CHAPTER- TWO

INTERNATIONAL MARKETING ENVIRONMENT

The total environment of an international marketer

1
 Introduction

• Global marketing activities take place within

the political environment of governmental
institutions, political parties, and
organizations through which a country’s
people and rulers exercise power.
• Any company doing business outside its
home country should carefully study the
government structure in the target country
and analyze salient issues arising from the
political environment.
2
 con,…

• In making decisions about firms in international

marketing activities, the manager will need to
concentrate on three areas:
1. Home country political and legal environment
• No manager can afford to ignore the policies and
regulations of the country from which he/she conduct
international marketing transaction.
• Wherever a firm is located, it will be affected by the
government’s policies and legal system. Many of these
laws and regulations have a major impact on firm’s
opportunities abroad such as:
• Minimum wage legislation,
• Cost of domestic safety regulations may affect pricing
3
 Con..

• Three main areas of governmental activities are of major

concern to the international marketer.
1. Embargoes/trade sanction-refers to government action
that distorts the free flow of trade in goods, services,
ideas for decidedly adversarial and political rather than
economic purpose.
 Trade sanctions are "laws passed to restrict or abolish
trade with certain countries,“
 Trade sanctions are trade penalties imposed by one
nation onto one or more other nations.
 Sanctions can be unilateral, imposed by only one country
on one other country, or multilateral, imposed by one or
more countries on a number of different countries.
 Sometimes, allies/partners will impose multilateral 4
 con,…
2. Export control- is designed to deny the acquisition of
strategically important goods to adversaries (or
opponents and challenger) or at least to delay their
acquisition.
3. Import control-This is particularly true for countries that
suffer from major balance on trade deficit or major
infrastructure problems.
Host country political and legal environment
• Host countries political system can affect the international
marketing operations of the firms in a variety of ways.
• Good manager will understand the country in which the
firm operates and able to work with in the existing
parameters and anticipate and plan for changes that may 5
 Geographic Environment in International
Marketing
• Geography, the study of Earth’s surface, climate,
continents, countries, peoples, industries, and
resources, is an element of the uncontrollable
environment that confronts every marketer but
that receives scant attention.
• The tendency is to study the aspects of geography
as isolated entities rather than as important causal
agents of the marketing environment.

6
 Climate and Topography
• Altitude, humidity, and temperature extremes are climatic
features that affect the uses and functions of products and
equipment.
• Products that perform well in temperate zones may
deteriorate rapidly or require special cooling or lubrication to
function adequately in tropical zones.
• Manufacturers have found that construction equipment used
in the United States requires extensive modifications to cope
with the intense heat and dust of the Sahara Desert.

different types Pampers

that markets to countries.
7
 Demographic Environment in International
Marketing
• The demographic environment refers to the size,
distribution, and growth rate of groups of people with
different characteristics.
• The demographic characteristics of interest to
marketers because it relate in some way to
purchasing behavior, and people from different
countries, cultures, age groups, or household
arrangements often exhibit different purchasing
behaviors
• A global perspective requires that marketers be
familiar with important demographic trends around 8
Population Estimate —Year 2025

9
The three
largest and
fastest-growing
racial/ethnic
groups in the
US are African
Americans,
Hispanics, and
Asian
Americans

10
 Cultural Environment
• Culture is a set of traditional beliefs and values that
are transmitted and shared in a given society.
• Culture is also the total way of life and thinking
patterns that are passed from generation to
generation.
• Culture means many things to many people because
the concept encompasses norms, values, customs, art,
and mores.
• Culture is one of the things that defines the social
group ones in which we're raised.
• It includes many different types of shared behaviors
and values that are enforced through the socialization
11
 Characteristics of Culture
1. Culture is prescriptive. It prescribes the kinds of
behavior considered acceptable in a society.
• As a result, culture provides guidance for
decision making.
• The prescriptive characteristic of culture
simplifies a consumer’s decision-making process
by limiting product choices to those which are
socially acceptable.
• Smoking, for instance, was once socially
acceptable behavior, but recently it has become
more and more undesirable – both socially and 12
2. Culture is socially shared- Culture,
. out of necessity, must be
based on social interaction and creation.
• It cannot exist by itself. It must be shared by members of a
society.
• For example, at one time Chinese parents shared the
preference of wanting their girl children to have small feet.
• Large feet, viewed as characteristic of peasants and low-
class people, were scorned.
• As a result, parents from the upper class bound a daughter’s
feet tightly so that her feet would not grow large.
nding
i
Foot b

13
 Con…

3. Culture facilitates communication- Culture usually

imposes common habits of thought and feeling
among people.
• Thus, within a given group, culture makes it easier
for people to communicate with one another.
• Yet culture may also impede communication across
groups due to a lack of shared common cultural
values.
• This is one reason why a standardized
advertisement may have difficulty communicating
its message to consumers in foreign countries.
14
‘One size fits all’ marketing by global companies fails in Africa

15
 Con…
4. Culture is learned- Culture is not inherited genetically
– it must be learned and acquired.
• Socialization or enculturation occurs when a person
absorbs or learns the culture in which he or she is
raised.
• In contrast, if a person learns the culture of a society
other than the one in which he or she was raised, the
process of acculturation occurs.
5. Culture is subjective- People in different cultures
often have different ideas about the same object.
• What is acceptable in one culture may not necessarily
be so in another.
16
• In this regard, culture is both unique and arbitrary.
 Con…

6. Culture is enduring- Because culture is shared and

passed down from generation to generation, it is
relatively stable and somewhat permanent.
• Old habits are hard to break, and a people tend to
maintain its own heritage in spite of a
continuously changing world.
7. Culture is cumulative- Culture is based on
hundreds or even thousands of years of
accumulated circumstances.
• Each generation adds something of its own to the
culture before passing the heritage on to the next
generation. 17
 Con…

8. Culture is dynamic- Culture is passed on from

generation to generation, but one should not
assume that culture is static and immune to
change.
• Culture is constantly changing – it adapts itself to
new situations and new sources of knowledge.
• The dynamic aspect of culture can make some
products obsolete and can usher in new buying
habits.
• Japanese tastes, for example, have been changing
from a diet of fish and rice to an accommodation
of meat and dairy products. 18
 Influence of Culture on Consumption
• Consumption patterns, lifestyles, and the priority
of needs are all dictated by culture.
• Culture prescribes the manner in which people
satisfy their desires.
• Hindus and some Chinese do not consume beef at
all, believing that it is improper to eat cattle that
work on farms, thus helping to provide foods such
as rice and vegetables.
• By conforming to the religious beliefs of Islam
that ban alcohol, Moussy has become so
successful in Saudi Arabia that half of its 19
 Con…
• The Japanese eat uncooked seafood
• Ethiopians ----
Not only does culture
influence what is to be
Consumed it also affects what
should not be purchased.

Muslims do not eat pork, and foods

cannot be processed with alcohol

20
 Con…

COMMUNICATION THROUGH NONVERBAL

LANGUAGE
• People do not always communicate solely
through the spoken or written word.
• People routinely communicate with one another
in a nonverbal manner -Body language includes
movement, appearance, dress, facial
expressions, gestures, posture, use of silence,
use of touch---
• Some body language “phrases” (e.g., a smile) are
universal, but other phrases vary in meaning
across cultural lines. 21
 Con…
• Whereas the Japanese view prolonged eye contact
as rude, Americans instead feel that avoidance of
eye contact is impolite.
• In Latino cultures it is also rude to sustain eye
contact
• Indonesians avoid the use of the left hand when
offering food and other objects, as it is regarded as
the unclean hand.

22
 Language of Colour
• Flowers and colours have their own language and
meaning.
• Preferences for particular colours are determined by
culture
• A colour deemed positive and acceptable in one culture
may be inappropriate in another.
• In Spain, red roses are associated more with lust than
with love.
• In France, a dozen as well as thirteen, yellow roses are
inappropriate: yellow suggests infidelity
• Both the colour yellow and the number thirteen are
inappropriate in Latin America where yellow23 is
 Con…
• Yellow is associated with disease in Africa.
• White is an appropriate colour for a wedding gown in the
USA
• White is used for mourning in India, Hong Kong, and Japan
• Americans see red when they are angry, but red is a lucky
colour for the Chinese
• Marketing managers should be careful when using certain
colours since their products because using the wrong
colour can make or break a deal.
• White pens did not fare well in China, where white is the
colour of mourning.
• Green pens suffered the same fate in India, where green is
associated with bad luck 24
 Political Environment
• Multiplicity of Political Environments
• The political environment that multinational
corporations (MNCs) face is a complex one because
they must cope with the politics of more than one
nation.
• That complexity forces MNCs to consider the three
different types of political environment: foreign,
domestic, and international.
• Developing countries often view foreign firms and
foreign capital investment with distrust and even
resentment, owing primarily to a concern over
potential foreign exploitation of local natural
25
Types of Government: Political Systems
• Parliamentary governments consult with citizens from time
to time for the purpose of learning about opinions and
preferences.
• Government policies are thus intended to reflect the desire
of the majority segment of a society.
• Most industrialized nations and all democratic nations may
be classified as parliamentary.
• Absolutist governments, which include monarchies and
dictatorships.
• In an absolutist system, the ruling regime dictates
government policy without considering citizens’ needs or
opinions.
• Frequently, absolutist countries are newly formed nations
26
 Con…

• Many countries’ political systems do not fall neatly

into one of these two categories. Some monarchies
and dictatorships (e.g., Saudi Arabia and North
Korea) have parliamentary elections.
• The former Soviet Union had elections and
mandatory voting but was not classified as
parliamentary because the ruling party never
allowed an alternative on the ballot.
• Another way to classify governments is by the
number of political parties.
• This classification results in four types of
governments: two-party, multiparty, single-party,27
 Con…

• In a two-party system, there are typically two

strong parties that take turns controlling the
government, although other parties are allowed.
• The USA and the United Kingdom are prime
examples.
• The two parties generally have different
philosophies, resulting in a change in government
policy when one party succeeds the other.
• In the USA, the Republican Party is often viewed as
representing business interests, whereas the
Democratic Party is often viewed as representing
labor interests, as well as the poor and disaffected
28
 Con..

• In a multi-party system, there are several political

parties, none of which is strong enough to gain
control of the government.
• Even though some parties may be large, their
elected representatives fall short of a majority.
• A government must then be formed through
coalitions between the various parties, each of
which wants to protect its own interests.
• Countries operating under this system include
Germany, France, and Israel

29
 Con…

• In a single-party system, there may be several parties,

but one party is so dominant that there is little
opportunity for others to elect representatives to
govern the country
• In a dominated one-party system, the dominant
party does not allow any opposition, resulting in no
alternative for the people.
• In contrast, a single party system does allow some
opposition party.
• The former Soviet Union, Cuba, Libya, and China are
good examples of dominated one-party systems.
• Such a system may easily transform itself into a
dictatorship. 30
 Con…

TYPES OF GOVERNMENT: ECONOMIC SYSTEMS

• Economic systems provide another basis for
classification of governments.
• These systems serve to explain whether
businesses are privately owned or government
owned, whether there is a combination of private
and government ownership.
• Basically, three systems may be identified:
communism, socialism, and capitalism.

31
 Con…

• Communist theory holds that all resources should

be owned and shared by all the people (not by
profit-seeking enterprises) for the benefit of the
society.
• In practice, it is the government that controls all
productive assets and industries
• The government determines jobs, production,
price, education, and just about anything else.
• The emphasis is on human welfare.
• Because profit making is not the government’s
main motive, there is a lack of incentive for
workers and managers to improve productivity.
32
 C o n …

• The term centrally planned economies is often used to refer to the former
Soviet Union, Eastern European countries, China, Vietnam, and North
Korea.
• These economies tend to have the following characteristics:
 a communist philosophy,
 an active government role in economic planning,
 a non-market economy,
 a weak economy,
 high foreign debt, and
 rigid and bureaucratic political/economic systems.
• Despite communist countries’ preoccupation with control of industries, it
would be erroneous to conclude that all communist governments are
exactly alike.
• Although the former Soviet Union and China adhered to the same basic
ideology, there was a marked difference between the two largest
communist nations. China has been experimenting with a new type of
communism by allowing its citizens to work for themselves and to keep 33
 Con…

• The degree of government control that occurs

under socialism is somewhat less than under
communism.
• A socialist government owns and operates the
basic, major industries but leaves small businesses
to private ownership.
• Socialism is a matter of degree, and not all socialist
countries are the same.
• A socialist country such as Poland leans toward
communism, as evidenced by its rigid control over
prices, and distribution.
• France’s socialist system, in comparison, is much 34
 Con…

• The philosophy of capitalism provides for a free-

market system that allows business competition and
freedom of choice for both consumers and companies.
• It is a market-oriented system in which individuals,
motivated by private gain, are allowed to produce
goods or services for public consumption under
competitive conditions.
• Product price is determined by demand and supply.
• This system serves the needs of society by encouraging
decentralized decision making, risk taking, and
innovation.
• The results include product variety, product quality,
efficiency, and relatively lower prices. 35
 Political Risks

• There are a number of political risks with which

marketers must contend.
• Actions are more likely to be levied against foreign
investments, though local firms ‘properties are not
totally immune.
• Coca-Cola Co. Managed to re-enter India in 1993,
after being thrown out of the country fifteen years
earlier by India’s socialist government.
• Hazards based on a host government’s actions
include confiscation, expropriation, nationalization,
domestication, and creeping expropriation.
36
 Con….

• Confiscation is the process of a government’s taking

ownership of a property without compensation.
• An example of confiscation is the Chinese
government’s seizure of American property after
the Chinese communists took power in 1949.
• Expropriation differs somewhat from confiscation
in that there is some compensation, though not
necessarily just compensation.
• More often than not, a company whose property is
being expropriated agrees to sell its operations –
not by choice but rather due to some explicit or
implied coercion. 37
 Con…

• Nationalization involves government ownership, and

it is the government that operates the business
being taken over.
• In the case of domestication, foreign companies
relinquish control and ownership, either completely
or partially, to the nationals.
• The result is that private entities are allowed to
operate the confiscated or expropriated property.
• Domestication may sometimes be a voluntary act
that takes place in the absence of confiscation or
nationalization.
• Usually, the causes of this action are either poor
economic performance or social pressures. 38
 Con….

• Another classification system of political risks is the one

used by Root.
• Based on this classification, four sets of political risks
may be identified: general instability risk,
ownership/control risk, operation risk, and transfer risk.
• General instability risk is related to the uncertainty
about the future viability of a host country’s political
system.
• The Iranian revolution that overthrew the Shah is an
example of this kind of risk.
• In contrast, ownership/control risk is related to the
possibility that a host government might take action
(e.g., expropriation) to restrict an investor’s ownership39
 Con….

• Operation risk proceeds from the uncertainty that a

host government might constrain the investor’s
business operations in all areas, including
production, marketing, and finance.
• Transfer risk applies to any future acts by a host
government that might constrain the ability of a
subsidiary to transfer payments, capital, or profit
out of the host country back to the parent firms.
• Governments’ rationale for nationalization varies
widely and includes national interests, vote getting,
prevention of foreigners’ exploitation, and an easy,
cheap, and quick way of acquiring wealth. 40
Indicators Of Political Instability

• To assess a potential marketing environment,

a company should identify and evaluate the
relevant indicators of political difficulty.
• Potential sources of political complication
include social unrest, the attitudes of
nationals, and the policies of the host
government.

41
 Management Of Political Risk
• To manage political risk, an MNC can pursue a
strategy of either avoidance or insurance.
• Avoidance means screening out politically
uncertain countries.
• In this, measurement and analysis of political risk
can be useful.
• Insurance, in contrast, is a strategy to shift the
risk to other parties.

42
 Measures To Minimize Political Risk
• Political risk, though impossible to eliminate, can at the very
least be minimized.
• There are several measures that MNCs can implement in order
to discourage a host country from taking control of MNC assets.
1. Stimulation of the local economy
• One defensive investment strategy calls for a company to link
its business activities with the host country’s national economic
interests.
• One strategy may involve the company purchasing local
products and raw materials for its production and operations.
• By assisting local firms, it can develop local allies who can
provide valuable political contacts.
• A modification of this strategy would be to use subcontractors.
43
 2. Employment of nationals
• Frequently, foreigners make the simple but costly
mistake of assuming that citizens of less developed
countries are poor by choice.
• It serves no useful purpose for a company to assume
that local people are lazy, unintelligent, unmotivated,
or uneducated.
• Such an attitude may become a self-fulfilling
prophecy.
• Thus the hiring of local workers should go beyond
the filling of labor positions.
• Firms should also carefully weigh the impact of
automation in a cheap-labor, high-unemployment 44
 Con….
• An inability to automate production completely
does not necessarily constitute a negative for
MNCs.
• MNCs may gain more in less developed countries
by using “intermediate technology” instead of
the most advanced equipment.
• Intermediate technology, accompanied by
additional labor, is less expensive, and it
promotes goodwill by increasing employment.

45
 3. Sharing Ownership
• Instead of keeping complete ownership for itself,
a company should try to share ownership with
others, especially with local companies.
• One method is to convert from a private to a
public company or from a foreign to a local
company.
• One of the most common techniques for shared
ownership is to simply form a joint venture.
• Any loss of control as a result can, in most cases,
be more than compensated for by the derived
benefits. 46
 4. Being civic minded
• MNCs whose home country is the USA often
encounter the “ugly American “label abroad and
this image should be avoided.
• It is not sufficient that the company simply does
business in a foreign country; it should also be a
good corporate citizen there.
• To shed this undesirable perception,
multinationals should combine investment
projects with civic projects.
• Corporations rarely undertake civic projects out of
total generosity, but such projects make economic
47
 5. Political neutrality
• For the best long-term interests of the company, it is
not wise to become involved in political disputes
among local groups or between countries.
• A company should state clearly but discreetly that it is
not in the political business and that its primary
concerns are economic in nature.
6. Behind-the-scenes lobby
• Much like the variables affecting business, political
risks can be reasonably managed.
• Companies as well as special interest groups have
varying interests, and each party will want to make its
own opinion known. 48