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International trade- need for trade All countries are not gifted with same production
facilities, there are differences in resource base,
geographic location, labor supply etc.
International trade helps more effective use of global
resources ( buyers find foreign markets cheaper to buy
and sellers find it more profitable to export their produce
outside domestic market).
Trade allows a country to specialize in production and
export of a commodity-leads to higher efficiency and
price drop( gains from trade) .
Domestic demand may be limited in a year, while
production increases-leading to high stock. This stock can
be exported to enhance export balance & foreign
exchange.
No single nation can produce all for its survival, trade is
the only solution.
Japan exports cars to U S, US exports bulldozers to
Saudi and Saudi exports oil to Japan-this is multilateral
trade.
Scope of international marketingSeveral reasons to seek business opportunity elsewhere in the
world.1.Market saturation: consumer goods (TVs,cars, freeze. w/mc)
already outnumber u.s. households. Slow growth of US.
population. Hence co. must develop new markets to operate
successfully. International market where market saturation
is a distant threat is only alternative.
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Cigarette sale in USA third world (Indonesia/ Kenya)
lesser restriction in LDC , no restriction on TV. / Radio /
paper ad.
2. US. trade deficit : US. business face regular trade deficit,declining exports and BOP problem .
- For US marketers, rising pacific power holds a threat and
promise . Threat-- increased competition for sales and
market share at home / abroad. Promise --as wealth grows
for agrarian LDCs and Asian , they expand business
possibilities for us goods . (KFC, Coca cola, PepsiCo ,Kodak,levis) in Asia and Latin America . Population of third world
of growing, adding more to potential buyers .
Few new industries are global at birth - robotics, videodisks,
fiber optics, satellite network ,artificial diamonds , computer
hardware .
5. Opportunity via foreign aid : us foreign aid program for
developing countries during 1960s provided billions of
dollars to undertake program of economic build-up , but
aid recipients spend us money on goods and services from
us corporations . Thus foreign aid money created new
markets in LDCs .
6. Other reasons : (a) in industries where economics of scale
are feasible , a large market is essential . if home market is
not large , then international mktg is only alternative .
Advantages of international. mktg
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(a) International business provides a safety net during
recessions. During US recession , multinationals shifted
marketing focus to middle east .
(b) Lesser labor cost in third world countries. So it iseconomically attractive to expand foreign operation . labor
cost account for half of cost of TV & computer sets (young
ladies do this ) assembling . So HP, Intel, ITT had gone as
far as Malaysia to save labor cost and earn higher
profits .
(c) For developing and testing new products outside us to
avoid exposure , keep secrecy .
(d) Many international markets are less competitive than us
market .
(e) Finally international presence gives higher access to
advance in technology frontier , access to raw material ,
R&D, international economic groups linkage.
Absolute advantageAdam smith observed the need for trade in his book wealth of
nations.
A country should export a commodity that can be produced at
a lower cost than can other nations converse is the case of
import.
Consider the case of USA and Japan for PCs and cars(Given
L&K).
US can produce 20 computers but 10 cars. In contrast
Japan can produces 10 computers but 20 cars.
So USA is more efficient in producing computers with better
skills.
It has absolute adv in making computers. Oppositely it has
absolute disadvantage in making car.
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Japans case is just the reverse.
If both can now specialize in the product it has absolute adv,
then both are gainer
Since US can make computers with less resources, so it will
only specialize in PCs for home and export to japan but importcars from japan. Japan will do the reverse.
Relative advantage
The earlier theory never tells if trade will take place if one
country(say USA) has absolute adv in both products. And the
other having disadvantage in both.
Apparently it appears that USA has nothing to gain from
trade.
product USA JAPAN
PC 20 10
car 30 20
Ricardo observed that relative costs are more important, not
absolute costs. This is called comparative adv.
This is done by ratio of PCs to cars. For USAThe adv ratio of PCs is 2:1(20:10) in favor of USA, but
This adv ratio is less for cars 1.5:1(30:20).
These ratios indicate USA has 100% adv over Japan for PCs
but only 50% adv in cars.
Political & Legal Environment-3 Dimensions
Home country environment.
Host country environment.
General international environment.
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Home country environment: example is South Africa (Home
countrys political pressures forced US / German firms to
leave South Africa). When Japan became South Africa's
leading trading partner then Japanese Govt. was extremely
embarrassed.Third country marketing :A firm having no problem with
home Govt. or South African Govt. , could be bothered /
boycotted due to their South African operation in a third
country (USA/ Germany ). European firms face same
problem in USA if they do trading in Cuba.
Bribery / Kick Back / Corruption: Some Govts may restrict
global marketing due to bribery and corruption. In many
countries favors are a way of life, in others it is unethicaleven criminal offence. Global Marketers must carefully
distinguish between reasonable ways of doing business
internationally- including adaptation with foreign
expectation and bribery & corruption.
General and political environment
Political Risk: Applicable to all the countries. Risk lowest in
countries with a history of stability & consistency. 3 types
risks -
1. Ownership risk - Exposes life & property.
2. Operating risk Interference with companys existing
operation.
3. Transfer risk - Interference while transferring capital.
General International (Political) Environment: Apart from
home country & host country relation, international firmbecomes somewhat involved with host countrys
international relation (in spite of its neutrality ). So apart
from bilateral relations even multilateral agreements
influencing relations among groups is important.
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Regional group: When country is a member of regional group
SAARC, EU, OPEC. This influences firms evaluation of the
host country. There may be a particular friend/enemy even
within the group.
International Group: Other factor is membership of
international organization like IMF/World bank who may
provide loan but puts restrictions on countrys trade /
marketing (patent, transport, payment, communications).
General and political environment
More membership of international body - more acceptances ofregulations.
Political risk analysis method - ratio of the return to risk.
1. Assess issues of relevance and the magnitude of their
importance to the firm (for one firm shifting profits and
policies relating to that, tax law etc. may be important. For
other, product quality and policies & changes relating to
labor law, technology, pollution that may be highest
concern).
2. Assess political instability & effects of severe depression-
Try to assess sequence of political events not a single event.
Instability in Russia replacement of Yeltsin comes Putin
,Treaty with India - effect on trade/tax/visa.
Entry strategies
Different strategies 1) Exporting-a. co. can minimize the risk of dealing
internationally by exporting domestically manufactured
items.
Adv- capital requirement minimum, easy to initiate and
good for gaining experience.
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2) Contractual agreement :
a) Patent licensing agreement : based on either a fixed fee or
a royalty basis and includes managerial training.
b) Turnkey operations: based on a fixed fee or cost plus
arrangement and include plant construction, training and
production trial run.
c) Co-production agreement: followed in socialist nations.
Plants are built and then paid for with (part) of output.
d) Management contracts : used in middle east . An MNCprovides key personnel to operate foreign co for a fee till
local people gain the ability to manage independently.
e) Licensing:it encompasses a variety of contractual
agreement whereby a multinational marketer makes
available tangible assets like patents, trade know-how,
trademark, co. name etc. to foreign cos in return for
royalties.
Advantages
i) Needs little capital but gives easy and quick entry.
ii) In communist countries licensing is only way of entry.
Gives life extension for products on maturity stage.
It is good alternative to foreign production and mktg. when
there is global inflation, skilled labour shortage, growing
govt. regulation and international though competition.
v) Licensing royalties are guaranteed and periodic.vi)Domestically based firms benefit from product
development abroad without research expense.
vii) When export not profitable due to competition, then it is
alternative.
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viii) Help overcome high transport cost.
ix) Licensing is immune to expropriation.
Disadvantages :-
i) Licensor has no control over prodn / mktg by licensee.ii) Licensing royalties are low (less than 5% due to govt.
restrictions) .
iii) Licensee may lose interest in renewing contract unless
there is new tech / innovation .
iv) To all are licensees a firm must have distinctive brand
name, tech , trade mark etc .
3) Joint venture :
Represents a higher risk alternative because it needs
various levels of direct investment . when a firms moves
beyond the exporting stage to a more regular overseas
involvement then jv is most common form of entry . these
are designed to take advantage of strong functions
(management , R&D ,Mktg ) .
Major problem of j.v. is there is more than one partner and one of
the partners should play a key role .
Advantages
Saving tech helps devloping nations by j.v.
Saving risk risk saved by partners (good for politically
sensitive areas) .
preferred treatment presented by govt. since locally
controlled .
Easier access to mkt &mkt information .
raw material use - countries with oil / mining do not allow
foreign firms but allows j. v.
4) Manufacturing :
An MNC can establish itself in overseas mkt by direct
investment in mafg / assembly subsidary . due to volatility
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of social / econ / political condition it is risky . cull in
Bhopal suggested that an mnc should not manufacture
overseas where risk of a mishap may jeopardize the
survival of total enterprise . factory risk relates to 5
factors
a) Type of product .
b) Econ / political factors (business in pakistan)
c) Firms competitive position , products life cycle .
d) Dynamic capital budgeting - cost and availability.
e) Distance between firms decision makers and target
customers .
Contract manufacturingOnly possible only when firm can locate a foreign produce
with capacity to produce
the product in satisfactory quantity &quality.
Enables firm to avoid labor& legal problems in an unknown
country.
Firm can advertise its products being locally made.
If mktg is too small/risky it is easier to terminate contract than
to shutdown plant.
Saving transportation costs& lower prodn Cost outside.
It is profitable if firm is strong in mktg than manufac.
Disadv :
Difficult to find good manufacturer.
Quality control difficult due to distance.
Manufacturing profit goes to a local firm.
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International marketing segmentationMarket segment: it refers to a group of countries that are
alike in respect of their responsiveness to some aspect of
marketing strategy. hence marketing segmentation may
be defined as a technique of dividing different countriesinto homogeneous groups. a firm can not serve the entire
world with a single set of policies because there are
disparities among nations economic and cultural. an
international marketer therefore should pick out one or
more countries as target markets .
Due to severe global competition many firms are learning to
operate or dominate niche markets ( niche is a relatively
small segment of market that major competitors mayoverlook, ignore or have difficulty in serving ).
Segmentation process :
Develop a market formula for classifying the world markets.
Segment all countries into homogeneous group having
common characteristics.
Determine theoretically the most efficient method of serving
each group.
* Choose the group in which marketers
product/service/strength is in live with the requirement of
the group.
* Adjust this ideal classification to the real constraints (legal,
political, practical etc.).
Computer co. ( hp ) 3 segments based on need.
1. Very simple (first generation m/c).2. Medium sized computers ( second generation m/c ).
Large sophisticated computers ( third generation m/c ).
HP now selects second segment and finds it welled placed for
that.
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Countries in this segment brazil, south Korea ,Taiwan,
Singapore, Mexico, Hong Kong and Nigeria.
HP establish 3 assembly plants Nigeria, brazil and south
Korea.
But computer industry often face lack of scientific
personnel, HP may consider establishing a plant in india,
not in south Korea ,since India has a large pool of
scientists.
INTERNATIONAL MKT. SEGMENTATION
The Firm The environment
Criteria Selection of relevant Segmentation criteriaStep-1
1. Measurability
2. Accessibility Development of appropriateStep-2
Segments
3. Substantiality screening of segments to narrow downStep-3
list of choice of target markets/ countries
Micro segmentation, develop segments in
Step-4
each qualified country /countries
4. Actionability
Market entry
How many markets?
When?
Sequence?
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Measurability - Degree to which size/purchasing power of
resulting segments can be measured.
Accessibility The degree to which resulting segments can
be effectively reached / served.
Substantiality/Profitability The degree to which segments
are efficiently large and profitable.
Actionability - The degree to which organization has
sufficient resources to effectively formulate marketing
programme(make things happen).
The basis of international marketing segmentation.
General characteristics.1. Geographic High degree of
measurability, Accessibility& Action ability
2. Language
3. Political factor
4. Demography
5. Economy
6. Industrial Structure
7. Technology
8. Social organization
9. Religion
10. Education
11. Cultural factor
12. Life style Low degree ofmeasurability
13. Personality Accessibility &
Actionability
14. Test / Attitude
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1. Geographic location Market location is critical for
segmenting. Middle eastern countries, far eastern countries-
high degree of similarity.
2. Language Mirror of the culture. Advertisement brand
names. In local language for acceptability. Negotiation
without interpreter.
3. Political factors Countries may be grouped & markets
segmented according to political factors a company
producing good quality textiles may find many markets
difficult to enter govt. regulation.
4. Demography Critical factor for segmentation . Proportion
of old / infant important.Europe infant rate in falling
baby food & toy game company will not enter there.
5. Economy Econ development critical factor.Electric
dishwashers require a certain level of economic development
in India no marketing but in western Europe basic need
societies with high income spend more in service recreation /
health.
6. Industrial structure One country may rely on many small
retailers, others depend on departmental store. Similarly,
small manufacturers & large retail activities may have
critical role for international marketer.
7. Technology Technological advancement may be a basis ofsegmentation. Software companies may segment markets on
the basis of PC/ thousand . Pakistan/Iran unsuitable.
8. Social organization - Nuclear family or extended family of 3
generations. In USA socio economic grouping 6 important
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for mkt. Segmentation. Upper- Upper, Lower Upper, Upper
Middle, Lower Middle, Upper lower&Lower Lower.
9. Religion Religion is important for segmentation. Gift
exchange at Christmas in Europe. Islamic laws & econ.Activity can not be ignored in middle east.
10. Education Main- aspects potential of youth mkt. & level
of literacy. Industrialized nations- literacy is near 100% and
all communication media is open to international marketers.
In LDC with 20% literacy, visual media (TV) or radio may
be more relevant promotional tool.
Int. mkt. Entry.- Factors influencing- Firms choice ofentry mode for a given product/target country is
net result of several conflicting forces.Anticipation of strength / direction of three forces leads to
several trade off among alternative entry mode.
Internal factors
Firm sizeProduct
International experience
1. Firm size Size is indicators of firms resource availability
small & medium enterprises(SMEs)because of their low
resources, enter through export mode. As the firm goes it
will use gradually hierarchical mode and will desire high
level of control over international operations and wish tomake heavy resource commitments to foreign markets.
2. Product -Physical quality of the product/service such as
value, weight(ratio), perish ability, composition are
important factors. Products with high value (weight ratio)
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like costly watches are not directly exported similarly soft
drinks/Beer companies.Try to establish licensing agreements
or local bottling arrangement.
Products distinguished by physical valuation, brand
name, advertisement & strong after sales service(warranty,repair,replacement) promote preference for one product
over another and may help price rise exceeding costs by
more than normal profits. These help develop entry barriers
and limit, competition. These product differentiation
advantage create natural monopoly.
3. International experience Here influencing factor is
experience of managers/firm.To what extent firm is involved
internationally in one country or in general internationalenvironment is important. International experience reduces
cost & uncertainty in such cases. Direct experience with
foreign markets will increase extra resource commitments to
foreign markets.
Economic union
Integration of economic policy + Free movement of goodservices, factors of production, harmony in taxation &
monetary policy, common currency- fixed exchange rates.
Group of economics. Low income-GNP per capita < $
725
(1994 study) Middle income- < $
8955
High income - >
$8956
International marketing & cultural environment.
Language - It is is a mirror of the culture. 1) Verbal language
(vocal sound in pattern) 2) nonverbal language (more
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powerful, body language, silences, social distance).
Pronunciation /accent of language important. Language is
key to culture,4 key roles
* Information gathering (Mkt. Related)* Comfort in dealing-without interpreter.
Guess politics & risk analysis
Access to local society Pop in local language(serious
MNC )
Explicit Communication- Say what you mean and mean
what you say (No vague directives/instructions). Burden
of effective communication is on the speaker.
Implicit communication (High context language culture)-
Speaker & listener both share burden of effective
communication can avoid unpleasant or direct
confrontation.
Manners & customers Extremely vital in negotiation and
knowledge about manners & customs may narrow
cultural differences. In some cultures managers &subordinates are separated, in others they work together.
Ad in close touch in perfume ad for Europe, Low touch in
Saudi Arabia.
International Mktg. & Economic environment
Market size/growth/buying capacity/infrastructure.
Classification by national income & degree of
industrialization.
Less developed country (LDC)
- Low GDP per capita (Less than $ 3000). Limited
manufacturing
- Poor infrastructure. Reliance on one product / one partner.
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Newly industrialized countries (NICS)
- High growth(Tigers of S.E.Asia-
S.Korea,Taiwan,Singapore,Hong Kong)
- Developed infrastructure DD>SS, Ever growing demand,
Diffi.to match.Advanced industrialized countries
High gdp. Solid industrial base. Developed service
sector(Tourism, Insurance, health care).- Developed
infrastructure.
Regional economic integration
- Economic cooperation. More effective use of resources.
Provide larger markets
Free trade area- No barrier for members. Least respectiveand loosest form of economical integration. EFTA-
European free trade area. EU-European union.NAFTA-
North American free trade agreement.
Custom Union. Goods & services are freely traded among
members. Common trade policy to non-members.
Common market Same as customs union.Mobility of
factors of production (L,K,Tech).Restrictions on
immigration & cross border investment abolished.
Entry strategies
different strategies
1)exporting : a. co. can minimise the risk of dealing
internationally by exporting domestically manufactured
items.
adv- capital requirement minimum, easy to initiate and good
for gaining experience.
2)contractual agreement :
a)patent licencing agreement : based on either a fixed fee or a
royalty basis and include managerial training.
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b) turnkey operations : based on a fixed fee or cost plus
arrangement and include plant construction, training and
production trial run.
c)co-production agreement : followed in socialist nations.
plants are built and then paid for with (part) of output.d) management contracts : used in middle east a. mnc
provides key personnel to operate foreign co for a fee till
local people gain the ability to manage independently.
advantages e) licencing : it encompasses a variety of
contractual agreement whereby a multinational marketer
makes available tangible assets like patents, trade
knowhow, trademark, co. name etc. to foreign cos in returnfor royalties.
i) needs little capital but gives easy and quick entry.
ii) in communist countries licencing is only way of entry.
gives life extension for products on maturity stage.
iii) it is good alternative to foreign production and kmtg.
when there is global inflation, skilled labour shortage,
growing ovt. regulation and international though
competition.
v) licencing royalties are guranteed and periodic.
vi) domestically based firms benefit from product development
abroad without research expense.
vii) when export not profitable due to competation , then it is
alternative .
viii) help overcome high transport cost .
ix) licencing is immune to expropritation .
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disadvantages :-
i) licensor has no control over prodn / mktg by licensee .
ii) licensing royalities are low (less than 5% due to govt.
restrictions ) .
iii) licensee may lose interest in renewing contract unless thereis new tech / innovation .
iv) to all are licensees a firm must have distinctive brand
name , tech , trade mark egc .
3) joint venture :
represents a higher risk alternative because it needs various
levels of direct investment . when a firms moves beyond the
exporting stage to a more regular overseas involvement then
jv is most common form of entry . these are designed to takeadvantage of strong functions (management ,r & d ,mktg ) .
major problem of j.v. is there is more than one partner and one of
the partners should play a key role .
advantages
saving tech helps devloping nations by j.v.
saving risk risk saved by partners (good for politically
sensitive areas) .
prefered treatment presented by govt. since locally controlled
.
easier access to mkt &mkt information .
raw material use - countries with oil / mining do not allow
foreign firms but allows j. v.
4) manufacturing :
an mnc can establish itself in overseas mkt by direct
investment in mafg / assembly subsidary . due to volatility of
social / econ / political condition it is risky . ucil in bhopalsuggested that an mnc should not manufacture overseas
where risk of a mislap may jeopardise the survival of total
enterprise . factory risk relates to 5 factors
a)type of product .
b)econ / political factors (business in pakistan)
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c)firms competitive positioon , products life cycle .
d)dynamic capital budgeting - cost and availibility.
e) distance between firms decision makers and target
customers .
international marketing segmentation ---market segment: it refers to a group of countries that are alike
in respect of their responsivences to some aspect of
marketing strategy. hence marketing segmentation may be
defined as a technique of dividing different countries into
homogeneous groups. a firm can not serve the entire world
with a single set of policies because there are dispasities
among nations economic and cultural. an international
marketer therefore should pick out one or more countriesas target markets .
due to severe global competition many firms are learning to
operate or dominate niche markets ( niche is a relatively
small segment of market that major competitors may
overlook, ignore or have difficultym in serving ).
segmentation process :
devlop a market formula for classifying the world markets.
segment all countries into homogeneous group having common
characteristics.
determine theoritically the most efficient method of seving each
group.
* Choose the group in which marketers
product/service/strength is in live with the requirement of
the group.
* adjust this ideal classification to the real countraints (legal,
political, practical etc.).* Computer co. ( hp ) 3 segments based on need.
1. very simple (first generation m/c).
2. medium sized computers ( seccond gneration m/c ).
3. large sophisticated computers ( third generation m/c ).
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* hp now selects second segment and finds it welled placed for
that.
countries in this segment brazil, south corea ,taiwan,
singapore, mexico, hong kong and nigeria.
hp establish 3 assembly plants nigeria, brazil and south corea.but computer industry often face lack of scientific personel, hp
may consider establishing a plant in india, not in south
corea ,since india has a large pool of scientists.
Contract manufacturingonly possible only when firm
can locate a foreign produce with capacity to produce
the product in satisfactory quantity &quality.
Enables firm to avoid labor& legal problems in an unknown
country.
Firm can advertise its products being locally made.
If mktg is too small/risky it is easier to terminate contract
than to shutdown plant.
Saving transportation costs& lower prodn Cost outside.
It is profitable if firm is strong in mktg than manufac.
Disadv :difficult to find good manufacturer.
quality control difficult due to distance.
manufacturing profit goes to a local firm.
Firms choice of market-Market selection
Basically two determinants 1) Environmental 2) Firm
characteristics.
1)International mkt may consist a country or group of
countries. OR
2) International mkt may be a group of customers with
nearly same characteristics. So a market can consist ofcustomers from several countries, since, -i)International data
are more easily available on a nation by nation basis ii)
Distribution magt. and media have been organized on a
nation by nation basis. Most of the agents / distributors still
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represent their manufacturers only in one country. Only a
few sell their products on cross-border basis.
However boundary lines are in many cases result of
political arrangement/war and do not reflect a similar
separation in buyer characteristics among people on eitherside of border.
Determinants of a firms choice of foreign mkt.
FIRM LEVEL
-Degree of internationalization & overseas experience
-Size/amount of resourses
- Type of industry/Nature of business
-Goals of internationalization
- Existing network
ENVIRONMENT LEVEL
-International Industry structure
-Degree of internationalization of market
-Host country market potential
-Host country competition
-Host country geographic distance.
- Host country market similarity
International market segmentation
International market selection(IMS)
Product policy & planningMust be made on careful analysis and review. The nature,
depth and breadth of the product line, possibilities of new
product development & product innovation, the importanceattached to product design (to suit local need). The decision
on foreign R&D and a planned screening & elimination of
unsuccessful products bear heavily on success in foreign
mkt.-Subhas Jain.
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Def A product can be defined as a bundle of attributes that
satisfies a customer demand.
International product involves determining which products to
introduce into which countries, what modifications to make,
what new products to add, what brand names to use, whatpackage design to use, what guarantee/ warranty to give,
what after sales service to offer and finally when to enter the
market.
Product objective : Product objectives emerge from host
country & corporate objectives combined. Cos goals goals
usually are stability, growth, profits, & ROI. It is a
combination of various stake holders interests for which it isaccountable.Oppositely host country objective depends on its
economic, political & cultural environment.(for LDC-faster
growth, balanced industrial sector, more
employment,earning more foreign exchange etc.).
Generally these two objectives are poles apart, however no
company can hope to succeed without aligning itself with
national concern of host country.
Foreign exchange shortage (host country) help export promotion(MNC objective).
Product design strategy1) Standardization Means offering common product on
national ,and world wide basis.
2) Customerisation Means making appropriate changes in a
product to match local perspectives (also called adaptation).
The goals of reducing costs and complexity lead firms toconsider standardization, while a customer orientation sways
them towards customerisation.
Factors encouraging standardization :
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A) Economies of scale- If a product has only one production
source, by standardizing it gains economics of high vol.
Production.
B) Economies in R & D Less research need will be there
uniformity yield a similar advantage in product developmentexpenses.
C) Economies of mktg. Sales literature, training needs, AD.
Plans are similar when product is uniform.
D) Consumer mobility If product is same, consumers may
purchase when traveling (Gillette blade, Kodak film,
etc.)product standardization is necessary here to retain
their loyalty.
E) Home country image Items considered typically of acountry gets, advantage from standardization.
US character - Coca cola, French character - Perfumes,
wines
Japan character - Electronic goods, small cars
F) Industrial products Product for which technical
specifications are critical tend to be uniform internationally.
Product PolicyProduct policy goes, beyond the product itself, Attributes suchas
Brands,
Trademarks,
Origin,
Packaging,
Labeling,
Warranty & service policies represent key decision areas.1) Extension of domestic line- The extension of domestic
product to foreign markets follows the logic of the concept of
international PLC. A firm may initially export a few
products overseas. As those mkts. Grow or change, an
opportunity may emerge to expand the line by selecting
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additional products from domestic line for overseas
distribution. Coca cola began mktg in 1958 in Japan. Fanta
was added in 1968, Sprite in 1970.
2) Additional products to international line- Two reasons-
To serve unfulfilled customer need in a particular market or to
optimize the existing mktg capacity. A chemical/pesticide
company selling overseas in developing countries may
discover a high demand for quality seed and then may add
seed to its line.
. A good distribution system to serve rural customers overseas.
The co. then start distributing to its rural customers. Suchproducts may or may not be related to cos business. Coca
cola markets potato chips in Japan but not at home.
The decision to add a product to the line is influenced by mktg
compatibility, finances, organization & environment. The
closer the proposed product to the current mktg perspective,
it is easier to market the product successfully.
A low compatibility financial risk analysis necessary to secureprofitability & cash flow. Similarly environmental
compatibility includes competition, legal & political
problems.
3) Introduction of a new product to a host country Here new
product is defined as a new product to the host country but
not to international mkt. Kodak started selling pocketcamera to Sri lanka, Pakistan, Thailand in 1982, which was
new to the region but not in western countries. The main
points are which products? About timing & sequence of
introduction and whether in standardized form or to adapt
peculiar changes.
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4) Alternative ways of seeking new products for overseas -Co
can develop a new product internally (by R & D) or by
acquisition from another co. Colgate-Palmolive developed in
USA a manual washing device- an all plastic, hand poweredwashers for LDCs. On the other hand Gillatte acquired
Braun AG of Germany to add electric shavers to its line.
5) Operating via exports If a firm reaches foreign mkt. Only
through exports, it will be selling uniform products only.
Factors encouraging adaptation A) Profit max Economies referred above are cost
minimization not profit maximization.
B) Differing use conditions The conditions under which a
product is used vary greatly from country to country. For
cars, trucks, tyres different road & traffic conditions may
product changes.
C) Other mkt factors Consumer tastes are not identical
around the world- food, fashion etc differ in neighboringcountries. French prefer 4 door car, Germans 2 door cars.
D) Influence of Govt. Nation may forbid few goods to be
imported/ manufactured. Govt. regulation on product,
packaging & labeling are an important cause for product
variation among nations-mainly food/drugs.
E) Co history & operations Some firms have foreign
operations before world war-II. These self- containedsubsidiaries developed products for their mkts without
regard to global product uniformity.Product policy goes, beyond the product
itself, Attributes such as brands, trademarks, origin,
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packaging, labeling, warranty & service policiesrepresent key decision areas
A perspective on branding
Advantages Disadvantages
Single brand(in one mkt) Mktg homogeneity assumed
Mktg efficiency. Exiting brands image hurt
More focused mktg. Limited shelf space
Brand confusion eliminated.
Local brands Higher mktg cost
Meaningful name Higher inventory cost
Local identification Loss of economics of scale
Avoid tax on international brand Diffused image
Easy mkt penetration
Variations in quality across mkts
allowed
World wide brands Mkt homogeneity assumed
Max mktg efficiency Problem with black/gray mkts
Reduction in ad cost Danger of negative meaning
No brand confusion Quality consistency needed
Advantage for culture free product LDCs opposition
Adv for prestigious product Legal complication.
Product revitalization-
If profits, sales, vol, mkt share all fall below expectation, theneither revitalize or drop the product. Strategic alternatives
1) Maintain the product& its mktg strategy in present
form.
2) ,, ,, & change mktg strategy.
3) Change the product & change the strategy.
4) Drop the product/ product line.
5) Add new products or product lines.
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Perceptual mapping to study strength/weakness of a
product vis a vis competitors.
Product elimination check listCorporate image
Sales of other products
Customer relationship
Effect on profitability
Any product to replace
Employee relationship
Profitability of other products (tyer /tube)
8)Competitors move.
International pricing strategies (price sensitivity)
Pricing strategy-Gain mkt share.
Short run gain(milk the business).
Discourage competitors.
Forestall others entry.
Hold high price(to keep less efficient active for antitrust).
Price sensitivity depends on-Whether buyer can pass on cost of purchase to the customers.
Uncertainty in switching to low priced item.
Value performance over cost-high quality, good service, timely
delivery will pay premium.
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A) Skimming Pricing
1. Skim the cream from the top end of the market.
2. Realise highest profit in short run.
3. Unique product feature, extra comfort, ease of operation.4. Designed to appeal affluent & demanding.
5. Trade off between low mkt share against high profit.
Drawbacks
Small mkt share High vulnerability to local competition.
High quality product needs huge resources(for
promotion/service)
Difficulty to keep visible presence in distant markets.
If P is very low in home country/another country grey
mktg.
Ultimately success of skimming depends on ability seed of
competition.
B) Penetration Pricing
1. To stimulate mkt growth and capture mkt share.
2. Successful for mass mkt P sensitive customers & cost
reduction economies of scale.3. Lower income levels of local customers
4. R & D and overhead cost covered by home sales, export
represents marginal activity.
5. Japanese firms use this to gain mkt share leadership ( cars,
TV, W/M, electronic goods ).
Pricing policy
Cash discount-given for prompt payment(7/10
days),applicable on gross amt(basic+taxes) and given in bill.
For bad paymaster give CN after payment release.
Geographic pricing-
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1)ex factory-prices prevailing at factory gate, buyer pays
transport + freight.
2)FOB(free on board)/ FOR(free on road)destination. Freight
costs are absorbed by seller& included in quotation. Nominaltransit insurance is borne by seller. If open insurance policy of
buyer then damage/ theft in transit is settled by buyer with
GIC.
Direct payment-goods dispatched directly to the customers
and invoice sent with gate pass/challan/consignee copy of
LR/RR.sometimes for safety ,seller sends consignee copy of
LR/RR to branch rep who collects DD and hands overconsignee copy to collect material.
The experience curve-
Cost (variable)declines as production vol
increases(Boeing exp in 1950)
No of hours needed to build Boeing decreases 20%,
each time cumulative prodn doubled.
GM, GE,IBM also found vol related cost factors
(procurement cost, defective parts, down time,
distribution cost, mkt cost) all decline.
Impact of improvement is due to learning process.
Diff between learning curve &economies of scale-LC
deals with accumulation of quantity over time and isindependent of rate of production. On the other hand
economics of scale shows the impact that diff levels of
prodn have on unit costs at a specific time.
Promotional strategies for int mktg
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Sales promotion is defined as those selling activities that do not
fall directly into the advertisement/personal selling category.
It relates below the line activities display, demonstration,
leaflets, free trials, contests, premium (buy one get one) etc.
factors contributing to the expansion of sales promotioninclude ---
# Greater competition among retailers ( increasingly
sophisticated relating method).
# Improved retail technology (instant coupon redemption
electronically).
# Consumer higher brand awareness (need to defend brandshare).
# Greater integration of sales promotion / public relation and
traditional media campaign.
# Mkts where due to media limitation it is hard to reach, there
sales promotion budget is high.
* Price discounts Price reduction technique.
* Catalogue/brochures Foreign catalogue for a far off
customers.
* Coupons Door to door, on pack, in news paper(for FMCG).
* Samples Samples gives foreign customer idea of size, model,
style etc.
* Gift Some countries have limitation / restrictions on gift
value.
* Competition on pack, in store via leaflet or by media.
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It is impossible to know specific laws of each and every country
so international marketer must consult local lawyers and
authorities before launching.
Direct Marketing:For soliciting direct response from customers by direct mail
(through database ), telephone selling and via internet,
reasons of expansion
Development of mailing technology has reduced time/cost.
Cost escalation of media / sales promotion.
Ready availability of good quality prospective customer list.
Development of it solid data base and desk top publishing for
even small firms.
Increasing use of interactive TV facility customers can order
through teletext system from remote country.
Mode of payment-direct&
through bank
Direct payment-goods dispatched directly to
consumer & invoice sent with gate pass/
challan/consignee copy of LR/RR. Credit offered
30/60 days for good payment master.
Throuhg bank-letter of credit(LC), doc against
payment(DP)
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Supplier sends bill,LR/RR, inspection certificate via
bank.
LC may be with credit or at sight(without credit). It
is safest if no mistake is there.
Next safe is DP, doc is sent to customers bank
(without credit). Only if customer pays, doc is
given. Suppliers transporter should be honest
(otherwise they will handover goods without
consignee copy)
North American Free Trade Agreement
Implementation of the North American Free Trade Agreement
(NAFTA) began on Jan. 1, 1994. This agreement will remove most
barriers to trade and investment among the United States, Canada, and
Mexico.
Under NAFTA, all non-tariff barriers to agricultural trade between the
United States and Mexico were eliminated. In addition, many tariffs
were eliminated immediately, with others being phased out over periods
of 5 to 15 years.
All agricultural provisions will be implemented by the year 2008. For
import-sensitive industries, long transition periods and special
safeguards will allow for an orderly adjustment to free trade with
Mexico.
The agricultural provisions of the U.S.-Canada Free Trade Agreement
(CFTA), in effect since 1989, were incorporated into the NAFTA. Under
these provisions, all tariffs affecting agricultural trade between the
United States and Canada, with a few exceptions for items covered by
tariff-rate quotas (TRQ's), were removed before Jan. 1, 1998.
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Mexico and Canada reached a separate bilateral NAFTA agreement on
market access for agricultural products. The Mexican-Canadian
agreement eliminated most tariffs either immediately or over 5, 10, or
15 years. Tariffs between the two countries affecting trade in dairy,
poultry, eggs, and sugar are maintained.
Under NAFTA, all non-tariff measures affecting agricultural trade
between the United States and Mexico were eliminated on Jan. 1, 1994.
These barriers, including Mexico's import licensing system (which had
been the largest single barrier to U.S. agricultural sales), were converted
to either tariff-rate quotas or ordinary tariffs.
All agricultural tariffs between Mexico and the United States will be
eliminated. Many were immediately eliminated and others will be
phased out over transition periods of 5, 10, or 15 years. The immediatetariff eliminations applied to a broad range of agricultural products. In
fact, more than half the value of agricultural trade became duty free
when the agreement went into effect. Tariff reductions between the
United States and Canada had already been implemented under the
CFTA.
Both Mexico and the United States protected their import-sensitive
sectors with longer transition periods, tariff-rate quotas, and, for
certain products, special safeguard provisions. However, once the 15-
year transition period has passed, free trade with Mexico will prevailfor all agricultural products. NAFTA also provides for tough rules of
origin to ensure that maximum benefits accrue only to those items
produced in North America.
Other Key NAFTA Provisions
Sanitary and Phytosanitary Measures: The NAFTA imposes disciplines
on the development, adoption, and enforcement of sanitary and
phytosanitary (SPS) measures. These are measures taken to protect
human, animal, or plant life or health from risks that may arise from
animal or plant pests or diseases, or from food additives or
contaminants. Disciplines contained in NAFTA are designed to prevent
the use of SPS measures as disguised restrictions on trade, while still
safeguarding each country's right to protect consumers from unsafe
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products, or to protect domestic crops and livestock from the
introduction of imported pests and diseases.
Although NAFTA encourages trading partners to adopt international
and regional standards, the agreement explicitly recog-nizes each
country's right to determine the necessary level of protection. Such
flexibil-ity permits each country to set more strin-gent standards, as
long as they are scientific-ally based. NAFTA also allows state and local
governments to enact standards more stringent than those adopted at
the national level, so long as these standards are scientif-ically
defensible and are administered in a forthright, expeditious manner.
Export Subsidies: The three NAFTA countries will work toward the
elimination of export subsidies in North America, in pursuit of the
broader objective of eliminating such subsidies worldwide. The UnitedStates and Canada will be allowed to provide export subsidies into the
Mexican market to counter subsidized exports from other countries.
Neither Canada nor the United States is allowed to use direct export
subsidies for agricultural products being sold to the other, and both
countries are required to consider the export interests of the other
whenever subsidizing agricultural exports to third countries.
Internal Support: Under NAFTA, the parties should endeavor to move
toward domestic support policies that have minimal trade or production
distorting effects, or toward policies exempt from domestic supportreduction commitments under the World Trade Organization.
Grade and Quality Standards: The United States and Mexico agreed that
when either country applies a measure regarding the classification,
grading, or marketing of a domestic product destined for processing, it
will provide no less favorable treatment for like products imported for
processing.
United Nations Conference on Trade andDevelopment
The United Nations Conference on Trade and Development (UNCTAD)
was established in 1964 as a permanent intergovernmental body,
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UNCTAD is the principal organ of the United Nations General
Assembly dealing with trade, investment and development issues.
The organizations goals are to "maximize the trade, investment and
development opportunities ofdeveloping countries and assist them in
their efforts to integrate into the world economy on an equitable basis."
(from official website).
Currently, UNCTAD has 191 member States and is headquartered in
Geneva, Switzerland. UNCTAD has 400 staff members and an annual
regular budget of approximately US$50 million and US$25 million of
extrabudgetary technical assistance funds.
The Secretary-General of UNCTAD is Dr. Supachai Panitchpakdi
(Thailand), who took office on 1 September 2005.
The inter-governmental work is done at 4 levels of meetings [1]:
The UNCTAD Conference - held every 4 years, the last one was
UNCTAD XI in Sao Paulo in June 2004 [2];
The UNCTAD Trade and Development Board - the Board
manages the work of UNCTAD in between two Conferences and
meets up to three times every year;
Four UNCTAD Commissions and one Working Party - these meet
more often than the Board in order to take up policy, programmeand budgetary issues;
Expert Meetings - the Commissions will convene expert meetings
on selected topics in order to provide substantive and expert input
for Commission policy discussions.
UNCTAD produces a number of topical reports, including:
The Trade and Development Report
The World Investment Report
The Economic Development in Africa Report The Least Developed Countries Report
UNCTAD Statistics
The Information Economy Report
The Review of Maritime Transport
UNCTAD also conducts various technical cooperation programmes.
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World Trade Organization
History
The Bretton Woods Conference of1944 proposed the creation of an
International Trade Organization (ITO) to establish rules and
regulations for trade between countries. The ITO charter was agreed at
the UN Conference on Trade and Employment in Havana in March
1948, but was blocked by the U.S. Senate (WTO, 2004b). Some
historians have argued that the failure may have resulted from fears
within the Americanbusinesscommunity that the International Trade
Organization could be used to regulate, rather than liberate, big
business (Lisa Wilkins, 1997).
Only one element of the ITO survived: the General Agreement on
Tariffs and Trade (GATT). Seven rounds of negotiations occurred
under GATT before the eighth round - the Uruguay Round - concluded
in 1995 with the establishment of the WTO as the GATT's replacement.
The GATT principles and agreements were adopted by the WTO,
which was charged with administering and extending them. Unlike the
GATT, the WTO has a substantial institutional structure.
Mission
The WTO aims to encourage smooth and free trade by promoting lower
trade barriers and providing a platform for the negotiation of trade and
to resolve disputes between member nations, when they arise. The goal
is to help producers of goods and services, exporters, and importers
conduct their business.
Principles of the trading system
The WTO discussions should follow these fundamental principles of
trading.
1. A trading system should be discrimination-free in a sense that a
country cannot favour another country or discriminate against
foreign products or services.
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2. A trading system should be freer where there should be little
trade barriers(tariffs and non-tariff barriers).
3. A trading system should be predictable where foreign companies
and governments can be sure that trade barriers would not be
raised and markets will remain open.
4. A trading system should be more competitive.
5. A trading system should be more accommodating for less
developed countries, giving them more time to adjust, greater
flexibility, and more privileges
Structure
All WTO members may participate in all councils, committees, etc.,
except Appellate Body, Dispute Settlement panels, and plurilateral
committees.
Highest level: Ministerial Conference
The topmost decision-making body of the WTO is the Ministerial
Conference, which has to meet at least every two years. It brings
together all members of the WTO, all of which are countries or customs
unions. The Ministerial Conference can take decisions on all matters
under any of the multilateral trade agreements.
Second level: General Council
The daily work of the ministerial conference is handled by three groups
The General Council, The Dispute Settlement Body and The Trade
Policy Review Body.
1. The General Council- is the WTOs highest-level decision-making
body in Geneva, meeting regularly to carry out the functions of the
WTO. It has representatives (usually ambassadors or equivalent) from
all member governments and has the authority to act on behalf of the
ministerial conference which only meets about every two years. Thecouncil acts on behalf on the Ministerial Council on all of the WTO
affairs. The current chairman is Amina Chawahir Mohamed (Kenya).
2. The Dispute Settlement Body - Made up of all member governments,
usually represented by ambassadors or equivalent. The current
chairperson is Eirik Glenne (Norway).
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3. The Trade Policy Review Body (TPRB) - the WTO General Council
meets as the Trade Policy Review Body to undertake trade policy
reviews of Members under the TRPM. The TPRB is thus open to all
WTO Members. The current chairperson is Don Stephenson (Canada).
Third level: Councils for Trade
The Councils for Trade work under the General Council. There are
three councils - Council for Trade in Goods, Council for Trade-Related
Aspects of Intellectual Property Rights, and Council for Trade in
Services - each council works in different fields. Apart from these three
councils, six other bodies report to the General Council reporting on
issues such as trade and development, the environment, regional trading
arrangements and administrative issues.
1. Council for Trade in Goods- The workings of the General Agreement
on Tariffs and Trade (GATT) which covers international trade in
goods, are the responsibility of the Council for Trade in Goods. It is
made up of representatives from all WTO member countries. The
current chairperson is Vesa Tapani Himanen (Finland).
2. Council for Trade-Related Aspects of Intellectual Property Rights-
Information on intellectual property in the WTO, news and official
records of the activities of the TRIPS Council, and details of the WTOs
work with other international organizations in the field.
3. Council for Trade in Services- The Council for Trade in Services
operates under the guidance of the General Council and is responsible
for overseeing the functioning of the General Agreement on Trade in
Services (GATS). Its open to all WTO members, and can create
subsidiary bodies as required. The current chairperson is Claudia Uribe
(Colombia).
Fourth level: Subsidiary Bodies
Under each of the three councils, there are subsidiary bodies under each
one.
1. The Goods Council- subsidiary under the Council for Trade in
Goods. It has 11 committees dealing with specific subjects (such as
agriculture, market access, subsidies, anti-dumping measures and so
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on), which include the following. Again, these committees consist of all
member countries.
Information Technology Agreement (ITA) Committee
Apart from hosting negotiations on trade rules, the WTO also acts as anarbiter of disputes between member states over its rules. And unlike
most other international organizations, the WTO has significant power
to enforce its decisions through the authorisation or trade sanctions
against members which fail to comply with its decisions. Member states
can bring disputes to the WTO's Dispute Settlement Body if they believe
another member has breached WTO rules.
Disputes are heard by a Dispute Settlement Panel, usually made up of
three trade officials. The panels meet in secret and are not required toalert national parliaments that their laws have been challenged by
another country.
ADB Operations
ADB's development work is aimed at improving the welfare of the
people of Asia and the Pacific, especially of the 690 million poor living
on less than a dollar a day.
Within months of adopting its poverty reduction strategy in 1999, ADBbegan focusing its work toward eliminating poverty in the region.
ADB's projects and programs, whether poverty interventions or
otherwise, emphasize one or more of the following priorities:
ECONOMIC GROWTH
HUMAN DEVELOPMENT
GENDER AND DEVELOPMENT
GOOD GOVERNANCE
ENVIRONMENTAL PROTECTION PRIVATE SECTOR DEVELOPMENT
REGIONAL COOPERATION
Each priority is related directly to the three pillars of the poverty
reduction strategy:
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Pro-poor, sustainable economic growth
Inclusive social development
Good governance
Other crosscutting priorities are law and policy reform and social dimensions of
development
ADB's operations are diverse, covering Sectors
Agriculture and natural resources
Education
Energy
Finance
Health, nutrition, and social protection
Industry and trade
Law, economic management, and public policy
Transport and communications
Water supply, sanitation, and waste management
Activities involving multiple sectors
Development Tools
ADB lends to governments and to public and private enterprises in its
developing member countries. ADB's principal tools are loans and
technical assistance, which are provided to governments for specific,high-priority development projects and programs. ADB's lending both
supports and promotes investment for development based on a
country's priorities.
In 2004, ADB approved loans worth $5.3 billion for 64 projects, most of
which went to the public sector. People's Republic of China was the
largest borrower, followed by India, Pakistan, Philippines, and
Vietnam. Grants worth US$99.4 million were provided, and technical
assistance, which is used to prepare projects and support advisory
activities, amounted to $197 million.
Important export docCommercial invoice- basic doc in export transaction. Gives
details of goods, price charged, terms of shipment, marks &
numbers of packages& Customs Cooperation Council
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Nomenclature (CCCN). Several copies made for various
authorities.
Certificate of origin-required by commonwealth nations.
Needed by importer to satisfy the requirements of his govt.
GR form,
Letter of credit-LC is most important doc in international
trade. By LC the promise to pay is usually made by importer is
substituted by the promise to pay by his bank. It gives great
security to the exporter.
Bill of lading-doc issued by the shipping co mentioning that the
good have been placed on board the ship.
Gives an understanding that the goods in like order&
condition as received will be delivered to the consignee-
provided that the freight specified will be duly paid. Made in
sets with 2/3 originals. By air shipment B/L is called airway
bill.
If contract is FOB(free on board), it means that the
freight to be paid by the importer and shipping co will issue
a freight collect bill of lading but if contract is CIF(cost
insurance freight ) then exporter makes the freight payment
and obtains freight paid bill of lading.
A clean B/L indicates no superimposed clause declaring a
defective condition of goods/package/other aspect.
If no direct link between buyer &seller ports, then goods are
transferred to another ship at another port, so exporter obtains
a through B/L covering whole voyage.
bill of exchange,
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shipping bill,
marine insurance policy.