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Chapter 2
International Marketing Environment
International MarketingChapter-2 International Marketing
Environment
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Learning Objectives
What are the important environmentfactors
Commodity agreements
State trading Intra-regional trade
European Union Role of GATT/WTO
Uruguay round and featuresInternational Marketing
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Introduction
It is the differences in the marketingenvironment which may make theinternational business strategy differentfrom the domestic one
Business environment is very important
determinant of business strategy
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Social Environment
The social environment encompassingthe religious aspects; language;customs, traditions and beliefs, tastesand preferences, social stratification,social institution , buying and
consumption habits etc. Social environment of different markets
differ vastly International MarketingChapter-2 International MarketingEnvironment
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Demographic Environment
Size of population, population growthrates, age composition, family size,nature of the family, income levels etc
have very significant implications forbusiness
The size of the population is animportant determinant of demand for
many productsInternational MarketingChapter-2 International MarketingEnvironment
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Political and Government
Environment
The political environment includes thecharacteristics and policies of thepolitical parties, the nature of the
constitution and government systemand policies
Regulation of the quality, prices,packaging labeling etc. is also very
common International MarketingChapter-2 International MarketingEnvironment
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International Trading
Environment Trade Barriers
The main objective of imposing tradebarriers are to protect domesticindustries from foreign competition.
After the second world war, there wasa progressive liberalization of trade by
the developed countries.
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Tariffs
Tariffs in international trade refer to theduties or takes imposed oninternationally trade goods when they
cross the national borders
India has had one of the highest tariff
walls in the world
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Non-Tariff Barriers
NTBs are new protection measures There are tow categories
Licensing, quota etc. are used bydeveloping countries
Developed countries are using Voluntary
Export Restrains
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Licensing
Quota regulations are generallyadministered by means of licensing
Under the import licensing system, theprospective importers are obliged toobtain a license from the licensing
authorities: the possession of an importlicense is necessary to obtain the
foreign exchange to pay for the importsInternational MarketingChapter-2 International MarketingEnvironment
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Voluntary Export Restraints
VERs are bilateral arrangementsinstituted to restrain the rapid growth ofexports of specific manufactured goods
The exporting country voluntarilyrestrains the export of the specified
product in order to either help the othercountry to reduce its trade deficit or to
protect domestic industryInternational MarketingChapter-2 International MarketingEnvironment
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Administered Protection
Administration protection encompasses awide range of bureaucratic governmentactions, which have grown in absolute as
well as relative importance over the lastdecade or more
More recent VERs are in fact regarded asthe outgrowth of administered protectionactions
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Customs procedures Consular formalities
Government procurement State trading
Monetary control Environmental protection laws
Foreign exchange regulationsInternational MarketingChapter-2 International MarketingEnvironment
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Impact of NTBs
Affects many exporting countriesApparel exports is the most affected of
the developing countries because ofsuch barriers
Causes diversion of production and
exports
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NTBs and Indias Exports
NTBs prevent the industry from makingfull use of technological potential andeconomies of scale for garment firms in
India.
The problem for NTBs for Indian
exports has increased recently
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Commodity Agreements
International Commodity Agreements areinter-governmental arrangementsconcerning the production of , and trade
in, certain primary products with a view tostabilizing their prices.
In its final act, the UNCTAD-I made acomprehensive statement on the functionsinternational commodity agreements
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Quota Agreements
International quota agreements seek toprevent a fall in commodity prices byregulating their supply
Quota agreements have already beentried in case of coffee and sugar, and
commodities like tea and bananas havebeen suggested as prospectivecandidates for new agreements
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Buffer Stock Agreements
International buffer stock agreementsseek to stabilize commodity prices bymaintaining the demand-supply balance
The buffer pool method has alreadybeen tried in case of tin, cocoa, and
sugar, and commodities like rubber, teaand copper has been suggested asprospective candidates for newagreements
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Bilateral/Multilateral Contracts
Bilateral contract to purchase and sellcertain quantities of a commodity atagreed prices may be entered into
between a major importer and exporterof the commodity.
The best known example of this type ofcommodity agreement is theInternational Wheat Agreement
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Cartels
International cartels are agreementsbetween producer located in differentcountries or between governments of
countries to restrict competition.
Examples include the Organization of
Petroleum Exporting Countries (OPEC)and International Air Transport
Association (IATA)International Marketing
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State Trading
State trading means import and exporttransactions of a state owned or statecontrolled agency involving purchase of
goods for commercial resale.
Recently ,developing countries have
significantly reduced the role of statetrading
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State Trading in India
Objectives
o help reduce the difficulties experiencedin expanding trade with centrally plannedcountries
o help maintain quantitative regulationof imports and some equilibrium in thprices of commodities and indigenou
products o provide developmental finance fo
organized production and boost exports o
small scale sectorInternational MarketingChapter-2 International MarketingEnvironment
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Canalisation
Canalisation means established of statemonopoly in foreign trade
Most of the objectives of state tradingmentioned earlier are also theobjectives canalisation
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d l d
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Trading Blocs and Growing
Intra-Regional Trade
An important trend in internationaltrade has been the growth of intra-regional trade
Regional integration schemes tend toincrease intra-regional trade
There is a worldwide trend towardsforming new regional arrangements and
to strengthen the existing onesInternational MarketingChapter-2 International MarketingEnvironment
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Forms of Economic Integration
Free Trade Area Customs Union
Common Market Economic Union
Economic Integration
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European Union
EU is the most successful of theregional economic integration schemes
THE EEC which originally comprised sexnations, namely, Belgium, France,Federal Republic of Germany, Italy,
Luxembourg and Netherlands wasbrought into being on 1st January,1958,by the Treaty of Rome, 1957
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The Treaty of Rome required every member
country to Eliminate tariffs, quotas and other barrier on intra-
community trade
Devise a common internal tariff on imports fromrest of the world All the free movement of factors of production
within the community Harmonize their taxation and monetary policies
and social security policies Adopt a common policy on agriculture, transport,
and competition in IndustryInternational Marketing
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The Euro
Euro, the common currency of the EU,was launched by 11 members of theUnion, on January 1, 1999.
The Monetary policy decisions for theEuro are made by the European Central
Bank(ECB), which along with NationalCentral Banks(NCBs) of all EUmembers.
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Implications of Euro for India
The Euro land accounts for about one-fifth of Indias foreign trade
Indian businessmen benefit, like theircounterparts in other countries , formthe benefits of a single currency instead
of many Large opportunities are emerging in the
computer software field.International MarketingChapter-2 International MarketingEnvironment
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Indo-EU Trade
The EC, taken as a single unit, is Indiaslargest partner.
The EEC accounts for more than a one-fifth of Indias total foreign trade
The EC is a very potential market and
India should pay sufficient attention totaking advantage of this enlarging
market International MarketingChapter-2 International MarketingEnvironment
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Other Regional Groupings
The European Free TradeAssociation(EFTA),brought into being bythe Stockholm Convention , 1960
Latin American Free Trade Area-LAFTA
The Australia New Zealand Closer
Economic Relations Trade Agreement North American Free Trade Agreement
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Other Regional Groupings
Central American Common Market CACM
Gulf Cooperation Council
Preferential Trade Area
The Economic Community of Central
African States- CEEAC
The Association of South East Asian
Nations-ASEANInternational MarketingChapter-2 International MarketingEnvironment
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SAARC
South Asian Association for RegionalCooperation
SAARC involves seven countries namely, India, Bangladesh, Pakistan, Nepal ,Bhutan, Sri Lanka and Maldives.
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SAPTA
SAARC Preferential Trading Agreement
Basic Principles Overall reciprocity and mutuality of
advantages Step-by-step negotiations and extension of
PTA
Inclusions of all types of products Special and favorable treatment to Least
Development CountriesInternational Marketing
Chapter-2 International MarketingEnvironment
Indo Lanka Free Trade
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Indo-Lanka Free Trade
Agreements
India has offered to permit as much as1000 items of zero duty from Sri Lankaand Sri Lanka will allow duty free
imports of 900 items from IndiaAs India is a very large market, the FTA
is likely to benefit Sri Lanka a lot an thebenefits to India
International MarketingChapter-2 International Marketing
Environment
GATT/WTO and Trade
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GATT/WTO and Trade
Liberalization
The desire of nations to liberalize traderesulted in the establishment of theGeneral Agreement on Tariffs and
TradeAs a result of Uruguay Round the GATT
was transformed into a World TradeOrganization (WTO) with effect fromJanuary , 1995
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India is one of the founder members ofthe IMF, World Bank, GATT and theWTO
The primary objective of GATT was toexpand international trade by
liberalizing trade so as to bring aboutall-round economic prosperity.
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GATT-Principles
1.
Non-discrimination2. Prohibition of Quantitative Restrictions
3. Consultation
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8th Uruguay Round
1.
Reducing specific trade barriers andimproving market access
2. Strengthening GATT disciplines
3. Problems of liberalization of trade inservices, trade related aspects of
intellectual property rights(TRIPS) andtrade related investment
measures(TRIMs)International MarketingChapter-2 International MarketingEnvironment
Differences between GATT and
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WTOGATT
Ad hoc and provision Contracting parties
Allowed existing domestic
legislation to continueeven if it violated a GATTagreement
Less powerful, disputesettlement system wasslow and less efficient, itruling could be easilyblocked
Agreements arepermanent
Has members
Does not permit this
More powerful , disputesettlement mechanism isfaster and more efficient,
very difficult to block therulings
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WTO
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Understanding on rules and proceduresgoverning the settlement of disputes
Administration of the Trade Review
Mechanism
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Environment
Salient Features of UR
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Salient Features of UR
Agreements Tariff Barriers
Expansion of tariff bindings
Reduction in the tariff rates
Expansion of duty-free access Agricultural trade
Tariffication
Tariff binding Tariff cuts
Reduction in subsidies and domestic supportInternational Marketing
Chapter-2 International MarketingEnvironment
General Agreement on Trade
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General Agreement on Trade
in Services-GATS
Extends multilateral rules anddisciplines to services is regarded aslandmark achievement of the UR
The GATS defines services as thesupply of services
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Coverage of GATS
Cross-border supply Commercial presence
Consumption abroad
Movement of personnel
International MarketingChapter-2 International Marketing
Environment
Trade Related Investment
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Trade Related Investment
Measures(TRIMS)
TRIMS refers to certain conditions orrestrictions imposed by a government inrespect of foreign investment in the
country. Local content requirement
Trade balancing requirement Trade and foreign exchange requirements
Domestic sales requirementsInternational Marketing
Chapter-2 International MarketingEnvironment
Trade Related Aspects of Intellectual
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Trade Related Aspects of Intellectual
Property Rights(TRIPS)
Intellectual Property Rights may bedefined as information with acommercial value
IPRs may be legally protected bypatents, copy rights, industrial designs,
geographical indications, and trademarks.
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Coverage of TRIPS
Copyright and related rights
Trade mark
Geographical indications
Industrial designs
Patents
Layout designs
Undisclosed informationInternational Marketing
Chapter-2 International MarketingEnvironment
Indian Patent Law and UR
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Agreement There are significant differences between the
UR agreement on patents and the IndianPatent Act, 1970
Under the Indian act, patentability of inventions
relating to substances intended for use as food,drug or medicines, or substance produced bychemical processes is limited to the methods or
processes of manufacture only. While as per UR requires both product and
process patents
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Anti-dumping Measures A product is regarded as dumped when its
export price is less that the normal price inthe exporting country or its cost ofproduction plus a reasonable amount for
administrative , selling and any other costsand for profits Anti-dumping measure can be employed
only if dumped imports are shown tocause serious damage to the domesticindustry in the importing country
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Safeguard Actions Members may take safeguard actions, i.e.
import restrictions to protect a domesticindustry from the negative effect of an ununforeseen import surge, if a domestic
industry is threatened with serious injury Safeguard measures would not be
applicable to developing countries where
their share in the member country'simports of the product concerned isrelatively small
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Implementation Issues The developing countries are virtually
deceived in several cases as the URAgreement have not been implemented
in letter and spirit by the developedcountries .
They have resorted to covert measuresto deny the developing countries thelegitimate benefits of the proposed
liberalizations. International MarketingChapter-2 International MarketingEnvironment
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Doha Declaration The Doha Declaration comprising of a
main Declaration on TRIPS, PublicHealth and a decision on
implementation of related issues andconcerns-launches the future work
program me of the WTO and includeselaboration and timetables for thecurrent negotiations in agriculture and
services in a range of other issuesInternational MarketingChapter-2 International MarketingEnvironment
United Nations Conference on
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Trade and Development To promote international trade
To formulate principles of and policieson international trade and related
problems of economic development
To negotiate multinational trade
agreements To make proposals for putting its
principles and policies into effect.International MarketingChapter-2 International MarketingEnvironment
United Nations Industrial
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United Nations Industrial
Development Organization-UNIDO
Direct technical assistance to industriesand in-plant training programmeswhereby groups of technicians and
engineers from developing countriesfacing a common industrial problem are
brought together to consider, howindustry in the more advanced countriesavoid or solves similar problems
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International Trade Centre ITC can advise developing countries on
their overall approach to marketingcommunications , as well as on
individual information and publicityactivities
ITC in brief assistances in marketingareas to member countries
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Environment
International Legal
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Environment The legal systems that exist in different
countries can be classified into threecategories, viz, common law, civil law
and theocratic law
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Settlement of Disputes Disputes are not uncommon in
international trade. Disputes of certainnature are settled by the WTO or in
accordance WTO principles In other cases there are two avenues
Judicial dispute settlement Extra-judicial dispute settlement
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Laws of Foreign Countries Regulations related products
Packing and labeling regulations
Regulation of price
Regulation of promotion
Regulation of trade practices
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Summary The environmental factors which affect
international business involvedeconomic , social, demographic, political
, government and technologicalenvironments
Trade barriers , blocks and agreementsplays vital role in international trade
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