MK0009-Unit-01-Nature of International Marketing Unit-01-Nature of International Marketing

Structure:

1.1 Introduction

Objectives

1.1.1 What is International Marketing?

1.1.2 What is Global Marketing?

1.1.3 Definition of International Marketing

1.1.4 Why is International Marketing important?

1.2 International Marketing Task

1.2.1 Domestic Uncontrollable Factors

1.2.2 Foreign Uncontrollable Factors

1.3 Multinational Corporations (MNCs)

1.3.1 Some of the Indian MNCs

1.3.2 Pros and Cons of MNCs

1.3.3 Characteristics of Multinational Corporations

Self Assessment Questions I

1.4 The Stages of International Marketing

1.4.1 Domestic marketing

1.4.2 Export marketing

1.4.3 International marketing

1.4.4 Multinational marketing

1.4.5 Global marketing

1.5 Domestic Marketing vs. International Marketing: Strategic orientation

1.6 The process of International Marketing

1.7 Benefits of International Marketing

1.8 Driving and Restraining forces affecting International Marketing

1.9 The International Developments aiding International Marketing

1.10 Impetus to International Marketing involvement

1.11 Liberalization and International Marketing

Self Assessment Questions II

1.12 Summary

1.13 Terminal Questions

1.14 Answers to SAQ’s and TQ’s

1.1 Introduction

1.1.1 What is International Marketing?

International marketing is simply the application of marketing principles to more than one country. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. For the purposes of this unit on international marketing and those that follow it, international marketing and global marketing are interchangeable.

The intersection is the result of the process of internationalization. Many American and European authors see international marketing as a simple extension of exporting, whereby the marketing mix is simply adapted in some way to take into account differences in consumers and segments. It then follows that global marketing takes a more standardized approach to world markets and focuses upon sameness, in other words the similarities in consumers and segments.

At its simplest level, international marketing involves the firm in making one or more marketing mix decisions across national boundaries. At its most complex level, it involves the firm in establishing manufacturing facilities overseas and coordinating marketing strategies across the globe.

International Marketing is the performance of business activities that direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit.

The international market goes beyond the export marketer and becomes more involved in the marketing environment in the countries in which it is doing business.

Objectives:

After studying this unit you should be able:

· To describe and define what is International Marketing

· To explain why International Marketing is important.

· To identify International Marketing Tasks

· To identify Multinational Corporations (MNCs).

· To assess the pros and cons of MNCs and the characteristics of Multinational Corporations

· To compare Domestic Marketing and International Marketing

· To describe the driving and restraining forces affecting International Marketing

· To identify the International Developments aiding International Marketing

1.1.2 What is Global Marketing?

Global marketing refers to marketing activities coordinated and integrated across multiple country markets. Some marketing experts define global marketing as the big brother to international marketing i.e. more of an extension.

The result is a global approach to international marketing. Rather than focusing on country markets, that is, the differences due to the physical location of customers groups, managers concentrate on product markets, that is, groups of customers seeking shared benefits or to be served with the same technology, emphasizing their similarities regardless of geographic areas in which they are located.

Global/transnational marketing focuses upon leveraging a company’s assets, experience and products globally and upon adapting to what is truly unique and different in each country.

1.1.3 Definition of International Marketing

So, as with many other elements of marketing, there is no single definition of international marketing, and there could be some confusion about where international marketing begins and global marketing ends. We will assume that both terms are interchangeable, and will define international marketing as follows:

International Marketing is a multinational process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services and to create exchanges that satisfy individual and organizational objectives.

1.1.4 Why is International Marketing important?

Trade is increasingly becoming global in scope today. There are several reasons for this. One significant reason is technological in nature–because of improved transportation and communication opportunities today, trade is today more practical. Thus, consumers and businesses now have access to the very best products from many different countries.

Increasingly rapid technology lifecycles also increase 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).

Apart from the above environmental factors, there are three reasons for the shift from domestic to International marketing.

Saturation of domestic markets

For a company to keep growing, it must increase sales. Industrialized nations have, in many product and service categories, saturated their domestic markets and have to turn to other countries for new marketing opportunities. Companies in some developing economies have found profitability by exporting products that are too expensive for locals, but are considered inexpensive in wealthier countries.

Worldwide competition

One of the product categories in which global competition has been easy to track is in automotive sales. Three decades ago, there were only the big three: General Motors, Ford, and Chrysler in USA. Now, Toyota, Honda, and Volkswagen are among the most popular manufacturers. Companies are on a global playing field whether they had planned to be global marketers or not. Similar changes are happening all over the world.

E-Commerce

With the proliferation of the Internet and e-commerce (electronic commerce), if a business is online, it is a global business. With more people becoming Internet users daily, this market is constantly growing. Customers can come from anywhere. Business-to-business (B2B) e-commerce is larger, growing faster, and has fewer geographical distribution obstacles than even business-to-consumer (B2C) e-commerce. With e-commerce, a brick and mortar storefront is unnecessary.

1.2 International Marketing Task

The task of the international marketer is more complicated since he has to deal with two levels of uncertainties instead of one. Such uncertainty is created due to uncontrollable factors and each foreign country in which the company operates adds its own unique set of uncontrollable factors. Assuming the necessary overall corporate resources, the marketing manager decides on price, product, promotion and channels of distribution activities to capitalize on the anticipated demand. These controllable elements can be altered in the long run and also usually in the short term, to adjust to changing market conditions, consumer preferences and corporate objectives. The uncontrollable factors are as under:

1.2.1 Domestic uncontrollable factors:

These include home country elements which can directly affect the success of a foreign venture and these factors are out of immediate control of the marketer. These factors are as under:

· Political decisions involving domestic foreign policy: Examples are that of US restrictions of trade with countries like Libya, Iraq and South Africa, due to so called support to terrorists in Libya and Iraq and due to apartheid policies in South Africa. When South Africa abolished apartheid, many US companies had a positive effect and opportunities were created for US companies

· Domestic economic climate: This has far reaching effects on competitive position in foreign markets. The capacity to invest in plants and facilities are directly affected with this variable, which could in turn create a positive or negative effect on foreign trade.

· Currency value: This gives the price advantage or disadvantage to marketers depending on the exchange value and this is another influence the home environment economy has on the marketer’s task.

· Competition within home country: This can also have a profound effect upon the international marketer’s task. Competition within their home country affects the company’s domestic as well as international plans.

1.2.2 Foreign Uncontrollable Factors:

A significant source of uncertainty is the number of uncontrollable elements in the foreign country. Some of these factors are as under:

· Political/Legal forces: One example is that of China which has moved from a communist legal system in which all business was done with the State, to a commercial legal system. Another example is that of the Indian Government, which in 1977 gave Coca Cola the choice of either revealing its secret formula or leaving the country.

· Economic forces: The local economic forces in the foreign country may have strong influence on the currency value and repatriation.

· Competitive forces: The nature of competition may vary from country to country and will have different responses, depending on deep rooted cultural factors to competition in terms of price, distribution, advertising and sales promotion.

· Level of Technology: There are vast differences that may exist between developed and underdeveloped countries. Technical expertise may not be available at a level necessary for product support and for maintenance.

· Structure of Distribution: The channels of distribution vary from country to country and there could even be state controls on distribution in some countries.

· Geography and infrastructure: The transportation and physical distribution depends on these factors and this will also be different in different countries.

· Cultural forces: Each country’s culture is different and this could affect all the marketing variables like product design, brand name, logo, advertising campaigns, sales promotions, pricing policies, price negotiations, distribution networks and strategies, etc.

1.3 Multinational Corporations (MNCs)

A multinational corporation (or transnational corporation) (MNC/TNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies.

There is a debate about what to call a company, whose business ranges across national borders, tying together home and host countries through corporate policies and practices. Here are some of the terms used to describe these companies.

Transnational Corporation (TNC)

Because companies “transcend” or operate across national borders, some experts prefer the term transnational corporation, or TNC. The United Nations favour this term and has created a research centre for the study of Transnational Corporations.

Multinational Corporation (MNC)

The fact that companies operate in multiple countries has led some experts to adopt the term Multinational Corporation, or MNC. This term is very popular in the business press and in textbooks. It seems to be the most generic name to describe corporations operating around the world.

Multinational Enterprise (MNE)

Because some of the international giants are state-owned enterprise, rather than corporations, the term multinational enterprise, or MNE, has entered the vocabulary of international trade.

Global Corporation

This term became very popular in the 1990s. The term seems to have first been used to describe a small number of companies whose business was conducted in dozens of – perhaps more than 100 – nations. Hence, Nestle has long been described as truly global, because the scope of its operations extends to more than 150 nations around his globe. The term is often applied to companies doing business in several areas of the world (e.g., Europe, Latin America, Asia-Pacific, and North America).

Multinational corporations can be divided into three broad groups according to the configuration of their production facilities:

· Horizontally integrated multinational corporations-manage production establishments located in different countries to produce the same or similar products. (example: McDonalds)

· Vertically integrated multinational corporations-manage production establishment in certain country/countries to produce products that serve as input to its production establishments in other country/countries. (example: Adidas)

· Diversified multinational corporations-manage production establishments located in different countries that are neither horizontally, vertically, straight, or non-straight integrated. (example: Microsoft)

Others argue that a key feature of the multinational is the inclusion of back office functions in each of the countries in which they operate. The globally integrated enterprise, which some see as the next development in the evolution of the multinational, does away with this requirement.

1.3.1 Some of the Indian MNCs:

· Tata Motors to takeover Daewoo in South Korea for $118 million

· Ambanis to takeover Flag International for $211 million

· Ranbaxy to takeover RPG Aventis a France based firm

· Wockhardt acquired CP Pharmaceutical and Wallis Laboratories – both of Britain

· Hindalco took over Mount Garden and Nifty – copper mines in Australia

· Sundaram Fasteners has acquired Dana Spicer Europe, the British arm of an MNC.

· Amtek Auto has acquired the GWK group in the UK

· Kirloskar Brothers took over SPP Pumps, UK

1.3.2 Pros and Cons of MNCs:

The mention of MNCs usually elicits mixed reactions. There are advantages and disadvantages of MNCs. The advantages are as under:

Power and Prestige: Most of the MNCs have power and prestige. They are quite large corporations with huge financial power and also with enormous reputation all over the world.

Social Responsibility: They create social benefit by facilitating economic balance. More and more of them have been trying to be responsible members of the society. They have raised local wages and improved the standard of living of their employees and associates.

Market Performance: Because of their financial muscle and also the marketing expertise, most of the MNCs have performed very well in the foreign markets and thus benefited all their stakeholders.

Disadvantages:

Exploitation: MNCs in many countries have been associated with exploitation and ruthlessness. They are often criticized for moving resources in and out of a country as they strive for profit without much regard for the country’s social welfare.

Erosion of a Nation’s Sovereignty: For a long time many countries including India have accused MNCs as agents of “neocolonialism”. Many MNCs are still not so welcome in these countries.

1.3.3 Characteristics of Multinational Corporations:

Varying explanations have been used to define a multinational corporation; but these definitions are not necessarily convergent. As a result, whether a company is classified as an MNC or not depends partly on what set of criteria are used.

Definition by Size: The term MNC implies bigness. Bigness has a number of dimensions. Some of these are as under:

Market value

Sales

Assets

ROI

Number of employees

Definition by Structure: Structural requirements for definition as an MNC include the following characteristics:

Number of countries in which the firm does business

Citizenship of corporate owners and top managers

Definition by Performance: Definition by performance depends on such characteristics as earnings, sales and assets. These also include the following important requirements:

Commitment of corporate resources to foreign operations

Amount of rewards from that commitment

Definition by Behavior: Behaviour is somewhat more abstract as a measure of multinationalism than either structure or performance, though it is no less important. On this basis, MNCs can have three orientations as under:

Ethnocentricity: This behaviour is characterized by the following features:

Strong orientation toward home country

Centralization of decision making

Efficient but not effective

Polycentricity: This comprises of:

Strong orientation to host country

Decentralization of decision making

Effective but not efficient

Geocentricity: which consists of:

World orientation

Centralization + decentralization + coordination

Efficiency and effectiveness

Self Assessment Questions I

Fill in the blanks:

1. International marketing is simply the application of marketing principles to more than one _____________.

2. ___________ Marketing is the performance of business activities that direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit.

3. For a company to keep growing, it must increase________ .

4. With the proliferation of the Internet and e-commerce (electronic commerce), if a business is online, it is a __________ business.

5. Currency value gives the price advantage or disadvantage to international marketers depending on the __________ value.

6. The local economic forces in the foreign country may have strong influence on the currency value and________________.

7. A ___________ corporation is a corporation or enterprise that manages production establishments or delivers services in at least two countries.

1.4 The Stages of International Marketing

International marketing is not a revolutionary shift, it is an evolutionary process. While the following does not apply to all companies, it does apply to most companies that begin as domestic-only companies. The five stages of this internationalization are outlined below:

1.4.1 Domestic marketing:

A company marketing only within its national boundaries only has to consider domestic competition. Even if that competition includes companies from foreign markets, it still only has to focus on the competition that exists in its home market. Products and services are developed for customers in the home market without thought of how the product or service could be used in other markets. All marketing decisions are made at headquarters.

The biggest obstacle these marketers face is being blindsided by emerging international marketers. Because domestic marketers do not generally focus on the changes in the global marketplace, they may not be aware of a potential competitor who is a market leader in other countries. These marketers can be considered ethnocentric, as they are most concerned with how they are perceived in their home country.

1.4.2 Export marketing:

Generally, companies began exporting, reluctantly, to the occasional foreign customer who sought them out. At the beginning of this stage, filling these orders was considered a burden, not an opportunity. If there was enough interest, some companies became passive or secondary exporters, by hiring an export management company to deal with all the customs paperwork and language barriers. Others became direct exporters, creating exporting departments at headquarters. Product development at this stage is still focused on the needs of domestic customers. Thus, these marketers are also considered ethnocentric.

1.4.3 International marketing:

If the exporting departments are becoming successful but the costs of doing business from headquarters plus time differences, language barriers, and cultural ignorance are hindering the company’s competitiveness in the foreign market, then offices could be built in the foreign countries. Sometimes companies buy firms in the foreign countries to take advantage of relationships, storefronts, factories, and personnel already in place. These offices still report to headquarters in the home market, but most of the marketing mix decisions are made in the individual countries since that staff is the most knowledgeable about the target markets. Local product development is based on the needs of local customers. These marketers are considered polycentric, because they acknowledge that each market/country has different needs.

1.4.4 Multinational marketing:

At the multi-national stage, the company is marketing its products and services in many countries around the world and wants to benefit from economies of scale. Consolidation of research, development, production, and marketing on a regional level is the next step. An example of a region is Western Europe. But, at the multi-national stage, consolidation, and thus product planning, does not take place across regions; a regiocentric approach.

1.4.5 Global marketing:

When a company becomes a global marketer, it views the world as one market and creates products that will only require minor modifications to fit into any regional marketplace. Marketing decisions are made by consulting with marketers in all the countries that will be affected. The goal is to sell the same thing the same way everywhere. These marketers are considered geocentric.

For the purpose of this unit we will be considering International Marketing, Multinational Marketing and Global Marketing as synonymous for reasons already explained.

1.5 Domestic Marketing vs. International Marketing: Strategic orientation:

Generally, four distinctive approaches dominate strategic thinking in international marketing as against domestic marketing. These are:

Ethnocentric or Domestic Marketing Extension Concept:

In this concept, the assumption is that the home country marketing practices will succeed elsewhere without adaptation. Ethnocentrism is a natural result of the observation that most people are more comfortable with and prefer the company of people who are like themselves, sharing similar values and behaving in similar ways. It is not unusual for a person to consider that what ever they believe is the most appropriate system of belief, or that however they behave is the most appropriate and natural behavior. In fact in such organizations, international marketing is viewed as secondary to domestic operations and very little special effort is made for international marketing.

Polycentric or Multi-Domestic Marketing Concept:

This is the opposite of ethnocentrism. Polycentrism is the principle of organisation of a region around several political, social or financial centres. In intercultural competence the term polycentrism is understood as attitude and openness towards other cultures, opinions and ways of life: when intercultural actions and correlations are interpreted not only with the background of own cultural experiences, but when the independence of other cultures is recognized and appreciated and when cultural values are relativized and seen in the whole context. This in the way of non-ethoncentrism, opposite to ethnocentrism. Management of such multinational firms place importance on international operations as a source for profits and the management believes that each country is unique and allows each to develop its own marketing strategies locally.

Regiocentric:

Regiocentrism orientation is an attitude or orientation toward internationalization with the focus on regional orientation. In this concept, the organisation sees the world as one market and develops a standardized marketing strategy for the entire world.

Geocentric:

Regiocentric and Geocentric are synonymous with a Global Marketing Orientation where a uniform, standardized marketing strategy is used for several countries, countries in a region, or the entire world.

1.6 The process of International Marketing

In order to succeed in international markets, the firms must adapt to uncontrollable environment of international marketing by adjusting the marketing mix (product, price, promotion, and distribution). Such adaptation is a conscious effort on the part of the international marketer to anticipate the influences of both foreign and domestic uncontrollable environments on a marketing mix and then to adjust the marketing mix to minimize the effects.

The primary obstacle to success in international marketing is a person’s Self Reference Criterion (SRC) in making decisions. SRC is an unconscious reference to one’s own cultural values, experiences, and knowledge as a basis for decisions. Having sold a product successfully in the domestic market, a firm may assume that the product will, without adaptation, also be successful in foreign markets. Frequently this assumption leads to failure. The SRC refers to the assumption that what is suitable for the home market will be suitable for the foreign market and therefore, there is no need to test whether or not the product should be altered.

The other obstacle is "Ethnocentrism", which refers to the notion that one’s own culture or company knows best how to do things. Ethnocentrism is the tendency to look at the world primarily from the perspective of one’s own culture. It is defined as “the viewpoint that one’s own group is the center of everything (better than all other cultures),” against which all other groups are judged. Ethnocentrism often entails the belief that one’s own race or ethnic group is the most important and/or that some or all aspects of its culture are superior to those of other groups. Within this ideology, individuals will judge other groups in relation to their own particular ethnic group or culture, especially with concern to language, behaviour, customs, and religion. These ethnic distinctions and sub-divisions serve to define each ethnicity’s unique cultural identity.

Both the SRC and ethnocentrism impede the ability to assess a foreign market in its true light. Reactions to meanings, values, symbols, and behavior relevant to one’s own culture are different from those of foreign lands and relying on one’s SRC could produce an unsuccessful marketing program.

To avoid errors in business decisions, it is necessary to make a cross cultural analysis isolating the SRC influences. The following steps are taken as a framework for such an analysis:

Step1: Define the business problem or goal in home-country cultural traits, habits, or norms.

Step2: Define the business problem or goal in foreign-country cultural traits, habits, or norms. Make no value judgments

Step3: Isolate the SRC influence in the problem and examine it carefully to see how it complicates the problem.

Step4: Redefine the problem without the SRC influence and solve for the optimum business goal situation.

This approach requires an understanding of the culture of each foreign market as well as one’s own culture. Surprisingly, understanding one’s own culture may require additional study, because much of the cultural influence on market behavior remains at a subconscious level and is not clearly defined.

1.7 Benefits of International Marketing

International Marketing affects consumers daily in many ways. Government officials and other observers always seem to point out the negative aspects of international business. Many of their charges are imaginary and the following benefits of international business will help in dispelling such notions:

Survival and Growth:

Most countries are not having all resources for development and they have to trade with others to survive. For example, Hong Kong would not have survived without food and water from Mainland China. Most of the European countries have similar problems since most of them are relatively small. International trade is hence not a matter of choice but that of survival. Along with survival, these countries have also benefited by growth of economy due to international trade.

Sales and Profits:

Foreign markets constitute a large share of the total business of many firms that have cultivated markets abroad. All these firms are contributing to their sales and profits by a huge chunk due to international marketing.

Diversification:

Demand for most products is affected by many cyclical factors of recession and seasonal factors like climate. This results in fluctuations in sales which can be substantial enough to cause layoffs of personnel. One way to diversify the company’s risk is consider foreign markets as a solution to variable demand.

Inflation and Price Moderation:

The benefits of export are quite evident. The imports can also be highly beneficial to a country because they constitute reserve capacity for the local economy. Without imports there is no incentive for the domestic firms to moderate their prices. The lack of imported product forces the consumers to pay more, resulting in inflation and excessive profits for local firms.

Employment:

Unrestricted trade has been proven to improve world’s GNP and enhance employment generally for all nations.

Standards of Living:

Trade affords countries and their citizens higher standards of living than otherwise possible. Without international trade, product shortages would force people to pay more for less. Life in many countries would have been much more difficult had it not been for the import of strategic materials like many important metals, agricultural commodities, etc.

Understanding of Marketing Process:

When an executive is required to observe marketing in other cultures, the benefit derived is not so much the understanding of the foreign culture. The real benefit is that the executive develops the knowledge of the marketing process in one’s own culture also. Many MNCs have applied their knowledge of their experience in foreign countries to their domestic marketing with highly profitable results.

1.8 Driving and Restraining forces affecting International Marketing

Over the last few decades internationalism has grown because of a number of market factors which have been driving development forward, over and above those factors which have been attempting to restrain it. These include market and marketing related variables. Some of these are as under:

Driving Forces:

Market Needs: Many global opportunities have arisen because of the clustering of market opportunities worldwide. Organizations have found that similar basic segments exist worldwide and, therefore, can be met with a global orientation. Cotton, as an ingredient in shirtings, suitings, and curtain material can be globally marketed as natural and fashionable. One can see in the streets of New York, London, Kuala Lumpur or Harare, youth with the same style and brand of basketball shirts or American Football shorts. Coca Cola can be universally advertised as "Adds Life", or appeal to a basic instinct " You can’t beat the Feeling" or "Come alive" as with the case of Pepsi. One can question "what feeling?", but that is not the point. The more culturally unbounded the product is, the more a global clustering can take place and the more a standardized approach can be made in the design of marketing programs.

Technology: This standardized approach can be aided and abetted with technology. Technology has been one of the single most powerful driving forces to internationalism. Rarely is technology culturally bound. A new pesticide is available almost globally to any agricultural organization as long as it has the means to buy it. Computers in agriculture and other applications are used universally, with IBM and Macintosh becoming household names. The need to recoup large costs of research and development in new products may force organizations to look at global markets to recoup their investment. This is certainly true of many veterinary products. Global volumes allow continuing investment in R and D, thus helping firms to improve quality. Farm machinery, for example, requires volume to generate profits for the development of new products.

Communications and Transport: Communications and transport are shrinking the global market place. Value added manufacturers like Cadbury, Nestlè, Kelloggs, Beyer, Norsk Hydro, Massey Ferguson and ICI find themselves "under pressure" from the market place and distributors alike to position their brands globally. In many cases this may mean an adaptation in advertising appeals or messages, as well as packaging and instructions. Nestle will not be in a hurry to repeat its disastrous experience of the "Infant formula" saga, whereby it failed to realize that the ability to find, boiled water for its preparations, coupled with the literacy level to read the instructions properly, were not universal phenomena.

Regional Economic Agreements: A number of multilateral trade agreements like NAFTA have accelerated the pace of global integration. In Europe, the expanding membership of the European Union is lowering barriers to trade within the region.

Product Development Costs: The pressure for globalization is intense when new products require major investments and long periods of development time. The pharmaceutical industry provides a striking illustration of this driving force. The huge costs of developing new molecules cannot be recovered by any single national market and it has to be necessarily recovered in the global marketplace.

Quality: International Marketing can generate greater revenue and greater operating margins, which can hence be ploughed back for quality improvements and design. That is the reason why global companies like Nissan, Matsushita, Caterpillar, Sony, GE, GM, Toyota, etc. are able to achieve world class quality.

Leverage: Marketing globally also provides the marketer with four types of "leverage" or "advantages". These are:

· Experience Transfers: A global company can leverage its experience in any market in the world and apply them in other comparable markets.

· Scale Economics: The global company can take advantage of greater manufacturing volume to obtain traditional economies of scale in a single factory. Also, finished products can be made by combining components manufactured in scale efficient plants in different countries.

· Resource utilization: A major strength of a global company is its ability to scan the entire world to identify people, money and raw materials to enable it to compete most efficiently in world markets.

· Global strategy: A global strategy is built on an information system that scans the world business environment to identify opportunities, trends, threats and resources.

· A multi-product global giant like Nestle’, with over £10 billion turnover annually, operates in so many markets, buys so much raw material from a variety of out growers of different sizes, that its international leverage is huge. If it consumes a third of the world’s cocoa output annually, then it is in a position to dominate terms.

Restraining Forces:

Management Myopia and Organizational culture: A company which is short sighted and ethnocentric will not expand geographically. International Marketing does not work without a strong local team that can provide information about local market conditions.

National Controls and Barriers: Every country protects local enterprise and interests by maintaining control over market access and entry in both low and high tech industries and advertising. The only way global companies can overcome these barriers is to become “insiders” in every country in which they do business.

1.9 The International Developments aiding International Marketing

Several factors have contributed to the growth of the international economy post World War II. Some of these are as under:

Economic Blocs:

The principal forces have been the development of economic blocs like the European Union (EU) and then the "economic pillars"- the World Bank (or International Bank for Reconstruction and Development to give its full name), the International Monetary Fund (IMF) and the evolution of the World Trade Organization from the original General Agreement on Tariffs and Trade (GATT).

Foreign Exchange Base:

Until 1969, the world economy traded on a gold and foreign exchange base. This affected liquidity drastically. After 1969, liquidity was eased by the agreement that member nations to the IMF accept the Special Drawing Rights (SDR) in settling reserve transactions. Now an international reserve facility is available. Recently, the World Bank has taken a very active role in the reconstruction and development of developing country economies, a point which will be expanded on later.

GATT:

Until the General Agreement on Tariffs and Trade (GATT) after World War II, the world trading system had been restricted by discriminating trade practices. GATT had the intention of producing a set of rules and principles to liberalize trade. The most favoured nation concept (MFN), whereby each country agrees to extend to all countries the most favourable terms that it negotiates with any country, helped reduce barriers. The "round" of talks began with Kennedy in the 60s and Tokyo of the 70s. The latest round, Uruguay, was recently concluded in April 1994 and ratified by most countries in early 1995. Despite these trade agreements, non tariff barriers like exclusion deals, standards and administrative delays are more difficult to deal with. A similar system exists with the European Union, – the Lomè convention. Under this deal, African and Caribbean countries enjoy favoured status with EU member countries.

Global Peace:

Relative global peace has engendered confidence in world trade. Encouraged by this and the availability of finance, global corporations have been able to expand into many markets. The break up of the former Soviet Union has opened up vast opportunities to investors, aided by

the World Bank and the European Development Bank. This atmosphere of peace has also allowed the steady upward trend of domestic growth and again opened up market opportunities domestically to foreign firms. Peace in Mozambique, the "normalization" of South Africa, and peace in Vietnam as examples, have opened up the way for domestic growth and also, therefore, foreign investment. The liberation of economies under World Bank sponsored structural adjustment programs has also given opportunities. This is very true of countries like Zambia and Zimbabwe, where in the latter, for example, over Z$2.8 billion of foreign investment in the stock exchange and mining projects have occurred in the early 1990s.

Acts of GOD:

Sometimes, market opportunities open up through "Acts of God". The great drought of 1992 in Southern Africa necessitated a large influx of foreign produce, especially yellow maize from the USA and South America. Not only did this give a market for maize only, but opened up opportunities for transport businesses and services to serve the drought stricken areas. Speedy communications like air transportation and electronic data transmission and technology have "shrunk" the world. Costs and time have reduced enormously and with the advent of television, people can see what is happening elsewhere and this can cause desire levels to rise dramatically. Only recently has television been introduced into Tanzania, for example, and this has brought the world and its markets, closer to the average Tanzanian.

Collapse of old Communist blocs: No doubt a great impetus to global trade was brought about by the development of economic blocs, and, conversely, by the collapse of others. Blocs like the European Union (EU), ASEAN, the North American Free Trade Agreement (NAFTA) with the USA, Canada and Mexico have created market opportunities and challenges. New countries are trying to join these blocs all the time, because of the economic, social and other advantages they bring. Similarly, the collapse of the old communist blocs has given rise to opportunities for organizations, as they strive to get into the new market based economies rising from the ruins.

1.10 Impetus to International Marketing involvement

Individuals or organizations may get involved in International Marketing in a rather unplanned way, which gives the impetus to more formal and larger operations. This may happen in a number of ways:

Foreign customers: Unsolicited enquiries through word of mouth, visits, exhibitions, and experience through others may result in orders. This is often typical of small scale organizations.

Importers: Importers may be looking for products unavailable in domestic markets, for example, mangoes in the UK, or products which can be imported on more favourable terms. An example of these is flowers from Kenya to Holland.

Intermediaries: These may be of four types – domestic based export merchants, domestic based export agents, export management companies or cooperative organizations. These will be expanded on later in this text. Sometimes an intermediary may provide export services in an attempt to reduce their own costs on the export of their own produce, by acting as a representative for other organizations. This is called "piggybacking".

Other sources: These may include banks, export organizations, Development Authorities or even individual executives.

Behavior as an international marketing impetus: It was seen earlier in the internationalization process that organizations may evolve from exporting surplus or serving ad hoc enquiries to a more committed global strategy. This gradual change may involve moving from geographically adjacent markets to another, say, for example from the Southern African Development Conference (SADC) to Europe. However, not all globalization takes place like this. In the case of fresh cut flowers, these may go to major, developed country consumer centres, for example from Harare to London or Amsterdam and Frankfurt. Lusaka or Nairobi may never see Zimbabwe flowers. In analyzing behavior one has not to generalize. What is certain is that in all stages, the balance of opportunity and risk is considered.

1.11 Liberalization and International Marketing

Liberalization has been the dominant force in international business in the developed world over the past two decades. It is likely to remain important and developing countries will increasingly feel its effects. Although the mechanisms and motivations involved can be complex, the consequences are straightforward – more competition, more opportunities for strong firms and fewer places to hide for weak ones.

Spread of Liberalization:

On May 1, 1975, US financial markets were subjected to a burst of deregulation which triggered a price war in the market for financial services. In the two decades since then, liberalization has spread to many other sectors of the economy, while the theme crossed the Atlantic into Western Europe and has since traveled, with increasing speed, across the globe. In the second half of the 1990s, there are very few states which impose a higher degree of regulation on economic activity than was the case two decades previously. Some have travelled further down the path than others, but in terms of direction it has been one-way traffic.

Definition of Liberalization:

Liberalization is the act of reducing government-imposed constraints on the behavior of actors in the economy. The two ways that this is achieved are by privatization and deregulation.

Privatization:

Several aspects exist, with the theme being the exposure of the public sector production process to free market forces. The most commonly understood meaning is the sale of state owned enterprises, but it can also refer to the contracting out of a service to a private enterprise.

Deregulation:

Easing the rules under which a firm or an industry operates, allowing expansion within the sector or diversification into other sectors, as well as opening the sector to other entrants. Fewer restrictions on price is another recurring theme.

Background of Liberalization:

Before considering how privatization and deregulation have changed the global environment for business, first it is necessary to place the issues in an historical perspective. It is worth ending a moment looking at the reasons why industries were nationalized and markets were regulated in the post-war world. The consequence of public sector involvement is that the profit motive – which typically dominates the operations of a private sector company – can be replaced by other objectives defined by the state. There were four main reasons for the direct involvement of the state in a country’s industrial structure in the past fifty years.

i. Strategic: Some industries were seen as key to the military strength of a nation. Steel, transport, communications, energy and aerospace are examples of industries which were frequently brought under public ownership for reasons of national security.

ii. Market failure: If the market is not allocating resources efficiently, then there may be a case for the government to step in. One example of market failure is externalities (which is an economist’s word for side effects).

iii. Ideology: State ownership was firmly embedded in the political ideology of the left wing parties of many countries. The concept was that the benefits from the efficient operation of the enterprise would be felt by the whole population and not just the rich.

iv. Technology: Many industries were seen as “natural” monopolies and it appeared impractical to have competition in some sectors. Utilities such as water, gas and electricity supply and telecommunications are common examples.

By the 1970s, it was becoming apparent that there were fundamental problems with some nationalized or heavily regulated industries. In a diluted form, the problems were similar to those, which eventually proved fatal to the former Eastern Bloc. Without the discipline of market forces, nationalized industries were often inefficient and were a burden on the public purse.

Labor militancy and restrictive working practices added to the problems, as did management which was more bureaucratic than entrepreneurial. The quality of the product or the service provided by a nationalized industry was frequently poor and as it was often a monopoly supplier, the consumer suffered.

Heavily regulated industries lacked innovation and dynamism. Projected across the whole economy, heavy state involvement meant slow growth and stagnant incomes. In addition, objectives of economic efficiency (such as setting prices equal to marginal costs) were often overridden by political factors such as favoring certain interest groups or supporting macroeconomic objectives like low inflation.

The Economic Case for Liberalization:

The rise of right-of-center parties in several developed democracies in the 1980s meant a shift away from left-wing attitudes and towards a stronger belief in the merits of free markets and a more limited role for the government. This was largely predicted on the “Chicago school” argument that the state did not have enough information to be able to direct resources as efficiently as the market. By exposing firms to greater competition it was anticipated that

stronger, more productive enterprises would be the result. If the process is a success, the end result should be that the consumer receives a better service and a wider choice at a lower price.

The most extreme example of a change in attitude was seen in Eastern Europe after 1989, when there was a radical reappraisal of the role of the state in the economy. Prior to that, the price mechanism had not functioned to link the wishes of consumers with the responses of producers. The system had also failed to instill in companies any sense that their survival was dependent on providing a certain level of quality, or on achieving some level of efficiency.

Transfer of ownership from the public to the private sector leads to a change in the objectives of the firm. It will move from acting in a way prescribed by the government to being primarily governed by the search for profits. It is this search that brings the benefits to the economy in the form of more efficient use of resources, improved quality and more innovative behavior, as firms try to make better products at lower costs.

Increased competition is usually most apparent in the product market, with privatized airlines or telecommunications providers more eager to improve service and cut prices to generate new business. It also occurs in the market for inputs – for example privatizing and splitting up a national electricity generator will create pressure on prices of inputs such as coal. Note that the British coal mining industry collapsed after the privatisation of electricity utilities, as one result was a search for the lowest price input (which was either gas or foreign coal), which meant the removal of the underlying subsidy to coal producers that had resulted from the nationalized electricity generator buying British coal at above market prices.

Inefficiency aspects of state control are more complex than simply noting the fact that a nationalized car company makes unreliable cars and lose money; or that a state-owned telecommunications company takes months to install a new phone. The car company will be soaking up government revenues which, looking across the whole economy in what is labeled “general equilibrium analysis” must be generated by raising taxes on other efficient private sector producers. This inevitably places them at a disadvantage against foreign competition. Similarly, a poor telecommunications network has a negative impact on all users of telecoms, handicapping all business users in the economy.

Liberalization has been the dominant force in expansion of international business in the developed world over the past two decades. It is likely to remain important and developing countries will increasingly feel its effects. Although the mechanisms and motivations involved can be complex, the consequences are straightforward – more competition, more opportunities for strong firms and fewer places to hide for weak ones.

Self Assessment Questions II

State whether the following statements are true or false:

1. International marketing is a revolutionary shift; it is not an evolutionary process.

2. A company marketing only within its national boundaries only has to consider domestic competition.

3. When a company becomes a global marketer, it views the world as one market and creates products that will only require minor modifications to fit into any regional marketplace.

4. Polycentricism is the same as ethnocentrism.

5. Regiocentrism orientation is an attitude or orientation toward internationalization, with the focus on regional orientation.

6. Demand for most products is not affected by many cyclical factors of recession and seasonal factors like climate.

7. Many global opportunities have arisen because of the clustering of market opportunities worldwide.

8. Communications and transport are expanding the global market place.

9. International Marketing can generate greater revenue and greater operating margins, which can hence be ploughed back for quality improvements and design.

10. A company which is short sighted and ethnocentric can expand geographically.

11. Until the General Agreement on Tariffs and Trade (GATT) after World War II, the world trading system had been restricted by discriminating trade practices.

12. Liberalization has been the dominant force in international business in the developed world over the past two decades.

1.12 Summary

International marketing is simply the application of marketing principles to more than one country. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term

Global marketing refers to marketing activities coordinated and integrated across multiple country markets

Trade is increasingly becoming global in scope today. There are several reasons for this. One significant reason is technological in nature–because of improved transportation and communication opportunities today, trade is today more practical. Thus, consumers and businesses now have access to the very best products from many different countries.

A multinational corporation (or transnational corporation) (MNC/TNC) is a corporation or enterprise that manages production establishments or delivers services in at least two countries

There are four distinctive approaches that dominate strategic thinking in international marketing as against domestic marketing.

1.13 Terminal Questions

1) What is International Marketing?

2) Explain why International Marketing is important

3) Describe the domestic uncontrollable factors and the Foreign Uncontrollable Factors in International Marketing Task.

4) Describe some of the pros and cons of MNCs.

5) Identify and explain the different stages of International Marketing.

6) Compare strategic orientations in Domestic Marketing vs. International Marketing.

7) Explain the driving and restraining forces affecting International Marketing.

1.14 Answers to SAQ’s and TQ

SAQ I

1. Country

2. International

3. Sales

4. Global

5. Exchange

6. Repatriation

7. Multinational

SAQ II

1. False

2. True

3. True

4. False

5. True

6. False

7. True

8. False

9. True

10. False

11. True

12. True

TQ’s

1. Refer to Section 1.1.1

2. Refer to Section 1.1.4

3. Refer to Section 1.2.1 and 1.2.2

4. Refer to Section 1.3.2

5. Refer to Section 1.4

6. Refer to Section 1.5

7.Refer to Section 1.8