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CHAPTER-1
THEORETICAL BACKGROUND
I. INTRODUCTION TO GLOBAL MARKETING
Mr. Jack Welch, the CEO of GE told in 1994 that “Globalisation must be taken
for granted. There will be only one standard for corporate success, international market
share. The Winning Corporations will win by finding markets all over the world”. Since
this statement is made, we have seen in the last few years the impact of globalisation
through global marketing. The impact is maximum visible in automotive sector,
consumer electronics, consumer goods and IT sector.
The developed countries like USA, Canada, USSR, UK, France, Italy, have been
practicing the global marketing since 1960. They had the advantage of better
infrastructure, technology and skilled manpower. It was easy for them to sell their
produce and supplies produce to developing and poorer countries, most of them being in
Asian and African continents. The prolonged British rule on poorer countries was helping
UK to do export to these countries more easily. However since 1975 few countries like
Japan, South Korea, Taiwan, India and China started developing at a faster rate to catch
up with developed nations. Of these Japan and South Korea are already considered on par
with developed countries. India is racing ahead in IT sector mainly due to English
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knowing technical manpower. Thus global marketing has spread to all the countries
though the developed countries continue to have a larger share of the global market.
In global marketing the organisation engages its resources on global market
opportunities and threats. Some organizations indulge only in global marketing (fully
export oriented).
Some do both domestic and global marketing to be in league with global
marketing organizations.
Reasons for Global Marketing
The main reasons for global marketing are
1) Expansion
2) Market share increase
3) Presence of product in all regions
4) Innovation
1.
Expansion:
It is an activity considered very normal exercise for a growing
organisation. This leads to opportunities for market presence in more areas, increased
sales and profits and growth for human resources in addition to creation of employment
opportunities. Expansion of an organisation is a symbol of financial stability and market
acceptability for the product. The companies that do not grow are considered to be
stagnant or non-progressive. Unilever has expanded its activities in various centers thus
making it a global company.
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2. Market share increase: In order to increase the market share it becomes necessary
to probe new areas. This leads to trying new areas inside the country and trying outside
the country. Thus creating a need for global marketing. However an organisation should
know that global marketing involves an understanding of specific concepts,
considerations and strategies that may be skillfully applied in conjunction with universal
marketing fundamentals to ensure success in global markets. Coca-cola and Pepsi are
constantly making various promotional activities to increase the market share.
(a) Pull factor - These are factors of attraction, which pull the business to the foreign
markets. In other words companies are motivated to go global because of the
attractiveness of foreign market. The attractiveness has greater business
opportunities, profits and growth prospects.
(b) Push factor - This refers to compulsions of the domestic market like saturation
of the market, which leads to try abroad. These are all reactive reasons and some
of the reasons are as follows:
Profit Motive - By international business activity the organisation is able to take
best of advantages situations of different countries. For example cheap labour in India,
Advanced machinery of Germany and quality concepts of Japan, can be adapted at
reduced cost, get better quality for more profits. Outsourcing of components can be done
based on cost advantages and hence global outsourcing is beneficial. This is the reason
why the trade groups are formed in American, European and Asian continents to simplify
the import-export trade.
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Foreign investment is flowing to countries like China and India merely to take
advantage of the low cost of production due to cheap labour. While in some cases, the
whole manufacturing of Product may be carried out in foreign locations, in some cases
only certain stages of it are done abroad. Foreign branches of American companies
manufacture almost 20 % of the merchandise imported into the USA. Several American
companies ship parts and components to overseas locations where the labour intensive
assembly operations are carried out and then the product is brought back home.
Growth Opportunities
The liberalization, Privatisation process in various developing countries has
opened a vast untapped market for MNC’s. The fast growth of economy in China and
India has opened the floodgates for global marketing to leading organisations of the
developed countries.
Domestic Market Saturation
In developed countries the population is less and the growth of population is very
slow. Hence the sales of products do not increase in the domestic market. This is more
apparent for consumer durables and capital items. When the domestic market is fully
tapped, it becomes necessary for producers to tap overseas market.
Whenever there was recession in the domestic market, HMT Limited Bangalore
was forced to aggressively try and work for export of machinery. Similarly during the
automobile industry recession in early 1990’s, the auto component manufacturer’s
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explored and developed components for Overseas Clients. Thus by necessity or planned
way the look out for global market is also dependent on domestic market conditions.
Competition
Competition is one of the driving force for global marketing. A protected market
does not normally motivate companies to seek business outside the home country. Until
July 1991 the Indian market was highly protected by government regulations. Indian
economy was protected from foreign competition and domestic competition was also
restricted due to entry barriers due to Industrial licensing and MRTP act. As a result,
Indian Producer’s did very little in export initiatives and growth of export in
non-traditional items. The scene has now changed and liberalisation effect has intensified
the competition.
_
One of the offensive international competitive strategies is to indulge in ‘CounterCompetition’. This strategy is to penetrate the home market of the potential foreign
competitor so as to diminish its competitive strengths and to protect the domestic market
share from foreign penetration. From USA, the IBM Company made an entry to establish
a position of strength in the Japanese Mainframe computer industry before two key
competitors, Hitachi and Fujitsu could gain dominance. Holding about 25 % of the
market, IBM denied its Japanese competitors vital cash flow and production experience
needed to invade the US market. They lacked sufficient resources to develop the
distribution and software capabilities essential to succeed in USA. Similarly Texas
Instruments established semiconductor production facilities in Japan to prevent Japanese
manufacturers from their own markets.
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Government Regulations
Government polices and regulations can have either favourable or unfavourable
effects in global marketing. Some of the examples are as follows:
a) Some governments provides incentives and tax concessions to encourage exports
and to invest in foreign countries. Imports are liberalised for machineries, which
will be used for export activities.
b) In some countries export earnings are insisted upon to get permission for imports
c) The environmental laws dictate companies to go outside the country to set up
their workshops.
With liberalisation process in many countries since 1990, the situation has
changed and now the competitive edge takes care of the marketing and market share.
3. Presence of product: This refers to presence in all the regions and is taken better
care by expansion and market share increase activities. The company is well known as
global company when its products are sold in many countries. In order to achieve this the
companies even resort to sell its products at cost price or sometime even at losses to make
their presence felt. MNC companies Unilever, Coco cola, Pepsi have various pricing and
packaging strategies to make their presence felt in all the regions.
4. Innovation: It is one of the big plus point in sale of products in general and in global
marketing in particular. Creativity, additional features, cost reduction and innovation
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play a major role in capturing the market share.
Laptop is innovation on personal
computers. Colour TV is innovation on black and white TV. Ironing of clothes got
innovatively change by using iron boxes from coal based to electricity based and then
steam based. Thus innovation and creativity leads to consumer interest and buying
motive. It is scientist and technocrats who contributes more towards innovation. This is
the reason why developed countries like USA, UK, France, Italy, Germany and Japan are
taking more and more advantage of innovation.
The innovation is revolutionary in electronic field thus making global marketing
easy on account of fast improved communication systems like internet, e-mail,
teleconferencing, LCD, laptop, fax, wireless telephones, mobiles, LAN, MAN and WAN
etc. In fact all the communication methods themselves are recently innovated and very
widely used by one and all.
Strategic Concept of Marketing
Around 1960 the focus of marketing shifted from product to the 4 P’s namely,
product, price, place and promotion.
For about three decades the concept was well
accepted. However, since 1990, one more factor called the Probe, which is research on
internal and external environment, is adopted. Now the focus on customer is to suit the
customer in an environment.
Knowing about product and customer is not enough.
Marketers must know the customer in the context including the competition, government
policy and regulations and the broader economic, social and political forces that shape the
evolution of markets. In global marketing context this shall mean working closely with
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home country government trade negotiations and other officials and industry competitors
to gain access to a target country market.
A revolutionary change in marketing strategy is from profits to stakeholder’s
benefits.
The main stakeholders are employees, directors, shareholders, customers,
vendors, the society and the government. Marketing must focus on the customer in this
context and deliver value by creating stakeholder benefits for both customers and
employees. Profit continues to be a critical objective and a major of marketing success,
but it is not an end in itself.
The aim of marketing is to create value for stakeholders and the key stakeholder is
the customer. If our customer can get greater value from the competitor (who accepts
lower profit levels) the customer will chose the competitor and our firm will loose
business.
Meaning of Global Marketing
Global Marketing is international marketing. It covers marketing at home country
as well as marketing in more than one outside country referred as host countries. It can
be defined as follows:
a) “The marketing of goods and services across national frontiers”.
b) “The marketing operations of an organisation that sells and / or produces within a
given country when i) that organisation is part of or associated with an enterprise which also
operates in other countries and
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ii) there is some degree of influence or control of the organisations marketing
activities from outside the country in which it sells and / or produces”.
c) “Global Marketing is an attitude of mind, the approach of a company with a truly
global outlook, seeking its profit impartially around the world, including home
market in a planned and systematic basis”.
d) “Global Marketing is marketing in a highly competitive environment cutting
across national barriers”.
All the MNC’s are doing global marketing and have hence carved their names in
fortune 500 companies of the globe. Some of the prominent names are Unilever, P&G,
Colgate Palmolive, Toyota, BMW, Coca-cola, Pepsi, and Marlborough etc.
There are few companies, which can be treated as global companies due to their
competitive strengths with MNC’s.
For example: NIRMA is able to give tough
competition to Unilever’s Surf washing power by virtue of cost reduction of Nirma
power. It can be branded as global marketing company for its competitive strengths.
Coco-cola is good example of marketing who adopted different promotional
strategies to suit the local tastes and likes. They have adopted ‘think globally and act
locally’ strategy in their promotion. This means distribution, packaging and approach has
to be localised using local people to do this work. The promotion activity should be with
in the framework of socio-cultural values of locals. They achieve this global-localisation
in their marketing strategies.
The Coco-cola products are non-essential commodities. However, they are doing
the work of replacing water, which is an essential intake for all human beings. In spite of
this, in USA these soft drinks have replaced water consumption upto the extent of 20%.
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In developing countries and poor countries soft drinks are consumed as special drinks in
various functions and parties.
Global marketing does not mean entering all most all the countries for marketing.
It only means widening the business horizons to encompass other countries by scanning
opportunities and threats. The decision to enter markets outside the home country is
based on company’s resources, management vision, nature of opportunities and threats.
Coco-cola is a classic example as it covers 200 countries and in addition to the flagship
brand of Coco-cola it produces another 200 non-alcoholic beverages to suit local tastes
and preferences. This enables them to have a strong global presence. Other companies
which have made strong global presence are Philip Morris, Marlboro Cigarettes, Daimler
Chrysler with Mercedes’ Car, McDonald restaurants, Cisco systems and IBM in IT
sector, Gillette (Razors) Unilever in FMCG area and so on. Different companies have
used different strategies and these are jotted down in table 1.1:
From data of Table 1.1 following observations can be made :
1) Brand name sales have an impressive symbol and slogan (punch line). The punch
line is adopted as per the language of the countries wherever the product is
marketed.
2) McDonald’s has designed a restaurant system that can be set up virtually
anywhere in the world.
3) Unilever uses teddy bear in various world markets to communicate the benefits of
the company’s fabric softener.
Harley-Davidson’s motorcycles are positioned
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around the world as the all-American bike.
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Global Marketing Strategy
Company and home country
1. Coco-cola (USA),
Philip
Morris
(USA), Brand Name
Daimler Chrysler (Germany).
2. McDonald
(USA),
Toyota (Japan),
Ford Product Design
(USA), Cisco Systems (USA).
3. Unilever (UK,
Holland), Harley-Davidson Product Positioning
(USA).
4. Gillette (USA).
Packaging
5. Benetton (Italy)
Distribution
6. Caterpillar (USA)
Customer Service
7. Toyota (Japan), Honda (Japan), Gap (USA).
Sourcing
Table LI: Global Marketing Strategies of some MNC’s
Source: Survey Data
4) Gillette uses the same packings for its flagship sensor razor everywhere in the
world.
5) Italy’s Benetton utilizes a sophisticated distribution system to quickly deliver the
latest fashions to its worldwide network of stores.
6) Caterpillar’s network of dealers enables ‘24 hours parts and service’ anywhere in
the world.
7) Gap relies on low wage countries for supply of clothes and dresses and sells in
USA. Similarly Honda and Toyota heavily rely on sourcing components from
other countries.
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International Orientations
An organisations response to global marketing opportunities depends upon its
assumptions on environment of international business.
These assumptions are
categorised as (a) Ethnocentric orientation, (b) Polycentric orientation, (c) Regiocentric
orientation and (d) Geocentric orientation. The gist of these orientations is explained in
Fig. 1.1.
Ethnocentric
•
Polycentric
Home country
is
superior,
sees
•
similarities in foreign countries.
•
differences in foreign countries
Home country orientation.
•
Sees similarities and differences in a
•
World view, sees similarities and
world region, is ethnocentric or
differences
polycentric in its view of the rest of
countries.
the world.
•
Host country orientation.
Geocentric
Regiocentric
•
Each host country is unique; sees
•
in
home
and
host
World orientation.
Regional orientation
Fig. 1.1: Orientation of Organisational Thinking
a) Ethnocentric Orientation : In ethnocentric company the management gives more
importance to domestic marketing and lesser importance to overseas operations. The
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company views domestic techniques and personnel as superior compared to the outside
world. Plans for overseas market are developed in the home office utilising policies and
procedures identical to those employed in the domestic market. An export department
most commonly administers overseas marketing and this department consists of home
country nationals. This increases dependence on export agents. There will be tendency
to push the goods to overseas markets without any modification. Hence ethnocentric
orientation suits better to the smaller companies who mainly do domestic marketing and
very little international marketing. Though this reduces the risk factor the company will
not be enable to increase the global marketing with this kind of marketing strategy.
b) Polycentric orientation: In polycentric orientation the top management recognises
the need to adopt to the environmental factors of various countries where marketing is
targeted. Each country is considered as segment and marketing is done in a planned way
taking care of local laws, socio-cultural values and systems. This means there will be
decentralisation of global strategies and the respective region managers will be close to
the customers, market and adjust well to the overall environment. In short the marketing
strategies are adopted to suit the conditions of the host countries.
c) Regiocentric orientation:
the company management views different regions as
different markets. A particular region with common marketing characteristics is regarded
as single market, disregarding national boundaries.
Regional headquarter decides
marketing policies in consultation with the organisations head office. The formation of
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NAFTA, EU, SARC are based on regiocentric orientation.
The management views
region as unique and seeks to develop an integrated regional strategy.
d) Geocentric orientation: In geocentric approach the company views the entire world
as a single market and develops standardised marketing mix, presenting an uniform
image of the company and its product for the global market.
Both regiocentric and geocentric orientation takes care of global marketing. Only
the slight difference is approach in terms of regions and the world.
This leads to
developing standard policies throughout a given market segment. In terms of cost of
marketing regiocentric is economical compared to geocentric. The geocentric position is
considered more advantages for production, research and development and for marketing.
This is due to notional differences in laws and currencies.
We can conclude that the desirability of particular international orientation E.P.R.
or G. - depends on several factors such as the size of the firm, the experience gained in a
given market, the size of the potential market and the type of the product and its cultural
dependency.
Stages of Internationalisation
There are very few companies, which are doing global marketing right from the
inception stage. Very few companies get started as 100% EOU (Export Oriented Units)
and take up international marketing right from the beginning. Majority of the companies
pass through various stages before internationalisation. Initially they start with a low
degree of export activities and gradually develop a global outlook and embark upon
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overseas business in a big way. The important stages in evolution of internationalisation
are as follows:
1) Domestic Company: Orientation of a domestic company is essentially enthocentric.
When a domestic company reaches its growth limit in its primary market, diversifies into
new markets, products and technologies instead of venturing into the international
marketing. However, competition, domestic market constraints, foreign market prospect
can make the company reorient its strategies to probe foreign market potential. This will
mean it will be moving to the next stage in the market evolution.
In a small way a domestic company may send its produce to foreign country by
exports, licensing and franchising. This may in few cases lead to more serious efforts in
export business and lead to next stage of development.
2) International Company: This is second stage of a company towards becoming a
global corporation. The orientation of the company is ethnocentric. The company has
well established in domestic market and then doing overseas marketing as well. A group
for which office is opened in the country where marketing is established separately
handles the international marketing.
3)
Multinational Company:
When the management thinking is shifted from
ethnocentric to polycentric orientation the international company becomes multinational.
This means when a company starts to recognise market differences it evolves into stage
three ‘multinational’ and adopts multi-domestic strategy. The marketing strategy is to
adapt to the environment of the foreign segment. Each foreign subsidiary is managed as
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if it were an independent city-state. Usually the marketing offices in various countries
report to the headquarters, which is situated in country of origin.
4) Global Company: Global status is stage four or last stage in evolution of global
operations. Some experts call this stage as transnational company. There is very little
differences between these two phrases. In global companies all strategies pertaining to
product development, production, sourcing, and marketing will be global. The company
will take best advantage of cost factors, quality aspects, technology and marketing
strategies to have a competitive edge in global marketing scenario.
Forces affecting global marketing
Favourable Forces
Unfavourable Forces
Market potential
Government Regulations
Excess Nationalism
Technology
Cost advantages
>
Global
Marketing
Liberalised market
Management Myopia
Peace in the region
Domestic focus
Management vision
High costs due to taxes
Regional Economic
Organisation history
Poor infrastructure
Growth
Fig. 1.2: Forces affecting global marketing
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Favorable Forces (Driving Forces):
The global marketing needs the support of updated technology, cost reduction
measures, quality improvement, better communication and transports, opportunities in
terms of economic growth and favorable socio-political environment.
i) Market Potential: Market potential is based on population in case of FMCG and
consumer goods. For industrial products it depends qn pace of industrial growth. For
agricultural input marketing quantum depends upon the large area to be farmed. From all
these factors countries like China, India, Brazil, Indonesia, etc., are considered very big
potential markets.
For certain commodities market is created by repeated promotional activities. For
example soft drinks are not required as water is good enough. However, Coca-cola and
Pepsi have innovated the world market and in some advanced countries its consumption
exceeds that of drinking water.
This is due to innovative marketing strategies and
repeated promotional activities.
Market potential is normally assessed by market survey. MNCs use specific
market survey before launching any product. Such a survey gives them a fair assessment
of the potential market and accordingly they will give a start.
This helps to avoid
inventory and marketing problems at a later stage.
ii) Technology: In global marketing whenever technology is referred it will be about
latest technology. This is an universal subject and should be made available to all the
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countries. New innovations like satellite dishes, internet, e-mail, FMS, CAD, CAM,
Robotics are all latest technologies the usage of which has improved speed and efficiency
of the organisational working. The initial investment to adopt latest technology may be
high but later on the investment proves worthy due to high volume and high quality
production at lesser cost and time. Only those organisations, which are fast to adopt
technological changes and those who invest in R&D, innovations will do very well in
global level competitions.
iii) Regional Groups: Regional economic agreements between few countries simplifies
the procedures and reduces the barriers thus helping organisations involved in global
business. The successful examples of NAFTA, EU, SAARC explain that economic
agreements help to improve international marketing. In 1994 WTO was formed (from
GATT) and this has 120 countries membership in the world and this organisation aims to
promote and protect free trade amongst its members throughout the world. Though there
is equal opportunity for all the member countries here again the developed countries are
dominating and have a large share in global marketing.
iv) Quality:
Product design and manufacturing quality plays a vital role in global
marketing. Organisations should spend upto 5% of the sales revenue in R&D activities
for continuous improvement process in design, quality and reliability.
MNCs like
Toyota, Hitachi, BMW have achieved a quality standard which have become a bench
mark to others. Global competition essentially has quality aspect as prime mover. This
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calls for implementation of TQM at the organisational level. The quality aspect will be
enduring with consistency in quality.
v) Transportation and Communication:
Both transportation and communications
have time and cost factors attached to them. In recent two decades these two have
immensely improved.
The air services have increased to all destinations and the
privatisation of air services has made it very competitively priced and hence customer is
at advantage. Communication systems are vastly improved due to wireless telephones,
mobiles, e-mail, video conferencing, tele-conferencing, fax and internet usage for various
information. Developments in electronic gadgets have helped to have clear and hastle
free communications.
The global marketing has become now easier than ever due to high technology
backed communication and transportation systems.
vi) Cost Advantages: Globalisation enables to tap various countries to get components,
assemblies, services at lower cost compared to home country. Outsourcing has become
more common due to various regional trade agreements and the WTO agreement. MNC
organisations have been taking maximum advantage of outsourcing to sell their products
in highly competitive global market.
The new product development cost and time factors are reduced drastically due to
due of outside technology, cheap labour and materials. Even in service sectors like IT
and Call centres outsourcing of jobs to developing countries has given tremendous cost
advantages to the MNCs.
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vii) Economic Growth: The economic growth of a country augurs well for entry of
foreign companies. The economic growth is possible by industrial sector, agro sector and
service sector.
A good monsoon and harvest of agro produce boosts the national
economy and also purchasing power of the rural population. In highly populace countries
like China and India 70% of the people live in rural sectors. Hence improvement in
agricultural output creases a favourable atmosphere for MNCs to sell their goods.
Economic growth always leads to plenty of opportunities to all types of business for
domestic and global marketers.
Various countries have adopted liberalisation and privatisation process to develop
their economy.
This trend has help to open up the market for MNCs and private
entrepreneurs to develop marketing activities. In the bargain customers is gaining in
terms of quality, variety and reasonable pricing.
Global Company Advantages
Global companies have specific advantages like experience, scale of economies,
resource utilization, and global strategy. These leverages put them ahead of others in
competitive global market.
1) Experience:
The existing global companies can ulitise or transfer their
experience in management practices, strategies, products, advertising appeals, and
promotional ideas. Since these practices are tested in existing market the same
can be tried in new markets. The experienced executives and specialists can be
relocated to take better care of the new areas to be probed in global marketing.
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1
The experience of the executives enables them to suitably adapt to changing
trends in market.
2) Production Volume: Global companies can take advantage of scale economies
by manufacturing larger volume from a single factory. They can also outsource
components from different countries and reduce their cost of manufacturing.
Japanese electronic industry took maximum advantage of outsourcing for
components from Hong kong, Singapore, South Korea and Taiwan. This enables
them to take better care of costs and quality, thus making them world leaders in
consumer electronic goods.
The scale economy and outsourcing enables to keep minimum manpower and per
man output will be very high in terms of quantity and value.
By keeping
minimum staff and controlling from Head Office the global companies can have
maximum effectiveness and output from their employees.
3) Resource Utilisation:
Global Company is in a better position to mobilise
executives, raw materials, components and funds that will enable it to compete
most effectively in world markets. Moreover an established company by virtue of
its reputation can issue shares at global level to collect funds required for
expansion and development activities. It will be in a position to attract best
talents in their field of activity. Hence the global companies are in a better
position to exploit the human and material resources around the globe.
4) Global Strategy:
Global strategy is built by scanning the global business
environment. This is done based on SWOT analysis. Whenever opportunities are
identified the global company uses its scale economies, experiences and resource
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mobilization. Added to this disciplined work culture, creativity and consistency
of efforts will give rewards in a new market. A global company is in a position to
withstand poor sales or slow start in the initial stages. They have the advantage
that rewards are for growth where as for smaller companies rewards are for
sustenance.
Unfavourable Forces (Restraining Forces)
The global marketing is not free of constraints. However, the driving forces
predominate the restraining forces and hence the global marketing is growing. The
commonly observed restraining forces are: (1) Management Myopia and organisation
culture, (2) government controls and (3) Environmental disturbances.
1) Management Myopia: Top management in ethnocentric oriented organisations are
content with domestic market. Even if they come across global opportunities they tend to
take it lightly. There will also be failures if management at head office does not listen to
feed back of sales forces and start dictating the branches of their own assumptions. Lack
of interactions lead to poor management information systems and a kind of stagnation
and routine working pattern prevails.
The focus on customer looses its shine, as
management does not listen to feed back of the marketing force.
The executives of successful global companies integrate global vision and
perspective with local market initiative and input. There has to be mutual respect and
recognition of views expressed at head quarters and local level field officers.
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2) Government Controls: Due to liberalisation process all over the world the controls
and barriers are removed or being removed phase wise. However some countries have
their own socio-cultural values and rules.
For example in Indian advertising values
alcohols, cigarettes and gutka advertising is banned. Also women cannot be shown in a
derogative way in any type of advertisements. These restrictions work as barriers to
companies to utilize their advertising policies and use the available audio-visual aids.
Similar rules prevail in Islamic countries, which are very rigid on provocative
advertisements. This will mean the global companies have to adopt totally different
strategies in some countries for their promotional activities.
3) Environmental Disturbances: The working conditions in various countries are not
always peaceful. The organisations suffer due to various environmental problems. Some
of the common happenings are man made problems. These are wars, battles, riots,
terrorism, general strikes, and hesitations on cast, religion and groupism basis, sabotage
and political instabilities. Few countries like Israel, Palestine, Iran, Iraq, Afghanistan
etc., are always having some or the other problem and are not growing well as their losses
exceed their gains.
In addition to man-made problems at times natural calamities affect the
organizational working.
These are earthquakes, volcano, landslide, sea floods, river
floods, draught and fire. These are beyond control of the people and only efforts can be
made to minimise the losses.
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Some of the disturbances are readable and some are not. Accordingly precautions
and care can be taken for damage control. The global companies must keep a watch on
environmental problems so that they can take better care of themselves.
II. MULTI-NATIONAL CORPORATIONS (MNCs)
MNCs are a major driving force for globalisation occupying central place in
international trade. The globalisation process in various countries, especially in erstwhile
communist countries has enormous expanded the opportunities for the evolution and
growth of MNCs. Their share and importance is significant in investments, production,
trade and employment.
The emergence of MNCs started being felt after the Second World War and USA
was host country for emerging MNCs. Later on European countries, Japan and Korea too
have MNCs with global reputation. Other countries like China, India, Brazil, Mexico,
Indonesia etc., are in the league of MNC hosting countries since 1990.
There are no single universally agreeable definitions of MNCs. It can be defined
by various criteria’s as follows:
•
The ratio of foreign sales to total sales.
•
The ratio of foreign assets to total assets.
•
Proportion of overseas subsidiaries to total subsidiaries.
•
Top manager’s international experience.
•
Serious involvement of top management in international operations.
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A simple definition is “The essential nature of the MNCs lies in the fact that its
managerial headquarter is located in one country (home country) which the company
carries out operations in a number of other countries (host countries) as well”. This
means company controls the production and operations in more than one country and
such facilities are acquired through the process of FDI. The firms that participate in
international business, however large they may be solely try exploiting or by licensing
technology or not multinational companies.
Hence an MNC consists of following
benchmarks:
•
It undertakes production in home country and host countries.
•
Operates in certain minimum number of nations (say more than 3)
•
Generate minimum percentage of income from overseas operations (say 25%)
•
Amongst employees it should be a mix of home and host country people.
•
Management should have geocentric orientation.
Importance of MNCs
In last 10 to 15 years the MNCs has grown very fast due to liberalisation process
in various countries. The awesome economic strength of the MNCs can be understood
by the fact that GDP of many countries is smaller than the annual sales turnover of MNC
giants. Only developing counties like China, India, Mexico, Brazil, Argentina, Indonesia
and Republic of Korea have higher GDP than any giant MNC. All other smaller and
poor countries GDP is lesser than sales turnover of MNC giants. It is amusing to know
that the total sales turnover of three largest automobile firms (GM, Ford and Toyota) far
exceeds India’s GDP.
30
MNCs have raised the hopes for employment and high salaries for executive
positions. The growth of employment opportunities is about 10% per annum and all the
developing countries are benefited by this growth rate.
Countries like China, India, Mexico, Brazil, and Indonesia largely depend upon
the MNCs for their export earnings.
Worldwide the international trade has been
increasing steadily due to expansion of MNCs.
Other than trade the activities like
granting of loan, licensing of technology and provision of services contributes to
economic growth and overall quality upliftment.
Some of the commonly observed
benefits of MNCs are as follows:
•
The investment levels are increased and this helps rise in income and employment
levels of host country.
•
The technology transfer is smooth and fast.
This has immensely helped
developing countries.
•
There is evolution of professional management in many developing countries.
•
The development has enabled the developing counties to have a favourable
situation in their import export trade.
•
MNCs have been able to exploit the natural resources in a more economical way
due to usage of high technology.
•
R&D culture is growing. MNCs have been able to revive domestic companies by
using them as subcontractors.
•
The competitive spirit is increasing. The customer is gaining more value for
money in terms of quality, variety and choice.
31
Though the benefits outweigh the drawbacks, some of the drawbacks of MNCs are
as under:
•
The home country employment is diverted to host countries abroad.
•
Some of the MNCs do not care for environmental problems as much as they are
expected to do.
•
MNCs are not bound to follow national priorities of host countries. They only
look for profit maximisation.
•
There is scope for large MNCs to create monopoly and eliminate competition
from domestic companies.
•
In poorer countries MNCs are able to create political ups and downs.
•
They are accused of changing the traditional cultures and tastes of host countries.
Future Scope of MNCs
•
There is clear emphasis of growing privatisation is developing countries.
•
The whole world is getting used to changing technologies and MNCs are helping
to transfer high technology even in poor countries.
•
MNCs have narrowed down the distances by developing infrastructure and
improving efficiency and productivity.
•
The number of MNCs is increasing and existing MNCs have been growing.
•
The regional trade groups have become meaningful and stronger due to the
contribution of MNCs.
•
Due to all-round and fast economic growth the governments are supportive of
MNCs and large size projects are entrusted to them.
32
Code of Conduct for MNCs
United Nations Economic and Social Council has drafted a code of conduct for
MNCs. The salient features are as follows:
•
Respect the national sovereignty of the host countries and observe their domestic
laws, regulations and administrative practices.
•
Adhere to host nations economic goals, development objectives and socio-cultural
values.
•
Respect human rights.
•
No interference in political affairs of host country.
•
Do not indulge in any corrupt or unfair practices.
•
Take care of consumer interest, environmental protection.
•
Follow the taxation rules and disclose financial statements to host country
government and public.
•
Contribute to science and technology growth of host country.
•
Consult with employee representatives regarding major changes in operations,
avoid unfair discrimination in employment and provide good work environment.
Above factors could not be enacted as a law in UNO as developed countries
representatives wanted these to code of conduct to continue as guidelines.
33
MNCs in India
Most of the MNCs in India had originally entered the Indian market during the
colonial era. They grew fast with state patronage. During the post independence era, the
actual number of MNCs; who entered was small. The entry was generally made through
collaboration with Indian big business. For instance, Bajaj Tempo and Telco joined
hands with Daimler Benz of West Germany; Cynamid, Ciba and Ciba-Geigy jointly
established new undertakings with Lalbhai House; Birlas became the spokesmen of
Kaisers and Ford. Sarabhai Murguppa Chettair, Naidu, Thapars, Kirloskars and other
houses also joined to promote large private sector companies in collaboration with
MNCs.
At the end of 1990, there were 469 foreign companies in India. In addition, there
are many Indian companies with foreign equity participation. Several Indian outfits of
MNC’s like Pond’s Johnson and Johnson, Lipton, Brooke bond, Colgate-Palmolive etc.,
are in low technology consumer goods sector. Hindustan Lever, while popular in lowtech consumer sector, has diversified into a high technology and export oriented sectors.
Ponds have diversified into thermometers and leather upon mushrooms entirely for
exports (Ponds, Brooke Bond, Lipton and HLL come under the multinational umbrella of
Unilever). ITC (Indian Tobacco Company formerly Imperial Tobacco Company) has
diversified into areas like hotel, paperboards and edible oils.
There are several MNCs; in the pharmaceutical industry, like Galxo, Bayer,
Sandoz and Hoechist MNCs like Marubeni and Nissholwan confine to foreign trade.
34
Top 500 MNCs operating in India and their country of origin
Country
No. of MNCs
Country
No. of MNCs
USA
157
Netherlands
7
Japan
119
India
6
UK
43
Finland
6
Germany
33
Belgium
4
France
32
South Africa
4
Sweden
14
Spain
4
South Korea
13
Norway
3
Switzerland
10
Turkey
3
Australia
9
Mexico
2
Canada
9
Britain/Netherlands
2
Italy
7
Others
13
Total
500
Source: Survey Data
Table 1.2: Top 500 MNCs
Role of MNCs in India
There is no distinction between an MNC and a domestic company in India. The
policy regarding MNC is the same as the Foreign Private Capital in India. Large and
dominant MNCs along with Indian companies are covered under MRTP Act. MNCs are
specifically covered under Foreign Exchange Management Act (FEMA).
Now, specific business related aspects of MNCs in India could be covered as
under:
1) Profit Maximisation : Most of the private companies including MNCs have profit
maximisation as the most important objective. However, MNCs are expected to operate
fairly and behave like a Corporate Citizen.
Few MNCs have found to under value
exports to save taxes payable to Indian Government.
35
2) International Network of Marketing: India expects the MNCs to increase their
exports and earn foreign exchange for India. But most of the MNCs transfer the Foreign
exchange to its parent country, just in the name of imports from their home country.
3) Diversification Policy: India expects the MNCs to diversify their activities into the
untapped areas and the priority areas like core industry and infrastructure industry. But
majority of the MNCs diversify into the more profitable areas.
For example, ITC
ventured into hotel industry.
Most of the MNCs entered Indian consumer market like HLL due to the high
profitability rather than capital goods markets, which is less profitable.
4) Location of Central Offices: MNCs diversify their activities to various countries
having their central control offices which provide them maximum global advantage.
Unilever, though a company bom in Holland, took up British for operations in erstwhile
British Colonies.
5) Techniques to achieve Public Acceptability: MNCs adopt a number of techniques
to get the acceptability of the people of the country wherever they operate. For example,
HLL and Colgate-Palmolive use Hindu sentiments in their advertisements. Colgate uses
Cow and Calf in their advertisement to attract large scale Hindu population. Thus most
of the MNCs tries to project themselves as if they have completely adjusted with Indian
culture and economic policies.
36
6) Modern Technology: In order to get maximum profits in their business MNCs have
developed modem and sophisticated technology to produce high quality and high volume
production at lower cost. They bring this technology to developing countries rather than
transferring the technology to Indian businessmen. This forces India to depend on MNCs
for latest technologies.
7) Business, But No Social Concern: MNCs have chosen and located their business
according to demand and profit maximisation. They grave the more profitable business
and less profitable business is left to the locals. They also have not taken any projects of
infrastructure, which is the need in developing countries.
8)
Exploitation of Resources:
The MNCs have been exploiting Indian natural
resources and human resources based on the supply and demand of market.
Their
transferring the proceeds of the sales to their home countries depriving the export income
which is due to India.
9)
Cultural Erosion:
MNCs business activities are many in areas like cigarettes,
alcoholic liquors and soft drinks like Coca cola and Pepsi. This is changing the eating
and drinking habits of Indians, thus creating cultural erosion.
10) Environmental Pollution: It is observed that MNCs do not follow, in India the
same strict rules for environmental and pollution control as they do in their home
countries. Bhopal gas tragedy of Union Carbide is a classis example.
37
Considering all favourable and unfavourable aspects of MNCs it can be
concluded that they have contributed for growth of Indian Industry. Indian employees
and public have the access to the latest technology, machinery and communication
systems. Millions of Indian engineers have been getting lucrative jobs due to MNCs.
III. GLOBAL MARKETING AND RESEARCH
Both in domestic and global marketing reliable and sufficient information is
essential for decision making. Collection of data, processing and analysis of all types of
information from all variables helps in proper decision-making. Some of the factors
where information is important are as follows:
i) Market selection related information: At global level market selection has a
relevance to international environmental factors etc. A countries political,
economic and currency stability, government policies and regulations are the
areas about which information is required.
ii) Product related information: This includes consumer tastes and preferences
about the product like unit size / quantity, shape, colour, product form, packaging
etc. Frequencies and rates of consumptions, purpose of use, regulatory aspects
and so on.
iii) Price related information: Price related information includes prevailing price
ranges, price trends, margins, pricing practices, price elasticity of demand, ole of
price as a strategic marketing variable and government policies, regulations etc.
38
iv) Promotion related information: Data on aspects like media availability and
effectiveness, government regulations, customs/practices of promotion in the
market concerned, competitors attitude etc are required.
v) Distributed Related Information:
Factors like channel alternatives and
characteristics, relative effectiveness of different channels, customs and practices
of the trade, power and influence of channel members are the areas for which
information is required.
vi) Competitive Related Information: A company will also need information about
the competitive environment including the extent of competition, major
competitors, relative strengths and weaknesses of competitors, strategies and
behaviour of competitors etc.
International Marketing Research
International marketing intelligence involves the creation of an information
system, which should be a part of the company overall information system for
international business. Viewed from this perspective international marketing intelligence
includes several different tasks, one of which is marketing research on individual foreign
markets. Marketing research is a systematic gathering, recording and analysing of data
about problems relating to the marketing of goods and services.
The sources of
information are internal sources and external sources. Internal sources include sales and
cost records, accumulated knowledge of the company personnel and any other data
available with the company. The external sources include information collected from
both primary and secondary data. The marketing research may be conducted by the
39
company itself or it may be entrust with to an external agency like consultancy
organisation, advertising agency or management institute.
Objectives of Marketing Research
Marketing Research is very essential to keep pace with the changing environment
characterised by such factors as:
(a) Increasing competition; (b) fast technological
developments; (c) changing consumer attitudes; (d) changing tastes and requirements.
The basic utility of marketing research is that if helps the company to identify the
problem areas and environmental opportunities and helps to monitor the environment.
One may list several benefits of marketing research, but all these converge to what has
been stated above. We may say that marketing research helps to :
1. Identify the deficiencies, if any, of the,
(a) Products;
(b) Pricing;
(c) Distribution; and
(d) Promotion.
2. Identify existing and emerging marketing opportunities.
3. Identify the relative weaknesses and strengths of the company.
4. Monitor the environmental changes.
All these will obviously help the company to take appropriate measures to
improve and consolidate its position.
Needless to say, marketing research provides
certain vital inputs needed for forward planning.
40
Limitations of Marketing Research
1. Research findings are not always entirely dependable.
The performances of
many products have been in contradiction to the research indications.
2. It is often very expensive and time-consuming process.
3. In underdeveloped countries, marketing research has its own limitations arising
from non-availability of adequate and reliable data, problems in collecting data
(including the problems caused by social attitudes, deficiencies of research
agencies and in-house research facilities) and so on.
4. The research methodology suitable for one market may not be suitable for
another market.
5. The cultural differences make foreign market research a difficult task.
Scope of Marketing Research
The scope of marketing research is indeed very wide. The broad areas of research
are given below. Under each of these areas, there are a number of specific areas of
research.
1. Product research
2. Pricing research
3. Distribution research
4. Promotion research
5. Consumer research
6. Marketing environment research
7. Market trend research
41
8. Marketing efficiency research.
IV. MARKET SELECTION
There are hundreds of countries wherein global marketing can be tried. However,
it will be very difficult for a company to operate in various countries. There are barriers
for entry in some markets, some are profitable and some are not worth the trouble. Some
countries may be very risky due to political un-stability etc.
Moreover company
resources may not permit to operate in many countries at a time. The MNCs, which are
know operating in many countries have achieved this in a phased manner. Hence a
company, which wants to enter many outside markets, must do so systematically. For
this developing organizational strength and resources is a pre-requisite. All this factors
highlight the need for market selection. Even the companies with ambiguous plan for
global expansion have got to rank the markets on priority for their expansion plans.
Market selection is based on evaluation of different markets with reference to
certain well-defined criteria as well as company resources and objectives. In view of this
market research is essential to obtain data for evaluation. From the data a profile of
selected markets can be made for further evaluation.
Market Selection Process
The first step in any decision-making is to determine the objectives.
The
objective may be growth, domestic market constraints, competition, government policies,
monopoly power or strategic vision. Different markets will have different degrees of
attractiveness from the point of view of various objectives.
42
Hence, we have to
concentrate more on the main objective of the global marketing. The market selection
process in brief can be given as in figure 1.
Determine
international
marketing
objectives
Determine
parameters
for market
selection
Preliminary
screening
Detailed
investigation
and short
listing
Evaluation
and selection
->
Fig. 1.3: Market Selection Process
For proper evaluation and selection of the markets it is essential to lay down the
parameters and criteria for evaluation.
The important parameters normally used for
market selection are explained under the heading of evaluation matrix.
Preliminary Screening
The parameters for screening may vary from product to product.
However,
parameters like the size of the population, per-capita income, structure of the economy,
infrastructural factors and political conditions are commonly used. This information will
help to eliminate certain countries in preliminary stage itself. For example, if rural areas
lack electricity supply there is no use in trying to sell agricultural pump sets. Similarly, if
per-capital income and GNP of a country is very low, there is no point in trying to push
costly and high value consumer goods. Thus the eliminating unworkable markets it is
possible to satisfy the company’s criteria for market selection and short-list the market.
43
Determinants of Market Selection
Two important considerations for market selection are company related factors
and market related factors.
1)
Company Related Factors:
The company related factors can be discussed in
different situations as follows:
a) A company whose export object is to sell small quantity (surplus) will select a
foreign market suited only for this purpose.
b) Another company having same products want to sell large quantity may choose a
strategy of selecting more than one market and do heavy promotional activities.
c) A third company, which also makes the same product, may have additional
products to sell in various markets. In this case the company would look for total
exports rather than concentrating more sale of a particular product.
In additional to above factors company need to mobilise technological, financial
and human resources to take care of exports. The top managements involvement and
business contacts will help for right market selection decisions.
2) Market Related Factors: The market related factors can be broadly grouped as
general factors and specific factors. These are explained in brief as under:
44
General Factors:
i)
Economic Factors: Include factors like economic stability, GDP growth trends,
income distribution, per capita income, sectorial distribution of GDP and trends,
nature of and trends in foreign trade and BOP, indebtedness, etc.
ii)
Economic Policy:
Includes industrial policy, foreign investment policy,
commercial policy, monetary policy, fiscal policy and other economic policies.
iii)
Business Regulations:
Regulations of business like industrial licensing,
restrictions on growth, takeovers, mergers etc; restrictions on foreign
remittances, repatriations etc; tax laws; import restrictions and local content
stipulations; export obligations and son on.
iv)
Currency Stability'. Stability of the national currency is another very important
consideration in the market selection.
v)
Political Factors'. Character of the political system including the nature and
behaviour of the ruling party/parties and opposition party/parties, the
government system etc, and political stability are among the most important
determinants of market selection.
vi)
Ethnic Factors:
Ethnic factors like ethnic characteristics, including ethnic
differences, and their implications for the business, ethnic harmony etc., should
also be analysed.
vii) Infrastructure: Infrastructural facilities seriously affect business. For example,
power shortage could cause considerable production losses. Shipping another
communication bottlenecks could cause lot of delays and loss of business, in
addition to high costs.
45
viii) Bureaucracy and Procedures'. The nature and behaviour of the bureaucracy
and the procedural system or styles are also important factors to be considered.
ix)
Market Hub: Some of the prominent places have become market hubs due to
their location advantages and facilities. Singapore is a hub of activity for Indian
companies as well as companies from Japan, Korea, Malaysia and China.
Similarly Johannesburg in African Continent, Dubai is prominent market hub in
gulf countries.
Specific Factors:
Besides the general factors, there are a number of factors specific to the industry,
which needs to be analysed for evaluating the market. Important specific factors are:
i)
Trends in domestic production and consumption and estimates for the future of
the product(s) concerned.
ii)
Trends in imports and exports and estimates for the future.
iii)
Nature of competition.
iv)
Government policy and regulations pertaining to the industry.
v)
Infrastructure relevant to the industry.
vi)
Supply conditions of raw materials and other inputs.
vii) Trade practices and customs.
viii) Cultural factors and consumer characteristics.
46
Weightage Country A
RS WS
Factor
Attributes
Country B
RS
WS
Country C
RS
WS
General
Political stability
10
10
100
7
70
10
100
Economic stability
8
10
80
7
56
8
64
Currency strength and stability
8
9
72
7
56
8
64
Government policy
8
8
64
8
64
8
64
Infrastructure facilities
8
9
72
6
48
7
56
10
8
80
5
50
6
60
Tax incentives
5
7
35
6
30
7
35
Ethnic factors
4
7
28
4
16
7
28
Bureaucracy and procedure
7
8
56
6
42
6
42
Ability to serve as marketing hub
Sum of weighted scores
587
513
432
Specific
Competition
8
4
32
7
56
8
64
10
10
100
6
60
8
80
Labour costs
7
7
49
8
56
7
49
Labour productivity
7
6
42
6
42
8
56
Infrastructure
8
8
64
6
48
8
64
Government policy and regulation
8
9
72
7
56
8
64
Incentives
5
6
30
5
25
6
30
Demand
Sum of weighed scores
389
343
4070
Grand Total
976
775
920
1
3
2
Ranking countries
RS = Raw Score
Source: Survey Data
WS = Weightage Score (weightage factors x RS)
Table 1.3 : Evaluation Matrix
47
Evaluation Matrix
An evaluation matrix is often used for ranking the markets with reference to their
attractiveness for the company.
The evaluation matrix will include the relevant general and specific factors.
These factors will be expressed in such specific terms so that they lend themselves for
clear measurement and evaluation. A hypothetical case is explained in Table 1.3.
From the evaluation matrix in table 1.3 we are able to rank the countries 1,2,3 and
we naturally selecting the one, which is having the rank 1. Since this is done based on
systematic manner with relevant factors the success chances are very high.
Market Profile
After selecting the markets a market profile to be prepared to formulate
appropriate marketing strategies.
The profile should cover two aspects: (a) general
aspects and (b) market profile of a product.
The general aspects cover about characteristics of a nation like the demographic
characteristics, economic characteristics, political situation, economic policies and
business regulations and nature of foreign trade etc.
The market product of a profile requires detailed account of market
characteristics. These help formulating the marketing strategy. The strategy consists of
appropriate product strategy, pricing strategy, distribution strategy and promotion
strategy. The market profile of a product should contain the following:
48
1. Trends in the domestic production, demand, imports and exports and the forecasts
of the same for the future.
2. Competitive characteristics - the competitors, their competitive strategies and
strengths and weakness of the competitors.
3. Market segment characteristics - the number of segments and their size, die
success factors in each segment, determinants of demand in each segment,
competitive characteristics of each segment, growth potentials of the segments
etc.
4. Customer characteristics including tastes and preferences, attitudes, buying habits,
usage characteristics, etc.
5. Channel characteristics including trade practices.
6. Promotion characteristics.
7. Factors relevant to pricing, laws related to product, price, promotion, distribution,
import etc.
Market Segment Selection
After the market selection there is a need to take a decision above selecting when
are more segments of the foreign market. The selection of segment also depends on
factors like resources of the firm, product mix, marketing characteristics etc. The product
related factors are innovative or repetitive product. Segment selection also depends on
number of competitors and strength and weakness of the competitors. Other factors are
size of the segment and growth prospects.
49
A company with innovative product and marketing strength may choose a
lucrative segment and be prepared to face competition.
Where as a company with
repetitive or ordinary product may not able to withstand competition. Such companies
may look out for niches for an entry into the market. A market niche is a segment of the
market, which is ignored by the major players and there is a need to fill the gap. Since
there is no competition with major players chances of success are bright. After this
success the company may move to other segments. Several new and small companies
adopt this strategy.
V. MARKET ENTRY STRATEGIES
Taking the decision about entering the foreign market is one of the most
important strategy decisions in international business. A company may do complete
manufacturing domestically and export to the foreign market. On the other hand it may
do both manufacturing and marketing in the foreign country itself.
There may be
different alternatives between these two extremes and choice of most suitable alternatives
is based on the relevant factors related to the company in foreign market.
The government policies with respect to foreign companies differ from country to
country such as: (a) Prefer only joint ventures, (b) Prefer investment in the areas of
import substitution and (c) Want investment in selected areas only. Considering all these
aspects foreign entry strategic decision has to be taken.
50
The important foreign market entry strategies are the following:
a) Licensing / franchising
b) Exporting
c) Contract manufacturing
d) Management contract
e) Fully owned manufacturing facilities
f) Assembly operations
g) Joint venturing
h) Third country location
i) Mergers and acquisitions
j) Strategic alliance
k) Countertrade
a) Licensing and Franchising
In international licensing a firm of one country (the licensor) permits a firm in
another country (the licensee) to use its intellectual property. The usage factors could be
patents, trademarks, copyrights, technology, technical know-how, marketing skill or any
other specific skill. The consideration is monitory benefit to the licensor in the form of
royalty or fees, which the licensee pays. Some governments have made regulation to
keep 5% as the maximum limit for royalty.
51
In certain cases there could be cross
licensing, which involves mutual exchange of technology or patents with or without
monitory considerations.
Franchising is a form of licensing in which a parent company (franchiser) grants
another company (franchisee) the right to do business in a prescribed manner. The nature
of right could be selling the franchisers product, using its name, production and
marketing techniques, or general business approach. One of the methods of franchising
these two provide an important component or ingredient.
For example, Coca cola
company supplies only the syrup for the bottling units.
Some other examples of
franchising are manufacturer-retailer systems like in the case of automobile manufacturer
and dealer.
Now a days there is growing trend in trade mark licensing. The names or logos of
leading organisations are used for advertising through the uniforms and dresses of sports
personalities, movie stars and in the places of events and congregations.
Many foreign MNCs have entered in India in both industrial and consumer goods
by licensing methods. The IFB washing machine is manufactured in India under license
from Bosch of Germany. Since India has reserved Electrical fittings for SSI units, the
U.S. Multinational General Electric has given license to a small-scale unit in India to
exploit Indian market. Similarly Nike International Ltd., has given license to an Indian
manufacturer to use their logo on 5% loyalty.
Advantages of Licensing and Franchising
•
The method is easy since it requires neither capital investment nor knowledge and
marketing strength in foreign markets.
52
•
The royalty earning is in recognition of innovation, knowledge and brand name
popularity.
•
Licensing will help to avoid post country rules, regulations and socio-cultural
values.
•
Both the licensor and the licensee share the risk factor.
•
Licensing is also used by many MNCs to transfer their old design and products to
the developing countries.
•
Some MNCs are using this method to avoid very strict environmental and
pollution rules of their own country.
•
This as the twin advantage of proven product of the licensor and ready market and
marketing team of the licensee.
•
The investment requirement for both licensor and licensee is very minimum.
Though there are more advantages compared to risk factors some of the risks are
as follows:
•
It is quite possible that the licensee will develop his own product with
improvements on the licensors product and discontinue the agreement.
•
After some experience the licensee may grow big with range of products and
become a potential competitor to the licensor.
•
As it happened with Japanese manufactures in automobile industries, a licensee
may come out with improved products thus outstanding the licensor.
53
b) Exporting
Exporting is one of the very old and traditional method of entering foreign
market. Exporting is considered suitable form of global marketing when one or more of
the following conditions prevail:
1. The volume of foreign business is not large enough to justify production in the
foreign market.
2. Cost of production in the foreign market is high.
3. The foreign market is characterised by production bottlenecks like infrastructural
problems, problems with materials supplies etc.
4. There are political or other risks of investment in the foreign country.
5. The company has no permanent interest in the foreign market concerned or that
there is no guarantee of the market available for a long period.
6. The foreign country concerned does not favour foreign investment.
7. Licensing or contract manufacturing is not a better alternative.
Exporting is attractive than modes particularly when underutilized capacity exists.
Even when they’re in no excess capacity, expansion of the existing facility may
sometimes be easier and less costly than setting up production facilities abroad. Further,
many governments, as in India, provide incentives for establishing facilities for export
production. Exporting is the first stage in the evolution of international business.
Although exporting may be one of the preferred global marketing strategy
sometime there are constraints of discriminating policies of some governments. The
rules and regulations of various governments are subject to changes based on political
environmental changes.
+
54
It is found that the developing countries are in a better position to export due to
lower wages in production activities. Hence, many MNCs of advanced countries utilise
Asian countries as production basis to sell the products in their own countries.
c) Contract Manufacturing
This process is comparable to subcontracting work handled within the country.
Under contract manufacturing the company doing global marketing arranges a contract
with firms in foreign countries for assembling/manufacturing a product and retaining the
marketing responsibilities with themselves. MNCs like Park Davis, Hindustan Lever use
India as a base for contract manufacturing.
The main advantages of contract
manufacturing are as follows:
1. The company does not have to provide resources for setting up production
facilities.
2. Since marketing responsibility is held by the MNCs the financial transactions are
safe within it.
3. It is in a position to exploit various under utilised capacities in foreign countries
and have advantage of uninterrupted supplies.
4. It has the cost advantage in manufacturing since contract is given to firms of those
countries where labour cost is very low.
5. There is scope to increase the quantity of contract work in stages in tune with the
market pickup.
Some of the disadvantages of contract manufacturing are as follows:
55
1. It may not be always possible to keep track of the quality standards and
consistency of quality, reliability.
2. Contract manufacturing also has the risk of developing potential competitors.
3. This method may not be suitable in case of very high technology products and
wherever technology secrecy is to be maintained.
d) Management Contract
Management contracting is a low risk method of getting into a foreign market and
it starts yielding income right from the beginning. The arrangement is more attractive if
the contracting firm is given an option to purchase some shares in the managed company.
The management contract essentially covers use of management skills, marketing skills,
branding, packaging and exporting.
The clients have the advantage of getting
organisational skills and expertise readily available from the contractors since they do not
have well trained manpower. Some of the Indian company like Tata Tea and Harrisons
Malayalam has contracts to manage a number of plantations in India and Sri Lanka.
Turnkey Contracts
Turnkey operation is an agreement by the seller to supply a buyer with a facility
fully equipped and ready to be operated by the buyer’s personnel, who will be trained by
the seller. Some of the large projects like Iron and Steel plants, oil refineries, mineral
processing plants, cement plants, fertilizer plants, air ports and other construction projects
are given to one or more subcontractors in part or full on a turnkey basis. This covers full
responsibility of arranging plant, machinery and workshop sheds in the project site. In
56
addition to this erection, commissioning, trial runs and training of personnel is part of the
turnkey contract. Many of these turnkey projects are owned by government, large size
public sectors and international level businessmen.
By arranging turnkey contracts through global tenders an organisational will get
benefit of world class technology and quality and since experts in the line will be
handling the project the problems will be solved by them.
By allotting different
specialised areas to different contractors the speed and efficiency of the project can be
taken care.
e) Fully Owned Manufacturing Facilities
After developing a substantial market in a foreign country it is considered
economical and convenient to start production unit there itself. As Drucker points out, “it
is simply not possible to maintain substantial market standing in an important area unless
one has a physical presence as a producer.”
Establishment of manufacturing facilities abroad has several advantages.
It
provides the company with complete control over production and quality. This also
avoids the problem of developing a possible competitor if they were to do manufacturing
by licensing arrangement. In some cases it helps to avoid trade barriers and government
policies, which would have been discouraging to export from home country.
Some of the possible disadvantages are: (a) Environmental problems like strikes,
hesitations and natural calamities, (b) Quality variations due to unskilled labour and (c) It
may be difficult to do outsourcing due to poor industrial development in the area.
57
Fully owned manufacturing facilities to be operated in foreign countries is
convenient and suitable to MNCs who have sufficient financial and managerial resources.
This comes in the category of FDI (Foreign Direct Investment) without alliances. The
advantages and disadvantages of FDI are as follows:
Advantages of FDI
•
Mostly, the customers of the host country prefer the products produced in their
country like - ‘Be American, Buy American’, ‘Be Indian, Buy Indian.’ In such
cases FDI helps the company to gain market through this mode rather than other
modes.
•
Purchase managers of most of the companies prefer to buy local production in
order to ensure certainty of supply, faster services, quality dependability and
better communication with the supplier.
•
The company can produce based on the local environment and changing
preferences of the customers.
Disadvantages of FDI
•
FDI exposes the company (to a fullest extent) to the host country’s political, and
economic-risks.
•
FDI also exposes the company to the exchange rate fluctuations.
•
Some countries discourage the entry of foreign companies through FDI in order to
protect the domestic industry.
58
•
Changing Government policies of the host country may create uncertainties to the
company.
•
Host countries Governments, sometimes, ban the acquisition of local companies
by foreign companies, impose restrictions on repatriation of dividends and capita.
India has allowed 100% convertibility.
f) Assembly Operations
Arranging assembly operations in a foreign country is slightly different than
arranging manufacturing facilities.
Here a company established overseas assembly
facilities in selected markets only for the products to be sold there. This arrangement is
done to take advantage of : (a) low cost of labour, (b) savings in taxes as sending
components attracting less tax compared to sending full assemble sets and (c) company
can boast up providing employment to host country people.
Many of the MNCs in USA and Japan use this method in automobile and
electronic industries to get the assemblies sold overseas as well as it their own country.
Since the components are arranged by MNCs and assembly supervision is done by them
the quality and consistency in quality is well taken care.
The investment required
overseas is also very less as they have to hire only a workshop premises for assembly
work.
g) Joint Ventures
One of the very commonly used strategies for entering foreign markets is by way
of joint venture. This is one of the methods of FDI with strategic alliances. Any form of
59
collaboration or association for a longer duration (minimum 3 years) can be categorised
as joint ventures. It covers many activities of diverse type as follows:
1. Sharing of ownership and management in an enterprise.
2. Licensing franchising agreements.
3. Contract manufacturing.
4. Management contracts.
The essential feature of a joint ownership venture is that the ownership and
management are shared between a foreign firm and a local firm. In some cases there are
more than two parties involved. For example, Pepsi’s Indian joint venture involved
Voltas and Punjab Agro Industries Corporation.
A joint ownership venture may be brought about by a foreign investor buying an
interest in a local company, a local firm acquiring an interest in an existing foreign firm
or by both the foreign and local entrepreneurs jointly forming a new enterprise. In some
countries partnership with a government owned company gives more advantages. Suzuki
took this advantage with Maruti Udyog Ltd. in India.
In countries where fully foreign owned firms are not allowed or favoured, joint
venture is the alternative if the international marketer is interested in establishing an
enterprise in the foreign market.
Many foreign companies entered the communist,
socialist and other developing countries by joint venture.
One important advantage of joint venturing is that it permits a firm with limited
resources to enter more foreign markets than might be possible under a policy of forming
wholly owned subsidiaries.
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In some cases, it is also possible to swap know-how (such as patent rights for
equity) in forming joint venture as a means of securing ownership in foreign countries.
Partnership with local firms has certain specific advantages. The local partner
would be in a better position to deal with the government and the publics. Further, there
would not be much public hostility when there is a local partner; it would be much less
when there is equity holding by the government sector and the public. A right local
partner for a joint venture can have a major impact on a firm’s competitiveness because
such a partner can serve as a cultural bridge between the manufacturer and the market.
The economic liberalisation has caused a spurt in joint ventures in India. In the
five years since the liberalisation of 1991, more than four thousand joint ventures were
entered into between Indian companies and transnationals.
Joint ventures present a mixed picture of success and failure. While some joint
ventures are very successful, some face problems from the very beginning and in case of
some others problems develop after a period of mutual benefit and success.
A Mckinsey world wide study of more than 200 alliances (principally joint
ventures) has shown that the median life span of them is only seven years and more than
80 per cent of the cases, it ends in one partner selling out to the other.
In fact, joint ventures are not necessarily meant to be permanent. They are meant
to serve specific objectives within a period of time and once the objectives are achieved
the continuation depends on the reassessment of the situation by the partners.
Some of the joint ventures have not been successful due to unhappiness of one or
both the partners. The chances of failure could be that one party is gaining more than the
other or the MNC is transferring only the outdated technology of their home country. In
61
such situations there is a need to reconsider the agreement and try to satisfy the host
country partner so that the arrangement continues.
Another reason for failure of joint venture in India is the unequal resources and
bargaining power of the partners. After liberalisation in July 1991, many trade barriers
were removed and the market is freed from controls. This has prompted the MNCs to
bargain bigger share in their stakes and profits thus creating problems in continuation of
joint ventures.
Now the foreigners are in a position to setup their fully owned
subsidiaries, their bargaining power in joint ventures is strengthened. The MNCs are in a
position to buy the Indian partners shares and are in a position to dictate the terms.
Another method adopted by MNCs is to bring in funds for expansion activities and to
introduce new products or new models. By this method they will increase their stakes in
the joint venture and increase their dominance.
The main strength of MNCs in joint ventures is the latest technology and ability to
consistently upgrade it in line with the competition.
In addition they have a better
financial strength and brand reputation to play a dominants role in the global business.
The Role and logic of alliances:
•
Alliances help to develop the technologies. AT & T joined hands with Apple,
IBM and Sun Micro Systems so that all their products would work with AT &
&’s new video conferencing system.
Similarly along with Motorola they
developed computer chip manufacturing technology.
•
Alliances help to utilise each others strengths. The Ford and Mazda alliance
provided technology knowledge to Ford and marketing knowledge to Mazda.
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•
The R&D expenses are growing as the product life cycles are becoming shorter.
The alliances will help to take advantage of each others R&D activities.
•
MNCs have to adapt to local soeio-cultural values to succeed in marketing. This
necessitates alliance with host countries.
•
The alliances will take advantage of the brand image of MNC and the popularity
of the host country companies.
h) Third Country Location
Third country location is used in global marketing whenever there is political
barrier between two countries. This method also used to take advantage of reduced cost
of production there by improving price competitiveness.
Some of the developing
countries offer lots of incentives in terms of land, electricity and other infrastructural
facilities that the production will be more economical in third countries. Some of the
examples of third countries are as follows:
a) Taiwanese use Hong Kong as a base for selling their goods to People’s Republic
of China.
b) Some companies in USA use India as a base to sell product to Russia and other
countries under erstwhile ESSR.
c) Long back people of South Africa is to buy Indian goods from Kenya and
Zimbabwe as there was no political link between India and South Africa,
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i) Mergers and Acquisitions
Mergers and Acquisitions (M & A) have been a very important market entry
strategy as well as expansion strategy. This is one of the methods of FDI with strategic
alliances. A number of Indian companies have also used this entry strategy. M & A
provides instant access to markets and distribution network. Since distribution is one of
the difficult areas in global marketing this becomes an important criteria in consideration
for M & A. Another important objective of M & A is to have access to new technology
or a patent. It avoids competition especially when the competition is cutting down too
heavily in prices. Some of the Indian examples of Mergers are: (a) Lipton Tea and Broke
Bond Tea, (b) Blow-plast and VIP baggage’s,
(c) VISL Bhadravathi and SAIL and (d)
Hindustan Brown Bowery and Asia Brown Bowery.
Some of the Indian companies have indulged in Mergers and Acquisitions to grab
properties of the competitors and to reduce income-tax burdens. In some cases leading
industrialists have taken over some sick units due to political pressures and have later on
neglected the sick units.
The costs of acquisition have been adjusted to suit the
convenience of the buyer.
Another problem of acquisition is the displacement of the labour due to change in
technology and processes it becomes necessary to remove lot of workers (especially
above the age of 45 years) to induct youngsters with higher skills. This invariably leads
to labour problems and sometimes financial problems. The M & A activity is mainly
concentrated within the country companies and less practice by foreign companies.
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Advantages of M & A
•
The company immediately gets the ownership and control over the acquired
firm’s factories, employees, technology, brand names and distribution networks.
•
The company can formulate international strategy and generate more revenues.
•
If the industry already reached the stage of optimum capacity level or
overcapacity level in the host country. This strategy helps the economy of the
host country.
Disadvantages of M & A
•
Acquiring a firm in a foreign country is a complex task involving bankers,
lawyers, regulations, mergers and acquisition specialists from the two countries.
•
This strategy adds no capacity to the industry.
•
Sometimes host countries imposed restrictions on acquisition of local companies
by the foreign companies.
•
Labour problems of the host country’s company are also transferred to the
acquired company.
j) Strategic Alliance
Strategic Alliance is a coalition between two competitors. This strategy seeks to
enhance the long-term competitive advantage of the firm by forming alliance with
existing or potential competitors in critical areas instead of competing with each other.
The objective is to take advantage of critical capabilities increase the flow of innovation
and flexibility in responding to technological changes and market conditions.
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Some times strategic alliance is used as a market entry strategy. For example, a
company may enter a foreign market in alliance with a competitor who is already having
marketing and distribution network in that foreign market. An U.S. pharmaceutical
company may use sales, promotion and distribution infrastructure of an Indian
pharmaceutical company to sell its products in India. In return the Indian company use
the same strategy for sale of its products in the U.S. market.
Strategic alliance is more aimed to develop competitive advantage rather than use
as an entry strategy.
It enables companies to increase resources, productivity and
profitability by avoiding investment in additional facilities and efforts required to
increase the production. They will also be savings in terms of R&D expenses.
Examples of cross boarder alliances in the telematics sector which essentially
bring together two separate streams of technology - that related to information gathering
and processing and that related to information transmission - include IBM’s agreements
with STET, Italy’s state owned telecommunications company and Nippon Telegraph and
Telephone (Japan) to develop computer communications services, and a joint research
venture with Ericson (Sweden) to explore the linking of data-management technology
with digital switching technology.
The automobile industry has been witnessing several alliances for overseas
operations. The Isuzu Motors Ltd., and Fuji Heavy Industries Ltd., of Japan have set up a
joint plant in the U.S., which can build cars for Fuji and trucks for Isuzu in the same line.
Some Japanese automakers have joined forces with foreign big names like General
Motors and Chrysler. The European car manufacturers are also teaming up to enhance
66
their competitiveness, often in one-off projects to produce, say, an engine of
transmission. Peugeot, Ranault and Volvo already share V6 engine.
Tata Tea has entered into an alliance with Tetley so that the marketing expertise
of Tetley is available to market tea abroad.
Explaining international production, Dunning observes that within the service
sector strategic alliances are less common, but those between hotels, airlines and tour
operators and between accountants and management consultants are increasing; while
international consortia of investment banking and construction firms have long been a
feature of the world commercial scenario.”
k) Counter Trade
One of the important reasons for growth of counter trade is use as a strategy To
increase exports, particularly by the developing countries. The communist countries, east
European countries and Asian countries have been using it to take advantage of their
v
traditional export items.
Counter trade is a form of international trade in which certain export and import
transactions are directly linked with each other and in which import of goods are paid for
by export of goods, instead of money payments.
In the modem economies, most transactions involve monetary payments and
receipts, either immediate or deferred. As against this, “counter trade refers to a variety
of unconventional international trade practices which line exchange of goods - directly or
indirectly - in an attempt to dispense with currency transactions.”
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Counter trade takes several forms. The following are the most common among
them:
i) Barter: Barter refers to direct exchange of goods of equal value, with no money
and no third party involved in it. For example, a counter trade deal between the
Minerals and Metals Trading Corporation of India (MMTC) and a Yugoslavian
company involved import of 50,000 tonnes or rails of the value of about $ 38
million by the MMTC and the purchase by the Yugoslavian company of iron ore
concentrates and pellets of the same value.
ii) Buy Back: Under the buy back agreement, the supplier of plant, equipment or
technology agrees to purchase goods manufactured with that equipment, or
technology. Under the buy back scheme, the full payment may be made in kind
or a part may be made in kind and the balance in cash. Thus, a Rs. 20 crore buy
back agreement with the Soviet Union provided for the import of 200
sophisticated looms by the National Textiles Corporation. The buy back ration
was 75 per cent.
iii) Compensation Deal: Under this agreement, the seller receives a part of the
payment in cash and the rest in products.
iv) Counter Purchase: Under the counter purchase agreement the seller receives the
full payment in cash but agrees to spend an equivalent amount of money in that
country within a specified period. A classis example of this kind of an agreement
was Pepsi Cola’s trade with the USSR. Pepsi Cola got paid in Rubles for the sale
of its concentrates in the USSR but spent this amount for purchase of Russian
products like Vodka and wine.
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The array of counter trade transactions reported in the trade press in
intriguing. Coca Cola has traded its syrup for cheese from a factory it built in the
Soviet Union, for oranges from an orchard it planted in Egypt, for tomato paste
from a plant it installed in Turkey, for Polish beer, and for soft drink bottles from
Hungary. A Swedish band was paid in coal for its concerts in Poland, Boeing
exchanged ten 747s for 34 million barrels of Saudi Arabian oil.
Argentina
awarded a fertilizer factory contract to Czechoslovakian firms with the stipulation
that suppliers buy vegetables and other agricultural goods produced with
fertilizer. Counter trade deals may involve two or more countries and hence the
process is intricate. If the seller can get in exchange from the buyer the product
which he wants or for which he has a ready market, the counter trade deal would
be very-smooth. However, sometimes lot of-time is requiredtoTind eutbuyer of
the goods to be obtained in barter. One of die interesting case is like this, Daimler
Benz agreed to sell thirty trucks to Romania and accept in exchange 150
Romanian made jeeps, which it sold in Ecuador in exchange for bananas which it
brought back to West Germany and sold to a West German super market chain in
exchange for Deutseh marks.
Through this circuitous transaction, it finally
achieved payment in German currency.
Japan has been practicing counter trade for long years with China and
countries of USSR as they could not get currency in exchange for their exports.
In view of this there are several trading houses in Japan, which are specialised in
international counter trading. These trading houses are able to take up large scale
69
and complex deals, as they possess expertise in many fields and can mobilise
every thing from staff to technology to finance.
Growth of Counter Trade
The counter trading has been growing every year and it has got the involvement
and support of respective National Governments, WTO and IMF. It is estimated that
about 25% of the global trade is organised through the method of counter trade. This
trend is likely to increase upto 50% of the world trade by the year 2010. The political
changes in communist blocks and ruling parties in various countries of the world have not
made any changes in the growth of counter trade. The Indian public sectors, STC and
MMTC are very actively involved in counter trades. The Government of India have set
up a special oell in the Ministry ofCommerce to monitor international developments in
counter trades and to develop appropriate policy to help Indian agents to make use of the
opportunities available.
The developing countries counter trade as a useful mechanism for over coming
difficulties of payments, export credit and foreign exchange which otherwise may be
serious obstacle to the expansion of trade activities. It is natural that the developed
countries have been taking advantage of counter trade method by buying the goods at a
very cheap rate from the developing countries. Hence, developing country is needed to
form their own group to improve their bargaining strength in this matter.
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Reasons for Growth of Counter Trade
There have been several reasons for the counter trade to become popular.
Obviously, the countries or companies concerned have encouraged or involved in counter
trade due to certain specific advantages, although some of the benefits may be purely
temporary.
i)
Counter trade was very common between the communist countries.
It also
became popular in respect of trade between the Communist Block and many
developing countries because many developing countries were eagerly looking
towards this block for increasing their exports, among other things, and this
naturally led to the acceptance of the trade practice preferred by these centrally
planned economies.
ii)
Counter trade became popular in the East-West trade mainly due to the foreign
exchange problems faced by the East Block. Pepsi Cola is just one example of a
multinational corporation which made considerable international business with
the USSR by counter trade.
iii)
When the foreign exchange problem became more severe for the developing
countries following the oil price hikes, they began to actively pursue counter trade
in a frantic bid to increase their exports by all means.
iv)
Many companies in the advanced countries have resorted to counter trade for
various reasons like selling obsolete products, increasing the sale of capital goods,
increasing the aggregate business etc. Several companies to mitigate the effects
of recession have also resorted to counter trade. Such reversionary situations in
the capital goods industries in the advanced countries gave the developing
71
countries an opportunity to push their exports by trying the imports of capital
goods with exports by counter trade.
v)
The counter trade enables the countries to dispose of their declining products
since, it is difficult to maintain old products on account of changes in technology.
vi)
Full capacity utilisation of MNCs produces excess stock and one of the easier
route to clear excess stock is to adopt counter trade.
vii) Some of the countries have also made the counter trade a means to increase sales
through disguised undercutting of the cartel prices (for example the oil price fixed
by the OPEC).
VL GLOBAL TRADING BLOCKS
With increased activities of global trade there has been increase in number of
regional trade blocks. Some of the commonly heard regional trade blocks are: NAFTA
(North American Free Trade Agreement), EEC (European Economic Community),
SAARC (South Asian Association for Regional Co-operation), GCC (Gulf Co-operation
Council), ACM (Arab Common Market), etc., who help their member countries in the
region through simplified procedures for import-export trade.
Some countries create business opportunities for themselves by integrating their
economies in order to avoid unnecessary competition among themselves and also from
the other countries. Economic integration among countries takes several forms. It covers
different kinds of arrangements between or among countries by which two or more
countries link their economies closer either in part of total.
They maintain the
cohesiveness among or between the countries through tariffs. They discriminate against
72
r
die otter countries, which are not parties to the agreement, through tariffs. They also
discriminate against the goods produced by otter countries. Economic integration varies
in degrees.
Different kinds of Economic Integration
a) Free Trade Area: If a group of countries agree to abolish all trade restrictions and
barriers among or charge low rates of tariffs in carrying out international trade,
such a group is called, ‘free trade area.’ These countries impose trade barriers and
restrictions with regard to trade with the countries other than the members of the
group, independently.
b) Customs Union: The member countries of the customs union have two basic
features.
They are: (i) The member countries abolish all ite restrictions and
barriers on trade among themselves or charge low rates of tariffs and (ii) they
adopt a uniform commercial policy of barriers and restrictions jointly with regard
to the trade with the non-member countries. Thus, customs union is advanced in
degree to a free trade area.
c) Common Market: Common market has three basis characteristics. They are: (i)
All member countries abolish all the restrictions and barriers on trade among
themselves or charge low rates of tariffs, (ii) They adopt a uniform commercial
policy of barriers and restrictions jointly with regard to the trade with the non­
member countries, and (iii) They allow free movement of human resources and
capital among the member countries.
customs union.
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Thus, common market is superior to
d) Economic Union:
Economic union has four basic characteristics. They are:
(i) All member countries abolish all the restrictions on trade among themselves or
charge low rates of tariffs,
(ii) They adopt a uniform commercial policy of
barriers with regard to trade with the non-member countries, (iii) They allow free
moment of human resources and capital among themselves and (iv) They achieve
uniformity in monetary policy and fiscal policy among the member countries.
Thus, economic union is superior to common market.
In a nutshell, the degree of facilities and freedom of operation increases stage
wise from free trade area to economic union stage. Also, the rate of tariffs, duties and
procedures are lower for member countries and different and higher for non-member
countries.
The approach towards regional integration is increasing as it helps "all
countries in general and smaller in particular.
Advantages of Regional Integration
•
The resources of the region are pooled thus helping to increase productivity and
efficiency of the output.
•
Elimination of import duties and barriers reduces the price of products and make
it convenient to trade amongst themselves.
•
Mutual co-operation, co-ordination and business dealings will improve due to the
integration and also political links between the countries.
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List of Regional Trade Blocks
NAFTA
:
(North American Free Trade Agreement)
USA, Canada and
Mexico.
(European Economic Community) -
EEC
Sixteen European countries.
SAARC
:
(South Asian Association for Regional Co-operation)
India,
GCC
Pakistan, Bangladesh, Bhutan, Sri Lanka and Maldives.
(Gulf Co-operation Council)
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,
United Arab Emirates.
ACM
(Arab Common Market)
— Egypt, Iraq, Jordan, Lebanon, Libya,
ASEAN
:
Syria and Mauritania.
(The Association of South-East Asian Nations)
Singapore, Brunei, Malaysia, Philippines, Thailand and
Indonesia.
LAFTA
:
(Latin American Free Trade Agreement)
Argentina, Brazil, Chile, Mexico, Paraguay, Peru, Uruguay,
Colombia, Ecuador, Venezuela and Bolivia.
SCCM
(Southern Cone Common Market)
Argentina, Brazil, Paraguay
ANCOM
:
and Uruguay.
(Andean Common Market)
Bolivia, Colombia, Ecuador, Peru and Venezuela.
CACM
(Central American Common Market)
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Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
CARICOM :
(Caribbean Common Market)
Antigua and Barmuda, Bahamas, Barbados, Belize, Dominica,
Geneda, Guyana, Jamaica, Montserrat, St. Kitts-Nevis, St. Lucia,
St. Vincent and Trinidad.
OECS
(Organisation of Eastern Carribbean States)
Antigua and Barmuda, Dominica, Greneda, Montserrat, St. KittsNevis, St. Lucia, St. Vincent, Grenadines and the Virgin Islands.
AMU
(Arab Maghreb Union)
Algeria, Libya, Mauritania, Morocco and Tunisia.
SACU
(Southern African Customs Union)
-----Boputhatswana, Botswana, Ciskei, Lesotho, Namibia, South
Africa, Swaziland, Transkei and Venda.
ECOWAS
(Economic Community of West African States)
Benin, Burkina, Faso, Cape Verda Coted’ Ivorie, Gambia, Ghana,
Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria,
Senegal, Togo and Sierra Leone.
PTA
(Preferential Trade Area for Eastern and Southern African
States) Burundi, Compros, Djibouti, Ethiopia, Eritrea, Kenya, Lesotho,
Malawi, Mauritius, Mozambique, Rwanda, Somalia, Swaziland,
Tanzania, Uganda, Zambia and Zimbabwe.
ECCAC
:
(Economic Community of Central African Countries)
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Burundi, Cameroon, Central African Republic, Chad, Congo,
Equatorial Guinea, Gabon, Rwanda, Sao Tome, Zaire.
WAEC
:
(West African Economic Community)
Benin, Burkina, Faso, Cote d’ Ivorie, Mali, Mauritania, Niger and
Senegal.
ECUCA
:
(Economic and Customs Union of Central Africa)
Cameroon, Central African Republic, Chad, Congo, Equatorial
Guinea and Gabon.
MRU
:
(Mano River Union)
Guinea, Liberia and Sierra Leone.
BA
:
(Bangkok Agreement)
Bangladesh, India, Laos, South: Korea and Sri Lanka.
ANZCERT :
(Australia-New Zealand Closer Economic Relations and Trade
Agreement)
Australia and New Zealand.
International Organisation
The companies doing international business should have specific department and
human resources identified to do this specific work.
The organisation structure is
determined by the factors such as the extent of commitment of the organisation to the
international business, nature of international orientation, size of the business, future
plans, number of product lines and characteristics of the foreign markets. Another factor
is the relative sizes of domestic and foreign markets attended by the company. The
77
organisation structure is dynamic and may change based on variations in the business and
the number of countries dealing with. Some of the common organisational structures
followed are explained hereunder:
1) Built-in Export Department: This is one of the simplest form export organisation.
In the marketing department taking care of domestic marketing one section of executives
will be asked to look after export relative functions. This section will have to take care of
export transactions, advertising, credit, shipping and the domestic marketing officials are
doing accounting in the similar way.
This method is suitable wherever the export portion of the business is very small
and the company is new to international marketing. This initial arrangement may later on
lead to a separate export department after growth of international business.
Some of the limitations of this department are: (a) Hie department will not get
adequate importance as domestic marketing is a dominating component, (b) Since it is
subsidiary of domestic marketing manager the export in-charge may not get sufficient
co-operation from other departments and (c) The personnel handling exports may not
have adequate experience and knowledge to deal certain export related problems.
2) Separate Export Department: This stage is an improvement on the built-in export
department.
The manager of export department will be on equal status with other
department heads and will be more effective in discharging the duties. He will focus only
on export related activities and therefore establish better contacts within the organisation
and with foreign clients to be more effective.
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An independent manager will be able to take keen interest in increasing die
volume of sales and number of clients. He may even be able to project if export sales is
giving more profit than the domestic sales and therefore exports should be increased. A
kind of training and specialisation would be developed amongst the department people
and this will be advantageous to the company.
3) Export Sales Subsidiary: Firms with large export business may establish export
subsidiary companies and divorce international marketing activities from domestic
operations because of certain advantages associated with it.
Although an export sales subsidiary is a separate company, it is wholly owned and
controlled by the parent company and is quasi-independent. The subsidiary company
purchases products from die parent company and markets them abroadr The subsidiary
may even deal in some non-competing products of other companies.
An export sales subsidiary enjoys certain advantages. It is more independent than
a department, and, therefore, more flexible and adaptable to changing situations. It can
more easily develop export marketing facilities and expertise and organise international
marketing tasks more effectively. Another advantage of establishing a separate company
and dividing the total business is a lower burden of tax.
Some companies establish subsidiary companies with the main objective of
developing export markets and doing export business in a big way.
The HMT
(International) Ltd., the export marketing subsidiary of the HMT Ltd., has been assigned
the tasks of exploring, developing and expanding export markets and enlarging
international business.
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4) International Division: An export department or export subsidiary may be suitable
for handling large exports but they may not be sufficient for managing the non-exporting
international market entry modes. So companies having foreign subsidiaries whose role
is not confined to sales alone tend to establish an international division to manage the
international business.
5) Global Organisational Structures: The growth of business into global dimensions
and the competition on a global basis resulted in the development of different global
structures. The basic types of global structures are described below:
a) Global Product Structure
b) Global Geographic Structure
—
c) Global Functional Structure
d) Global Customer Structure
e) Global Matrix Structure
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