Saturday, May 05, 2018

International Marketing: Nature, Scope and Elements


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.

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