale by a retailer.
They buy from producers and resell to retailers. They take ownership or 'title' to goods
whereas agents do not (see below).

They provide storage facilities. For example, cheese manufacturers seldom wait for their
product to mature. They sell on to a wholesaler that will store it and eventually resell to a
retailer.

Wholesalers offer reduce the physical contact cost between the producer and consumer
e.g. customer service costs, or sales force costs.

A wholesaler will often take on the some of the marketing responsibilities. Many produce
their own brochures and use their own telesales operations.

2. Channel Intermediaries - Agents

Agents are mainly used in international markets.
An agent will typically secure an order for a producer and will take a commission. They
do not tend to take title to the goods. This means that capital is not tied up in goods.
However, a 'stockiest agent' will hold consignment stock (i.e. will store the stock, but the

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title will remain with the producer. This approach is used where goods need to get into a
market soon after the order is placed e.g. foodstuffs).

Agents can be very expensive to train. They are difficult to keep control of due to the
physical distances involved. They are difficult to motivate.

3. Channel Intermediaries - Retailers

Retailers will have a much stronger personal relationship with the consumer.
The retailer will hold several other brands and products. A consumer will expect to be
exposed to many products.

Retailers will often offer credit to the customer e.g. electrical wholesalers, or travel
agents.

Products and services are promoted and merchandised by the retailer.

The retailer will give the final selling price to the product.

Retailers often have a strong 'brand' themselves e.g. Ross and Wall-Mart in the USA, and
Alisuper, Modelo, and Jumbo in Portugal.

4. Channel Intermediaries - Internet

The Internet has a geographically disperse market.
The main benefit of the Internet is that niche products reach a wider audience e.g.
Scottish Salmon direct from an Inverness fishery.

There are low barriers low barriers to entry as set up costs are low.

Use e-commerce technology (for payment, shopping software, etc)

There is a paradigm shift in commerce and consumption which benefits distribution via
the Internet

USES OF VIRTUAL CHANNELS IN INTERNATIONAL MARKETING

In telecommunications, a logical channel number (LCN), also known as virtual channel, is a
channel designation which differs from that of the actual radio channel (or range of frequencies)
on which the signal travels. Virtual channels makes international marketing relatively easy,
because the virtual shop can be presented to customers in different countries through a computer
network and the shop can be modified to offer local products priced in local currencies and in
local languages.

In virtual shopping, the customer interacts with retail store on a computer. The customer can see
the layout of the store; pick directions to walk in, scroll down an aisle and watch the display of
the goods on shelves unfold. The customer can stop & examine a product on a shelf more

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closely, read the label and perhaps pursue product literature. The customer might find out the
price, do comparison shopping, looking for sales promotional offers & may decide on buying the
product. The computer can record the consumer behavior, including the decisions to purchase,
not purchase, quantity & price, alternatives compared, the time spent on shopping, the order in
which products & categories were examined and so on.

Advantages of Virtual Channels:

Online events can be a fraction of the cost of a live event.

It can be left on the internet forever and accessed anytime .

Its effectiveness can be measured easily and in greater detail.

Merchants gain a wider place to sell their products and services, resulting in more
customers and more sales.

Merchants can gain more customers without spending valuable time in searching for
them.

Disadvantages of Virtual Channels:

There is the possibility that some merchants may incur high commission costs and costly
set up and maintenance fees due to affiliate facilitators/brokers.
Unscrupulous and dishonest merchants may arbitrarily close down programs without
informing the affiliates and without paying commissions.
Merchants may promise high commissions to attract new affiliates then drop commission
rates after a week or two.
Link hijackers can hijack affiliate links and get paid for the commissions instead.
There are also false advertising, unlawful use of trade names, logos, or brands.
Strategy for Web-Based International Marketing:
1) Develop the presence:
Develop a presence on the internet enhancing its image and using the
internet as a vehicle for advertising, both for corporate advertising as well
as product and service specific advertising.
2) Product and Service Information:
Provide information about products & services, its prices, product
availability, order status access to its databases and links to either useful
sites on the web.

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3) Communicate and Interact with customer:

Communicate & interact with customer, receiving queries from the
customer, handling complaints and feedback on product use and
conducting market research by persuading the customer to respond to
queries and forms on the web.
4) After sales service, user support:
Provide after sales service to the customer, providing product servicing
information by exhibiting infrastructure to service the product.
5) Selling to the customer from web site:
The most exciting aspect of the internet is its ability to close commercial
transactions with clients, making a sale and obtaining payment.
Web Marketing Strategy Issues:
1) Pricing:
Developing virtual business models that allow profitable operations at lower
prices is challengeable task, since marketer may not able to justify price with
quality.
2) Co-existence with other distribution channels:
Co-existence of other channels: Internet or virtual channel alone is not adequate to
survive. Probably most of the companies require physical channels to arrange
physical delivery of the goods.
3) Product range for internet site sales:
Product range for internet site sales: Products like books, airline tickets and hotel
rooms, vacations, stocks & bonds etc. made a splash using internet as a channel of
distribution.
4) Business to Business Marketing:
Business organizations find that procurement of product inputs, supplies and
components can be more easily done on the web. Specifications can be clearly
laid out, suppliers can be pre-qualified & bid can be taken, with due dates for a
tender or by auction.
GLOBAL ADVERTISING

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Meaning of Global Advertising

International advertising entails dissemination of a commercial message to target audiences in
more than one country. Target audiences differ from country to country in terms of how they
perceive or interpret symbols or stimuli; respond to humor or emotional appeals, as well as in
levels of literacy and languages spoken. How the advertising function is organized also varies. In
some cases, multinational firms centralize advertising decisions and budgets and use the same or
a limited number of agencies worldwide. In other cases, budgets are decentralized and placed in
the hands of local subsidiaries, resulting in greater use of local advertising agencies.
International advertising can, therefore, be viewed as a communication process that takes place
in multiple cultures that differ in terms of values, communication styles, and consumption
patterns. International advertising is also a business activity involving advertisers and the
advertising agencies that create ads and buy media in different countries. The sum total of these
activities constitutes a worldwide industry that is growing in importance. International
advertising is also a major force that both reflects social values, and propagates certain values
worldwide.
Advantages of Global Marketing
1. Economies of scale in production and distribution.
2. Lower marketing and advertising cost.
3. Ability to exploit good ideas on a world wide basis
4. Consistent brand and company image in all markets
5. Simplification of coordination and control of marketing and control programmes
Issues in Global Marketing
1. Differences in market and economic development, consumer needs, media availability
and legal restrictions.
2. Cultural differences make advertising standardization difficulty.
3. Usage patterns and perception of a product may vary from one country to another.
Advertisements are globally used to bring in the product before the people and publicise and
market it. Any brand or product has to have advertisements to grow and establish itself. Different
products have different target groups. At times one product can also have a varied target group.
The target audience differs according to the age limit, generation or place. Thus an international
product can have the audience of the same age and generation, yet there will be a difference in
their taste. An audience approach on a certain product or a brand will differ from place to place.

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Advertising has gone through five major stages of development: domestic, export, international,
multi-national, and global. For global advertisers, there are four, potentially competing, business
objectives that must be balanced when developing worldwide advertising: building a brand while
speaking with one voice, developing economies of scale in the creative process, maximizing
local effectiveness of ads, and increasing the companys speed of implementation. Born from the
evolutionary stages of global marketing are the three primary and fundamentally different
approaches to the development of global advertising executions: exporting executions, producing
local executions, and importing ideas that travel.
Advertising research is key to determining the success of an ad in any country or region. The
ability to identify which elements and/or moments of an ad that contributes to its success is how
economies of scale are maximized. Once one knows what works in an ad, that idea or ideas can
be imported by any other market. Market research measures, such as Flow of Attention, Flow of
Emotion and branding moments provide insight into what is working in an ad in any country or
region because the measures are based on the visual, not verbal, elements of the ad

Push V/s Pull Strategies for International Markets

A push-pull-system in business describes the movement of a product or information between two
subjects. On markets the consumers usually "pulls" the goods or information they demand for
their needs, while the offerers or suppliers "pushes" them toward the consumers. In logistic
chains or supply chains the stages are operating normally both in push- and pull-manner.[5] Push

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production is based on forecast demand and pull production is based on actual or consumed
demand. The interface between these stages is called the push-pull boundary or decoupling point.

Push strategy
Another meaning of the push strategy in marketing can be found in the communication between
seller and buyer. In dependence of the used medium, the communication can be either interactive
or non-interactive. For example, if the seller makes his promotion by television or radio, it's not
possible for the buyer to interact with. On the other hand, if the communication is made by
phone or internet, the buyer has possibilities to interact with the seller. In the first case
information is just "pushed" toward the buyer, while in the second case it is possible for the
buyer to demand the needed information according to his requirements.

Applied to that portion of the supply chain where demand uncertainty is relatively small
Production & distribution decisions are based on long term forecasts

Based on past orders received from retailers warehouse (may lead to Bullwhip effect)

Inability to meet changing demand patterns

Large and variable production batches

Unacceptable service levels

Excessive inventories due to the need for large safety stocks

less expenditure on advertising than pull strategy

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Pull strategy
In a marketing "pull" system the consumer requests the product and "pulls" it through the
delivery channel. An example of this is the car manufacturing company Ford Australia. Ford
Australia only produces cars when they have been ordered by the customers.

Applied to that portion of the supply chain where demand uncertainty is high
Production and distribution are demand driven

No inventory, response to specific orders

Point of sale (POS) data comes in handy when shared with supply chain partners

Decrease in lead time

Difficult to implement

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MULTIPLE CHOICE QUESTION

1) When firms marketing strategy requires a high level of service before or after the sale, what
type of distribution channel might be appropriate?
AIntegrated
BIndirect
COvert
d Covert
e Elongated
2) Which type of intermediary usually performs a variety of functions including: stock
inventories, handling promotion, extending customer credit, processing orders, arranging
shipping, product maintenance and repair?
a.Export Agents
b.Export Distributors
c.Cooperative Organizations
d.Trade Partners
e.Distribution House
3) In advanced retailing structure in mature economies, to what degree are retail concepts, images and
corporate identity important?
a.Low.
b.Limited.
c.Rarely used.
d.Relatively highly.
e.Very important.
4) For traditional retailers in developing countries, to what degree are retail concepts,
images and corporate identity important?
a.Low.
b.Limited.
c.Rarely used.
d.Relatively highly.
e.Very important.
5) Which of the following is not one of the push factors that has contributed to the
globalization of retailers?
a.Economic recession or limited growth in spending.
b.High operating costs labour, rents, taxation.
c.Saturation of the home market or over-competition.
d.The geographical spread of trading risks.
e.A declining or ageing population.

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6) Which of the following is not one of the pull factors that has contributed to the
globalization of retailers?
a. The me too syndrome in retailing.
b. The opportunity to innovate under new market conditions.
c. Strong economic growth or rising standards of living.
d. High population growth or a high concentration of young adults.
e. The underdevelopment of some markets or weak competition.
7) What direct threat does the Internet pose to intermediaries?
a. Cancelling the trade deficit.
b. Institutionalization of the duty paid on electronic transactions.
c. The possibility of elimination of intermediaries.
d. Probation.
8) Parallel importation refers to authentic and legitimately manufactured trademark
items that are produced and purchased abroad but imported or diverted to anothe
country by bypassing designated channels. What type of market is this?
a. Subversive.
b. Sub-governmental.
c. Grey.
d. Placid.
e. Black
9) The period between departure and arrival of the carrier is called:
a. Transit time.
b. Shipping.
c. Volume radiation.
d. Present danger.
10) Compared to the other Ps, price is more important than:
a. Product
b. Place
c. Promotion
d. none of the above
11) This element of the marketing mix tends to be most adapted:
a. Product
b. Branding
c. Price
12) Of the Ps, the one that receives the least attention, domestically and internationally, is:
a. Product
b. Place
c. Promotion
d. Price

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13) This cost-based pricing method, considered to be ethnocentric, uses:

a. all costs
b. marginal costs
c. transportation costs
d. R&D costs
14) The pricing method which considers these costs results in a high degree of
centralization:
a. all costs
b. marginal costs
c. incremental costs
15) This international pricing method takes into consideration some but not all product
costs incurred at home:
a. cost-plus
b. full-cost
c. marginal cost
d. comparative cost
16) A seller should bill in a _____ currency:
a. Strong
b. Moderate
c. Weak
17) This concept describes a type of market inertia that states that the relationship between
variables depends on past history:
a. Homogeneity
b. Heterogeneity
c. Hysteresis
d. Standardization
18) Alternatives to a price change do not include:
a. financing/credit terms
b. discounts
c. bundling
d. bait and switch tactic
19) A one-time direct and simultaneous exchange of products of equal value is:
a.
b.
c.
d.

barter
parallel barter
buyback
counterpurchase

AllA21) All marketing activities that attempt to stimulate quick buyer action or immediate sales of a
product are known as __________.

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a. Sponsorship
b. Advertising
c. personal selling
d. sales promotion
e. Publicity
Whi22) Which of the following is NOT a requirement for setting advertising objectives?
a. Objectives must specify the amount of change.
b. Objectives must be stated in terms of profits.
c. Objectives must be realistic.
d. Objectives must be internally consistent.
e. Objectives must be clear and in writing.

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QUESTION BANK:
Q1. Discuss the different pricing strategies available to global marketers.
Q2. Discuss the role of the Internet and its impact on global marketing.
Q3.Describe briefly the main channels of distribution used in export markets. Which one would
you recommend for the product of a small manufacturer and why?
Q4.Give a brief description of the factors affecting channel decision in international markets
Q5.What points we have to consider while drawing up a logistics plan? Briefly state them
Q6.Do you think it is advantageous to have agents in foreign market? Do the advantages outweigh
the disadvantages? Justify your response
Q7. What are the factors that influence international pricing decisions of a firm? Critically examine
one internal and one external factor with the help of examples.
Q8. Writ a Short Note on:
b) Dumping
c) Transfer Pricing
Q9. A manufacturer can either distribute his products directly or employ third party services.
Explain the above statement in the light of middlemen available in your home country.
Q10. Explain who you will employ for distributing your fast moving consumer products in a
foreign country and why?
Q11. Explain what criterion you will refer to while selecting middlemen abroad for industrial
products manufactured by your company.

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UNIT 4
Documentation and procedural complexities - Registration with various agencies - Compulsory
Quality Control - Processing Export Orders Export Promotion - Financing of the Exports Export Incentives - Role played by Government in Export Promotion - Custom Clearance
procedures for export cargo-Limitations of Global Marketing
INTRODUCTION
An exporter without any commercial contract is completely exposed of foreign exchange risks
that arises due to the probability of an adverse change in exchange rates. Therefore, it becomes
important for the exporter to gain some knowledge about the foreign exchange rates, quoting of
exchange rates and various factors determining the exchange rates. In this section, we have
discussed various topics related to foreign exchange rates in detail.
Export from India required special document depending upon the type of product and destination
to be exported. Export Documents not only gives detail about the product and its destination port
but are also used for the purpose of taxation and quality control inspection certification.
EXPORT DOCUMENTS
Documents required for an international sale can vary significantly from transaction to
transaction, depending on the destination and the product being shipped. At a minimum, there
will be two documents: the invoice and the transport document. The buyer will usually provide
the seller with a list of documents needed to get the goods into his country as expeditiously and
inexpensively as possible. Some documentary requirements are not open to negotiation, as they
are needed by the importer to clear customs at the port of destination.
Certain documentation takes place while exporting from India. Special documents may be
required depending on the type of product or destination. Certain export products may require a
quality control inspection certificate from the Export Inspection Agency. Some food and
pharmaceutical product may require a health or sanitary certificate for export. When a company
of one country sells its products overseas then this transaction is known as export. Export
products and services are given to the foreign consumers by the domestic manufacturers. Some
important documents which are required for exports are include commercial invoice, shipper's
export declaration, certificates of origin, Bills of lading, insurance certificates, import license,
ATA Carnet, Export packing list, Destination control statement, inspection certificate, Dock
receipt and consular invoice.
The export process is made more complex by the wide variety of documents that the exporter
needs to complete to ensure that the order reaches its destination quickly, safely and without
problems. These documents range include those required by the South African authorities (such

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as bills of entry, foreign exchange documents, export permits, etc.), those required by the
importer (such as the proforma and commercial invoices, certificates of origin and health, and
pre-shipment inspection documents), those required for payment (such as the South African
Reserve Bank forms, the letter of credit and the bill of lading) and finally, those required for
transportation (such as the bill of lading, the airway bill or the freight transit order).
Documentation requirements for export shipments also vary widely according to the country of
destination and the type of product being shipped. Most exporters rely on an international
freight forwarder to handle the export documentation because of the multitude of documentary
requirements involved in physically exporting goods and it is strongly recommended that you
also make use of a freight forwarder to help you work your way through the maze of
documentation.
Benefits of documentation:
Documentation is a key means of conveying information from one person or company to
another, and also serves as permanent proof of tasks and actions undertaken throughout the
export process. Documentation is not only required for your own business purposes and that of
your business partner, but also to satisfy the customs authorities in both countries and to facilite
the transportation of and payment for goods sold.
One value of documentation is that copies can be made and shared with the parties involved in
the export process (although you should always ensure that you make identical copies from an
agreed-upon master - it is no use making changes without the other party's agreement and then
presenting these as the "latest" copies). If the documentation is complete, accurate, agreed upon
by the parties involved and signed by each of these of these parties (or their representatives), the
document will represent a legally binding document.
Function of export documentation
Export documentation may serve any or all of the following functions:

An attestation of facts, such as a certificate of origin

Evidence of the terms and conditions of a contract if carriage, such as in the case of an
airway bill

Evidence of ownership or title to goods, such as in the case of a bill of lading

A promissory note; that is, a promise to pay

A demand for payment, as with a bill of exchange

A declaration of liability, such as with a customs bill of entry

A receipt for goods received.

Broad categories of export documentation

There are four broad categories of documentation while exporting. These are:

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1. Documents involving the importer

i)

The proforma invoice:

A proforma invoice appears exactly the same as a invoice except with the words "Performa
invoice" written on the document. The Performa invoice essentially serves as a 'quotation' that
sets the road to further negotiations. Some exporters choose to prepare an 'official' quotation,
while others prefer to use the proforma invoice as their quotation. In fact, the quotation can
contain the same information as a proforma invoice. Following points are to be considered
while preparing PI:

A complete and clear description of the goods in question

The quantity of goods in question including the number and kinds of packaging
involved

The total price of the goods (and unit price where applicable)

The currency in which the goods will be sold (e.g. US dollars or rands)

The likely delivery schedule and delivery terms

The physical addresses of both the exporter (referred to as the shipper) and importer
(sometimes referred to as the consignee)

The payment methods, for example cash in advance or L/C

The payment terms, for example 30 days on sight

The Incoterm to be used

Who is responsible for the banking fees and other related costs (insurance and freight
costs are covered by the incoterm in question)

The exporter's banking details

The country of origin of the goods

The expected country of final destination

Any freight details such as the port of loading and discharge

Any trasshioment requirements

Any other information relevant to the order

ii)

The export contract:

An export contract (also referred to as a sales contract) is essentially an agreement between you

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and a foreign importer to do business.

The basic provision of any contract for the sale of goods is that you, the seller (in this case, the
exporter), will transfer ownership of the goods to your buyer (the importer) in exchange for
payment (which, in international trade, made be made in a foreign currency). The export
contract needs to specify the terms and conditions for doing this, and should at least describe:

Who is party to the contract

The validity of the contracts

The goods being sold (usually described in some detail)

The purchase price of the goods and the currency in question

The terms of payment

Inspection of the goods if required

Where the goods should be delivered

At what point transfer of title to the goods takes place

Any warranty and/or maintenance conditions associated with the sale

Who is responsible for obtaining import or export licenses, if these are required

What supporting documentation and/or certificates are required

Who is responsible for paying import duties and other taxes

Any contract performance security requirements, such as bank letters of guarantee

What will happen if either of the parties defaults or cancels

The provisions for independent mediation or arbitration to resolve disputes, and whether
this would take place in South Africa or the importer's country, or elsewhere

The contract's completion date

iii)

The commercial invoice

After the pro-forma invoice is accepted, the exporter must prepare a commercial invoice. The
commercial invoice is required by both the exporter (to obtain the necessary export documents
to enable the consignment to be exported, to prove ownership and to enable payment) and
importer (who require the commercial invoice to facilitate the import of the goods in question).
In exporting, the commercial invoice is considered a very important document as it serves as
the starting document that underpins an export transaction.
The commercial invoice is essentially a bill (i.e. invoice) from the seller (the exporter) to the
buyer (the importer) describing the goods to be sold and the terms involved. The commercial

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invoice will normally be presented on the exporter's letterhead and will be addressed to the
importer. It should contain full details of the consignment, including price and other related
costs, in order to facilitate customs clearance. It must be signed and dated. Freight and
insurance, when included in the selling price, should be itemized separately as these charges are
not subject to duty in certain countries. There is usually very little, if any, difference between
the final proforma invoices accepted by the importer and the commercial invoice, except that
the one is titled "Proforma Invoice", while the other is titled "Commercial Invoice".
iv) The packing list
When you prepare your goods for shipment, you will be required to prepare a detailed export
packing list. This is a formal document that itemizes quite a number of details about the cargo
such as:

Your name and contact details

The importer's/consignee's/buyer's name, address and contact details

The gross, tare and net weights of the cargo

The nature, quality and specifications of the product being shipped

The type of package (such as pallet, box, crate, drum, carton, etc.)

The measurements/dimensions of each package

The number of pallets/boxes/crates/drums, etc.

The contents of each pallet or box (or other container)

The package markings, if any, as well as shipper's and buyer's reference numbers

It is also important that the details on the packing list (such as shipper's/importer's details,
number of items involved, etc.), match what is stipulated on the commercial invoice and bill of
lading/airway bill. You can imagine that if there is a mismatch between the packing list and the
other transport/export documents that this may lead to closer scrutiny of the cargo and may
ultimately result in delays in the cargo arriving at its destination! Note that pricing information
is not required on the packing list.
v) Letter of credit
A standard, commercial letter of credit is a document issued mostly by a financial institution,
used primarily in trade finance, which usually provides an irrevocable payment undertaking.
The letter of credit can also be payment for a transaction, meaning that redeeming the letter of
credit pays an exporter. Letters of credit are used primarily in international trade transactions of
significant value, for deals between a supplier in one country and a customer in another. In such
cases, the International Chamber of Commerce Uniform Customs and Practice for

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Documentary Credits applies (UCP 600 being the latest version).[2] They are also used in the
land development process to ensure that approved public facilities (streets, sidewalks, storm
water ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is
to receive the money, the issuing bank of whom the applicant is a client, and the advising bank
of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be
amended or canceled without prior agreement of the beneficiary, the issuing bank and the
confirming bank, if any. In executing a transaction, letters of credit incorporate functions
common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present
in order to receive payment include a commercial invoice, bill of lading, and a document
proving the shipment was insured against loss or damage in transit.
Risk situations in letter-of-credit transactions
Fraud Risks

The payment will be obtained for nonexistent or worthless merchandise against

presentation by the beneficiary of forged or falsified documents.
Credit itself may be forged.

Sovereign and Regulatory Risks

Performance of the Documentary Credit may be prevented by government action

outside the control of the parties.

Legal Risks

Possibility that performance of a Documentary Credit may be disturbed by legal action

relating directly to the parties and their rights and obligations under the Documentary
Credit

Force Majeure and Frustration of Contract

Performance of a contract including an obligation under a Documentary Credit

relationship is prevented by external factors such as natural disasters or armed
conflicts

Risks to the Applicant

Non-delivery of Goods
Short Shipment

Inferior Quality

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Early /Late Shipment

Damaged in transit

Foreign exchange

Failure of Bank viz Issuing bank / Collecting Bank

Risks to the Issuing Bank

Insolvency of the Applicant

Fraud Risk, Sovereign and Regulatory Risk and Legal Risks

Risks to the Reimbursing Bank

no obligation to reimburse the Claiming Bank unless it has issued a reimbursement

undertaking.

Risks to the Beneficiary

Failure to Comply with Credit Conditions

Failure of, or Delays in Payment from, the Issuing Bank

Credit Issued by Party other than Bank

Risks to the Advising Bank

The Advising Banks only obligation if it accepts the Issuing Banks instructions is
to check the apparent authenticity of the Credit and advising it to the Beneficiary

Risks to the Nominated Bank

Nominated Bank has made a payment to the Beneficiary against documents that comply
with the terms and conditions of the Credit and is unable to obtain reimbursement from
the Issuing Bank

Risks to the Confirming Bank

If Confirming Banks main risk is that, once having paid the Beneficiary, it may not be
able to obtain reimbursement from the Issuing Bank because of insolvency of the
Issuing Bank or refusal of the Issuing Bank to reimburse because of a dispute as to
whether or not payment should have been made under the Credit

Other Risks in International Trade

A Credit risk risk from change in the credit of an opposing business.

An Exchange risk is a risk from a change in the foreign exchange rate.

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A Force majeure risk is

1. a risk in trade incapability caused by a change in a country's policy
2. a risk caused by a natural disaster.
Other risks are mainly risks caused by a difference in law, language or culture. In these
cases, the cargo might be found late because of a dispute in import and export dealings.

Types of letter of credit:

Unconfirmed
An unconfirmed irrevocable letter of credit provides a commitment by the issuing bank to pay,
accept, or negotiate a letter of credit. An advising bank forwards the letter of credit to the
beneficiary without responsibility or undertaking on its part except that it must use reasonable
care to check the authenticity of the credit which it advised. It does not provide a commitment
from the advising bank to pay, so the beneficiary is reliant upon the undertaking of the overseas
bank. The beneficiary is not protected from the credit risk of the issuing bank nor the country
risk.
Transferable Credit
Under a transferable letter of credit a beneficiary (the first beneficiary) can ask the
issuing/advising/confirming bank to transfer the letter of credit in whole or in part to another
party/ies such as supplier/s (second beneficiary/ies). A transferable letter of credit is usually
used when the beneficiary is not the manufacturer/original supplier of some/all of the
goods/services. This process enables the beneficiary to pay the manufacturer/original supplier
by letter of credit. If the bank agrees, this bank, referred to as the transferring bank, advises the
letter of credit to the second beneficiary/ies in the terms and conditions of the original letter of
credit with certain constraints defined in Article 48 of UCP 500.
In general, unless the letter of credit states that it is transferable, it is considered nontransferable.
Assignment of Proceeds
The right to the proceeds of a letter of credit can sometimes be assigned where the beneficiary
of a letter of credit is not the actual supplier of all or part of the letter of credit and wants the
bank to pay the supplier out of funds received from the letter of credit. The beneficiary may
choose this option if he or she

does not want to request a transferable letter of credit from a buyer in order to keep the
buyer from knowing who is the actual supplier of the goods.
does not have the necessary credit with the bank to issue a new letter of credit to a
supplier.

An assignment of proceeds takes the form of an irrevocable instruction from the beneficiary to
the bank requesting that it pay the supplier out of the proceeds of the letter of credit which

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becomes due when documents are presented in compliance with the terms of the letter of credit.
Revolving
Although infrequently used today, revolving letters of credit were a tool created to allow
companies conducting regular business to issue a letter of credit that could roll-over without
the company having to reapply, thus enabling business flow to continue without interruption as
long as the terms and conditions, quantities, and other transaction details did not change. In
addition, if a letter of credit were a revolving one, there were few ways to stop it from rolling
over; so, should a conflict arise between the parties while the letter of credit was in place or
should the products change, there was little recourse for either party. In the business world
today, the fact is that, unless required by law or because of high risk, on-going business is
usually conducted without of letters of credit bhaskar
Standby
As is the case with the revolving letter of credit, standby letters of credit are infrequently used
today. A standby letter of credit is one which is issued as a back-up or form of insurance for the
seller should the buyer default on the agreed-upon payment terms. A standby letter of credit is
issued in the same way a documentary credit is in that the collateral needed for issuance is
required by the issuing bank and the beneficiary must comply with every detail as outlined in
the letter of credit. The problem with this instrument is that the applicant has no guarantee,
other than the sellers word, that the standby will not be drawn against even if payment is made
as agreed. This situation is challenging, especially if the letter of credit is confirmed and the
advising bank sees only documents pertaining to the shipment as outlined in the letter of credit
and has no knowledge of other payments being made.
vi) Certificate of origin
A Certificate of Origin (C/O) is required by some countries and is intended to certify to the
importing authorities as to which country the products being imported were manufactured in that is, the C/O certifies that the imported product meets the 'Country of Origin' requirements
set by the importing country and which are expected of their foreign suppliers. It may be
required that the C/O include information such as local material and labour content. In many
cases, a statement of origin printed on company letterhead will suffice, although the document
may need to be certified in some way. In other instances, specific types of C/Os may be
required, such as the Generalised System of Preferences (GSP) Form A and the Chamber of
Commerce C/O.
A signed statement certifying the country of origin of the goods being sold is sometimes
required by regulation in the buyers country. This document may be as simple as a certificate
signed by the seller. Certain countries may require it to be issued by a third party such a
Chamber of Commerce, or be notarized, legalized, or visaed by their Embassy or Consulate.

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vii) Certificates of health :

Certificates of health are normally required by the importing country to ensure that the imported
goods (plants, plant products, animals and animal products) are in good health and carry no
diseases, pests or any health-threatening organisms. Such certificates of health confirm (a) the
origin of the shipment and, (b) that local authorities have inspected the consignment and ensure
its good health. Certificates of Health can be divided into two types:

Phytosanitary certificates which are required for the import of certain plants and plant
products such as seeds and flowers. Phytosanitary certificates are governed by the
International Plant Protection Convention and represent an internationally accepted
means of pest risk mitigation.
Veterinary certificates which are required for the import of live animals, as well as fresh,
chilled or frozen animal products. For contact details go to The Department of
Agriculture, Forestry and Fishery website.

The exact import requirements are set by the importing country but are usually communicated
to the corresponding authorities in South Africa (usually the Department of Agriculture). Your
best option is therefore to contact both the importer to determine what the import requirements
are and the Department of Agriculture to hear their side of the story. For Phytosanitary
certificates, contact the Department of Agriculture at:
The local authorities may charge a fee for such inspections and issuing of certificates.
viii) Fumigation certificate
Some countries, such as Australia, Canada, New Zealand, the US and the UK, are very strict
about letting in goods that might contain bacteria or insects that could harm their agriculture.
For this reason, they may require a fumigation certificate - also referred to as a 'pest control
certificate - as proof that the packing materials e.g. wooden crates, wood, wool etc., have been
fumigated or sterilised. Fumigation certificates usually contain details such as purpose of
treatment, the articles in question, temperature range used, chemicals and concentration used,
etc. Sometimes they may be required for sea shipments, but not for air shipments. Your freight
forwarder should be able to advise you as to whether you require such as certificate.
ix) Pre-shipment inspection certificate
It is not uncommon for importers to want to confirm that the to-be-exported goods
meet their requirements. This is particularly so in instances where it is essential that
the goods meet certain standards. These same importers unfortunately cannot always
fly to all the countries from where they are buying their products and for this reason,
they may:
a. Require that the shipment be inspected just before loading by an independent
third-party arranged and generally paid for by the importer. The exporter will

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need to indicate an approximate time and place for this inspection to take
place.
b. Ask the exporter to obtain the pre-shipment inspection certificate from an
independent third-party inspection firm which is then forwarded to the
importer. In this instance either the exporter or the importer may pay for the
inspection, depending what was negotiated in the contract.
The independent contractor - usually a recognised firm in this field - will undertake a
detailed inspection of equipment or materials after manufacture, but prior to
shipment. The scope of the inspection includes quantity and quality, packing and
marking and supervision of loading. A Certificate of Inspection can be provided
against a Letter of Credit and may be authorised by a Chamber of Commerce.
Occasionally, the importer may ask a trusted individual to undertake the inspection on
their behalf.
Furthermore, some countries may require certification for selected products (this is
independently from the importer) and in these instances a pre-shipment inspection is
a necessary step to receive an import certificate for the shipment. Without this
certificate the shipment will not be able to clear customs in the country of destination.
x) Transport documents
a)

Bill of lading

The BOL is a legal contract between the shipper (normally the exporter) and carrier (the
shipping line represented by the ships master or shipping line representative)

As a legal document, the BOL plays an important role in releasing payment from the
bank in conjunction with the Letter of Credit

A BOL is a document issued by a carrier, e.g. a ship's master or by the carriers shipping
department, or a representative of either of these two

The BOL must be signed or authenticated by the person issuing the document

The BOL must name the ship/vessel carrying the goods

The BOL does not afford the holder of the document any ownership of the goods listed
in the document (it is not a negotiable document)

The BOL acknowledges that specified goods have been received on board as cargo for
conveyance

The BOL specifies both the ports of loading and discharge

The BOL normally has a named consignee

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The BOL will specify the goods to be conveyed, their number, weight and volume

BOLs are usually issued in three originals; one for the exporter/shipper, one for the
shipping line and one for receiver/consignee of the goods.

Types of BOLs:
Inland BOL - An inland BOL, for example, is a document that establishes an agreement
between an exporter/shipper and a transportation company (such as a road hauler/trucking
company or railroad company like Spoornet in South Africa) for the transportation of goods
overland. Inland BOLs are used to specify the terms for transporting items from the exporters
premises to the exporter's international transportation company (usually a shipping line)
An ocean bill of lading is the traditional BOL used wihen shipping goods with shipping lines.
ocean (also referred to as a marine) BOL is a document that outlines the terms between an
exporter/shipper and the international ocean or marine carrier (i.e. shipping line) for the
shipment of goods to a foreign location overseas. The description of a BOL that was provided
earlier in this section pertains mainly to an ocean BOL.
A through BOL is a contract that covers the specific terms agreed to by an exporter/shipper
and carrier. This document covers the domestic and international transportation of export
merchandise. It provides the details of the agreed upon transportation between specific locations
(usually the exporters premises and the exporters customers premises in a foreign destination)
for a set monetary amount.
An air waybill is a BOL that establishes terms of flights for the transportation of goods both
domestically and internationally. This document also serves as a receipt for the exporter,
proving the carrier's acceptance of the exporters goods and agreement to carry those goods to a
specific airport.
Road consignment note
road consignment note (also referred to as a road transport document, a road waybill or a road
manifest) is a form of inland BOL used in South Africa, although, as road consignment notes
can cover cargo moving across borders, it is also a form of through BOL. As road haulage is
drive by a large number of private road haulers, you may come across many different types of
road consignment notes, although there is a tendency to follow the typical BOL used in the case
of ocean shipping (i.e. there is still a consignee, a shipper, a description of the goods, etc.). The
road consignment note is also:

Proof of receipt of the goods for trasnportation by road

Evidence of the contract of carriage

An invoice for the freight, reflecting the shipper, the consignee and the goods being
shipped, as well as the full freight amount

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A guide to the road hauler for the handling, dispatch and delivery of the consignment

A means of clearing the goods through customs

To clear the goods through customs, the road consignment note will need to be accompanied by
a commercial invoice, a packing list and any other documentation relevant for clearing purposes
(such as phytosanitary documents, etc.).
Export cargo shipping instruction

b)

The Export Cargo Shipping Instruction (ECSI)* is the written instruction from the exporter to
the freight forwarder or carrier (shipping line, airline, road hauler, etc.) for them to facilitate the
movement goods to the desired destination. It contains information on the goods and the route
to their destination, any transport requirements, customs information, who is to receive what
documents and how costs are to be allocated. It is extremely important that the information
provided in the ECSI is accurate. Most freight forwarders and transportation companies have
standard documents that exporters can complete. The document provided will capture all of the
necessary information to enable the freight forwarder or transport company to execute their
obligations.
2. Documents required for transportation

Bill of lading
Air waybill

Freight transit order

Road consignment note

Export cargo shipping instruction

3. Documents required for payment

Commercial invoice
Letter of credit

Transport documents

4. Insurance documents

Marine insurance

The marine insurance contract is a contract of indemnity. The insurer (the marine insurance
company), undertakes to indemnify the assured (the policy holder) against financial loss or
expenses incurred resulting from any of the risks and hazards which are defined in the policy
document. The insurer will define his liability in such a manner that he does not become
responsible for loss or damage resulting from any misconduct of the assured. The assured must
therefore take reasonable steps to protect the goods/cargo from any potential hazards by
ensuring that the cargo/goods are packed, labelled and stored correctly.

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The insurer will also limit his liability by excluding losses which arise inevitably from the
nature of the goods, such as evaporation or natural deterioration. The insurer therefore
indemnifies the assured against fortuitous loss (dropping, crushing, breaking, rusting etc of the
goods themselves), accidents and disasters, together with the loss of damage which may arise
from causes over which the assured can exercise no control, such as war, riots, strikes and civil
commotions.
Categories of risk to cover
There are several different categories of risk thatr you can consider cvovering. These are
1. Catastrophe risk - These relate to events which can occur to the carrying ship, aircraft or
other conveyance in which the goods are loaded, or to the location in which the goods
are temporarily housed in the normal course of transportation. These are:
Sinking, stranding, collision, or catching fire of the carrying ship

Overturning or collision of a carrying vehicle

Fire or flooding of a transit warehouse

2. Accidental or fortuitous risks - These are risks which are more commonly the cause of
claims and relate to events which affect the goods themselves rather than the
conveyance in which they move. These are the risks which account for the greater part
of the premium rate. These are:

Dropping

Crushing

Impacting

Twisting and bending

Breaking

Burning

Rusting

Contamination

Scuffing, scratching, bruising, denting etc.

3. Other risks - There are risks which are not accidental or fortuitous but are outside of the
control of the cargo owner and include:

Theft and pilferage

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Non-delivery

Losses due to piracy

Malicious damage

4. War and associated risks - These include war, strikes, civil commotion and terrorism and
we discuss them separately. Click here.
Certain types of goods are especially prone to damage from these risks and they may in respect
of such goods, involve a substantial portion of the premium rate. All these categories of risk are
taken into account when the insurer is calculating the rate for the premium. The insurance
company would be prepared to offer a reduction on the premium amount if the company in
question is moving large volumes of cargo globally. Under these circumstances the insurance
company would offer a discount for greater volumes moved.
Factors to consider in taking out marine cover
In taking out marine insurance, there are several factors that the assured must take into
consideration. These include:

The principle of 'utmost good faith'

The categories of risk to be insured

The principles of insurable interest and insurable value

Insuring against the risks of war, strikes, riots and civil commotion

The duration of an insurance policy

The principle of general average

Types of marine insurance cover

The premium

REGISTRATION WITH VARIOUS AGENCIES

Registration with Reserve Bank of India (RBI)
Prior to 1997, it was necessary for every first time exporter to obtain IEC number from Reserve
Bank of India (RBI) before engaging in any kind of export operations. But now this job is being
done by DGFT.
Registration with Director General of Foreign Trade (DGFT)
For every first time exporter, it is necessary to get registered with the DGFT (Director General
of Foreign Trade), Ministry of Commerce, Government of India.

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DGFT provide exporter a unique IEC Number. IEC Number is a ten digits code required for the
purpose of export as well as import. No exporter is allowed to export his good abroad without
IEC number.
However, if the goods are exported to Nepal, or to Myanmar through Indo-Myanmar boarder or
to China through Gunji, Namgaya, Shipkila or Nathula ports then it is not necessary to obtain
IEC number provided the CIF value of a single consignment does not exceed Indian amount of
Rs. 25, 000 /-.
Application for IEC number can be submitted to the nearest regional authority of DGFT.
Application form which is known as "Aayaat Niryaat Form - ANF2A" can also be submitted
online at the DGFT web-site: http://dgft.gov.in.
While submitting an application form for IEC number, an applicant is required to submit his
PAN account number. Only one IEC is issued against a single PAN number. Apart from PAN
number, an applicant is also required to submit his Current Bank Account number and Bankers
Certificate.
A amount of Rs 1000/- is required to submit with the application fee. This amount can be
submitted in the form of a Demand Draft or payment through EFT (Electronic Fund Transfer by
Nominated Bank by DGFT.
Registration with Export Promotion Council
Registered under the Indian Company Act, Export Promotion Councils or EPC is a non-profit
organisation for the promotion of various goods exported from India in international market.
EPC works in close association with the Ministry of Commerce and Industry, Government of
India and act as a platform for interaction between the exporting community and the
government.
So, it becomes important for an exporter to obtain a registration cum membership certificate
(RCMC) from the EPC. An application for registration should be accompanied by a self
certified copy of the IEC number. Membership fee should be paid in the form of cheque or draft
after ascertaining the amount from the concerned EPC.
The RCMC certificate is valid from 1st April of the licensing year in which it was issued and
shall be valid for five years ending 31st March of the licensing year, unless otherwise specified.
Registration with Commodity Boards
Commodity Board is registered agency designated by the Ministry of Commerce, Government
of India for purposes of export-promotion and has offices in India and abroad. At present, there
are five statutory Commodity Boards under the Department of Commerce. These Boards are
responsible for production, development and export of tea, coffee, rubber, spices and tobacco.
Registration with Income Tax Authorities

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Goods exported out of the country are eligible for exemption from both Value Added Tax and
Central Sales Tax. So, to get the benefit of tax exemption it is important for an exporter to get
registered with the Tax Authorities.
PROCESSING EXPORT ORDERS
Processing of an Export Order & Entering in to Export Contract
The immediate task of the exporter is to acknowledge the export order which is different from
its acceptance. Then he should proceed to examine the export order carefully in respect of
item, specification, pre-shipment inspection, payment conditions, special packaging labeling
and marketing requirements, shipping and delivery date, marine insurance, documentation,
arbitration, applicable laws and jurisdiction, etc.
The various aspects relating to processing of an export order as are discussed as under:
The exporter purchase order should be examined carefully and its contents scrutinized in terms
of the Performa invoice /contract sent to the foreign buyer , on the following aspects:
1. Item (product): The order has been received for the product for which
quotation/offer was sent and the exporter is still in the position to supply the
product.
2. Size and Specifications: should be same as per offer /quotation.
3. Pre-shipment inspection: should be either by exporter himself or any agency easily
available. If the buyer desires the inspection to be done by an agency/agent of his
choice ,financial and physical aspects of inspection should be examined and
communicated to the buyer. If compulsory pre-shipment inspection by Indian
Export Inspection Agency is required , the buyer should be informed about the
applicable scheme.
4. Payment Conditions: are same and stipulated. A confirmed sight and irrevocable
letter of credit (L/C) has been opened , where required.
5. Packaging , Labeling and Marking requirements : If any should be noted for
compliance. Particular attention should be paid to the individual packaging of
consumer goods required for direct sale to the consumers. In such a case labels,
price tags, poly pack/skin packing etc.. would be required and supply be assured.
6. Shipment and delivery date : It should be in conformity with the exporters plans
and whether:
a. Part shipment is allowed.
b. Trans shipment is permissible or not
c. Port of shipment/destination is same or changed.
7. Documents particularly those which are required with the bill of exchange. These
are :
i. Commercial invoice as usual or there is any specific notation required thereon.
ii. Certification by an authority on the commercial invoice. For instance , it may
require certification by Embassy Consulate of the foreign country.

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Giving customers what they need

The implementation of ISO-9000 Standards involves:

o
o

Management education
Writing quality policy

Nominating a quality representative

Identifying responsibilities

Identifying business processes

Writing a quality manual

Writing procedures

Writing work instructions

It is thus clear that the ISO-9000 series of standards constitute of concept of Total
Quality Management (TQM).
Labeling, Packaging, Packing and Marking Goods
An important stage after manufacturing of goods or their procurement is their preparation
for shipment. This involves labeling, packaging, packing and marking of export
consignments. Labeling requirements differ from country to country and the same should
be ascertained well in advance from the buyer. The label should indicate quality, quantity,
method of use etc. Special international care labels have been specified for the textile items
by GINITEX, and the same should be scrupulously adhered to. Packaging fulfills a vital
role in helping to get your export products to the market in top condition, as well as in
presenting your goods to the overseas buyer in an attractive way. While packaging, quality
should not be compromised merely to cut down costs, packaging should also be in
conformity with the instructions issued by the importer. Packing refers to the external
containers used for transportation . The shape of packing cases play a very important role
in packing the cargo, and the nature of packing material to be used will depend upon the
items exported As regard specification for the size, weight and strength care must be taken
to ensure that the weight of standard case does not exceed 50 Kg. for easy handling of the
cargo. Before packing and sealing the goods, it should be ensured that all the contents are
properly placed in the case and the list of contents of packing notes should be prepared so
that the buyer, the Customs authorities and the Insurance authorities can easily check the
contents of each and every case.
The consolidated statement of contents for a number of case is called the Packing List,
which should be prepared in the prescribed standardized format.
Marking means to mark the address, number of packages etc. on the packets. It is essential
for identification purpose and should provide information on exporters' mark, port of
destination, place of destination, order number and date, gross, net and tare weight and

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handling instructions. It should also be ensured that while putting marks, the law of buyer's
country is duly compiled with.
All shipping cases should be marked a number with special symbols selected by the
exporters or the importers, so that the competitors cannot find out the details of the
customers and the country of destination or supplier's country of dispatch. Care should also
be taken to ensure that the marking conforms to those written in the invoice, insurance
certificate, bill of lading and other documents. The International Cargo Handling Coordination, Association has set out for the use of exporters a number of recommendations
for the marking of goods carried by ocean-going vessels. They are equally useful for
sending goods by other modes of transportation.
CUSTOME CLEARANCE PROCEDURES FOR EXPORT CARGO:
Once the pre shipment inspection of the export consignment is over and packing has been
completed, the exporter should arrange for shipment of goods. At this stage, services of a
clearing and forwarding agents should be taken to ensure timely and smooth shipment of
goods. The various steps in involved in the process of custom clearance. These are as
follow:
1- Documents required for custom clearance:
*Commercial invoice - 2 copies
*Packing list - 2 copies
*Copy of L/C or contact
*ARE - 1 form - 3 copies
*Quality inspection certificate
*Annexure 'A' with deceleration
*Exchange control deceleration (SDF/GR)
*Custom copy of export authorization in case of restricted item

2- Submission of Documents to port trust authorities:

The documents are
* Port trust copy of shipping bill - 2 copies
* Export application (for payment of dock charges) - 2 copies
* Cart chit - 2 copies
This is necessary in case of export by sea only.
3- Payment of airport terminal storage and processing charges:
Exporter is required to pay the airport terminal storage and processing charges (TSP) to the

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airport authority.
4- Processing of documents:
The documents tendered are checked to as certain whether the same are in order and
whether that is consistent. The detail of goods, FOB value, duty drawback rate (whenever
applicable) and input output norms (whenever applicable) given on the shipping bill are
checked by the inspector and the superintendent of customs.
* After processing of the documents, shipped bill and SDF/GRI form (original copies) are
detached from the set of documents.
* At this stage export cargo is brought in accordance with carting order issued by the
airlines to allow entry of cargo in the warehouse
* After the goods have been received in the warehouse the same are specified to physical
examination. The superintendent of customs directs the inspector to physically inspect the
goods and record on the duplicate and triplicate copy of the shipping bill.
* The superintendent of custom will finalize the record and on the basis the cargo is cleared
for export
* The cargo is then shifted to the shed of airlines (in case of air shipment), in care of ICD
the cargo is shifted to the container for shipment to the port. The customer, shipping
company and railway authorities shall affix the seal on the container.
* After loading of cargo, bill of loading/ airway bill is issued by the shipping company/
airlines.
* Lastly, the exporter shall receive back export promotion copy of the shipping bill and
duplicate copy of SDF/GR form as well as other documents.

LIMITATIONS OF GLOBAL MARKETING:

Differences in consumer needs, wants, and usage patterns for products
Differences in consumer response to marketing mix elements

Differences in brand and product development and the competitive environment

Differences in the legal environment, some of which may conflict with those of the
home market

Differences in the institutions available, some of which may call for the creation of

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entirely new ones (e.g. infrastructure)

Differences in administrative procedures

Differences in product placement.

Differences in the administrative procedures and product placement can occur

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MULTIPLE CHOICE QUESTION:

1) If good are shipped under the agreement that the exporter is responsible for the costs
and risks of moving the goods up to the point of passing them over the ships rail, this is
termed _____.
a.Ex-works
b.Free on Board
c.Partial Delivery
d.Cost, Insurance freight
e.Caveat emptor
2) The period between departure and arrival of the carrier is called:
a. Transit time.
b. Shipping.
c. Volume radiation.
d. Present danger.
3) Mutually beneficial trade cannot occur
a. when each country has its own comparative advantage
b. if one country has absolute advantages in the production of every good
c. when the opportunity costs of producing each good are equal for both
trading partners
d. if total world production equals total world consumption
4) A tariff is:
a. a tax on imports only
b. a tax on exports only
c. a on either imports or exports
d. a luxury tax
5)
a.
b.
c.
d.

Which one of these is not a kind of bill of lading?

Clean bill of lading
Stale bill of lading
Claused bill of lading
Clear bill of lading

6) Which one of the following is not a party to Letter Of Credit:

a. The opener applicant.
b. The Negotiating Bank
c. The beneficiary
d. The inspection authority
7) Which one of the following is not a kind of letter of credit?

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a. Red Clause Credit

b. Issuance credit
c. Back to Back credit
d. Confirmed Credit
8) Which one of these authorities issues the letter of credit?
a. The negotiating bank
b. Confirming bank
c. The issuing bank
d. Paying bank
9) Selling commercial paper or bonds is a form of
a.
debt financing
b.
venture capital
c.equity financing
10) This kind of financial center collects funds from outside a region for that
region's internal use:
a.booking
b.
primary
c.funding
d.
collection
11) This is a fixed system of exchange rate:
a.par value
b.
wide band
c.crawling peg
d.
flexible

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QUESTION BANK:
Q1. Compare surface transport with air transport on the basis of cost elements. Under what
conditions air transport is preferred over surface transport?
Q2. Explain briefly the country-of-origin effect on the markets perception of the product.
Q3. What is a bill of lading? What purpose does it serve? Is it a negotiable instrument?
Q4. Line down the procedures for custom clearance for export cargo?
Q5. What are the limitations of Global Marketing? Explain them with examples.
Q6. What role does government play in export promotion?
Q7. Write in details the processing of an export order.
Q8. What do you mean by Export Contract? What are its different elements?
Q9. Define letter of credit. Why is it considered to be the safest method of settling
international transactions?
Q10.What are the different types of letter of credit? Explain them.
Q11.Write a short note on:
i)
Certificate of origin
ii)
Commercial Invoice
iii)
ISO 9000
iv)
Proforma Invoice
v)
Duty Drawback

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UNIT V
Global e-marketing: Communications, Targeting the individual customers, living in an age of
technical discontinuities, new technologies change the rules of competition, components of the
electronic value chain

INTRODUCTION
As this concept is latest in optimization techniques but its growing day by day by evolving new
search engine algorithms for successful optimization of various Internet marketing websites.
Our main rationale is to serve our clients who want success in global web marketing to stand in
the competitive market. We work up to your satisfaction level and provide our best customer
support.
Before you venture into the world of Internet Marketing spend some time to look over globalemarketing as we also offer valuable information on monitors, motherboard, processors,
operating systems, laptops and various computer parts . Enjoy our ultimate guide in computer

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market and get the performance reviews of internet marketing activities to maintain your
competitive advantage.
MEANING OF GLOBAL EMARKETING
Global-Emarketing is a website providing information on hardware and software
accessories and also how to market these via e marketing and E-Marketing Strategy
means follow marketing tactics by which global audience is to be attracted for increasing
sales . As it is obvious that of internet marketing has replaced the traditional ways of
doing businesses and makes the internet global village . The rapid growth of Internet has
increased the importance of global marketing in business's world . Our innovative
package of global market research products provide actionable insights to focus your
audience and power your e-marketing strategy.
Prior to apply e-business marketing create an optimized plan implemented by various
experts . Such type of plan includes effective marketing strategies help the companies
grow. Target the measurable aspects of the Internet after understanding clear business
objectives then you will be able to get greater exposure to your business and attracting
customers from all over the world . Our web marketing information helps to increase the
website traffic with an aid of search engine optimization services that automatically
promotes your website. Thus, consider a visit to global-emarketing for a fantastic suite of
e-marketing strategies.
Targeting the individual customers
To drive new revenues in todays competitive market, service providers are shifting their focus
from customer acquisition to monetization. Yet despite the vast amount of customer intelligence
available, marketers face the challenge of targeting the right product to the right customer to
capitalize on inbound customer-initiated interactions and maximize the effectiveness of outbound
marketing activities.
Targeting
One2One marketing solutions enable more precise, personalized targeting of offers to individual
subscriber. Leveraging rich customer profiles and predictive analytics, these solutions allow
service providers to intelligently promote more relevant products and services through any
customer touch-point including call center applications, IVR systems, retail stores, web portals
and online billing applications, mobile decks, storefronts, bill inserts, outbound email and direct
marketing systems.
One2One solutions are helping leading wireless and wireline service providers monetize their
customer-initiated interactions and increase the effectiveness of outbound marketing to
consumers and small and medium customers.
Consumer

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One2One marketing solutions allow service providers to maximize sales of existing products and
services among their existing consumer base. By leveraging in-depth customer profiling and
predictive analytics, Globys enables targeted selection and delivery of more relevant products
and services to individual customers through any touch point.
One2One targeting approach, subscriber-specific offers are optimized based on the customer
perspective as well as the service provider perspective. As a result, service providers are
achieving higher response rates leading to increased revenues and lower churn.
Business
One2One marketing solutions enable service providers to maximize the value of every
interaction with small and medium customers by powering the intelligence of cross-sell and upsell across marketing channels. By leveraging vast amounts of data to understand and target
individual customer needs, Globys data-driven, predictive analytics solutions enable more
precise, personalized targeting of offers based on what is preferred for the customer and service
provider.
The result service providers realize the benefits of higher response rates and increased sales as
well as a positive impact on customer satisfaction and loyalty.
MULTIPLE CHOICE QUESTIONS
1. The Internet provides a set of interconnected ________ for individuals and businesses to
complete transactions electronically:
a. Platforms
b. Networks
c. Web rings
d. Communication technologies
2. The combination of the Internet and Web technologies has given rise to a global platform
where firms across the world can compete for customers and gain access to new:
a. Competitors
b. Markets
c. Monies
d. Employees
3. Interactive communication via the Web enables firms to build ________ by providing
immediate communication and feedback to and from customers.
a. Customer loyalty
b. Profit
c. Databases
d. Firm image
4. Web-based technologies are _________, which means that disparate computing systems
can communicate with each other, provided that standard Web protocols have been
implemented.
a. Uni-platform
b. Cross-platform

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c. Multi-platform
d. Non-platform
5. _____ automate the business processes involved in selling or distributing products from a
single supplier to multiple buyers.
a. Distribution portals
b. Procurement portals
c. Enterprise portals
d. Resource portals
6. _______ are operated by third-party vendors, meaning that they are built and
maintained by a particular company.
a. Electronic exchanges
b. Trading exchanges
c. Multimedia marketplaces
d. Resource marketplaces
7. While an intranet looks and acts like a publicly accessible Web site, there are Firewalls
that secure proprietary information from the public.
a. Boundaries
b. Intranet walls
c. Firewalls
d. Telecommunication walls
8. Which network is a private network restricted to authorized employees?
a. Internet
b. Intranet
c. Extranet
d. E-net
9. In the term m-commerce, the "m" refers to:
a. Mobile
b. Multimedia
c. Mulit-type
d. Miscellaneous
10. __________ actively pushes information at the consumer whether it is wanted or not.
a. Pull marketing
b. Punch marketing
c. Distribution marketing
d. Push marketing
11. Organizations can use ___________ to facilitate team efforts.
a. Their intranet
b. IM chat
c. Videoconferencing
d. All of the above
12. An extranet allows two or more firms to use the ______ to conduct business together.
a. Web
b. Internet
c. Intranet
d. Telephone

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QUESTION BANK
Q1. What do you mean by Global E-Marketing? How it is useful in international market?
Q2. Give some example by targeting individual customer in international market?