Meaning and Definition of International
Marketing
International
Marketing can be defined as exchange of goods and services between different
national markets involving buyers and sellers.
According to the
American Marketing Association, “International Marketing is the multi-national
process of planning and executing the conception, prices, promotion and
distribution of ideal goods and services to create exchanges that satisfy the
individual and organizational objectives.”
According to Hesi and Cateora "International
Marketing is the performance of business activities that direct the flow of
goods and services to consumers or uses in more than one nation".
According to Walsh "International Marketing is
the marketing of goods and services across national frontiers".
The essential features of International
Marketing are as follows
1. It is a process: International Marketing is a lengthy process.
It involves in
entertaining and executing in international orders. For this purpose
it calls for process of production and distribution of goods and services. It
also involves other marketing functions like pricing, branding, warehousing,
advertising etc.
2. It is a lengthy and time
consuming process: International bus9ness calls for satisfaction of needs
and requirements of International buyers. The goods should be tailor made as
per their requirements, discovery of new markets, sales promotional activities,
suitable pricing policy packing and packaging as per product requirements is a
lengthy procedure.
3. Bulk Operations: International
business is quite risky, Unlike domestic because it flows across the national
boundaries, while domestic business can be carried on retail basis with lesser
risk International business is not so is carried on wholesale basis.
4. Dominance of
Multinational Corporations: International Marketing is dominated by multinational
Corporate. Earlier their presence was felt only in the pharmaceutical and medical
fields Today, they play a dominant role in international marketing. They have
wide contact through out the world through their network of branches/offices
etc.
5. Tariff and Non-tariff
Barriers: Each nation wants to protect itself from products imported from other
nations. For this purpose, various trade barriers (Tariff and Non-Tariff) are
imposed. Due to globalization, there is relaxation in the imposition of tariff
and Non-Tariff barriers.
6. Trading Blocs: Trading
Blocs are formed in several countries for mutual benefit and economic
development. The maintenance purpose of forming such blocs is to reduce or,
culminate trade barriers among member nations. Regional blocs like EU, SARRC,
ASEAN, NAFTA encourage free trade among member nations. Trade barriers are imposed
by all nations.
7. Foreign Exchange
Regulations: International Marketing is subject to Foreign Exchange
regulation imposed by countries. The regulations relate to payment and receipt
of export proceeds. Under our constitution, the export process (in respect of
consumer goods) should be realized within a period of 180 days from the day of
shipment of goods.
8. International Marketing
Research: International Marketing is involved in creating new markets and exploring
exports. Its purpose is to conduct research about competitors, customers
dealers etc. It should be noted that International Marketing research is quite
different from domestic research.
9. Research and
Development: In order to make product export worthy constant R & D in
the filed of product, ingredients used, much be taken.
10. Need for suitable
marketing mix: International Marketing calls for right marketing mix.
Marketing mix is a construction of 4 P’s-Product, price, place and promotions.
It involved exporting right products at the right price. It the right place with
right promotion.
Scope of International Marketing
International
Marketing constitutes the following areas of business: Exports and Imports:
International trade can be a good beginning to venture into international
marketing. By developing international markets for domestically produced goods
and services a company can reduce the risk of operating internationally, gain
adequate experience and then go on to set up manufacturing and marketing
facilities abroad.
1) Contractual
Agreements: Patent licensing, turn key operations, co – production, technical
and managerial know – how and licensing agreements are all a part of
international marketing. Licensing includes a number of contractual agreements
whereby intangible assets such as patents, trade secrets, know – how, trade
marks and brand names are made available to foreign firms in return for a fee.
2) Joint
Ventures: A form of collaborative association for a considerable period is
known as joint venture. A joint venture comes into existence when a foreign
investor acquires interest in a local company and vice versa or when overseas
and local firms jointly form a new firm. In countries where fully owned firms
are not allowed to operate, joint venture is the alternative.
3) Wholly
owned manufacturing: A company with long term interest in a foreign market may
establish fully owned manufacturing facilities. Factors like trade barriers,
cost differences, government policies etc. encourage the setting up of
production facilities in foreign markets. Manufacturing abroad provides the
firm with total control over quality and production.
4) Contract
manufacturing: When a firm enters into a contract with other firm in foreign
country to manufacture assembles the products and retains product marketing
with itself, it is known as contract manufacturing. Contract manufacturing has
important advantages such as low risk, low cost and easy exit.
5) Management
contracting: Under a management contract the supplier brings a package of
skills that will provide an integrated service to the client without incurring
the risk and benefit of ownership.
6) Third
country location: When there is no commercial transactions between two
countries due to various reasons, firm which wants to enter into the market of
another nation, will have to operate from a third country base. For instance,
Taiwan’s entry into china through bases in Hong Kong.
7) Mergers
and Acquisitions: Mergers and Acquisitions provide access to markets,
distribution network, new technology and patent rights. It also reduces the
level of competition for firms which either merge or acquires.
8)
Strategic alliances: A firm is able to improve the long term competitive
advantage by forming a strategic alliance with its competitors. The objective
of a strategic alliance is to leverage critical capabilities, increase the flow
of innovation and increase flexibility in responding to market and
technological changes. Strategic alliance differs according to purpose and
structure. On the basis of purpose, strategic alliance can be classified as
follows:
i.
Technology developed alliances like research consortia, simultaneous
engineering agreements, licensing or joint development agreements.
ii.
Marketing, sales and services alliances in which a company makes use of the
marketing infrastructure of another company in the foreign market for its products.
iii.
Multiple activity alliance involves the combining of two or more types of
alliances. For instance technology development and operations alliances are
generally multi- country alliances.
Components of international business environment
As a firm starts its business across its national boundaries, it
encounters two different sets of external environments:
a) Internal Environment: The
internal environment of a firm decides its competence to do business in foreign
countries. It is also called as the controllable component of international
business environment because the company can control it to a great extent. Some
of the components of internal environment are:
Mission: The firm’s mission decides the course of
action that a firm will follow in order to survive and grow. In the present
times, the firms develop a few core competences and develop their entire global
business plan on its basis. They do not dissipate their resources by venturing
into too many businesses, but concentrate on their core strengths and do not
mind outsourcing the rest.
Strategy: The mission translates into more operational paradigm
in the form of strategy, which operates at various levels. Firms often develop
core competences, but only a few are able to convert it into successful
business. The classical case of Cannon vs Xerox is an example. Both the
companies started by developing core competence in optical scanning, but over a
period of time, Xerox outsmarted the former by its superior strategy. Cannon,
at one time, had practically driven Xerox even out of its home country i.e. USA.
But, Xerox developed a very comprehensive marketing and customer service
strategy and regained its leadership in the photocopier industry.
Operations: The operations refer to the operating competence
of a company i.e., how well it is able to undertake the work at the ground
level. It is that paradigm of the strategy, which can be implemented. A firm’s
cost leadership, its marketing strategy, its production efficiency and the
nature of its human resources have a significant impact on the success of a
company. Although, the above components are called as the controllable components
of business environment, but in a strict sense, they might not remain
controllable at all times. The external uncontrollable components can become
too powerful and can even influence the strategy of a company. For example,
when Coke and Pepsi faced a problem because of the presence of pesticides,
their strategies had to be redrafted because of a sudden development in the external
environment.
b)
External Environment: The external environment, also called as
uncontrollable, has been divided into two components, namely foreign and
international. The foreign environment comprises of the environmental
conditions prevailing in the host country, while the international environment refers
to the overall international circumstances, which influence the conduct of
business. In practice, such a division is not followed strictly and the
external environment is studied as one component. Some of the sub-components of
the external environment are:
A. Economic environment
B. Political environment
C. Legal and regulatory environment
D. Cultural environment
E. Demographic environment
F. Technological environment
A. Economic environment: The economic environment is a major
determinant of market potential and opportunity. Since the single most
important indicator of market potential is income, the first step in
determining the potential of a country or a region is to identify the total,
and even more significantly, the per capita income. In general, as peoples’ income
rises, they spend less on the necessities and more on the discretionary
purchases. One of the ways of determining market potential for a product is to
evaluate product saturation levels. In general, it is appropriate to compare
the saturation levels of countries or of consumer segments with similar income
levels. Countries and markets go through typical stages of market development.
Although, development is on a continuum, it is possible to identify distinct
stages and formulate general estimates about the type of the market that will
be found in a country or a market at a particular stage of development. In
advanced countries, for example, more than half the GNP is accounted for by the
services as opposed to goods. In under-developed countries, the proportion of
services is very low. Some of the typical characteristics of economic
environment are:
Changes in world economy: Over the years, several changes have
taken place in the world economy, which have changed the very manner of doing
business. Keegan has identified the five most significant changes in the world
economy, which have occurred in the past decades, and will influence the
conduct of business. These changes are:
a) Capital movement rather than trade have become the driving
forces of world economy. The capital movement represents the attractiveness of
a country for investment.
b) Production has become uncoupled from employment. Although, the
Government of India claimed to have touched 8% growth in the GDP, the growth is
a jobless growth. The increase in productivity does not translate into more
jobs for the people.
c) Primary products have become uncoupled from the industrial
economy. In the industrial economy, focus is more on innovation and value
addition and not mere value addition.
d) The world economy is in control. The macro economics of
nation-states no longer control economic outcomes.
e) The 75-year contest between capitalism and socialism is over.
The clear success of the capitalist system over the communist centrally
controlled model has led to the collapse of communism as a model of
organization of economic activity and as an ideology. By the above remarks, it
is clear that the world economy is heading for a new world economic order.
Economic systems: Although, communism is said to have failed,
but a socialistic thought does influence the economic decision making. People
feel that the fruits of economic development must pass on the larger sections
of the society. Traditionally, the economic systems are classified as
capitalist and communist. However, in the present times, a new blend of the two
is emerging, as has been very successfully shown by China. German, the home of
Karl Marx does hold the socialist philosophy in high esteem and its ideology
can be seen in the regulatory framework of the country. Workers have a participation
in the decision making process of the companies.
Stages in market development: Due to unequitable distribution of the
wealth, the markets are different stages of development. There are a few (27)
countries in the high-income group, while a large number (55 each) lie in the
upper middle income group and the lower middle income group countries. There
are 42 countries, which have been classified as low-income countries. The extent
of economic disparities has increased with the globalisation of trade, as is
shown by various reports on human development, released by UNO.
Balance of payments: Several poor countries face the situation
of adverse balance of payments. In such a situation, the government discourages
import and encourages export. The balance of payment situation of a country is
an indicator of its economic health. If it is too adverse, there is a
likelihood of the default of payment by the host country and thus increasing
the business risk.
Foreign exchange problem: Some countries like India face a
unique problem of adverse foreign exchange rate situation, despite having a
favourable balance of payments. A strong rupee is discouraging exports and
encouraging imports. Similar situation is faced by many countries, which are
strongly tied up with the trade in US Dollar. Governments of these countries
intervene and regulate the exchange rates. Such unfavourable exchange rates can
influence the investment and marketing strategies of the multinational companies.
(B) Political environment: As a firm ventures abroad, it has to deal
with various countries, each having its own political set up. Some of the
components of the political environment are:
Types of political systems: By and large, the communist or the
socialist form of government is not working in many countries, but the impact of
socialism as a philosophy does persist. There are countries like Pakistan,
which follow dictatorship style of government, while most countries in Europe
and North America follow democracy. Even the democracy has various forms such
as the presidential form, as prevalent in USA, or the parliamentary form of
government, as in UK and India. Some countries in the Middle East have a
typical theist –political set-up, while others are secular countries.
Political instability: Despite diverse political systems, no system
is bad if it works in a stable manner. The biggest problem arises when there is
political instability.
Political risk: Although, often correlated, political instability and
political risk do not go together always. Business had a sense of security
while doing business in these countries. However, the war in Afghanistan and
Iraq has had a tremendous impact on the business. Not many companies are taking
the initiative of doing business in these countries. They prefer to wait till
normalcy returns. Political risk is more associated with the uncertainty and unpredictability
of the political parties in power in a country.
(C) Legal and regulatory
environment: The
marketers must carefully study the legal and regulatory system prevalent in the
countries to avoid the situations that might result in conflict,
misunderstanding or outright violation of the laws of the foreign country. Some
of the important aspects, worth consideration, in the legal and regulatory
environment are:
International Law: International law has existed since the sixteenth
century, although, it has undergone a change in the form over the years. The
international bodies such as UN, WTO and the regional groupings have been
instrumental in developing the international rules and regulations. These
international laws are ratified by the participating countries and are binding
in nature.
Conflict of laws: While doing business across nations, there can
arise situations when the laws of two or more countries can be conflicting. The
businessmen must study these laws and take measures to avoid being caught in
such a situation.
Freedom of contracts: In developed countries and those which have
a very sound legal system, the principles of contract are taken for granted and
are strictly enforced by law. However, in some countries, government interferes
with these principles and can cause a loss to the businessman. One should be
vigilant especially while participating in global tenders or the projects of
long gestation periods.
Patents and Trademarks: Another important issue for a multinational
corporation is the protection of its patents, trademarks and the intellectual
property. Most companies invest heavily in research and development. However,
unscrupulous manufacturers of some developing countries take the advantage of
the difference in the patent laws and manufacture a duplicate of the product, causing
a heavy loss to the original manufacturer. The companies, which has invested
heavily in R&D must analyse these situations and take protective measures.
The issue has been addressed by WTO, which has instituted TRIPS (Trade Related
Intellectual Property Rights) mechanism to avoid loss to the original manufacturers.
Conflict resolution: It is very difficult to achieve an ideal situation
when there is no conflict between the trading partners. Conflicts do happen,
but there has to be a sound system of resolution of the conflicts. There are
sets of principles laid down for international arbitration. The businessmen
must be aware of these and carefully analyse the devotion of the partners
towards implementing them. Besides arbitration, there are alternative
mechanisms of dispute resolution developed by international bodies.
Tariff mechanism: The tariff and taxation structure of
the foreign countries must be clear to the business to avoid complications at a
later stage. Although, the tariff structures are being standardized across
nations, still there exist differences and these must be carefully studied.
Equity control: Different countries have different laws regarding
equity participation of the foreign partner. Some might allow 100% FDI in some
sectors, while there might be limits on investment. Some countries make the
participation of a domestic partner obligatory. Such different situations must
be carefully studied before taking any investment decision.
Documentation and formalities: While most countries are dismantling
the tariff barriers, they are yet to make the procedures more easy and user
friendly.
(D) Cultural environment: Culture is
the set of shared values of a society. It encompasses religion,
language, customs, traditions and beliefs, tastes and preferences,
social stratification, social institutions, buying and consumption
habits etc. It has several interfaces where it influences the business.
Some of the important interfaces where culture affects business are:
Culture and organizational behaviour: In their book on international
management, Hodgetts and Luthans have identified the following points
where culture affects organizational behaviour:
(i) Centralized vs decentralized decision-making: In some societies,
all-important organizational decisions are made by the top management,
while in others, the decisions are diffused throughout the organization.
(ii) Safety vs risk: The decision-makers in some organizations
are averse to risk, while some take risk and thus make higher gains. The
risk bearing behaviour of groups is also a cultural phenomenon. This
influences investment decisions at the organizational levels and at the
micro level of the consumers, it has its impact on the buying habits.
People who take risk buy new and innovative products, while others
prefer to stick to tested products.
(iii) Individual vs group reward: In some societies, such as the
Japanese, the group reward is valued more than the individual reward,
which is the order in he American firms.
(iv) High vs low organizational loyalty: Extrapolating the above
point, the societies with strong inter-personal ties have a high degree
of organizational loyalty, while those who value individual achievements
have low organizational loyalty.
Culture and perception: Culture has a great bearing on how people
view themselves and their surroundings, which influences their
behaviour. From the perspective of business, the manner in which the
people view the following are important:
(i) Views of themselves: People lay varying degree of importance
on self-gratification. For example, in the earlier times, people had a
high degree of propensity to show off their splendour. Their consumption
and spending behaviour was towards extravaganza. Nowdays, people are
hard pressed with resources and are driven by value while purchasing.
Business needs to study the general trend of buying and take appropriate
decisions.
(ii) Views of others: A trend from ‘me society’ to ‘we society’
is being shown by the people at large. People feel the pain of others and
offer a helping hand to them. The exploitative authoritative manner of
business cannot be successful in today’s paradigm.
(iii) Views of organizations: Under the pressure of performance
and incentive, people as well as organizations have undergone a deep
change in their relationship. Employment is no longer for the whole
lifetime and the organization is no longer perceived as the bread-giver.
Such a shift in the relationship has its impact on the management of
human resources in organizations.
Subculture: Within the culture, there exist several
subcultures, which exhibit a similar influence on the business. A subculture
is a variant of the culture. While it shares values and beliefs with the
culture, it does modify it according to the specific requirements of the
group. For example, although people all over India share common values,
celebrate common festivals and profess similar religious beliefs, there
are several variations at local levels.
Culture and business: The culture can have a profound impact
on business. The following examples will make this more clear:
(i) Language: Words acquire different meaning when spoken
in different languages. So, the marketers have to understand the
language of the host country and speak in the words understood by the
people there. An offensive marketing campaign can ruin the prospects of
selling even the best products. Proper understanding of language can
contribute heavily towards the success of any communication and
negotiation of business.
(ii) Customs and rituals: The knowledge of customs, rituals, festivals
etc. is important because people exhibit typical spending behaviour at
different times.
(iii) Mannerism and ettiquates: The manners and etiquettes vary
with culture and their knowledge is important while negotiating any deal with
the customers.
(iv) Time perspective: People have varying perceptions on time.
Some culture are very punctual and work fast and adhere to schedule, while
others work with leisure. The time perspective of the target country must be
understood and the strategy designed accordingly.
(v) Decision-making: Culture has a profound impact on the decision-making
behaviour of the people. While working in the countries where decision making
is slow, one must not push for decision and vice versa.
(E) Demographic environment: Management gurus have stated this long ago
that ‘management is men, while marketing is people.’ All business activities
ultimately revolve around the people. People are the cause of any business. So,
any changes in their population has an impact on the business. Some of the
important ways in which demographic environment influences business can be
stated as under:
Population size: The very size of a population determines the size
of the possible business. It represents the potential to which the market can
expand.
Age distribution: In India, we are witnessing an increase in the
population in the age group of 15-40 years, i.e., the productive people. This
means that the economic prosperity of people is likely to increase in the times
to come. On the other hand, we find an increasing population of old people in
countries like Japan. This is because of very low birth rates and high life
expectancy. This can influence the spending habits and business potential
significantly.
Migration: The migration of people from villages to cities and from
the country to other countries in search of job has a high influence on the
business potential. People increase their economic prosperity by movement and
thus the business potential grows.
Education and occupation: There is a trend towards higher education
and preference for white collar jobs over the blue collar jobs. This also has a
tremendous impact on the spending habits of the business.
(F) Technological
environment: Probably,
technology is the single most important factor, which has influences the
business. Particularly the advances made in the field of information technology
have revolutionized the manner in which business is conducted. The people of
today are much more informed and have the entire information available to them,
at the click of a mouse. The business firms have to make use of the opportunity
and use technology to its advantages.