Download International Marketing-chapter1&2

International Marketing
Chapters 1&2
Chapter 1
• What is International marketing
• Why should we study international marketing?
• International Business Activities
• Key players in International Business
What is international marketing?
• Defined and described as business transaction between party’s from
two or more countries.
• These parties maybe companies on their own, group of companies or
organizations from both private and government sectors, or freelance
traders.
International business VS local business
• International business is executed outside a county’s borders
• Minimum one of the parties must use a foreign currency
• different legal systems might be involved. Therefore parties should be
open to adjust themselves to the other country’s legal system and
procedures.
• Two parties might feel cultural differences and should be firm and
open to adjust their behavior accordingly.
• Different access to natural resources, labor, level of proficiency, skills
and knowledge.
Reasons to study international marketing
• In every organization or business entity there are a series of international activities, even small sized companies. Generally all
social and economic organizations effect from the global economic system and affect this system at the same time.
• You might be working for a company, which is owned by a larger corporation with its head quarters located outside the country, or
might be working for company which is engaged in international markets or planning to enter international markets. Therefore,
being familiar with international marketing and its concepts could help you to perform better.
• Small business engagement in international markets is increasing on daily basis.
• With developments in technology and use of internet and e-commerce many small businesses are entering international markets
whereas in the past only large corporations who had enough resources for establishing offices warehouses and distribution
network outside their country could do that.
• As a student or a manager in a company, you need to know about international marketing, have knowledge of international
business procedures and culture. You need to be familiar with international atmosphere and proper vision to gain competitive
capability as a business owner or an employee.
• Studying International marketing provides you with the opportunity to become familiar with the latest advancements and trends
in methods, techniques and innovations in business environment. For example, personal and employee’s empowerment, new
marketing strategies in emerging marketing, cross-functional teams, quality circles and etc.
• With studying informational marketing, you are in a position to gain a cultural literacy and systematic approach toward
international cultural and economic environment. Fast pace of globalization trend has resulted that different political, economic
and cultural systems to work more closely together than ever before.
• Knowing these differences and familiarities is treated as a new era of knowledge and literacy in international environment.
International Business activities
In past mostly import/ export and some investments activates where
witting integrational business formwork, where as in today’s complex
business environment there are many different methods for executing
business activities, in some sources and references business activities
are called entry modes to foreign markets.
We categorize international business activities into three categories:
• Import /export and counter trade
• Investment
• Contractual activities
Import-Export and Counter Trade
• Import: An import is a good or service bought in one country that was
produced in another.
• Export: Exports are goods and services that are produced in one
country and sold to buyers in another.
Import /Export is divided into two subcategories
• Goods/Merchant trade which are tangibles such as products (
computers, clothing, etc.)
• Services and Intangible's trade such as insurance, accounting opr
banking services.
Counter Trade
• Another form of trade which is counter trade or as also known as
barter trader where there is no exchange of money (currency) and
only Products are exchanged together based on their values.
International Investments
• International Investment: Defined as raising capital by both people and
companies in one country for people or companies in another country.
Types of International Investments:
• Direct foreign investment: investments with the aim of controlling
ownership of capital and properties or comprise in the hasting country. for
example, purchasing majority of shares in a company and having investor’s
management team in charge and in control of () and managing the
company in the host country.
• Foreign portfolio investments: defined as buying financial properties of a
company such as stocks, bonds, deposit certificates by the foreign investor
with the aim of investment and not necessarily the ownership.
Other forms of International business activities
International business activities may be conducted in variety of forms
such as franchising, management contracts and licensing.
• International licensing: Defined as coordinating and contractual
arrangements in which a company in a foreign country grants
permission and license to a company in another company to use its
intellectual properties. These intellectual properties may include
patents, trade marks, brand names, copy rights or trade secrets, in
return for royalty payment by the licensee.
Key Players in International Markets
Multinational corporations
• Are companies who are heavily engaged in executing international business activities.
• A definition that clearly explains scope of these companies, defines them as
corporations that have direct or portfolio investments in more than one foreign country.
• These corporations source their inquiries from multiple countries, manufacture products
and provide services in difference countries and sell these products or services in many
different countries. Usually multinational corporations coordinate them activates trough
their head office. some of multinational enterprises provide more freedom and authority
to their local offices, so these branches could adjust better to local business
environment.
• Some of the multinational corporations are not considered as large corporations. For
example, corporations that provide accounting services
• Also some of the non-profit organizations are considered as multinational organizations.
• Red cross / red cresent.
Key Players in International Markets
Entrepreneurs and SMEs
• Nowadays, Due to development in technology and IT industry and
automation, many of the entrepreneurs tend to focus on SMEs.
• There for entrepreneurship, specially in SMEs considered to be one of
kay factors in international business activities.
Key players in International
International enterprises
• International Enterprises fits in the gap between multinational
corporations and active entrepreneurs and SMEs .
• These companies work outside their origin country as well. They
pursue their business activities outside by exporting their products or
services and in most cases with human sources from the original
country. There are many other key players who involved in
international business; such as government bodies, transportation
companies , legal entities , banks , and insurance companies.
Chapter2
Globalization and International Business
• Globalization of production
• Benefits of globalization for companies
• Globalization of Markets
• Motives, drivers and reasons for globalizing
• Secondary reasons motivating globalization
• A background and history on Globalization
• Views and opinion on Globalization
Globalization of production
• Defined as: distribution and diversification of production operations
and activities with the goal of minimizing costs or maximizing quality
of products or services.
• This procedure includes souring of key inputs such as raw materials
and parts, outsourcing and crowdsourcing of production at
international level.
• Every company arranges and makes such decisions based on their
business environment, strategies, market and their internal
capabilities.
Benefits of globalization for companies
• Access to cheap labor:
Large corporations establish manufacturing plants in countries with cheap labor, low wages and salaries. with this method they take
advantage of cheap manufacturing at global production scale.
For example, clothing and textile manufacturing in Bangladesh or IT products in Taiwan and Hong Kong. This is also beneficial for
the host country by improving overall employment status ( rate) and helps economic development.
Access to cheap labor is not limited to manufacturing companies but also spreads to service sector as well. For example providing
accounting services, call canters or soft were programming.
• Access to proficiency and know-how
In some cases companies switch production to other countries to take advantage of the know- How in that country.
• Access to raw materials
This provide the opportunity ,so companies gain access to materials and resources which they did not have. For example ; Japan’s
Nippon Seishi paper company owns wood farms and jungles in Canada , Australia and U.S.
• They will enjoy and take advantage of having access to their strategic raw materials as well as more control on their production
procedures. Cheap energy is another motive for companies to relocate their production facilities to another country.
Globalization of Markets
Nowadays, globalization has resulted in development of international
business activities. This happens in such a way that companies are now
entering new markets which were previously left out of the global markets.
During the cold war, The world was categorized into three group of
countries:
• 1st world – Rich countries with high trade volumes including western
Europe’s countries, North America , Australia and some parts of East Asia,
considered to be American allies .
• 2nd world – Soviet union and communist countries allied.
• 3rd world counties: countries with low to moderate level of income
including Latin America, Africa and most of Asian Countries.
Globalization of Markets
• Most the trade was conducted between 1st world countries , 2nd group
countries had no business with the 1st world.
• 3rd world countries acted as the source of raw material for the 1st world
countries. with collapse and fall down of soviet union in 80’s ,this
arrangement totally changed.
• Thereafter the world bank introduced a new categorization of countries:
 Developed
 Less Developed
Developing
This classification was based on statistics of human resource index and GDP.
Globalization of Markets
Could be defined as convergence in consumer’s preferences. This trend has occurred in many FMCG, industrial
and business services and products.
Benefits of Globalization for Companies
• Decreases marketing costs : companies who sell products in global scale, save costs on their marketing with
standardizing their marketing and manufacturing activities. For example, Coca-Cola sells in Turkey, Iran with
almost identical packaging.
• Creating or exploring new market opportunities; if the market in a country becomes saturated for a product
or service then companies with world demanding products are in a better position to find customers in new
markets
• Leveling of Unfavorable income; In a case where a company has seasonal sales patterns and faces
fluctuation in different seasons because of its product portfolio then, Globalization might be a solution.
Sales in international level helps companies balance out their low seasonal demands in one part of the world
by high demands from another part of the world at the same time. This helps companies to maintain the
consistency of cash flow and control such turbulences. Nowadays. Many international businesses focus on
emerging markets opportunities. Emerging markets ( countries) described as countries with their current
growth rates equal or close to developed countries. There is no specific definition for emerging markets as
some consider BRIX or BIG TEN as emerging markets.
Motives, Drivers for globalization
• Barriers for trading and foreign investments have been removed by
governments
• Changes and innovations in Technology
Motives, Drivers for globalization
Removal of barriers for trading and foreign Investments
• In 1947, political leaders of 24 countries including 12 developed and
11 of developing countries, gathered to sign the general agreement of
Trade and Transit ( GATT). This agreement aimed at enhancing free
trade between countries by decreasing and removing of both
commercial and non-commercial barriers for international trading. In
1995, many other countries joined this agreement and developed it
to more comprehensive form called WTO.
WTO has 3 major goals
• Facilitating free trade.
• Helping to open new markets.
• Helps to settle trade disputes
Motives, Drivers for globalization
Removal of barriers for trading and foreign Investments
• Regional Trade Treaties
Treaties and cooperation in such form as European union, ASEAN or
OPEC will facilitate trading and business opportunities for membering
countries.
Motives, Drivers for globalization
Changes and Innovations in technology
• Developments of Micro processors and long-distance communication.
Internet
Email and video conference
Intranet and internal networks of companies
• Developments in transportation and distribution industries.
Main Reasons To Join Globalization Trends
• Strategic Requirements: Some factors such as companies wanting to
take advantage of their strengths, competitive advantages and value
created at their local market in the home country and offer them in
International markets. Another important factor is getting access to
new sources of raw material, labor, capital and technology. Also,
getting access to new markets will open up new demands and helps
them to meet a better economy of scale in their production.
• Business Environment: Political and technological developments and
trends have become more friendly and acceptant toward
international businesses. This includes developments in
transportation.
Richard Baldwin theory of globalization process ( 2006 )
• Industrialization and de-industrialization: He explains at the first
wave of industrialization, Nordic countries became industrialize
meanwhile China, India and Southern countries were excluded. He
adds, with the second wave East Asian countries became industrialize
while Nordic countries became new industry creators.
• Divergence and Convergence: During the first wave, we faced a huge
divergence between North and South whereas in the second wave a
minimal convergence attained. During the First wave product trade
boomed while by the second wave product and capital trade shifted
toward countries which were part of Great Britain's colony.
Monitoring and Evaluation of Globalization
• Researchers suggest some criteria's for evaluating globalization trend.
One the most criteria's and evaluation methods, introduced by A.T
Kearny which is a global management consulting firm. They suggest
evaluating 72 countries who have about 97% of the world’s GDP as
well as 88% of population. Each country’s rank is calculated based on
12 variables and some the most important of these variable are
• Economic Integration
• Personal Contact
• Technological Contact
• Political engagement
History and background of Globalization
History of business and trade goes back to ancient times. During the 6th
century, The Silk Road was a critical route for business and trade
between East and West, Where Spices, hand crafts and precious metal
exchanged.
From 1500-1900
Popularity of English and Spanish languages, developments in fire arms,
technological advancements in printing as well as transportation
achieved during this time bracket. Countries were competing for
exploring new territories. The Eastern Indian Company was the first
multinational company established during this time for protecting
Britain’s interests in its colonies.
History and background of Globalization
From 1900- 1980
This historical time frame is called the era of international companies and
globalization. From the mid 1900’s with new technologies in transportation
and communication as well as 1st and 2nd world war, resulted to a huge
immigration from Europe to North America; where about 300,000 people
annually moved to North American countries.
Most of the international companies formed during 1945 – 1980.
From 1980- Now
The climax of globalization trend happened during 1989, when the Berlin
wall destructed as well as collapse of Soviet Union. These two helped
globalization to surge at a faster pace. World bank and IMF also help the
globalization process hugely.
Reviews and comments on Globalization
There have been many different points of view on globalization trend,
with some being in favor and others against this trend.
Negative views
Effect of globalization on jobs and wages:
• Globalizations results in Job losses in developed countries
• Cheaper wages in developing countries has resulted to lowering wages in
developed countries
• Exploitation of labor force in developing countries
• Income levels and environmental pollution
Reviews and comments on Globalization
Positive views
• Globalization results in a more dynamic job market for developing countries
• Helps economic development and progress in developing countries
• Effect of globalization on labor force
• Work standardizing
• Environmental protection
• Emerging markets
Reviews and comments on Globalization
• Globalization and inequality in income and poverty:
Positive views indicate that globalization trend leads to industrial shift from
countries with higher income level to lower income countries. This will result in
reducing social gap between countries.
• Globalization and development of inequality between nation ( Gini Coefficient
may be used to evaluate inequality)
• Globalization and global inequality, globalization has helped reducing inequality
at global scale.
• Globalization and national authority: Those, who are against globalization trend
emphasize that globalization weakens national authority where, positive views
indicate that globalization helps and supports promoting of democracy.
• Effect of Globalization on culture: Supporters believe that globalization helps us
to enjoy and take advantage of our differences and exchange them in return of
higher quality lifestyle and welfare.