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NEED OF STUDY

There are several good reasons for studying marketing. First of all, marketing
issues are important in all areas of the organization—customers are the reasons why
businesses exist! In fact, marketing efforts (including such services as promotion and
distribution) often account for more than half of the price of a product. As an added
benefit, studying marketing often helps us become more savvy consumers. We will
learn, for instance, that the per unit price of a bigger package is frequently higher than
that of a smaller one, and that more expensive products are frequently not better in
quality.

Criteria that must be met for marketing to occur: Several criteria must be
met for marketing to occur:

• There must be two parties, each with unsatisfied needs or wants. This want, of
course, could be money for the seller.
• Each must have something to offer. Marketing involves voluntary “exchange”
relationships where both sides must be willing parties. Thus, a consumer who
buys a soft drink in a vending machine for 60¢ must value the soft drink,
available at that time and place, more than the money. Conversely, the vendor
must value the money more. (It is interesting to note that money is, strictly
speaking, not necessary for this exchange to take place. It is possible, albeit a bit
cumbersome, to exchange two ducks for a pair of shoes.)
• The parties must be able to communicate. This could be through a display in a
store, an infomercial, or a posting on eBay.

The marketing vs. the selling concept: Two approaches to marketing exist. The
traditional selling concept emphasizes selling existing products. The philosophy here is
that if a product is not selling, more aggressive measures must be taken to sell it—e.g.,

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cutting price, advertising more, or hiring more aggressive (and obnoxious) sales-
people. When the railroads started to lose business due to the advent of more effective
trucks that could deliver goods right to the customer’s door, the railroads cut prices
instead of recognizing that the customers ultimately wanted transportation of goods, not
necessarily railroad transportation. Smith Corona, a manufacturer of typewriters, was
too slow to realize that consumers wanted the ability to process documents and not
typewriters per se. The marketing concept, in contrast, focuses on getting consumers
what they seek, regardless of whether this entails coming up with entirely new
products.

The 4 Ps—product, place (distribution), promotion, and price—represent the


variables that are within the control of the firm (at least in the medium to long run). In
contrast, the firm is faced with uncertainty from the environment.

The suggested framework of international marketing includes motivation for


internationalization, SWOT analysis, a mix of international marketing decisions and
consolidation of marketing efforts on the basis of reviewing markets performance.

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KEY TERM
Re-geocentric orientation: the approach that considers a region as a uniform market
segment and a firm following this approach adopts a similar marketing strategy within
the region but not across the region.

Geocentric orientation: the approach that treats the whole world as a single market
and attempt to formulate integrated marketing strategies.

Self reference criterion: an unconscious reference to one’s own cultural value,


experience and knowledge as a basis for decision making.

Theory of mercantilism: attributes wealth of a nation by the size of its accumulated


treasures, usually measured in terms of gold. A theory that holds that national should
accumulate financial wealth in the form of gold by encouraging exports and
discouraging imports.

Theory of international product life cycle: the cyclical pattern followed by the
international markets over a time due to a variety of factors which explains the shift in
the markets as well as manufacturing bases of the firms.

Domestic marketing: marketing practice within the domestic markets.

Foreign marketing: methods and practices used in the home markets and also applied
in overseas markets with little adaptation.

Comparative marketing: Comparative study of two or more marketing system to find


out the differences and similarities.

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REVIEW OF SUBJECT
What is marketing?
Almost every marketing textbook has a different definition of the term
“marketing.” The American Marketing Association (AMA) uses the following: “The
process of planning and executing the conception, pricing, promotion, and distribution
of ideas, goods, and services to create exchanges that satisfy individual and
organizational objectives.” From this definition, we see that:

• Marketing involves an ongoing process. The environment is “dynamic.” This


means that the market tends to change—what customers want today is not
necessarily what they want tomorrow. For example, sales of beef are declining
in the United States because consumers have become health oriented. Similarly,
Tupperware parties are less popular today than they once were because there are
fewer housewives who do not work outside the home.
• This process involves both planning and implementing (executing) the plan.
• Some of the main issues involved include:
o Marketers help design products, finding out what customers want and
what can practically be made available given technology and price
constraints.
o Marketers distribute products—there must be some efficient way to get
the products from the factory to the end-consumer.
o Marketers also promote products, and this is perhaps what we tend to
think of first when we think of marketing. Promotion involves
advertising—and much more. Other tools to promote products include
trade promotion (store sales, coupons, and rebates), obtaining favorable
and visible shelf-space, and obtaining favorable press coverage.
o Marketers also price products to “move” them. We know from
economics that, in most cases, sales correlate negatively with price—the

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higher the price, the lower the quantity demanded. In some cases,
however, price may provide the customer with a “signal” of quality.
Thus, the marketer needs to price the product to (1) maximize profit and
(2) communicate a desired image of the product.
o Marketing is applicable to services and ideas as well as to tangible
products. For example, accountants may need to market their tax
preparation services to consumers.

THE MARKETING ENVIRONMENT

ELEMENTS OF THE ENVIRONMENT:

The marketing environment involves factors that, for the most part, are beyond
the control of the company. Thus, the company must adapt to these factors. It is
important to observe how the environment changes so that a firm can adapt its
strategies appropriately. Consider these environmental forces:

• Competition:

Competitors often “creep” in and threaten to take away markets from


firms. For example, Japanese auto manufacturers became a serious threat to
American car makers in the late 1970s and early 1980s. Similarly, the Lotus
Corporation, maker of one of the first commercially successful spreadsheets,
soon faced competition from other software firms. Note that while competition
may be frustrating for the firm, it is good for consumers. (In fact, we will come
back to this point when we consider the legal environment). Note that
competition today is increasingly global in scope.

• Economics:

Some firms in particular are extremely vulnerable to changes in the


economy. Consumers tend to put off buying a new car, going out to eat, or
building new homes in bad times. In contrast, in good times, firms serving those
needs may have difficulty keeping up with demand.

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• Political:

Businesses are very vulnerable to changes in the political situation. For


example, because consumer groups lobbied Congress, more stringent rules were
made on the terms of car leases. The tobacco industry is currently the target of
much negative attention from government and public interest groups. Currently,
the desire to avoid aiding the enemy may result in laws that make it more
difficult for American firms to export goods to other countries.

• Legal:

Firms are very vulnerable to changing laws and changing interpretations


by the courts. Firms in the U.S. are very vulnerable to lawsuits. McDonald’s, for
example, is currently being sued by people who claim that eating the chain’s
hamburgers caused them to get fat. Some impacts of the legal environment.

• Firms are significantly limited in what they can do by various laws—some laws,
for example, require that disclosures be made to consumers on the effective
interest rates they pay on products bought on installment. A particularly
interesting group of laws relate to antitrust. These laws basically exist to
promote fair competition among firms. Some principles involved here include:
o Collusion: Firms may not “conspire” to fix prices (agree that they will
not sell below an agreed upon price) or reduce services.
o Predation: Firms may not sell their products below their cost of
production for the purpose of driving competitors out of business so that
they, themselves, can raise prices when competition is reduced.
o Market share: Firms which have an unacceptably large market share
may be “broken” up by court order so that many smaller firms will be
around to compete. (This is what happened to AT&T, and at times, IBM
has been worried about this prospect). • Tying: A firm that controls a
valuable product may not require the consumer to buy a more
commonplace one to get the scarce product. For example, Intel controls

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many of the newest microprocessors (e.g., Pentium IV). Intel also makes
motherboards for computers; however, motherboards are made by a lot
of firms. Intel would be thought to abuse its effective monopoly power if
it required consumers to buy a motherboard in order to get its newest
chips.
• Technological:

Changes in technology may significantly influence the demand for a


product. For example, the advent of the fax machine was bad news for Federal
Express. The Internet is a major threat to travel agents.

• Social:

Changes in customs or demographics greatly influence firms. Fewer


babies today are being born, resulting in a decreased demand for baby foods.
More women work outside the home today, so there is a greater demand for
prepared foods. There are more unmarried singles today. This provides
opportunities for some firms (e.g., fast food restaurants) but creates problems
for others (e.g., manufacturers of high quality furniture that many people put off
buying until marriage). Today, there are more “blended” families that result as
parents remarry after divorce. These families are often strapped for money but
may require “duplicate” items for children at each parent’s residence.

Environmental scanning:

Its helps the firm understand developments in the market. Such developments
may involve changes in the market place due to social trends (e.g., Gerber, a
manufacturer of baby products, faces a serious challenge with declining U.S. birth
rates), technology (e.g., VCR makers are threatened by DVD players), or new or
potential competitors (e.g., Internet service providers are being threatened by increasing
marketing efforts from MSN). Note that environmental scanning must be performed
continuously, since environmental change does not cease.

Economic cycles:

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The economy goes through cycles. In the late 1990s, the U.S. economy was
quite strong, and many luxury goods were sold. Currently, the economy is somewhat
weak, and many firms are facing the results. Car makers, for example, have seen
declining profit margins (and even losses) as they have had to cut prices and offer low
interest rates on financing. Generally, in good economic times, there is a great deal of
demand, but this introduces a fear of possible inflation. In the U.S., the Federal Reserve
will then try to prevent the economy from “overheating.” This is usually done by
raising interest rates. This makes businesses less willing to invest, and as a result,
people tend to make less money. During a recession, unemployment tends to rise,
causing consumers to spend less. This may result in a “bad circle,” with more people
losing their jobs due to lowered demands. Some businesses, however, may take this
opportunity to invest in growth now that things can be bought more cheaply.

STRATEGIC PLANNING AND THE MARKETING PROCESS

Plans and planning:

Plans are needed to clarify what kinds of strategic objectives an organization


would like to achieve and how this is to be done. Such plans must consider the amount
of resources available. One critical resource is capital. Microsoft keeps a great deal of
cash on hand to be able to “jump” on opportunities that come about. Small startup
software firms, on the other hand, may have limited cash on hand. This means that they
may have to forego what would have been a good investment because they do not have
the cash to invest and cannot find a way to raise the capital. Other resources that affect
what a firm may be able to achieve include Trademarks/brand names: It would be very
difficult to competefactors such as: Patents: It would be difficult toagainst Coke
and Pepsi in the cola market. Compete against Intel and AMD in the microprocessor
market since both these People: firms have a number of patents that it is difficult to
get around. Even with all of Microsoft’s money available, it could not immediately
hire the Distribution: Stores have spacepeople needed to manufacture computer
chips. For only a fraction of the products they are offered, so they must turn many
away. A firm that does not have an established relationship with stores will be at a
disadvantage in trying to introduce a new product.

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Plans are subject to the choices and policies that the organization has made.
Some firms have goals of social responsibility, for example. Some firms are willing to
take a greater risk, which may result in a very large payoff but also involve the risk of a
large loss, than others.

Strategic marketing is best seen as an ongoing and never-ending process.


Typically:

• The organization will identify the objectives it wishes to achieve. This could
involve profitability directly, but often profitability is a long term goal that may
require some intermediate steps. The firm may seek to increase market share,
achieve distribution in more outlets, have sales grow by a certain percentage, or
have consumers evaluate the product more favorably. Some organizations have
objectives that are not focused on monetary profit—e.g., promoting literacy or
preventing breast cancer.
• An analysis is made, taking into consideration issues such as organizational
resources, competitors, the competitors’ strengths, different types of customers,
changes in the market, or the impact of new technology.
• Based on this analysis, a plan is made based on tradeoffs between the
advantages and disadvantages of different options available.
• This strategy is then carried out. The firm may design new products, revamp its
advertising strategy, invest in getting more stores to carry the product, or decide
to focus on a new customer segment.
• After implementation, the results or outcome are evaluated. If results are not as
desired, a change may have to be made to the strategy. Even if results are
satisfactory, the firm still needs to monitor the environment for changes.

Levels of planning and strategies:

Plans for a firm can be made at several different levels. At the corporate level,
the management considers the objectives of the firm as a whole. For example,
Microsoft may want seek to grow by providing high quality software, hardware, and
services to consumers. To achieve this goal, the firm may be willing to invest
aggressively.

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Plans can also be made at the business unit level. For example, although
Microsoft is best known for its operating systems and applications software, the firm
also provides Internet access and makes video games. Different managers will have
responsibilities for different areas, and goals may best be made by those closest to the
business area being considered. It is also more practical to hold managers accountable
for performance if the plan is being made at a more specific level. Boeing has both
commercial aircraft and defense divisions. Each is run by different managers, although
there is some overlap in technology between the two. Therefore, plans are needed both
at the corporate and at the business levels.

Occasionally, plans will be made at the functional level, to allow managers to


specialize and to increase managerial accountability. Marketing, for example, may be
charged with increasing awareness of Microsoft game consoles to 55% of the U.S.
population or to increase the number of units of Microsoft Office sold. Finance may be
charged with raising a given amount of capital at a given cost. Manufacturing may be
charged with decreasing production costs by 5%.

The firm needs to identify the business it is in. Here, a balance must be made so
that the firm’s scope is not defined too narrowly or too broadly. A firm may define its
goal very narrowly and then miss opportunities in the market place. For example, if
Dell were to define itself only as a computer company, it might miss an opportunity to
branch into PDAs or Internet service. Thus, they might instead define themselves as a
provider of “information solutions.” A company should not define itself too broadly,
however, since this may result in loss of focus. For example, a manufacturer of baking
soda should probably not see itself as a manufacturer of all types of chemicals.
Sometimes, companies can define themselves in terms of a customer need. For
example, 3M sees itself as being in the business of making products whose surfaces are
bonded together. This accounts for both Post-It notes and computer disks.

A firm’s mission should generally include a discussion of the customers served


(e.g., Wal-Mart and Nordstrom’s serve different groups), the kind of technology
involved, and the markets served.

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Several issues are involved in selecting target customers. We will consider these
in more detail within the context of segmentation, but for now, the firm needs to
consider issues such as:

• The size of various market segments;


• How well these segments are being served by existing firms;
• Changes in the market—e.g., growth of segments or change in technology;
• How the firm should be positioned, or seen by customers. For example, Wal-
Mart positions itself as providing value in retailing, while Nordstrom’s defines
itself more in terms of high levels of customer service.

The Boston Consulting Group (BCG) matrix provides a firm an opportunity to


assess how well its business units work together. Each business unit is evaluated in
terms of two factors: market share and the growth prospects in the market. Generally,
the larger a firm’s share, the stronger its position, and the greater the growth in a
market, the better future possibilities. Four combinations emerge:

• A star represents a business unit that has a high share in a growing market. For
example, Motorola has a large share in the rapidly growing market for cellular
phones.
• A question mark results when a unit has a small share in a rapidly growing
market. The firm’s position, then, is not as strong as it would have been had its
market share been greater, but there is an opportunity to grow. For example,
Hewlett-Packard has a small share of the digital camera market, but this is a
very rapidly growing market.
• A cash cow results when a firm has a large share in a market that is not
growing, and may even be shrinking. Brother has a large share of the typewriter
market.
• A dog results when a business unit has a small share in a market that is not
growing. This is generally a somewhat unattractive situation, although dogs can
still be profitable in the short run. For example, Smith Corona how has a small
share of the typewriter market.

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Firms are usually best of with a portfolio that has a balance of firms in each
category. The cash cows tend to generate cash but require little future investment. On
the other hand, stars generate some cash, but even more cash is needed to invest in the
future—for research and development, marketing campaigns, and building new
manufacturing facilities. Therefore, a firm may take excess cash from the cash cow and
divert it to the star. For example, Brother could “harvest” its profits from typewriters
and invest this in the unit making color laser printers, which will need the cash to grow.
If a firm has cash cows that generate a lot of cash, this may be used to try to improve
the market share of a question mark. A firm that has a number of promising stars in its
portfolio may be in serious trouble if it does not have any cash cows to support it. If it
is about to run out of cash—regardless of how profitable it is—is becomes vulnerable
as a takeover target from a firm that has the cash to continue running it.

A SWOT (“Strengths, Opportunities, Weaknesses, and Threats”) analysis is used


to help the firm identify effective strategies. Successful firms such as Microsoft have
certain strengths. Microsoft, for example, has a great deal of technology, a huge staff of
very talented engineers, a great deal of experience in designing software, a very large
market share, a well respected brand name, and a great deal of cash. Microsoft also has
some weaknesses, however: The game console and MSN units are currently running at
a loss, and MSN has been unable to achieve desired levels of growth. Firms may face
opportunities in the current market. Microsoft, for example, may have the opportunity
to take advantage of its brand name to enter into the hardware market. Microsoft may
also become a trusted source of consumer services. Microsoft currently faces several
threats, including the weak economy. Because fewer new computers are bough during a
recession, fewer operating systems and software packages.

Rather than merely listing strengths, weaknesses, opportunities, and threats, a


SWOT analysis should suggest how the firm may use its strengths and opportunities to
overcome weaknesses and threats. Decisions should also be made as to how resources
should be allocated. For example, Microsoft could either decide to put more resources
into MSN or to abandon this unit entirely. Microsoft has a great deal of cash ready to
spend, so the option to put resources toward MSN is available. Microsoft will also need
to see how threats can be addressed. The firm can earn political good will by engaging
in charitable acts, which it has money available to fund. For example, Microsoft has

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donated software and computers to schools. It can forego temporary profits by reducing
prices temporarily to increase demand, or can “hold out” by maintaining current prices
while not selling as many units.

Criteria for effective marketing plans:

Marketing plans should meet several criteria:

• The plan must be specific enough so that it can be implemented and


communicated to people in the firm. “Improving profitability” is usually too
vague, but increasing net profits by 5%, increasing market share by 10%,
gaining distribution in 2,000 more stores, and reducing manufacturing costs by
2% are all specific.
• The plan must be measurable so that one can see if it has been achieved. The
above plans involve specific numbers.
• The goal must be achievable or realistic. Plans that are unrealistic may result in
poor use of resources or lowered morale within the firm.
• The goals must be consistent. For example, a firm cannot ordinarily
simultaneously plan improve product features, increase profits, and reduce
prices.

Consumer Behavior:

Consumer behavior involves the psychological processes that consumers go


through in recognizing needs, finding ways to solve these needs, making purchase
decisions (e.g., whether or not to purchase a product and, if so, which brand and
where), interpret information, make plans, and implement these plans (e.g., by
engaging in comparison shopping or actually purchasing a product).

Sources of influence on the consumer:

The consumer faces numerous sources of influence. Often, we take cultural


influences for granted, but they are significant. An American will usually not bargain
with a store owner. This, however, is a common practice in much of the World.
Physical factors also influence our behavior. We are more likely to buy a soft drink

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when we are thirsty, for example, and food manufacturers have found that it is more
effective to advertise their products on the radio in the late afternoon when people are
getting hungry.

THE GLOBAL MARKETPLACE

Globalization of Markets and Competition:

Trade is increasingly global in scope today. There are several reasons for this.
One significant reason is technological—because of improved transportation and
communication opportunities today, trade is now more practical. Thus, consumers and
businesses now have access to the very best products from many different countries.
Increasingly rapid technology lifecycles also increases the competition among countries
as to who can produce the newest in technology. In part to accommodate these realities,
countries in the last several decades have taken increasing steps to promote global trade
through agreements such as the General Treaty on Trade and Tariffs, and trade
organizations such as the World Trade Organization (WTO), North American Free
Trade Agreement (NAFTA), and the European Union (EU).

Stages in the International Involvement of a Firm:

We discussed several stages through which a firm may go as it becomes


increasingly involved across borders. A purely domestic firm focuses only on its home
market, has no current ambitions of expanding abroad, and does not perceive any
significant competitive threat from abroad. Such a firm may eventually get some orders
from abroad, which are seen either as an irritation (for small orders, there may be a
great deal of effort and cost involved in obtaining relatively modest revenue) or as
"icing on the cake." As the firm begins to export more, it enters the export stage, where
little effort is made to market the product abroad, although an increasing number of
foreign orders are filled. In the international stage, as certain country markets begin to
appear especially attractive with more foreign orders originating there, the firm may go
into countries on an ad hoc basis—that is, each country may be entered sequentially,
but with relatively little learning and marketing efforts being shared across countries. In
the multi-national stage, some efficiencies are pursued by standardizing across a region

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(e.g., Central America, West Africa, or Northern Europe). Finally, in the global stage,
the focus centers on the entire World market, with decisions made optimize the
product’s position across markets—the home country is no longer the center of the
product. An example of a truly global company is Coca Cola.

Note that these stages represent points on a continuum from a purely domestic
orientation to a truly global one; companies may fall in between these discrete stages,
and different parts of the firm may have characteristics of various stages—for example,
the pickup truck division of an auto-manufacturer may be largely domestically focused,
while the passenger car division is globally focused. Although a global focus is
generally appropriate for most large firms, note that it may not be ideal for all
companies to pursue the global stage. For example, manufacturers of ice cubes may do
well as domestic, or even locally centered, firms.

Some forces in international trade:

The text contains a rather long-winded appendix discussing some relatively


simple ideas. Comparative advantage, discussed in more detail in the economics notes,
suggests trade between countries is beneficial because these countries differ in their
relative economic strengths—some have more advanced technology and some have
lower costs. The International Product Life Cycle suggests that countries will differ in
their timing of the demand for various products. Products tend to be adopted more
quickly in the United States and Japan, for example, so once the demand for a product
(say, VCRs) is in the decline in these markets, an increasing market potential might
exist in other countries (e.g., Europe and the rest of Asia). Internalization/transaction
costs refers to the fact that developing certain very large scale projects, such as an
automobile intended for the World market, may entail such large costs that these must
be spread over several countries.

MARKETING RESEARCH

Primary vs. secondary research:

There are two kinds of market research: Primary research refers to the research
that a firm conducts for its own needs (e.g., focus groups, surveys, interviews, or

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observation) while secondary research involves finding information compiled by


someone else. In general, secondary research is less expensive and is faster to conduct,
but it may not answer the specific questions the firm seeks to have answered (e.g., how
do consumers perceive our product?), and its reliability may be in question.

Secondary sources:

A number of secondary sources of country information are available. One of the


most convenient sources is an almanac, containing a great deal of country information.
Almanacs can typically be bought for $10.00 or less. The U.S. government also
publishes a guide to each country, and the handbook International Business
Information: How to Find It, How to Use It.

Several experts may be available. Anthropologists and economists in


universities may have built up a great deal of knowledge and may be available for
consulting. Consultants specializing in various regions or industries are typically
considerably more expensive. One should be careful about relying on the opinions of
expatriates (whose views may be biased or outdated) or one’s own experience (which
may relate to only part of a country or a certain sub segment) and may also suffer from
the limitation of being a sample of size 1.

Hard vs. soft data:

"Hard" data refers to relatively quantifiable measures such as a country’s GDP,


number of telephones per thousand residents, and birth rates (although even these
supposedly "objective" factors may be subject to some controversy due to differing
definitions and measurement approaches across countries). In contrast, "soft" data
refers to more subjective issues such as country history or culture. It should be noted
that while the "hard" data is often more convenient and seemingly objective, the "soft"
data is frequently as important, if not more so, in understanding a market.

Data reliability:

The accuracy and objectivity of data depend on several factors. One significant
one is the motivation of the entity that releases it. For example, some countries may

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want to exaggerate their citizens’ literacy rates owing to national pride, and an
organization promoting economic development may paint an overly rosy picture in
order to attract investment. Some data may be dated (e.g., a census may be conducted
rarely in some regions), and some countries may lack the ability to collect data (it is
difficult to reach people in the interior regions of Latin America, for example).
Differences in how constructs are defined in different countries (e.g., is military
personnel counted in people who are employed?) may make figures of different
jurisdictions non-comparable.

Cost of data:

Much government data, or data released by organizations such as the World


Bank or the United Nations, is free or inexpensive, while consultants may charge very
high rates.

Issues in primary research:

Cultural factors often influence how people respond to research. While


Americans are used to market research and tend to find this relatively un-threatening,
consumers in other countries may fear that the data will be reported to the government,
and may thus not give accurate responses. In some cultures, criticism or confrontation
are considered rude, so consumers may not respond honestly when they dislike a
product. Technology such as scanner data is not as widely available outside the United
States. Local customs and geography may make it difficult to interview desired
respondents; for example, in some countries, women may not be allowed to talk to
strangers.

ELECTRONIC COMMERCE

Prospects for electronic commerce:

Electronic commerce—usually in the form of sales, promotion, or support


through the Internet—is a hot topic at the moment, evidenced by the high market
capitalization of firms involved in this kind of business. Growth rates have been
considerable over the last two years and are expected to persist, at least to some extent,

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for at least the next several years. Yet, it should be recognized that so far, sales over the
Internet account for only a small portion of sales—especially outside the U.S.

Obstacles to diffusion:

Obstacles to the diffusion of Internet trade come both from enduring sources
and temporary roadblocks which may be overcome as consumer attitudes change and
technology is improved. Currently, Internet connections are slower than desired so that
downloading pictures and other information may take longer than consumers are
willing to wait. "Glitches" in online ordering systems may also frustrate consumers,
who are unable to place their orders at a given time or have difficulty navigating
through a malfunctioning site. The lack of non-English language sites in some areas
may also be off-putting to consumers, and registering domain names in some countries
is difficult. Further, shipping small packages across countries may be inefficient due to
high local postage rates and inefficiencies in customs processing. Most of these
obstacles may be overcome within next few years.

Other obstacles may, however, have considerably greater staying power. First,
there are legal problems, as several different countries may seek to impose their
jurisdiction on advertising and laws of product assortment and business practices.
Further, the maintenance of databases, which are essential to delivering on the promises
of e-commerce, may conflict with the privacy rules of some countries—this is currently
a hot issue of contention between the United States and the European Union. Finally,
there are issues of taxation and collection. While the Clinton Administration has sought
to get the WTO to go along with a three year tax "moratorium" on Internet purchases
much like the one observed in the U.S., strong opposition is expected. A great attraction
of e-commerce in Europe is that people may order from other countries and thus evade
local sales taxes, which can be prohibitive (e.g., 25% in Denmark and 16% in
Germany). Some firms will ship to customers in neighboring countries without
collecting sales taxes or duties, with the responsibility of paying falling on the
consumer. Although most consumers who order and do not arrange to pay for these
taxes get away with it, fines for those caught through random checks can be severe.

Locus of the site:

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Some firms have chosen to maintain a global site, with reference only to local
sales or support offices; others, in contrast, have unique sites for each country. In some
cases, a global site wills hyperlink surfers to a country or region relevant site. Note that
some confusion exists since many sites outside the U.S. maintain the ".com"
designation rather than their countries’ respective suffix (e.g., ".de" for Germany, ".se"
for Sweden, and ".au" for Australia). Some firms have experienced problems getting
their banks to accept credit card charges in more than one currency, and thus it may be
difficult to indicate precise prices in more than one denomination (one site based in
Britain offered its American customers to be as accurate as possible, based on current
exchange rates, although the charge could be off "by a few pennies.")

Lifecycle stages across the World:

It has been suggested that Europe runs some five years behind the U.S. in
electronic commerce, but some sources dispute this, suggesting that lack of success
among American retailers may have other origins, such as inadequate adaptation (for
example, some British users are put off by American English). There are, however,
some factors which cause most countries run behind. Even in Europe, Internet access
penetration rates are lower than they are in the U.S., and the slower speed associated
with downloading Asian characters is discouraging. In some countries, credit card
penetration is lower, and even in European countries with high penetration rates,
consumers are reluctant to use them. Further, the fact that consumers in most countries
have to pay a per minute phone charge discourages the essential casual and relaxed
browsing common in the U.S. so long as unlimited cable or hardwired access is not
offered.

ECONOMICS

Historical Basis for Trade:

Throughout history, countries have tended to trade with each other, but usually
to a much lesser extent than they do today. There are several reasons:

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• Difficulties in transportation and communication made it difficult to transport


manufactured goods which would, in any event, arrive with long delays after
manufacturing;
• Border disputes, a history of invasions, and other tensions between countries
discouraged trade with historical or potential enemies; and
• Paper money was less readily available, so it was more difficult to match
products for barter between the same buyer and sellers.

Nevertheless, countries did have to trade with each other to a more limited extent
since:

• Certain natural resources (e.g., iron, gold) were not readily available in some
countries;
• Some countries did not have the technology to produce certain goods (e.g.,
when steel was introduced, it could be made only in some countries);
• In some countries, there was a demand for certain specialized goods, but not
enough of a market to justify local production within reasonable economies of
scale.

Today, trade is necessitated by several factors:

• Technological advances are so fast that, at any point, a different country may
have the latest and most effective technology in compelling areas (e.g.,
computers, medical);
• Certain product lines (e.g., automobiles) require tremendous economies of scale
to be cost effective, so these costs must be spread over several different
markets;
• With advances in transportation, it becomes essential to take advantage of
relative strengths that different countries have (e.g., technological leadership,
low labor costs).

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Absolute advantage is typically measured in terms of labor input and refers to


the number of units that one worker can produce in one unit of time. For example,
suppose that a Japanese worker can produce fifteen shirts in one hour, while a
Malaysian worker can produce only five. Thus, the Japanese worker has the absolute
advantage. However, suppose that the Japanese worker can produce two cars a week,
while the Malaysian worker can produce only one tenth of a car in that amount of time.
It can be shown that, assuming that these are the only two countries that can trade with
each other; it would be to the advantage of both countries to trade Japanese cars for
Malaysian shirts. This is known as relative advantage. In practice, it is often more
useful to think of relative technological sophistication vs. lower labor costs.

Protectionism:

Although trade generally benefits a country as a whole, powerful interests


within countries frequently put obstacles—i.e., they seek to inhibit free trade. There are
several ways this can be done:

• Tariff barriers: A duty, or tax or fee, is put on products imported. This is


usually a percentage of the cost of the good.
• Quotas: A country can export only a certain number of goods to the importing
country. For example, Mexico can export only a certain quantity of tomatoes to
the United States, and Asian countries can send only a certain quota of textiles
here.
• "Voluntary" export restraints: These are not official quotas, but involve
agreements made by countries to limit the amount of goods they export to an
importing country. Such restraints are typically motivated by the desire to avoid
more stringent restrictions if the exporters do not agree to limit themselves. For
example, Japanese car manufacturers have agreed to limit the number of
automobiles they export to the United States.
• Subsidies to domestic products: If the government supports domestic
producers of a product, these may end up with a cost advantage relative to
foreign producers who do not get this subsidy. U.S. honey manufacturers
receive such subsidies.

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• Non-tariff barriers, such as differential standards in testing foreign and


domestic products for safety, disclosure of less information to foreign
manufacturers needed to get products approved, slow processing of imports at
ports of entry, or arbitrary laws which favor domestic manufacturers.

Justifications for protectionism: Several justifications have been made for the
practice of protectionism. Some appear to hold more merit than others:

• Protection of an "infant" industry: Costs are often higher, and quality lower,
when an industry first gets started in a country, and it thus be very difficult for
that country to compete. However, as the industry in the country matures, it may
be better able to compute. Thus, for example, some countries have attempted to
protect their domestic computer markets while they gained strength. The U.S.
attempted to protect its market for small autos American manufacturers were
caught unprepared for the switch in demand away from the larger cars caught
U.S. auto makers unprepared. This is generally an accepted reason in trade
agreements, but the duration of this protection must be limited (e.g., a maximum
of five to ten years).
• Resistance to unfair foreign competition: The U.S. sugar industry contends
that most foreign manufacturers subsidize their sugar production, so the U.S.
must follow to remain competitive. This argument will hold little merit with the
dispute resolution mechanism available through the World Trade Organization.
• Preservation of a vital domestic industry: The U.S. wants to be able to
produce its own defense products, even if foreign imports would be cheaper,
since the U.S. does not want to be dependent on foreign manufacturers with
whose countries conflicts may arise. Similarly, Japan would prefer to be able to
produce its own food supply despite its exorbitant costs. For an industry
essential to national security, this may be a compelling argument, but it is often
used for less compelling ones (e.g., manufactures of funeral caskets or honey).
• Intervention into a temporary trade balance: A country may want to try to
reverse a temporary decline in trade balances by limiting imports. In practice,
this does not work since such moves are typically met by retaliation.
• Maintenance of domestic living standards and preservation of jobs: Import
restrictions can temporarily protect domestic jobs, and can in the long run

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protect specific jobs (e.g., those of auto makers, farmers, or steel workers). This
is less of an accepted argument—these workers should instead by retrain to
work in jobs where their country has a relative advantage.
• Retaliation: The proper way to address trade disputes is now through the World
Trade Organization. In the past, where enforcement was less available, this
might have been a reasonable argument.

Note that while protectionism generally hurts a country overall, it may be


beneficial to specific industries or other interest groups. Thus, while sugar price
supports are bad for consumers in general, producers are an organized group that can
exert a great deal of influence. In contrast, the individual consumer does not have much
of an incentive to take action to save about $5.00 a year.

Effects of protectionism:

Protectionism tends to lead to additional tariffs or other protectionist measures


by other countries in retaliation, reduced competition (which results in inflation and
less choice for consumers), a weakening of the trade balance (due in part to diminished
export abilities resulting from foreign retaliations and in part because of the domestic
currency loses power as there is less demand for it). An overall effect may be a vicious
cycle of trade wars as each country responds to the other with a "tit for tat."

EFFORTS TO ENCOURAGE TRADE:

The General Agreement on Trade and Tariffs (GATT), which was negotiated at the
Bretton Woods Conference in 1947, sought to encourage international trade following
World War II, when many countries were in bad shape after the war.

There were several objectives:

• To encourage trade in general;


• To replace non-tariff barriers with tariff barriers—i.e., it is acceptable but not
encourage able to impose some burden on foreign products, but this must be in
the form of a readily identifiable duty rather than a more vague restriction
which is less transparent;

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• Reciprocity: Countries should respond in kind when other countries reduce


tariffs or barriers;
• Providing the most favorable trade terms offered to anyone to all members of
the agreement.

Note that the above represent general principles, which in practice are
implemented with numerous exceptions. For example, the Uruguay Roundtable
Agreement, which set up the World Trade Organization, literally runs several thousand
pages. The EU and NAFTA are accepted, but go against the provision of offering the
best terms available to everyone.

The 1994 Uruguay Round Table Agreement resulted in the establishment of the
World Trade Organization (WTO). The main thrust of this organization is to expand the
scope of trade affected (e.g., services are now covered), the protection of intellectual
property (e.g., patents, copyrights, and trademarks) and, most importantly, to provide
binding decisions on disputes which member countries must meet.

Stages in International Trade Agreements:

Trade between countries is generally started gradually—it takes a long time


before barriers are eliminated entirely or even reduced dramatically. The stages on slide
11 are points on a continuum. Starting with heavy barriers to trade, countries may
decide to move toward a "free trade area," where two countries agree on one or more
trade liberalizations—e.g., two countries agree that bananas and steel can now be traded
between the two countries with only a three percent duty (in contrast, say, to a fifteen
percent duty that existed earlier). Water melons and charcoal may then be added later,
along with products that may follow over time.

A customs union involves a more systematic trade agreement with reductions in


duties and quotas covering a large spectrum of goods and services. For example,
NAFTA systematically reduced tariffs and improved access of Canada, the U.S., and
Mexico, to each others’ markets. Significant barriers still exist, however.

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In a common market, goods can be moved freely from one member country to
another. Although the EU has been calling itself a common market since the 1970s, it
has not quite reached that reality yet. To understand what is going on here, we need to
understand the distinction between duties (taxes imposed on goods which are imported,
but not on goods produced in the home country) and excise taxes (such as the American
sales tax, which is imposed on all goods, whether they are produced at home or
abroad). Currently, individuals can bring almost anything they want in from other
member countries, although businesses are somewhat less free. For example, one firm
offered to deliver a pallet of two thousand five-hundred beers from Germany, where
"sin" taxes are lower, to Denmark. The authorities intervened and it was decided that
the consumers would have to go and pick up the beers abroad themselves to benefit
from the lower rates. One can now no longer take in duty free goods moving from one
EU country to another, but one can buy whatever one wants in another EU country,
paying a possibly lower sales tax there, and bring it back to one’s home country. It used
to be that many Danish consumers would take a ferry to Germany and buy a limited
quantity of duty free alcohol and tobacco which could be taken into Denmark with no
additional duties or excise taxes. This is no longer possible, since both countries are
part of the EU, but now it is possible to take the ferry and not even go aboard in
Germany, buying all desired goods in German territorial waters at the lower German
sales tax.

A monetary union involves countries abandoning their own currencies and


monetary policies. The European Union will soon replace the currencies of some
member countries with the Euro (not all countries are eligible to join, since some have
too high a national debt or too large a government budget deficit, and others have
chosen not to join at this time). A monetary union removes the ability of each country
to control its own currency—it can no longer devalue its currency to improve export
opportunities—but also introduces greater stability in exchange rates so that trade will
not be interrupted by actual exchange rate fluctuations or avoided due to fears or
exchange rate instability. Note that actually implementing a monetary union is difficult.
The EU monetary union will be implemented over time—although contracts can now
be specified in terms of Euros, actual currency will not be introduced until next year,

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and even when it is introduced, there will be a period of overlap where the Euro and the
original currencies will coexist.

A political union involves countries actually merging, which laws of the union
superseding national laws. At the present time, no such unions exist, although many
trade related decisions in the EU are now handled through the European Parliament.
(The states of the United States and various other countries such as Mexico, Brazil, and
Germany are not genuinely sovereign.) The bottom line here is to recognize that trade
liberalization is a gradual process and that not all countries will move all the way
toward completely free trade.

ECONOMIC ISSUES:

• "Open" vs. "closed" currencies: Not all currencies can be freely traded—
some countries prohibit their currencies from leaving their borders, although
this is mostly confined to developing countries that want to encourage tourists
to spend their remaining currency rather than converting it back to their own
currencies and spending it in their home countries. There are, however, some
currencies for which international markets are not readily available, because the
demand for those currencies is limited.
• Exchange rates come in two forms:
• "Floating"—here, currencies are set on the open market based on the supply of
and demand for each currency. For example, all other things being equal, if the
U.S. imports more from Japan than it exports there, there will be less demand

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for U.S. dollars (they are not desired for purchasing goods) and more demand
for Japanese yen—thus, the price of the yen, in dollars, will increase, so you
will get fewer yen for a dollar.
• "Fixed"—currencies may be "pegged" to another currency (e.g., the
Argentinean currency is guaranteed in terms of a dollar value), to a composite
of currencies (i.e., to avoid making the currency dependent entirely on the U.S.
dollar, the value might be 0.25*U.S. dollar+4*Mexican peso+50*Japanese
yen+0.2*German mark+0.1*British pound), or to some other valuable such as
gold. Note that it is very difficult to maintain these fixed exchange rates—
governments must buy or sell currency on the open market when currencies go
outside the accepted ranges. Fixed exchange rates, although they produce
stability and predictability, tend to get in the way of market forces—if a
currency is kept artificially low, a country will tend to export too much and
import too little.
• Trade balances and exchange rates: When exchange rates are allowed to
fluctuate, the currency of a country that tends to run a trade deficit will tend to
decline over time, since there will be less demand for that currency. This
reduced exchange rate will then tend to make exports more attractive in other
countries and imports less attractive at home.

Measuring country wealth:

There are two ways to measure the wealth of a country. The nominal per capita
gross domestic product (GDP) refers to the value of goods and services produced per
person in a country if this value in local currency were to be exchanged into dollars.
Suppose, for example, that the per capita GDP of Japan is 3,500,000 yen and the dollar
exchanges for 100 yen, so that the per capita GDP is (3,500,000/100)=$35,000.
However, that $35,000 will not buy as much in Japan—food and housing are much
more expensive there. Therefore, we introduce the idea of purchase parity adjusted per
capita GDP, which reflects what this money can buy in the country. This is typically
based on the relative costs of a weighted "basket" of goods in a country (e.g., 35% of
the cost of housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of

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other items). If it turns out that this measure of cost of living is 30% higher in Japan,
the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) = $26,923.

In general, the nominal per capita GPD is more useful for determining local
consumers’ ability to buy imported goods, the cost of which are determined in large
measure by the costs in the home market, while the purchase parity adjusted measure is
more useful when products are produced, at local costs, in the country of purchase. For
example, the ability of Argentineans to purchase micro computer chips, which are
produced mostly in the U.S. and Japan, is better predicted by nominal income, while
the ability to purchase toothpaste made by a U.S. firm in a factory in Argentina is better
predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed


so that these average measures may not be very meaningful. In Brazil, for example,
there is a very large underclass making significantly less than the national average, and
thus, the national figure is not a good indicator of the purchase power of the mass
market. Similarly, great regional differences exist within some countries—income is
much higher in northern Germany than it is in the former East Germany, and income in
southern Italy is much lower than in northern Italy.

Economic trends:

Certain countries have high levels of inflation; this figure, for example, has run
at several hundred percent at various times in Brazil. In that case, then, it becomes
important to adjust figures for inflation. Suppose that, as an illustration that the
Brazilian economy grew from 1997 to 1998 from 200 trillion cruzeiros to 410 trillion
while there was an inflation of 100%. The economy, then, did not really double.
Therefore, the "real" growth, adjusted for inflation, is (410-200)/(100%+100%)-1 =
(210/200)-1=5%. (You will not have to do such calculations on the exam, but you
should understand the principle of real [inflation adjusted] vs. nominal growth.) Please
note that even in countries that have inflation rates as moderate as 1-5%, adjustment for
inflation is still essential.

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When one looks at an entire country, note that overall GDP may increase as
population increases while its per capita GDP increases less or even decreases.
Suppose, for example, that the GDP of India from 1997 to 1998 increases from $1
trillion to $1.02 trillion and that there is no inflation but the population increases by
3%. The population adjusted economic growth would be ((1.02-1.00)/1.03)-
100%=98.5%-100%=-1.5%. Again, you will not be asked to make actual calculations
on the exam.

Some countries run trade deficits over long periods of time, and when this
happens, their currency is expected to weaken over time. In principle, this weakening
ought to increase exports and decrease exports, but since countries may be able to
borrow from foreign lenders, this may not always happen in practice. The U.S., for
example, has been able to finance deficit spending by foreign borrowing. While the
U.S. dollar declined sharply against the yen in the 1980s and early 1990s, it has
remained much more stable in recent years at 100-130 yen per dollar.

CULTURE

Dealing with culture: Culture is a problematic issue for many marketers since it is
inherently nebulous and often difficult to understand. One may violate the cultural
norms of another country without being informed of this, and people from different
cultures may feel uncomfortable in each other’s presence without knowing exactly why
(for example, two speakers may unconsciously continue to attempt to adjust to reach an
incompatible preferred interpersonal distance).

Warning about stereotyping:

When observing a culture, one must be careful not to over-generalize about


traits that one sees. Research in social psychology has suggested a strong tendency for

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people to perceive an "out-group" as more homogenous than an "in-group," even when


they knew what members had been assigned to each group purely by chance. When
there is often a "grain of truth" to some of the perceived differences, the temptation to
over-generalize is often strong. Note that there are often significant individual
differences within cultures.

Definition:

The text defines culture as "A learned, shared, compelling, interrelated set of
orientations for members of society." While memorizing definitions is not essential,
note the following parts of the definition:

• Learned: Culture is not genetically based—if that were the case cultures across
the World would have been much more similar to each other. We learn what is
considered appropriate in our culture through trial and error. If a child engages
in competitive behavior, this might be rewarded in the United States with the
expression of parental approval, while in Japan it might result in subtle shows of
disapproval, such as lack of attention.
• Shared: The beliefs, interpretations, and behaviors are shared by all or most of
the people within the culture, so that it becomes a truly society-wide
phenomenon.
• Compelling: Culture must have implications (such as social disapproval if
contradicted) in order to be considered important.
• Interrelated: Although there may be conflicts between elements of culture
(e.g., respect for seniority may come into conflict with a growing value of
achievement in Singapore), for the most part, elements of culture constitute a
coherent and relatively consistent whole. For example, the tendency for
Japanese business people to bow when meeting each other and the tendency of
lower level Japanese employees to show great deference to their superiors are
both manifestations of a strong emphasis on respect.

Cultural lessons:

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We considered several cultural lessons in class; the important thing here is the
big picture. For example, within the Muslim tradition, the dog is considered a "dirty"
animal, so portraying it as "man’s best friend" in an advertisement is counter-
productive. Packaging, seen as a reflection of the quality of the "real" product, is
considerably more important in Asia than in the U.S., where there is a tendency to
focus on the contents which "really count." Many cultures observe significantly greater
levels of formality than that typical in the U.S., and Japanese negotiator tend to observe
long silent pauses as a speaker’s point is considered.

Elements of culture:

The text considers several elements of culture, such as the material culture,
education, and religion. Another way to look at cultural contents involves the areas of:

• Beliefs: While Americans may attribute success to hard work or skill, it may be
attributed to luck or connections in other cultures.
• Attitudes: Beliefs, feelings, and behavioral intentions may differ. While the
American may appreciate getting a bargain in a sale, this may conjure up
images of not being able to afford the full price in other cultures.
• Goals: While "progress" (having new and improved products, for example) is
considered a good thing in the U.S., many Japanese parents are concerned that
the "wa-pro" leaves their children unable to write the traditional Japanese
pictographs.
• Values: In the U.S., individual uniqueness is generally considered a good thing
while in some cultures fitting in with the group is a higher priority. Thus, for
example, an American may enjoy wearing relatively innovative clothing, which
may be frowned upon in a more collectivistic society.

Cultural characteristics as a continuum:

There is a tendency to stereotype cultures as being one way or another (e.g.,


individualistic rather than collectivistic). Note, however, countries fall on a continuum
of cultural traits. Hofstede’s research demonstrates a wide range between the most
individualistic and collectivistic countries, for example—some fall in the middle.

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Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to interview a


large number of IBM executives in various countries, and found that cultural
differences tended to center around four key dimensions:

• Individualism vs. collectivism: To what extent do people believe in individual


responsibility and reward rather than having these measures aimed at the larger
group? Contrary to the stereotype, Japan actually ranks in the middle of this
dimension, while Indonesia and West Africa rank toward the collectivistic side.
The U.S., Britain, and the Netherlands rate toward individualism.
• Power distance: To what extent is there a strong separation of individuals
based on rank? Power distance tends to be particularly high in Arab countries
and some Latin American ones, while it is more modest in Northern Europe and
the U.S.
• Masculinity vs. femininity involves a somewhat more nebulous concept.
"Masculine" values involve competition and "conquering" nature by means such
as large construction projects, while "feminine" values involve harmony and
environmental protection. Japan is one of the more masculine countries, while
the Netherlands rank relatively low. The U.S. is close to the middle, slightly
toward the masculine side.
• Uncertainty avoidance involves the extent to which a "structured" situation with
clear rules is preferred to a more ambiguous one; in general, countries with
lower uncertainty avoidance tend to be more tolerant of risk. Japan ranks very
high. Few countries are very low in any absolute sense, but relatively speaking,
Britain and Hong Kong are lower, and the U.S. is in the lower range of the
distribution.

Although Hofstede’s original work did not address this, a fifth dimension of
long term vs. short term orientation has been proposed. In the U.S., managers like to
see quick results, while Japanese managers are known for take a long term view, often
accepting long periods before profitability is obtained.

High vs. low context cultures:

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In some cultures, "what you see is what you get"—the speaker is expected to
make his or her points clear and limit ambiguity. This is the case in the U.S.—if you
have something on your mind, you are expected to say it directly, subject to some
reasonable standards of diplomacy. In Japan, in contrast, facial expressions and what is
not said may be an important clue to understanding a speaker’s meaning. Thus, it may
be very difficult for Japanese speakers to understand another’s written communication.
The nature of languages may exacerbate this phenomenon—while the German
language is very precise, Chinese lacks many grammatical features, and the meaning of
words may be somewhat less precise. English ranks somewhere in the middle of this
continuum.

Ethnocentrism and the self-reference criterion:

The self-reference criterion refers to the tendency of individuals, often


unconsciously, to use the standards of one’s own culture to evaluate others. For
example, Americans may perceive more traditional societies to be "backward" and
"unmotivated" because they fail to adopt new technologies or social customs, seeking
instead to preserve traditional values. In the 1960s, a supposedly well read American
psychology professor referred to India’s culture of "sick" because, despite severe food
shortages, the Hindu religion did not allow the eating of cows. The psychologist
expressed disgust that the cows were allowed to roam free in villages, although it turns
out that they provided valuable functions by offering milk and fertilizing fields.
Ethnocentrism is the tendency to view one’s culture to be superior to others. The
important thing here is to consider how these biases may come in the way in dealing
with members of other cultures.

POLITICAL AND LEGAL INFLUENCES

The political situation:

The political relations between a firm’s country of headquarters (or other


significant operations) and another one may, through no fault of the firm’s, become a
major issue. For example, oil companies which invested in Iraq or Libya became
victims of these countries’ misconduct that led to bans on trade. Similarly, American

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firms may be disliked in parts of Latin America or Iran where the U.S. either had a
colonial history or supported unpopular leaders such as the former shah.

Certain issues in the political environment are particularly significant. Some


countries, such as Russia, have relatively unstable governments, whose policies may
change dramatically if new leaders come to power by democratic or other means. Some
countries have little tradition of democracy, and thus it may be difficult to implement.
For example, even though Russia is supposed to become a democratic country, the
history of dictatorships by the communists and the czars has left country of corruption
and strong influence of criminal elements.

Laws across borders:

When laws of two countries differ, it may be possible in a contract to specify in


advance which laws will apply, although this agreement may not be consistently
enforceable. Alternatively, jurisdiction may be settled by treaties, and some
governments, such as that of the U.S., often apply their laws to actions, such as anti-
competitive behavior, perpetrated outside their borders (extra-territorial application).
By the doctrine known as compulsion, a firm that violates U.S. law abroad may be able
to claim as a defense that it was forced to do so by the local government; such
violations must, however, be compelled—that they are merely legal or accepted in the
host country is not sufficient.

The reality of legal systems:

Some legal systems, such as that of the U.S., are relatively "transparent"—that
is, the law tends to be what its plain meaning would suggest. In some countries,
however, there are laws on the books which are not enforced (e.g., although Japan has
antitrust laws similar to those of the U.S., collusion is openly tolerated). Further, the
amount of discretion left to government officials tends to vary. In Japan, through the
doctrine of administrative guidance, great latitude is left to government officials, who
effectively make up the laws.

One serious problem in some countries is a limited access to the legal systems
as a means to redress grievances against other parties. While the U.S. may rely

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excessively on lawsuits, the inability to effectively hold contractual partners to their


agreement tends to inhibit business deals. In many jurisdictions, pre-trial discovery is
limited, making it difficult to make a case against a firm whose internal documents
would reveal guilt. This is one reason why personal relationships in some cultures are
considered more significant than in the U.S.—since enforcing contracts may be
difficult, you must be sure in advance that you can trust the other party.

Legal systems of the World:

There are four main approaches to law across the World, with some differences within
each:

• Common law, the system in effect in the U.S., is based on a legal tradition of
precedent. Each case that raises new issues is considered on its own merits, and
then becomes a precedent for future decisions on that same issue. Although the
legislature can override judicial decisions by changing the law or passing
specific standards through legislation, reasonable court decisions tend to stand
by default.
• Code law, which is common in Europe, gives considerably shorter leeway to
judges, who are charged with "matching" specific laws to situations—they
cannot come up with innovative solutions when new issues such as patentability
of biotechnology come up. There are also certain differences in standards. For
example, in the U.S. a supplier whose factory is hit with a strike is expected to
deliver on provisions of a contract, while in code law this responsibility may be
nullified by such an "act of God."
• Islamic law is based on the teachings of the Koran, which puts forward
mandates such as a prohibition of usury, or excessive interest rates. This has led
some Islamic countries to ban interest entirely; in others, it may be tolerated
within reason. Islamic law is ultimately based on the need to please God, so
"getting around" the law is generally not acceptable. Attorneys may be
consulted about what might please God rather than what is an explicit
requirements of the government.

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Socialist law is based on the premise that "the government is always right" and
typically has not developed a sophisticated framework of contracts (you do what the
governments tells you to do) or intellectual property protection (royalties are
unwarranted since the government ultimately owns everything). Former communist
countries such as those of Eastern Europe and Russia are trying to advance their legal
systems to accommodate issues in a free market.

U.S. laws of particular interest to firms doing business abroad:

• Anti-trust. U.S. antitrust laws are generally enforced in U.S. courts even if the
alleged transgression occurred outside U.S. jurisdiction. For example, if two
Japanese firms collude to limit the World supply of VCRs, they may be sued by
the U.S. government (or injured third parties) in U.S. courts, and may have their
U.S. assets seized.
• The Foreign Corrupt Influences Act came about as Congress was upset with
U.S. firms’ bribery of foreign officials. Although most if not all countries ban
the payment of bribes, such laws are widely flaunted in many countries, and it is
often useful to pay a bribe to get foreign government officials to act favorably.
Firms engaging in this behavior, even if it takes place entirely outside the U.S.,
can be prosecuted in U.S. courts, and many executives have served long prison
sentences for giving in to temptation. In contrast, in the past some European
firms could actually deduct the cost of foreign bribes from their taxes! There are
some gray areas here—it may be legal to pay certain "tips" –known as
"facilitating payments"—to low level government workers in some countries
who rely on such payments as part of their salary so long as these payments are
intended only to speed up actions that would be taken anyway. For example, it
may be acceptable to give a reasonable (not large) facilitating payment to get
customs workers to process a shipment faster, but it would not be legal to pay
these individuals to change the classification of a product into one that carries a
lower tariff.
• Anti-boycott laws. Many Arab countries maintain a boycott of Israel, and
foreigners that want to do business with them may be asked to join in this
boycott by stopping any deals they do with Israel and certifying that they do not
trade with that country. It is illegal for U.S. firms to make this certification even

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if they have not dropped any actual deals with Israel to get a deal with
boycotters.
• Trading With the Enemy. It is illegal for U.S. firms to trade with certain
countries that are viewed to be hostile to the U.S.—e.g., Libya and Iraq.

SEGMENTATION, TARGETING, AND POSITIONING

The importance of STP:

Segmentation is the cornerstone of marketing—almost all marketing efforts in


some way relate to decisions on who to serve or how to implement positioning through
the different parts of the marketing mix. For example, one’s distribution strategy should
consider where one’s target market is most likely to buy the product, and a promotional
strategy should consider the target’s media habits and which kinds of messages will be
most persuasive. Although it is often tempting, when observing large markets, to try to
be "all things to all people," this is a dangerous strategy because the firm may lose its
distinctive appeal to its chosen segments.

In terms of the "big picture," members of a segment should generally be as


similar as possible to each other on a relevant dimension (e.g., preference for quality vs.
low price) and as different as possible from members of other segments. That is,

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members should respond in similar ways to various treatments (such as discounts or


high service) so that common campaigns can be aimed at segment members, but in
order to justify a different treatment of other segments, their members should have their
own unique response behavior.

Approaches to global segmentation:

There are two main approaches to global segmentation. At the macro level,
countries are seen as segments, given that country aggregate characteristics and
statistics tend to differ significantly. For example, there will only be a large market for
expensive pharmaceuticals in countries with certain income levels, and entry
opportunities into infant clothing will be significantly greater in countries with large
and growing birthrates (in countries with smaller birthrates or stable to declining
birthrates, entrenched competitors will fight hard to keep the market share).

There are, however, significant differences within countries. For example,


although it was thought that the Italian market would demand "no frills" inexpensive
washing machines while German consumers would insist on high quality, very reliable
ones, it was found that more units of the inexpensive kind were sold in Germany than
in Italy—although many German consumers fit the predicted profile, there were large
segment differences within that country. At the micro level, where one looks at
segments within countries. Two approaches exist, and their use often parallels the
firm’s stage of international involvement. Intra-market segmentation involves
segmenting each country’s markets from scratch—i.e., an American firm going into the
Brazilian market would do research to segment Brazilian consumers without
incorporating knowledge of U.S. buyers. In contrast, inter-market segmentation
involves the detection of segments that exist across borders. Note that not all segments
that exist in one country will exist in another and that the sizes of the segments may
differ significantly. For example, there is a huge small car segment in Europe, while it
is considerably smaller in the U.S.

Inter-market segmentation entails several benefits. The fact that products and
promotional campaigns may be used across markets introduces economies of scale, and
learning that has been acquired in one market may be used in another—e.g., a firm that

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has been serving a segment of premium quality cellular phone buyers in one country
can put its experience to use in another country that features that same segment. (Even
though segments may be similar across the cultures, it should be noted that it is still
necessary to learn about the local market. For example, although a segment common
across two countries may seek the same benefits, the cultures of each country may
cause people to respond differently to the "hard sell" advertising that has been
successful in one).

The international product life cycle suggests that product adoption and spread in
some markets may lag significantly behind those of others. Often, then, a segment that
has existed for some time in an "early adopter" country such as the U.S. or Japan will
emerge after several years (or even decades) in a "late adopter" country such as Britain
or most developing countries. (We will discuss this issue in more detail when we cover
the product mix in the second half of the term).

Positioning across markets:

Firms often have to make a tradeoff between adapting their products to the
unique demands of a country market or gaining benefits of standardization such as cost
savings and the maintenance of a consistent global brand image. There are no easy
answers here. On the one hand, McDonald’s has spent a great deal of resources to
promote its global image; on the other hand, significant accommodations are made to
local tastes and preferences—for example, while serving alcohol in U.S. restaurants
would go against the family image of the restaurant carefully nurtured over several
decades, McDonald’s has accommodated this demand of European patrons.

ENTRY STRATEGIES

Methods of entry:

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With rare exceptions, products just don’t emerge in foreign markets overnight—
a firm has to build up a market over time. Several strategies, which differ in
aggressiveness, risk, and the amount of control that the firm is able to maintain, are
available:

• Exporting is a relatively low risk strategy in which few investments are made
in the new country. A drawback is that, because the firm makes few if any
marketing investments in the new country, market share may be below
potential. Further, the firm, by not operating in the country, learns less about the
market (What do consumers really want? Which kinds of advertising campaigns
are most successful? What are the most effective methods of distribution?) If an
importer is willing to do a good job of marketing, this arrangement may
represent a "win-win" situation, but it may be more difficult for the firm to enter
on its own later if it decides that larger profits can be made within the country.
• Licensing and franchising are also low exposure methods of entry—you allow
someone else to use your trademarks and accumulated expertise. Your partner
puts up the money and assumes the risk. Problems here involve the fact that you
are training a potential competitor and that you have little control over how the
business is operated. For example, American fast food restaurants have found
that foreign franchisers often fail to maintain American standards of cleanliness.
Similarly, a foreign manufacturer may use lower quality ingredients in
manufacturing a brand based on premium contents in the home country.
• Contract manufacturing involves having someone else manufacture products
while you take on some of the marketing efforts yourself. This saves
investment, but again you may be training a competitor.
• Direct entry strategies, where the firm either acquires a firm or builds
operations "from scratch" involve the highest exposure, but also the greatest
opportunities for profits. The firm gains more knowledge about the local market
and maintains greater control, but now has a huge investment. In some
countries, the government may expropriate assets without compensation, so
direct investment entails an additional risk. A variation involves a joint venture,
where a local firm puts up some of the money and knowledge about the local
market.

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MARKET ANALYSIS TOOLS:

Country Map - (Country Map is free to all users worldwide and does not require a
login or password.)
Benchmarking national and sectoral trade performance and competitiveness.
Profiles of 184 countries and territories, freely available. Country Map provides a wide
range of analytical tools, including the Trade Performance Index on export
competitiveness, National Export Performance and Import Profile, the econometric
trade simulation model Trade Sim on bilateral trade potential and an assessment of the
reliability and characteristics of national trade statistics. Country Map also includes
links to Trade Information Sources, Trade Support Institutions and current ITC projects
for the country concerned.

Trade Map:
Trade statistics for international business development.
An online database of global trade flows in goods and services and tariff
measures for international business development and trade promotion, providing
detailed export and import profiles and trends for over 5,300 products in over 200
countries and territories. Based on the world’s largest database COMTRADE, Trade
Map presents import/export values and quantities, growth rates, market shares and
market access information. It allows users to analyze markets, select priority countries
for export diversification, review the performance of competing countries and assess
opportunities for product diversification by identifying existing and potential trade
between countries.

Product Map
Business information for going global a Web portal presenting business
information and intelligence in a product context for 72 product clusters. The product
clusters range from agricultural machinery to wood products. Product Map includes
market studies, price indicators, links to product information, trade data and links to

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over 20,000 companies and organizations. Companies can also create their own basic
web site, which is hosted on the portal.

Market Access Map:


Making market access barriers transparent Market Access Map is an interactive
database of tariffs and market access barriers. It contains the market access conditions
applied at the bilateral level by over 170 importing countries to the products exported
by over 200 countries and territories. Market Access Map’s strength lies in its wide
geographical coverage; its taking into account of almost all multilateral, regional and
bilateral trade agreements; the integration of ad valorem equivalents of specific tariffs;
as well as certificates and rules of origin. Market Access Map allows users to analyze
the protection of any geographic grouping and sectoral aggregation. It also offers the
possibility of simulating tariff reductions using various negotiation formulae.
Developed by ITC in collaboration with CEPII, UNCTAD and WTO, Market Access
Map aims to enhance market transparency, support international trade promotion, and
to facilitate the analysis of related trade policy issues.
Investment Map:
Identifying foreign investment opportunities
Investment Map is an interactive web-based tool that combines statistics on
foreign direct investment (FDI), international trade and market access into a single
portal. It allows analyses by country, partner and industry. It also includes information
on the location, sales, employment and parent company for over 70,000 foreign
affiliates located in developing countries and economies in transition. Investment Map,
the foreign direct investment with foreign companies, international trade and tariffs is
available online free to Sub-Saharan Africa users.

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OPINION OF RESPONDENT

 It is a process of executing, planning, effective marketing mix for the purpose of


achieving objects for all those whose involve in the process.
 International marketing will helps to improve to banking facilities and
advantages.
 International marketing helps to improve to the import & export goods &
services.
 The informal interviewing gives valuable indication as to how use.
 International marketing is helps to develop good relations between two
countries and at international level we get best quality product.
 The concept of International marketing is necessary to developing countries & it
improves economic development of country.
 International marketing will improve the quality & quantity of the product.
 International marketing improved the competitive efficiency of forms.
 International marketing product is reasonable one customer like the product and
they keep on demanding.
 International marketing depends product life cycle and individual capacity.

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HYPOTHESIS

 No planned activities existing in marketing.


 Use of modern technology is essential.
 Globalization brings all markets closer.
 Political stability is essential for global market.
 Goods can be made available in a global market.
 Clear cut import –export policies are necessary.

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MAJOR FINDINGS
(Conclusions)
 A product faces competition in a global market.
 Political instability affects International market.
 Environmental challenges create hurdles like natural calamities.
 International marketing decisions are differ than others.
 Quality products are necessary for global market.
 Advance changes in communication system bring market closer.
 Fastest movement of goods and proper logistic management is possible.

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SUGGESTIONS

 Quality product should be produced.


 Cost of productions should be under control.
 People should vote for political stability.
 Simple rules and regulations for import & export business are necessary.
 E-commerce & E-banking should be used.
 Research & development using should be proper.

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- SAMPLE DESIGN -
The present research work is important for planning are development of
international marketing, for effective research purpose, 50 sample are selected from
various organization. They are of different age groups and they are engaged directly on
indirectly in the field.
AGE GROUP

18 - 25 27
26 - 35 12
36 - 45 09
46 - 55 02
56 - 65 00

Total 50

The age group of the respondent is stated as above-


SEX

Male Female Total

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34 16 50

For research purpose 34 males and 16 females were selected. The questionnaire
containing 17 guest ions were developing with the help of project guide. The questions
are as under:

Question type Question no.


 Yes / no. types 09
 Personal information 04

 Multiple choice 04
Total 17

The questionnaire was circulated among the 50 respondent for getting information on
the subject.

ANALYSIS OF DATA

Section -2 (questions wise)

Q.1- Have you noticed\witnessed as unplanned changes in


Marketing activities?

Yes No Total
45 05 50
 45 respondents witnessed unplanned changes in marketing activities.
 05 respondents do not notice.
Q.2-Is their any good effect of modern technology on
International Marketing?

Yes No Total
48 02 50
 Almost all agreed to above & very few do not agree.

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49

Q.3-Development of Information & Communication brings closer-


International Markets? Do you agree with?

Yes No Total
47 03 50
 47 respondents say that development in information & communication brings
closer international markets.
 03 do not agree.

Q.4- Globalization brings changes in International Marketing System


is it true?

Yes No Total
40 10 50
 40 respondents agreed to this & 10 do not respond positively.
Q.5- Is it possible to globalize production of goods and services?

Yes No Total
41 09 50
 41 respondents said product can be globalizes.
 09 respondents disagreed to this.
Q.6- Domestic Marketing Decisions And International Marketing
Decisions Are Not Same? Is It True?

Yes No Total
50 Nil 50
 All respondents agreed to above statement.
Q.7- It Is True That Political Forces Within A Country Affect The

International Marketing Decisions?

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Yes No Total
45 05 50
 45 respondents agree.
 05 respondents disagree.

Q.8- Do you agree that environmental challenges influence the


marketing strategy?

Yes No Total
42 08 50
 42 respondents agree.
 08 respondents do not agree.
Q.9-Do You Agree That Political Stability And Government Policy
Greatly Affects The International Markets?

Yes No Total
40 10 50
 40 respondents agree that political stability & govt. policies affect international
marketing.
 10 do not agree.
Q.10-Do You Agree That More Competition Is One Of The Demerits
Of International Market?

Yes No Total
47 03 50
 47 respondents are agreeing for stiff competition.
 03 respondents disagree.

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For more Notes, Presentations, Project Reports visit


a2zmba.blogspot.com
hrmba.blogspot.com
mbafin.blogspot.com

ANALYSIS OF DATA
Section -2 (percentage wise)
Q.1- Have You Noticed\Witnessed As Unplanned Changes In
Marketing Activities?

Yes No Total
90 10 100
 90% respondents witnessed unplanned changes in marketing activities.
 10% respondents do not notice.

Q.2- Is Their Any Good Effect Of Modern Technology On


International Marketing?

Yes No Total
96 06 100
 Almost all agreed to above & very few do not agree.

Q.3- Development Of Information & Communication Brings Closer-


International Markets? Do You Agree With?

Yes No Total
94 06 100
 94% respondents say that development in information & communication brings
closer international markets.

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 06% do not agree.

Q.4- Globalization Brings Changes In International Marketing System


Is It True?

Yes No Total
80 20 100
 80% respondents agreed to this & 20% do not respond positively.

Q.5- Is It Possible To Globalize Production Of Goods And Services?

Yes No Total
82 18 100
 82% respondents said product can be globalizes.
 18% respondents disagreed to this.

Q.6- Domestic Marketing Decisions And International Marketing


Decisions Are Not Same? Is It True?

Yes No Total
100 Nil 100
 All respondents agreed to above statement.

Q.7- It Is True That Political Forces Within A Country Affect The


International Marketing Decisions?

Yes No Total
90 10 100
 90% respondents agree.

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 10% respondents disagree.

Q.8- Do you agree that environmental challenges influence the


marketing strategy?

Yes No Total
84 16 100
 84 respondents agree.
 16 respondents do not agree.

Q.9-Do You Agree That Political Stability And Government Policy


Greatly Affects The International Markets?

Yes No Total
80 20 100
 80% respondents agree that political stability & govt. policies affect
international marketing.
 20% do not agree.

Q.10-Do You Agree That More Competition Is One Of The Demerits


Of International Market?
Yes No Total
94 06 100

 94% respondents are agreeing for stiff competition.


 06% respondents disagree.

BIBLIOGRAPHY

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 www.google.com
 www.yahoo.com
 International marketing
Vipul Prakashan
 International marketing
Himalaya Publication

For more Notes, Presentations, Project Reports visit


a2zmba.blogspot.com
hrmba.blogspot.com
mbafin.blogspot.com

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APPENDIX

The concept of international marketing


Questionnaire:
 Name:
 Age:
 Sex: male/female
 Qualification :
 Profession:
 Have You Noticed\Witnessed As Unplanned Changes In Marketing
Activities? Yes/No
 Is Their Any Good Effect Of Modern Technology On International
Marketing? Yes/No
 Development Of Information & Communication Brings Closer-
International Markets? Do You Agree With? Yes/No
 Globalization Brings Changes In International Marketing System Is It
True?
Yes/No
 Is It Possible To Globalize Production Of Goods And Services? Yes/No
 Domestic Marketing Decisions And International Marketing Decisions Are
Not Same? Is It True? Yes/No
 It Is True That Political Forces Within A Country Affect The International
Marketing Decisions? Yes/No
 Do You Agree That Environmental Challenges Influence The Marketing
Strategy? Yes/No
 Do You Agree That Political Stability and Government Policy Greatly
Affects the International Markets? Yes/No

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 Do You Agree That More Competition Is One Of The Demerits Of


International Market? Yes/No
 Your Opinion?

DECLARATION

I hereby declare that the project report title as-

STUDY OF INTERNATIONAL MARKETING

That I am going to submit to is not substantially

same as one which has already been submitted to

this or any another authority for this any other

purpose.

Place:

Date:

Signature

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Certificate

This is to certify that -

The Project Report on-

STUDY OF IMPORT PROCEDURE

is bona fide work carried out by us, under the supervision/ guidance of the

concerned faculty. The same has not been & submitted elsewhere for any

Degree / Diploma / Certificate.

Date:

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Principal Head of the college


Project Guide President & CEO

ACKNOWLEDGEMENT

It is my great privilege to thanks for M.P.E.S. College of

Management having given us this opportunity to conduct this project work.

I also sincerely thank our guide for having guided us these

outstanding work research work without whose help, it could have been

impossible to complete this research work.

I also thank my parents, family members & friends for their

encouragement and help.

My humble thanks to meritorious God for giving me encouragement

and power to complete this research work.

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Place:

Date:

INDEX

SR.NO. CONTENT PAGE NO.

1 Need of Study

2 Key term

3 Review of subject

4 Opinion of respondent

5 Hypothesis

6 Analysis of interpretation

7 Conclusion of study

8 Suggestion

9 Bibliography

10 Appendix

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For more Notes, Presentations, Project Reports visit


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hrmba.blogspot.com
mbafin.blogspot.com

PROJECT REPORT

STUDY OF
INTERNATIONAL
MARKETING

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