INTERNATIONAL MARKETING SEM IV

Forces Driving Globalisation

Measuring globalisation, especially for historical comparisons, is problematic. Firstly,

the degree of two countries interdependence must be measured indirectly.

Secondly, when national boundaries shift (like the breakup of the former Soviet Union
or the reunification of East and West Germany), domestic business transactions can become
international trans or vice versa.

There are various reliable indicators that assure us that globalization has been increasing.
Currently about 25% of world production is sold outside its country of origin, as against 7%
in 1950. Restrictions on imports have been decreasing, and foreign ownership of assets as a
percentage of world production has been increasing. After World War II, world trade has
grown more rapidly than world production. But, at the same time, globalization is less
pervasive. Much of the world, for example (especially in rural Africa, Asia, and Latin
America), lacks the resources to establish more than the

Only a few countries- mainly the very small ones- either sell over half their production
abroad or depend on foreign output for over half their consumption. It means that most of the
world’s goods and services are still sold in the countries in which they are produced. Further,
the principal source of capital in most countries is domestic rather than international.

The above analysis only points to economic aspects of global interdependence. There are
various other indicators for comparison. The Foreign Policy Globalization Index, as given
by A.T. Kearney ranks 62 nations across 4 dimensions:

I) Economic: International trade and investment.

(ii) Technological: Internet connectivity.

(iii) Personal contact: International travel and tourism, international telephone traffic, and
personal transfers of funds internationally.

(iv) Political: Participation in international organizations and government monetary transfers.

The index has ranked Singapore and Switzerland as the most globalized nations and

India and Iran as the least globalized.

The driving forces (or factors) that have led to increased globalization in recent years are:

Liberalization:
To protect its own industries, every country restricts the movement across its borders
not only of goods and services but also of the resources, such as workers and capital, needed
to produce them. Such restrictions set limits on international business activities, and because
regulations can change at any time, they also contribute to a climate of uncertainty.
However, over time most governments have reduced restrictions on international movements
of goods and services. This has happened due to 3 reasons: (a) their citizens want a greater
variety of goods and services at lower prices. (b) Competition spurs domestic producers
to become more efficient. (c) They hope to induce other countries to lower their barriers in
turn.

During the 1920s and 1930s, many of the world's nation-states erected formidable barriers
to .international trade (when a firm exports goods or services to consumers in another
country) and foreign direct investment (when a firm invests resources in business
activities outside its home country). Many of the barriers to international trade took the form
of high tariffs on imports of manufactured goods. The typical objective of such tariffs was to
protect domestic industries from foreign competition. And the retaliatory trade policies with
countries progressively raised the trade barriers against each other. Having learned from the
experience of the Great Depression of the 1930s, the advanced industrial nations of the West
committed themselves to remove barriers to the free flow of goods, services, and capital
between the nations. This goal was enshrined in the GATT. The Uruguay Round
further reduced trade barriers and established WTO to police the international trading
system.

Business Environment

In late 2001, the WTO launched a new round of talks aimed at further liberalizing the global
trade and investment framework. At Doha, the agenda includes cutting tariffs on industrial
goods, services, and agricultural goods; phasing out subsidies to agricultural producers;
reducing barriers to cross-border investment; and limiting the use of anti dumping laws. The
biggest advantage may come from discussion on agricultural products as average agricultural
tariff rates are still about 40%, and rich countries spend some $ 300 billion a year in subsidies
to support their farm sectors. The world's poorer countries have the most to benefit from
reduction in agricultural tariffs and subsidies, i.e. such reforms would give these nations
access to the markets of the developed nations.

There is not only reduction in trade barriers; many countries have also been progressively
removing restrictions to FDI. Government’s desire to facilitate FDI has been reflected in the
increase in the number of bilateral investment treatise designed to protect and promote
investment between two countries. As of 2003, 2,265 such treatise in the world involved
more than 160 countries. This was 12-fold increase from the 181 treatise that existed in
1980.

Such trends- Reduction in restrictions in international trade and FDI- have been driving both
the globalization. Of markets and the globalization of production. The lowering of barriers to
international trade allows the firms to view the world, rather than a single country, as their
market. The lowering of trade and investment barriers also allows firms to base production at
the optimal location for that activity. Therefore, a firm might design a product in one
country, produce component parts in two other countries, assemble the product in yet
another country, and then export the finished product around the world.

According to data from the WTO, the volume of world merchandise trade has grown faster
than the world economy since 1950. From 1970 to 2004, the volume of world merchandise
trade expanded almost 26-fold, outstripping the expansion of world production, which
grew about 7.5 times in real terms.

The evidence also suggests that FDI is playing an increasing role in the global economy as
firms increase their cross-border investments. The average yearly outflow of FDI increased
from$ 25 billion in 1975 to a record of $1.3 trillion in 2000, but dropped to$ 620 billion in
2004. Between 1992 and 2004 the total flow of FDI from all countries increased by about
36%, while world trade doubled and world output grew by 35%.

With the strong flow of FDI, by 2003 the global stock of FDI exceeded $ 8.1 trillion. In total,
at least61, 000 parent companies had 900,000 affiliates in foreign markets that collectively
employed some 54 million people abroad and generated value accounting for about 1/10th of
global GDP.

The globalization of markets and production and the resulting growth of world trade, FDI,
and imports all means that firms are finding their home markets t -under attack from foreign
competitors. For example, in Japan, where U.S. Companies such as Kodak, Procter &
Gatnble, and Merrill Lynch are expanding their presence. Likewise, in the million host
computers were connected to the Internet. By January 2005, the number of host computers
had increased to 317 million, and the number is still increasing rapidly. In the U.S., where
Internet usage is most advanced, almost 60% of the population was using the Internet by
2003.

The Internet and the WWW promise to develop into the information backbone of the global
economy.

According to Forrester research, the value of web-based transactions hit $ 657 billion in 2000
.and to$ 6.8 trillion in 2004, with the U.S. accounting for 47% of all web-based transactions.
Many of these transactions are not business-to-consumer transactions (ecormrnerce), but
business-to-business (ore-business) transactions. The greatest current potential of the Web
seems to be in the business-to-business arena.

The increasing and expanding volume of web-based traffic is a growing percentage of cross-
border trade. It rolls back some of the constraints of location, scale, and time zones. The
Web makes it much easier for buyers and sellers to find each other, wherever they may be
located and whatever their size is. Thus, the Web allows business- small and large- to expand
their global presence at a lower cost than ever before. One of the examples can be given of
a small California-based start-up, Cardiac science, which makes defibrillators and heart
monitors. In 1996, Cardiac Science tried hard to break into global markets but had little idea
of how to establish an international presence. By

1998, the company was selling to customers in 46 nations and the foreign sales
accounted for $ 1.02 million of its $ 1.2 million revenues. By 2002 revenues had
increased to$ 50 million, and some $17.5 million of which came from sales to customers in
50 nations. Although some of this business was developed through conventional export
channels, a good percentage of it carne from the company's web site, which according to
the company's CEO, "attracts international business people like bees to honey."

, Innovations in transportation technology: Innovations in transportation mean that more

countries can compete for sales to a given market. For example, the sale of foreign grown
flowers in the U.S. used to be impractical; today, however, flowers from as far away as
Ecuador, Israel, the Netherlands, and New Zealand now compete in the U.S. mar et
because growers can get them there, economically, the day after they have been picked..•

Thus, in addition to developments in communication technology, several rancor innovations

in transportation technology have occurred since World War II. In economic terms, the
most important are the development of commercial jet aircraft and the introduction of
containerization, which simplifies transshipment from one mode of transport to another. The
advent of commercial jet travel, by reducing the time needed to get from one location to
another, has effectively shrunk the globe. If it weren't for modern means of transportation,
Roge Federer could not have played in Monte Carlo right after: finishing a. tournament in
Miami.

Japanese automobile firms have taken market share away from General Motors and
Foret In Europe, the once dominant Dutch company Philips has seen its market share in
the consumer electronics industry taken by Japan's JVC, Sony, and Matsushita.

Declining barriers to cross-border trade and investment cannot be taken for granted. Demands
for “protection" from foreign competitors are still often heard in countries around the world,
including the U.S. It is true that return to the restrictive trade policy of 1920s and 1930s is
unlikely, but it is not clear whether the political majority in the industrialized world
favours further reductions in trade barriers. If trade barriers decline no further, at least for
the time being, this will put a stop to the globalization of both markets and production.

The Role of Technological Progress:

Theoretically, the lowering of trade barriers made globalization of markets and production
possible. However, it is the technological change that has made it a tangible reality.

Since the end of World War II, the world has seen major advances in
communication, information processing, and transportation technology, including the
revolutionary emergence of the Internet and World Wide Web. Telecommunications is
creating a global audience and transportation is creating a global village.

Telecommunications : The single most important innovation has been development of the
microprocessor, which made possible the explosive growth of high-power, low cost
computing, vastly increasing the amount of information that can be processed by
individuals and firms.

The microprocessor has also led to many recent advances in telecommunications teleology.
Global communications have been revolutionized by developments in satellite, optical
fiber, and wireless technologies, and now the Internet and the World Wide Web. These
technologies rely on the microprocessor to encode, transmit, and decode the vast amount of
information that flows along these electronic highways.

The cost of microprocessors continues to fall, while their power increases- a

phenomenon known as Moore's Law, which predicts that the power of microprocessor
technology doubles and its cost of production falls in half every 18 months. As a result, the
costs of global communications declines nose-dive and lower the costs of
coordinating and controlling a global organization. Consequently, between 1930 and

1990, the cost of a three-minute phone call between New York and -London fell from$

44.65 to $ 3.32 and by 1998 it had plunged to just 36 cents for consumers, and much lower
rates were available for businesses.

The Internet and World Wide Web : The rapid growth of the Internet and the associated
World Wide Web- which utilizes the Internet to communicate between WWW sites-
is the latest expansion of this development.

In 1990, fewer than 1 million users were connected to the Internet. And, by 1995 the figure
had increased to 50 million. By 2004, it grew to about 945 million. By 2007, it was about
25% of the world's population, i.e. more than 1.4Tbillion users. In 1993, 1.8
Containerization has revolutionized the transportation business, significantly lowering the
costs of shipping goods over long distances. Before the advent of containerization, moving
goods from one mode of transport to another was very labour intensive, lengthy, and costly.
But, since 1980s, the world's containership fleet has more than quadrupled, reflecting in part
the growing volume of international trade and in part the switch to this mode of
transportation. Further, with the falling cost of airfreight, by the early 2000s air shipments
accounted for 28% of the value of U.S. trade, up from7% in 1965.

In short, the two macro factors that underlie towards the trend of globalization are: (I) decline
in the barriers to the free flow of goods, services, and capital that has occurred since the end
of World War II. (ii) Technological change, particularly the dramatic developments in
recent years in communication, information processing, and transportation technologies.

1.2.8 The Globalization of Markets and its Implications

The globalization of markets refers to the merging of historically distinct and separate
national markets into one huge global marketplace. Falling barriers to cross border trade
have made it easier to sell internationally.

It has been argued for some time that the tastes and preferences of consumers in different
nations are beginning to converge on some global norm, thereby helping to create a global
market. Consumers’ products such as coca-cola soft drinks, McDonald's hamburgers,
Citigroup credit cards etc. are frequently held up as prototypical examples of this trend. Firms
such as Citigroup, Coca-cola, McDonald's, Sony etc. are more than just benefactors of this
trend; they are also facilitators of it. By... offering the same basic product worldwide, they
help to create a global market.

A company does not have to be the size of these multinational giants to benefit from the
globalization of markets. For example, in the U.S., nearly 90% of firms that export are small
businesses that employ less than 100 people. Hytech, a New-York-based manufacturer of
solar panels generates 40% of its $ 3 million in annual sales from exports to 5 countries.
Likewise, in Germany, companies with less than 500 employees account for about 30% of
that nation's exports.

Despite the global prevalence of Citigroup credit cards, McDonald’s hamburgers, etc. it is
important not to push too far the view that national markets are giving way to the global
market. There are significant differences among national markets along with many relevant
dimensions, including consumer tastes and preferences, distribution channels, business
systems, and legal regulations. These differences require that marketing strategies,
product features, and operating practices be customised to best match conditions in a
country. In the same way, many companies need to vary aspects of their product mix and
operations from country to country depending upon local tastes and preferences.

The most global markets currently are not markets for consumer goods, where differences in
tastes and preferences act as a brake on globalization, but markets for

Whenever a buyer and seller come together, each expects to gain something from one
another. The same expectation applies to nations that traded with each other. It is virtually
impossible for a country to be completely self-sufficient without incurring undue costs.
Therefore, trade becomes a necessary activity, though, in some cases, trade does not always
work to the advantage of the nations involved. Notwithstanding, too

Much emphasis is often placed on the negative effects of trade, even though it is

Questionable whether such perceived disadvantages are real or imaginary. The benefits of

Trade, in contrast are not often stressed, nor are they well communicated to workers and

Consumers? The question is- why do nations trade?

A nation trades because it expects to gain something from its trading partner(s). Then one

May ask whether trade is like zero-sum game, in the sense that one must lose so that

Another will gain. The answer is no, because, though one does not mind gaining benefits

At someone else’s expense, no one wants to engage in a transaction that includes a high

Risk of losses. For trade to take place, both nations and individuals must anticipate gain

From it. It is a positive sum game. This unit examines some theories with respect to

Nations and individual’s trading.

2.0 objectives

After studying through this unit, you should be able to:

1. Explain basis for trade among nations and individuals and

2. Explain some theories in respect of international trading.

3.0 main text

3.1 production possibility curve

Without trade, a nation would have to produce all commodities by itself in order to

Satisfy all its needs. Table 1 below, shows a hypothetical example of a country with a

Decision concerning the production of two products- computers and automobiles.

Because each country has a unique set of resources, each country possesses its own

Unique production possibility curve. This curve when analyzed provides an explanation

Of the logic behind international trade. Regardless of whether the opportunity cost is

Constant or variable, a country must determine the proper mix of any of the two products

And must decide whether it’s wanted to specialize in one of the two. Specialization will

Likely occur if specialization allows the country to improve its propensity by trading with

Another nation. These principles of absolute advantage and relative advantage explained

How the production possibility curve enables a country to determine what to export and

Import.

3.2 principles of absolute advantage

Adam smith in his book titled ‘wealth of nations’ used the principles of absolute

Advantage as the justification for international trade. According to him, a country should

Export a commodity that can be produced at a lowest cost than can other nations.

Conversely, it should import a commodity that can only be produced at a higher cost than

Other nations.

C consider for example, a hypothetical production figures for Nigeria and Ghana as shown

Given certain resources and labour, Nigeria can

Produce twenty computers or ten automobiles or some combination of both. In contrast,

Ghana is able to produce only half as many computers (i.e. Ghana produces ten for every

Twenty of Nigeria produces). The disparity might be the result better skills by Nigerian
Workers in making this product. Therefore, Nigeria has an absolute advantage in

Computers. However, Ghana has an absolute advantage in automobiles.

At this point, it should be clear why trade should take place between the two countries.

Nigeria has an absolute advantage for computers, but absolute disadvantage for

Automobiles. For Ghana, absolute advantage exists for automobiles and absolute

Disadvantage for computers. Therefore, if each country specializes in the product for

Which it has an absolute advantage, each can use it resources more efficiently while

Improving consumer welfare at the same time.

This implies that since Nigeria would use fewer resources in making computers, it should

Produce these products for its own consumption as well as for export to Ghana. Base on

This arrangement, Nigeria should import automobiles from Ghana rather than

Manufacture them itself. While for Ghana, automobiles would be exported and computers

Imported.

Thus, for practicability each person should concentrate on and specialize in the craft that

Person has mastered. Similarly, it should not be practical for consumers to attempt to

Produce all the things they desire to consume. One should practice what one does well

And leave the production of other things to people who produce them well.

3.3 principles of comparative advantage

One problem with the principle of absolute advantage is that it fails to explain whether

Trade will take place if one nation has absolute advantage for all products under

Consideration. Case 2 of table 2 above shows that situation. Note that the only difference

Between case 1 and case 2 is that Nigeria in case is capable of making thirty automobiles

Instead of the ten incase 1. In the second instance, Nigeria has advantage for both

Products, resulting in absolute disadvantage for Ghana for both. The efficiency of Nigeria

Enables it to produce more of both products at lower cost.

At first glance, it may appear that Nigeria has nothing to gain from trading with Ghana.

However, nineteenth-century British economist, David Ricardo, perhaps the first

Economist to fully appreciate relative cost as a basis for trades. He argues that absolute

Production costs are irrelevant. More meaningful are relative production costs, which

Determine whether trade should take place and which items to export and import.

According to his principles, a country may be better than another country in producing

Many products, but should only produce what it produces best. Essentially, it should

Concentrate on either a product with the least comparative disadvantage. Conversely, it

Should import for which it has the greatest comparative disadvantage or one for which it

Has the least comparative advantage.

Case 2 shows how the relative advantage varies from product to product. The extent of

Relative advantage can be found by determining the ratio of computers to automobiles.

The advantage can be found by determining the ratio of computers to automobiles. The

Advantage ratio for computers is 2:1 (i.e. 20:10) in favour of Nigeria. Also, in favour of

Nigeria to a lesser extent is the ratio for automobiles, 1.5:1 (i.e. 30:20). These two ratios

Indicate that Nigeria possesses a 100 percentage advantage over Ghana for computers,

But only a 50 percentage advantage for automobiles. Consequently, Nigeria has a greater

Relative advantage for the computer products. Therefore, Nigeria should specialize in

Producing computer products. While Ghana having the least comparative disadvantage in

Automobiles indicate that it should make and import automobiles.

3.4 factor endowment theory

The principles of absolute and relative advantage provide a primary basis for trade to

Occur, but the usefulness of these principles is limited by their assumptions. One basic

Assumption is that the advantage, whether absolute or relative, is solely determined by

Labour in terms of time and cost. Labour then determines comparative production costs

And subsequently product prices for the same commodity.

However, if labour is indeed the only factor of production or even a major determinant of

Product content, then countries with high labour cost should be in serious trouble.

It is misleading to analyse labour costs without also considering the quality of that labour.

A country may have high labour cost on an absolute basis, yet this cost can be relatively

Low if productivity is high. Furthermore, the price of a product is not necessarily

Determined by the amount of labour it embodies, regardless of whether the efficiency of

Labour is an issue or not. Since product price is not determined by labour efficiency alone,

Other factors of production must be taken into consideration, including land and capital.

In conclusion, since countries have different factor endowments, a country would have a

Relative advantage in a commodity that embodies in some degree that country’s

Comparatively abundant factors. A country should thus export that commodity that is

Relatively plentiful within the relatively abundant factor.

It should be noted that there are other theories such as production life cycle, leentief

Paradox and so forth that you can read on your own.

In sum, trade theories provide layout explanations about why nation’s trade with one

Another, but such theories are limited by their underlying assumptions. Most of the

World’s trade rules are based on a traditional model that assumes that:

1. Trade bilateral

2. Trade involves products originating primarily in the exporting country

3. The exporting country has a comparative advantage , and

4. Competition primarily focuses on the importing country’s market.

However, today’s realities are quite different, namely:

1. Trade is a multilateral process

2. Trade is often based on products assembled from components that are produced in

Various countries

3. It is not easy to determine a country’s comparative advantage as evidenced by the

Countries that often export and import the same product, and

4. Competition usually extends beyond the importing country to include the

Exporting country and the third countries.

Types of international organisations and functions.

There is a debate about what to call a company whose business ranges across national
borders, tying together home and host countries through corporate policies and practices.
Here are some of the terms used to describe these companies.

Transnational Corporation (TNC)

Because companies "transcend" or operate across national borders, some experts prefer the
term transnational corporation, or tnc. The United Nations favours this term and has created
a research centre for the study of transnational corporations.

Multinational Corporation (MNC)

The fact that companies operate in multiple countries has led some experts to adopt the term
multinational corporation, or mnc.this term is very popular in the business press and in
textbooks. It seems to be the most generic name to describe corporations operating around
the world.

Multinational enterprise (MNE)

Because some of the international giants are state-owned enterprises, rather than
corporations, the term multinational enterprise, or mne, has entered the vocabulary of
international trade.

Global Corporation

This term became very popular in the1990s. The term seems to have first been used to
describe a small number of companies whose business was conducted in dozens of-perhaps
more than
100-nations. Hence, nestle has long been described as truly global because the scope of its

Operations extend to more than 150 nations around the globe. The term is often applied to
companies doing business in several areas of the world (e.g., Europe, Latin America, Asia-
pacific, and North America).

1.4 life cycle of international organisations

4.0 conclusion

For countries to want to trade with one another, they must be better off with trade than

Without it. The principles of absolute and relative advantage explained how trade enables

Trading nations to increase their welfare through specialization. Trade of products with

The best potential for its own consumption as well as for export. Trade theories, in spite of

Their usefulness, simply explain what nations should do rather than described what

Nations actually do.

5.0 summary
This unit explained basis of trade, and some theories of trade among nations.

6.0 tutor marked assignment

Should there be trade if a country has an absolute advantage for all products over its

Trading partner?

Adam smith: ‘wealth of nations’ (1776);.

David Ricardo: the principles of political economy and taxation (1817), ,

1. Absolute advantage simply means when a country has total advantage on the

Goods traded in with another country.

2. Three limitations of international trade theories are:

A. Trade involves products originating primarily in the exporting country

B. The exporting country has a comparative advantage , and

C. Competition primarily focuses on the importing country’s market.

Knowledge of world business environment is imperative especially the environment

prospective companies want to trade with. Some companies’ products fail at the world

Market not because the products are not quality enough, or the target markets do not need

Them, but they fail to study such environment for their business operations. Some

Business persons confused the world market environment with home market environment

By considering them to be one and the same. This unit examines the world business

Environmental variables as they affect marketing activities.

2.1 international marketing environment

Knowledge of global markets

One of the characteristics that distinguish humankind from the rest of the animal kingdom is
the ability to devise ways to overcome the harshness of the environment.

Geography, the study of earth’s surface, climate, continents, countries, people, industries,

And resources, is an element of the uncontrollable that confronts every business manager

But which receives scant attention. The tendency is to study the aspects of geography as

Isolated rather than as important causal agents of the business environment.

A significant determinant in shaping the culture of a society and its economy is the on-

Going struggle to supply its needs within the limits imposed by a nation’s physical make-

Up. Thus, the study of geography is important in the evaluation of business and their

Environments.

Let examine this example: ‘lack of business environment knowledge’

“A major food processing company had production problem after it built a pineapple

Cannery as the delta of a river in menico. It built the pineapple plantation upstream and

Planned to barge the ripe fruit downstream for canning, load them directly on ocean

Liners, and ship them to the company’s various markets. When the pineapples were ripe,

However, the company found itself in trouble: crop maturity coincided with the flood

Stage of the river. The current in the river during the period was far too strong to permit

The backhauling of barges upstream; the plan for transporting the fruit on barges could not

Be implemented. With no alternative means of transport, the company was forced to close

The operation.”

This case has explained itself, no need for further explanations.

2.1.1. Demographic environment

Knowledge of the world business population is pertinent to an international business

Manager. Markets may exist at the world market, but is the population big enough to

Break-even, talk less of making profits? Answer must be provided for this question;

Otherwise going world market is nothing but visitation.

Knowing the gross population is not even enough to an international business manager.

For the manager to efficiently plan and implement good marketing programmes, the

Population has to be broken down into geographical distribution, density, mobility trends,

Age distribution, birth and death rates, and marriage rates. The international business

Manager that carefully considers and understands the components of the demographic

Environment will likely performs a better marketing job than the one that jumps into the

Market with the assumption that the markets are the same with the home market.

2.1.2. Natural environment

By nature, some countries are endowed with natural resources such as oil, sand, water,

Minerals, mountains, rivers, streams, and so forth than the others. While some countries,

Who are less blessed with these natural resources, create these artificially to their own

Advantage. It therefore calls for critical study of these resources as impetus for world

Business opportunities and threats.

2.1.3. Political-legal environment

Business decisions are strongly affected by developments in the political and legal

Environment. This environment is composed of laws, policies, government agencies,

Regulations, and pressure groups that influence and limit various organizations and

Individuals. Sometimes, these laws create new opportunities for business, and as well as

Threats which must be critically studied most especially for those business executives who

Desire to engage in international business.

To assess a potential business environment, an international business manager should

Identify and evaluate the relevant indicators of political difficulty. Potential sources of

Political complication include social unrest, the attitude of nations, and the policies of the

Host government.
Much like the political environment explained above, there are multiplicities of laws that

International managers must content with. These include:

A. Varying laws of nations

B. Bribery and corruption

C. Exchange rate policies

D. Profits repatriation issues

E. Issues of employment at the subsidiaries/branches

F. Intellectual property rights, and so forth.

2.1.4. Socio-cultural environment

The society in which people grew up shapes their beliefs, values, and norms. Culture, an

Inclusive term can be conceptualized in many different ways. The concept is often

Accomplished by numerous definitions. In any case, a good basic definition of the

Concept is that ‘culture’ is a set of traditional beliefs and values that are transmitted and

Shared in a given society. Culture is also the total way of life and thinking patterns that

Are passed from generation to generation. Culture means many things to many people,

Because the concept encompasses norms, values, customs, art, and mores. Therefore, a

Worldwide business success requires a respect for local customs.

For example, consumption patterns, living styles and the priority of needs are all dictated

By culture. In addition to consumption habits, thinking processes are also affected by

Culture. Food preparation methods are also dictated by culture preferences. For instance,

Asian consumers’ prefer their chicken broiled or boiled rather than fried. Consequently,

The Chinese in Hong Kong found American –style fried chicken foreign and distasteful.

Cultural universals, when they exist, should not be interpreted as meaning that the two

Cultures are very much alike. Too often, cultural similarities at first glance may in fact be

Just an illusion. Thus, an international business manager must therefore guard against
Taking such markets for granted.

Self assessment exercise

Gives examples of political-legal laws as it affect international business

2.1.5. Technological environment

One of the most dramatic forces shaping people’s lives is technology. The pace of

Technological development among nations is not the same, thus, an international

Business manager must study each nation’s technological development independently.

Some of the issues, he/she must content with include:

A. Mode of production of goods and services

B. Mode of delivery of services

C. Packaging systems

D. Mode of payments

E. Time consideration

F. Availability of expected technology

G. Cost of technology, and

H. Accessibility of technology.

2.1.6. Economic environment

Markets requires purchasing power as wells as people. The availability of purchasing

Power in an economy depends on current income, prices of goods and services, savings,

Debt and credit availability. Thus, an international business manager must pay close

Attention to major trends in income and consumers’ spending patterns, in addition to

Economic situation of the world markets.

A complete and thorough appreciation of the dimensions of world business environment

May well be the single most important gain to a foreign market. Necessary marketing
Research need to be carried out into world business culture, political-legal system,

Technological advancement and so forth.

Why should a foreign business manager be concerned with the study of culture?

1. Examples of political-legal laws are:

A. Varying laws of nations

B. Bribery and corruption

C. Exchange rate policies

D. Profits repatriation issues

E. Issues of employment at the subsidiaries/branches and

F. Intellectual property rights, and so forth.

________________________________________________________________________

2. Culture is a set of traditional beliefs and values that are transmitted and shared in

A given society. Culture is also the total way of life and thinking patterns that are

Passed from generation to generation. Culture means many things to many people,

Because the concept encompasses norms, values, customs, art, and mores.

Consumption patterns, living styles and the priority of needs are all dictated by culture. In
addition to consumption habits, thinking processes are also affected by culture. Food
preparation methods are also dictated by culture preferences.

3.0: introduction

Marketing opportunities exist in all countries regardless of the level of economic

development. To assume that only developed countries offer more market potential is a
misconception that wills lead international business manager astray. A particular market may
initially seem attractive because of its potential demand and size in terms of the number of
consumers or their purchasing power. Yet the market may be attracting more than its share of
competition. Since the market is thus crowded by many competitors, it may not be especially
attractive after all. As a result, on kvisit and shaw (1997) observed that ldcs may provide a
better return on investment because competitive expenditures can be significantly less when
sophisticated and expensive marketing techniques are not necessary.

A business manager usually discerns far more market opportunities that a firm’s limited
resources permit to be pursued. It therefore implies that a marketer must develop apriority
system so that available resources will not be spread too thin for the needed impact. Countries
must be screened based on certain relevant criteria for comparing opportunities. Such criteria
may include market potential, economic growth, political risk, available resources, etc. In
assessing market opportunities, there is no single ideal criterion. A marketer must therefore
employ a set of criteria that is relevant to the market opportunity under consideration. This
unit examines the various alternatives of entering international markets.

International Business Entry Decision

Once a company has analyzed the environment of foreign market and concludes that it
represents an alternative opportunity, the next step for the company is to take strategic
decisions on how to enter the market. A company that has this kind of decision to make
usually have three strategic options to consider and select the most appropriate. In trying

To select the most appropriate strategic option, the company has to consider the impact of
some the crucial factors such as the nature of the product, nature of the market, financial

Capacity of the company, the management expertise, and the established objectives of the
company. These options are thus discussed below.

 Export

This is the quickest and simplest way through which a company can enter foreign markets.
With the option, the manufacturing facilities of the company will remain located in the home
country while the company simply makes arrangement on how to sell some of its present
products abroad. Exporting is a strategy in which a company, without any marketing or
production or organization overseas, exports a product from its home base market abroad.
Exporting allows a company to enter foreign markets with a minimum of change in its
product line, company organization, investment, or company mission. The main advantage of
exporting strategy is the case in implementing the strategy. Risk are minimal because the
company simply exports its excess production capacity when it receives orders from abroad.
The problem with using an exporting strategy is that it is not always an optimal strategy. A
desire to keep international activities simple, together with a lack of product modification,
make a company’s marketing strategy inflexible and unresponsive .however, any company
that chooses to enter into international markets by only exporting its products to the foreign
markets can achieve the objective through two ways, namely indirect export and direct
export.

 Indirect export
 Under this method or strategy, the firm does not have to develop an oversea sale
force. It will only hire independent international middlemen in the countries
concerned. Firms that are stating export business for the first time usually adopt this
method. The method involve less investment and less risks. The assumption is that the
middlemen’ established goodwill, marketing know-how and services will enable the
image of the product and possibly increase the speed of its acceptance in the market.

Firms that adopt the indirect export method in their international business usually have three
options of domestic middlemen arrangements. They can use any or combination of the
following:

(A): domestic based export merchants buys the manufacturers’ products and then sell them
abroad. With this arrangement, the exporting company only sells its products to the export
merchant in the home country .after buying from the company, the export merchant will then
sell the product to foreign markets on its own account. Because, the merchant takes title to
the product, it should the burden and risks involved in exporting the product to foreign
markets.

(b): domestic-based export agents

The agents seek and negotiate foreign purchases and are paid commissions. The agent simply
agree to seek for foreign buyers for the company. Their job normally is to bring foreign
buyers into contact with domestic sellers. They receive commission on any business done.
However, the exporting firm will bear the whole risk involved in the business. In selecting
the agent to work with, the exporting company has the option of choosing any of the
following:

I. Export buying agents.

They reside in the manufacturer’s country but represents foreign buyers. Their functions are
to place orders with the manufacturers, take care of their. Brokers their function is only to
find buyers for the manufacturer. They do not handle the product.

Iii. Manufacturers’ export agents

These agents represent many manufacturers with non-competing interests. They render
selling and other marketing services to the manufacturers.

(c) Cooperative organization the cooperative organizations serve many producers with non-
competing interests by making careful plans on how to export the products on their behalf.
Although, the cooperative organization is independent, it is not wholly independent as the
producers have a remarkable influence on the administrative control of its activities.

 Direct exports

The manufacturers concerned take responsibility of exporting their products instead of using
the services of middlemen. However, not all the manufacturers can enter through this method.
The method is often employed by big manufacturers with enough quality of products to sell
to and by those whose market has grown to sufficient size to justify the burdens involved in
it, for example the coca-cola company. Although, the method has a high probability of
yielding a profitable return, the level of investment and risk associated with it is usually high.
Notwithstanding, manufacturers that use this method as their entry strategy into international
markets, can adopt any of the following options:

A). Domestic-based export department: an export sale manager carries on the actual selling
and draws on market assistance as needed. The department might evolve into a self-contained
export department performing all the activities to export and operating as a profit centre.

B). overseas sales branch or subsidiary: an overseas sales branch allows the manufacturer to
achieve greater presence and program control in the foreign market. The sales branch handles
sales and distribution and might handle warehousing and promotion as well. It often serves as
a display and customer service centre assoc). Traveling export sales representatives: the
manufacturers concerned usually send one or two of their home-based sales representatives to
foreign markets to canvas for business and possibly get orders from buyers. This strategy is
often employed by big companies that are entering into a market newly and by small
companies with financial

Handicap.

D). Foreign-based distributors or agents: the company can hire foreign-based distributors or
agents to sell the company’s goods. These distributors and agents might be given exclusive
rights to represent the manufacturer in that company or only limited rights.

 Joint venturing

Foreign investors may join with local investors to create a joint venture in which they share
ownership and control. That is, companies that adopt this method as their entry strategy into
foreign market join hands with the nationals in the foreign countries to setup production and
marketing facilities abroad. For example, kilter (1997) reported that coca-cola and the Swiss
company nestle are joining forces to develop the international market for “ready to drink” tea
and coffee, which currently sell in significant amounts only in Japan. Also Procter and
gamble has formed a joint venture with its Italian arch-rival fater.
  Licensing: an export manufacturer will enter an agreement with a foreign company
authorizing the foreign company to use the production process, trade mark, patent, or
trade secret of the exporting manufacturer for a defined fee or royalty. Under this
consideration, the exporting manufacturer is the licensor while the foreign partner is
the licensee. The advantage of licensing is that the licensor will gain entry into the
market without much difficulty and at a little risk while then licensee will gain
production expertise or well-known name without starting from the scratch. However,
the licensor will have less control over the business activities unlike if it had up its
own production facilities. Besides, the licensor may even find out that it has set up a
competitor. The licensee as well suffers from the foreign interference on it affairs.
 Contract manufacturing: in this strategy, the arrangement will be for the local
company in the foreign country to be in charge of the production of the licensed
products,

While the marketing of the products will rest on the company. The export firm is only

Exporting its marketing expertise. The advantages and disadvantages of this are similar to

That of licensing.

 Management contracting: in some cases, government pressure and restrictions force a

foreign company either to sell its domestic operations or to relinquish control. In such
a case, the company may have to formulate another way to generate the revenue

Given up. One way to generate revenue is to sign a management contract with the
government or the new owner in order to manage the business for the new owner. The new
owner may lack technical and managerial expertise and may need the former owner to
manage the investment until local employees are trained to manage the facility. Examples

Are aerk airways, on do oil, etc. it should be noted that management contracts do not have to
be only after a company is forced to sell its ownership interest. Such contracts may be used as
a sound strategy for entering a market with minimum investment and minimum political
risks. For example, club med, a leader I international resort vacations, is frequently wooed by
ldcs with attractive financing options because these countries want tourism. Club med’s
strategy involves having either minority ownership or none at all, even though the firm
manages all then resorts.

 Turkey operations: a turkey operation is an arrangement by the seller to supply with a

facility fully equipped and ready to be operated by the buyer’s personnel, who will be
trained by the seller. The term is sometimes used in fast-food franchising when
franchisor agrees to select a store site, build the store equip it, train the franchisee and
employees and sometimes arrange for the financing. In international marketing, the
term is usually associated with giant projects that are sold to government or
 government run companies. Large-scale plants requiring technology and large-scale
construction processes unavailable in local markets commonly use this strategy. Such
large-scale projects include building steel mills, fertilizer, and chemical plants; etc.
 Direct investment: direct ownership of foreign-based assembly or manufacturing
facilities is the ultimate form of foreign investments. The foreign company can buy
part or full interest in a local company or build its own facilities. When the firm feels
that it has mastered the market and there are opportunities, it will then establish its
own production facilities with full management and control.

Some of the advantages include: the company may secure real cost economies in the areas of
cheaper labour and raw materials. It can develop manufacturing and marketing policies that
will be in agreement with the culture of the people and therefore enhance its long-term
international objectives. However, the company suffers from exposing a large investment to
certain risks, such as devaluation of currencies, keen competition, etc.

6.2 ADVANTAGES OF INTERNATIONAL MARKETING

Trade across countries is beneficial to all participating countries. Understand the gains so as
to prove wrong the perception that international adversarial. The importance of global
marketing can be understood from the points:

1. For the Economy's Survival : Many countries need to trade across the globe their survival.
For example, Hong Kong has, historically underscored this point for without food and
water from China, the British colony would not have

Long. A similar experience was felt with other European countries, since most of

European nation as are relatively small in size. European firms, without

Markets, would not have enjoyed sufficient economies of scale and would not allowed them a
competitive edge over the US firms. For instance, Nestle is forced depend on foreign
markets as its home country, Switzerland, is relatively small in size.

2. For Larger Sale and Profits : Foreign markets constitute a large share of total business of
many firms that have wisely cultivated markets abroad. Foreign constitute a major share of
total revenues of many firms. For example, '-V'-"'-" .......V"H'i!l" foreign sales account for 80
per cent of its total revenue. No international business ignore overseas markets.

3. Growth of International Business : Developing nations have huge

In their markets for international business; particularly Latin America and Asia/Pacific are
experiencing considerable economic growth. MNCs cannot ignore these
Markets.

Successful global firms from the Netherlands, a smaller country in Western Europe, have
become giants worldwide. Among them are Philips (electronics), Royal A hold (retail),
Royal Dutch/Shell (petrol), and Uniliver (consumer products). Even the Japanese firms
dominate many industries, for example, Mitsui and, Mitsubishi (electronics, banking, and
import-export), Dentsu (advertising), Sony and Panasonic (electronics) and others. In other
words, firms have achieved worldwide dominance mainly through forays into overseas
markets, notwithstanding their home country being small in size.

4. For Price Moderation : The gains from exports are quite obvious to the economy. But,
even imports can be beneficial to the economy. Without imports, there is no force to
influence domestic firms to moderate their prices. In the absence of imported products
consumers are forced to buy domestic products at higher prices, resulting in inflation and
excessive profits for local firms. The excessive profits and high prices act as a prelude to the
worker's demand for higher wages, and further exacerbating the problem of inflation.

Standards : Trade affords participating countries and their people to standards of living,
which otherwise was not possible. Without trade, shortages force people to pay more
for less, denying them the purchasing buy more. In addition, life in most countries would
be much more difficult, if for many strategic materials that must be imported. Further, trade
makes it industries to specialise arid gain access to raw materials, while at the same
competition and efficiency. A diffusion of innovations across national

Is a useful by-product of international trade. It means that absence of such impede the flow
of innovative ideas.

: Demand for most goods in local/ domestic market is affected by

i.e. by recession, depression and by seasonal factors like climate. These a fall in sales often
forcing firms to lay off personnel. Foray into overseas

:may help a firm avoid such a possibility. Because foreign markets iron out

By providing outlets for excess production capacity. For example, cold

:may dip the demand for soft drink consumption. Yet, not all countries enter the at the same
time, and some countries are relatively warm the year-round. Way, the operation of business
cycle influences the demand for the products.

Business cycle often lags behind that of the US. That domestic and foreign sale

in differing economic cycles works in favour of General Motors and Ford overseas
operations help even out the business cycles of the North American
ENTRY STRATEGIES

Marketing strategy and the associated marketing mix must take account of factors in the
market environment :

Customer needs : The extent to which they are global or to which there are local needs.

Unit 5: product – price decisions

International product life cycle

Expansion strategies

Global pricing strategies

Introducing a product into international market is not an easy task. The company has to

First of all research the market to such an extent that all the components and supportive

Attributes of the product have to be clearly detected. Both the market research and the

Product introduction have to be done with careful consideration of the following factors:

Time scale

In interpreting the research findings, the firm has to take into consideration the dynamic

Fashion environment in the market and rapidly changing tastes and demands of the

Consumers. Without that, the firm may discover that it has succeeded in introducing a

Product that is already out-of-fashion and therefore has no demand in the market. This is

One of the tricky aspects of modern international marketing. A tactful marketer must try

To combine facts with changing scenes.

Firm’s resources and goals

It is imperative to note that firms have to design their products within the frame-work of

Their economic realities, resources and goals. Although, the aim is to attain the full

Satisfaction of the consumers’ needs, the firm has to do it in such a way as to make profit
Or attain other objectives.

Specified markets

In designing the product, the firm has to have a defined target group at the back of its

Mind. The target group can be a wide one, consisting of country or region or a small area

Of few consumers. No matter the size, what is important is that the job must be carried

Out with a definite buyer in mind.

Factors to be considered whether to standardize or to differentiate

It should be recall that standardization and differentiation have been looked into in the

Earlier part of the course. Thus, there are many factors to be considered at any time a

Decision is to be taken on the issue of standardization and differentiation. Some of these

Are thus briefly examined below:

Corporate objectives

An international firm that seeks to maximize profits regardless of international market

Penetration goals is more likely to strike towards product standardization. This is because

By the nature of such strategy, the firm is likely to generate a better profit performance in

The short-run that if differentiation is opted for.

The market usage of the product

Standardization is hereby recommended where the consumers’ usage of the product is

Similar in all the markets. However, where it differs, differentiation is considered as a

Better option.

Company resources

Differentiation involves consideration in production facilities, inventory management and

Marketing mix ingredients. Because of these financial resources requirements, most weak

Firms do not go for differentiation strategy, rather prefer standardization strategy option.

Level of service required

Products with high technical services either before or after the delivery adopt

Standardization strategy, for example electronics, automobiles and so forth.

Base of production

A product that requires intricate manufacturing processes is likely to support

Differentiation strategy than a product which can be manufactured with ease. Toilet soaps

And aero-plane are two different products with different skills, this thus call for different

Strategies.

Legal considerations

Legal systems can have a major impact on the design of a product, its packaging and the

Printed messages incorporated. For example, a packet of cigarette in Nigeria must contain

A warning about the health hazard of smoking. It should however be noted that the law is

Not interested in the inconveniences that such regulations may impose on marketing

Personals as it is their duty to assess the market and know which strategy is better option.

When a company considers marketing in foreign markets, it needs to analyze such

Economic characteristics as GNP, income, and population in order to compare market

Opportunities. Once a particular market is chosen, management needs to decide on the

Market entry strategy. However, such companies should consider the feasibility of

Operating all or some of its international business in a free trade zone, since such zone

Can complement many of the market penetration options.

Product life cycle in international markets:

1. Introduction-

A majority of new product interventions are made in highly developed countries.

price of product is high.

emphasizes on customer feedback and frequent modifications.

marketed in home country and export to other developed countries. New products are made
in highly industrialized and developed countries
2. Growth-

firm gets better opportunities for exports

price competition

standardization of products.

production in other developed countries.

competition determines prices.

export grows to other developed countries and developing countries.

3. Maturity-

production at multiple location

emphasis on creating product differentiation, innovating company establishes production in

other developed countries to face local competition. A firm establish its operations in middle
and low income countries .

4. Decline-

Technical know-how and skills become widely available.

Emphasis on cost effective locations.

Product attributes are offered by several competitors

Price and cost competitiveness.

UK which has been largest manufacturer and exporter of bicycle ,import them. Bicycles are
at declining stage in developed countries and maturity stage in developing countries.

Chemical and hazardous industries are shifting from high income countries to low income
countries.

Example-Perrier has adopted differentiated positioning strategy. In France its sparkling water
is positioned as ordinary bottled water and in u.k it is positioned as substitute for soft drinks
with snob appeal.
So marketer has to strike a balance between product features, user characters & culture &
benefit from product to determine ideal positioning strategy.

Product strengthening is used to create and maintain product competitive position in market.

Geographical expansion is used to grab opportunities and respond to competitors.

1. Kings-

Strong product portfolio and wide geographic coverage.

Example- coke, Pepsi, mc Donald, Sony etc.

2. Barons-

High product strength and low geographic coverage.

Strategic alliance is used by firms to enter in foreign market.

Example- Tata motors with high product strength in motor vehicles acquired Daewoo
Company.

3. Crusaders-

Firms having high geographical coverage and low product strength. Outsourcing, acquisition
or international product development is required by firms

4. Commoners-

Firms with low product strength and limited geographical coverage.

Firms sustain in domestic market or limited overseas market due to regulations.

Product portfolio

• A product is anything that can be offered to a market to satisfy want or need. It may include
physical goods, services, experiences, events, persons, places, organisations, information and
ideas.

• It is set of company’s product mix and brands at different levels of p.l.c.

• Decision relating to international product planning is based on marketing potential in host

market and careful analysis.

• Product portfolio approach is used for product planning.

• It classifies a firm’s international performance on the basis of relative market share &
growth rate.

• Currencies (1980) notes that product portfolio approach is useful in formulating

international marketing strategies.

• Difference between countries in terms of market growth and structure lead to the
consideration of multiple market entries for given product.

• Product portfolio analysis gives a correct picture of competitive situation.

• It offers global view of international competitive structure.

• It acts as guide for formulation of global international marketing strategy.

Types of products

1. Local products- products available in a portion of a national market.

Example-cape cod potato chips was a local product in England market.

2. National product- it is offered in a single national market.

Example- coca-cola develops a non-carbonated ginseng flavored beverage for sale in Japan.

3. International products - these products are offered in multinational regional markets.

Example-Renault was a European product, then Renault entered the Brazilian market and
became multiregional company. Renault acquire Nissan and capture the Europe, Latin
America, Asia, America, Middle East, and Africa.

4. Global products-

These products are offered in global markets.

Example- Sony is a global brand. It’s portable. Its portable personal sound system or personal
stereos are global products.

Product -positioning

• kilter “ positioning is act of designing the company image & value offer so that segment
customer understand and appreciate what the company stands for in relation to its
competitors”.

1. Product positioning can be achieved by emphasizing the attributes of products or benefits

that consumers seek.
• Example- Toyota launches its Lexus range as very luxurious cars.

• 2. Positioning by product category-

• pitching a product against similar product with difference in quality or price.

• Example-unlevel launched radian in u.k as a detergent that removes stale odor in washed
clothes.

• 3. Positioning by use/user- according to user characteristics and life style.

• Example- Rolex watches are positioned as exclusive products for wealthy.

• In international market each market is unique in character & present different set of market
opportunities and problems.

• A single product is positioned differently in each market.

International product promotion strategies

1. Straight extension

Where the product function, needs satisfied and conditions of product use is same. This
strategy is used.

Example- coke and lux brand of soaps etc.

Example-gillette razor:-

Consumer needs satisfied-disposable, easy to use product

2. Product –extension-promotion adaptation

It is used in market where the product function and the needs satisfied are different but

The conditions of product use are same. Products remain same but their promotional

Strategy is customized.

Example-bicycles are cost effective and affordable means of transport in low income
countries.

It is used as means of recreation and health care in high income countries.

Example-in India chewing gum is viewed as children products whereas it is used as a

substitute to smoking in u.s.
3. Product adaptation-promotion extension-

In markets where conditions of product use are different but the product performs the same
function or satisfies the same needs.

Example- washing habits of people vary in various markets. Indian housewives use

Lukewarm water, French use scalding hot water and Australian use cold water.

Difference in electrical voltage, difference in operating system require product modification

4. Dual adaptation-

In countries where the functions of the product and need satisfied are different and the
conditions of product use are also different. A firm has to customize both product and
promotion strategies.

Example-in low income countries clothing serves the basic purpose of physical protection
whereas in high income countries it symbolizes the personality and status.

5. Developing new product-

• It is used in the market where product function, need satisfied remain same but conditions
of product use differ and consumers don’t possess ability to pay for the product.

Example- Philips introduced a hand wound radio in 2003,to suit the needs of rural India
where electricity supply is erratic and use of batteries makes the radio expensive

Q.4 define the concept of product standardization and product adaptation in international
marketing.

Product –standardization & adaptation in international marketing

Product standardization:-process of marketing a product in overseas market with little

changes (modified packaging and labeling, translation of words and other cosmetic
changes).eg Revlon, Amway etc.

Factors that favor product standardization

1. High level of technology intensity-

To reduce confusion and promote compatibility.

Example- computer servers, micro & macro processors and van (value added networks).
2. Formidable adaptation cost-

production and distribution of product and services through standardization is simple and
cost effective.

3. Convergence of customer needs worldwide-

when a consistent company or product image is needed, product uniformity is required.

when customers from different countries share similar needs and want identical products.

example- Levi’s jeans, mtv, mc Donald, watches, diamond.

Product -adaptation

Making changes in a product in response to needs of target market.

Food, fashion and style are highly sensitive and customer preference varies.

Firm customize the features, packaging, labeling,

Support services and payment to suit target market.

Benefits

enable firm to tap market.

fulfill the need and expectation of customers

Helps in gaining market share

increases sales

Product adaptation by mc Donald

mc Donald-

Hum burger in u.s.

Maharaja Mac in India

Chicken tatsuta and teriyaki chicken in Japan

Kiwi burger in New Zealand

Mc palta-hong Kong

Japanese firms have always adapted their automobile to American customers.

du punt has customized its manufacturing and marketing for Japanese market and design
parts to their specification.

the lime taste of sprite was taken out because Japanese prefer a purer lemon flavor.

Trade-off strategy between product standardization and adaptation

a firm has to carry out cost benefit analysis of its decisions.

the purpose of business organization is not to save the cost but to maximize market share
and profitability.

firm needs to carry out product customization. If a firm sells standardized products it leads
to decline in market share and generate profitability to company.

Product quality decisions

quality plays an important role in maintaining goodwill and image in the market.

a firm has to not any adapt mandatory quality requirement of target market but also attempt
to achieve quality excellence.

Packaging and labeling for international market

packaging and labeling should meet importer’s specification and the regulations of the
importing countries.

1. Physical protection-

2. Quality protection

3. Product promotion

6. Convenience in use
7. Storage

8. Transport

9. Recyclability

Standardization

Adaptation

Pricing policy

Price is a critical element in international business. Here are four categories of international
pricing situation.

A. Export pricing –

Are dual pricing that differentiate product that are domestic

And international. In dual pricing, cost plus and marginal cost

Method are mostly used; while market differentiated pricing is

Used base on demand oriented strategy. If not carefully use, it

Can lead to price escalation or dumping.

B. Foreign market pricing

International product pricing for instance when the manufacturer operation is defined by

Corporate objectives, costs, customer behavior and market conditions market structure

And environmental constraints.

C. Price coordination

Call for price coordination of product in this has increase

Because of the introduction of euro. Environmental factor will

Continue to affect price coordination worldwide, it’s difficult to

Coordinate prices worldwide.

D. Transfer pricing

Transfer or intercompany pricing is the pricing of sales to

Members of corporate family. It means charging almost the

Same price for all products in the same industry.

Unit 6 : Export Management

Introduction

Objectives

6.1 managing export decisions

6.2 risk management

6.3 export finance in India

6.4 export promotion in India

Channel of distribution

Forms of channel of distribution

Types of intermediaries: direct channel

Channel adaptation

Determinants of channel types

Channel management decision

Manufacturer can sell directly to end users abroad, but this type of channel is generally

Not suitable or desirable for most consumer goods. In foreign markets it is far more

Common for a product to go through several parties before reaching the final consumer.

The purpose of this unit is to discuss the various channels of distribution that are

Responsible for moving products from manufacturers to consumers. The unit also

Describes the varieties of intermediaries involved in moving products between countries

As well as within countries. It should be noted that certain types of intermediaries do not

Exist in some countries and that the pattern of use as well as the importance of each type

Of intermediary varies widely from country to country. A manufacturer is expected to

Make several decisions that will affect its channel strategy, including the length, width,

And number of distribution channels to be used.

Define a channel of distribution for goods or services

2. Explain channel members involved in moving goods from manufacturers to the

Consumers, and

3.1 channel of distribution

A channel of distribution for a product is the route taken by the title to the product as it

Moves from the producer to the ultimate consumer or industrial user. It can also be

Describe as a set of institutions which performs all the activities or functions utilized to

Move a product and its title from production to consumption. A channel always includes

Both the producer and the final customer for the product, as well as all middlemen

Involved in the title transfer. Even though, agent middlemen do not take actual title to the

Goods, they are included as part of the distribution channel. This because,

They play such an active role in the transfer of ownership. A trade channel does not

Include facilitating agencies in marketing. This is because they only assist in the

Performance of distribution but neither takes title to goods nor

Negotiates purchases or sales.

3.2 forms of channel of distribution

Companies use two principal channels of distribution when marketing abroad. These are

Indirect selling and direct selling.

Indirect selling, also known as the local or domestic channel, is employed when a

Manufacturer in Nigeria, for example, markets its product through another Nigeria’s firm

That acts as the manufacturer’s sales intermediary. By exporting through an independent

Local middleman, the manufacturer has no need to set up an international department. The

Middlemen’s, acting as the manufacturer’s external export organization, usually assumes

The responsibility for moving the product overseas. The intermediary may be a domestic

Agent if it does not take title to the goods, or it may be a domestic merchant if it does take

Title to the goods.

Some of the advantages to be gained by employing an indirect domestic channel include:

1. The channel is simple and inexpensive- the manufacturer incurs no start-up cost

For the channel and is relieved of the responsibility of physically moving the

Goods overseas.

2. The intermediary very likely represents several clients who can help share

Distribution costs, the costs for moving the goods are further reduced.

An indirect channel does have some limitations, which include:

1. The manufacturer has been relieved of any immediate marketing costs, but in

Effect, has given up control over the marketing of its products to another firm.

This situation may adversely affect the product’s success in the future.

2. The indirect channel may not necessarily be permanent. Being in the business of

Handling products for profit, the intermediary can easily discontinue handling a

Manufacturer’s product if there is no profit or if a competitive product offers a

Better profit potential.

Direct selling is employed when a manufacturer develops an overseas channel. This

Channel requires that the manufacturer deal directly with a foreign party without going

Through an intermediary in the home country. The manufacturer must set up the overseas

Channel to take care of the business activities between the countries. Being responsible

For shipping the product to foreign markets itself, the manufacturer exports through its

Own internal export department or organization.

Some of its advantages are:

1. There is active market exploitation

2. There is a greater control

However, it suffers from difficulty in management of the channel, especially if the

Manufacturer is unfamiliar with the foreign market. Also, the channel is time consuming

And expensive.

3.3 types of intermediaries: direct channel

There are several types of intermediaries associated with direct channel of distribution.

Some of these include:

A) Foreign distributor

A foreign distributor is a foreign firm that has exclusive rights to carry out distribution

For a manufacturer in a foreign country or specific area. Orders must be channeled

Through the distributor, even when the distributor chooses to appoint a subagent or sub

Distributor. The distributor purchases

Merchandise from the manufacturer at a discount and then resells or redistributes the

Merchandise to retailers and sometimes final consumers. Hence, the distributor’s function

In many countries may be a combination of wholesaler and retailer. But in most cases, the

Distributor is usually considered as an importer or foreign wholesaler. In some situations,

The foreign distributor is merely a subsidiary of the manufacturer.

B) Foreign retailer

Foreign retailers are employed for consumers’ products rather industrial products.

C) state-controlled trading company

Some products are sold to state-controlled trading company, before they are further resell
To individuals and institutions. These entail heavy equipment and machineries.

D) End user

Sometimes, a manufacturer is able to sell directly to foreign end user with no

Intermediary involved in the process. The direct channel is a logical and natural choice

For costly industrial products. However, it is challenging, for example, a consumer may

Place an order without understanding his or her country’s import regulations. When the

Merchandize arrives, the consumer may not be able to claim it. As a result, the product

May be seized or returned on a freight-collect basis. Continued occurrence of this

Problem could become expensive for the manufacturer.

Indirect channel

For a majority of products, a manufacturer may find it impractical to sell directly to the

Various foreign parities. Other intermediaries more often than not, have to come between

These foreign buyers and manufacturer’s country. With an indirect channel, a

Manufacturer does not have to correspond with foreign parties in foreign countries.

Agents can be further classified according to the principal whom they represent.

A) Export broker

The function of an export broker is to bring a buyer and a seller together for a fee. The

Broker may be assigned some or all foreign markets in seeking potential buyers. It

Negotiates the best terms for the seller, but cannot conclude the transaction without the

Principal’s approval of the agreement. As a representative of the manufacturer, the export

Broker may operate under its own name or that of the manufacturer.

B) Manufacturer’s export agent or sale representative

This is an independent business person who usually retains his or her own identity by not
Using the manufacturer’s name. A sales representative can select when, where and how to

Work within the assigned territory. Working methods include presenting product

Literature and samples to potential buyers. The manufacturer’s export agent works for

Commission. The manufacturer’s export agent may present some problems to the

Manufacturer because an agent does not offer all services. An export agent may take

Possession but not title to the goods and thus assumes no risk- the risk of loss remains

With the manufacturer.

C) Export management company (EMC)

An export management company (emc) manages, under contract, the entire export

Program of a manufacturer. An emc is also known as a combination export manager

(cem) because it may function as an export department for several allied but non-

Competing manufacturers. The emc has greater freedom and consideration authority.

The emc provides extensive services, ranging from promotion to shipping arrangement

And documentation. The emc is responsible for all of the manufacturer’s international

Activities.

D) Cooperative exporter

A cooperative exporter is a manufacturer with its own export organization that is retained

By other manufacturers to sell in some or all foreign markets. Except for the fact that this

Intermediary is also a manufacturer, the cooperative exporter functions like any other

Export agents. It operates as an export distributor for other suppliers. It takes possession

Of goods but not title.

E) Others forms of agents include:

1. Purchasing/buying agent

2. Country-controlled buying agent

3. Resident buyer
4. Export merchant

5. Export drop shipper

6. Export distributor

7. Trading company; etc.

Because the standardization/globalized approach to international marketing strategy may

Not apply to distribution strategy in foreign markets, it is imperative that international

Marketers understand the distribution structures and patterns in those markets/countries.

Hence, comparative analysis should be conducted.

Some channel adaptation is frequently a necessity. For example, Avon has had to develop

Other distribution methods in Japan and Thailand. A traditional distribution channel may

Seem inefficient, inefficient, but it may maximize the utilization of inexpensive labour,

Leaving no idle resources.

A manufacturer must keep in mind that, because of adaptation, a particular type of

Retailer may not operate in exactly the same manner in all countries. A particular

Distribution concept proven useful in one country may have to be further refined in

Another.

3.5 determinants of channel types

There is no single across-the-board solution for all manufacturers’ channel decisions.

However, there are certain guidelines that can assist a manufacturer in making a good

Decision. Factors that must be taking into consideration include:

1. Objectives of the firm

The objectives of the firm are the corner-stone that determines the kind of channel to be

Used in any given market. This is because it is the objective that will determine whether
The channel to be selected should be long or short.

2. Legal considerations

A country may have specific laws that rule out the use of particular channels or

Middlemen. France, for example, prohibits the use of door-to-door selling. Although

Private importers in Iraq may choose to deal through commission agents, Iraqi legislation

Prohibits state enterprises from dealing with third-party intermediaries in obtaining

Foreign supplies. Also, Saudi Arabia requires every foreign company which work there to

Have a local sponsor who receives about 5 percent of any contract

The overseas distribution channel often has to be longer than desired. This is because of

Government regulations, a foreign company may find it necessary to go through a local

Agent/distributor. Channel width may be affected by the laws as well.

3. Managerial resources

The management of distribution channels depends on to a great extent on the experiences

That vest in the firm’s mangers. A firm that is entering an international market for the first

Time, mighty lacks the expertise that is required to be able to choose and control short

Channels or the firm’s own local subsidiary. Such firms would prefer to give the job to

Middlemen. Sometime, even well-established firms often seek the assistance of

Middlemen in cases of involving new products or new \segments that calls for the

Acquisition of a new type of experience.

3. Product image

The product mage desired by a manufacturer can dictate the manner in which the product

Is distributed. A product with a low-price image requires intensive distribution. On the

Other hand, it is not necessary or even desirable for a prestigious product to have wide

Distribution. For example, Waterford glass has always carefully nurtured its posh image

By limiting its distribution to top-flight department and specialty stores. Although

Intensive distribution may increase sale in the short run, it is potential harmful to the

Product’s image in the long run.

4. Channel availability

This is of course a major consideration as one will not expect to selects a specific type of

Channel in a given country if:

A. Such a channel does not exist

B. It belongs to a competitor

C. It does not wish to distribute your product.

5. Product characteristics

The type of product determines how that product should be distributed. For low priced,

High-turnover convenience products, the requirement are for an intensive distribution

Network. The intensive distribution of ice cream is an example.

For high-unit-value, low-turnover specialty goods, a manufacturer can shorten and

Narrow its distribution channel. Consumers are likely to do some comparison shopping

And will more or less actively seek information about all brands under consideration. In

Such cases, limited product exposure is not an impediment to market success

One should always remember that products are dynamic, and the specialty goods of today

May be nothing moiré than the shopping or even convenience goods of tomorrow. For

Example,. Computers which were once an expensive specialty product that required a

Direct and exclusive channel, today they have become shopping goods, necessitating a

Long and more intensive channel.

6. Middlemen’s loyalty and conflict

One ingredient for an effective channel is satisfied channel members. As the channel

Widens and as the number of channels increases, more direct competition among channels

Members is evitable.
7. Local customs

Local business practices, whether outmoded or not, can interfere with efficiency and

Productivity and may force a manufacturer to employ a channel of distribution that is

Longer and wider than desired. For example, because of japans’ mutlitiered distribution

System, which relies on numerous layers of middlemen, companies often find it necessary

To form a joint venture with Japanese firms.

Domestic customs can explain why a particular channel is in existence. Yet customs may

Change or may b overcome\me, especially if consumer tastes change. For example

On visit and Shaw (1997: 486) reported that there are some 82, 000 British pubs, 50,000

Of which are owned by brewing companies; the problem they face was the trend toward

Beer consumption at home. The pubs have had to adjust by emulating trendy American

Bars, selling more win and such food as hamburgers.

8. Control

If it has a choice, a manufacturer that wants to have better control over its product

Distribution may want to both shorten and narrow its distribution channel. However,

Control to be administered depends on the nature of the products and laws of such

Countries, the products being marketed to.

In conclusion, there other factors that affect channel decisions. However, most of these

Factors are inter-related.

Self assessment exercise

State determinants of channel types

3.6 channel management decision

Whether then intermediaries are the employees of the firm’s subsidiary or whether they

Are totally independent, there is a mutuality of interest between the supplying company

And its channels’ personnel and it is important that the best principles of management
Employed. After a company has determined its basic channel deign, individual

Middlemen have to be managed in such a way as to:

1. Create distributor loyalty

2. Ensure that distributors are adequately remunerated

3. Train and develop distributors

4. Determine standards of performance, and

5. Evaluate performance against standard.

Self assessment exercise

Motivation of channel members is necessary for what reasons?

A product, no matter how desirable, must be accessible to buyers. A manufacturer my

Attempt to use a direct distribution channel by selling directly to end users abroad. The

Feasibility of this channel depends on the type of product involved. Generally, the sales

Opportunity created by direct selling is quite limited. Intermediaries are usually needed to

Move the product efficiently from the manufacturer to the foreign users.

This unit examined various channel members involved in moving goods/services to the

End users. These channels are classified into six. The channel chosen by marketing

Executives depends of the nature of the products and the expertise of the channel

Members. It also considered factors to be look into before selecting a channel.

1) Determinants of channel types include:

A. Objectives of the firm

B. Legal considerations
C. Managerial resources.

D. Product image

E. Channel availability

F. Product characteristics

G. Middlemen’s loyalty and conflict and

H. Local customs

________________________________________________________________________

2. Motivation of channel members is necessary for such reasons as to:

1. Create distributor loyalty

2. Ensure that distributors are adequately remunerated

3. Train and develop distributors

4. Determine standards of performance, and

5. Evaluate performance against standard.