Global Marketing

Name Dr.Supriya Goutam

Subject Global Marketing

Course B.B.A

Session 2023-24

Year 3RD

Semester VTH

Departmen FACULTY of COMMERCE &

t MANAGEMENT

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UNIT-1

GLOBAL MARKETING- INTRODUCTION

The beverages you drink might be produced in India, but with the collaboration of a USA
company. The tea you drink is prepared from the tea powder produced in Srilanka. The television
you watch might have been produced with Japanese technology.
Most of you have the experience of browsing internet and visiting different websites,
purchasing the goods and services without visiting those manufacturing countries. All these
activities have become a reality due to the operations and activities of Global Marketing. Thus,
Global Marketing is the process of linking the global resources with global people.

NATURE:

Globalization – is an attitude of mind – it is a mindset which views the entire world as a

single market so that the corporate strategy is based on the dynamics of global business
environment. The concept of globalization has filled up the concept of Global Marketing. In

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fact, the term Global Marketing was not popular before 2 decades. Global Marketing is come from
the word Global Marketing and Global Marketing is come from the word International Trade.

International Marketing International Marketing is any marketing activity which supports business
activity, in a country other than the one that the business is located in. International marketing
enables businesses to provide benefits (in the form of products and services) to consumers around the
world.

Global Marketing Global marketing is “Marketing on a worldwide scale reconciling or taking

commercial advantage of global operational differences, similarities and opportunities in order to
meet global objectives”

International Trade – Global Marketing:

Originally, the producers used to export their products to the nearby countries and gradually
extended the export to far-off countries. Gradually the companies extended the operations beyond
trade.

Global Marketing – Global Marketing:

The MNC’s which are producing in home country band marketing them in foreign countries,
now started locating their plants and other manufacturing facilities in foreign/ host countries.
Later they started producing in one country and marketing in other foreign countries.

A true global companies views the entire world as a single market. There is a great renovision,
given by Arvindh Mills:
 Source raw material wherever they are cheapest.
 Manufacture wherever in the world is most cost effective.
 Sell in those markets where the prices are highest.
 Raise finance globally.
 ‘forge international strategy alliance.
 To manage all these, take the best talent from all over the

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world. And you will have achieved the stature of a true
multinational.

MEANING:

Global Marketing refers to the exchange of goods and services between two parties of
different countries.
Global Marketing may be understood as those business transactions involve crossing of
national boundaries.

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Global Marketing is the process of focusing on the resources of the globe and objectives of
the organization on the global business opportunities and threats in order to produce/buy/sell or
exchange of goods and services worldwide.

FEATURES:

1. Large Scale Operations:

In Global Marketing, all the operations are conducted on a very huge scale. Production and
marketing activities are conducted on a very large scale. It first sell its goods in the local market and
then the surplus goods are exported.

2. Integration of Economies:
Global Marketing integrates (combines) the economies of many countries. This is because it
uses finance from one country, labour from other country and infrastructure from another country. It
designs the product in one country, produces its parts in many different countries and assembles in
another country and sells in many countries.

3. Dominated by developed countries and MNC’s

Global Marketing is dominated by developed countries and their multinational companies.
Europe and Japan dominate the foreign trade, this is because they have high financial and other
resources.

4. Benefits to Participating countries:

Global Marketing gives benefits to all participating countries. However, the developed
countries get the maximum benefits, the developing countries also get benefits. They get foreign
capital and technology. They get rapid industrial development. They get more employment
opportunities.

5. Keen Competition:
Global Marketing has to face competition in the world market. The competition is between
unequal partners. In this situation, the developed countries are in favorable position as they

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produce the superior quality goods and services, but developing countries find difficulty to face
competition.

6. Special role of science and technology:

Global Marketing gives a lot of importance to science and technology. Science and
Technology helps the business to have a large scale production. Developed countries use high
technology. Global Marketing helps them to transfer top-end technology to the developing
countries.

7. International Restrictions:
Global Marketing faces many restrictions on the inflow and outflow of capital, technology
and goods. Many government do not allow Global Marketing to enter their countries. They have
many trade blocks, tariff barriers, foreign exchange restrictions, etc. All this is harmful to Global
Marketing.

8. Sensitive Nature:
The Global Marketing is very sensitive in nature. Any changes in the economic policies,
technology, political environment has a huge impact. Therefore it must conduct marketing research
to find out and study these changes. They must adjust their business activities and adopt accordingly
to survive changes.

9. Global Marketing need accurate information to make appropriate decision.

10. Global Marketing house need not only accurate but also timely information.

11. Global Marketing house segments their markets based on the geographic market segment.

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Advantages and Disadvantages of Global/ International Marketing

Advantages
➢ Economies of scale in production and distribution
➢ Lower marketing costs
➢ Power and scope
➢ Consistency in brand image
➢ Ability to leverage good ideas quickly and efficiently
➢ Uniformity of marketing practices
➢ Helps to establish relationships outside of the “political arena”
➢ Helps to encourage ancillary industries to be set up to cater for the needs of the global player
Disadvantages
➢ Differences in needs, wants of the consumers and usage patterns for products
➢ Differences in consumer response to the elements of Marketing Mix
➢ Differences in brand and product development and the competitive environment
➢ Differences in the legal environment, some of which may conflict with those of the home market
➢ Differences in the institutions available, some of which may call for the creation of entirely new
ones (e.g. infrastructure)
➢ Differences in administrative procedures
➢ Differences in product placement.
➢ Differences in the administrative procedures and product placement can occur

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REASONS FOR THE EMERGENCE OF GLOBAL MARKETING:

 To achieve higher rate of profits

The basic objective of the business firm is to earn profit. The domestic markets do not
promise a higher rate of profits. Business firms search for foreign market which hold promise for
higher rate of profits. Thus the objective of profits affects and motivates the business to expand its
operations to foreign countries.

 Expanding the production capacity

Domestic companies expanded their production capacities more than the demand for product
in domestic countries. In such cases, these companies are forced to sell their excessive production in
foreign developed market.

 Severe competition in home country

The countries oriented towards market economies since 1960’s, experience severe
competition from other business firm in the home country. The weak companies which could not
meet the domestic countries started entering the markets of developing countries.

 Limited home market

When the size of the home market is limited either due to the smaller size of the population
or due to lower purchasing power of the people or both, the companies internationalize their
operations.

 Political Stability v/s Political Instability

Business firms prefer to enter the politically stable countries and are restrained from locating
their business operations in politically instable countries. In fact, business firms shift the operations
from politically instable countries to the politically stable countries.

 Availability of Technology and Managerial Competency

Availability of advanced technology and competent human resource in some countries acts
as pulling factors for business firms from the home country. The developed countries due to these

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reasons attract companies from developing world. In fact, American and European countries depend
on Indian Companies for software products and services through their BPO’s.

 High cost of transportation

Initially companies enter foreign countries trough their marketing operations. At this stage,
the companies realize the challenge from the domestic companies. Added to this, the home
companies enjoy higher rate of profit margins where as the foreign firms suffer from lower profit
margins. The major factor for this situation is the cost of transportation,
Under such conditions, the foreign companies are inclined to increase their profit margin by
locating their manufacturing unit in foreign countries where there is enough demand either in one
country or in a group of neighboring countries.

 Nearness to Raw materials

The source of highly qualitative raw materials and bulk raw materials is a major factor for
attracting the companies from the various foreign countries. Most of the US based companies open
their manufacturing unit in Middle East countries due to the availability of petroleum. These
companies, thus, reduces the cost of transportation.

 Availability of Quality HR at less cost

This is the major factor, in recent times, for software, high technology and tele-
communication companies to locate their operations in India. India is a major source for high
quality and low cost human resources unlike USA and other developed countries.

 Liberalization and Globalization

Most of the countries in the globe liberalized their economies and opened their countries to
the rest of the globe. These changed policies attracted the multinational companies to extend their
operations to these countries.

 To increase market share

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Some of the large-scale business firms would like to enhance their market share in the global
market by expanding and intensifying their operations in various foreign countries.

 To achieve higher rate of economic development

Global Marketing helps the governments to achieve higher growth rate of the economy,
increases the total and per-capita income , GDP, industrial growth, employment and income levels.

GLOBAL MARKETING ENVIRONMENT

Introduction:

A global company has to formulate strategies based on its missions, objectives and goals.
Strategy formulation is a must for a global company to make decisions regarding the markets to
enter, product/service range to introduce in the foreign countries. The fundamental basis for strategy
formulation is the environmental analysis. Environment provides the opportunities to the business to
produce and sell a particular product. Environment sometimes poses threats and challenges to
business. Business should enhance its strengths in order to face the challenges posed by the

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environment. Study of environment helps the business to formulate strategies and run the business
efficiently in the competitive global markets.

Meaning of Global Marketing Environment:

Environment means surrounding. Global Marketing environment means the factors/activities
those surround/encircle the Global Marketing. In other words, business environment means factors
that affect or influence the MNC’s and transnational companies.
Factors that affect Global Marketing include Social and Cultural factors (S), Technological
Factors (T), Economic Factors (E), Political/Governmental factors (P), Legal factor(L)and Natural\
Ecological factors (E).

William F. Glueck defined the term environmental analysis as, ‘ the process by which
strategists monitor the economic, governmental/legal, market/competitive, supplier/technological,
geographic and social settings to determine opportunities and threats to their firms”.

Factors of Global Marketing Environment:

Business environmental factors are broadly divided into internal environmental factors and
external environmental factors. Internal environmental factors include human resource
management, trade unions, organization structure, financial management, marketing management
and production management management/leadership style, etc.
External environmental factors are further divided into micro and macro external
environmental factors. Micro environmental factors include competitors, customers, market
intermediaries, suppliers of raw materials, bankers and other suppliers of finance, shareholders and
other stakeholders of the business firm. External macro environmental factors include social and
cultural factors, technological factors, economic factors, political and governmental factors,
international factors and natural factors.

1. CULTURAL ENVIRONMENT:

Culture is, “ the thought and behaviour patterns that member of a society learns through
language and other forms of symbolic interaction – their customs, habits, beliefs and values, the

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common view points which bind them together as a social entity…. Cultural change gradually
picking up new ideas and dropping old ones, but many of the cultures of the past have been so
persistent and self contained that the impact of such sudden change has torn them apart, uprooting
their people psychologically.”

Characteristics:
 Culture is derived form the climatic conditions of the geographical region and economic
conditions of the country.
 It is a set of traditional beliefs and values which are transmitted and shared in a given
society.
 It is a total way of life and thinking patterns that are passed form generation to generation.
 It is norms, customs, art, values, etc.
 It prescribes the kind of behaviour considered acceptable in the society.
 It is based on social interaction and creation.
 Culture is acquires through learning but not inherited genetically.
 Culture is not immune to change. It goes on changing.

Factors influencing Global Marketing:

1. Cultural attitude and Global Marketing:

Dressing habits, living styles, eating habits and other consumption patterns, priority of needs
are influenced by culture. The eating habits vary widely. Similarly, dressing habits also vary from
country and county based on their culture.

2. Cultural Universal
Irrespective of the religion, race, region, caste, etc, all of us have more or less the same
needs. These common needs are referred as “Cultural Universal”. The cultural Universal enable the
businessmen to market the products in many foreign countries with modifications. Example: TV’s,
cars, vedio games.
3. Communication with languages

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Language is the basic medium of communication. There are more that 5000 spoken
languages in the world. The same words in the same language may mean different things in the
different regions of the country.
4. Time and Culture
Time has different meaning in different cultures. Asian di not need appointment to meet
someone and vice-versa. But Americans, Europeans and Africans need prior appointment to meet
someone and vice-versa. In Asian Countries, particularly in India, auspicious time is most important
for the business, admission in a college, travel, etc.
5. Space and Culture
Space between one person to another person plays a significant role in communication. But,
culture determines the pace/distance between one person and another person. Americans need more
distance from a third person for privacy. This is unimportant for Indians.
6. Culture and Agreement
The USA is very legalistic society and Americans are very specific and explicit in their
terms of agreement. The opposite is true in case of Asian countries. Asians never pick up face to
face confrontation. They keep quiet in case of disagreement.
7. Culture and Friendship
Americans develop friendship even in short time. In fact, they don’t develop deep personal
ties. Sometimes, people in the US complete the business and then develop friendship. People in
India, Japan and China firs develop friendship through several means including eating together,
presenting gifts and then transact business.
8. Culture and Negotiation
Americans are straightforward. Chinese negotiations are generally tough-minded and well
prepared and use various tactics to secure the best deal.
9. Culture and Superstition
Superstitious beliefs like fortune telling, palm reading, dream analysis, phases of the sun and
moon, vaastu are prominent in Asian Countries and also in some African Countries. Americans
knock on wood, cross their fingers and feel uneasy when a black cat crosses their path. Even Indians
feel uneasy when a cat crosses their path.
10. Culture and Gifts

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Culture attitudes concerning the presentation of gifts vary widely across the world. In Japan
and India gifts are given first, but in Europe only after a personal relationship id developed. The
Global Marketingmen should study the customs of the society in offering gifts.

2. SOCIAL ENVIRONMENT

It consists of religious aspects, language, customs, traditions, tastes and preferences, living
habits, dressing habits, etc., It also influence level of consumption. Example: The economic
position of Germans and French people is more or less same, culturally different. So study of social
environment helps in deciding type of market, product, etc.

The various factors of social environment effect on Global Marketing are:

1. Religion:
Religion is one of the important social institution on influencing the business. The religious
play a vital role in normal and ethical standards in production and marketing of goods and services.
Most of the religion indicates in providing truthful and honest information.

2. Family system:
In addition to religion, family system has impact on Global Marketing. Example: Most of
Islamic countries, women play less significant role in economy and also in family with limited
rights. But in Latin American countries, role of women is better compared to that of Islamic
countries. But women play a dominant role in European and North American countries.

3. Behavioural factors affecting the business:

Human behaviour affects the business include employee behaviour, consumer behaviour and
behaviour of stake holders (Holders of debentures, bonds, etc. Cultural factors also influence the
human behaviour cultural differences in various countries results in variations in human behaviour
from country to country. Business should consider behaviour pattern of social groups in hiring,
marketing and in selecting supplier of inputs and market intermediaries.

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4. Behaviour based on group membership:

Attitude towards female employment vary from country to country. Example: Arabian
countries discourage females from seeking employment. Family membership is paramount rather
than individual achievements in certain societies like India, China, etc.,

5. Motivations and Achievements:

Economic development of a country depends on motivations of people to work hard and
desired of achievement. People rank the motivational needs differently from country to country.
People from poor countries are mostly motivated by compensation while their counter parts in rich
countries are motivated by the higher order needs like more responsibility, recognitions and other
esteem needs.

6. Power Distance:
Power distance denotes the relationship between superior and sub-ordinates. People in low
power distance prefer little consultations between superior an subordinates. Subordinates in high
power distance may prefer participating in decision making among themselves excluding the
superior.

7. Individualism V/s Collectivism:

Individualism and collectivism are consequences of the culture and affects the formation of
group, productivity and marketing practices.

8. Risk taking behaviour:

Employees in countries with the highest scores of the uncertainty avoidance prefer a system
and a methodological work based on rules that are not to be deviated. Employees in countries with
the low scores of uncertainty avoidance prefer flexible organization and flexible work.
Example: People in some countries like Norway trust most of the people and people in some
other countries like Brazil are very cautious in dealing with other.

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3. TECHNOLOGICAL ENVIRONMENT:

Technology is the application of knowledge. In other words, technology has a systematic

application of scientific or other organized knowledge to a particular task.

Features:
a) Technology brings changes in the society, economy and politics.
b) Technology effects on entire globe.
c) Technology makes more technology possible.

Impact of technology on Global Marketing:

1. Investments in technology:
Advanced countries spend considerable amount on research and development for further
advancement of technology. Example: German spends 50% of research and development budget on
product innovation and remaining 50% on process innovation. But Japanese spend 70% on process
innovation and 30% on product innovation.

2. Technology and economic development:

Technology is one of the significant factor, determines the level of economic development of a
country. The differences between nation is mostly reflected by the level of technology. Example:
India has the vast natural resources. It remain importing the products from other countries through
exporting raw materials from itself due to its low level of technology.

3. Technology and International competition:

A few companies invent but many companies adopt scientific knowledge to generate wealth by
application and communication. The invention process and global competitiveness are the two
determinants of a national wealth. Example: Japan concentrates on innovation of automobiles. But
Italy concentrates on innovation of textiles and leather.

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4. Technology Transfer:
Technology and global business are interdependent. Global Marketing spread technology from
advanced countries to developing countries by establishing the subsidiaries or establishing the
subsidiaries joint ventures with the host countries and arranging technological transfer to the
company of developing countries through technological alliances.

5. Technology and location of plants:

MNCs locate their manufacturing facilities based on the technology. In other words, MNCs
locate their plants with high technology in advanced countries and establish the labour driven
manufacturing facilities in developing countries in order to get the advantages of cheap labour.

6. Scanning of Technological environment:

The level of technology is not same in all the countries. Advanced countries enjoy the latest
technology while the developing nations face he consequences of outdated technology. Therefore,
MNCs have to understand technology and analyse it before entering foreign market.

7. Appropriate technology:
The technology that suit one country may not be suitable for other countries. As such the
countries develop appropriate technologies which suit their climatic conditions, social conditions,
conditions of infrastructure etc., Ex: Japanese automobile industry design different type of cars
which suit the Indian roads.

8. Technology and globalization:

The industrial revolution resulted in large scale production and the recent technological
revolutions leads to the production of high quality products at lower cost. These factor forced the
domestic company to enter the foreign countries in order to find market for their products. Thus
technology is one important cause for globalization.

9. Information technology and globalization:

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The information technology redefined the global business through its development like internet,
www sites, e-mails, information super highways and on-line transactions brought significant
development to the global business.

Impact of technology on globalization:

 Technological advances have tremendously faster globalization. Technology have been a
very important facilitating factor of globalization.
 Several technological development becomes a compelling reason for internationalization
technology are substantially increasing the scale economies and market scale required to
break even.
 Global sourcing encouraged not only to trade liberalization but also by technological
developments which reduces transportation cost.
 Technology monopoly encourages internationalization because the firm can exploit the
respective demand without any competition.
 Development in telecommunication and information technologies have reduced the barriers
to time and place in doing a business. It is possible for customers and suppliers to transact
the business at any time and any part of the globe.

4. ECONOMIC ENVIRONMENT

Economic environment refers to all those economic factors which have a bearing on functioning
of a business unit. Economic environment of various countries directly influences the Global
Marketing. In fact, international economic environment and global business interact with each
other.
The major changes include:
 Capital flow rather than trade or product flow across the globe.
 Establishment of production facilities in various countries.
 Technological revolution link the relations between the size of the production and level of
employment.
 The macro economic factors of individual nations independently donot significantly control
the global economies.
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Economic system:
Economic system is one of the important factor of economic development that influences
the Global Marketing to the greater extent. Economic system is an organization of institutions
established to satisfy human needs or wants.

There are three types of economic system viz.,

 Capitalistic Economic System
 Communistic Economic System
 Mixed Economic System

Capitalistic Economic System: This system provides for economic democracy and customer choice
for product or service. This system emphasizes on the philosophy of individualism, believing in
private ownership of production and distribution facilities Ex: USA, Japan, UK.

Communistic Economic System: Under this system private properties and property rights to income
are abolished. The State owns all the factors of production and distribution but the major limitation
of this system is to reduced the individual freedom of choice ;and failed to achieve significant
economic growth.

Mixed Economic System: Under this system, major factors of production and distribution owned,
managed and controlled by the State. The purpose is to provide benefits to public more or less on
equality basis. This system, does not distribute the existing wealth equally among people, but
believes in full employment and suitable rewards for the workers efforts. Ex: India, UK, France,
Holand etc.,

Countries classified on the basis of income:

 Low income countries
 Lower middle income countries
 Upper middle income countries

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 Higher Income countries

Low Income Countries: This country is also known as third world countries or pre industrial
countries. The characteristics includes, high birth rate, low literacy rate, political instability an
unrest, technological backwardness, underutilization of natural resources, excessive unemployment
and underemployment, and excessive dependency on imports.

Lower Middle Income Countries: These countries are known as less developed countries. The
characteristics of these countries include – early stage of industrialization, expansion of consumer
market, availability of cheap and motivated human resource, location for production of standardized
products or exporting, ex: clothing for exports.

Upper Middle Income Countries: These countries are called industrializing countries. The
characteristic of these countries are – less dependency on agriculture, high exports, increase in
literacy, formal education, rapid economic development, occupation mobility of people from
agriculture to industry and increased wage rate.

High Income Countries: These countries are known as advanced countries, industrialized, post-
industrialized or first world countries. The characteristics include – development of information
sector, emphasize on future plan, development of intellectual technology over machine technology
and it aims at building information society.

Impact of economic environment on Global Marketing:

1. Economic growth:
Business helps for the identification of peoples’ needs, wants, production of goods and services
and supply to the people. Thus it creates for the conversion of inputs into the outputs and enables
for consumption. It leads to economic development. The high economic growth rate of the
countries providing an opportunity of expanding market shares to Global Marketing firms,
managers of the MNCs are interested in knowing the future economic growth rate of various
countries in order to select the market either to enter or concentrate more resources to the market.

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2. Inflation:
It is the another important factor that affects the market share of the Global Marketing firm. It
affects the interest rate as the demand for money is high due to the higher prices and it also affects
the exchange rate of the domestic currency in terms of various foreign currencies.

3. Balance of payments:
Balance of Payments position of a country is an outcome of Global Marketing and also affects
the future of the Global Marketing. Export and import trade in goods and services affects the
current accounts position and flow of capital affects capital accounts position. The managers of
MNCs should monitor the balance of payment position of the countries.

4. Economic Transition:
The process of liberalization provided a significant opportunities to MNCs to enter most of the
countries of the world either by locating their manufacturing facilities or expanding or both. Thus
MNCs are immediate and greatest beneficiaries of L, P and G of world economies.

5. POLITICAL ENVIRONMENT:

The influence of political environment on business is enormous. Political system prevailing

in a country promotes, decides, encourages, directs and control the business activities of that
country. PE includes factors such as characteristics and policies of political parties, the nature of
constitution and Government system and the Government environment influencing the economic
and business policies and regulation.

Concepts:

1. Political ideology:
Political ideology is the body of complex ideas, theories and objectives that constitute a socio-
political program. Political ideologies of the people in the same country vary widely due to the
variations in culture, ethic group, community groups, religious and the economic groups. These

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variations influence the people to form different political parties. The difference in political
ideologies change the national boundaries. The IB manager should understand these ideologies of
various in the countries in order to know the possible political tensions and instabilities.

2. Democracy:
It refers to political arrangement in which the supreme power is vested in the hand of people.

3. Political rights and Civil liberties:

It helps for evaluating the freedom of citizens. The major indicators of political liberties
include:
 conduct of elections fairly and competitively
 power and ability of the voters in casting their votes in the process of electing
 people ability in forming political parties and
groups. The major indicators of civil liberties include:
 Degree of freedom of the press,
 Equality for all individuals under the law,
 Freedom from extreme in difference of Govt. and corruption.

Totalitaranism:
It refers to an individual freedom is completely subordinated to the power of authority of the state or
concentrated in the hands of one person or in a small groups.

Political Relations and Global Marketing:

Political friendly relationship results in the growth of bi-lateral or multi-lateral trade. Ex: The
friendly relationship between Indian companies but also the MNCs operating in India to have a
close business linkages with the USSR. Similarly the friendly relationship between Pakistan and
USA helped the Pakistan companies to have a close business linkages with USA.

Types of Political System:

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Appraisal of political system help us in having a ideas of political system and their impact on
Global Marketing. The are classified as:
Two party system: Two parties takes turn of controlling the Government under two party system
Ex: USA and UK.

Multiparty system: In a multiparty system, there are many parties and no party is strong to gain the
control of the Government: Ex: Germany, France and India.

Single party system: In this system, only one dominant party gets the opportunity to control the
Government even through several parties exists Ex: Egypt.

One party Dominated system: In this system, dominate party rules the Government even though
there are more than one party. Ex: USSR, Cuba.

Political Risk:
Political risk refers to risk of loss of assets earning power or managerial control, due to the events or
action that are politically motivated.

Political risk that affects the Global Marketing:

The Global Marketing firms face political risk as and when there are changes in Government
policies or changes in political parties in power. Risks are based on host Government actions like:

Confiscation: The process of nationalization of property without compensation is called

confiscation.

Expropriation: It is the process of nationalization of a property with compensation.

Nationalisation: It is a process of shifting the ownership of private property from private individuals
to Government.
Domestication: In this, foreign business firm control and ownership in favour of domestic
investors either partly or fully.

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General Instability risk: These risk are due to social, political, religious, unrest in the host country.

Operation risk: These risk are due to imposition of controls on foreign business operations by the
host Government.

Political instability can be viewed from the corruption, social unrest, attitudes of nationals and
policies of host Government.

How to minimize the political risk?

The risk that are involved in Global Marketing cannot be avoided but it can be minimized. It can be
minimized from the following:
Stimulation of the local economy: The foreign company can stimulate the economic development of
host country by investing in their priority area. The foreign countries can stimulate the host country
economy by being export oriented.

Employment of nationals: MNCs can minimize political risk by employing, developing and
promoting the local people.

Sharing ownership: Foreign company should allow the domestic investors to invest and share the
ownership by converting the company into public limited company and ownership can be shares
through joint ventures.

De-civic minded: The MNCs in addition to doing business in foreign countries should also be good
corporate citizen. It may help the foreign countries in different ways like constructing schools,
hospitals, roads, etc.,

Political Neutrality: MNCs should not involved in political risk or disputes among the local group
of host countries from the point of view of long run interest.

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MODES OF ENTRY TO GLOBAL MARKETING

INTRODUCTION:
Companies desiring to enter the foreign markets, face the dilemma while deciding the
method of entry into a given overseas location. Companies can reduce the dilemma by analyzing the
decision factors.

Decision factors:
After deciding to go to foreign markets, the companies have to decide the mode of entry.
This dilemma can be solved to some extent by considering the following factors:
 Ownership advantages
 Location advantages
 Internationalisation advantages

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Ownership Advantages: Ownership advantages are those benefits designed by a company by

owing resources. These benefits provide competitive advantages to the company over its
competitors. These advantages are both tangible and intangible.

Location advantages: Certain locational factors grant benefit to the company when the
manufacturing facilities are located in the host country rather than in the home country. These
locational factors include:
 Customer Need, preferences and tastes
 Logistic requirements
 Cheap land acquisition cost
 Cheap labour
 Political stability
 Low cost raw materials
 Climatic conditions

Internationalisation advantages: Internationalisation advantages are those benefits that a company

gets by manufacturing goods or rendering services in the host country by itself rather than through
contract arrangements with the companies in the host country.

1. EXPORTING:

Exporting is the simplest and widely used mode of entering foreign markets. The advantages
of exporting include:

~ Need for limited finance: If the company selects a company in the host country to distribute, the
company can enter international market with no or less financial resources. Alternatively, if the
company chooses to distribute on its own, it needs to invest financial resources, but this amount
would be quit less compared to that would be necessary under other mores.

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~ Less risk: Exporting involves less risk as the company understands the culture, customer and the
market of the host country gradually. The company can enter the host country on a full-scale, if the
product is accepted by the host country’s market. A British company selected this mode to export
jams to Japan.

~ Motivation for exporting: Motivations for export are proactive and reactive. Proactive
motivations are opportunities available in the host country.

Forms of Exporting:

Forms of exporting include: indirect exporting, direct exporting and intra-corporate

transfers.

1. Indirect exporting: Indirect exporting is exporting the products either in their original form or in
the modified form to a foreign country through another domestic company. Various publishers in
India including Himalaya Publishing House sell their products, i.e., books various exporters in
India, which in turn export these books to various foreign countries.

2. Direct exporting: Direct exporting is selling the products in a foreign country directly through its
distribution arrangements or through a host country’s company. Baskin Robbins initially exported
its ice-cream to Russia in 1990 and later opened 74 outlets with Russian partners. Finally, in 1995 it
established its ice-cream plant in Mascow.

3. Intra-corporate Transfers: Intra-corporate transfers are selling of products by a company to its

affiliated company in host country (another country). Selling of products by Hindustan Lever in
India to Unilever in the USA. This transaction is treated as exports in India and imports in the
USA.

Factors to be considered:
The company, while exporting, should consider the following factors:

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 Government policies like export policies, import policies, export financing, foreign
exchange etc.,

 Marketing factors like image, distribution networks, responsiveness to the customer,

customer awareness and customer preferences.

 Logistical consideration: These factors include physical distribution costs, warehousing

costs, packaging, transporting, inventory carrying costs etc.

 Distribution issues: These include own distribution networks, networks of host country’s
companies. Japanese companies like Sony, Minolta and Hitachi rely on the distribution
networks of their subsidiaries in the host country.

Export Intermediaries:
Export intermediaries perform a variety of functions and enable the small companies to export
their goods to foreign countries. Their functions include: handling transportation, documentation,
taking ownership of foreign-bound goods, assuming total responsibility for exporting and financing.
Types of export intermediaries include:
 Export Management: companies act as export department of the exporting firm (its client).
These companies act as commission agents for exports or they take title to the goods.

 Co-operative society: The domestic companies desire to export the goods form a co-
operative society, which undertakes the exporting operations of its members.

 International Trading Company: This company is engaged in directly exporting and

importing. It buys the goods from the domestic companies and exports. Therefore, the
companies can export their goods by selling them to the international trading company.

 Manufacturers’ Agents: They work on a commission basis. They solicit domestic orders for
foreign manufacturers.

 Manufacturers’ export agents: These agents also work on a commission basis. They sell the
domestic manufacturers’ products in the foreign markets and act as their foreign sales
department.

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 Export and Import Brokers: The bankers bridge the gat between exporters and importers
and bring these two parties together.

 Foreign forwarders: Foreign forwarders help the domestic manufacturers in exporting their
goods by performing various functions like physical transportation of goods, arranging
customs documents and arranging transportation services.

2. INTERNATIONAL LICENSING:

In this mode of entry, the domestic manufacturers leases the right to use its intellectual property,
i.e., technology, work methods, patents, copy rights, brand names, trade marks etc. to a
manufacturer in a foreign country for a fee. Here the manufacturer in the domestic country is called
‘Licensor” and the manufacturer in the foreign country is called “Licensee’. The process of the
licensing is as shown in the figure.

Licensing is a popular method of entering foreign markets. The cost of entering foreign markets
through this mode is less costly. The domestic company need not invest any capital as it has
already developed intellectual property. As such, the domestic company earns revenue without
additional investment. Hence, most of the companies prefer this mode of foreign entry.
Licensor Licensor
Leases the right to use Receives Royalty Money
The intellectual property

Uses the Intellectual Pays royalty to the

Property to product Licensor for
Products for sale in his country Using intellectual property
Licensee Licensee

The domestic company can choose any international location and enjoy the advantages without
incurring any obligations and responsibilities of ownership, managerial, investment, etc.

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Basic issues in International Licensing:

Companies should consider various factors in deciding negations. Each international licensing
is unique and has to be decided separately. However, there are certain common factors, which
affect most of the international licenses. They are: specifying the agreement’s boundaries,
determining the royalty, determining rights, privileges and constraints, defining resolution methods,
specifying the duration of the contract.

 Boundaries of the agreements: The companies should clearly define the boundaries of
agreements. They determine which rights and privileges are being conveyed in the agreement.
 Determination of royalty: The most important factor in deciding the licence is the amount of
royalty. It is needless to mention that the licensor expects high rate of royalty while the licensee
would be unwilling to pay much royalty. However, both the parties negotiate for a fair royalty
for both the sides in order to implement the contract more successfully.
 Determining right, privileges and constraints: Another important factor in granting license is
determining clearly and specifically the rights, privilege and constraints. For example, if the
Indian licensee of Aiwa TV uses interior inputs in order to reduce price, boost up sales and
profits, the image of the Japanese licensor would be damaged.
 Dispute settlement mechanism: The licensee and licensor should clearly mention the
mechanism to settle he disputes as disputes are bound to crop up. This is because, settlement of
disputes in courts is costly, time consuming and hinders business interests.
 Agreement duration: The two parties of the agreement specify the duration of the agreement.
Licensing cannot be a short-term strategy. Hence, the duration of the licensing should not be of
the short-term. It would always be appropriate to have long duration of the licensing. Tokyo
Disneyland demanded on a 100 year licensing agreement with the Walt Disney company.

Advantages:
 Licensing mode carries relatively low investment on the part of licensor.
 Licensing mode carries low financial risk o the licensor.
 Licensor can investigate the foreign market without much efforts on his part.
 Licensee gets benefits with less investment on research and development.

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 Licensee escapes himself from the risk of product failure.

Disadvantages:
 Licensing agreements reduce the market opportunities for both the licensor and licensee.
Pepsi-cola cannot enter Netherlands and Heineken cannot sell Coca-cola.
 Both the parties have responsibilities to maintain the product quality and promoting the
product. Therefore, one part can affect the other through their improper acts.
 Costly and tedious litigation may crop up and hurt both the parties and the market.
 There is scope for misunderstanding between the parties despite the effectiveness of the
agreement. The best example is Oleg Cassini and Jovan.
 There is a problem of leakage of the trade secrets of the licensor.
 The licensee may develop0 his reputation.
 The licensee may sell the product outside the agreed territory and after the expiry of the
contract.

3. INTERNATIONAL FRANCHISING:

Franchising is a form of licensing. The franchisor can exercise more control over the
franchised compared to that in licensing. International franchising is growing at a fast rate.
Under franchising, an independent organization called the franchisee operates the business
under the name of another company called the franchisor. Under this agreement the franchisee pays
fee to the franchisor. The franchisor provides the following services to the franchisee:
 Trade mark
 Operating systems
 Product reputations
 Continuous support systems like advertising, employee training, reservation services,
quality assurance programs etc.

Basic issues in Franchising:

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 The franchisor has been successful in his home country. McDonalds was successful in the
USA due to the popular menu and fast and efficient services.

 The factors for the success of the McDonald are later transferred to other countries.

 The franchisor may have the experience in franchising in the home country before going for
international franchising.

 Foreign investors should come forward for introducing the product on franchising basis.

Franchising Agreements:
The franchising agreement should contain important items as follows:
 Franchisee has to pay a fixed amount and royalty based on the sales to the franchisor.

 Franchisee should agree to adhere to follow the franchisor’s requirements like appearance,
financial reporting, operating procedures, customer service etc.

 Franchisor helps the franchisee in establishing the manufacturing facilities, services

facilities, provides expertise, advertising, corporate image etc.

 Franchisor allows the franchisee some degree of flexibility in order to meet the local tastes
and preferences. McDonald restaurants in Germany sell beer also and McDonald restaurants
in France sell wine also.

Advantages:
 Franchisor can enter global markets with low investment and low risks.

 Franchisor can get the information regarding the markets, culture, customs and environment
of the host country.

 Franchisor learns more lessons from the experiences of the franchisees, which he could not
experience from the home country’s market. McDonald benefited from the worldwide
learning phenomenon. McDonald is convinced to open a restaurant in inner-city office
building in Japan. This location has become a more successful one. Based on this lesson,
McDonald opened its restaurants in downtown locations in various countries.

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 Franchisee can also start a business with low risk as he selects an established and proved
product and operating system.

 Franchisee gets the benefits of R&D with low cost.

 Franchisee escapes from the risk of product failure.

Disadvantages:
 International franchising may be more complicated than domestic franchising. McDonald
taught the Russian farmers the methods of growing potatoes to meet its standards.

 It is difficult to control the international franchisee. As one of the French investors did not
maintain the stores as per the standards, McDonald did revoke the franchise.

 Franchising agents reduce the market opportunities for both the franchisor and the
franchisee.

 Both the parties have the responsibilities to maintain product quality and product promotion.

 There is scope for misunderstanding between the parties.

 There is a problem of leakage of trade secrets.

4. CONTRACT MANUFACTURING:

Some companies outsource their part of or entire production and concentrate on marketing
operations. This practice is called the contract manufacturing or outsourcing.

Advantages:
 Global Marketing can focus on the part of the value chain where it has distinctive
competence.
 It reduces the cost of production as the host country’s companies with their relative cost
advantage produce at low cost.
 Small and medium industrial units in the host country can also develop as most of the
production activities take in these units.

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 The international company gets the locational advantages generated by the host country’s
production.

Disadvantages:
 Host country’s companies may take up the marketing activities also, hindering the interest of
the international company.
 Host country’s companies may not strictly adhere to the production design, quality standards
etc. These factors result in quality problems, design problem and other surprises.
 The poor working conditions in the host country’s companies affect the company’s image.
For example, Nike has suffered a string of blows to its public image because of reports of
unsafe and harsh working conditions in Vietnamese factories churning our Nike foot ware.

5. TURNKEY PROJECT

A turnkey project is a contract under which a firm aggress to fully design, construct and equip a
manufacturing/ business/ service facility and turn the project over to the purchaser when it is ready
for operation for a remuneration. The forms of remuneration includes:
 A fixed price (firm plans to implement the project below the price)
 Payment on cost plus basis ( total cost incurred plus profit)

Indonesian Government during 1974 invited global tenders for construction of a sugar factory in
the country. Indonesian Government received the tenders from the companies of the USA, the UK,
France, Germany and Japan. One of the Japanese company quoted highest price compared to all
other companies.

So, Indonesian Government studied the quotation . this quotation includes: development of the
fields for growing sugarcane, development of seedling, construction of sugar factory, roads,
communication , connecting the factory, train the local market, plans for the export of surplus sugar,
etc. It also made provision for the transfer of the factory along with the total package to the
Indonesian Government and follow-up the activities after it is transferred to the Indonesian
Government.
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Indonesian Government was very much satisfied with the total package and invited the Japanese
company to implement the project. The Japanese company Indonesian Government entered an
agreement for implementation of this project by the Japanese company for a price. This project is
called “Turnkey Project”.

International Turnkey Projects include:

 Nuclear Power Plants
 Air Ports
 Oil refinery
 National Highways
 Railway Lines

The companies normally approach the host country’s government or International Finance
Corporation, Export-Import Bank and the like for financial assistance as the turnkey projects require
huge finances.

The recent approach to turnkey projects is Build, Operate and Transfer (B-O-T). the company
builds the manufacturing/services facility, operates it for some time and then transfers it to the host
country’s government.

6. MERGERS AND ACQUISITIONS:

Domestic companies enter Global Marketing through mergers and acquisitions. A domestic
company selects a foreign company and merges itself with the foreign company in order to enter
Global Marketing.
Alternatively, the domestic company may purchase the foreign company and acquires its
ownership and control.

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Domestic business selects this mode of entering Global Marketing as it provides immediate
access to international manufacturing facilities and marketing network. Otherwise, the domestic
company faces serious problems in gaining access to international markets. For ex. Coca- cola
entered Indian market instantly be acquiring the Parle and its bottling units. In addition, the
domestic company through this strategy of mergers and acquisitions may also get access to new
technology or a patent right.

Though mergers and acquisitions provide easy and instant entry to global business, it would
be very difficult to appraise the cases of acquisitions and mergers. Sometimes it would be cheaper
for a domestic company to have a greed field strategy than by acquisitions. Sometimes mergers and
acquisitions also result in purchasing the problems of a foreign company.

Companies adopt this strategy just as a means of entering foreign markets. Procter and
Gamble entered Mexican tissue products in 1997 by purchasing Loreto Y. Pena Pobre’s
manufacturing and marketing systems.

7. JOINT VENTURES:

Two or more firms join together to create a new business entity that is legally separate and
distinct from its parents. Joint ventures are established as corporations and owned by the funding
partners in the predetermined proportions. American Motor Corporation entered into a joint venture
with Beijing Automotive Works called Beijing Jeep to enter Chinese market by producing jeeps and
other vehicles. Joint ventures involve shared ownership. Joint ventures are common in Global
Marketing. Various environmental factors like social, technological, economic and political
encourage the formations of joint ventures.

Joint ventures provide required strengths in terms of required capital, latest technology,
required human talent etc., and enable the companies to share the risk in the foreign markets. Joint
ventures involve the local companies. This act improves the local image in the host country and

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also satisfies the governmental requirements regarding joint ventures. In fact, support of the host
country’s Government is essential for the success of the joint venture.

Advantages:
 Joint venture provides large capital funds.
 Joint ventures are suitable for major projects.
 Joint ventures spread the risk between or among partners.
 Different parties to the joint venture being different kinds of skills like technical skill,
technology, human skills, expertise, marketing skills or marketing networks.
 Joint ventures make large projects and turn key projects feasible and possible.
 Joint ventures provide synergy due to combined efforts of varied parties.

Disadvantages:
 Joint ventures are also potential for conflicts. They result in disputes between or among
parties due to varied interest. For ex., the interest of a host country’s company in developing
countries would be to get the technology from its partner while the interest of a partner of an
advanced country would be to get the marketing expertise from the host country’s company.
 The partners delay the decision-making once a dispute arises. Then the operations become
unresponsive and inefficient.
 Decision-making is normally slowed down in joint ventures due to the involvement of a
number of parties.
 Possibility of collapse of a joint venture is more due to entry of competitors, changes in the
business environment in the two countries, changes in the partners’ strengths etc.
 Life cycle of a joint venture is hindered by many causes of collapse.

How to make Joint Ventures successful:

It is indicated that joint ventures mostly fail due to potential problems and cultural variations.
Harrigan suggests the following measures to make the joint venture successful.

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 Don’t accept a Joint venture agreement too-quickly, weigh the pros and cons.
 Get to know a partner by initially doing a limited project together, if a small project is
successful, bigger projects are more feasible.
 Small companies are vulnerable to having their expertise lost to larger joint venture partners;
small companies must structure such deals with great care and guard against potential
losses.
 Companies with similar cultures and relatively equal financial resources work best together,
keep this in mind when looking for an appropriate partner.
 Protect the company’s core business through legal means, such as unassailable partners; if
this is not possible, don’t let the partner learn your methods.
 Joint enterprise must fit the corporate strategy of both partners, if this is not the case, there
will inevitably be conflicts.
 Keep the mission of the joint enterprise small and well-defined, ensure that it does not
compete with the partners.
 Give the joint enterprise autonomy to function on its own and set up mechanisms to monitor
its results, it should be separate entity from both parents.
 Learn from the joint enterprise and use this in the parent organization.
 Limit the time frame of the joint enterprise and review its progress frequently.

Joint Ventures
In contrast to licensing and franchising arrangements, joint ventures allow
companies to own a stake and simultaneously play a role in the management of foreign
operations. Joint ventures require more direct investment, training, management assistance
and technology transfer. For example, in India, many joint ventures exist between global
insurance firms and Indian banks. Joint ventures exist between ICICI Bank and Prudential
Insurance; Vysya Bank and ING insurance and the GMR Group; and HDFC and the Chuub
Corporation (global non-life insurer)
Strategic Alliance
A strategic alliance is an understanding or arrangement among the players in a market. Firms form
strategic alliances to expand to new markets, gain quick access to new technology, extend the product
portfolio or avoid competition. In this case, the partnership can
last for a fixed tenure, depending on the agreement between the parties involved. Strategic
alliances may or may not involve financial commitment. The partners work together on
predetermined goals and objectives, and are free to separate once these goals are achieved

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or when the agreement ends. For example, TCS entered into a strategic alliance with NEC
Singapore in 2002 to travel and explore new opportunities in the global market.

Mergers and Acquisitions

Mergers and acquisitions (M&As) are also one of the adventures for service
organizations to enter foreign markets. M&As became quite popular in the ‘90s as more
and more MNCs expanded their operations across different countries. In a merger, two
organizations come together as one, with mutual consent, in a view to synergize their
operations and gain more. However, in the absence of effective planning and management,
mergers fail to realize the expected benefits. It is important for two merging firms to
have some synergies and common features that strengthen the merger. In some cases an
acquisition can be hostile, and some, friendly.

Strategic Alliance

A strategic alliance is an understanding or arrangement among the players in a market. Firms form strategic
alliances to expand to new markets, gain quick access to new technology, extend the product portfolio or avoid
competition. In this case, the partnership can last for a fixed tenure, depending on the agreement between the
parties involved. Strategic alliances may or may not involve financial commitment. The partners work together
on predetermined goals and objectives, and are free to separate once these goals are achieved or when the
agreement ends. For example, TCS entered into a strategic alliance with NEC Singapore in 2002 to travel and
explore new opportunities in the global market.

Wholly Owned Subsidiaries In a wholly owned subsidiary, the corporate owns 100% equity in the local
subsidiary. Wholly owned subsidiaries can be established in a foreign country in two ways. A firm can set up
new operations in the foreign country or it can acquire a local firm with an established business and promote its
products through that firm. 196 A wholly owned subsidiary is the preferred mode of entry into foreign countries
for firms with strong financial muscle and technological competence. A wholly owned subsidiary allows an
organization to have tight control over operations, which is not possible in the case of licensing and franchising.
The firm also does not risk letting go of its competitive advantage. However, a wholly owned subsidiary calls
for huge investments and the company has to bear the complete risk while learning from its own experiences

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INTERNATIONAL MARKETING DECISION: International Market Segmentation, Selection and

Positioning

International Market Segmentation.

International market segmentation refers to the process of dividing its total international market into one or
more parts (segments or sub-markets) each of which tends to be homogeneous in all significant aspects. In
other words, international market segmentation is the process of identifying groups or set of potential
customers at international level who exhibit similar buying behaviour. Through international market
segmentation, similarities and differences among potential buyers in foreign markets can be identified and
grouped.

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Geographic Segmentation

Just as with domestic markets, international markets can be segmented geographically. A company
might segment by regions, such as Western Europe, the Middle East, Africa, Latin America, etc. Keep
in mind, however, that although geographic segmentation groups countries by location, they may be
very different from one another in other respects. For example, if you were to consider the countries
included in a Western European region, you’d find that, both culturally and economically, the United
Kingdom and Scotland are very similar, but both differ significantly from neighbouring
Ireland.32 Similarly, people in West Africa tend to share similarities in dress, cuisine, and music, but
these characteristics aren’t shared extensively with groups outside of West Africa.

In terms of geographic segmentation, marketers also need to consider the infrastructure of the country
—the basic physical systems of the nation, such as roads, sewage treatment, communication, water
treatment, electricity, etc. You may have the best product for the consumers in the international
market segment, but if the infrastructure is such that you can’t reasonably get the products to the
consumers, that represents a restraining force that limits the opportunity.

Although the project is controversial, China has invested billions of dollars in an effort to strengthen
its economy and global trade through its Belt and Road Initiative (BRI), a vast network of railways,
energy pipelines, and highways through six economic corridors, both westward through former Soviet
republics and southward to Pakistan, India, and Southeast Asia. In order to expand maritime trade
traffic, China is investing in port development along the Indian Ocean, from Southeast Asia to East
Africa and parts of Europe. The BRI spans a multitude of infrastructure projects intended to promote
the flow of goods and foreign investment and is expected to impact more than 80 countries.34

Segmentation Based on Political and Legal Factors

As you’ve seen from our discussion of segmenting consumer markets, it’s often done on the basis of
factors such as age, gender, product usage, personality, etc. That’s true as well in international
markets, but the marketer needs to add still another dimension: country characteristics. These
characteristics are typically political and legal factors, such as the type and stability of the
government, how receptive the government is to foreign firms, monetary regulations, and how
complex the bureaucracy of the nation is.35 There are numerous other governmental policies that can
interfere with international trade, such as tariffs (taxes imposed on imports), import quotas, currency
controls, and local content requirements.

In 2022, in response to Russia’s invasion of Ukraine, major sanctions have been put in place against
Russia by the United States, the European Union, and the United Kingdom. For example, the United
Kingdom imposed a 35 percent tax on some Russian imports, and several international companies
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like McDonald’s, Coca-Cola, Starbucks and Marks & Spencer have either suspended operations in
Russia or have withdrawn altogether. It doesn’t take much to imagine the financial impact on Russia
as a result of these sanctions.

Segmentation Based on Economic Factors

Still another way to segment markets internationally is on the basis of economic factors—the level of
economic development and the income levels of the population. This is often differentiated on the
basis of whether the country is developing, developed, or underdeveloped. This classification is based
on the nation’s economic status (i.e., gross domestic product, gross national product, per capita
income, degree of industrialization, and standard of living).

Developed countries typically have a high rate of industrialization and a relatively high level of
individual income. Unemployment and poverty are typically low in developed nations, and citizens
enjoy a relatively high standard of living, along with higher life expectancy.37 It’s likely in developed
nations that companies will focus their international marketing efforts. According to the United
Nations in 2020, 36 countries were classified as developed; interestingly enough, all of these countries
were located in either North America, Europe, or “Developed Asia and Pacific.” 38

Developing countries, on the other hand, have a lower standard of living, a lower per capita income,
and a slow rate of industrialization. Unemployment and poverty tend to be relatively high compared to
developed countries, as are infant mortality rates.39 The United Nations categorized 126 countries as
developing, and all of these were located in either Africa, Asia, Latin America or the Caribbean. 40

Underdeveloped countries are less developed economically than most other nations. These countries
typically have little industry, and the standard of living is considerably lower than in developed or
developing countries. Infrastructure may also be compromised in terms of roads, sewage treatment,
water quality, etc. As a general rule, although there may be an attractive market for your company’s
product or service in an underdeveloped country, the challenges of getting the product into the
customer’s hands are often difficult to overcome.

Segmentation Based on Cultural Factors

Cultural factors, such as common language, religions, values, and attitudes, can also be used to
segment a country or region. McDonald’s uses a “think global, act local” strategy to help meet the
cultural needs of various market segments. On one hand, it offers a standardized menu of offerings
worldwide, like McNuggets and the McFlurry. On the other hand, it customizes other offerings on its
menu to adapt to the cultural requirements of consumers. For example, in India, in order to appeal to
vegetarian and non-beef-eating customers, McDonald’s introduced the Maharaja Mac, which is made
with a corn and cheese patty. The company also used the term “Maharaja” to appeal to India’s history
and liking of royalty and called it the “Social Burger” to suggest that it can be eaten quickly, giving
people more time to spend with friends.41

McDonald’s not only customizes its menu based on where it operates, but it also customizes its digital
and TV advertisements depending on each country and consumer segment. For example, in
Singapore, McDonald’s ads attempted to appeal to consumers’ love of nightlife by showing how

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McDonald’s can enhance a night out, whereas in the United Kingdom, the company created cartoon
ads focusing on Happy Meals to attract the large segment of children in the UK.

Not to be outdone by McDonald’s, Burger King also offers a wide variety of international menu items
that aren’t available in the United States. Did you know that there’s a Spicy Shrimp Whopper
available in Japan and a Sufgani King (Donut Burger) in Israel? In Norway, where there is one sauna
for every two people, Burger King opened a fully operational spa complete with a 15-person sauna
and media lounge where customers can enjoy their meals.

One model that is particularly useful in assessing culture is social psychologist Geert Hofstede’s
cultural dimensions, originally published in the 1970s. Hofstede had studied IBM employees in over
50 countries and identified five dimensions that could be used to distinguish one culture from another.
Four of these dimensions directly affect marketing in different cultures:

 Power Distance Index (PDI). This dimension refers to how much power inequality exists
within a culture and the degree to which people are accepting of this inequality. A high PDI
score suggests that society accepts an unequal distribution of power, whereas a low PDI score
means that power is shared and widely dispersed. If you’re curious, the United States has a
moderately low PDI score of 40 on a scale of 1 to 100, compared to a world average of
55.45 This means that the United States is less accepting of hierarchy and authority than nations
such as Malaysia, which has the highest power distance index in the world.46 This cultural
dimension plays an important role in marketing because, in countries where there is a high
power distance index, marketers need to appeal to the leadership or the head of the family,
whereas in low power distance index countries, it’s more important to reach a broad range of
“ordinary” people who will be the ultimate decision makers.

 Individualism versus Collectivism (IDV). This dimension refers to whether the culture
emphasizes the needs and goals of the group as a whole or whether individual needs are
paramount.47 Think of individualism and collectivism as an “I” versus a “we” orientation. An
individualistic society places emphasis on attaining personal goals, whereas a collectivist
culture places emphasis on group goals and the well-being of the group. The United States has
a very high individualism score of 91, compared to many Latin American countries such as
Ecuador and Guatemala, which have single-digit individualism scores.48 The implications for
marketing are important here because for countries with high individualism, the marketing
messages should emphasize how your products or services benefit them individually, such as
by saving time and rewarding themselves. On the other hand, in countries with a low
individualism ranking, it’s more important to stress how buying your company’s products will
benefit the community as a whole.

 Uncertainty Avoidance (UAI). This dimension refers to the degree to which a society avoids
risk or ambiguity. Societies with a high degree of uncertainty avoidance compensate for this
uncertainty by establishing rules, policies, and procedures, whereas societies with low

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uncertainty avoidance more readily accept change. The UAI for the United States is 46,
putting it into the moderate range compared to European nations like Italy (UAI of 75) and
Poland (UAI of 93).49 Let’s consider how this affects marketing. Cultures with high uncertainty
avoidance generally prefer to have product characteristics clearly spelled out, complete with
product warranties and money-back guarantees. For example, if you want to market
automobiles in that type of culture, it would be important to focus on the safety features of the
car. Conversely, cultures with low uncertainty avoidance are more accepting of trying
something new.
 Masculinity/Femininity (MAS). This dimension refers to the degree to which gender-specific
roles are valued in the society: Are “masculine” values such as achievement, ambition, and
acquisition or “feminine” values such as quality of life and service to others valued more? In
countries with a high masculinity ranking (e.g., Japan), men are intended to lead; women are
supposed to follow. This is in direct contrast to countries with a low masculinity ranking (such
as the United States and Canada), where women are treated equally to men and gender roles
are more fluid. Societies with low masculinity would tend to respond negatively to gender-
oriented promotion, so a neutral approach that appeals to both men and women would be more
appropriate.50 Consider how many brands in the United States focus on female empowerment
and positive body image. That type of advertising would not appeal to a society with a
masculine orientation.

SEGMENTING INTERNATIONAL MARKETS

Few companies have either the resources or the will to operate in all or even most of the countries in
the globe. Although some large companies such as coca cola or Sony sell products in 200 countries,
most international firms focus on a smaller set.

Global market segmentation can be viewed as the process of identifying segments whether they are
country groups or individual buyer groups of potential customers with homogeneous attributes who
are likely to exhibit similar buying behavior patterns.

How to use Segmentation, Targeting, and Positioning (STP) to develop marketing strategies

Today, the STP marketing model (Segmentation, Targeting, Positioning) is a familiar

strategic approach in modern marketing. It is one of the most commonly applied marketing models
in practice, with marketing leaders crediting it for efficient, streamlined communications practice.

STP marketing focuses on commercial effectiveness, selecting the most valuable segments
for a business and then developing a marketing mix and product positioning strategy for each
segment.

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The STP marketing model

The STP model is useful when creating marketing communications plans since it helps
marketers to prioritize propositions and then develop and deliver personalized and relevant
messages to engage with different audiences. The three-step funnel consists of market
segmentation, market targeting, and product positioning.

Within your research-based market segmentation phase, you are aiming to identify a basis
for the segmentation of your target customers, and determine important characteristics to
differentiate each market segment.

When creating your targeting and positioning strategy, you must evaluate the potential and
commercial attractiveness of each segment, and then develop detailed product positioning for each
selected segment, including a tailored marketing mix based on your knowledge of that segment.

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Expanding on the extremely basic example above, you can unpack the market by mapping
your competitors onto a matrix based on key factors that determine purchase.

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This chart is not meant to be any kind of accurate representation of the car market, but rather
just illustrate how you could use a product positioning map to analyze your own business's current
position in the market, and identify opportunities.

For example, as you can see in the gap below, we've identified a possible opportunity in the
market for low-priced family cars.

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We're not saying this gap actually exists, I'm sure you could think of cars that fit this
category, as the car market is an extremely developed and competitive market. However, it does
show how you can use the tool to identify gaps in your own market.

An example of a company using STP marketing?

Any time you suspect there are significant, measurable differences in your market, you
should consider STP. Especially if you have to create a range of different messages for different
groups.

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A good example of segmentation is BT Plc, the UK’s largest telecoms company. BT has
adopted STP marketing for its varied customer groups; ranging from individual consumers to B2B
services for its competitors.

Identifying and defining your target audience is key to efficiently growing your customer
base. But to fully benefit from your strategy, you need to set objectives and optimize your
marketing activities to achieve your goals.

What to watch for in segmentation, positioning, and targeting marketing strategy

 Make sure the market is large enough to matter and customers can be easily contacted.

 Apply market research to ensure your approach will add value to the existing customer
experience, above and beyond competitors.

 As Martech continues to become more sophisticated, to support digital marketers' wants and
needs, consider the developments in relation to your product/service.

Market Targeting Strategies : 4 main segments

Leave a Comment / Marketing / By admin

Market segmentation explained how the market should be subdivided into small portions to
be more manageable efficiently and effectively. Market Targeting strategies explain how companies
evaluate and select the target marketing segment which they can serve best and which they can
achieve the biggest profit.

When evaluating different market segments to decide the best segment for the product, the
organization must consider three main factors to identify the most approachable market targeting
strategies for the business.

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1. Segment Size and growth – The size of the market segment should be aligned with the
organization’s production capability and development characteristics. The market segment
should cater growth capacity and the growth capacity should be able to handle by the
organization

2. Segment structural attractiveness – The organization should analyze the long-run

attractiveness of the market segment.

3. company objectives and resources – The organization’s objectives should match the output
of the market segment and the available resources should have the capability of catering to
the need of the target market segment.

The market targeting strategies can be identified under four main segments.

1. Undifferentiated Marketing

2. Differentiated Marketing

3. Concentrated Marketing

4. Micromarketing

Undifferentiated Marketing

This is also known as the Mass marketing strategy. Under this strategy, the organization
decides to ignore the market segmentation and decide to produce it to the entire market. This is
suitable for productions such as garment and necessary food. This type of strategy focuses on the
common needs of the consumers and products to satisfy those common needs. There is no
uniqueness or specification for the product. The organization should invest a large amount of capital
for mass production.

Differentiated Marketing

Differentiated Marketing strategy is also known as the segmented marketing strategy. It

decides to select several target markets in the industry and produce customized products for each
market segment. By offering separate product types for each market segment, the organization is
expecting to achieve a higher market share in each market segment and plan to stabilize separately
in each segment. This strategy requires many research and development skills, innovative and
creative skills to produce products that can satisfy all the selected market segments.
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Differentiated marketing is a highly costly strategy. Apart from that, it can be considered as
one of the safest ways of production. If one marketing segment fails to achieve the expected
income, the organization has a few more options to improve and encourage.

Concentrated Marketing

Concentrated marketing is known as Niche marketing as well. Under the concentrated

marketing strategy, the organization focuses on a large share of one or more small segments
(niches). Through concentrated marketing, the organization is planning to achieve a strong market
share and create brand loyalty in the customers. By focusing on one or a few niches the organization
is planning to obtain better knowledge on the customer needs and provide exactly what they are
expecting from the product.

This strategy helps smaller companies to focus on their resources and provide with
minimum waste and achieve bigger and better market share.

Micromarketing

Micromarketing strategy is about producing the product and the marketing method to suit
the taste of a specific individual or specific location. Rather than producing for every customer,
micromarketing concentrates on satisfying the needs of specific, prestigious customers.

Micromarketing can be divided into two categories naming local marketing and individual
marketing.

1. Local Marketing – This is about providing a product or a service based on the requirement
of a customer group

2. Individual Marketing – This is about providing a product or a service based on an

individual customer. This can be identified as one-to-one marketing or mass customization.

The organizations use the above-mentioned market targeting strategies to find the best
market segmentation for their product and try to expand the market share within that market
segment.

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Unit 2

A Product is often considered in a narrow sense as something tangible that can be described
in terms of physical attributes. Such as sample, dimension, components form, color and so on. This
is a misconception that has been extended to international marketing because many people believe
that only tangible product can be exported. But actually in tangible products is a significant part of
the American export market. For example, American movies are distributed worldwide and
business consulting services. In the financial market, Japanese and European banks have been
internationally active in providing financial assistance. In many situations both tangible and
intangible products must be combined to create a single, total product. Product describes it as a
bundle of utilities or satisfaction.

Products: Local, National, International, & Global

Many companies find that, as a result of expanding existing businesses or acquiring a new
business, they have products for sale in a single national market. For example, Kraft Foods at one
time found itself in the chewing gum business in France, the ice cream business in Brazil, and the
pasta business in Italy. Although each of these unrelated businesses was, in isolation, quite
profitable, the sale of each was too small to justify heavy expenditures on R&D, let alone
marketing, production, and financial management from international headquarters. An important
question regarding any product is whether it has the potential for expansion into other markets. The
answer will depend on the company’s goals and objectives and on perceptions of opportunity.
Managers run the risk of committing two types of errors regarding product decisions in global
marketing. One error is to fall victim to “not invented here” (NIH) syndrome, ignoring product
decisions made by subsidiary or affiliate managers. Managers who behave in this way are
essentially abandoning any effort to leverage product policy outside the home-country market. The
other error has been to impose ‘product decision policy’ on all affiliate companies on the

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assumption that what is right for customers in home market must also be right for customers
everywhere. The four product categories in the local-to-global continuum—local, national,
international, and global—are described in the following sections.

Local Products

A local product is available in a portion of a national market. In the United States, the term
regional product is synonymous with local product. These products may be new products that a
company is introducing using a rollout strategy or a product that is distributed exclusively in that
region. Originally, Cape Cod Potato Chips was a local product in the New England market. The
company was later purchased by Frito-Lay and distribution was expanded to other regions of the
United States.

National Products

National product is one that, in the context of a particular company, is offered in a single
national market. Sometimes national products appear when a global company caters to the needs
and preferences of particular country markets. For example, Coca-Cola developed a noncarbonated,
ginseng-flavoured beverage for sale only in Japan and a yellow, carbonated flavoured drink called
Pasturina to compete with Peru’s favourite soft drink, Inca Cola. After years of failing to dislodge
Inca Cola, Coke followed the old strategic maxim, “if you can’t beat them, buy them,” and acquired
Inca Cola.

International Products

International products are offered in multinational, regional markets. The classic

international product is the Euro product, offered throughout Europe but not in the rest of the world.
Renault was for many years a Euro product. When Renault entered the Brazilian market, it became
a multiregional company. Most recently, Renault invested in Nissan and has taken control of the
company. The combination of Renault in Europe and Latin America, and Nissan in Asia, the
Americas, Europe, the Middle East and Africa, has catapulted Renault from a multiregional to a
global position. Renault is an example of how a company can move overnight through investment
or acquisition from an international to a global position.

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Global Products and Global Brands Global products are offered in global markets. A truly
global product is offered in the Triad, in every world region, and in countries at every stage of
development. Some global products were designed to meet the needs of a global market; others
were designed to meet the needs of a national market but also, happily, meet the needs of a global
market. Examples: Marlboro, Coke Sony, Avon, Mercedes, BMW, Volvo.

New Products in Global Marketing What is a new product? Newness can be assessed in the
context of the product itself, the organization, and the market. The product may be an entirely new
invention or innovation—for example, the videocassette recorder (VCR) or the compact disc. It
may be a line extension (a modification of an existing product) such as Diet Coke. Newness may
also be organizational, as when a company acquires an already existing product with which it has
no previous experience. Finally, an existing product that is not new to a company may be new to a
particular market.

In today’s dynamic, competitive market environment, many Companies realize that

continuous development and introduction of new products are keys to survival and growth. Which
companies excel at these activities? Gary Reiner, a new-product specialist with the Boston
Consulting Group, has compiled the following list: Honda, Compaq, Motorola, Canon, Boeing,
Merck, Microsoft, Intel, and Toyota. One common characteristic: They are global companies that
pursue opportunities in global markets in which competition is fierce, thus ensuring that new
products will be world class. Other characteristics noted by Reiner are as follows:

1. They focus on one or only a few businesses.

2. Senior management is actively involved in defining and improving the product

development process

3. They have the ability to recruit and retain the best and the brightest people in their fields.
4. They understand that speed in bringing new products to market reinforces product quality. New

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Product Development There are six distinct steps in new product development.

STEPS IN NEW PRODUCT DEVELOPMENT PROCESS

(a) Idea Generation The beginning of successful product is a creative idea. For the
generation of new idea, it is necessary to gather information about the unfulfilled needs of the
consumer, their attitude and the qualities that a product should possess. New idea may come form
brainstorming technique, normal group technique, inviting suggestions from customers, obtaining
feedback from dealers.

(b) Analysing the Ideas The export marketing manager and his team may analyse the new
product ideas. Analysis of benefits, costs must be conducted. The benefit analysis must be
conducted in terms of sales, profits, market share etc. costs analysis must be conducted in terms of
production and distribution costs.

(c) Short-listing of Ideas A detailed investigation of the marks will help the exporter to
short list the countries which may be considered for export purpose. The main objective of short
listing is to arrive at a list of few countries which are likely to influence the selection decision.

(d) Investigation The exporter may conduct a detailed analysis of certain markets. He may
collect necessary information in respect of various factors, such as the nature of the customers, the
nature and degree of competition, the present and potential demand for the product and the trade
policies of the Government and so on. The information can be collected from primary sources as
well as from secondary sources.

(e) Selection of Best Idea The export manager may select the best idea after detailed
investigation. He may select that idea which would provide maximum possible benefits at minimum
possible costs. The new product idea must be such that would provide maximum value to the
customers and at the same time generate higher return to the exporter.

(f) Product Development The export manager must make arrangement for product
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development. He has to organize necessary resources i.e. physical, capital and manpower. He must
also give necessary directions to the production team to design and develop the product that can
meet customer’s expectations.

(g) Test Marketing In this step of product development, market testing of the new product is
under taken. The purpose is to understand its possible success in actual marketing. It is necessary to
measure the consumer reaction to the product before large scale production of new product. Market
testing includes product quality, features, packaging, price etc. Market testing enables the firm to
improve the product and increase the customer acceptance.

(h) Commercialization If the test marketing results are positive, the manager may go ahead
with the production and marketing on a larger scale. The product will be launched in a large market
area. The manager may undertake appropriate promotion-mix which includes publicity, advertising,
sales promotion, trade fairs participation etc.

(i) Review of Product Performance The most important step in the product development is
the review of actual market performance of the product. It is a type of post introduction step. The
exporter has to analyse actual market performance of the product. This includes acceptance of the
product, market demand and sales position and so on. Here, the exporter can collect information
data from consumer, retailer and dealer and so on. If the performance is not satisfactory he has to
take prompt remedial measures.

(j) Changes in Marketing Mix On the basis of product performance review, the export
marketing manager may have to make certain changes in the marketing-mix. Marketing mix
changes may be required in respect of product’s design features, product pricing, promotion mix
and product’s distribution.

PRODUCT PLANNING STRATEGIES Product planning involves a number of product related

decisions such as product design, product-mix, branding, pricing etc. Therefore, the exporter has to
adopt various product planning strategies such as

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(a)PRODUCT DESIGN STRATEGIES Exporters have the following options in respect of product
design strategies.

(i) Product Innovation Strategy- Under this strategy, the exporter develops a new product in
response to the demand prevailing in overseas markets. Low cost items for developing countries and
high cost items for developed countries may be developed for example readymade garments to take
advantage of fashion in different countries.

(ii) Product Adaptation Strategy- Under this strategy, both the product and the message are
changed to increase the adaptability of the product. This helps to meet the specific needs of the
foreign buyers. Products like office machines, health goods, and electrical goods require this
strategy. It is a costly strategy. It is generally used to serve large size markets.

(iii) Product Standardization Strategy-Under this strategy, the exporter sells the same product all
over the world with “One product, One message-worldwide”. For example Coca-cola, Sony etc. The
exporters use this strategy when their product is too well known and enjoys global reputation. It is an
economical strategy. This is because it does not require any modification. Moreover, it enjoys the
economies of large-scale production and marketing.

INTERNATIONAL PRODUCT LIFE CYCLE

Every product has its life cycle. It is similar to a life cycle of a human being. It starts with birth and
ends with death. Similarly, every product has a life cycle which starts when the product is introduced
in the market, growth, maturity and decline. These are the stages in the domestic product life cycle.
Similar to this, a product which is being sold in an overseas market has its product life cycle called
international product life cycle. This life cycle has different stages and each stage has its features.
The theory of international product life cycle (IPLC) is applicable to consumer products, synthetic
fabrics and electronic equipment i.e. those products which have long lives in terms of the time span
from innovation to eventual high consumer demand.

Following are the stages of product life cycle:

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(a) Introduction Stage The product first takes birth or entry in the market. At this stage, sales pick
up slowly and to ensure the survival or to enhance the sales, it is very much necessary to develop
brand awareness. Brand awareness and brand loyalty can be developed through advertising and sales
promotion technique. This stage involves low sales, high promotional expenditure, loss or negligible
profits, higher margin to dealers etc.

(b) Growth Stage In the growth stage the product is poised for growth. This stage involves rapid
growth in sales, rise in profits, repeat purchases and brand loyalty, increased competition,
introduction of more models or variations, intensive promotional efforts etc.

(c) Maturity Stage In the maturity stage, the product is well settled in the market along with the
competitors. This stage involves stagnation of sales, decline in profits, intense competition, retentive
advertising to remind the customers etc.

(d) Decline Stage In the decline stage, sales decline due to the entry of new and improved products
or due to change in consumer preferences of habits. This stage involves entry of substitutes, decline
in sales, decline in profits at a rapid pace, minimum promotional effort, withdrawal or modification
in product, repositioning of product etc.

At international product life cycle the strategies are:

(a) Local Innovation

(b) Overseas Innovation

(c) Maturity

(d) Worldwide imitation

(e) Reversal

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Unit 3

International Pricing

Price is an integral part of a product-a product cannot exist without a price. It is

difficult to think or talk about a product without considering its price. Setting the right price

for a product can be the key to success or failure. Even when the international marketer

produces the right product, promotes it correctly, and initiates the proper channel of

distribution, the effort fails if the product is not properly priced. A product’s price must

reflect the quality and value the consumer perceives in the product. The company operating

in international markets have to identify the best approach for setting price worldwide.

Pricing is a very critical decision in international marketing management because it is a major factor
influencing a firm’s total revenue from exports and its profitability. There is no thumb rule or any
scientific or mathematical/statistical formula that can be applied in pricing a product correctly. There
is no doubt that as is the case in the domestic market the interaction of the market force like demand
and supply affect the price at which the product can be sold in the international market. Besides,
several other factors: economic, social, political, marketing conditions and product attributes
influence the decision making in the international marketing. In any given marketing three basic
factors determine the limits of pricing decisions of a firm. These are product cost, the purchasing
power of the consumers and demand and supply force.

Pricing Decisions The pricing decision is a critical one for most marketers, yet the amount of
attention given to this key area is often much less than is given to other marketing decisions. One
reason for the lack of attention is that many believe price setting is a mechanical process requiring
the marketerto utilize financial tools, such as spreadsheets, to build their case for setting price levels.
While financial tools are widely used to assist in setting price, marketers must consider many other
factors when arriving at the price for which their product will sell. The marketing manager uses the
parameters suggested by the economists for arriving at a price. These parameters may be enumerated

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as under:

1. Costs

2. Demand and supply

3. Economic, legal and political conditions

1. Costs: Costs represent the base line for setting the price. In other words, costs represent the price
floor beyond which prices cannot be dropped. As already explained costs are made up of two
components, fixed costs and variable costs. Fixed costs represent the unescapable element of cost,
whereas, the variable cost represent the escapable costs. The variable costs are also sometimes
interpreted as marginal costs or incremental costs. Each of these components has its own significance
when pricing a product but the significance is in turn dependent upon the marketing goals, and other
similar variables.

2. Demand & Supply: For a marketing manager, the upper limit is demonstrated by the demand and
supply conditions as they exist in the market. The demand conditions are interpreted from the market
conditions and the consumer behaviour whereas; the supply conditions are interpreted by an analysis
of the competition. The prices charged by the competitors, and the attributes and quantity sold by the
competitors, set the supply parameters. Example: the prices being charged for garments by the
Italians and the South Asians will determine broadly the range that can be charged by the apparel
exporters. Again, if the international buyer is alert, he will through his awareness, bargain against the
subsidies being provided by the Government to the exporter, thus forcing the Indian exporter to
charge as per real costs.

3. Economic, Legal and Political conditions: These represent parameters outside the market
forces which influence the price structure. The Government, it has been noted, can through its
policy, in fact modify the market conditions, making them lopsided. Thus, the countries
where the economic policies are directed by the Government, the economic and political
conditions have an important bearing on price structures. Taxes and duty drawbacks represent
excellent examples for the same. Legalities lengthen any process and complicate it and

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thereby influence the price structure. The more the legal constraints to be adhered to, more
the price charged from the customers, in an effort to pass the increase in costs.

A suggested process for arriving at the price would include the following steps: Notes

1. Analysis of the marketing goals

2. Choosing the marketing mix / Composing the marketing mix

4. Determining the pricing policy / Defining the pricing strategy

6. Arriving at a specific price.

In general, the following information is usually necessary for facilitating export pricing
decision:

Product Information

1. Production cost details:

a) Prime cost

b) Factory overheads

c) General Administration overheads

2. Cost of distribution

a) Cost of packing

b) Cost of selling

c) Cost of transportation including insurance

d) Distribution costs

3. Cost of marketing support-advertising, sales promotion and technical literature.

These data may have to be obtained for the exporting countries, for competing countries

and for consuming countries.

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4. Nature of the product

a) Elasticity of supply of the product

b) . International levies, taxes, etc.

c) Export incentives

d) Product guarantees

e) Installation and after-sales service requirements, and

f) Percentage incidence of rejects

g) Whether a consumer or an industrial product

h) Elasticity of demand

i) Demand be pushed up by promotion

j) Importance given to the price-quality mix

Factors affecting International Pricing Strategies

Pricing strategy is an important part of fixing the international price. The price has to be

competitive and based on the quality of a product. Different pricing strategies are adopted in

different foreign countries because of certain environmental factors like political, economic,

socio-cultural, and legal and so on. Let us learn some more about international pricing, discussed

in following subsections.

There are three main factors which affect the export price strategy to be adopted by the exporter

in the foreign markets, viz. the characteristics of the product and the nature of its demand, the

philosophy of its management and the market characteristics. The pricing strategy is a shortterm tool
to make fit the prices in the changing competitive situations in the short run with its

pricing policy decisions.

1. Characteristics of the product and the nature of its demand: It is a major factor in fixing

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the price of the product at a particular time. In other words, improvement in quality of the

product and product adaptation according to the changing competitive conditions in the

foreign market should be taken as a continuous process. Elasticity of demand is another

factor, which influences the price. If the demand of a product is inelastic, the price reduction

will not help to increase the revenue. In such a case, higher prices may be fixed taking in

view the competitive position in the market. If, on the other hand, product is highly

elastic, the sales revenue can be appreciably increased by slightly reducing the price. Thus,

pricing strategy, i.e. whether to fix higher price or lower price as compared to the competitor’s

prices very much depends upon the elasticity of demand and the competitive position.

2. The philosophy of the management: As we know that the main objective of management

of every concern is to maximize profits, this is an adverse relationship between the price

and the demand. The management can earn more profit at increased revenue by reducing

the price if the demand is more elastic. On the other hand, if the objective of the

management is to export a committed value of merchandise, the price may be even lower

than the marginal cost.

3. Market characteristics: Market characteristics such as number of competitors and degree

of competition, supply position, quality of the product, substitutes available in the market

etc. determines the pricing strategy of the firm. These market characteristics vary from

country to country.

Other Constraints on International Pricing:

International pricing is also influenced by factors such as the size of the company and the cultural
background of parent company executives.

Size of the Company

Large multinational companies generally use cost-based systems. Such companies have the
advantages of size and reach. As their operations or activities spread across different countries they

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have more opportunities or advantages in manipulating prices. Operating in markets that are
monopolistic or oligopolistic in nature can lend protection to these companies from competitive
pressures, which can bring down their profitability levels. The advantages these companies enjoy by
operating in these markets allow them to

offer their products at low prices in some other markets, and gain market shares. Thus their

size turns out to be a huge advantage when competing with companies of smaller size.

Cultural Background of Firms

Pricing decisions are also influenced by the cultural background of the parent company. For
example, firms from the US use cost as the basis in determining the prices. Similarly, firms from
Britain, France, and Japan prefer a cost-based approach in deciding the prices. On the other hand,
Firms with a Scandinavian or Canadian background use market-based pricesl6. The Germans, Dutch,
and Italian firms use a combination of these. The French firms prefer cost-based prices because this
forms of transfer pricing permits them to transfer their income to regions where the tax rates are
lower. The British firms prefer a cost-based approach to prices because the British banking
community expects a specific return on the investment made by them in the firms, and also they pay
great attention to real rate of return at the year-end. The Germans are more concerned about the fixed
asset position and stability of the firm in the long run. Their pricing decisions reflect

this concern.

Company Controls and Information Systems

Transfer pricing mechanism has to be well understood by people managing control and evaluation
functions. Lack of clear understanding might lead to unexpected and undesired distortions. Managers
might show exceptional performance on account of the benefits incurred through transfer pricing
rather than the real growth they generated for their company. Thus the transfer pricing mechanism
should not distort the control system and evaluation criteria. Properly designed information systems
can ensure this.

Duty and Tariff Constraints

High duty and tariff rates provide an incentive to reduce transfer prices. On the other hand, low tax
rate motivates the Finn to increase transfer price to show income in the low-tax environment. Thus

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the level of duty, tariff and tax rate influence the transfer price levels.

Government Controls

Government controls often influence the transfer-pricing levels. Governments also force importers to
make cash deposits. Tins types of controls make companies reduce the price of their products. They
reduce the price because, lower price means they can get away by making smaller mandatory
deposits. Governments also restrict the way firms transfer their profits.

Joint Ventures

Companies participating in joint ventures must reach transfer pricing agreements on different aspects
such as:

➢ Fixing transfer prices when there is a change in exchange rate.

➢ Changes in transfer prices when manufacturing costs come down due to the learning curve effect.

➢ Fixing of royalty rates when the parties of the joint venture build new technology or source it
from other sources.

➢ When the competition impacts volume and overall margins.

Global Pricing Alternatives

Finns operating in international markets follow three pricing approaches, predominantly:

ethnocentric, polycentric, and geocentric.

Ethnocentric Approach

A company following an ethnocentric approach follows the same pricing policy

throughout the world. The importer of the product will bear the freight and import duties.

This approach is convenient to adopt because there is no need to make any modifications to

price based on competitive or market conditions. The firm need not put in efforts to collect

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information on these market conditions. But by adopting tins approach, a firm might fail

to make optimum profits by not fixing the prices of the products based on regional market

conditions.

Polycentric Approach

A firm following this approach allows its regional managers to fix the product

prices based on the circumstances in which they operate. Tins approach might prove to

be not so good, when the disparity in product prices from one region to another is higher

than transportation costs and duties. When this condition prevails, customers will buy the

products in markets where they are available at low price and ship them to where the prices

are relatively high. This will result in loss of revenue for the firm following this approach.

Geocentric Approach

A firm adopting this approach takes a medium position between fixing a single

price worldwide and fixing different prices based on the requirements of subsidiaries.

One of the fundamental assumptions underlying tins approach is that markets are unique,

and specific factors related to them have to be taken into account while making a pricing

decision. Also the approach takes into consideration tire price coordination necessary at

headquarters to deal with international accounts and product arbitrage. This approach is

the most practical of all because it takes into consideration both global competition and

local rivalry in establishing prices.

Pricing Approaches

The export price quotations may not be the same for all markets. Prices may differ from market

to market due to various reasons viz. political influence, buying capacity, financial and import

facilities, total market turnover and other pricing and non-pricing factors etc. in order to make
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the local price of the product competitive. The profitability will also be affected to a great extent

and may be different in different markets. However, there is nothing wrong in making higher

margin in small export markets and lower ones in others provided there is an overall profit in

export business.

Thus, different strategies may be used in different markets. In some markets prices may be

higher in some others they may be cost price or in many others; they may be less than the cost

price. Normally, the following pricing strategies are used in the export market:

1. Market Penetration Strategy: Under this strategy, exporters offer a very low introductory

price to speed up their sales and, therefore, widening the market base. It aims at capturing

the products in the market especially if the quality of the product is proved with its wide

acceptance.

2. Probe Pricing Strategy: Fixing low price for its product may have an adverse effect on the

image of the firm and of the product. It may raise doubts in the minds of the buyers about

the quality of the product if it is lower than the price of competitors or if it is reduced

subsequently. When no information is available on the extent of the competition or the

likely preferences of the buyers, sufficiently higher prices may be quoted on the first few

offers. No business is really expected to grow except feed back information. Hence, the

prices may be adjusted accordingly.

3. Follow the Leader Pricing Strategy: In a competitive world market or where adequate

market information is not available, it may be useful to follow the leader in the market

comparing its product with that of the leader the exporter may then fix the price of its

product. In such cases the price of the product is lower than the leader’s product. However,

this price has no rational or scientific base for fixing the price.

4. Skimming Pricing Strategy: Under this strategy, a very high introductory price is fixed to

skim the cream of the demand at the very outset. This policy is generally introduced when

there is no competition in the market. Such prices continue to be high till competitors
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enter the foreign market. As soon as competitors enter the market, the exporter reduces

the price.

5. Differential Trade Margins Strategy: Variation in trade margins may be adopted by the

exporter as the pricing strategy in foreign market. This strategy allows various types of

discounts on the list price. Quantity discounts encourage procuring huge orders. It may be

based on the value or on the quantity purchased or on the size of the package purchase.

Special discounts may be allowed while introducing the product. These are given on all

the purchases. Seasonal discount aims at shifting the storing function in the channels. This

approach is ‘buy sooner or more’. Cash discount attracts prompt payment. It ensures ‘quick pay-
back’. Trade discount is a reduction in list price given to channel members in Notes

anticipation of a job they are going to perform.

6. Standard Export Pricing Strategy: In some cases, exporter quotes the standard price or list

price that is one price for all. But still there should be some margin for negotiations as in

many markets especially in under developed countries, bargaining over prices is a part of

life. In such cases, fixed prices may serve as a starting point for negotiation. Hence, it is

desirable to keep a certain margin for the negotiations. This strategy is generally adopted

in the export of capital goods i.e. plant & machinery.

7. Cheaper Price for Original Equipment and Higher Price for Spare Parts: In certain cases it

might be useful to quote lower prices for the original equipment and charging higher

prices for spares and replacement parts to be exported later as and when required. This

strategy is useful where only the supplier of the original equipment can supply standard

spare parts. This strategy could be used for tractors, telephone equipment, defense

armaments, and railway equipment and so on.

Gray Market Goods

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Gray market goods are trademarked products that are exported from one country

to another, where they are sold by unauthorized persons or organizations. Sometimes, gray

marketers bring a product produced in one country—French champagne, for example into

a second-country market in competition with authorized importers. The gray marketers

sell at prices that undercut those set by the legitimate importers. This practice, known

as parallel importing, may flourish when a product is in short supply or when producers

attempt to set high prices.

In another type of gray marketing, a company manufactures a product in the homecountry market as
well as in foreign markets. In this case, products manufactured abroadby the company’s foreign
affiliate for sales abroad are sometimes sold by a foreign distributor to grey marketers. They later
bring the products into the producing company’s

home-country market, where they compete with domestically produced goods.

Dumping

Dumping is an important global pricing strategy issue. GATT’s 1979 Antidumping

Code defined dumping as the sale of an imported product at a price lower than that normally

charged in a domestic market or the country of its origin. In addition, many countries have

their own policies and procedures for protecting national companies from dumping. The

U.S. Antidumping Act of 1921, which is enforced by the U.S. Treasury, did not define

dumping specifically but instead referred to unfair competition. However, Congress has

defined dumping as an unfair trade practice that result in “injury, destruction, or prevention of the
establishment of American industry.” Under this definition, dumping occurs

when imports sold in the U.S. market are priced either at levels that represent less than the

cost of production plus, an 8 percent profit margin or at levels below those prevailing in

the producing country.

Transfer pricing refers to the pricing of goods and services bought and sold by

operating units or divisions of a single company. In other words, transfer pricing concerns

intra corporate exchanges—transactions between buyers and sellers that have the same
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corporate parent. For example, Toyota subsidiaries sell to, and buy from, each other. The

same is true of other companies operating globally. As companies expand and create decentralized
operations, profit centres become an increasingly important component in the

overall corporate financial picture.

There are three major alternative approaches to transfer pricing. The approach used

will vary with the nature of the firm, products, markets, and the historical circumstances of

each case. The alternatives are

(1) Cost-based transfer pricing,

(2) Market-based transfer pricing, and

(3) Negotiated prices.

Cost-Based Transfer Pricing

Because companies define costs differently, some companies using the cost-based

approach may arrive at transfer prices that reflect variable and fixed manufacturing costs

only. Alternatively, transfer prices may be based on full costs, including overhead costs

from marketing, research and development (R&D), and other functional areas. The way

costs are defined may have an impact on tariffs and duties on sales to affiliates and subsidiaries by
global companies.

Market-Based Transfer Price

A market-based transfer price is derived from the price required to be competitive in

the international market. The constraint on this price is cost. However, as noted previously,

there is a considerable degree of variation in how costs are defined. Because costs generally

decline with volume, a decision must be made regarding whether to price on the basis

of current or planned volume levels. To use market-based transfer prices to enter a new

market that is too small to support local manufacturing, third-country sourcing may be

required. This enables a company to establish its name or franchise in the market without

committing to a major capital investment.

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Negotiated Transfer Prices

A third alternative is to allow the organization’s affiliates to negotiate transfer prices

among themselves. In some instances, the final transfer price may reflect costs and market

prices, but this is not a requirement. The gold standard of negotiated transfer prices is

known as an arm’s-length price: the price that two independent, unrelated entities would

negotiate

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UNIT 4

INTERNATIONAL DISTRIBUTION DECISION MANAGEMENT

Global Logistics Management The cost and efficiency of the distribution have direct relationship
with the logistics. Logistics, therefore, is a factor which affects the competitiveness of a firm.
International logistics is defined as “the designing and managing of a system that contracts the flow
of materials into, through, and out of the international corporation. It encompasses the total
movement concept by covering the entire range of operations concerned with product movement”. It
follows from the above definition that logistics comprises of

(i) Management of movement of raw materials, parts and supplies into and through the

firm; and

(ii) Management of movement of finished products to the consumer.

The major objective of the logistics management is to make the physical distribution

as effective as required at the lowest cost possible. Attempts to increase the effectiveness

of the distribution may sometimes tend to increase the cost and attempts to cut costs

may impair distribution effectiveness. The trade off and optimization, therefore is often a

complex problem.

Components of Logistics Management

Logistics management comprises of five major interdependent areas.

Fixed Facilities Location

The major consideration is the location of fixed facilities like production and

warehousing in such a way as to maximize the total efficiency of the logistics system. Factors
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like future potentials of the markets, future of the company, competitive factors,

political stability etc. are also important considerations.

Transportation

The modes of transportation, frequency of shipping etc. are determined on

consideration of several factors such as the cost, speed, safety, lead time, transit time, type

of product, natural environmental factors etc.

Inventory Management

The main objective of inventory management is to minimise the cost of the inventory

while ensuring smooth supplies. Developments in inventory management by the customers,

order processing and in the total logistics system have made inventory management both

challenging and efficient.

Order Processing

The efficiency of order processing by the client as well as the company has important

implications for inventory levels and other aspects of the logistics. Rapid order processing shortens
the order cycle and allows for lower safety stocks on the part of the client. Exporters

from developing countries like India face the challenge of coping up with such situations.

Materials Handling and Warehousing

Materials handling and warehousing is also an important part of the logistics

management. The technologies in use in materials handling and transportation may be

different in different countries. Differences in natural factors like climatic and weather

conditions may also make warehousing requirements varied.

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Direct and Indirect Channels

When the Companies have to market abroad, they use two principal distribution channels:

(i) direct selling and (ii) indirect selling.

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

requires that the manufacturer deals directly with a foreign party without going through an

intermediary in a home country. The greatest advantage of direct selling channel is the active

market exploitation, since the manufacturer is more directly committed to its foreign markets.

Direct selling has a number of problems also. It is difficult channel to manage if the manufacturer

is unfamiliar with foreign market. Moreover, the channel is time consuming and expensive.

Without a large volume of business the manufacturer may find it too costly to maintain the

channel.

Indirect selling also known as the local or domestic channel is employed when a manufacturer in the
United States for example, markets its product through another US firm that acts as the
manufacturer’s sales intermediary (middleman). As such, the sales intermediary is just another Notes
local or domestic channel for the manufacturer because there are no dealings abroad with a foreign
firm. By exporting through an independent local middleman, the manufacturer has no need to set up
an international department. There are several advantages to be gained by employing an indirect
domestic channel.

Types of intermediaries:

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. Order must be channeled

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through the distributor even when the distributor chooses to appoint a sub-agent or sub-distributor.
The distributor purchases merchandise from the manufacturer at a discount and then resells or
distributes the merchandise to the retailers and sometimes final consumers. In this regard, 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. The length of
association between the manufacturer and its foreign distributor is established by a contract that is
renewable provided the continued arrangement is satisfactory to both. There are a number of benefits
for using a foreign distributor. Unlike agents, the distributor is a merchant who buys and maintains
merchandise in its own name. This arrangement simplifies the credit and payment activities for the
manufacturer. To carry out the distributing function the foreign distributor is often required to
warehouse adequate products, parts, and accessories. Apple Computer now does its own distribution
in Japan because the services of Toray Industry, its foreign distributor, proved inadequate.

2. Foreign Retailer: If foreign retailers are used, the product in question must be a consumer
product rather than an industrial product. There are many channels by which a manufacturer may
contact foreign retailers and trust them in carrying product ranging from a personal visit by
manufacturer’s visit to mailings of catalogues, brochures and other literature to prospective retailers.

3. State Controlled Trading Company: For some products particularly utility and

telecommunication equipment a manufacturer must contact and sell to the state controlled

companies.India has State Trading Corporation (STC) which deals with import and export of cars
and

other items which are in SIL. Most opportunities for manufacturers are limited to raw

materials, agricultural machinery, and manufacturing equipment and technical instruments

rather than consumer or household goods. Reason for all this may be the limitations in

shortage of foreign exchange and an emphasis on self-sufficiency as in communist and

socialist countries.

4. End User: Sometime a manufacturer is able to sell directly to foreign end users with no

intermediaries involved in the process. This direct channel is a logical and natural choice

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for costly industrial products. For most consumer products the approach is practical for

some products and in some countries. A significant problem with consumer purchasers

can result from duty and clearance problems. A consumer may place an order without

understanding his or her country’s import regulations. When the merchandise 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.

A manufacturer may find it difficult, rather impractical, to sell directly to various foreign parties
(foreign distributors, foreign retailers, state controlled trading companies and end users) for a
majority of products. Other intermediaries have come between these foreign buyers and
manufacturers.

Agents who look after the interests of manufacturers: Export Broker is to bring a buyer Notes and seller
together, for which he is paid the fee. The Broker may be assigned some or all foreign market seeking potential
buyers. It negotiates the best terms for the seller (manufacturer) but cannot conclude the transaction without the
approval of the principal. As a representative of the manufacturer the export broker may operate under its own
name or that of the manufacturer. For any action performed the broker receives a fee/ commission. An export
broker does not take the title of the goods. He is very useful because he has the extensive knowledge of the
market, its supply, demand and foreign customers. He can, therefore, negotiate the most favourable terms for
the manufacturer.

Manufacturer’s export agent or sales representative: Manufacturer’s export agent is not a manufacturer’s
employee. In fact, he is an independent businessperson who usually retains his/her identity by not using the
manufacturer’s name. Having more freedom than the manufacturer’s own sales person, 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. An export agent pays his/her own expenses and may
represent manufacturers of related and non-competing products. He can operate on either an exclusive or non-
exclusive basis.

Export Management Company: An Export Management Company (EMC) manages under contract the entire
export programme of a manufacturer. An EMC is also known as a Combination Export Manager (CEM)
because it may function as Export Department or several allied but non-competing manufacturers. In this
regard, those export brokers and manufacturer’s export agents who represent a combination of clients can also
be called EMC. When compared with export brokers and manufacturer’s export agents the EMC have greater
freedom and considerable authority. EMC provide extensive service ranging from promotion to shipping
arrangement and documentation.

Cooperative exporter: A cooperative exporter is a manufacturer with its own export organisation that is
retained by other manufacturers to sell in some or all-foreign markets. In fact, this intermediary is also a
manufacturer; however, it functions like any other export agent. The usual arrangement is to operate as an
export distributor for other suppliers sometimes acting as a commission representative or broker. Because, the
cooperative exporter arranges shipping it takes possession of goods but not the title.

Webb-Pomerene association: A Webb-Pomerene Association is formed when two or more firms usually in
the same industry join together to market their products overseas. The association constitutes an organization
jointly owned by competing U.S. manufacturers exclusively for the purpose of export. Basically a Webb-

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Pomerene Association is an export cartel. Although cartels are illegal in some of the countries like US,
however, this kind of cartel is allowed to operate as long as it has no anti competitive impact on domestic
marketing in the US market.

Purchasing/buying agent: An export agent represents a seller or manufacturer. The purchasing/buying agent
represents the foreign buyer. By residing and conducting business in the exporter’s country the purchasing
agent is in a favourable position to seek a product that matches the foreign principal’s preferences and
requirements. Operating onthe overseas customers’ behalf the purchasing agent acts in the interest of the buyer
by seeking the best possible price. Therefore, the purchasing agent’s client pays a fee or commission for the
services rendered. The purchasing agent is also known as Commission Agent, Buyer for Export, Export
Commission House and Export Buying Agent. This agent may also become an export confirming house when
confirming payment and paying the seller after receiving invoice and the title document for the client.

Country controlled buying agent: Country Controlled Buying Agent is only a variation on the purchasing
agent because this kind of agent performs exactly the same function as the purchasing/buying agent, the only
distinction being that a country controlled buying agent is actually a foreign government’s agency or quasi
government firm. The country controlled buying agent is empowered to locate and purchase goods for its
country. This agent may have a representative, who makes formal visit to the supplier country when the
purchasing need arises.

Resident buyer: Resident Buyer is another variation on the purchasing agent. The resident agent as the name
implies is an independent agent that is usually located near the highly centralised production industry. Although
functioning like a regular purchase agent, the resident buyer is different because the principle on a continuous
basis to maintain a search for new products that may be suitable retains it. The long-term relationship makes it
possible for the resident buyer to be compensated with a retainer and commission for business transacted.

Export merchant: One kind of domestic merchant is the export merchant. An export merchant seeks out need
in foreign markets and makes purchases from manufacturers in its own country to fill those needs. Usually the
merchant handles staple goods, undifferentiated products or those in which brands are unimportant. After
having the merchandised packed and marked to specifications, the export merchant resells the goods in his
name through his contacts in the foreign markets. The merchant completes all the formalities and arrangements,
assumes all risks associated with the ownership.

Export drop shipper: An export drop shipper also known as a desk jobber or cable merchant is a special kind
of export merchant. As all these imply the mode of operation requires the drop shipper to request the
manufacturer to “drop ship” a product directly to the overseas customers. It is neither practical nor desirable for
the shipper to physically handle or possess the product. Based on this operational method the shipper’s
ownership of the goods may only last for a few hours. The export drop shipper places an order with a
manufacturer directing the manufacturer to deliver the product directly to the foreign buyer on the receipt of
order from overseas. The manufacturer collects payment from the drop shipper who in turn is paid by the
foreign buyer.

Export distributor: This distributor is authorised and granted an exclusive marketing right to represent the
manufacturer and to sell in some or all-foreign markets. It pays for goods in his domestic transaction with the
manufacturer and handles all financial risks in the foreign trade. An export distributor differs from foreign
distributor simply in location. The foreign distributor is located in a particular foreign country and is authorised
to distribute and sell the product there.

Trading companies: The buyers and sellers in the foreign markets have no knowledge of each other or no
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knowledge of how to contact each other. Trading companies have come into existence to fill this void. In
international marketing activities, for many countries this type of intermediaries may be the most dominant
form in volume of business and in influence. Many trading companies are large and have branches wherever
they do business.

Factors Involved in Distribution Systems

Distribution choices depend on several factors. One of them is the nature of the product. Is it
perishable or fragile or a product that will require after sales service? Might an authorised company
dealer better distribute it?
Another consideration is the degree of control over distribution. Greater control over the distribution
process requires greater involvement by a firm in terms of time, money and energy.
Another factor is cost. Whatever distribution mix a firm wishes to employ may be constrained by the
availability of middlemen or channels of distribution, by political limitations imposed by the
characteristics of the country or by infrastructural deficiencies in the country, which limit types, and
methods of usable distribution modes. The development level of a nation also affects the distribution
resources and network.

A lack of refrigerated methods of transportation will limit the marketing for frozen goods or fresh
produce. Similarly, income levels might support the airfreight delivery of live lobsters in rich
countries, while poorer countries rely on slow delivery by boat of less exotic foodstuffs

Modes of Transportation

Whenever a new company is to be established, the transportation function is to be kept in mind before
selecting the site of the company. To supply a product both between the countries and within a country there
are fundamentally three modes of transportation: air, water (ocean and inland) and land (rail and truck). The
appropriate transportation mode depends on
(i) market location,
(ii) speed and
(iii) cost.
A firm must first consider market location. Contiguous markets can be served by rail or truck as the case may
be. To supply goods between continents sea or air transportation is needed. Speed is another consideration to
decide the mode of transport. When speed is essential, air transportation is preferred mode of distribution. The
cost is another factor to be considered in the selection of the transportation. Cost is directly related to speed – a
quick delivery costs more. The three different modes of transportation are discussed in the following sub-

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sections.

 Land
Land transportation is the common mode of transport for any shipment whether local or international. Some
type of land transport is essential in moving goods to and fro an airport or seaport. The land transportation
involves rail or truck when the goods in large quantity are to be moved for a long distance over land. However,
rail can prove to be more economical than the trucks. Europe and Japan have modern train systems that are
capable of moving merchandise efficiently. Developing countries like India have yet to provide an efficient and
fast rail transportation system to the business. On the other hand, trucks are capable of going to more places. In
addition, trucks may be needed to take cargo to and from the railway station. When countries have joined
boundaries, moving cargo by truck or train is often a practical solution

 Air
Out of all the modes of transports the air accounts for only 1% of the total international freight movement. It is
the fastest growing mode and is becoming less confined to expensive products. Air transport has the highest
absolute rates but exporters have discovered that there are many advantages associated with this mode. First, air
transport speed up delivery, minimizes the time the goods are in transit and achieves great flexibility in delivery
schedules. Second, it delivers perishables in prime condition. In India, the perishable goods like cut flower,
mushrooms and fruit are transported by air to carry out profitable export. Third, it can respond rapidly to
unpredictable and urgent demand.

 Water
Bulk shipping is important in international trade because it is one of the most practical and important and
efficient means of transporting petroleum, industrial raw materials, and agricultural commodities over long
distances. About 51% of the global bulk fleet consists of oil tankers, while dry bulk carriers account for 43%.
The remainder of the fleet is made up of combination carriers, which are capable of carrying either wet (crude
oil and refined petroleum products) and dry (coal, iron, iron ore and grain) bulk cargo. The bulk shipping
industry being highly fragmented as no one organisation, which has more than 2% of the total fleet. There are
basically three types of shipping companies: (a) An ocean freight conference line is an association of ocean
carriers that have joined together to establish common rules with regard to freight charges and shipping
conditions, (b) An independent line is a line that operates and quotes freight rates individually and
independently without the use of a dual rate contract and (c) Finally, a tramp vessel is a ship not operating on a
regular route or schedule. Tramp steamers do not have the established schedules of the other two types of
carriers.

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Unit-5
Global Advertising
Intense competition for world markets and the increasing sophistication of foreign consumers have led to a
need for more sophisticated advertising strategies. Increased costs, problems of coordinating advertising
programs in multiple countries, and a desire for a common worldwide company or product image have caused
Multinational Companies (MNCs) to seek greater control and efficiency without sacrificing local
responsiveness. In the quest for more effective and responsive promotion programs, the policies covering
centralized or decentralized authority, use of single or multiple foreign or domestic agencies, appropriation and
allocation procedures, copy, media, and research are being examined.

Pattern Advertising: Plan Globally, Act Locally

As discussed in the chapter on product development, a product is more than a physical item; it is a bundle of
satisfactions the buyer receives. This package of satisfactions or utilities includes the primary function of the
product along with many other benefits imputed by the values and customs of the culture. Different cultures
often seek the same value or benefits from the primary function of a product; for example, the ability of an
automobile to get from point A to point B, a camera to take a picture, or a wristwatch to tell time. But while
agreeing on the benefit of the primary function of a product, other features and psychological attributes of the
item can have significant differences Consider the different market-perceived needs for a camera. In the United
States, excellent pictures with easy, foolproof operation are expected by most of the market; in Germany and
Japan, a camera must take excellent pictures but the camera must also be state-of-the-art in design. In Africa,
where penetration of cameras is less than 20 percent of the households, the concept of picture-taking must be
sold. In all three markets, excellent pictures are expected (i.e., the primary function of a camera is demanded)
but the additional utility or satisfaction derived from a camera differs among cultures. There are many products
that produce such different expectations beyond the common benefit sought by all. Thus, many companies
follow a strategy of pattern advertising, a global advertising strategy with a standardized basic message
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allowing some degree of modification to meet local situations.5 As the popular saying goes, “Think Globally,
Act Locally.” In this way, some economies of standardization can be realized while specific cultural differences
are accommodated

Global Advertising and World Brands

Global brands generally are the result of a company that elects to be guided by a global marketing strategy.
Global brands carry the same name, same design, and same creative strategy everywhere in the world; Coca-
Cola, Pepsi-Cola, McDonald’s, and Revlon are a few of the global brands. Even when cultural differences
make it ineffective to have a standardized advertising program or a standardized product; a company may have
a World brand. Nescafe, the world brand for Nestle Company’s instant coffee, is used throughout the world
even though advertising messages and formulation (dark roast and light roast) vary to suit cultural differences.

 In Brazil, TV commercials are sandwiched together in a string of 10 to 50 commercials within one

station break.
 National coverage in many countries means using as many as 40 to 50 different media.
 Specialized media reach small segments of the market only. In the Netherlands, there are Catholic,
Protestant, socialist, neutral, and other specialized broadcasting systems.
 In Germany, TV scheduling for an entire year must be arranged by August 30 of the preceding year,
with no guarantee that commercials intended for summer viewing will not be run in the middle of
winter.
 In Vietnam, advertising in newspapers and magazines is limited to 10 percent of space, and to 5 percent
of time, or three minutes an hour, on radio and TV.

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Communication can be defined as transmitting, receiving, and processing information. When a person, group,
or organization attempts to transfer an idea or message and the receiver is able to comprehend the information,
communication takes place. Brand communication is undertaken by organizations to create popularity for their
product among the end-users. Brand communication goes a long way in promoting products and services
among target consumers. The process involves identifying target consumers and promoting the brand among
them through means of Advertising, Sales Promotion, Public Relation, Direct Marketing, Personal Selling,
Social media, etc.

Global Communication Strategy

A Global Communication strategy is extremely beneficial for a firm. It can help market the product or service
in many different countries around the world. Global communication has historically required large budgets.
However, emerging communication techniques like social media can make global communication campaigns
affordable for companies of all sizes. The major benefits of a Global Communication Strategy are:
Consistency: Creating a global communication program enables a firm to communicate a consistent message to
customers in all its export markets. Consumers receive marketing messages from a number of different sources,
so delivering a consistent message is the most effective way to reach consumers.

Reduced Risk: The risk in developing a global campaign can be reduced by building a Notes communication
strategy that is successful in delivering results in your domestic market. Building an existing brand
progressively, market by market, is the safest and most costeffective way to create a global brand.

Localization: A firm’s global communication program does not necessarily have to communicate the same
message exactly in every local market. It’s important to understand and respect the language, cultural and
business differences in individual territories. The firm should adapt its communication strategy keeping in mind

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the local preferences, in terms of the language, cultural and business differences. This process is called
localisation.

Leadership: A firm can build on the benefits of a global brand using Brand Leadership. This involves defining
the important elements of its brand, but using a flexible approach and customizing the communication for local
markets. To ensure the brand’s success, the firm needs to monitor the success of the communication campaign
in each market with the aim of establishing brand leadership across all key territories.

Management of Campaigns: Running a consistent communication program reduces the cost and complexity
of managing campaigns for a firm. Some multinational companies employ communication agencies for each
territory. If each agency creates a different campaign for the local market, costs can rise rapidly because of the
duplication of effort. By developing a single global communication strategy, the firm can reduce the number of
agencies it uses, and eliminate duplicate costs.

Media Planning: The changing pattern of media has made it easier to develop affordable global campaigns.
Global communication campaigns of the early 2000s relied heavily on mainstream television and press
advertising. Because of the emergence of social media and the importance of Web search, a firm can now focus
on placing its messages in the media that consumers prefer. When consumers in different countries search the
Web, they will receive the same consistent branding message from the firm’s website irrespective of where
they are located.

Factors Influencing Communication Decisions

 Advertising
According to American Marketing Association, Advertising is “Any paid form of non-personal presentation
and promotion of ideas, goods or services by an identified sponsor.” It is a means by which a firm
communicates with potential customers, highlighting its product Global advertising is the use of the advertising
appeals, messages, art, copy, photographs, stories, and video segments in multiple country markets. A global
company that has the ability to successfully transform a domestic campaign into a worldwide one or to create a
new global campaign from scratch is at an advantage relative to competitors who make the same discovery at a
later point in time. Global campaigns with unified themes can help to build long-term product and brand
identities and offer significant savings by reducing costs involved in producing advertisements. Global
advertising also offers companies economies of scale in advertising as well as improved access to distribution

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channels. Where shelf space is at a premium, a company has to convince retailers to carry its products rather
than those of competitors.

Example: In the case of food products There are two major decisions that a firm has to address:
The major question faced by firms is if the specific advertising message and media strategy needs to be
changed from country to country. Local country managers can share important information, such as when to
use caution in advertising creativity. Given below is an idea of how ads need to be formed, keeping in mind the
regional thought process and culture

Public Relations Public Relations (PR)

is the department or function responsible for evaluating public opinion about, and attitudes toward, the
organization and its products and brands. Public relations personnel also are responsible for fostering goodwill,
understanding, and acceptance among a company’s various constituents and publics. According to Marla
Aaron, “Public Relations is communicating your organization’s messages at the right time and in the right place
to the right audience. With the proliferation of tools and technologies, we can measure the value of those efforts
and how they align with a business’ overall mission.” Like advertising, public relations is one of the four
variables in the promotion mix. One of the tasks of the PR practitioner is to generate favorable publicity. By
definition, publicity is communication about a company or product for which the company does not pay. The
Tools that are generally used under Public Relations can be News releases, Media kits, Press conferences
Public relations professionals who are responsible for international business operations should serve as more
than a company mouthpiece. They should be able to simultaneously build consensus and understanding, create
trust and harmony, articulate and influence public opinion, anticipate conflicts, and resolve disputes. As
companies become more involved in global marketing and the globalization of industries continues, company
management must recognize the value of international public relations.
Public relations practices can be affected by:
 Cultural traditions
 Social and political contexts
 Economic environment

Personal Selling
In today’s world, one of the fastest ways to convince a person to do something is by communicating with that
person. International markets are swarming with firms and their products and services marked by complex
technologies and multiple choices, and in cut- throat competition. The role of salesperson becomes quite

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important as he/she acts as representative Notes of the firm with whom potential customers with directly
interact with. The customer always wants to be sure that he or she is getting value for his or her money. The
salesperson helps in winning the trust of customer in the firm by making a potential customer an actual one,
hence giving the firm some competitive advantage. Personal selling is personal communication between a firm
representative and a potential customer to persuade prospective customer to buy something their product or
service idea. This is in contrast to the mass, impersonal communication of advertising, sales promotion and
other promotional tools.

Example: One of the most important factors which contributed to the sales success of Amway Products in India
was the door-to-door sales. The efforts of sales people have a direct impact on such diverse activities as:
Increase awareness of new products and business ventures.
Keeping existing products running well in market.
Provide convenience to customers as products are sold directly at homes.
Creating a relationship and trust through interpersonal approach.
Generating actual sales for the firms.
Direct Feedback from customers.
Supplement with the product promotion.
Provides an effective method in explaining firm’s reliability and reputation, product features, clarifying
customer doubts and resolving their issues. One of the major limitations is its high cost, especially in
advanced countries.

Decisions taken in personal Selling:

Size of personal selling effort: This is determined by importance of the firm’s new product or service and
how much is firm is invest in money, time and in other resources
Allocation of Sales Effort: This involves Geographical Allocation, i.e. the area which a given sales person
needs to cover or the geographical position assigned to each sales person here he or she has to generate sales
for the firm
Allocation of product to sales personnel: A firm might be having a number of products and services to sell.
A salesperson can’t sell all the products or services due to his or her physical limitations. Hence the firm needs
to focus on what products are needed to be sold by the salesperson. This is done as per demands of the products
or services or when a new product is launched.
Scheduling: Time is a valuable resource, hence, the firm needs to make crucial decisions scheduling of the
personal selling effort.

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Cost Involved: Budget for personal selling determines the size of personal selling effort and is generally on
higher side as it is quite labour intensive.

Sales Promotion
Sales promotion refers to any paid consumer or trade communication program of limited period that adds
substantial value to a product or brand. Sales promotion is a vital element of marketing communication policy
which accounts for more promotional expenditures than advertising, personal selling and publicity in some
countries.
Consumer sales promotions are intended to make consumers aware of a new product, to encourage nonusers
to sample an existing product, or to boost overall consumer demand. Example: Coupons, rebates, Loyalty
programs, free sampling, etc.
Trade sales promotions are designed to raise product availability in distribution channels. For example, point
of purchase displays, trade shows, etc.
Business to business Sales promotion is targeted at the B2B market. For example, Price reductions, trade ins,
trade shows, etc.

Objectives of Sales Promotion:

Building product awareness-Sales promotion is highly effective in exposing customers to products for the first
time. The serve as key promotional components in the early stage of product introduction.
Creating interest-Sales promotion is integral and effective in creating interest among customers.
Provide information- some sales promotion techniques provide information to customers.
Stimulating demand- Sales promotion builds demand by convincing customers to make a purchase.
Reinforcing a Brand-After purchase, Sales promotion can be used to encourage additional purchase and also as
a reward for purchase loyalty in the form of special promotions. Benefits of Sales Promotion are as follows:
Provides a real incentive to buyers
Reduces the perceived risk associated with purchasing a product
Provides accountability for communications activity Provides methods of collecting additional data for

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database

Internet Marketing
Internet marketing, often known as online marketing, uses digital platforms and methods to promote brands by
focusing on their target markets. Internet marketing is not the only strategy for generating interest in and
knowledge about a product. The goal of internet marketing is to increase traffic to the advertiser's website
through a number of methods.

What's the Role of Internet Marketing?

The internet is a channel via which businesses can advertise, communicate with customers, and make
sales. The perfect Internet strategy can play a big role in the effective marketing and sales of products.
The importance of digital marketing for business success comes from the fact that most businesses
and customers have grown extremely reliant on the internet. Because of this dependency and the value
placed on having an online presence, it is essential for businesses to practice structured internet
marketing

Examples of Internet Marketing That Provide Value for Big Returns

Internet marketing reaches individuals from various online locations by utilizing their online activity to
establish a connection with a business. The kinds of internet marketing a company employs will vary
depending on its business model, items it sells, target market, available resources, and other factors.

1. Website Content and Design

The method of creating and spreading content in order to bring in and keep customers is known as content
marketing. Instead of focusing on selling, it concentrates on client communication, which is usually more well-
liked.

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2. Email Marketing

Email marketing is the process of sending direct marketing communications to consumers via email in an effort
to attract new clients and keep hold of current ones. It's one of the most economical forms of marketing and
may be used to target both a large customer base and a highly specific one. When customers provide a brand
with their email address, the company can contact them for future marketing initiatives.

3. Social Media

Social media marketing refers to the use of social media websites to promote a business and its goods and
services. It attempts to increase brand recognition, enhance consumer interaction, build loyalty, and produce
leads for sales. Paid advertising and organic marketing are both components of social media marketing strategy.
Organic social media marketing places a strong emphasis on building a community and establishing relations
with customers in order to pique interest and encourage client loyalty. A paid social media campaign is a
collection of advertisements that can work together to help you use social media to accomplish a goal or
purpose.

4. SEO

SEO is the process of upgrading a website and digital content to increase its organic or "natural" placement in
search rankings. A website is more likely to be viewed by a potential consumer if it ranks higher in search
results. Effective SEO efforts need thorough keyword research as well as the ability to develop high-quality,
useful content utilizing the selected keywords. Using relevant keywords, link-building, making your website
mobile-friendly to improve user experience, and voice search optimization are some best practices for SEO that
increase conversion rate.

5. Blogging

By adding posts and blogs based around specific targeted keywords, blogging enables you to improve the SEO
of your website. Customers are more likely to find and visit your website as a result of an online search if you
do this. They keep the website up to date and offer chances for audience engagement. You can link to reliable
websites, which increases client loyalty and increases your audience. The most important benefit of blogging is
that it can strengthen your relationship with your audience. All of this contributes to the generation of more
leads and the expansion of sales.

6. Video and Podcasting

Videos and podcasts are other methods to give your marketing strategy some personality. They enable
businesses to convey informative content and engage audiences by using storytelling techniques. As your
brand's voice, you become more visible to listeners, which promotes deeper connections with your customers.
You can also invite guest speakers, who will provide a different level of credibility while helping you in
growing your audience.

7. Online Advertising

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There are several ways to advertise yourself online. PPC targets specific search phrases that potential customers
might use. The banner advertising is available on numerous websites, including blogs, magazines, and news
websites.You can effectively buy your way to the top of search results by using search engine advertising. This
strategy can be useful when your website is brand new, or there is fierce competition for market share because
these circumstances make it difficult to achieve a high position naturally.You can target potential customers
through paid social media postings based on their demographics, interests, and behaviors to reach people who
will be interested in your goods or services.

8. Influencer Marketing

Influencer marketing is the process of working with influencers to advertise your brand's messages, products, or
services. Influencer marketing is a mixture of both old ways and new ways of marketing strategies. It takes the
idea of a celebrity endorsement into a content marketing campaign for today's time. The main difference in the
case of influencer marketing is that the campaign results in collaborations between brands and influencers.

9. Infographics

Infographics are a creative method to present complicated information in an approachable manner. Infographics
provide readers with a lively, colorful visual to help them understand (and share) important knowledge,
breaking up the monotony of text through charts, photos, graphs, and illustrations. They convey some
extremely important information in an understandable manner and are appealing and easy to follow.

10. Sponsorships and Paid Promotions

Through sponsored sponsorships and promotions, you may also use the online audience of another person to
advertise your goods or services. You may reach your target audience online in a wide range of ways by using
paid promotions and sponsorships. The most crucial thing is to identify the marketing techniques that fit your
business the best.

International Marketing Ethics:

Marketing ethics refers to the principles and values that guide the behavior of marketers, emphasizing
honesty, responsibility, fairness, and respect for consumers and society.

While marketing ethics refers to the principles and values that guide the behavior of marketers, ethical
marketing specifically relates to promotional ethical marketing practices. An example of ethical marketing is
fair pricing and advertisements that do not exaggerate the benefits of the promoted product. Unethical
marketing practices may include sharing customer information without consent, making untrue claims about
the product, or targeting emotionally vulnerable customers.
Example- A company that produces organic, environmentally-friendly cleaning products claims on its website
that all its ingredients are natural and non-toxic and that the packaging is biodegradable. This is an example of
ethical marketing because the company provides consumers with truthful information.

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