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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

Chapter-2 International MarketingEnvironment


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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


Environment


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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.


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


Environment

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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


Environment


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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


Environment


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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.


Environment


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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


Environment


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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.


Environment


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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


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


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


Environment


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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.


Environment


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GATT-Principles

1.

Non-discrimination2. Prohibition of Quantitative Restrictions

3. Consultation


Environment


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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


Environment

WTO


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Understanding on rules and proceduresgoverning the settlement of disputes

Administration of the Trade Review

Mechanism


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


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


Environment


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Coverage of GATS

Cross-border supply Commercial presence

Consumption abroad

Movement of personnel


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


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.


Environment


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Coverage of TRIPS

Copyright and related rights

Trade mark

Geographical indications

Industrial designs

Patents

Layout designs

Undisclosed informationInternational Marketing


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


Environment


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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


Environment


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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


Environment


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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


Environment


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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


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

International MarketingChapter-2 International MarketingEnvironment


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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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