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International Marketing
No country can completely isolate its affairs from external forces, an dmany inward countries have
opened up teir borders.
This major change in the orientation of most regimes has led to an enormous amount of activity in the
international market place.
A global economic boom has been the drivers for efficiency, productivity and open unregulated
Powerful economical, technological, industrial, political abd demographic forces are converging to
build the foundation of a new global economic order on which the structure of a world economic and
market system will be built. Also ever-increasing numbers of domestic firms involved in importing,
exporting, manufacturing, outsourcing abroad.
5 most dynamic trends that influence the shape of international business:
The interdependence of world economies.
Rapid growth of regional trade e.g. EU, NAFTA, ASEAN and APEC.
Increase in wealth and growth in most parts of the world= increased purchasing power.
Evolution of large emerging markets = BRIC, Malaysia, Poland and Hungary.
Advanced methods of transportation and communication due IT development.
Today, most business activities have a global scope = production, finance, marketing, purchasing, etc
even businesses that don’t operate on the international scene are affected to some degree by e.g.
success of EU union, post 9-11, etc
Companies have become even more aggressive to capture markets abroad to overcome domestic
competition and recession.
The challenge of international marketing is to develop strategic plans that are competitive in the
intensifying global markets.
The internationalisation of Business
Changing competitive structures and shifts in demand characteristics = interest in IM.
Companies with foreign operations find that foreign earnings make an important contribution
to corporate profits.
Cos that never ventured abroad are now seeking foreign markets.
Cos with exiting foreign operations have realised that they need to be more competitive to
International Marketing defined
Im is the performance of business activities that direct the flow of a Co’s goods and services to
consumers and users in more than one nation for a profit. And so complex and diverse activities
compared to domestic marketing.
Concepts, processes and principles of marketing are universally applicable – assessment of 4Cs,
4Ps, etc. the difference is not in the concepts, but in the environment.
The uniqueness of Im comes from the range of unfamiliar problems and the variety of strategies
necessary to cope with different levels of uncertainty encountered in foreign markets, e.g.
competition, legal restraints, govt legislation, weather, fickle consumers, etc. genrally speaking
the marketer can’t control any of these factors bust must be able to adjust or adapt them in a
manner consistent with a successful outcome. Therefore, adjust the controllable elements (4Ps)
in an uncontrollable env to achieve marketing objectives.
The IM Task
2 levels of uncontrollable uncertainty in IM : (1) foreign country variables, & (2) domestic
country variables.
Figure 1.1
The marketing Controllables:
The inner circle - 4Ps blended to capitalise on anticipated demand. These can be changed in the
LR, and also in the SR to adjust to changing market conditions or corporate objectives.
The outer circle –level of uncertainty by DOM and FOR markets- uncontrollable and so active
adaptation needed. Outside the M’s control but need to be handled, and will determine ultimate
Domestic uncontrollable
Includes home country elements that are outside the control of the M and that have a direct
effect on the FOR b=venture – political, legal and economic factors.
E.g. Political = imposed trade restrictions with SA to protest apartheid. When lifted- positive
DOM economic = capability to invest in DOM/ FOR markets is to a large extent a function of
DOM economic vitality i.e. capital needs to be generated before its is mobilised. Also if
DOM economic conditionas deteriorate, there may be restrictions imposed on FOR
Foreign Uncontrollables
Significant source of uncertainty as difficult to forecast due to political stability, class
structure and economic climate and ints effect on inflation and exchange rates.
Significant elements include:
o Political/ legal
o Economic
o Competitive forces
o Level of technology
o Structure of distribution
o Geography and infrastructure
o Cultural forces
Also, there may be inability to recognise certain factors, since they have attuned to one
environment, e.g. danger signs, road signs, IT literacy, etc.
Problem is further increased by ‘alien status’ that makes forecasting, and assessing dynamic
international business climate more difficult.
Political/ legal env is extremely critical, and shifts in govts often mean sudden changes in
attitudes that can result in expropriation, expulsion or major restrictions on operations.
Therefore need for a close study of the operating env in each country. Solution in one country
may be ineffective in another.
Environmental adjustment needed
To adjust and adapt, the marketer needs to be able to interpret effectively the effect and impact of
each of the uncontrollable elements in a marketing plan for ech foreign market. i.e. the
CULTURE. In DOM market adjustment to culture in automatic.
Cultural adjustment in FOR markets= most difficult task as they have to asjust their marketing
efforts to cultures they are not attuned.
They must be aware of frames of reference. Unless special effort is made to determine local
cultural meaning, unwanted or negative response to marketing activities may result.
Shpube be aware of Marketing Relativism = i.g. Markeing strategies and judgements are based
on experience, which is interpreted by his/her culture.
Cultural conditioning – iceberg – we are unaware of 9/10 of it.
Self-Reference Criettion : An obstacle
Adaptation is a conscious effort on the part of the international marketer to anticipate the influence
of of both FOR and DOM uncontrollable on a marketing mix, and then to adjust the marketing mix
to minimise the effects.
Primary obstacle to success is a person’s self-reference criterion (SRC)- unconscious reference to
one’s own cultural values, experiences and knowledge basis for decisions. Thus when faced with a
problem in another culture, we automatically react based on our SRC, but the values and beliefs
are different in another culture! So not helpful! Leads to cultural misunderstanding e.g. body
space, refusal to food/drink (ok in EU, not in asia, middle east)
If we evaluate every situation with our SRC, we are ethnocentric, and can affect appropriateness of
a DOM marketing mix for a FOR market .e.g. ESSO means ‘stalled [email protected] in Japan.
Most effective way to control SRC is to recognise its existence in our behaviour- an awareness of a
need to be sensitive to differences and to ask questions, can avoid mistakes.
Also be aware that not all marketing activities will be different from DOM.. Undetected
similarities don’t cause a problem but undetected differences do!
Becoming international
Once a Co has decided to go international, it needs to decide on how it will enter the FOR market,
and degree of marketing and commitment it is prepared to take.
These decisions should reflect considerable study and analysis of market potential and Co
capabilities. Many Cos gros as a series of phased developments, and gradually change tactics and
strat once more involved. Others enter the FOR markets after a lot of research.
Phases of IM Involvement : A business can be placed in at least 1 of 5 overlapping pahses of IM
o No direct Foreign Marketing : no cultivation of customers outside the national boundary.
Sales to trading Companies, DOM distributors who sell abroad, foreign customer who
has come to the firm.
o Infrequent Foreign Marketing : temporary surpluses from over-production/ reduced sales
are sold abroad with no intention on continuing. Little/ no change in Co Organisation or
product lines.
o Regular foreign marketing: permanent productive capacity devoted to production of
goods to be marketed on a continuing basis to FOR markets. FOR or DOM middlemen.
Inv in IM may be at this stage, some products may be specialised to meet FOR demand,
FOR profits begin to rise and Co starts to become dependent on FOR profits.
o International Marketing : fully committed and involved in IM. Cos seek markets
throughout the world. Production and marketing throughout the world Co becomes
international or multi-national marketing firm dependent on FOR revenues.
o Global Marketing : Cos treat the world as their market. It views the world as a series of
country markets with unique market characteristics for which products and marketing
strategies must be developed. The global Co develops an overall strategy and image, and
develops global standardisation of business activities as much as it is possible.
Changes in international Orientation occurs when a firm relies on FOR markets to
absorb permanent production surpluses and depends on FOR profits. Usual for a Co
to skip one or more of the above phases.
International Marketing Orientations
3 orientations guide business activities:
 Domestic market extension orientation
 Multi-domestic Market Orientation
 Global Marketing Orientation
EPRG Schema = Ethnocentric, Polycentric, Regiocentric or Geocentric orientation that firms can
have. Assumption underlying the EPRG schema is that degree of internationalisation to which
management is committed, affects the specific international strategies and decision rules of the
Domestic Market extension orientation : DOM Co seeks sales of Dom products in FOR views its International operations as secondary and an extention of it DOM
operations.primary motive is to dispose off excess DOM production. Even though FOR markets
may be rigourously pursued, it’s oriatation is basically DOM. Minimal, if any, effort is made to
change the marketing mix and so seeks markets where demand is similar to DOM markets.
Multidomestic Market orientation : a Co guided by this concept has a strong sense that country
markets vary and market success requires and almost independent prog for each
country.subsidiaries operate independently to establish marketing plans and objectives, products
are adapted, advertising is localised, and so are pricing and distribution. It aims for adaptation to
local country markets. Control is decentralised.Polycentric.
Global Marketing Orientation : a Global Company. market is the world. strives for efficiencies
of scale. The premise that world markets are being driven towards a converging commonality, and
so constitutes significant market segments with similar demands for the same basic product the
world over (standardisation). Global marketing strategy, although pricing, advertising, distribution
may differ in different markets. Wherever cultural uniqueness disctates the need for adaptation of
the product, its iamge and so on, it is accommodated. Regiocentric or Geocentric.
Although the world has not become homogenised, there is strong evidence of identifiable groups
of customers, with similar purchasing power, needs and behaviour patterns across boundaries.
Whether marketing programmes should be localised or standardised is not as critical as the
recognition that marketing planning processes need to be co-ordinated across markets. Therefore
there is benefit in having global or multidomestic orientation.
Globalisation of Markets
Professor Levitt’s premise is that the world is being driven towards a converging commonality (global
company selling a global product). This view contrasts with the need to adapt to different cultures.
But mass communication plays a big part. E.g. deterioration of number of languages spoken.
Global producs e.g. coke, levis jeans, Toyota. But this mean there is no need for consideration of
cultural differences? No – because even a global product will need some form of adaptation e.g. due to
different types of customers, opening hours, décor, tastes ( for McD in NY Vs Jakarta Vs Netherlands).
The astut marketer always strives to present products that fulfil the perceived needs and wants of the
Im should entail looking for market segments with similar demands that can be satisfied with the same
product, standarding the components of the marketing mix where possible, and adapting where
Developing a Global Awareness
To be globally aware, is to have:
o Objectivity – important in assessing opportunities, evaluating potential and responsing to
o Tolerance towards cultural differences – yu must allow others to be different and equal.
o Knowledge of cultures, history, world market potential, global economic, social and
political trends.- helps understand behaviour.
Over the next few decades there will be enormous changes in market potential in almost every
region of the world. There globally aware person will continually monitor the markets of the
The members of a global culture normally possess the following characteristics:
o Educated
o Connected
o Pragmatic
o Un-intimidated by national boundaries and cultures.
o Flexible and Open
o Begin from a position of trust
The emerging global economy in which we live brings us into worldwide competettion with significant
advantages for both consumers and marketers, and both to first and third world.
Marketers benefit from new markets opening, and smaller markets growing large to become viable
business opportunities. Consumers benefit by being able to select the lowest priced and widest range of
goods produced anywhere in the world.
Therefore world trade is an important activity, and so the inclination is for countries to control
international trade to their own advantage.
The twentieth century
In the preceeding 90 years world economic development has been erratic.
After WW2, US set to infuse capitalism throughout much of the world. Marshall Paln – to assist in
rebuilding Europe. Also plans to develop Japan, dissolution of colonial powers in Asia and Africa. As a
result the West benefited from economic boom due to increased return.
Also GATT – General Agreement of Tariffs and Trade- allowed countries to negotiate tariffs. This was
replaced by WTO in 1995, when 117 member countries moved into an era of free trade.
World Trade and Emergence of Multinational Corporations
After WW2, economic boom, raised stds of living led to increased competition.
NICs (newly industrialised countries) such as Taiwan, Korea, Japan – rapid industrialisation in some
inductries such as ship building, electronics. Also, India, Thailand, Brazil, Mexico = emerging markets.
The US position in world trade now shared with multinational corporations (MNC) from other
The EU presents a highly interdependent group of economics in which consumer segments can show a
great deal of similarity as well as dissimilarity, so careful planning of marketing needed. Also the threat
of foreign MNCs taking over. The EU is trying to encourage other nations to reciprocate to its free
trade- against protectionism in other nations.
The decade of the nineties and beyond
Tends in the last century show there will be a definite shift in economic power and influence away
from the industrialised nations to countries in Asia, Latin America, Africa and EU.
Exports and investments are on a steadily accelerating growth curve in emerging markets. Also,
significant increase in demand of goods.
So companies are looking to become more efficient, impriove productivity and expand their global
reach while maintaining their ability to respond quickly to deliver a product the market demands.
Balance of Payments
Is the system of accounts the records a nation’s international financial transactions, during a given
period of time (usually one year).
Must always be in balance (double-entry).
BOP is a record of conditions not determinant of conditions i.e. if it balalnces doesn’t mean it is good.
It is an important measure used by the treasury, central bank and other govt agencies whose
responsibility is to maintain internal and external economic stability.
BOP statement includes 3 accounts:
o Current account = record of all merchandise exports, imports and services plus unilateral
o Capital account = a record of direct investment portfolio transactions and ST capital
movements to and from countries.
o The Reserve account = a record of exports and imports of gold, changes in foreign exchange,
increase/ decrease in liabilities to foreign central banks.
Of the 3, main interest to international business- current account.
Current account : imp because it contains all international trade and services accounts. All imports,
exports, receipts and payments.
Balance of Trade
The relationship between merchandise imports and exports = balance of merchandise trade or trade
If exports > imports = favourable BOT.
If imports> exports = unfavourable BOT.
Usually if a country has –ve BOT will also have –ve BOP.
International business must face the reality that this a world of tariffs, quotas abd nontariff barriers
designed to protect a country’s markets from intrusion by foreign companies.
GATT and WTO involved in reducing tariff but countries still resort to protectionist measures – legal,
exchange and psychological barriers used. Businesses work to establish private market barriers, e.g.
complex distribution system in Japan.
Protection Logic and Illogic : All arguments for protectionism can be classified as follows:
1. Protection of an Infant Industry
2. Protection of the home market
3. Need to keep money at home
4. Encouragement of capital accumulation
5. Maintenance of standard of living and real wages
6. Conservation of natural resources
7. Industrialisation of low wage nation
8. Maintenance of employment and reduction of unemployment.
9. National defence
10. Increase of business size
11. Retaliation and bargaining
Economists consider valid arguments as only 1, 7 and 10. And so tariffs on one of these.
Argument for protectionism – basic adv of international trade is ignored and cost to consumer of tariffs
is overlooked.
Trade Barriers
E.g. tariffs, quotas, boycotts, monetary barriers, non-tariff barriers and market barriers to encourage
development of domestic industry and protect existing ones.
Usually imposed on imports, and supported by local industry (regardless of politica;/ economical
Tariffs: = a tax imposed on goods entering a country’s border. May be used to generate revenue or to
discourage import of goods.
Tariffs increase:
o Inflationary pressures
o Special interets’ priviledges
o Govt control and political influence in economic matters
o The number of tariffs
Tariffs weaken :
o BOP positions
o Supply and demand patterns
o International understanding and can start trade wars.
Tariffs restrict:
o Manufacturers’ supply sources
o Choice available to consumers
o Competition
Tariffs are arbitrary, discriminatory and require constant administration and
supervision. They are used in trade wars.
Non-Tariff Barriers
Include quality standards on imports, sanitary and health standards, quotas, embargoes and
Table 2.5
A specific unit or dollar limit applied to a particular type of good e.g. limit on iported TVs in
They put a restriction on the quantity of goods imported, and so tend to increase prices.
Voluntary export restraints (VER)
VER is similar to quotas= agreement between countries for restriction on volume of exports.
Although voluntary, generally imposed under the threat of stiffer quotas and tariffs.
Absolute restriction against purchase and importation of certain goods from other countries.
Can be formal/ informal, sponsored by govt/ industry.
Monetary barriers
Exchange- control restrictions.
A govt may enact these to preserve its BOP position or specifically for adv/ enc of particular
3 barriers:
o Blocked Currency : used as political weapon or as a response to difficult BOP situations.
Cuts off all importing or importing above a certain level. Blockage accomplished by
refusing to allow importers to exchange national currency.
o The differential exchange Rate : encourages goods that the govt wants and discourages
goods it doesn’t want. Requires imported to pay varying amounts of domestic currency
for foreign exchange for different goods.
o Government approval to secure foreign exchange : used by countries with severe shortage
of foreign exchange. So importers must apply for an exchange permit from central
ministry or bank, so that they can exchange dom currency for foreign currency.
o To protect health, safety and product quality.
o Can also include standards that product must contain a certain % of local produce.
Easing Trade Restrictions
2 Ongoing activities to reduce tariffs and trade barriers: GATT/ WTO and the IMF
 After WW2 – 23 countries signed up. Original agreement = process to reduce tariffs
and created an agency to seve as a watchdog over world trade.
 8 rounds of negotiations. Most recent – Uruguay Round begun in 1986, and ended in
1994, by which 80 countries had accempted the agreement.
 Result – all tariffs in 10 vital ind sectors eliminated = deep cuts in electronics,
scientific equipment
 In 2004 = 148 members, latest being China. Outcomes were:
 GATS (general agreement on Trade in services) – first multilateral legally
enforceable agreement covering trade and Inv in the service sector. Specific market
opening concessions from indiv countries achived.
 Also TRIMs – Trade related investment measures- listing some prohibitive practices
e.g. one must have the saem proportion of local production sources as exports, or
exports must = imports.
 TRIPs (trade restricted aspects of intellectual property rights) – establishes higher
standards of protection for a full range of intellectual property rights (patents,
copyrights, trade secrets, trade marks).
 Better integration of agriculture and textile areas into overall trading sustem.
World Trade Organisation (WTO).
 An institution not an agreement.
 It sets the rules governing trade between its members, provides a panel of experts to
hear and rule on trade disputes between members, and unlike GATT, issues binding
 Requires participation of all members and so through its enhances stature and scope,
provides a permanent, comprehensive forum to address trade issues of the 21st
 Results: increase in membership, growth of GDP, forign direct investment soared and
spread of regional trading agreements (e.g. EU, NAFTA and APEC). 76 free trade
 All member countries have equal representation. Meet every 2 years.
WTO has no means to enforce sanctions, but international pressure from other
countries enforces compliance.
 Also, trade disputes among countries also increasing.
International Monetary Fund (IMF)
 Inadequate monetary reserves, unstable currencies are also a barrier to trade.
 IMF formed before WW2 to help with these.
 Special Drawing Rights (SDRs) = paper gold – represents an average base of value
derived from value of a group of major currencies.
 Trade contracts writer in SDRs
 IMF plays an important role in providing short term financing to govts struggling to
pay current account debts, and will be instrumental in helping to establish free
markets in emerging countries.
 Knowledge of a country’s G and H is essential to interpret society’s behaviour and fundamental
 Culture = a society’s programme for survival, the accepted basis for responding to external and internal
Geography and international Markets
The physical charc of a nation is the perhaps the principal and broadest determinant of both the charc
of the society and the means by which the society undertakes to supply its needs.
climate and Topography
physical terrain and climate of a country can have significant effect on marketing
from production adaptation to development of marketing systems.
Altitude, humidity and temperature extremes are features that affect uses and
functions of products
Also e.g S. America, mountainous regions is a formidable barrier – precluded est of
commercial routes between pacific and the atlantic coasts.
Also indirect effect of geography on cultures, and so marketing.
Effect of natural barriers to market development. E.g. coastal towns= ports
Infrastructure e.g. road conditions, and its effect on distribution, product manufacture
(e.g. rolce Royce and salt spread).
Channel tunnel between England and France opened after 200 years, following EC
Geography, Nature and International Trade.
As countries prosper and expand, their natural barriers are overcome. Tunnels, roads, bridges, built.
Sound environmental practice.
Developing countries still suffereing – climate and topography coupled with civil wars, poor
environmental policies and natural disasters., droughts, floods, soil erosion, creeping deserts;
population increases, deforestation and over grazing; mass famine, cyclones.
Industrialised nations have capital and technical ability to control the harshness of nature. But in the
process, create their own dissters e.g. poor waste management, increased pollution.
Social Responsibility and Environmental Management. Environmental protection is an essential part of
doing business. Becoming aGlobal issue. Many government regulations in place. Each individual has a
responsibility to clean up. Os becoming more aware of CSR. Main issue= can International trade and
economic development coexist with protection of the Env
Resources: availability of minerals and ability ot generate electricity = foundation sof modern tech.
location of earth’s resources and sources of energy not equal. Also a country’s dmnd for a particular
energy/mineral does not coincide with its DOM supply. Energy necessary to power machinery, extract
and process resources. Of all, petrol usage increasing significantly due to its versatility & ease of
storing and transportation. The location, quality and availability of resources will affect pattern of
world economic development and trade. But these resources will soon be depleted and alternatives are
being explored. Also untapped- resources in the ocean- underwater mining. Not easy as cost is high,
also disputes about ownership.
World Population Trends : current pop, rates of growth, age levels and rural/urban pop distribution are
closely related to today’s demand for various categories of goods. By 2025, predicted that over 805 of
world population will be in developing countries.
Rural/Urban shifts: today more than 40% os world’s population in in urban areas. Over
population in cities leading to unregulated urban growth – slums, manual workers living hand
to mouth, etc.
Increasing Unemployment: due to rapid population growth without commensurate economic
development. Also population growth in Developing countires, and jobs created in developed
World Food Production : having enough food to eat depends ona country’s ability to produce
sufficient quantities, ability to buy food from other sources and physical ability o distribute
food when the need arises. Enough food produced in the world, yet famine in Africa.
Controlling Population Growth: economics, self-esteem, religion, politics and education all
play a critical role in attitudes about family size. And so progress in improving family
planning affected due to religions banning such practices, the belief that the more children the
richer you are.
Developed world Population decline: decline in this while pop in developing world rises.
More women choosing careers, many couples elect to remain childless. Declining population
= shrinking domestic markets for maternity, infant goods, school equipment. Increased pop of
elderly = increased outlay for healthcare abd hospitals, special housing, nursing.; shrinking
number of active workers = lack of skilled work force and declining demand?
World Trade Routes
Trade routes minimise distance, natural barriers, lack of resources and fundamental differences
between people and economies.
Major sea lanes, rail links and developed highways link the major trade routes.
The more economically developed a country, the better developed the surface transportation
infrastructure to support trade. Also air service used esp where no accessible roads, rail links, etc.
Historical perspective in International Trade
An awareness of the history of a country is particularly effective for understanding attitudes about role
of govt, and busniesses, the relations between managers ans employees, authority, attitude towards
foreign MNCs.
History helps define a country’s mission, how it perceives its neighbours and how it sees its place in
the world.
 History and contemporary behaviour: why do Japanese have striong loyalty to their
companies? Why consencus decision making? Whys it difficult for an outsider to set
up a distribution system? answers in Japan’s history.
 History is subjective and has subtle influence on our perspective.
The manner in which people consume, the priority of their needs and the wants, the manner in which they
satisfy them are functions of their culture that temper, mould and dictate their style of living.
Culture = sum of total knowledge, beliefs, art, morals, laws, customs and any other capabilities and habits
acquired by humans as members of a society. Culture = inherited ethical habit, collective programming of
the mind that distinguishes the members of one group of people to another.
Culture is representative when:
Members of a group share a set of ideas
These are transmitted as symbols from one generation to another.
Culture is an outcome of past actions of a group or its members.
Culture is learned
It shapes behaviour and our perception of the world.
It is reinforced by components such as language, behaviour and nation.
 Hofstede- 4 main conceptual dimensions:
o Individualism/ collectivism e.g. collective country = close-knit culture
o Power distance= extent to which ind tolerate an unequal distribution of power
o Masculinity/ femininity = masculine society- assertiveness, showing off, caring little for
o Uncertain avoidance = degree to which a society feels threatened by uncertain, ambiguous or
undefined situations. High uncertainity societies- job security and stable positions.
 Culture is pertinent to study of marketing, which is satisfaction of customers’ needs and wants. Culture
is pervasive to all marketing activities; 4Ps. The marketer’s efforts are judged in a cultural context.
 The marketers frame of reference must be that amrkets are not, they become; they are not static but
change, expand and contract in response to marketing effort, economic conditions and other cultural
influences ( 3 way interaction). Markets and market behaviour are part of a country’s culture. The
marketer becomes an agent of change when the product is innovative.
Cultural Knowledge
2 kinds of knowledge about culture:
Factual Knowledge – obvious facts and must be learned.
Interpretive knowledge – ability to understand and appreciate fully the nuances of
different cultural traits and patterns e.g. meaning of time, meaning of life, attitude to
other people or certain objects. Requires a degree of insight/ feeling based on past
experience. So, if ones SRC is used, then mistakes are likely to occur.
Useful to live with the people for some time. Also important to consult and co-operate with bilingual
nationals with marketing backgrounds. Helps the international marketer to gain empathy with the
Cultural sensitivity and tolerance: cultural sensitivity = being attuned to the nuances of culture so that
new culture can be viewed objectively, evaluated and appreciated. recognition that cultures are not
good/ bad, right/ wrong, just different. Need to be sensitive, tolerant and flexible, as we instinctively
evaluate foreign culture from a personal perspective.
Culture and its Elements
Culture includes every part of life. Elements can be categorised into:
Material culture – technology (e.g. ability to read gauges) and economics 9hoe pple apply
themselves and use their rewards)- affects level of demand, types of products demanded and
their functional features, and means of producing them.
Social institutions – social organisations and political structures –relate to the way people
relate to one another, organise their activities, e.g. family vs individual holidays
Education –literacy rate, role and levels – influences marketing strategy and techniques used,
kind of medium used, etc.
Belief systems – religion, superstitions, power structure.influences people’s habits, outlook on
life, products they buy, the newspaper they read. E.g. pork in middle east, etc.
Aesthetics – graphic and plastic arts, folklore, music, drama and dance; affects how symbols
are interpreted, standards of beauty in each culture.
Language – usage of foreign languages- idiomatic expression and interpretation of meaning
Spoken vs written language
Analysis of elements of culture – each cultural element should be analysed in light of how it could
affect a proposed marketing programme – direct vs indirect. But also look at the WHOLE picture and
all these are intertwined. Culture is dynamic although many of the changes are in the face of resistance.
Cultural change
One view is that culture is a way of adjusting to the biological, environmental, psychological and
historical components of human existence.
More often societies have found solutions by looking at another culture and borrowing ideas (cultural
borrowing). Once a particular pattern is approved by society it is passed on as cultural heritage. E.g.
American eating African watermelon.
Similarities: an illusion
Because several nationalities speak the same language does not meant here are similarities in other
respects.e.g. Australians vs british; lift vs elevator. But e.g. unified Europe does not mean no cultural
Resistance to change :
Most important factor in determining what kind and how much of an innovation will be accepted is the
degree of interest in the particular subject, as well how much the new will change the old. Most
successful; - of interest and least disruptive.
Ethnocentric and so difficult to change. However, with time, new ideas are accepted and cultural
change takes place.
Planned cultural change
Determine which cultural factors conflict with innovation
Then make an effort to change those factors.
In planned cultural change the process is accelerated by the change agent. In unplanned, one waits for
the change to occur naturally. In any case the marketer’s efforts become part of the culture.
Consequences of an Innovation
When product diffusion occurs (acceptance), a process of social change may also occur.
The change may be functional or dysfunctional depending on whether the effects are desirable or not.
E.g. intro of bottled milk in younger children – ok in Europe. In India, this increased dysentery and
diarohhea due to poor sanitation and impure water, and lack of natural immunity from breast milk.
Business customs are as much a cultural element of society as is the language. It establishes the criteria
of day-to-day business behaviour but also establishes patterns of attitude and motivation.
So, knowledge of business culture, management attitudes and business methods in country and a
willingness to accommodate the differences are important to success in ana international market. Need
to be flexible.
Required Adaptation
Adaptation is a key concept in IM and willingness to adapt is a crucial attitude.
Adaptation or accommodation is required in big and small matters. More than tolerance of alien culture
required. Affirmative acceptance.
10 requirements:
Open tolerance
Adjustability to various tempos
Curiosity/ interest
Knowledge of the country
Liking for others
Ability to command respect
Ability to integrate oneself into the environment.
Essential to be AWARE of one’s own culture, and recognition that differences in others can cause
anxiety, frustration, etc.
Degree of Adaptation: Key to adaptation is to remain yourself but to develop an understanding and
willingness to accommodate differences.
Imperatives, Adiaphora and Excclusives:
Imperatives= business customs that must be recognised and accommodated; e.g. friendship in
Asian cultures need to develop before proceeding to business.
Cultural Adiaphora = customs to which adaptation is optional; not important but permissible
to follow, and may be accepted as a goodwill gesture to attempt to understand culture. E.g.
bowing in Japanese culture.
Cultural Exclusives = customs in which an outsider must not participate. Foreigner criticing a
country’s politics, mores and peculiarities, treatment of women, religion, etc.
Different Business Practices
No matter how prepared you are to do business in a FOR country, there is always some cultural shock.
Sources and Level of Authority: 3 typical patterns:
Top-level management decisions = usually in small, family-owned busnisses. absolute control
to owners;
Decentralised decisions- centralised in Asia, Africa, Middle East; decentralised I US.
Committee or group decisions: may operate on centralised / decentralised basis. Group
participation, group harmony and decision making in Japanese Culture.
Management Objectives and Aspirations: training, background ans culture of managers significantly
affects their personal and business outlooks. This affect influence and attitude towards, innovation, new
products and conducting business with foreigners.
Personal Goals: some culture emphasise high profit or high wages. Others- job security, good
personal life, status, advancement, etc
Security and Mobility: related to motivation.dieffernt culture define security differently – in
one jon for all your life vs moving and advancing.
Personal life: some ind place high importance on this. Others – diligent approach.
Social acceptance: can be a predominant goal within business.e.g Jpaanese gp decision
Power: more important motivating factor in the Middle East and S Amerca compared to toher
parts of the world. can also be social and political leaders.
Communications Emphasis: language differences and translation issues. Best to stick to formal
language patterns. However, much of communication is reliant on non-verbal signs.
Low context culture: get down to business quickly. E.g. English, Germany, French.
High context culture: takes longer because of need to develop relationships first. E.g.
Japanese, Arabia, Spanish
Often takes time to learn.
Formality and Tempo e.g. English are more formal than Americans when doing Business.
P-Time vs M-Time : treatment of time by different cultures.promptness/lateness
M-time (monochronic) = N.Americans, Dutch, Swiss. Concentrate on one thing at a time.
Promptness. Mst low context cultures.
P-Time (Polychronic)= holding to schedules is not very important. High context cultures.
Wait-and-see-what-develops attitude.
Cultures have aspects of both e.g. Japaneses- need to be prompt for meetings, but take their
time to develop relationship once the meeting starts.
Negotiations Emphasis ; all the above factors become more obvious when negotiating, and there is risk
of misunderstanding. Know yourself, and know your opponent.
Gender bias in International Business : women not found in top management in may countries.
Treatment that local women receive is not necessariliy an indicator of how a foreign business woman
will be treated. Important to have backing from your firm, so that customers can respect you.
Business ethics
Moral question of what is right/ wrong is different among cultures. E.g. giving business gifts.
Bribery : establish diff between bribery and extortion (under threat/ duress). Lubrication = small gift/
service made to low ranking official, to help expediate. Subornation : large sums of money to entice an
official to do an illegal act.
Agent’s fee: can be seen asa bribe.
Ethical and Socially Responsible Decisions: difficult for the marketer when in a country where there is
no local law, or a certain behaviour is condoned. 5 areas where difficulties arise:
Employment Practices and Policies
Consumer protection
Environmental protection
Political payments and involvement in political affairs of the country
Basic human rights and fundamental freedoms
Law is only the bottom line – ethical standards should be well above the law.
One of the realities of doing international business is that both the host and home govts are partners.
A govt controls and restricts a company’s activities by encouraging and offering support or by
discouraging and banning its activities- depending on the pleasure of the govt. a country’s overall goals
for its economic, political and social systems form the base of the political environment. Therefore, the
political env in a a country is of crucial concern to the international marketer, and sets the boundaries
within which a company can successfully operate in the country.
Stability of Government Policies
Concern for the MNCs is the countinuity of rules or codes of behaviour regardless of the which govt is
in power. Long-run predictability and stability needed.
Socioeconomics and political environments invariably change, and are often brought about by or
reflected in changes in political phiolosophy and/or a surge in feelings of nationalistic pride.
Nationalism: intense feeling of national pride and unity. Public opinion tends to be against foreign
business and investment. Economic Nationalism –preservation of national economic autonomy, pride
to maintain sovereignty. Can be manifest in : buy only our country’s products, restrictions on imports,
restrictive tariffs, other barriers to trade, scrutiny and control of foreign investment. Nationalism
increases as the country feels threatened e.g. USA after 9/11., expropriation after WW2 in India.
Nationalism comes and goes as conditions and attitudes change. Today, most countries welcome
foreign investment.
Political Risks
Confiscation- Co’s assets seized by Govt without payment.
Domestication- co’s asstes transferred to national ownership and control, through a series of govt
A transfer of ownership in part or totally to nationals.
Promotion of a large no. of nationals to higher level management
Greater decision making powers resting with national. E.g. joint-ventures.
A greater number of component products locally produced. E.g. EU and NAFTA demand that
product must contain 60% components in the country.
Specific export regulations designed to dictate participation in world markets.
Expropriation and nationalisation often led to nationalised businesses that were inefficient,
technologically weak and non-competitive in the world markets, and so, this has lessened over the
More countries are viewing foreign investment as a means of economic growth.
Political risk is still an issue- political and economic uncertainty, currency conversion restrictions,
unresponsive bureaucrats, other political risks.
Co’s can reduce political risks by careful analysis.
Economic Risks
Restraints on business activity may be imposed under the banner of national security, to
protect an infant industry to conserve scarce foreign exchange, to raise revenue, to retaliate
against unfair trade practices and score of other real or imagines reasons.
Exchange Controls: stem from shortages of foreign exchange held by a country, and so
control over movements of capital- all or only allowance to spend on the more essential uses.
So for the investor, problem is getting the profits and investments into the home country. Also
in the form of differential exchange rates for different products.
Local-content Laws : product must contain a % of local produce. Usually for assembly of
foreign-made products.
Import Restrictions : selective restriction on the import of raw materials, machines and spare
parts are common strategies. Often done in an attempt to protect DOM industries, but often
interrupts activities of established industries, and the problem then becomes critical due to
lack of supply.
Tax Controls : usually raised without warning and in violation of formal agreements. Results
in squeeze of profits for companies, but can be appealing to countries where the economy is
threatened by a shortage of funds.
Price Control: essential products such as pharmaceuticals, cars, food, are often subjected to
price control. During inflation, it can be used to control cost of living. They may also be used
to force foreign companies to sell equity to local interests = slows or stops capital investment.
Labour problems: in many countries, labour unions have strong government support. Layoffs
may be forbidden, profits may have to be shared, and extraordinary number of services may
have to be provided.e.g. South Korea and Nestle.
Encouraging Foreign Investment
Govts also encourage FOR investments. In the same country, some industries may be politically
harassed, while others may be protected. depends on co’s contribution to national interest.
Most important reason to encourage = accelerate economic development and growth. MNCs expected
to create jobs, transfer technology, generate export sales, stimulate growth and development of local
industry and/or conserve foreign exchange as a requirement for market concessions.
E.g. India recently liberalising entry and requirements.
Western Company may also receive assistance from its home government. Intent is to encourage
investment by helping to minimise and shift some of the risks.e.g. export credit guarantee.
Assessing Political Vulnerability
Some products receive more govt attention. May result in positive or negative actions, depending on
desirability of the products.
Companies in high-priority industries may be excused from tariffs, quotas, etc
Politically Sensitive Products: no guidelines to determine whether a product will be politically
sensitive. E.g. McDonalds in India (beef), GM products in EU.
Forecasting Political Risk: political Risk Assessment is a systematic way of assessing political risk. It
Help managers decide if risk insurance is necessary.
Devise an intelligence system and an early warning system.
Help managers devlop a contingency plan for unfavourable events.
Build a database of past political events for use by corporate management.
Interpret the data gathered by its intelligence network to advise and forewarn corporate
decision makers about political and economic situations.
Sometimes early risk is accepted for LT profits and growth by well financed Cos.
Reducing Political Vulnerability
To achieve a good return, hostile and generally unfounded fears must be overcome.
Good Corporate Responsibility. Attempt to become more closely identified with the ideals and desires
of the host coutry. This may reduce the likelihood and frequency of some politically motivated risks.
Joint ventures: with locals or other 3rd country MNCs.can minimise anti-MNC feelings, increase
bargaining power, and can be an entry strategy to a country.
Expanding the investment Base: include investors and banks in an Investment. Has advantage of
engaging the power of banks whenever any take over or harassment occurs, esp if bak has offered loans
to the host company.
Marketing and distribution: effective if there is threat of expropriation. E.g. Marcona and iron ore
distribution in Peru.
Licensing: licence technology for afee.esp if tech is unique and the risk is high. Of course risk of
licencee not paying fees.
Planned Domestication is a gradual process of participating with nations in all phases of the
company’s activities. Better than govt-induced domestication where confiscation is a risk. During
initial investment planning involves eventually selling off a significant interest to the nationals, an
incorporation of national economic needs and national managerial talent into the business as quickly as
possible. For the Co, this would ensure a fair and equitable ROI. The co’s political vulnerability would
be lessened significantly.
Political Payoffs: pay those in power to intervene on behalf of the Co. also brbery. ST beenfits but also
LT risks.
Legal Environments
a company doing international business will have to content with 2 jurisdictions, two tax systems and
two legal systems, and a third supranational set of laws (EU). Therefore, IM needs to pay attention to
Bases for Legal Systems : 4 common heritages form the bases for the majority of legal systems in the
world. Also interpretation of one base may be different in different countries.
Islamist law: Shari’ah - interpretation of the Koran= defines a complete system that
prescribes specific patterns of social and econominc behaviour e.g. property rights, economic
freedom. Unique- prohibited to pay excess interest. Islamic banks therefore buy back some of
the borrowers stock and sell it back to the Co at a higher price.
Socialist Law : based on Marxist-Socialist State, originated from Roma law/ code. The law
according to the social tenets is strictly subordinate to prevailing economic conditions.
Therefore laws governing contracts, ownership and other business activites have been
developed to reconcile the differences.
Common Law: basis is tradition, past practices and legal precedents set by the courts through
interpretation of statutes, legal legislation and past rulings.
Code Law: based on all-inclusive system of written rules (codes) of law. Usually divided into
3: commercial, civil and criminal.
E.g intellectual property rights:under common law, ownership is established by use. Under
code law: ownership is determined by registration. Although every country has elements of
both code law and common law, IM must be familiar with both or enlist aid of a legal counsel.
E.g. under common law, Act of God- natural disasters. Under Code law = also includes
unforeseeable human acts suh as labour strikes and riots. Therefore a contract in one country
may have different interpretation in another.
legal disputes can arise in 3 areas:
between govts: the world court and the WTO can intervene.
Between company and Govt: must be handled in the country
Between 2 companies: must be handled in the country
When commercial disputes must be settled under laws of the different countries, which law govern?
Jurisdiction is generally determined in one of three ways:
On the basis of jurisdiction clauses included in the contracts.
On the basis of where the contract was entered into
On the basis of where the provisions of contract were performed.
Jurisdiction clauses must be very clear.
Legal Recourse in Resolving International disputes
3 ways : conciliation, arbitration or litigation.
Conciliation: nonbinding agreement between parties to resolve disputes by asking a 3 rd party to
mediate the differences.chinese Cos prefer this to arbitration/ litigation. Usually the first step. Can be
formal/ informal. In formal, if agreement reached, a conciliation statement is signed and recorded. Not
legally binding.
Arbitration: both parties select a disinterested and informed party or parties to determine merits of the
case and make a judgement for both parties to honour. Tribunal for Arbitration: formal arbitration by
international groups with experience panel of arbritrators e.g. International Chamber of Commerce,
The London Court of Arbitration, The American Arbitration association. Very successful in most
cases. Arbitration Clauses : there should be aclause in contracts as to how to settle/ handle arbitration.
Litigation: lawsuits can be more costly than beneficial: costly, time delays, extended aggravation, poor
image and PR, fear of unfair treatment in FOR courts, difficulty in collecting judgement, and loss of
Protection of Intellectual Property Rights: A special Problem.
Patents, processes, Brand names and trademarks are among the most valuable assts for a Co.
Big business in fake goods results in loss of sales and lost jobs. Often other FOR cos responsible for
Many Cos have lost their trademarks and have to go through legal battles to buy it back. Usually this
occurs as a result of the Co assuming that established rights in the home country will protect it in other
countries. E.g. McD’s golden arches in japan.
Prior use Vs Registration: code law = ownership est by registration; common law- prior use. In US –
first user = owner. In Jordan whoever registers first is user.
International Conventions : 3 major international conventions to recognise and protect intellectual
property rights.
The Paris Convention: 100 member countries. Register in any one member country, affords
protection in other member countries.
The Madrid Agreement: established the Bureau of International Registration of Trademarks.
26 member countries in Europe automatically Protected. Even e.g. FOR Co subsidiary in any
of these countries could become a member and apply for protection.
The Inter-American Convention: most Latin America and US. Similar to Paris convention.
From the above, 2 patent arrangements have streamed.: The Patent Cooperation Treaty (PCT)
and European Patent Convention (EPC)
Also the European Union
Trademark Regulation- protection throughout EU.
Commercial Laws within Countries
Marketing Laws: ll countries have laws regulating 4Ps. E.g. different laws on Premium Offers among
different European Countries. Also Green Marketing laws affecting packaging and recycling, collection
of used packaging material, e..g. in Germany.
Antitrust (an evolving issue) now being enforced by the EU wrt antimonopoly, price discrimination,
supply restrictions and full-line forcing.
Legal Environments of the EU
Any restriction on competition is intrinsically reprehensible. (Rome Treaty)
The Decision making Process: The commission is not required to ask for the Co’s co-operation when
being investigated- It can do a ;dawn Raid’
State Aids: can result in artificially low export prices- can result in dumping and so lack of competition
and industry suffers.The commission is involved in trying to remove state aid a sit is against interest of
common market (Rome Treaty).
Mergers: this were threatenoing competition and creating a dominant position for merged companies.
Therefore, Cos required to give prior notification to the Commission, after which the latter investigates
and gives permission to go ahead.
Competition Policy serves 3 objectives:
Keeps the common market open and unified
At all stages of the common market development, the right amount of competition exists
Competition is subject to principles of fairness in the market place
But many cases are complex for the commission.
Information is the key component in developing successful marketing strategies. Most blunders could
have been avoiding if thorough market research was done.
Quality of information varies from the marketer’s SRC to thoroughly researched facts.
As an establishment broadens and expands into international markets, its need for current, accurate and
reliable data is magnified.
Marketing Research = gathering, recording and analaysing of data to provide information useful in
marketing decision.
Tools and techniques for MR is same for DOM and FOR, but environments are different. The
Researcher must develop the ability for imagininative and deft application of tried andtested techniques
in sometimes totally strange milieu.
Challenges are: frequently differing emphasis on the kind of info needed, limited variety of appropriate
tools and techniques,, and difficulty of implementing the research process.
Breadth and Scope of IM Research
Basic difference between DOM and FOR MR, is the broader scope needed for the latter.
3 types of research based on Info needed:
General information about the country, area and/or market;
Information necessary to forecast future marketing requirements by anticipating social,
economic and consumer trends within specific markets or countries;
Specific market information used to decide on 4Ps.
The broader scope of IMR entails collecting info on:
Economic: info on economy, inflation, business cycle trends, profitability analysis for the
products, specific industry economic studies, and key economic indicators for the home
country and other countries.
Sociological and Political Climate : cultural difference, ecology, safety, leisure time, and
impact on the business.
Overview of Market Conditions: market segments
Summary of the Technological Environment
Competitor’s market shares, methods of segmentation and thie apparent strategy on an
international scope.
For DOM MR, most of the above information is available after years of experience. But in FOR
markets, it must be gathered for each new market.
Many firms don’t like to spend money or time to do IMR – leads to errors in decision making.
The Research Process:
Key to success = planned and systematic approach.
1. Define the research problem and establish the objectives
2. Develop a research plan, how you are going to do the research.
3. Gather the relevant data from secondary and/or primary sources.
4. Analyse and interpret the collected data.
5. Draw findings and present the results.
Variations and problems occur due to differnces in economic and cultural conditions.
Research process
Defining the problem and
Developing a Research Plan
Gathering Secondary Data
Likely problems
 Converting business problems into objectives
 Unfamiliar environment – fail to anticipate influence of
local culture on the problem or fail to identify the SRC
 Failure to establish broad problem limits to include all
relevant variables. Consider wider range of Reponses
 Developing an appropriate methodology.
 Are findings comparable and useful?
 Decide on quantitative vs Qualitative
 Qualitative research used to:
- To formulate or define a problem more
- Reveal the impact of sociocultural factors
on behaviour patterns and to develp
research hypotheses.
 Not easily available in FOR non-Western countries.
 UN and OECD are working to collect data
 Lack of availability of detailed data
 National pride, fear of tax collectors, etc may affect the
reliability of the data
 Adjusted reporting
 Comparability and currency of available data e.g.
differences in definitions used, no previous history to
compare with, classifications used etc
 Check reliability by:
- Who collected the data? Any reson to
misinterpret the facts?
- For what pupose was the data collected?
- Methodology used?
- Data internally consistent and logical?
 Check validity by comparing data with another source. (e.g.
secondary data with hospital sales).
Gathering Primary Data
Analysing and Interpreting
Research Information
Used when secondary data not available.
Questions asked to salesforce, distributors, middlemen,
Success depends on ability to get correct and truthful info
Problematic due to cultural differences and inability of
respondents to communicate opinions in questionnaires
Willingness to respond e.g. only males decide, female
customers not willing to respond to male interviewer,
suspect tax agent.
Sampling : how does one select a sample if no adequate
demographic data available (e.g. no phone books, maps,
etc), or inadequate communication systems (one phone line
between 4 househoulds, illegal door-to-door interviewing.
Language and comprehension: differnces in idioms and
exact translation e.g. different conotaions of family. Also
literacy and written questionnaires. Use Back Translation
(translate from 1 to 2, and then third party translates it back
from 2 to 1); Parellel translation ( more than 2 translators
used for back translation); Decentring (back translation, but
compare the 2 versions of 1 and modify until the same
result achieved).
Multicultural reserch – a special problem: need to
determine whether standardisation of 4ps across cultures is
appropriate. Multicultural studies can help with this but
need to ensure comparability and Equivalence e.g.
differences in reliability of mail survey in A and B.
Despite above mentioned problems need to produce
meaningful guides for management decisions. To do so,
1. High degree of cultural understanding of the
market – social customs, semantics, current
attitudes and business customs.
2. Creative talent for adapting research findings –
patience, sense of humour, willingness to be
guided by original resecrh even though it may
conflict with popular opinion.
3. A sceptical attitude:
Semantic differential scale can be used: e.g. 3 beers being
compared along bipolar word pairs
 Present in a summarised and easy to understand manner.
 Consider purpose of report and whom it is addressed to.
 Avoid culturally biased and offensive conclusions
 Usually 2 pages.
Responsibility of conducting marketing research
can rely on FOR based agency or DOM co with a branch within the country, depending on the size and
degree of MR., or use own resources.
Ideal to have local reserchers in the country with close coordination between the client company and
local research companies. This cooperation is important at all stages of the research project.
Also 2 heads better than 1 in interpreting data to avoid SRCs.
Presenting the Findings and
Estimating Market Demand
Usually reliable historical data required to this. But as noted quality and availability os this is
Approaches available. Success depends on ability of researcher to find meaningful substitues or
approximations for the needed economic and demographic relationships.
1. Close approximations for sales figures can be made using production info plus imports, with
adjustments for exports and current inventory levels. Adjust for growth/ decline rather than
assuming the same trend will continue.
2. Analogy : assumes that demand for a product develops in the same way across coparable
economic development in countries. Need to develop a relatiobship between the item to be
estimated (e.g beer consumption) and a measurable variable (GDP), then draw an analogy.
3. Income Elasticity: measure sensitivity of changes in demand of a product in relation to
changes in income (Income elasticity coefficient). But data for this may not be available. Does
not give indication for total demand.
Multi National Marketing Information Systems (MMIS)
Increased marketing activity has generated more info and increased awareness of need for more info.
Also need for continuous information to be passed on for continuous operations, both in DOM and
worldwide markets. However danger of information overload and so need a systematic way of storing,
interpreting and analysing data. Therefore need a MMIS.
MMIs = embodies same principles as an information sys = interating complex of people, machines and
prcedures designed to generate an orderly flow of relevant information and to bring all flows of the
recorded information into a unified whole for decision making.
Different from DOM system in : Scope (MMIS has more than one country) and Level of info (operates
at each country level; system includes a subsystem for each country- CMIS)
Design an adequate CMIS for each country and then overall MMIS.
CMIS info included in overall planning decsions.
Challenges for developing MMIS- determining kind of info needed?, analysing how it should be
MMIs can be a source of info or a sophisticated system that includes specific decision models.
Emerging markets besides being large are also becoming competitors and sources of production for
western firms.
The word bank, IMF and the Economist have identified 24 emerging economies based on their GDP
and capitalisation of stock markets. These will account for more that 75% of the world’s trade growth.
Dropping trade barriers and allowing investment, many of these contries are now experiencing some
degree of industrialisation, urbanisation, rising productivity, higher personal incomes and technological
progress. Most people want to be part of the global consumer world.
As economies grow, range of tastes, prefernces abd variations of products sought by customers
Marketing and Economic Development
The stage of economic growth within a country affects he attitudes towards foreign business activity,
the demand for goods, the distribution systems found within a country and the entire marketing
Economic development presents a 2-sided challenge:
Study of general aspects of economic development is necessary to gain empathy for the
economic climate.
State of economic development must be studied with respect to market potential
Economic development = increase in production that leads to increase in per capita GDP. Also
widespread distribution of increased income.
Stages of economic Development: Walt Rostow identified 5 stages which indicate the relationship
between economic growth, products desired and sophistication of infrastructure.
The traditional society: lack of ability to increase productivity. Marked absence of systematic
application of modern science and technology. Low literacy.
The preconditions for take-off: modern sciences are beginning to be applied to agriculture and
production, transport and communication, health.
The take-off: achieve a growth pattern HR and social overhead have been developed to sustain
steady gowth. Can lead to rapid expansion.
The drive to maturity: sustained progress is maintained. Extend modern tech to all areas of
economic activity. International involvement.
The age of high mass consumption: leads to shifts towards durable consumers; goods and
services. real income rises so that a high % of poepl have discretionary income.
Newly industrialised countries and Emerging markets: Newly Industrialised countries (NICs) have
shown rapid industrialisation of targeted industries. Significant free-market reforms and so attract trade
and FOR investments. NICs have become exporters of steel, machine tools, automobiles, etc e.g.
S. Korea, Taiwan, Singapore and HK= 4 tigers of south-east Asia= becoming major markets
for industrial and consumer goods.
More that 2/3 of world’s population lives in emerging markets, so they are consumers as well
as competitors.
Also population rates are higher which will affect future resources and demands.
Infrastructure and Development: this is one indicator of economic development. Includes paved
roads, railways, seaports, communication networks. This will heavily influence distribution of goods
and the whole marketing process. Also commercial and financial service infrastructure e.g.
advertising, warehousing, banking facilities.
Objectives of Emerging Countries:
What are the objectives of the developing country?
What role is marketing assigned in economic growth plans?
What contribution must marketing make?
Which of the prevailing attitudes might hamper marketing strategies?
How can the market potential be assessed?
FOR investors are now seen as partners as countries realised that state owned enterprises
(SOE) were mismanaged and drained the treasuries.
Marketing’s contributions
 Often planners tend to ignore marketing and distribution. Focus on production, investment and
finance. Imagine a whole lot of goods produced but no way of getting them to consumers, no
middlemen, no promotions, etc ???
Marketing in a Developing Country
Marketing programme must be tailored to the population and the country considering literacy, culture,,
income level etc.
Level of Marketing Development – this roughly parallels the stages of economic development. The
more developed a country, the greater the variety of marketing functions demanded. Includes
advertising agencies, facilities for MR, repair services, specialised consumer financing agencies,
storage and warehousing.
Demand in a Developing Country: challenging to determine demand in a developing country. Due to
Economic dualism : coexistence of modern (cities) and traditional sectors (rural) within the economy;
and these are far apart in development.e.g. India. In dual sectors there are atleast 2 market segments;
each is profitable but requires different products and marketing programmes.
Emerging Markets:
There will be changes in the way countries trade and prosper due to:
Transition from socialist to market-driven economies
Liberalisation of trade and investment policies
Transfer of public sector enterprises to private sector
Rapid development of regional markets.
The big emerging markets (BEMs) are predicted to be the biggest importers. According to the UC chamber of
commerce, The BEMs are:
All physically large
Have significant popultaions
Represent considerable markets for a wide range of products
All have strong rates of growth or potential for sig growth
All undertaken significant programmes of economic reform
All of major political importance within their regions
Are regional economic drivers
Will engender further expansion in neighbouring markets as they grow.
The BEMs are different from other developing countries as they import more than smaller markets.
Eastern Europe and the Baltic States
Asia – pacific rim, China (7 regions; also big investor); India
The Americas (North American Free Trade Agreement- NAFTA).
Changing Market behaviour and Market Segmentation
As a country develops, profound changes occur that make segments appear or diappear.
Markets evolve from aa 3-way interaction of the economy, the culture and the marketing efforts of
Markets are constantly changing as they affect and are affected by income, awareness of different
lifestyles, exposure to new products and new ideas. Changing incomes raise expectations and the
ability to buy more and different goods.
Global communication, TV, radio and print media also have significant ipact in raising a\wareness of
different products and lifestyles.
Emerging Market Segments: research suggests there is a developing middle-income class, a youth
market, an elite market, etc. due to prosperity resulting from economic growth.
International Market Segmentation : market segment must be (4) Identifiable, economically
reachable, more homogenous, and large enough to be profitable. In another country, target markets can
be all consumers within the borders or global market segments (all consumers with same needs and
wants in groups of countries).
the difficulties faced by GATT, emergence of WTO and the proliferation of regional arrangements
have led to renewed interest for regional integration.
Trend- evolution of international market region- those group of countries that seek mutual economic
benefit from reducing intra-regional trade and tariff barriers. MNCs cooperate for economic benefit.
Multinational marjet groups form large markets that provide potentially significant market
opportunities for international business.
Kenichi Ohmae points points out that global companies that will be triad powers must have significant
market positions in each of the triad areas (Europe, America and Asian Pacific Rim).
La Raison D’etre
Successful economic union requires favourable economical, political, cultural and geographic factors.
A strong threat to the political or economic condition of a country is usually the impetus for
cooperation. E.g. EC – r5edevlopment after WW2.
Economic Factors:
o Every economic union shares the development and enlargement of market opportunities,
o Internal and external barriers are reduced.
o The union must have in place agreements and mechanisms to settle economic disputes
o Total benefit of economic integration must outweigh individual differences which arise as
countries are forming relationships.
Political Factors
o Political amenability among countries needed. Countries must have comparable aspirations
and general compatibility before surrendering any part of their national sovereignty.
Geographic Proximity
o Not imperative but facilitates functioning of a common market. Transport networks are likely
to be interrelated and well developed e.g. English Channel.
Cultural Factors
o Cultural similarity eases the shock of economic co-operation. Language not necessarily a
Patterns of Multination Cooperation
FTA= free trade area- agreement to reduce or eliminate tariffs and barriers among partner countries,
but ind tariffs and barriers maintained for other countries. E.g. NAFAT _ USA< Canada abd Mexico.
Custom unions = RCD and FTA + common external tariss for imports from other countries.
Common Market = eliminates all tariffs and barriers on internal trade, a dopts a set of external tariffs
and removes all restrictions on the free flow of capital and labour among member nations.
Political Union = most fully integrated form of regional cooperation. Complete political and economic
Global Markets and Multinational Market Groups
EU Formed as a result of 3 treaties- European coal and steel community, EEC, and European
atomic energy community.
3 legal intruments used: regluations that are as strong as national laws, directives but allowing
countries to choose means of execution and decisions addresses to a govt, ind or business
binding the parties named.
EU has increased authority. Form a federal pattern with executive, parliamentary and judivial
EU initiates policy and supervises its observance by member states.
The council can enact into law many of the proposals in the white paper by majority vote.
Taxes and products/ service changes still require unanimous vote.
European parliament can now influence legislation but it does not have the power to initiate
The European court of Justice (ECJ) = 13 judges. Court’s decision is final and can not be
appealed in national courts become important in enforcing union laws and regulations.
European Economic Area (EEA) – 5/12 members have now joined the EU. Governed by a special
council of miniters from the EEA states. EEA is the owrls’d largest consumer market. It is amiddle
ground for countries that want to be part of the EU single internal market but do not want to or can’t go
to the EU directly.
European free trade association (EFTA) –several EFTA countries joined the EC to form the EEA.
Therefore will most probably dissolve.
The commonwealth of Independent States (CIS)
After dissolution of USSR – Baltic states declared independence. Remaining 12 countries formed the newly
independent states (NIS) which then became the CIS. A loose political and economic alliance with open
borders. But there are tensions between the states. ? survival.
US Canada Free-Trade
Agreement (CFTA)
North-American Free Trade
Agreement (NAFTA)
Latin American Economic
Eliminate all trade barriers between the 2 countries.
Created a single continental commercial market for all goods
and most services.
Dissolved to form the NAFTA
US, Canada and Mexico
Mexico has many workers, US needs workers.
The 3 need each other to compete effectively.
Mutual assurance that they are dominant trading partners is
each other’s markets.
Creates one of the largest and richest markets in the world.
Each country will still have its tariffs to other countries.
Market access
Non-tariff barriers and trade restrictions removed.
Products from other countries must contain a certain % of
N.American Content.
Uniform customs procedures and regulations
Eleiminate restrictive investment conditions that will prohibit
trade in the 3 countries.
Also includes services such as financial services.
Intellectual property rights will be protected for NA
Fair and transparent government procurement
However, there is a sour feeling by Mexico. Many Cos have shut
down due to companies outsourcing to China. Also less graduates
from Mexico vs India or China.
 Latin American countries faced foreign debt, protectionist
Latin American Integration
Association (LAIA)
Market (ANCOM)
Market (Mercosur)
economic system, inflation, SOEs. Not much trade and
integration among the countries.
LAIA aim – establishment in a gradual and progressive
manner of the LA common market.
ANCOM is a framework for rules for FOR investments,
common tariffs for non-member countries, reduction/
elimination of internal tariffs.
Newest in LA.
Argentina, Brazil, Paprguay and Uruguay est a regional tariff
for non-member imports. Also harmonised trade and
exchange rate policies.
What is happening in Asia is by far the most important development.
Asia accounts for more than half of the world’s population.
Association of Southeast
Nations (ASEAN)
Asia-Pacific Economic Cooperation
Primary multitrade group in Asia.
Goals= economic integration and co-operation through
complimentary industry programmes, preferential trading,
guaranteed market access and harmonised investment
Faced problems but steps taken by its members have resulted
in the fastest growing economies in the world. This happened
due to 4 events.
- Deregulation,
privatisation of their economies.
- Shift
from commodity based
manufacturing economies
- Specialise in components they have
comparative advantage.
- Japan’s emergence as a major provider of
technology and capital needed to upgrade
manufacturing capability and develop new
This then became the ASEAN free Trade Area
(AFTA) .
AFTA consists of 10 countries and intends to reduce
interregional tariffs and remove trade barriers over a
period of 15 years.
Provides formal structures for countries in the region inc UC
and Canada to discuss their mutual interests in open trade
and economic collaboration.
18 countries.
Lot of multinational market development but little progress.
About 200 economic arrangements, but little actual economic integration, due to political unstability.
The Economic Community of West
African States (ECOWAS)
Community (SADC)
Strongest and most successful
16 members
Aggregate GDP of more than 60 billion.
14 countries
Becoming stronger
Gdp over 263 billion.
Arab common market set for free internal trade but has not achieved it.
Future Multinational Market Groups
Agreemtn between US and EU
Triangular economic relationship between Taiwan, HK and China. (Chinese Economic Area- (CEA))
Multinational market groups spell opportunity for investors. Market access, reduced tariff, eleimibation
of trade barriers, etc.
Firms now need to learn how to deal with integrated economies.
JV, mergers and acquisitions consolidate operations of European Firms.
However IM will still face the same challenges of couture, language , etc in individual countries.
Creates large mass markets and so economies of scale and marketing efficiencies.= lower prices and
increased purchasing power.
Savings in developing different specifications for a product e.g. electric plug.
Market Barriers
Trade increases among member countries and reduces with non-member countries. So exporter
wanting to export to other countries may find it difficult.
Ensuring EU Market Entry
Firms will need to have a presence in the EU to compete.
4 levels of presence:
o Firms based in Europe with Manufacturing and distribution in European countries- best placed
but faces a competitive environment.
o Firms with operations in a single EU country- vulnerable. Can expand to Europe, M & A,
Strategic alliance with another European co, or withdraw.
o Firms that export manufactured goods to the EU from an offshore location
o Firms that have not actively exported to the EU.
Marketing Mix Implications:
Uniform standardised pricing policy
Reducing number of brands produced to focus promotion and advertising efforts.
Competition at the retail level and therefore the creation of Europe-wide distribution channels.
Goals of MNCs is to enhance their competitiveness and capitalise on opportunities in the global
marketplace, so changing their strategies. Same for small and medium Cos.
International Marketing Management (IMM)
Central task= determining a firm’s overall international strategy to achieve goals and objectives .
3 international orientations:
o Domestic market expansion
o Multidomestic market concept
o Global market concept.
The above each produce a diffierent mix for the 4Ps.
Global Vs International Marketing Management
Global marketing management is guided by the global marketing concept which views the worls as one
market and is based on identifying and targeting cross-cultural similarities.
IMM is based on the premise of cross-cultural differences and is guided by the belief that each foreign
market requires its own culturally adapted market strategy.
There is still debate about the extent of global markets, and whether a completely standardised
marketing mix can be achieved.
3 points that define global approach to IM:
o The world is vewed as the market (i.e. sets of country markets).
o Homogenous markets sets are sought across country market sets
o Standardisation of the marketing mix is sought wherever possible but adapted culturally where
Standardisation Vs Adaptation
 Why globalise?
o Economies of scale in production and marketing
o Transfer of experience and know-how across countries through improved coordination and integration of marketing activites.
o Uniform international image. Global recognition of brand accelerates new product
introductions and increases the efficiency and effectiveness of advertising.
Without dobt, market differences seldom permit complete standardisation due to Govt and
trade restrictions, differences in availability of media, differences in customer interests and
response patterns and cultural differences.
Competition in the Global Market Place
Global competition is placing new emphasis on some basic tenets of business.
o Reducing time frames
o Focusing on importance of quality
o Competitive prices
o Innovative products.
tech helping to shorten product life cyscles and creating greater opportunities for innovative products.
This means that Co must maximise sales rapidly and recover the cost of inv and generate profits.
Must understand the nature of dynamism in the market.
Quality and Competitive Marketing
New focus on quality needed as shift from seller’s market to buyer’s market.
Quality defined in a number of ways but usually it refers to conformance to and compliance
with predetermined standards or specifications with minimum defects. Assumption that this
will meet customer’s needs. Not really the case.
TQM is a corporate strategy that focuses total co efforts on manufacturing superior products
with continual improvements and zero defects that satisfy customer’s needs. Also need to
consider and adpt products according to competitor’s offerings as customers compare
Cost Containment and International Sourcing
o Cos seek to keep costs down within a permissible range to stay profitable.
o Global Sourcing is becoming a pre-requisite –low costs, flexibility and dependability.
Reliability of quality as worldwide sources strengthen.
o Can achieve technical supremacy by securing access to innovative technology from offshore
o Can help establish foothold in product markets where otherwise it would have been difficult.
o Prima locations – India and China. Poland, Hungary, Czech and Slovakia.
Collaborative relationships.
o With surges in demand come competition. Cos being forced to stretch all activities and
capabilities due to increased competition and tech advancement.
o Focus on quality and staying on cutting edge of tech no enough. Also needed – restructuring,
reorganising anf downsizing.
o Also need to develop LT mutual relationships within the Co and with customers, Govts,
suppliers and competitors. i.e. fousing on collaborative relationships that promote LT
o These relationall echanges occur internally and externally.
o Collaborative relationships can be classified into 2: (a) Relationship marketing – relationships
that focus on the marketing process, and (b) Strategic Business Alliances – those that
encompass other activities of the business.
Relationship Marketing
o collaborative working that focuses on marketing processes.
o Business es are changing their attitudes towards internal relationships and between themselves
and traditional competitors, suppliers, retailers and distributors. Working with customers and
everone else to produce goods that best serve the customer’s needs.
o E.g. shared development of washing machines and detergents.
o Why relational marketing? It helps cement customer loyalty = repeat sales, referrals, market
share and growth.
Formulating IM Strategy
Strategy planning = new ways of growing i.e. new products and markets.
Knowledge of FOR market necessary but also restricted by the resources and management perceptions/
Factors influencing IMM strategy:
2 types of generic strategy:
o Differentiation – premium quality and premium prices or low-cost advantage. Differentiation
has to be from a customer’s perspective. If successful = sustained competitive advantage
o Focus Strategy – focus on a particular market segment or part of a roduct line e.g. rolce
Royce, Porsche.
o What you do to the customer’s mind with reference to your product.
o No longer a simple task as too many companies, too many products and too much
communication/ information in the market.
o Most effective way = to know your customersegment, understand them and create an image
that matches their needs/ wants.
o Has to be time at the right time and under the right circi=umstances.
o Has to be done constantly and consistently.
o Re-positioning needed every now and then due to changes in the market place or changes in
customer tastes, and so Cos need to be pro-active.
Development and building reputation of a brand name.
Brands used to convey marketing messages and positioning to markets.
Requires understanding the customer segment and conveying this through effective
o Often most valuable asset to the Co e.g. Nike, coca cola, etc.
o Includes sub-brands and brand extension (allows lower marketing expense and utilisation of
the Co’s existing customer base).
o Brands can lead to customer loyalty and satisfaction- big assets to the Co.
o Brand loyalty – leads to resistance to switching to another Co’s products.
o Customer Loyalty – creates barriers of entry for the competitors as it enhances cost of
entrance into the industry.
Product Life Cycle (PLC) and IM Strategy
o Each stage of PLC demands different marketing strategies due to different market conditions.
o 4 stages : introduction, growth, maturity, decline.
Not all products survive all 4 stages and different time periods.
Strategic Planning
Attempt to manage the effects of external uncontrollable factors on the firm’s strengths , weaknesses,
objectives and goals to attain a desired end.
Principles are the same for FOR and DOM planning but intricacies of operating environment of the
MNC, its OS and that task of controlling multi-country operation, create differences in complexity and
process of international marketing.
A strategic plan commits resources to products and markets to increase Comp Adv and profits.
International planning at the corporate level – LT, done at highest level of management.
Tactical planning or market planning : pertains to specific actions and resource allocation for
specific markets.
Process of planning just as important as the plan as it encourages the marketer to examine various
internal and external factors.
Company Objectives and Resources
o Objectives need to be clear.
o Sometimes plans may need to be reviewed or abandoned as they don’t parallel the objectives.
International Commitment
o Management commitment In terms of resources required, personnel for managing the
international organisation and determination to stay in the market long enough.
The Planning Process
o A major factor for success.
o Decisions about level of commitment, which products and which markets, how many
resources needed.
o Guidelines and procedures are essential for determining opportunities and threats.
o The international Planning process:
Phase 1 – preliminary analysis and screening:
Matching Company and Country needs.
Phase 2: adapting the marketing mix to target
Which country to invest in.- screening criteria used to
 Screening criteria ascertained by the Co’s
obj, resources and limitation and capabilities.
Det reason for entering a country and the ROI
expected, minimum profits, etc
 Also evaluate in terms of political stability,
legal requirements and other relevant
 Match Co’s S & W to country’s constraining
Complete analysis of the Env:
 Uncontrollable element sin the home and host
 Marketing obj
 Company S and W.
Results of Phase 1 helps to:
 Evaluate the potential of a proposed country
 Identify problems that would eliminate the
country from being considered.
 Identify environmental factors that need
further analysis
 Determine which part of the marketing mix
needs to be adapted
 Develop and implement a marketing action
 Avoid crucial mistakes
 Marketing mix needs to be adapted in light of
date from phase 1.
Phase 3: Developing the Marketing Plan
In which way can the 4 Ps be standardised,
and in which way can they be adapted to
meet the requiremnts?
Primary goal : decide on a marketing mix
adjusted to the cultural constraints imposed
by the uncontrollable elements of the
environment that effectively achieves the
corporate goals.
E.g. Nestle for its coffee – all sorts of
questions asked about how different
customers like their coffe. Timings, what
age?, etc. = 200 types of instant coffee
produces by Nestle.
Phase 2 also determines possibilities of
standardisation, by grouping together similar
markets/ characteristics.
May lead to a decision not to enter the
market. Weigh up cost vs benefits.
Phase 2 answers 3 questions:
1. Which elemnts of the marketing mix
can be standardised and where is
standardisation not culturally
2. Which cultural/ environmental
adaptations are necessary for
successful acceptance of the
marketing mix?
3. Will adaptation costs allow
profitable market entry?
Based on phase 2, a further list of countries
may be dropped.
Situation Analysis and specific action Plan.
What, who, how and when.
Includes budgets, sales and profit
 Again decision not to enter the market may
be made.
Phase 4: implementation and control
 After a ‘go’ decision in phase 3 made.
 All plans require co-ordination and control
during implementation.
 An evaluation and control system helps to
bring the plan back to track.
Note: the planning process is dynamic and interactive. Info from all phases is fed back and interacts.
The model provides the basis for viewing all country markets and their inter-relationships as an integrated
global unit., and can help put the strategic planning process into operation.
Why firms go abroad
Main driver is growth.
The establishment chain model = present gradual internationalisation. Start from domestic markets and
then gradually develop their operations abroad.
Obstacles of internationalisation:
o Lack of knowledge of FOR markets and resources.
o The Psychic Distance – perceived to be far due to cultural difference. Does not always
correlate with geographical distance. Not constant and can change.
Stages of going abroad:
o No regular export
o Export via representatives
o Sales subsidiary
o Production/ manufacturing subsidiary.
Whether a firm progresses from 1 to 4 will depend on the psychic distance, size of the market as well
as the need for control
Market Servicing Strategy
How a certain market will be served by DOM or FOR firms or a certain combination of the two,
depends upon the Co objectives and market characteristics, and will attract/ detract a firm from going
3 main objectives for seeking markets abroad:
o Market seeking – seeks a considerable market abroad due to DOM market saturation or
stronger product for FOR market. Firm wants to enter large or rapidly growing markets e.g.
india, china.
o Efficiency seeking – efficiencies for R & D and infrastructure, etc. e.g. Silicon Valley
o Resource seeking – access to raw materials or other crucial inputs that can reduce costs e.g. oil
companies in middle east
More than one objective can be met in certain markets.
Benefits or incentives provided by the host country also play a major role.
Most studies show that Foreign Direct Investment depends upon factors such as availability of
infrastructure, language and supportive attitude of the home market.
Depending on the objective, certain factors become more or less important. E.g. market seeking –
analyse competition, resource seeking – suppliers, their relationships and networks and whether it will
be easy to penetrate, efficiency seeking- L.T efficiencies.
Also, is it the first Co to enter the product market? First Mover advantages : knowledge, experience,
loyalty. Disc: inv in marketing and educating, other firms may reap benefits, etc.
Market Opportunity Analysis
Answers the questions:
o should we enter the country? – screen the country’s political and legal env, co’s overall
o Is there a potential in that market for an industry or competitors? – is market economically
attractive?- competition and market shares
o Is there a market/ sale potential for a product in the market?
If for efficiency, then what time of efficiencies are being sought? R&D or agglomeration (e.g. already
set up infrastructure in silicone valley).
For resouces- cost of RM, labour, taxes, etc.
Proactive Market selection – usually with Co with market research departements. Collect and analyse
information proactively and systematically.
Reactive market selection – when firm wait for an unsolicited order, wait and see until other
competitors have entered the market. Not always wise and diff to gain market share afterwards. Also
Co needs to do its own analysis anyway.
Market/ country selection
E.g. BCG portfolio analysis can be used to analyses each and every product of the company so that it
can designa strategy for each product/ business. Main benfit- it relates company products to
It analyses 2 determining factors:
o Country Attractiveness – is it suitable for the Co/ product?
o Competitive Strength of the company – whether the Co has resources and potential to meet its
objectives in this market.
The BCG would look as follows:
Major strength of the BCG is that the co can compare different markets and helps to look at its
capabilities in the context of international competition.
Strategic International Alliances (SIAs)
A business relationship established by 2 or more companies to cooperate out of mutual need and to
share risk in achieving common objective.
It implies:
o That there is a common objective
o One partner’s weakness is offset by the other’s strength
o Reaching the objective alone would be too costly, timely or risky
o Together their respective strengths are greater than one alone.
a synergistic relationship.
SIAs uses to shore up weaknesses and increase competitive strengths.
Motives/ reasons for engaging in SIA:
o New markets
o Access to new technologies
o More efficient production and marketing costs.
o Achieve economies of scale
o Reduce new market entry costs and risks
o utilise excess manufacturing capacity
o Additional sources of capital
o Accelerate product introduction
o Overcome cultural and trade barriers
o Extend the existing scope of operations
o Acquire skills necessary to achieve its objective e.g. strong R & D but weak capital.
Some SIAs have failed mainly because of lack of perceived benefits to one or more of the partners.different goals, different management styles,
Market Entry Strategies
Once commitment to go abroad is made, need to decide on a strategy following analysis of market
potential, co’s resources and capabilities and the involvement and commitment from management.
 Easiest and most common approach as risk of financial loss can be minimised.
 Sound and permanent form of operating in international markets.
 Early motives are usually to skim the market and absorb overhead.
 Piggybacking = when a supplier sells its product abroad using another company’s distribution facilities
(carrier). Common for industrial products. Benefits: extention of product lines offered, can share
transport costs, or for the carrier to make profits. Some governemnts encourage this to support smaller/
weaker firms.
2. Licensing
a means of establishing foothold without large capital outlays
patent rights, trademark rights and rights to use tech process granted.
Usually a supplement to exporting and/or manufacturing.
Advantages are more apparent when:
o Capital is scarce
o Import restrictions are restricting entry
o A country is sensitive to foreign ownership
o Necessary to protect patents/ trademarks against cancellation for non-use.
Not very profitable, but less risks
Best way to capitalise on intellectual property.
Licences can be granted for:
o Production processes
o Use of a trade name
o Distribution of imported products
Difficult to find, supervise and inspire licencees.
3. Franchising
Rapidly growing form of licensing
Franchiser provides standard package of products, systems and management services. Franchisee
provides market knowledge, capital and personal involvement in management.
This combination provides flexibility in dealing with local market conditions and provides the parent
company with a reasonable degree of control.
Important form of vertical market integration
It is the fastest growing market entry strategies.
3 types of franchising agreements:
o The master franchise – most inclusive. Gives franchisee rights to specific area with the
authority to sell or establish subfranchises.
o Joint venture
o Licencing
4. Joint Venture (JVs)
When two or more companies have joined forces to create a separate legal entity.
JV different from strategic alliances or minority holdings by an MNC, in that they are:
o Established, separate legal entities
o Acknowledge intent by partners to share in the management of the JV
o Partnerships between legally incorporated entities such as companies, chartered organisations
and govts. Not individuals.
o Equity positions are held by each of the partners.
Less risky way of entering markets with legal or cultural barriers e.g. US Co JV with European
JV can be attractive to an International marketer when:
o It enables the Co to utilise skills of an local partner
o Allows Co to gain access to the partner’s local distribution system.
o A company seeks to enter a market where wholly-owned activities are prohibited
o It provides access to markets protected by tariffs, quotas, etc
o The firm lacks capital or personnel to expand internationally.
Nearly all companies active in world trade have at least one JV
5. Consortia and syndicate
Similar to JV except for 2:
o Involve a large no. of participants
o Frequently operate in a country or market in which none of the companies is active.
Formed for pooling fininacial, and managerial resources and to lessen risks.
6. Manufacturing
A co may manufacture locally to:
o Avaoid high import taxes
o Reduce cost of transportation
o Gain access to RM
o Means of gaining access/ entry into the market..
3 types of manufacturing investements:
o Market seeking
o Efficiency seeking
o Resource seeking
7. Countertrade:
Seller must buy products from the buyer or a 3 rd party.
Promotes local exports, saves scarce foreign exchange, balancing trade flows, and/or ensures
guaranteed supplies.
Other terms may include: buy back, counterpurchase, compensation and offset barter.
Now a common practice.
The mechanism of exporting adds extra steps and costs to an international marketing sale that is not
incurred in a DOM sale.
Apart from selecting a target market, deciding on the 4Ps, the marketer must also comply with the
legal requirements of moving goods from one country to another.
Regulations and restrictions of Exporting and Importing
Export regulations are designed to conserve scarce resources for home consumption or to control the
flow of strategic goods to actual or potential enemies.
Import regulations may be imposed to protect health, conserve foreign exchange, serve as economical
reprisal, protect home industry or provide revebnue in the form of tariffs.
To comply, the exporter may have to acquire a licence or permit from the home country and ascertain
that the potential customer has the necessary permit to import.
Export controls: e.g. since 1993, free trade within Europe. Standardised rules and regulations, one
administrative document, no foreign exchange restrictions on transactions. Resulted in increased
volume of trade, use of special cargos, etc to provide door-to-door service.
Import Restrictions: seller needs to check this, as goods arriving without proper documentation can be
denied entry. E.g.
o Import licenses, quotas and other restrictions
o Currency restrictions and allocation of exchange at unfavourable rates
o Devaluation
o Prohibitive prior import deposits,
o Arbitrarily short periods of time within which to apply for import license
o Processing delays.
Most common:
Tariffs = all taxes or custom duties on imported goods. Based on value and/or quantity. In the
EU there is a common external tariff (CET) for goods from other countries.
Exchange permits : importer has to apply for an import permit. Used to conserve scarce
foreign exchange and alleviate BOP. However having an import licence is no garuantee, and
importers often have to resort to countertrade.
Quotas = limitations on quantities imported.
Import licences: similar to quota but quanti=ty determined ona case by case basis.
Boycott: absolute restriction of trade with a country or of specific goods.
Standards – health standards, safety standards and product standards. Used to protect but also
to slow down or restrict procedures.
Voluntary agreements – often complied due to implied threat of further harsher restrictions.
Other restrictions: esp of harmful products drugs, medicines and immoral products. Sanitation
cetificates, content labelling, etc. for health protection but also for restriction
purposes.(nontariff barriers).
Customs-Privileged Facilities
Designated areas within a country’s border where goods can be imported for storage and/or processing
with tariffs and quotas postponed until the products leave the designated area.
E.g. foreign-trade zone, free-trade zone, free ports and in-bond arranfgements.
Foreign trade zones (FTZs)
o FTZs extend their services to thousands of firms enagaed in international trde from
distribution to manufacturing.
o Where goods are to be combined with local goods, importer or exporter can avoid payment of
local import duties on the FOR portion.
o Lower insurance costs due to greater security in FTZs
o More working capital since duties are deferred until goods leave the zone
o Opportunity to stock pile products while waiting for processing or for ideal market conditions
o Significant savings on goods or material rejected
o Exemption from labour and overhead costs incurred in FTZ which are excluded in
determining value of goods.
o E.g. Special Economic Zone (SEZ) in Shenzhen, China
Export documents
Need to be carefully completed and are in itself a barrier as it takes very long/ tedious job
Export declaration: presented at port of exit. Names and addresses of principals involved, destination
of goods, full description of goods and their value.
Bill of Landing: most important to establish legal ownership and facilitate financial transactions.
Serves as a contract between carrier and shipper, as a recipt from carrier for shipment, and as a
certificate of ownership of the goods.
Commercial Invoice: bill or statement of goods sold
Insurance policy or certificate: key document
Licences: export or import licences often required before getting an invoice or export declaration.
Others: sanitary and health inspection certificates for agricultural products; packing lists with correct
Terms of Sale
CIF (Cost, insurance, freight) to a named overseas port of import.
C&F (cost and freight) of the goods. Insurance is borne by the buyer
FAS (Free alongside) at a named port of export- cost of goods and delivery alongside shipping vessel.
Buyer is responsible for cost of loading onto a vessel, transportation and insurance.
FOB (Free on Board) –price includes the cost of goods and delivery to the place named.
EX (named port of origin). Covers costs only at point of origin. Everything else borne by the buyer.
Letter of Credits (LC)- shifts the buyer’s credit risk to the bank issuing the LC.
Packing and Marking: consider weather, transport conditions, handling. May need heavy crating
which increases costs. Some countries determine tariffs based on gross weight.
Export shipping: implications:
o Goods can be out of shipper’s control for a long period of time
o More shipping and collection documents required
o Suitable packing required
o Insurance needed
o Shipping costs can add significantly to the price of the product. Containerised shipment used.
o Now containerised cargo (railway) used as cheaper and safer than shipping.
o Air freight for high value low volume goods.
The overall cost of the physical movement of goods includes transport, storage, admin, etc.
When a company becomes global, important to consider the distribution system as an integrated system
for RM, in-process inventory and finished goods from point of origin to point of use/ consumption.
Interdependence of Physical Distribution areas
o Distribution viewed as a hole includes locations of plants and warehousing (storage),
transportation mode, inventory quantities and packing.
o Cost of each activity interdependent, and a decision involving one will affect all.
o Need to include cost of financing for maintaining inventory, cost of delayes, etc.
o Change of transport mode can change cost of packing, handling, inventory, warehousing time,
delivery cost.
Benefits of Physical Distribution Systems:
o Better, more dependable delivery
o More economical
o Can render natural obstructions created by geography less economically critical for the IM.
The Foreign Freight Forwarder:
Arranges for shipment of goods for the exporter i.e. an indispensable agent.
International Markets and Product Development.
Standardised/ globalised product Vs adapted products.
Proponents of standardised products argue that global communication and other socialising factors have
created a homogenous market with similar needs and wants. Studies show that modern products usually
fit into the lifestyles of urban consumers wherever they are.
Also product standardisation leads to production economies and other savings that permit profits at prices
that make a product attractive for the global market. Also better planning, more effective control and
better use of creative managerial personnel. But only if there is adequate demand for the product.
Opponents propose that adaptation is needed to take into account cultural variation.
The key issue is not whether or not to adapt but how much to adapt and to what extent it can be
Most products are adapted to some degree. E.g. McD does not sell beef burgers in India.
Most products do not exclude a standardisation approach as some efficiencies can be achieved through
Therefore approach is standardise where possible and adapt where necessary.
To allow for flexibility, manufacturers design a core platform with the basic technology and then base
variations on this platform.e.g. Apple ipod.
Standardisation, differentiation or adaptation for the sake of it is not beneficial. Realistically, The
company should strive for uniformity in its marketing mix whenever and wherever while recognising that
cultural differences may demand some accommodation if the product is to be competitive.
Global brand: world-wide use of a name, term, sign, symbol, design or combination therefor intended to
identify goods or services of one seller and to differentiate them from competitors.
o Clear benefits of a brand name such as customer loyalty, cost savings when introducing other
products associated with the brand name.
o Companies that already have a successful country-specific brand must weigh up the benefits
of a global brand vs risk of losing the benefits of an already established brand- LT
consequences of both.
o E.g. Nestle uses a two pronged approach. If a country has a country-specific brand, it will
acquire it and build on its strength. Where there isn’t one, it will use the global brand.
Country of Origin Effects and Global Brands
o Customer associates value of the product with the brand.
o It can convey positive or negative feeling based on past advertising and promotion, product
reputation and evaluation and experience.
o Also considered is the country of Origin effect (COE) and this will affect the brand image in
the customers’ minds.
o Customers tend to have stereotypes about countries and products that have been formed by
hearsay, experiences and myths. E.g. ‘best’ – English tea, French fashion, Chinese silk, Italian
Leather, etc.
o Usually product specific generalisation.
o COE can also be affected by Ethnocentrism.
o Countries also stereotyped depending on whether it is developed or developing. Usually
associated with the quality of the products. Esp of technological products.
o In less developed countries, preference for FOR made products.
o Also Fads about western products come and go.
o Effectively advertised brands and properly positioned products can help overcome such
o Also pioneer brands are perceived more positively that follower brands.
Own Brands
o Especially in the retail section, retailers own their oen brands.
o These have captured nearly 30% of the market in UK e.g. Sainsbury’s taste the difference,
Tesco Value, etc.
o Typically have high margins and therefore becoming more attractive to businesses.they also
receive more shelf space, stron in-store promotion, they are quality products at low prices.
Products and Culture
A product is more that a physical item. It is more than a bundle of satisfaction or utilities the buyer
receives. It includes its form, texture, colour, odour, packaging, how it functions in use, warranty, a
manufacturer’s servicing, confidence/ prestige enjoyed by the brand, Country of origin and other
symbolic utilities.
Physical attributes generally are required to create a primary function (e.g car’s primary function is to
move from A to B), and this does not change across cultures.
Psychological attributes such as shape, colour, design, bramd name are perceived differently by
cultures. To create positive attributes, adaption of these may be needed. E.g. diet coke to coke lite.
The extent of adaption needed will depend on the differences between the market the product was
originally designed for the new market.
Innovative products and Adaptation
o Fist step in adapting a product is to determine the degree of newness perceived by the
intended market. How people react to newness and how new a product is to the market must
be understood.
o If perceived as new = innovation. And the time it takes to accept this will depend on its
characteristics. (diffusion).
o Goal of a FOR marketer is to gain acceptance of the largest number of people in the shortest
period of time. Even after it is accepted, the time it takes for the culture to learn new ways,
learn to accept a new product are critically important as planning will need to reflect a time
frame for investment and profitability.
Diffusion of innovations
o Varying time frames for diffusion of different products
o Knowledge of the process of diffusion provides the ability to assess the time it takes for a
product to diffuse, before making financial commitment.
o Rate of diffusion affected by: degree of perceived newness, perceived attributes of the
innovation and the method used to communicate the idea.
Degree of Newness
o Varying degrees can categorise products into 4:
a) Congruent innovation = product concept is already accepted by the culture.
Innovation is in offering variety, quality or functional features, style. Or it can be a
complete duplicate e.g. cane sugar vs beet sugar.
b) Continuous innovation = alteration results in better use patterns e.g. Gillette blades.
c) Dynamically Continuous Innovation = some disruption and involves new
consumption patterns. Creation of a new product or considerable adaptation of an
existing one due to changes in lifestyle or new expectations. E.g electric
toothbrushes, electric haircurlers, etc
d) Discontinuous innovation = involves establishment of new consumption patterns and
creation of previously unknown products. It introduces an idea or behaviour pattern
where there was none before. E.g. TV, fax machine, electric cars.
Physical or Mandatory Requirements and adaptation.
o A product may have to change to meet physical or mandatory requirement.
o Can range from simple package changes to total redesign.
o Need to assess legal, economic, technology and climatic conditions of the country.
o No of units per package may have to be reduced to make the product more affordable.
o E.g. sachets of shampoo in India, special air filters and clutches fitted to cars sold in the
Middle East. Peanuts packaged in tins due to humidity.
Product Life Cycle and Adaptation
Between markets, substantial adaptation may be needed if the product is in a different stage of PLC in
each market.
Marketing plans should include adaptations needed to correspond to the stage of the PLC.
Screening Products for Adaptation
Systematic method of screening products needed. Can be screened on 2 bases.
a) Analysis of Characteristics of Innovations: product analysed by 5 characteristics of
 Relative advantage
 Compatibility
 Complexity
 Trialibility
 Observability – ease of communicating benefits
 Once analysis made, newness can be reduced by marketing.
(b) Analysis of Product Components : physical attributes can influence acceptance or
rejection of a product. A product’s dimensions can be separated into 3 distinct components.
This can help the marketer focus on different levels of product adaptation.
Adaptation required to any or all of the componenents depending on cultural differences, legal
requirement, economic conditions. E.g. in Japa, lux is packaged in luxury gift boxes as all soap is
purchased during 2 seasons.
Also Quality is now defined by the consumer as it is now a buyer’s market. Therefore the decision to
standardise or adapt a product is crucial in delivering quality.
Aka Business to business marketing. Different from consumer marketing
In B2B, industrial buyers are well informed, highly organised and sophisticated in their purchasing
behaviour. Also multiple influences participate actively in the purchasing decision.
The buyer is not the end user, and he often sells it on to, or uses it to produce/ assemble products.
In this type of markets, interaction between the organisations and a network of relationships is
considered more important than finding a marketing mix.
Industrial products and services are:
o Often used in the process of creating other goods and services
o Industrial buyers are seeking profits, while consumers seek satisfaction.
o In industrial markets the no. of buyers and sellers is small.
Industrial goods can be typically classified into:
o Construction material
o Heavy equipment
o Light equipment
o Components and subassemblies
o Raw materials
o Processed materials
o Maintenance materials
o Operating supplies.
Most rapidle growing area of international trade is Business services e.g. accounting, advertising,
banking, insurance, etc creates a unique set of problems as:
o Intangible
o Lack of uniform law that regulate market entry
o Protectionism can be much more pronounced for airlines, telecommunications, etc.
The Industrial Product Market
Tech is key to economic growth.
Manufacturing is becoming more science oriented and access to inexpensive labour and RM is
becoming less important as robots, sophisticated computer programs and digital control systems take
over the factory floor.
Demand and Technology :
o 3 interrelated trends
 Expanding economic and industrial growth in the emerging markets
 Liberalisation of most markets
 Privatisation of government owned businesses.
o Heavy investment in infrastructure and increasing demand for goods = demand to build more
manufacturing plants.
Volatility of Demand in Industrial Markets
o For industrial products, the firms don’t sell directly to consumers and therefore are not fully
aware of the volatility in demand (due to PLC, demand fluctuations, etc).
o The industrial buyers acta according to demand of their product. = derived demand.
Attributes of Product Quality
Quality rests solely with the customer. Perception of quality can include:
o Level of technology reflected in the product
o Compliance with standards that reflect customer needs
o Support services and follow through
o Price relative to competitive products
Quality is not an absolute measure but relative to the customers; needs.
Important factors influencing purchase decisions include product quality, dependability of suppliers
and timely delivery.
Price- Quality Relationship
o Price is an important factor in purchasing decision.
o Quality for many goods is assessed in terms of fulfilling specific expectations, no more , no
less. So if one requires a machine that produces 5000 units /hour, a machine that produces
20000 is no good is unnecessary capacity for the extra 15000 units. i.e. induatrial buyers
require products designed to meet specific requirements.
Product Design-Quality Relationship
o Industrial buyers judge products by their contribution to profit or to the improvement of the
buyer’s own products and production processes.
o Products designed to meet the specific or exact needs of industrial buyers is critical to comp
o Design of a product must be viewed from all aspects of use. E.g. machines for western
countries vs Middle east, trucks for different countries, etc. products need to be functional.
o In most industrial markets, esp for components and parts, the buyer normally decides and
gives specifications for design and other characteristics of the product.
Service and Replacement Parts
o Also important are effective service, prompt deliveries and the ability to furnish spare and
replacement parts without delay.
o Installation and technical training are becoming important parts of the after sales package.
o E.g. service pert company hires service people at local stores which have a large stock of spare
parts. This enables the Co to offer product and service almost immediately on purchase.
Universal Standards
o 2 problems : lack of universal standards for manufacturing highly specialised equipment, and
the use of inch-pound (English) system of measurement.
o Leads to conflicts in test methods, quality control systems and machine specifications.
o Also individual countries have their own standards for products entering their markets.
ISO 9000 Certificate : An International standard of Quality
o ISO9000= a series of 5 international industrial standards – becoming a quality assurance
certification programme that has competitive and legal ramifications when doung besiness in
o Certification of the existence of a quality control system that a co has in place to meet
published quality standards.
o Through internal and external audits, it enables the Co to provide assurance that it ha a quality
control system.
o Does not imply ‘quality’ product.
o Not a legal requirement but required for EU product certification on some high risk products.
o More manufacturers are requiring ISO9000 of their suppliers.
Relationship Marketing
Relationship marketing is based on mutual cooperation, trust and joint benefits.
B2B relationship is more long term and demands a higher level of relationship and,
necessary for industrial goods marketing.
RM ranges all the way from info gathering on customers’ needs, channelling products to the customer
in a timely manner, following up to making sure the customer is satisfied.
Continuous changes in needs of industrial customer means that the seller will need to make continuous
changes to the product.
Promoting Industrial Products
Adv in industrial media or through Trade shows.
Industrial Trade Shows:
o Most important vehicle for selling industrial goods.
o They attract high level decision makers who attend to see what is new in the market and to
o Opportunity to display and demonstrate goods, form relations with customers, distributors,
Counter Trade- a Pricing Tool
o All payment made in kind.
o Marketer needs to be able to accept.
o Many countries have shortage of foreign currecncy and so countertrade is another option.
Service industry = about 70% of GDP
Alternative to DIY. Also there is rental service an alternative to buying the product.
Services don’t need an export declaration or don’t pass a customs barrier on entry, and so not easy to
tally service trade.
Characteristics of Services:
o Intangible
o Intrinsic value is the result of process, performance or occurrence that only exists when being
o Creation can’t be separated from consumption
o Heterogeneous i.e. unique to each individual
o It is perishable – once created, it can’t be stored.
Services canbe classified as either consumer or industrial in nature.the same services can be marketed
as both
Entering International Markets
Client followers and Market seekers.
o Most service Co followed their customers to meet their needs e.g. hotels and car rental
agencies followed tourists – client followers.
o As markets grew, demand increased, and these Cos went looking for new markets _ market
seekers. Most services are now this.
Entry Modes:
o Although creation can’t be separated from consumption, for some services, the intrinsic value
can be embodies onto a document of bluechip and this can be ‘exported’ to another. E.g. data
processing, data analysis, banking, Architectureconsultancy, etc
o These services also use franchising, licencing and direct investments.
Market Environment for Business Services
o Most services face the same environmental constraints and problems as merchandise traders.
o Protectionism
 GATT and WTO have now incorporated regulation for the service trade, which
previously was unregulated and therefore many obstacles.
 EU –established a single market for services .
o Transborder Data Flow restrictions
 Most damaging for MNCs and telecommunication Cos that rely on data transmission
across countries.
 Some countries impose tariffs on data transmission.
 Concerns about not knowing how to tax transborder data flow, and also protection of
individual rights where personal info in concerned.
 EC regulations on adta protection now in place which prevent sharing and transfaer
of such data without ind’s consent.
o Competition:
 Increasing in service trade.
 Outsourcing services to emerging markets, and so the latter are becoming
competition for western skilled workers. However sensitive jobs such as R & D and
designing are kept at home.
o Protection of Intellectual property Rights
 GATT agreement obligates protection through patents, trademarks, etc
 TRIPs agreement is helpful but difficult to implement without full cooperation of
host countries. E.g. piracy in China, costing US Cos billions of dollars.
Need to get the product to the consumer.
Channel of Distribution Structures
In every country and every market all products go through a distribution system – physical handling
and distribution of goods, passage of ownership, and buying and selling negotiations between
manufacturers, middlemen and conumers.
Each country has a channel structure through which goods pass from producer to user. Within this
structure there are a variety of middlemen whose functions, activities and services reflect the exisiting
competition, market structures, tradition and economic development.
Strictures range from simple to complex multi-layered as in Japan.
Import-Oriented Distribution Structure
 In countries with a strong dependence on imports
 Philodophy of selling a limited supply of goods at high prices to a small number of affluent
 Mass market and penetration not possible as consumer seeks supply and D>S.
 Limited middlemen (no chain of intermediaries). Local distribution systems rather than national.
 Goods come in at a landed price and pricing is then simply an assessment of demand and
diminishing supply.
European Distribution Structure
 Now only one document required to move goods between EU states, and custom formalities have
been eliminated.
 Therefore, no companies are working with centralised warehouses and distribution centres.
 Cos are implementing JIT production and purchasing methods.
 Franchising has also increased.
United States and Japanese Distribution Structure
 In the US- Distribution system is most advanced and not difficult to reach all corners of the
market. Many manufacturers have their own distribution and retail stores.
 In Japan, the Distribution system has 4 characteristics
o A structure dominated by small wholesalers dealing with small retailers = a high density
of middlemen: mainly small stores.
o Channel control by manufacturers: manufacturers depend on wholesalers for services like
financing, physical distribution, warehouse inventory, etc. the system works because
wholesalers and other middlemen are tied to manufacturers by a set of practices and
incentives designed to ensure strong marketing support and to exclude rivals.
o A business philosophy shaped by a unique culture that emphasises loyalty, harmony and
friendship. However a lack of price competition, provision of costly services and other
inefficiencies make Japanese products one of the highest priced in the world.
o Laws that protect the foundation of the system.- large scale retail store law: designed to
protect small retailers from large intruders
 Agreements between EU, US and Japan has lef to deregulation of retailing and strengthening rules
on monopoly.
Trends- from traditional to modern channel structures
 Economic and political changes are also affecting distributional channels.
 New alliances and new processes being formed to increase efficiency.
The Internet
An important distribution system
Recently B2B services, retailing etc are expanding into e-commerce.
E-commerce – direct marketing from manufacturer or another intermediary to consumer.
Becoming more popular as quicker to order, small purchases add up, no labour costs.
Services are ideal for international sales via internet. As outsourcing of activities has increased, internet
service providers of these have grown internationally. E.g. legal, finaicial, education, transaltion,
inventory management, quality control.
E-commerce helps to cust costs in 3 ways:
o Makes it easier to find the cheapest supplier and to process transactions and so reduces
procurement costs.
o Allows better supply chain management
o Allows tighter inventory control.
Customers are enjoying shopping on the web more. Therefore businesses can’t overlook the new basics
of marketing goods.
o Host country intermediary is eliminated – god for cost.
Factors influencing Marketing through Internet
Culture: colour, semantics as well as e.g. Japanese customers; reluctance to deal with middlemen at a
Adaptation: translate important pages to the languages of the target market. Bridge the gap between
language and culture.
Local contact: co’s creating virtual offices abroad with a local contact- customers are more likely to
visit the website
Payment: consumer should be able to make payment easily over the internet, phone or e-mail.
Delivery options for goods.
Promotion: you need to advertise presence on the web through SEO, press releases, local newspapers
Credit cards, ATM, telephone banking, electronic data interchange. All these have changed their own
markets and competition in a radical way. Allowed purchasing, transactions, etc.
Internet is open to everyone.
Internet marketing and advertising.
Distribution Patterns
Nearly every international trading firm is forced to use a middleman by the structre of the market.
General Patterns: despite similarities marketing chanels are not the same across the world.
o Service attitudes of middlemen vary from country to country e.g. iN Egypt, their main
function is the physical distribution of goods. When middlemen are disninterested in
promoting or selling individual items of merchandise, the manufacturer must provide
adequate inducement, or undertake promotion and selling effort.
o Line Breadth: govt regulations in some countries can limit the breadth of product line that
middlemen can carry. Also there may be licence requirements.
o Costs and margins: this varies depending on level of competition, services offered,
efficiencies and inefficiencies of scale and geographic and turn over factors, purchasing
power, tradition, etc. e.g. In rural India, some traders with capital have the monopoly.
o Channel length: likely to be shorter for industrial goods and for high priced consumer
goods. Generally, inverse relationship between channel length and size of purchase e.g.
China and 3 types of wholesaler for over the counter drugs.
o Non-existent channels : where parts of a channel do not exist. Sveral different distribution
channels are necessary to reach different segments of a market.
o Blocked channels: can result from competitors’ already-established lines in various
channels and trade associations or cartels. E.g. drug manufacturer – pharmacy asscoaition.
o Stocking: this may be limited for middlemen due to loss of inventory, lack of capital, cost
of credit, etc can result in out-of-stock and sales lost to competitors. In many cases the
manufacturer must provide local ware-housing or extend long credit. Most often
considerable ingenuity, assistance and pressure are required to entourage middlemen to
carry adequate stock.
o Power and competition: large wholesalers usually finance small middlemen downstream.
Strong allegiance they command enables them to block existing channels and force an
outsider to rely on less effective and more costly distribution.
Retail Patterns
o Retailing shows even more diversity in structure than wholesaling.
Size patterns: e.g. in Italynone store for every 66 customers, therefore middlemen are
important. Also e.g. in S. Africa retailing is on a small scale (1-2 cigarettes).
Direct marketing: development of all in one supemarkets. In countries with inadequate
distribution channels, door-to-door selling, by mail or bu telephone is becoming the
distribution-marketing approach.e.g. Avon. Also shopping by catalogue on the rise in
Japan-breaking barriers of its distribution system.
Resistance to change: laws abound to protect the entrenched.
Alternative Middleman Choices
A marketers options ranges from assuming the entire distribution activity to depending on
intermedieries for distribution of the product.
In the home country the seller must have an organisation to deal with channel members needed to move
between countries, and In the foreign market, the seller must supervise the channels that supply the
product to the end user.
Clarify company objectives and policies
Selection of specific intermediaries needed to develop the channel. External middlemen differentiated
according to whether they take title of goods. Agent middlemen represent the seller (work on
commission, more control by manufacturer but trading risk); merchant middlemen take title, interested
in margins and profits, low rand loyalty, minimised credit risk and elimination of handling outside the
home market.). This will affect the level of control of the channel by the manufacturer.
3 alternatives :
o Middlemen physically located in the manufacturer’s home country (domestic Middlemen)
o Located in foreign countries
o Company-owned system.
Middlemen physically located in the manufacturer’s home country (domestic Middlemen)
 Co’s relegate FOR marketing to others.
 good for small companies with small international sales volume, inexperienced firms,
those not wanting to get involved directly with IM complexities, and those not
wanting to take financial and managerial commitment.
Manufacturer has little control
 Export Management Company (EMC): personalised service. EMC works under
the names of the manufacturers and becomes an independent marketing department
with direct responsibility to the parent firm.
 Advantages: minimum inv on part of the Co, and no company personnel or
managerial effort required.
Trading companies: accumulate, transport and distribute goods from many
countries. E.g. covering the entire Middle East.
Complementary Marketers: piggybacking e.g. GE . selection process for products
for piggy backing determines whether:
 The product relates to the product line and contributes to it.
 The product fits the sales and sitribution channel presently employed.
 There is an adequate margin to make the undertaking worthwhile.
 The product will find market acceptance and profitable volume.
Manufacturer’s Export Agent (MEA): unlike EMC, the MEA doesnot serve a Co’s
export department and the relation is short-lived. Operates on a straight commission
basis. MEAs do business in their own name.
Home country brokers: bring buyers and sellers together and on’t have a continuing
relationship with their clients.
Buying Offices: primary function is seeking and purchasing merchandise on request
from principals. Flexible and adaptable to find merchandise. They do not represent
their clients on a LT basis.
Export merchants: DOM merchants operating in foreign countries. Like Dom
wholesaler. May carry complete lines, have full control over prices and little loyalty
to the manufacturer.
Export Jobbers: deal in commodities. Don’t take responsibility. Arrange
Foreign Country Brokers: operate in more than one country, part of a small
brokerage firm and have good continuing relations with their clients.
Managing agents: may invest and works under a contract with the parent company.
Dealers: industrial goods or durable consumer goods directly to the customer. Close
relations with their suppliers and exclusive selling rights e.g. farm equipment,
Import Jobbers, wholesalers and Retailers: purchase goods directly from the
manufacturer and sell them on to retailers and wholesellers in foreign countries.
Government affiliated Middlemen
 Products, goods and services for Goct use always procured through govt purchasing
offices at federal, regional or local levels. Some offices may have complete control of
e.g. alcoholic drink purchases.
Factors affecting Choice of Channels: Points to be addressed prior to selecting middlemen:
Factors to consider: 6Cs
Channel cost:
2 kinds: capital or inv costs of developing and cost of maintaining channel.
including cost of middlemen including transporting and storing the goods,
prociding credit, etc.
Capital requirement
Capital requirements and cash flow patterns
Ability to control price, volume, promotion and types of outlets. Different for
different channels.
To gain optimum sales, secure a reasonable market share and attain satisfactory
market penetration.
Channel must fit the character of the company and its markets.
Problematic as little loyalty of middlemen, retirement. Manufacturers must
attempt to develop brand loyalty downstream.
Locating, selecting and Motivating Middlemen
Need to develop selection criteria
Locating Middlemen: based around:
o Productivity or volume
o Fiannacial strength
o Mamgerial stability and capability
o Nature and reputation of the business
Selecting Middlemen:
o Screening :
The Agreement:
 Co must negotiate with the middlemen to convince him to handle the goods and
accept a distribution agreement.
 Agreement must spell out specific duties, sales minimum, timelines for the contract
Motivating Middlemen
o Promotional programme to maintain high level of interest in the manufacturer’s products.
o Motivation affects sales volume
o Rewards such as publicity, trip to the manufacturers site, etc.
Terminating Middlemen
o Depends on how much legal protection he has. In some countries it may be simple to just
o Best to avoid the need to terminate.
Controlling Middlemen
o Difficult due to lengths and complexity of channels.
o Some coc build their own channels, others give franchising and licencing to control the first
stages of the channels.
o Secondary wholesaling can become an issue as the Co will face competition from its own
product (diverted and bootlegged to other countries).
Way of communicating about the product and its availability to customers .
Decisions about advertising, are most affected by cultural differences, as mainly based on language and
6 steps involved:
Debate about standardisation vs modification of international advertising. (homogenous markets vs
cultural differencs).
Local responsiveness necessary and many diverse brand names may be needed e.g. Gillette. However
there is the problem of control and coordination and the potential comp disadvantage against a
company with global brand recognition.
Multidomestic marketing strategy – all markets are culturally different. Global marketing strategy –
standardise where possible and adapt where necessary.
May not be possible to standardise all parts of a marketing mix.
Also the same standardised product may have different advertising appeal in different markets due to
differences in culture, PLC target segments, etc.
Decision to standardise/ modify is based more on the motives for buying rather than geography.
Pattern Advertising – Plan Globally, Act Locally
Different cultures seek the same primary benefit for a product e.g. car to get from A to B, but other
psychological attributes can make a difference in perception.
E,g, camera – in the UK Vs US and Japan Vs Africa (concept of picture taking must be sold).
Most Cos use Pattern advertising = a global advertising strategy with a standardised basic message
allowing some degree of modification to meet local situations. ‘think Globally, Act Locally’.
Standardise where possible and adapt where necessary.
International advertising and world Brands.
Global brands are a result of global marketing strategy.
World brand still possible where it may be difficult to standaridise.
Complete globalisation is a myth- not possible. World is still not a homogenous market, but still
standardise where possible and adapt where necessary.
Pan-European Advertising
Single Europe market will entice companies to strive for harmony in brand names, advertising and
promotion across Europe.
Also elimination of legal and trade barriers should encourage companies to think this way.
A Pan-European promotional strategy would mean identifying a market segment across all European
countries and designing a promotional concept appealing market segment similarities.
Internal Market Segmentation and Promotional Strategy
Global market segmentation involves identifying homogenous market segments across groups of
countries- mass market segmentation.
Other cos e.g. Vuitton have identified niche segments too small for country specific development but
when taken in aggregate, they have become profitable.
Therefore it is possible to identify market segments for specific products across countries.
Challenges of International Advertising
International advertiser must function at the highest creative level with sophistication.
But boundaries on creativity placed by legal, tax, language, cultural, media, production and cost
Legal and Tax considerations:
o Laws that control comparative advertising .e. illegal in Germany
o In Kuwait only 32 minutes of advertising per day allowed.
o Illegal to advertise cigarettes, alcohol, etc., and to show nudity, blood, smoking in ads, in
some countries.
o In US advertising pharmaceuticals is allowed.
o In Austria different taxes for different media e.g. 10% for Radio, 10-30% according to
municipality, etc. this restricts creative freedom in media selection.
Language limitations:
o A major barrier to communication.
o Translation issues and semantics.
o Low literacy is many countries calls for creative verbal media.
o Also problematic is a country has many languages e.g. Israel – 50 languages.
Cultural Diversity:
o Culture affects how various phenomena are perceived.
o E.g. white for mourning in Asia, purity in Europe.
o Knowledge of cultural diversity must encompass the total advertising project.
Production and cost Limitations
o Creativity especially important when budget is small or where there is sever production
limitations, poor quality printing and a lack of high grade paper. E.g. hand painted billboards
o In western societies where high cost of advertising in Tv and Radio, Co’s are looking for
alternative advertising methods.
Media Planning and Analysis
Tactical Considerations:
Must consider the availability, cost and coverage of the media.
Availability: too many many Vs too few advertising media; also some media have limitations on what
to accept as advertising material.
Cost: prices are susceptible to negotiation. Varies from country to country and from one media to
Coverage: 2 problems akin to this: difficulty on reaching certain sectors of the population, and the other
is lack of info on coverage. Multimedia approach may be needed to reach majority of the sectors.
Lack of Market Data: accurate circulation and audience data is not assured. Therefore, how to measure
effectiveness of adverts? What is the right amount to spend?
Specific Media Information
Newspapers: no of papers in the country, influence needed to advertise, separation of adverts and text,
Japanese newspapers on 16-20 pages.
Magazines: international editions.
Radio and Television: a major communication media.
Satellite and Cable TV: e.g Sky, wider coverage? Fragmentation due to many channels leads to smaller
Direct Mail: wider coverage through this, especially for industrial advertisers.
Other Media: cinema, bill boards, taxis, etc
Sales Promotion:
All marketing activities that stimulate customer purchases and improve retailer or middlemen
effectiveness and cooperation, apart from advertising, personal selling and publicity.
In-store demos, coupons, samples, contests, sponsorship
Short term events to achieve specific objectives such as:
o Consumer-product trial and/or immediate purchase.
o Consumer introduction to the store
o Gaining retail point-of-purchase displays
o Encouraging stores to stock the product
o Supporting and augmenting advertising and personal sales efforts
Product sampling esp effective when the product is new, or has a small market share. E.g. |Nestle and
Baby stops in France.
The success of promotion may depend on local adaptation.
International advertising and the Communications Process
Promotional activities are basically communication process.
Important to ascertain that all constraints (cultural, language, legal, etc) are controlled so the right
message is communicated to and received by prospective buyers.
The meassage may not reach consumers due to media inadequacy or may not be interpreted correctly,
or it may reach and be understood but have no effect on the consumers.
The communication process consists of:
1. An information source – IM executive with a product message to communicate.
2. Encoding –encode the message into effective symbolism for transmission to receiver
3. A maessage channel – sales force or adv media.
4. Decoding – interpretation by the receiver of symbolism.
5. Receiver –consumer action by those who recive the message and are the target for thought
6. Feedback- info about the effectiveness of the message, which flow from the receiver back to
the information source.
7. Noise uncontrollable and unpredictable influences such as competteive activities and
confusion detracting from the process and affecting any of the above steps.
Complex process as a message in encoded in one cultural context and decoded in another . can lead to
Effective communication demands that there is a Psychological Overlap between the sender and the
Promotional Misfires and mistakes due to:
o Marketer’s SRC
o Basic needs are incorrectly defined – incorrect or meaningless message is conveyed.
o Encoding issues even if the message is correct e.g. colour, values, beliefs, etc may cause the
IM to symbolise the message incorrectly.
o Incorrect message channels e.g. using newspapers where illiteracy is high, or TV is only a
small % own Tvs. Or computer games more popular with younger population.
o Semantics and familiarity of words.
o No or incorrect feedback.
Buzz Marketing – using trendsetters in any community to carry the brand message, creating interest
with no overt promotion. Through people, verbally or virtually (internet). E.g. red Bull. Generates
The Advertising Agency:
Advertising firms are expanding internationally.
In commercially significant countries, advertisers have the opportunity to employ:
o A local domestic agency
o Its company-owned agency, or
o One of the multi-national advertising agencies with local branches. (best option)
Need to consider:
o Level of cultural interpretation offered
o Level of sophistication
o Ability to co-ordinate a world-wide campaign.
Most companies will employ one-two agencies.
Fee is usually 155 commission, but varies between regions and media.
International Control of Advertising.
Deception in advertising is a major issue, as different perceptions of what constitutes a misleading
Decency and blatant use of sex in ads
Laws are being passed to control such content, although there is till a concern about advertising and its
effects on people’s behaviour.
International Advertising Association, and other industry groups have developed a variety of selfregulating codes to ensure that majority of ads conform to standards set for honesty, truth and decency.
Selling in International Markets
4 ways of achieving marketing communication:
o Advertising
o Sales promotions
o Personal selling –Public relations.
Mix used will depend on the cultural differences and type of product. Marketer needs to be
relationship centred rather than deal centred.
For selling- sale persons’ persuading and negotiating skills and communication skills need to be
properly adapted to a cross-cultural setting.
In some cultures, selling is seen as a ‘low’ status.
Style of selling often related to national culture,
also depends on the seller’s personality, type of industry, types of results sought (relationship vs sale)
and whether new customer or exisiting one.
Main role of the sales person is Persuasion.
Main components of personal selling :
o Content – substantive aspects of the interaction. Inc suggesting, offering and negotiating.
o Style – rituals, formats, mannerisms and ground rules.
Compatibility between buyer and seller determined by culure and personality factors.
Effectiveness of selling influenced by:
o Salesperson-customer relationship
o Behaviour of the salesperson
o Resources of the salesperson
o Nature of the customer’s buying task
The International selling Sequence
In IM, Knowing the customer means more than just knowing his/ her needs .
Self appraisal – develop a frame of reference (SRC). A basis for self awareness.
Impression formation = understating the buyer’s cultural position. Analyse national and
organisational culture before meeting customer. Lays the foundation for relationship building.
3. Discrepancy identification = mental step. Compare buyers position with own. Alerts the seller
of potential communication problems due to culture and temperament.
4. Strategy Formulation – minimising impact of problems identified in 3. E.g. is buyer is a
‘feeler’, then alter persuasion style using tactile product experiences.
5. Transmission = implementation of the communication/ persuasion strategy. Be sensitive to
verbal and non-verbal feedback
6. Evaluation = if negative buying signals, then adjust, or try again at a later date.
Every encounter adds to the seller’s repertoire.
Understanding the nuances of Cross cultural communication
Need to understand nuances of both spoken and unspoken language.
For successful selling:
1. Be prepared- do your h/w – culture, geography, region, customer, organisation.
2. Slow down
3. Develop relationships and trust
4. Learn the language and its nuances or get a good interpreter.
5. Respect the culture.
Recruitment of International sales Force
International salesforce drawn from:
o Expatriates esp if product is technical.
o Local nationals- popular as they transcend legal and cultural barriers. Growing pool of people
who studied MBA in western countries.
o Third country nationals. (TCNs)- also on the rise. E.g. German working in Malaysia for a US
company. Reflects growing internationalisation of business. Sought because they often speak
several languages.
Host Country Restrictions
Hsot government#s attitudes towards FOR workers complicates flexibility in selecting expats or local
Restrictions on No of expats usually due to local unemployement, corporate domination, etc.
Implications for work permits and the duration of the permits.
Selecting an international salesforce
Formal job description will help to define exactly what is expected of its people.
Special personal characteristics, skills, orientation are demanded for international operations.
o Maturity
o Considerable breadth of knowledge both on and off the job. Speaks many different languages
o Positive outlook on the assignment.
o Cultural empathy – listen to executives and nationals.
o Sixth sense
Training and Motivation
Depends on whether expats or locals
Expats – customs, local culture, etc; locals = product, company, etc.
Also attitudes affects the effectiveness of training. e.g. China, whether you work hard or not, the
rewards are the same – not ideal for training to stick.
In FOR markets, continual training required.
Motivation and inspiration needed as selling is hard. Behaviour of a salesperson is dependent on :
o Their background- education, ability to speak different languages
o Confidence in interacting with people.
o Well informed about the company and the products, local market, culture.
o Morale : as can feel alone or deserted.
o Job stability – a concern as always on the road.
Also be sensitive to individual incentives. A Japanese worker may turn down a financial reward so as
not to appear different.
Setting the right product for the product can be key to success/ failure.
A product’s price must reflect the quality/ value the customer perceives.
The IM manager is responsible for setting and controlling the actual price of goods as they are traded in
different markets. He is confronted with a new set of variables:
o Different tariffs
o Costs
o Attitudes
o Competition
o Currency fluctuations
o Methods of price quaotations
o Marketing strategy of the firm.
Pricing Policy
Price and terms of sale cannot be based on domestic criteria alone.
Parallel Imports
o the broader the product line and the larger the number of countries involved, the more
complex the process of controlling prices to the end user.
o Companies have to guard against competition also from within the Co and by their own
customers. Otherwise it may find itself competing with subsidiaries.
o E.g. product exported to a country A at low prices. This is then exported to country B. the Co
finds that it is competeing with its own products in B = Parallel Imports.
o Lucrative: Wide margins exist between prices in different countries.
o Conditions that make Parallel imports profitable:
 Variations in value of currencies.
 Purposefully restricting the supply of a product causes abnormally high prices. Grey
market develops.
 Import quotas and high tariffs- illegal markets.
 Large price differentials between country markets. E.g. in Japan, prices of products is
extremely high.
 Perfume and designer brands are usually priced high to maintain image of quality and
exclusivity in US.
o Strong control systems needed by the Co to prevent parallel markets from developing. However,
many Cos not too worried about this as they claim to be as e.g. consumption of a perfume through
parallel markets increased by 35 times.
Skimming Vs Penetration Pricing
o Which policy to adapt depends on the levl of competition, the innovativeness of the product
and market characteristics.
o Skimming – used when target market is price insensitive and willing to pay a premium price,
supply is limited and so high price will help maximise revenue and to match demand to
supply. Often used when the Co is the only seller of the product, and only 2 income levels
(rich and poor) exists, but such opportunities are fading away as growing middle class income
o Penetration Pricing Policy : used to stimulate market growth and capture market share by
offering products at low prices. Used as a competitive manoeuvre. Can be more profitable
than skimming if it maximises revenues and builds market share as a base for competition to
Leasing in International Markets
o An important selling technique to alleviate high prices and capital shortages for capital
equipment. Equipment leasing – a means of selling capital equipment overseas.
o Terms of lease usually 1-5 years, with monthly or annual payments.
o Advantages:
 Opens the door to a large segment of nominally financed firms that might be unable
to buy for cash.
 Can ease the problems of selling new, experiential equipment, because less risk is
involved for the user.
 Helps guarantee better maintenance and service on overseas equipment.
 Equipment leased and in use can help to sell to other companies in the country.
 Lease revenue tends to be stable over a period of time than direct sales.
o Disadvantages
 In a country beset with inflation, serving and maintenance can lead to heavy losses
towards the end of the contract period.
 Currency devaluation, expropriation and other political risks are operative longer
than in a direct sale.
o Despite the above, increased trend in leasing.
Factors Influencing International Pricing
Pricing Objective
Price decisions are viewed in 2 ways:
o As an active instrument of accomplishing market objectives e.g. target return on profit, target
market share or other objective
o As a static element in a business decision – exports only excess inventory snd views exports
as a passive contribution to sales volume.
Pricing objective should be consistent with the marketing objectives as well as the overall strategy of
the firm.
Better if the Co has more control of the final selling price. However not always possible- may need to
use ‘mill net pricing’ (price received at the plant).
Price Escalation
 Price Escalaltion – added costs incurred as a result of exporting products from one country to
 Ultimate price raised by
o Transportation: shipping costs, insurance, packing.
o tariffs, - can be ad volerem, specific or combination
o longer channels of distribution and larger middlemen margins – Co may also have to
bear the cost of warehousing, storing as well as of dealing with unfinanced
o special taxes
o admin costs – acquiring export anf import licences, other documents,
o inflation – must be factored in esp if payment is to be delayed. Also price should =
cost of goods sold and the cost of replacing the items. A number of techniques used
to inflate the selling price to take into consideration inflation pressures and price
controls (Fig 17.2)
exchange rate fluctuations – contracts now in vendor’s national currency. Aldo
Forward hedging
varying Currency values – when home currency is weak,(fewer FOR currency
needed to buy a dollar), Cos use cost plus pricing. When dollar is strong, Cos must
find a way to offset the higher price.
Price escalation can increase the price of the product by upto 5 or 6 times or more.
Approaches to reducing Price Escalation- 4 ways
Lower the cost of Goods
o One reason for manufacturing in a third world country, as cost of labour significantly lower.
And also productivity tends to be higher than in Western countries.
o Lower cost can also mean lower tariffs as the latter tend to be on ad valorem basis.
Lower the Tariffs
o Reclassify products to lower customs classification.
o Also implications for ready to use quipment vs unassembled products, those requiring firther
processing, addition of locally manufactured components, etc.
Lower the distribution costs
o Design channels that have fewer middlemen and lower mark ups.
o May mean lower taxes as some countires tax every time product changes hands. Cumulative
tax – VAT on the final selling price and is assessed every time product changes jhands ;
Achieved (non-cumulative) tax – tax paid on the difference between middlemen’s cost and
selling price.
Using Foreign Trade Zones:
o In FTZ, payment of import duty is delayed until the product leaves the port and enters the
o Tariffs may be lower for unassembled goods.
o Lower labour costs in the importing country can have an impact on the selling price of the
Lower freight rate for unassembled goods as lighter.
Assemble in foreign country, and local content rules may reduce tariffs
 Market structure has important implications on the price.
 E.g. Oligopoly- little freedom to choose price.; income levels.
 Competitors’ price can also be used as landmark for positioning products (but check the cost
structure of competitors).
Target Customer
 Knowledge of demand elasticity and Price
 Income levels – ability to buy
 Prices of substitutes and competing products
 Non price competition- higher price may mean higher quality.- brand name and image of high
Pricing Controls
 Government price setting – margins, set prices, floors and ceiling, restrict price changes, grant
 Govt may also compete in the market, act as a purchasing monopsony or selling monopoly.
 It may encourage or permit businesses to collude in setting manipulative prices.
 Usually imposed for political or social reasons such as to protect customers, control inflation
and stimulate equal distribution of wealth. Therefore important to be aware of economic
 Because of this a Co may not be able to meet its objectives of penetration pricing or skimming
Administered Pricing
Relates to attempts to establish prices for an entire market.
Arranged through co-operation of competitors, national/ sate/ local government or by international
Legality varies from country to country and from time to time.
End goal of administered pricing is to reduce impact of price competition or eliminate it.
Price setting by Industry Groups
o Can be in written form or verbal.
o 3 most associated with IM:
 Licensing Agreement: in industries with technological innovation- patent and process
agreement to produce the product in a FOR country.
 Cartels: when various companies producing a similar product work together to
control markets. Involves more than a patent licensing agreement. Used to set prices,
establish levels of sales/ production, allocate market territories or even redistribute
profits, for members. Proponents argue it helps to eliminate cut-throat competition
and rationalise business. most experts are doubtful if the consumer benefits. E.g.
Organisation of Petroleum exporting countries (OPEC), De Beers (diamond Co).
 Trade association: may be formal or not. May ,ean tight cartel or informal agreement.
International Arrangements:
o International coffee agreement
o International cocoa agreement
o Most marketers still have wide latitude in their pricing decisions for most products and
Transfer Pricing
Need to consider price charged from one department to another in another country.
Benefits of transfer pricing:
o Lowering duty costs by transferring at minimal price
o Reduction of income taxes in high-tax countries by over pricing goods transferred to these
countries. ‘dressing up’ financial statements.
Faciliattaion of dividend repatriation: invisible income is taken out in the form of high prices
for products to that country.
o To show more or less profit in crucial times:
Managed so that profit is taken in the country with the lowest tax rate.
Objectives for Transfer pricing:
o Maximising profits for the corporation as a whole
o Facilitation parent-company control
o Offering management at all levels and adequate basis for maintain, developing and receiving
credit for their own profitability.
Should employ sound accounting practice and be defensible to the tax authorities.
4 arrangements for transfer pricing:
o Sales at local manufacturing cost plus mark up.
o Sales at most efficient producer in the Co plus mark up
o Sales at negotiated price
o Arm’s length sales using same prices as quaoted to independent customers.- kost acceptable to
tax authorities.
Dumping = if product sold below cost of production, or selling goods below price in the FOR country,
or even rate cutting on cargo shipping.
Done as excess production capacity relative to home-country demand.
Prices are maintained in home country but reduced in FOR country
A special import duty can be imposed to correct dumping activity
Anti-dumping charges can be reduced by Cos by assembly in the FOR country, but is price dfferential
is >cost savings, then charges will still apply.
Increased enforcement by EU.
Price Quotations
Quotation should define and include:
o Quantity
o Quality
o Price, credit, sales terms
o Transportations
o Currency to be used
o Documentation required
Counterttades as a Pricing Tool
Some countries may require this as part of conditions for trade.
When shortage of FOR exchange.
Types of countertrade: 4 distinct types
o Barter : direct exchange of goods between 2 parties. Value goods at net selling price and must
know the market and price og goods offered.
o Compensation deals: payment in goods and in cash.
o Counterpurchase or offset trade: seller agrees to sell a product at a set price to a buyer and
receives payment in cash. And also, original seller to buy goods from the buyer for total
monetary amount in the first contract, or a set % of the value. Usually 6-12 months allowed
for this.
o Product Buy-back: seller agrees as payment a certain % of output of the buyer, or the seller
gets full price, but agrees to buy a certain portion of the output.
Western Firms and Counter Trade.
20-30% on international trade is countertrade
Most developing and emerging countries require countertrade with FOR trade.
Longest history of western Europe and Japan
Problem: Determining value of and potential demand for goods offered. Can be reduced with proper
preparation and research
Also barter houses have emerged.
Countertrade and barter houses require time and can lead to financial strain.
However it remains a competitive tool to enter negotiations with FOR countries
Some authorities suggest that Cos should have a proactive countertrade strategy as opposted to using it
Successful countertrade transaction requires that the marker:
o Accurately establishes market value of the goods being offered.
o Disposes of the bartered goods once they are received.
Before entering into a countertrade agreement, answer the following:
o Is there a ready market for the goods batered?
o Is the quality of goods consistent and acceptable?
o Is an expert needed to handle negotiations?
o Is the contract price sufficient to cover the cost of barter and net the desired revenue?