Chapter one
Concepts of international marketing
Definitions and distinctions
International marketing involves
conducting business activities across multiple countries to plan, price,
promote, and distribute goods and services for profit.
Domestic marketing relates
to the marketing efforts and strategies implemented within a marketer's country
of origin. Its primary objective is to comprehend and fulfill the requirements
and desires of customers within the local market.
Ø International
marketing faces unfamiliar challenges and requires diverse
strategies to navigate uncertainties in foreign markets. Factors such as
competition, legal restraints, government controls, and consumer behavior can
significantly impact the success of marketing plans.
Ø While marketing principles remain universally
applicable, the marketer must adapt to different environments to achieve
marketing objectives. International marketing aims to address global customer
needs and can involve companies operating overseas or across national borders.
Domestic vs. International Marketing
1. Domestic
market
Ø No problems of exchange controls, tariffs
Ø Relatively stable business
Ø Minimum government interference in business decision
Ø Data in marketing research available, easily
collected, and accurate etc.
Ø One language, one nation, one culture
Ø Market is much more homogeneous
Ø Single currency
2. International
Markets
Ø Many languages, many nations, many cultures
Ø Markets are diverse and fragmented
Ø Multiple currencies
Ø Exchange controls and tariffs normal obstacles
Ø Multiple and unstable business environments
Ø Due to national economic plans government influence
usual in business decisions
Ø Marketing research very difficult, costly and cannot
give desired accuracy, etc.
Export marketing vs. international
marketing
Export marketing
Ø It refers to the management of marketing activities
for products that cross national boundaries.
Ø It involves the process of selling of goods and
services to foreign markets, following the procedures and formalities set by
both the exporting and importing countries.
Ø Exporters need to comply with various documentation
requirements, such as shipping bills, consular invoices, and certificates of
origin.
Ø Export marketing can be more complex than domestic
marketing due to international restrictions, global competition, and the
lengthy procedures involved.
Ø However, it also presents opportunities for earning
profits and valuable foreign exchange, and it contributes to economic
development, business growth, and resource utilization in the exporting
country.
Ø Exporting is one aspect of international marketing
International marketing
Ø International marketing is a comprehensive field
that encompasses various activities and strategies aimed at making products or
services reach international markets.
Ø It is a broader concept that encompasses all aspects
of marketing in the global context. It includes not only exporting but also
other modes of entry into foreign markets, such as joint ventures, mergers and
acquisitions, licensing, and strategic alliances.
Ø International marketing covers a range of topics,
including market research, product adaptation, pricing strategies, distribution
channels, promotional activities, branding, and cultural considerations.
Ø It focuses on the challenges and barriers faced by
businesses and marketers when conducting trade internationally.
Ø The
goal of international marketing is to effectively reach
and serve customers in different countries while considering the unique
characteristics and requirements of each market.
Benefits of international trade
1.
Meeting Industrial Imports: Developing
countries can meet their industrial needs by importing capital equipment, raw
materials, and technical know-how, which are crucial for rapid
industrialization and infrastructure development.
2.
Debt Servicing: Sufficient
export earnings can help cover both imports and debt servicing, especially for
underdeveloped countries that receive external aid for industrial development.
3.
Rapid Economic Growth: Expanding
export trade can drive a country's development process by utilizing domestic
resources, improving technology, and achieving improved production at lower
costs.
4.
Utilization of Idle Resources: International
marketing allows for the full utilization of idle resources, leading to increased
productivity and economic growth.
5.
Profitable Use of Natural Resources: Export earnings can be used to establish
industrial units based on the country's natural resources by importing
necessary plant and machinery.
6.
Successful Competition: International
marketing encourages producers to offer better quality products at lower
prices, improving their reputation and the country's image in the minds of
foreign customers.
7.
Increased Employment Opportunities: Export-oriented
industrial units create employment opportunities, addressing the serious issue
of unemployment and underemployment in underdeveloped countries.
8.
Contribution to National Income: Exports
play a significant role in a country's national income and can be increased
through organized export marketing efforts.
9.
Improved Standard of Living: Export marketing improves the standard of living
by allowing for imports of necessary consumption items, increasing employment
opportunities and purchasing power, promoting rapid industrialization, and
providing better quality products at lower prices.
10. International
Collaboration: Export marketing leads to international
collaboration, as countries establish import quotas and develop trade
relations.
11. Closer
Cultural Relations: International trade fosters closer cultural
relations between countries, enhancing understanding and cooperation.
12. Political
Peace: Economic relations through international marketing
can contribute to improved political relations between countries.
Barriers for international trade
1. Tariff: A
tax imposed on a product entering a country.
·
Purpose: Tariffs
are used to protect domestic producers and/or to raise revenue.
·
Example: Japan
imposes a high tariff on imported rice.
2. Import Quota: A
limit on the amount of a particular product that can be brought into a country.
·
Purpose: Similar
to tariffs, quotas are intended to protect local industry.
3. Unstable Governments: High
in debt-ness, high inflation, and high unemployment in several countries result
in unstable governments.
·
Impact: Unstable
governments expose foreign firms to business risks and hinder profit
repatriation.
4. Foreign Exchange Problems:
High in debt-ness, economic, and political instability decrease the value of a
country’s currency.
·
Impact: Profit
repatriation for foreign firms becomes challenging in many markets.
5.
Foreign
Government Entry Requirements and Bureaucracy:
·
Challenges:
Governments impose regulations on foreign firms, such as requirements for joint
ventures, hiring a specific number of nationals, and limits on profit
repatriation.
6. Corruption: Officials
in several countries require bribes for cooperation, impacting fair business
practices.
·
Impact: Business
may be awarded to the highest briber rather than the lowest bidder.
7. Technological Pirating: Companies
establishing plants abroad worry about foreign managers learning how to make
their products and potentially competing openly.
·
Examples:
Machinery, electronics, chemicals, pharmaceuticals.
Characteristics of multinational firm
A global industry refers
to an industry where the competitive positions of major market players are
significantly influenced by their overall global presence.
A global firm is
a company that operates in more than one country and leverages various
advantages in research and development, production, logistics, marketing, and
finance.
There are three dimension of
multinational company (MNC)
1.
Structural: The
structural requirements for defining an MNC include the number of countries in
which the firm does business and the citizenship of corporate owners and top
managers.
2.
Performance: The
performance characteristics of an MNC include earnings, sales, and assets.
These indicators show the extent of the firm's commitment of resources to
foreign operations and the rewards gained from that commitment.
3.
Behavior: Behavior
is an important aspect of MNCs. There are three orientations that define
behavior:
A.
Ethnocentricity:
is a strong orientation toward the
home country. It reflects the belief that the home country's markets and
consumers are superior, and there is a tendency to view foreign markets as
unfamiliar, inferior in taste, sophistication, and opportunity.
·
Characteristics:
Ø Centralized
Decision-Making: Decision-making is centralized at the home base.
Ø Standardized
Products: The usual practice is to produce standardized
products for export without significant modification in order to gain marginal
some business.
B.
Polycentricity: is
the opposite of ethnocentricity, emphasizing a strong orientation to the host
country. It recognizes and values the differences between markets due to
variations in factors such as income, culture, laws, and politics.
·
Characteristics:
Ø Host
Country Emphasis: The attitude
places emphasis on the uniqueness of each host market.
Ø Managers from the host country are employed and
given significant discretion in decision-making.
Ø Decentralization: There
is a significant degree of decentralization across overseas divisions.
C.
Geocentricity:
represents a compromise between
ethnocentricity and polycentricity. It is an orientation that considers the
whole world as the target market, rather than any specific country.
·
Characteristics:
Ø Denationalized
Approach: A geocentric company is often described as
denationalized or supranational.
Ø The company does not designate anything as
international or foreign about a market.
Ø Decision-making and strategies are guided by a
global perspective, and there is a lack of emphasis on national boundaries.
International product life cycle
The international
product life cycle concept is an extension of the domestic product life cycle,
taking into account the different stages a product goes through in
international markets. The international product life cycle consists of the
following stages:
1.
Introduction: In
this stage, the product is launched into the international market through a
full-scale marketing program. This stage is characterized by high costs and
risks as the company seeks consumer acceptance.
2.
Growth: During
the growth stage, sales and profits increase rapidly as the product gains
market acceptance. Competitors may enter the market attracted by the profit
potential. However, towards the end of this stage, profits may start to decline
due to increased competition.
3.
Maturity: In
the maturity stage, sales continue to increase, but at a decreasing rate. Price
competition becomes intense, leading to declining profits for producers and
middlemen. Marginal producers with higher costs may be forced to exit the
market.
4.
Decline: The
decline stage occurs when the demand for the product decreases, often due to
factors such as the emergence of better or less expensive alternatives,
changing consumer preferences, or the obsolescence of the product. Sales volume
for the product category declines and some products may disappear from the
market.
Challenges of
International Marketing:
1. Political and Legal
Differences:
2. Economic Differences:
3. Currency Unit Differences:
4. Cultural Differences:
5. Language Differences:
6. Marketing Infrastructure
Differences:
7. Trade Restrictions:
8. High Costs of Distance:
9. Differences in Trade
Practices:
10. Risks and Uncertainties:
International trade concepts
International trade is
concerned with the flow of goods and capital across national borders. There are
several theories that explain international trade:
1.
Absolute advantage theory:
The principle of absolute advantage explained
by Adam Smith, states that a country should specialize in producing and
exporting goods in which it has an absolute advantage, meaning it can produce
them at a lower cost compared to other nations. Conversely, it should import
goods that it produces at a higher cost than other nations.
Ø Example The
USA excels in computer production (20 units) compared to Japan (10 units),
indicating an absolute advantage. Japan, in turn, has an absolute advantage in
producing automobiles (20 units) versus the USA's 10 units. According to the
principle of absolute advantage, trade is beneficial; the USA should export
computers, and Japan should export automobiles. This specialization optimizes
resource efficiency, enhancing overall consumer welfare in both countries.
2. Comparative
theory
The principle of comparative advantage suggests
that a country should focus on specializing in the production and export of
goods in which it has a comparative advantage or lower production costs
compared to other countries.
Ø On the other hand, it should import goods in which
it has a comparative disadvantage or higher production costs. This approach
allows countries to optimize their production and trade patterns, leading to
increased efficiency and overall economic welfare.
Balance of payment
The balance of payments (BoP) is
a record of all international transactions in goods, services, and assets that
a nation engages in over a specific period, typically one year.
Ø It serves as the international balance sheet of a
country and is an essential component of the International Transactions Accounts
in national statistical data.
The BOP is similar to a
balance sheet used by companies, as it tracks various transactions such as the
purchase and sale of goods, assets, and services.
Ø It is maintained on a double-entry bookkeeping
system, ensuring that the BoP always remains in balance. The BoP provides
insights into a country's overall economic health and whether it is in debt or
credit with the rest of the world.
Foreign exchange
Ø The exchange rate is the price of one currency
expressed in terms of another currency.
Ø The foreign exchange (FX or FOREX) market is where
exchange rates are determined.
Ø Exchange rates serve as mechanisms tying together world
currencies in the global marketplace, indicating the price of one currency in
terms of another.