International Marketing 1

CONTENTS Unit No. Page No.

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/ TITLE Introduction to International Marketing 1.1 Introduction 1.2 The Nature and Scope of International Marketing 1 . 3 International Marketing Environment 1 .4 Avenues of Entry into Foreign Markets 1.5 Foreign Marketing Involvement 1.6 Market Entry and Operation Decision 1.7 Summary 1.8 Keywords 1.9 Self-assessment Questions

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Challenges of Globalisation 2.1 Introduction 2.2 Operation in Foreign Countries 2 . 3 Strategic Marketing Orientation 2.4 Implications of Globalisation on International Marketing 2 . 5 The Indian Context 2.6 Summary 2.7 2.8 Keywords Self-assessment Questions

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Why Firms Go International 3.1 Introduction 3.2 Motivating Factors 3 . 3 International Marketing vs . Domestic Marketing 3.4 Evolution from Domestic Marketing to Global Marketing 3 . 5 The Driving Forces

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UnitNo. a)

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b) c) d)

Successful Principles of International Marketing-oriented Companies Summary Keywords Self-assessment Questions

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The Task of International Marketing e) Introduction f) Steps in the Marketing Process g) International Orientation h) International Marketing Considerations in SME Sector i) Stages in Market Development j) Income and Purchasing Power Parity k) Summary l) Keywords m) Self-assessment Questions Environmental Factors Affecting International Marketing n) Introduction o) International Marketing Environment p) International Trading Environment q) Cultural factors r) GATTandWTO s) Intellectual Property Issues t) Regional Trade Groups u) Levels of Economic Integration v) Dumping w) Summary x) Keywords y) Self-assessment Questions

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Page No. z) Introduction

TITLE

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Foreign M arket Entry Strategyaa) Elements of Foreign Market Entry Strategy bb) Export Management Companies 6.4 Entering Foreign Markets through Licensing and Other ; Contractual Arrangements cc) Entering Foreign Markets through Investment in Local Production dd) Emerging Markets ee) Planning and Organising Market Entry ff) Summary gg) Key Words hh) Self-assessment Questions

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International Product Strategyii) Introduction Product Lines Product Adaptation

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kk) Product Planning for Exports mm)Issues in Consumer Product Strategy nn) Product Elements for Adaptation oo) Issues in Industrial Product Strategy pp) Summary qq) Keywords rr) Self-assessment Questions

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International Distribution Strategyss) Introduction tt) Importance of International Distribution

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TITLE 8.3 International Channel System 8.4 Direct Exporting 8.5 Indirect Channels 8.6 Factors Affecting Channel Choice 8 .7 Selecting and Motivating Overseas Agents and Agency Agreements 8.8 Export Agency Agreement 8.9 Importance of Physical Distribution 8.10 The Internet as a Channel 8.11 Summary 8.12 Keywords 8.13 Self-assessment Questions

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International Promotion Strategy 9.1 Introduction 9.2 Advertising and Promotion 9.3 9.4 9.5 9.6 9.7 International Advertising Issues Sales Promotion Telemarketing The Internet Public Relations

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9 . 8 Corporate Advertising 9.9 Summary 9.10 Keywords 9.11 Self-assessment Questions

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International Pricing Strategy10.1 Introduction 10.2 Pricing Aspects

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U nit N o.10.3 Pricing Orientation uu) Types of Pricing

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vv) Elements of Costs for Export Price Quotation ww) International Pricing Issues xx) Environmental Influences on Pricing yy) Counter Trade zz) Dumping aaa) Pricing Approaches bbb) Summary ccc) Keywords ddd) Self-assessment Questions 77

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Outsourcing and Strategic Relationships eee) Introduction fff) Forms of Outsourcing ggg) Evaluating Products for Offshore Sourcing hhh) Procurement Process iii) Reasons for International Strategic Partnership jjj) Advantages of Outsourcing kkk) Disadvantages of Outsourcing lll) IT Outsourcing mmm)Strategic Relationships in IT Outsourcing nnn) Summary ooo)Keywords ppp) Self-assessment Questions International Marketing Research qqq) Introductionrrr) Marketing Research for Export Import Trade

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sss) Estimating Market Potential ttt) Market Access uuu) Factors Affecting Demand vvv) Research Process and planning www)Gathering Information xxx) Field Research yyy)Contents of a Report zzz) Scope of IMR aaaa)Primary Data Collection bbbb)Marketing Research on the Internet cccc)Summary dddd)Keywords eeee)Self-assessment Questions e-M arketing and e-Commerce ffff) Introduction gggg)Impact of e-Marketing hhhh)Relationship Marketing

iiii) eC o m m er ce jjjj) Po pu lar ity of eC o m m er ce

kkkk)S Keywords tat nnnn)Self-assessment Questions e of eRe ad in es s llll) Su m m ar y mmm

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271Unit No.

TITLE Future Trends 14.1 Introduction 14.2 Changes in the Future 14.3 1 4.4 14.5 14.6 Guidelines for Companies Seeking Export Markets A Bilateral Partnership Moves Ahead The Inf osy s Formula Summary

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Page No. 287

14.7 Key Words 14.8 Self-assessment Questions

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Case Studies Case Study 1 Case Study 2

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Appendix

International Marketing

1.1 INTRODUCTION This unit introduces the reader to the basic concepts in international marketing. The methods and procedures of international trading have undergone qualitative and quantitative changes over the last two decades; multinational trading practices are growing more complex with the growth of competition among MNCs and among nations; the growth of the internet economy and the sharp growth of emerging markets such as India and China have also contributed to the transformation. The first section deals with the dimensions of the international marketing environment, and some of the important factors related to the foreign environment are covered. When a domestic company decides to enter foreign markets, it has several options and the more significant ones are reviewed. In the subsequent section, the degree of involvement in foreign markets are reviewed since they can vary from zero involvement to total involvement. The means of entry and the kind of involvement the firm wishes to have in its presence in foreign countries are two principal decisions required as part of the set of international marketing decisions. The last section presents a brief discussion on the four 8's related to international marketing decisions. 1.2 THE NATURE AND SCOPE OF INTERNATIONAL MARKETING Trading among nations is a historical phenomenon. For thousands of years trading of goods has been taking place among nations. The content, structure, methods and procedures of trading have, however, undergone qualitative and structural changes from age to age and region to region. To appreciate the nature of the change and challenges of international marketing in the context of existing and emerging trading relationships among countries and groups of countries representing different marketing systems, it is necessary to understand the historical perspective of the evolution of international trading pattern. Most of its characteristics today have their roots in the political and economic past of the trading nations. Post-war developments, in the fields of science and technology, political and economic aspirations of the erstwhile colonial countries, emergence of international, economic and social institutions, formation of regional economic and trading groups, growing complexities and competitiveness of multinational trading practices, and a host of other factors have added new dimensions to and brought about far-reaching changes in international trade policy. The scope and task of international marketing management from the standpoint of individual enterprises is to be viewed against the backdrop of the world trading environment, marketing systems and characteristics, and political and economic relationships among the nations of the world.

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Introduction to International Marketing

DefinitionInternational Marketing is the performance of business activities to plan, price, promote and direct the flow of a company's goods and services or users in more than one nation for profit.

1.3 INTERNATIONAL MARKETING ENVIRONMENT

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Marketing in the modern context goes beyond its immediate role as a process through which exchange of goods and services takes place and is viewed as an integral part of the total socio-economic system which provides the framework within which activities take place. It is, therefore, necessary to understand the total structure of the society, including its political, legal, social, economic and cultural institutions and the marketing system and behaviour and response pattern. Let us first understand the concept of International Marketing. This can be defined as follows: oooo)Marketing involves the performance of operations in a Business System: In a manufacturing enterprise these operations usually include-research and development, production, distribution, finance purchasing and personnel. pppp)Marketing includes those operations that determine existing and sustained change in the market: In order to determine the market opportunity, it is necessary to study the customer market needs and characteristics, through the performance of activities such as market research, demand analysis and forecasting. qqqq)Marketing includes those operations that influence existing and potential demand: In order to influence the demand pattern of customers, the marketing operations include activities such as product development, branding and packaging, pricing, advertising, sales promotion, public relations, etc. rrrr) Marketing includes those operations that activate the supply of goods and services: Marketing is concerned with all activities that are connected with the physical distribution of goods and their exchange in the market place, including channel selection, transportation, shipping, warehousing, storage, inventory control and so on. Marketing thus covers a wide range of inter-related business activities that enlarge the role of a marketer from one of selling what has been produced, to one of influencing what is to be produced. In other words, the primary concern of marketing management is to identify and satisfy specific customer needs by means of specific products or services, wherein lies the key to profit. From this point of view marketing has been defined as a need satisfying


process which places the custom er at the pivotal position around w hich all m arketing activities revolve. Custom er orientation is thus at base of the modern m arketing concept and 'integrated' m arketing is the means of translating this concept into practice. In domestic m arketing, an enterprise usually participates in nearly all the functional areas of marketing, namely, product line policy, pricing policy, distribution and promotional policy. In International marketing, a firm can limit its activities nearly to the shipment of its products to foreign buyers or it can partly participate in all the marketing activities abroad, depending on the nature and degree of its involvement in foreign and management marketing functions. Although the basic marketing function could be the same for both national and transnational m arketing, the im plem entation of the firm 's m arketing program m es and the factors that influence such program mes are often considerably different from one market situation to another. These differences can create additional m anagem ent problem s of planning, coordination control, supervision and financing of international marketing activities of a firm. The environm ental dim ensions of international marketing are to be reckoned with by a firm , irrespective of its techniques of foreign m arket entry or the kind of its involvem ent. These are 'given' factors which affect all aspects international marketing activities, but over which the firm has no control. International marketing is therefore characterised by problems of diversities, complexities and the uncertain and changing nature of environmental conditions and the variety of approaches, techniques, strategies and tactics that are required on the part of the firm to cope with these problems. In domestic marketing, the firm has to contend with the elem ents of national environm ent only, whereas international m arketing has to cope with the variables of both national and international environm ent. Environm ental differences are therefore at the root of problems, complexities and uncertainties inhernet in international marketing operations. The dimensions of international m arketing environment can broadly be classified into (a) Dom estic environm ent and (b) Foreign environment.a) Domestic Environment

cl d< si se ai si

The main aspects of domestic environment within the limitation of which a firm has to carry out its foreign marketing activities, consist of a large variety of factors, the relative importance of which keeps on changing from country to country and from one point of time to another. These factors are broadly related to domestic, economic and political conditions, including the country's existing and potential resources endowm ent and prospects of augm enting resources from external sources, level and brand of econom ic growth, industrial base and structure, marketing infrastructure and logistics system and existence of facilitating and

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supporting agencies for the conduct of foreign trade, size and trend of domestic demand and availability of surpluses for export. Government polices and plans, monetary and fiscal policy, and foreign exchange regulations, import-export policies and procedures and several other allied matters have a direct bearing on the conduct of foreign marketing by an enterprise.

b) Foreign EnvironmentHome-based export expansion-measures are necessarily related to the conditions prevailing in possible markets abroad. A firm has to overcome various constraints and adapt its plant and operations to suit foreign environmental conditions to gain initial market access and to carry on its marketing activities efficiently within the framework of the marketing system in the chosen foreign markets.

Factors related to the foreign environmentJust as there are the uncontrollable factors in the domestic environment, there are the uncontrollable factors in the international environment. Some of these factors that are critical to the decision making process are: political stability, class structure and economic climate. China has moved away from a communist legal system in which all business was done with the state, to a system that embraces the model of the free-market economies such as the USA and the UK. India has moved away from the statedominated public sector economy of the eighties, to a system that has opened up new markets to the private and public-private partnerships similar to that of the developed economies. The more significant elements in the uncontrollable international environment are depicted in fig. 1.1.

id id Political/ Legal forces

Fig 1.1 :

Uncontrollable forces of Foreign Environment


The main elements include: i) Political/legal forces

i) Level of technology iii) Economic forces iv) Competitive forces v) Distribution structure vi) Geography and infrastructure vii) Cultural forces

i)

Political / legal forcesPolitical / legal forces face a business, whether it operates in domestic or in international markets. This is often accentuated by the 'foreign' status accorded to the company, which increases the difficulty of properly assessing and forecasting the dynamic international business climate. It is not merely the fact that 'foreigners' control the business but they receive biased treatment at the hands of politicians or legal authorities. The fact remains that a foreign company is foreign and thus, always subject to the political whims of the local government to a greater degree than a domestic firm is.

ii)

Level of technology Vast differences that exist between the developed and developing countries can often lead to wrong assessments by the foreign company. This is particularly applicable in the case of industrial products such as items of machinery. The concepts of preventive maintenance in a cement manufacturing plant in the USA can be very different from those understood in India or Vietnam. Technical expertise may not be available at a level necessary for product support, and the average worker/supervisor may not have the necessary technical knowledge to maintain the machinery or equipment according to prescribed procedures. Special training procedures have to be developed by the foreign company to provide the necessary support services in the host country.

iii) Economic forces The world economy has changed dramatically since the time when the world was far less integrated than it is today. Today there is global economic growth. Markets in

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every region of the world are potential targets for almost every company from high technology to low technology and across the spectrum of products from basic to luxury. The economic dimensions of the world market environment are of great importance. There have been several changes in the world economy, which have important implications for the companies intending to enter foreign shores. The new relatives of the world economy are the result of some significant developments such as: Increased volume of capital movements The world economy is the dominant economic unit Growth of ecommerce has diminished the importance of national barriers

iv) Competitive ForcesThe nature of competition for any industry varies from country to country and often decides the mode of entry into foreign markets. It is often spelt out by many authors that competition works to drive down the rate of return on invested capital. Rates of returns that are projected to be lower than the competitive rate will not prove to be beneficial to the company that is thinking of entry into a new market. Lower rates of return will result in withdrawal from the market and a decline in the levels of activity and competition. However, if the competitive rates of return show an increasing trend over the last few years, there is scope for new market entrants. The Porter's five forces model of competition analysis is one of the most widely accepted models and is useful in analysing foreign markets also. Analysing competition in foreign markets requires special focus on one of the forces mentioned i.e. Rivalry among competitors. To the extent that the rivalry among firms forces companies to innovate and/or reduce costs, it can be a positive force. To the extent that it drives down prices and therefore, profitability, it creates instability and has a negative influence on the attractiveness of the industry. Several factors can create strong rivalry: Once an industry becomes mature, firms focus on market share and how it can be gained at the expense of others. Industries characteri sed by high fixed costs are always under pressure to keep production running at full capacity. Once the industry accumulates excess capacity, the drive to fill capacity will push prices (and hence the profits) down. A lack of differentiation or absence of switching costs encourages the buyers to treat the products as commodities and look deeper for the best prices. This again puts pressure on prices and profitability. Hence, the need to analyse the


competition at the time of entry into foreign countries is critical to the development of marketing strategies for the firm. One of the consequences of expansion of global marketing activity is the growth of competition on a global basis. Global competition is a critical factor affecting success. In some industries, global companies have virtually excluded all other companies from their markets. In the detergent industry, Colgate, Unilever and P&G dominate the industry on a worldwide basis. The marketing skills and the market 'push' strategies of these three companies have become the source of competitive advantage by achieving global brand status. A similar story can be seen unfolding in the global automotive industry. According to Porter's theory, the presence or absence of particular attributes in individual countries influences industry development. These attributes are factor conditions, demand conditions, related and supporting industry and firm structure and rivalry. The relative importance of these attributes shapes the environment in which the firms compete in their global industries.

v) Distribution structureDistribution channels in markets around the world are among the most highly differentiated aspects of a nation's marketing system. The diversity of channels and the wide range of possible distribution strategies can present challenging problems to any firm designing an international marketing program. Smaller companies are often blocked by their inability to establish effective channel arrangements. In large companies operating via country subsidiaries, channel strategy is one element that headquarters do not easily understand. To a large extent, channels are an aspect of the marketing program that is locally led through the discretion of the in-country marketing management group. It is important for managers responsible for international marketing programs to understand the distribution structure including the status of the infrastructure development necessary for satisfactory functioning. Channels and physical distribution are an integral part of the international marketing mix and must be appropriate to the product design, price and communication aspects of the total marketing program.

vi) Geography and infrastructureThe climate and physical terrain of a country are important environmental considerations when appraising a foreign market. The effects of these geographic features on marketing, ranges from the influences on product adaptation to more lasting influences on the development of marketing systems.8


in which it is operating and by the growing provisions of international law. The international legal environment has three dimensions: Local domestic laws: Finding a route through the legal maze across markets requires the services of experts on the separate legal systems and laws pertaining to each market targeted. International Laws: There are a number of international laws that can affect the firm's activity. Domestic Laws: In the home country, a firm will have to abide by its own national laws in all activities, whether domestic or international. Laws will affect the marketing mix in terms of products, price, distribution and promotional activities quite dramatically.

Business DimensionsThese include business customs and practices, distributive structure and channel network, competitions pattern, means and methods of marketing communication and all other factors related to the conduct of marketing activities.

$ Activity A;a) Two ways in which international marketing is different from domestic marketing are: 1.__________________________________ _ __________________________________

2.b) Three types of uncontrollable forces in the foreign environment are:

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1 __________________________________________________ 2.

3 .

1.4 AVE NUES OF ENTR Y INTO FORE IGN MAR KETS ___________________________________________________________________When a domest ic compa ny decide s to enter into interna tional busine ss, it has several

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options, not necessarily naturally exclusive, to do so, depending, however, on the nature and degree of involvement the company wishes to have in foreign business. These avenues are briefly discussed below : (a) Exporting The domestic company can sell its products to foreign buyers directly or indirectly. For direct exports, it establishes direct contact with foreign customers (actual users or importers-distributors) and ships the goods according to the customers' orders and requirements. The exporting firm takes upon itself the entire responsibility concerning packing, documentation, shipment, credit and exchange risks, Government regulations, customs clearance, etc. In direct exporting the company may have home-based export department or subsidiary, foreign-based sales branch or subsidiary; or foreign-based sole distributors or agents. In case of indirect exporting, the firm can use a variety of independent middlemen operating in the international market. He can use for example: (i) home-based export merchant who buys the firm's product and sells it abroad on his own account taking all exporting risks and tasks upon himself; (ii) home-based export agent whose primary responsibility is to locate foreign customers for the firm's product for a commission and render certain services without taking title to the product, (iii) resident agent or representative of foreign buyers; (iv) cooperative marketing organisation that undertakes exporting on behalf of the member firms which partly controls the activities of such an organisation: (v) combination export manager (CEMP) who acts as overseas selling agent for non-competitive number of principals and practically acts as the 'export department' for the firms he represents. The existence of the these variants, their trading activities, business norms and practices may differ from country to country and market to market. The exporting firm has the choice of using the various combinations of channels network for the same product in different markets or for different products in the same markets or for different products in different markets. (b) Licensing Arrangement Licensing arrangements represent signing of an agreement with a foreign-based enterprise, which is granted under the terms of agreement of right to use the patents, processing know-how or trademarks of the licenser-company usually in exchange for a fee or royalty. Through this arrangement, the licenser can enter the foreign market at little risk and gets the benefit of gaining the manufacturing technology and marketing of a well-known product

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or brand. Licensing does not involve foreign investment risk since the licensee sets up its own production and marketing facilities. If the cost of production is comparatively lower in the licensee's country, the licenser can import the product from the licensee to improve its competitive position in its own market or a third country, thus opening up a new avenue of export for the licensee.

(c) Joint VentureJoint ventures involve setting up of an enterprise in collaboration with a foreign-based company, for the manufacture and marketing of specific product lines. Such collaborations can take various forms covering such areas as managerial and technical know-how and technology transfer, equity participation, R&D activities, manufacturing and marketing facilities or a combination thereof. For political or economic reasons, joint ventures may become the only technique of entering a potential export market, particularly in those countries that have restrictions on the inflow of foreign capital. Joint ventures set up in the developing host countries could be an important means of import substitution process and of helping local industries benefit from the industrial and technological progress of advanced countries and accelerate the process of expansion and diversification of industrial base and product range, subject however to various political and economic implications that are normally associated with ventures.

(d) Contract ManufacturingContract manufacturing represents various kinds of tie-up of manufacturing facilities and arrangements agreed upon between two or more manufacturers located in different countries. Such manufacturing activities could be carried on under subcontracting arrangements for the fabrication of components and accessories and even finished products in a foreign country. The international sub-contractors perform similar functions as the domestic ancillary industries do for end-user industries. International sub-contracting for economic and marketing reasons could be an effective technique of foreign market entry for those developing countries which have adequate technological expertise, manufacturing base and facilities, relatively cheaper raw materials for labour and other infrastructural and comparative advantages.

(e) Foreign InvestmentDirect and unilateral investment abroad involves establishment of assembly, processing, packaging or even complete manufacturing, distributing, and marketing facilities in foreign markets, usually under the financial and management control of the holding company. Such a subsidiary established in the host country abroad becomes part of the country's

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economic life and industrial complex and contributes in a variety of ways to the rate of economic development of the host country as well as enlarges the profit base of the investing company. It is the crux of global involvement in foreign business in which both long-term benefits and risks could be equally high because of social, economic or political reasons. (f) Management Contracts Entry into foreign markets can be made by offering various kinds of consulting services to the foreign customers, government or private, doing feasibility studies and eventually entering into contract for setting up turnkey projects. Project exports could open up yet another avenue not only for supplying machinery, components and equipment for the initial installation of the project but also continued supply of spares and replacements over a long period. There could, however be numerous versions and combinations of the arrangements and techniques for entering and conducting foreign business, with corresponding financial and investments risk, managerial and organisational responsibilities. The choice of a particular technique for doing foreign business by a company will depend on a number of factors, both external and internal, and in the kind of involvement the company wants to have in international marketing operations.

$ Activity B;a) Two advantages to a firm setting up a joint venture in a foreign country are:

b) Two types of intermediaries operating for firms in international markets are:

1.5 FOREIGN MARKETING INVOLVEMENT Foreign Marketing involvement of a manufacturing company may widely vary from a state of indirect involvement to a state of total involvement; several types of involvement are

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generally observed, although those are not mutually exclusive nor sequentially progressive. A firm may choose to have all kinds of involvement simultaneously for different products in different markets. The involvement decision is conditioned by a variety of internal and external factors such as the firm's export policy and programme, size & resources and product range, volume of export business, regulatory and procedural conditions to be fulfilled both from exporting and importing angles-for gaining entry into a particular export market segment and several other factors having a bearing on this decision. For example: (a) firm's product may find its way to a foreign market without any active effort or involvement on the part of the manufacturing firm. This could happen through the initiative of foreign buyers or domestic export-merchant houses. In such cases the product is bought rather than sold and the manufacturing firm may not even be aware of the destination of its product, not to speak of active market promotion or involvement; (b) a firm may try to find out temporary foreign outlets for its product, if it faces a situation of over production or recession in home market or for some other similar reason. The primary motive under these circumstances is to dispose of surplus stock which the domestic market cannot absorb. The firm's involvement in foreign business is purely temporary and remains confined to locating perspective foreign customers for the product; (c) a firm may have built-in facilities for producing, for the selling in foreign markets a part of the entire produce by adopting one or more techniques of foreign market entry; (d) a firm may become international in character by creating both producing and marketing facilities around the world for serving transnational markets through a complex and integrated system of investing, manufacturing, processing and distributive network. Their marketing activities are planned and carried out on a global basis. Depending on the kind and degree of its involvement in foreign marketing, a firm has to reorient and re-organise its activities to cope with the different levels of operational responsibilities inherent in such involvement. To throw some light on this issue, some guidelines are available from what is called the EPRG orientation. The EPRG frame-work attempts to identify four broad types of orientation of the firm towards internationalisation of its operations. These are: Ethnocentrism, Polycentrism, Regiocentrism and Geocentrism (EPRG).

Ethnocentric orientationThe ethnocentric orientation of a firm considers that the products, marketing strategies and techniques applicable in the home market are equally so in the overseas markets as well. Foreign markets are looked upon merely as an extension of the home market. In such a firm all foreign marketing operations are planned and carried out from the home base, with little or no difference in product formulation and specification, pricing strategy,

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distribution and promotional measures as between the home and overseas markets. The firm generally depends on its foreign agents and export-import merchants for its export sales.

Polycentric orientationWhen a firm adopts polycentric approach to overseas marketing, it attempts to organise its international marketing activities on a country-by-country basis. Each country is treated as a separate entity, and individual strategies are worked out accordingly. Local assembly or production facilities and marketing organisations are created for serving the market needs in each country. Polycentrism could be most suitable for firms seriously committed to international marketing and have the resources for investing abroad for fuller and long-term penetration into chosen overseas markets.

Regiocentric orientationWhen a company views regions as unique and seeks to develop an integrated regional strategy, it is said to display regiocentric orientation. For example, an Indian company that focuses on the countries included in the SAARC (South Asian Association for Regional Cooperation) region or in the EU (European Union) region is regiocentric. The term 'transnational company' is also used to describe such an orientation. The company sees similarities and differences in a particular region. It can be ethnocentric or polycentric hi its view of the rest of the world markets. As an example, Fedders Lloyd of US A was among the first few companies to decide that Asia represented a good opportunity for its range of air-conditioners outside the USA. Initially, China was selected followed by India and Indonesia. As it expands into other markets and makes other commitments internationally, it continues to evolve as an international company or an MNC.

Geocentric orientationIn geocentric orientation, the firm adopts a world-wide approach to marketing and its operations become truly global in character. In a global enterprise, the management establishes manufacturing and processing facilities around the world in order to serve the various national or regional markets through a complicated but well-coordinated system of distributive network. There are close similarities between regio-centric and geocentric approaches to international marketing, except perhaps that the geocentric orientation calls

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for a much greater scale of operation, coordination and organisational set-up in order to cater to markets of heterogeneous characteristics. From the foregoing discussion it will be evident that the scope of international marketing for a firm will be determined by its decisions to the means of entry into foreign markets as well as by the kind of involvement the firm wishes to have in international marketing operations. It cannot be said that one kind of orientation is better than the other, as each has its own advantages and limitations, depending on a variety of factors, some of which are within the control of the firm and some beyond.

International Marketing Taskssss) International marketing decision tttt) Market selection decision 3 . Market entry and operating decision 4. Marketing mix decision

5 . Marketing organisation decision

International marketing decisionA firm's decision to go international and get involved in foreign marketing is conditioned by various considerations, which are often linked with the company's own policies and programmes as well as with the national compulsion for export expansion. The latter is particularly true for developing economies where exports are a national obligation of utmost importance. The problem of developing countries is not only of exporting, but of formulating export expansion policies and strategies in such a manner as will fetch optimum returns in foreign exchange. It is therefore of vital importance to decide the processing stage at which the product will be placed on export markets, whether, for example, in primary produce form, raw materials form, or in bulk in packaged and branded form. Marketing implications and procedures are qualitatively different between commodity marketing and what is called strategic marketing where product standardisation channel and promotion varieties play a crucial role in market access or failure of the product. International marketing decision of a firm in developing countries in particular, is therefore too closely link with and, often influenced by, government policy and programme for export expansion in terms of products and markets. Within the limitations of national export promotion priority and strategy, the company decides in accordance with its own resources and attractiveness for foreign market opportunities.16

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Market selection decisionThe market selection decision process consists of a planned and systematic search for relevant information in order to identify potential markets and measure market opportunities. Information gap is one of the critical factors that confront exporters, specially in the context of rapidly changing character of foreign markets and marketing conditions. No one can possibly sell all products in all markets, nor do all markets offer equal opportunities for all products. For economic, legal, geographic or technological reasons certain foreign markets, even though potential, may be closed to export from a country. In some markets, potential may be low. Distance and lack of shipping facilities may preclude certain markets. Through the process of preliminary screening on the basis of available published data or other better sources of information, the exporting firms can select a group of countries which appear as potential markets, for do company's products. The company's search for export opportunities would necessarily be limited by its production and supply capacity. Hence it is always a good strategy to concentrate in those markets which offer the highest potential for company's products and which the company can supply and service with maximum efficiency. The target market selected on the basis of elaborate research analysis, should also be examined from the point of view of potential profitability, so that the selected markets and market segments offer the best opportunities for the company's products.

J8$ A ctivity C ;EPRG framework stands for:

1.6 MARKET ENTRY AND OPERATION DECISION_____________________The various means of foreign market entry have been discussed earlier in this paper. The firm's task is to determine the best possible mode of entering a foreign market segment keeping in view its international marketing objectives. Depending on the nature of constraints or convenience for gaining access to foreign markets, the company may decide to choose more than one means of entry in different markets or market segments. Entry and operating decisions also depend on the marketing involvement decision of the firm as well as on its effect on the expected rate of return. 17


Marketing-mix decision The marketing-mix decision relates to the following aspects of marketing tasks, namely: uuuu)Product mix decision vvvv)Pricing decision wwww)Distribution channel mix decision xxxx)Promotion mix decision 1. Product-mix decision

The decision on product mix involves product line policy and product adaptation and presentation to suit the buying and consumption pattern in the chosen market segments. By offering a suitable range of product lines and combinations of product attributes mixsizes, design, formulation, style, packages, brands, etc, the exporting firm can bring about distributive product differentiation and 'position' the product in specific market segments. The content of product adaptation and planning needed for foreign markets depends on a number of considerations including market characteristics, climatic and socio-economic conditions, government regulations, competitive product specialties, distribution and selling outlets, packaging etc. and expected profit contribution to each product adaptation. 2. Pricing Decision

3.

Pricing is an important tool of marketing and one of the means of achieving the sales objectives. There are several approaches to the formulation of pricing strategy for a product in a given market segment during a given period taking into consideration the characteristics of selected market segments and existing or potential competition. The pricing decision process should ideally start from the 'base price', which the final buyer pays for the product. In a competitive market situation, the exporter is usually obliged to sell his products at a competitive price commanding a premium over other similar products. Such distmctiveness usually results not only from the product specialty but also from the 'subjective association' and image attributed to the product by its consumers. Having determined the expected base price, the exporting firm can work back the discount structure and other marketing and producing costs with the objective of maximising profit realisation or achieving other marketing goals. An illustrative range of considerations entering export pricing decision process is given below:

4.

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Unit 1


What should be the role of price in the overall export marketing strategy and what degree of pricing discretion does the firm have in the target market? What is the probable life cycle of the product and what is the present stage of the cycle? How should the product be priced-above, below or at par with competitive products? How is competition likely to react to the price? Should there be the same or differentiated pricing strategy for different markets or market segments?

3.

Distribution Channel-mix Decision

The distribution channel decision is again dependent on market entry and the involvement decision. For an exporter there are several options to move its product into the distribution pipeline of the importing market, which consists of a wide variety of middlemen performing various kinds of buying and selling functions as well as facilitating activities. The shortest channel of distribution is to establish direct relationship with the final buyer; in case of the consumer the final buyer is the retail outlets and for industrial product or raw materials, the actual users. The direct exporting to final buyers and indirect exporting through intermediaries have their own merits and limitations, subject to the firm's export strategy and foreign market and marketing conditions. The guiding principle in the channel decision is to come closer to the final buyer and have maximum economy and efficiency in the management of distribution, as well as to have continued feedback on market response to the product. Proper selection and management of distribution is of crucial importance for marketing success of the product both in terms of sales and profit. The firm, therefore, needs to select the most appropriate and efficient channels and work in close cooperation with the channel members.

4.

Promotion-mix Decision

Market promotion for export includes basically the elements of marketing communications, either face-to-face or through other means of attracting customer attention to, and creating interest in, the product. There are numerous means and techniques of market promotional activities aimed at the trade level in order to put the product into the distributive pipeline and into the customer homes. The importing firm has to carefully select the most effective combination of the promotion of the promotion-mix, keeping in mind the customer characteristics, nature of product, information and communicational effectiveness of different

19


media, cost and other variables. Advertising, sales promotion, publicity, public relations, exhibitions, trade fairs, personal selling-all individually and collectively contribute towards communication effectiveness. The marketing-mix decision of an exporting firm is the core of export management task. The export success depends on the efficiency of the firm to formulate the most appropriate blending of the different elements of the marketing mix, i.e. product, price, distribution and promotion and translate into the strategic plan of action and break it down into sub-plans in respect of each product and market segment. The marketing mix elements are the ingredients for fulfilling the different marketing objectives, as shown below:

Marketing tasks1. 2. What does the market need?

Marketing TechniquesMarketing information and research.

By what means can the need be satisfied? Product planning, packaging, and Pricing. Distribution, transportation, warehousing, retailing, etc. Publicity, advertising, sales promotion.

yyyy)How does the product reach the buyer? zzzz)How does the customer know about the product and is influenced to buy it?

Marketing organisation decisionThe marketing organisation decision of an exporting firm is determined by its decision as to how the firm wishes to conduct its international marketing activities and also by the degree of involvement and control the firm wants to have on the marketing of its product in foreign countries. It also depends on the international marketing objectives of the firm and the kind and range of product and number of markets and market regions it wishes to serve. The firm may start with an export department within its domestic organisation or it can have a broad-based international division or even a separate export subsidiary for planning and conducting its foreign operations from the home base. When a firm decides to be international, a significant change takes place in its organisational orientation with no operative distinction between domestic and foreign markets. The multinational firm plans its activities on a global basis and all manufacturing facilities, marketing and distribution policies become integrated into a consolidated process of planning and executing marketing operations.

Unit 1


JS$ A ctivity D ;a) Two considerations for product adaptation in a foreign market are:

b) The marketing tasks related to the international marketing mix decision are:

1.7 SUMMARY This unit has covered some of the basic concepts in international marketing and introduced to the reader the trading practices in the current environment. The scope and task of international marketing are to be viewed against the backdrop of the world trading environment, marketing systems and political and economic relationships among the nations of the world. Some of the factors that are different for marketing in domestic and foreign markets have been covered. A firm has to overcome various constraints and adapt its manufacturing operations to suit the environmental factors in different countries. It also needs to carry on its marketing activities efficiently within the framework of the marketing system in the chosen country. The main elements of the foreign environment affecting marketing activities have been discussed in some detail. Some of the more significant macro factors related to the foreign environments have also been discussed. These include factors that are critical to the marketing decision-making process. The important avenues available to a company that decides to operate in foreign markets, are reviewed and discussed. These options are also covered in some detail in a subsequent unit The issues that govern a firm's decision in foreign marketing involvement have been described. The involvement decision is conditional by a number of internal and external factors such as the firm's export policy and program, size resources and product range regulatory and


procedural conditions to be fulfilled from the angles of both exporting and importing. The EPRG framework attempts to identify four types of firm orientation towards internationalisation of its operations. The marketing decision process along with operational decisions that are required for target markets have been outli ned in the last section.

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K

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Y

W

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R

D

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International marketing : It is the performance of business activities to plan, price, promote and direct the flow of a company's goods and services to consumers or users in more than one nation for a profit. Licensing arrangement : It represents the agreement with the foreign-based enterprise in which the licensee is granted the right to use the patents, processing know-how, technology or brands of the licensor company, usually in exchange for a fee or royalty payment. Joint venture : It concerns the setting up of an enterprise in collaboration with a foreign company for the manufacture and marketing of specific product lines. Such collaborations can cover areas such as managerial and technical know-how, technology transfer, equity participation, research and development, manufacturing and marketing facilities or a combination thereof. Contract manufacturing : It refers to various kinds of tie-ups of manufacturing facilities and arrangements agreed upon between two or more manufacturers located in different countries.

1.9 SELF-ASSESSMENT QUESTIONSQ 1 . Define the terms: international marketing and domestic marketing. Q2 . Bring out the key issues that make international marketing different from domestic marketing. Q3 . Explain some of the reasons why Indian firms are currently interested in international markets. Q5 . Describe and differentiate between three major uncontrollable macro-level forces in the foreign environment. Q6. Describe some of the obstacles that can come in the way of small and medium Indian companies that want to export. Q7 . What are differences between a 'Joint Venture' and 'Foreign Investment'?


2.1 INTRODUCTION The firm exporting its products deals with a variety of issues and problems when operating in foreign environments; among other things, international marketing involves dealing with different cultures, history and different sets of government policies. The term globalisation has come to mean many things to many people. The effects of globalisation have been wide-ranging and need to be understood with special reference to the international marketing subject and its scope. This unit covers some of the elementary aspects of globalisation and its effects on international business processes. The trading environments have undergone a number of developments since the establishment of the WTO, unification of Germany and the collapse of the USSR. The role of the trading blocs has been highlighted since globalisation needs to be viewed through many perspectives. The most important aspect concerns the implications and the effects of globalisation on international marketing as well as on international marketing managers. This has been covered in the last section so that the learners get to know the degree of impact. 2.2 OPERATION IN FOREIGN COUNTRIES International marketing is reckoned as a dynamic aspect of the corporate strategy for survival and generation of business opportunities. It involves operating in foreign environments and dealing with unknown people wanting altogether different products. Every country has a separate export/import (or exim) policy reflecting its economic compulsions and growth requirements. Further, relations among countries are governed by national governments. Then, there are problems of language, culture, social background, tariff regulations and currency fluctuations. Mindset Selling abroad is a complex task. It requires a different mindset and high sense of commitment. In fact, the whole thing should be meticulously planned and executed like a mission. Temperamental decisions have no place in overseas marketing. The decision to enter export market should be final and it does not call for a roll-back. This is possible when export is recognised as an integral part of corporate activity. People enter export markets for a variety of reasons, which may include recession in the domestic market, higher profitability, utilisation of available export incentives, need for imported inputs and increased productivity. Whatever be the reason for selling overseas, the exporter must provide for the required level of commitment.

Unit 2

Challenges of Globalisation

Enlarged ScopeOver the years, the scope of international marketing has been enlarged to cover activities like joint ventures, licensing, franchising and establishment of a production unit abroad. In fact, people are now talking about globalisation, which means transnational operations characterised by free flow of trade and factors of production across national borders. As purt in information technology and greater use of telecommunications have given a boost to this phenomenon. This process started with OPEC and floatation of dollar during the 70s. Theodore Levitt of Harvard mentioned this concept in 1983, the main emphasis of this syndrome being on developing a global outlook for working. With this development, trading in merchandise has lost its significance. Money flows and global sourcing of inputs are important factors. Among factors of production, management holds the key position.

C ost-E fficiencyThe basic objective of globalisation is to concentrate on a few business functions in different markets or territories in such a manner that the ultimate product/service enjoys the available comparative advantage and thus becomes the most cost-efficient and hence competitive. Implicitly, this means interdependence of world markets. The basic philosophy of this exercise is to think "globally and act locally". The reason for this is very simple. We still live in an incredibly diverse planet, inhabited by individuals who believe in different ideologies, speak different languages, practice different life styles and rely on different approaches in business. Various forces affecting globalisation as pointed out by Michael Porter in his book entitled, "Competitive Advantage of Nations" are: (i) Growing similarity of countries in terms of available infrastructure, distribution channels and marketing approaches. (if) Fluid global capital markets: National capital markets are growing into global capital markets because of the large flow of funds between countries. (iii) Technological restructuring: The reshaping of competition globally as a result of technological revolutions such as in micro electronics. (iv) Integrating role of technology: Reduced cost and increased impact of products have made them accessible to more global consumers. (v) New global competitors: A shift in competition from traditional country competitors to emerging global competitors.


DevelopmentsThe current international trading environment is characterised by a number of developments, such as, the establishment of WTO, the emergence of trading blocs, the unification of Germany and the collapse of US SR. Further, as a result of the G ATT Accord, although a number of benefits are now expected in the areas of agriculture, textiles and pharmaceuticals, several problems relating to trade policy changes and legal enactments are yet to be resolved. The multilateral trading system which has become a reality calls for strict adherence to the rules of international trade among member countries. Again, there are apprehensions regarding sovereignty, poverty alleviation, economic growth etc., with the implementation of Uruguay Round Agreement.

Trading BlocsThe trading blocs, while accelerating the process of growth and social change within a particular group, are discouraging the inflow of goods from outside through manipulation of import tariffs in favour of member countries. Further, in the name of growing unemployment and unchecked imports at prices lower than their domestic products, many of the developed countries are now coming up with a number of inconceivable tariff and non-tariff barriers. The range, scale and application of particularly non-tariff barriers are very complex and include such aspects as procurement policies, dumping measures, method of assessing duties, administrative procedures and packing regulations. These countries are also planning to introduce new trade restrictions like labour standards, environmental conditions and sanitary regulations to ward off import of several items into their markets.

SWOT AnalysisViewed against this background, it is necessary to attempt a SWOT analysis of India's export capabilities and extract the maximum out of our existing product and market positioning. Over the years, we have depended on a small basket of traditional items for generation of Indian exports. The number of competitors for these items has grown and some of them have outperformed us. Another problem of our export is that we have focused on low value and simple items for which there is not much scope now. Further, we have failed to take advantage of the global sourcing. There are a number of technologyintensive products like automated data equipment, telecom equipment and electronic items for which there is a large market in developed countries. Nearly, 50 per cent of such items are imported from developing countries like China, Indonesia, Malaysia and Thailand. In the past, we have lost this opportunity. We must now get out of this trap by speeding up the ongoing process of change. This involves several steps:

Unit 2


a) VisionThe most significant part of this change is to have a vision supported by long-term policy. And this vision should be reflected in the creation of something unique and different, which cannot be imitated. Procter & Gamble took advantage of its mass merchandising skills to become a world leader in soaps and detergents. This could not be matched by others in the market. On the other hand, General Electric Company developed a computerised x-ray machine which was immediately imitated and out-priced by Toshiba. The responsibility forgiving such a direction and support lies with the top management. As of now, we have very few companies in India with a long-term strategy and this has been mainly due to the lack of stable government policies for business development. In the changed scenario, it should be possible for individual units to work with greater confidence for their development and growth. In order to achieve sustainable growth in export markets, it is necessary to expand the existing product line either by increasing one's own production capacity, or acquiring another company in the same product line. Dominance achieved in this manner would also help in attracting additional talent and capital, resulting in further growth of the company. The focus on existing line of production is necessary to exploit the available expertise in a particular field.

b) Q ualityImprovement in quality is yet another component of globalisation. Over the years, Indian companies have operated in a sheltered home market where the customers are less demanding and the inflow of quality products at low prices was blocked through imposition of high customs tariff. With the opening up of the Indian economy, we can no longer be complacent and wait for outsiders to come and dislodge us in our own country. To be successful in the international market, one has to be a 'world-size player' with matching international quality standards, and fight out the profit sanctuaries of foreigners right in their home countries. After the unification of Europe, ISO 9000 was the 'mantra' for successful operation abroad, and unless we qualify for this standard, the wider choice available with the customers will simply keep us at bay. Customers all over the world have become increasingly sophisticated and few will accept anything less than the best. One should, therefore, offer the same level of quality both in emerging as well as mature markets.

c) AdvantageIdentification of products with competitive advantage is yet another aspect of globalisation. It is an established fact that every firm or country cannot market several products abroad. Different countries have competitive advantage in different industries. For instance, Japan is successful in electronics, the USA in computers and aircrafts, Germany in fine chemicals

29


and Italy in leather products. To achieve success in overseas markets, it is desirable to combine both country and product-specific advantages. Viewed in this context, it would be necessary for Indian players to concentrate on such products as textiles, jewellery, leather, software, engineering, air-conditioning and movie production in the international market. Recently, some of the Indian herbal products have also been very popular in the Western countries. Cheap labour should not be viewed as an enduring advantage in international markets. There are many industries in India where we have comparative cost advantage because of cheap labour. But with gradual induction of foreign technology in some of these areas, and the product becoming more sophisticated, these advantages are becoming redundant. Further, the cost variation in different sectors also gets narrowed down with higher levels of automation. This fact is amply demonstrated by the J apanese experience where the labour cost is 20 times higher than that of India. With a labour market reform in India, the situation will definitely improve in the country.

1.2.

b)

d) AlliancesAnother area of change relates to product adaptation. This requires continuous upgradation of technology and a huge investment in brands. Indian companies have lagged behind in this area. There are several reasons for this. One, our export basket mainly comprised bulk commodities where the value addition was minimal. Second, India's share in world exports has been low and the only domain of competition was pricing. And thirdly, we were obsessed with the socialist pattern of working where advertising is considered a wasteful expenditure. Excellence in international marketing requires heavy expenditure on product development and brand building. It is understood that establishment of brand in a market like USA or Europe takes about four to five years and during this period, one has to spend about Rs. 160 crore on advertising and publicity. Once a brand backed by continuous product improvement is established, it will generate a kind of faith and credibility in the product, which will sell automatically. Indian companies selling abroad should also be prepared for a strategic alliance with a multinational company. Such a strategy is very important in the present context where multinationals are going global very fast by joining hands with even rivals. In the process, many of the Indian companies will graduate into multinational and global companies. It is heartening to know that a few Indian companies like Parle Agro, Mohan Meakins, Koparan Ltd. and Hero Motors have entered into franchising/licensing arrangements for manufacturer of their products in selected countries. e) Reforms

Acceleration of economic reforms is essential for pushing through the ongoing process of globalisation. We have yet to decide on several problems relating to foreign investment, level playing field, privatisation, land ceiling act, public sector disinvestment and liberalisation

Unit 2


in the import of consumer products. Once these issues are settled, the tempo of integrating Indian economy with the world will be built up further. & $ Activity A; a) Two examples of foreign companies operating in India that have adopted the principle of 'Think global, act local' are: 1._____________________________________________________________ 2. b) D Econom ic reforms in India are helping the cause of globalisation and increasing the pace of integrating the Indian econom y with the world True False

2.3 STR AT EG IC M A RK ET IN G O R IENTA TIO N The degree of marketing involvement (described in Unit 1) does not necessarily correspond to the strategic thinking and orientation of the firm. Often companies stray into international m arkets because of a sudden spurt in dem and. Strategic marketing planning m ay be of secondary importance in the rush to 'fill up the tank' with orders. Three distinct approaches to strategic marketing orientation are prevalent in firms involved in international markets: aaaaa) xtension of domestic marketing orientation E bbbbb) ulti-country marketing orientation M ccccc) lobal marketing orientation G 1. Extension of dom estic m arketing concept The firm seeking extension of domestic sales into foreign markets is representing one type of strategic marketing orientation. It views its international operations as secondary to, and an extension of, its domestic production. Domestic business is its priority but foreign sales are seen as a profitable extension of its dom estic operations. Firm s believe that is their products can sell in their own country, they should sell elsewhere too. Minimal efforts


are made, if any, to adapt the marketing mix to international markets. In this strategic orientation the aim is to market to foreign customers in the same manner as that to domestic customers. It seeks markets that are similar to the home market and those that accept its domestic products. This domestic market extension strategy can be very profitable and firms with this approach are 'ethnocentric'.

2.

Multi-country marketing orientation

When a company recognises the differences between overseas and domestic markets and the importance of offshore business, its orientation may shift to a multi-country marketing strategy. This firm is guided by the concept that markets in different countries need independent marketing programs. Firms adopting this orientation have clear and separate marketing strategies for each country that they wish to involve themselves in. Subsidiary companies operate independently of one another in establishing their marketing objectives, goals and plans. The parent country uses separate marketing mix elements with little interaction among themselves. Products are adapted for each market with very little co-ordination with other country markets; advertising campaigns, pricing, and distribution decisions are localised. The firm that applies this concept does not look for similarity among elements of the marketing mix that might yield better results through standardisation. On the contrary, it aims for adaptation to local country markets. Control is decentralised while recognising the exclusivity of each market through local inputs. Firms with this type of orientation are generally 'polycentric'. Some of the Korean companies operating in India such as LG Electronics and Samsung fit in this category.

1

3.

Global Marketing Orientation

The global marketing concept views an entire set of country markets including the home market as one unit, identifying group of prospects with similar needs as a global segment. The firm then develops a marketing plan that strives for standardisation wherever it is possible, and cost-effective. Its marketing activity is global and its market coverage extends across all continents. The company employing a global marketing outlook keeps aiming for efficiencies of scale and cost by developing a marketing mix applicable across national boundaries. Ford Motor Co., Intel and Microsoft are some of the companies that can be described as global companies. The marketing plan of such firms may imply a standardised product with country-specific advertising or has a standardised theme in all countries with cultural-specific appeals to a

Unit 2


unique market characteristic, or has a standardised brand or image but has adapted products to meet specific country needs and so on. E.g. Mc'Donald's standardises its processes, logo, most of its advertising, and interior decor and layouts whenever and wherever possible. However, it is possible to find wine in the menu in France, beer in Germany, pork burgers in Thailand and the 'Maharaja Mac' Veggie burger in India. Being global is a mindset and a way of looking at commonalities that can be standardised across regions or country-market groups. The global marketing orientation has proved to be successful for many export-dominant firms and MNCs. There is bound to be widespread adoption of this concept among the newer companies that have big ambitions to enter new countries and new continents. In fact the similarities of customer needs across countries have forced companies like Sony Corp. (Video games) and Microsoft Windows (operating systems) to launch new products almost simultaneously (or with very little time lag) in multiple countries around the world. However, the 3 types of strategic marketing orientation described above need not be mutually exclusive. Depending on the product and the market, other orientations may be present and may make more sense in certain concepts; for example, Unilever may follow a global marketing strategy for disposable diapers but a multi country strategy in Asian markets for soaps and detergents.

JS$ A ctivity B ;a) Identify two Indian Companies that have multi-country market orientation.

b) Identify two Indian Companies that have global marketing orientation.


2.4 IMPLICATIONS OF GLOBALISATION ON INTERNATIONAL MARKETING ______________________________________________________________ Globalisation offers marketers the opportunity of reaching a much wider range of consumers than has been the case in the past. This makes some aspects of marketing easier and others more difficult. Basic tools and techniques of marketing In an increasingly integrated business environment the emphasis moves from an individual to a collaborative marketing platform. The essence of changes in tools and techniques of the market is in the response to national/regional aspects that remain during the processes of transition - different aspects of corporate activity mature and globalise at different rates, and national/regional legal requirements and product standards change very slowly. This has led to Sony's concept of "global localisation" and this drives the company's marketing worldwide. The basics are globalised-core technology, design, branding - and the final product specification mix, promotion, customer support are undertaken just as if Sony were acting as a national/regional company. Behaviours are converging, but slowly. The influence of history and culture difference will remain significant. However the impact of the information revolution is such that there is convergence and it is beginning to accelerate. Levi's are as much in demand in developing countries like China, India and Brazil, as in the USA. The basic marketing messages aimed at young, well-informed consumers work in Beijing and Delhi as in San Francisco; the percentage of localisation will slowly decline over time. Working out the physical channels to markets is not enough; marketers now need to understand the informational channels to market. Supply-chain marketing Marketing is based increasingly on three interacting supply chains : product/service, information and money. Transfers of information and money are relatively easy, since these are two elements of business that became globalised most easily and most rapidly. The product/service supply chain is more difficult because it is less homogeneous and remains subject to local (mainly cultural) variances. Because of (a) constant migration of value under conditions of competitive supply and (b) decision-making under conditions of asymmetrical information, the scope of the concept of marketing is moving gradually beyond the classical 4Ps (product, price, promotion, place) that have framed the discipline for so long.

34

Unit 2


What is happening, quite simply, is that customer value can be derived from any element or combination of elements in the total supply chain, not just on the final product package. Marketing is about identifying (a) where value-adding conversions can take place and (b) how and why customers develop and change their views as to what constitutes value. This takes place against a background of increasingly collaborative relationships rather than the traditional 'arm's length' dealings. It can be usefully summarised as a holistic and integrated business process, as follows. Technology / Systems Finance Logistic Sustained Customer Satisfaction

Valueadding

R&D Learning

Structure/cultur

Marketing via the concept, tools and techniques of supply chain management

Fig. 2.1: Integrated Business ProcessWhen the above concept of the full business process is considered, it is not difficult to see how the decoupling of value creation from the country of location of the resources and activities that are restricted to the 4P's necessitates a redefinition of the activity we term 'marketing'. Globalisation accentuates this tendency. Knowledge-based marketing It follows from the two sub-sections above that international marketing is essentially rooted in knowledge acquisition, processing and application. The nature of market research and marketing is changing to take this into account. How we discover what brings a buyer (consumer or business/industrial) to a choice is increasingly complex. It is no longer sufficient to build a brand and promote it on the basis of techniques and propositions that made an impact twenty to thirty years ago in an American/ European demand context. The basis of a brand now involves commonality and consistency of key factors in the product package, coupled with local details in final specification that appeal to the experience sought by the target buyer group(s).


Globalisation cannot remove the aspects of the marketing mix that are set to remain internationally heterogeneous. Therefore the question of managing the information supply chain is becoming more critical in marketing as business becomes increasingly global. Asymmetry of information is often the critical factor that gives rise to competitive advantage, at least over the short-term period. We also bear in mind that "time compression" is a fact of marketing life- in terms of product life-cycle, innovation, time-to-market and other potential order qualifiers and order winners. The quantity and quality of information and the speed and creativity with which such information can be processed are central to 21st -century marketing. Market research is responding to this challenge by developing and refining costeffective techniques of data mining and data manipulation- increasingly on a global basis. What we are seeing is a new "currency" of marketing that is part of the essence of globalisation. The true differentiators are increasingly located in "intellectual" rather than "physical" capital. Thus high-value work gets done in locations where access to intellectual capital is most favourable (the high-cost developed world) and manufacturing/assembly gets done where raw materials, physical capital and labour are most favourably accessed (the low-cost developing world). Order winners are found in the former; order qualifiers are shifting increasingly to the latter. It is, in the long run, pointless to interfere in this rational economic process.

Cohesiveness and consistencyIf globalisation affects organisations, then it varies by function within a business. The final challenge is to maintain cohesiveness and consistency in presenting a company and its offerings to the world. It is unlikely that markets will converge entirely because of differences in history, sociology, culture, physical and legal environments, and many other micro aspects. This makes issues such as branding more, not less, important. But the concept and purpose of a brand is changing; it serves only to make a statement about a company's core values and position. The ability of a customer to reach a "segment of one" (or realistically a "segment of few") on the basis of a cohesive and consistent marketing platform, will be the key to global success. This is the true nature of Sony's principle of "global localisation". Competencies in the new market environment The new market environment is characterised by significantly greater organisational36

fluidity.

Unit 2


All this gives rise to an additional set of challenges that are faced by business leaders generally, but especially in the marketing function, these translate readily into a comparison of core competences, as follows. Competences that are declining Getting ahead Individual self Personal space, status Personality-driven Subject expertise Initial qualifications Lifetime commitment Project management Predominantly deductive thinking Competence that are growing Adding value Team working Interpersonal effectiveness Process-driven Multidisciplinary Continuous updating/extending Cohesive but mobile career Business management Increasingly inductive thinking

The move towards globalisation requires marketing (and other) managers to abandon national allegiances and this can happen only when top company management modifies its own views and installs a set of processes and structures that relate to the emerging reality of the business and not to past practice. Globalisation extends choice-on both the supply and demand sides of business relationships. It not only opens up more markets to us, it simultaneously opens our markets to more competitors. This provides a more fluid marketing environment in which an organisation can "hedge" its markets and customers in order to maximise returns and minimize risk and uncertainty. This is why globalisation can never be about selling in each region of the world. It is why the global company will be distinguished by its capabilities not simply by the number of markets it serves or the number of countries from which it sources its inputs. Properly managed at inter-governmental level, globalisation will level the playing field to a very significant extent and will change the nature of opportunity and competition. This constitutes the true and emerging essence of globalisation. It will challenge and alter our concepts and practices in marketing, and more generally, in strategic and operational management.

2.5 THE INDIAN CONTEXT_________________________________________Business across borders is increasingly becoming commonplace. The business economies of many nations are witnessing upturn and downturn cycles. This is forcing most local37


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companies to look for business outside their national borders. This aspect is also being facilitated by the growth of the Internet and its associated worldwide usage. Quite a few countries have decided to reduce trade barriers or opened up markets that were once prohibited to private commercial enterprises. This is evident in many parts of Europe, Latin America and Asia including India. The ongoing economic reforms in India such as tariff reductions, deregulation of industries and allowing private sector participation in government-owned companies (e.g. VSNL now partnering with TATA Group in telecommunications, Reliance group's involvement in oil exploration) are attracting the entry of global companies and multinational companies (MNCs). Significant differences in labour costs in developing countries like India and China create a strong reason for MNCs to locate or shift their manufacturing bases there and use the facilities to supply market demand across the world. Both Hyundai Motors Company, South Korea, and Ford Motor Company, USA are making automobiles in their plants in Chennai (in South India) and marketing them to countries in Europe and Asia. MNCs drive considerable cost advantages through economies of scale by concentrating on world-scale volumes as opposed to national-scale volumes. This gives them substantial advantages over local competitors who concentrate only on domestic markets. In certain industries, MNCs have the ability to transfer their production, marketing and management know-how from country to country at very low cost. Globalised operations are therefore considered essential now for companies to get maximum advantage in driving down costs. Globalisation can be seen making deep inroads into industries such as motor vehicles, telecommunications (Mobile and long-distance services), Internet services, petroleum products and energy. Indian firms are also in the forefront with leading companies like Mahindra & Mahindra, Bharat Forge, Bajaj Auto setting up units or having joint ventures with foreign companies in markets outside India.

2.6 SUMMARYIn this unit, an attempt has been made to introduce the concepts of globalisation and the challenges that companies face as a result of its spread. International marketing is reckoned as a dynamic aspect of corporate strategy for generation of business opportunities. The issues and problems involved with companies operating in foreign environments have been brought to the forefront in the initial sections. The ways by

Unit 2


which globalisation is throwing up new opportunities for companies have been discussed. The necessity of having a long term vision for companies operating in foreign markets has been stressed. It is not possible to deal with the topic of globalisation in isolation and without making reference to the emergence of global companies and therefore, global competition. The implications and effects of globalisation on international marketing have been covered in a later section and given due prominence. The international marketing manager can no longer afford to ignore the impact of globalisation on the company he/she is associated with. In the units that follow, the more detailed aspects of globalisation will become clearer. 2.7 KEY WORDS_____________________________________________________ Trading blocs : A term used to refer to a group of nations within a certain region to promote trade and business within themselves. This group may also discourage the inflow of goods from outside the region through manipulation of import tariffs in favour of member countries. Global marketing: In this stage, the company treats the world, including their home market as one market. Market segmentation decisions are no longer focused on national borders. Globalisation: This is a term that refers to increasing global connectivity integration and interdependence in the economic, social, technological, cultural, political and ecological spheres. It is the process by which the experience of everyday life is becoming standardised around the world. 2.8 SELF-ASSESSMENT QUESTIONS__________________________________ Q1. What are the main issues faced by a company operating in a foreign country? Q2. Why is the study on the effects of globalisation important? Q3. Discuss the ways in which globalisation is affecting the Indian auto component industry. Q4. How is the multi-country marketing orientation different from the global marketing orientation?

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3.1 INTRODUCTION There are various factors that motivate a company to operate and market on foreign shores. Some of these factors are the 'pull' type and some belong to the 'push' type. It is necessary to understand some of these factors in detail since they provide us with answers to some basic questions of the existence of companies in foreign countries. There are similarities and differences between domestic marketing and international marketing. In a separate section an attempt has been made to highlight the various factors in simple terms. The progression of the company's involvement in foreign countries proceeds from export marketing to global marketing. A global marketing strategy involves the creation of a single strategy for a product server or company for the entire global market. Although Unit 2 introduced the concept of global marketing briefly, this section takes the concept forward. This concept has assumed great importance in India with the emergence of Indian companies that have become international in outlook and performance, as well as those with global ambitions. This is followed by a section on the main driving forces that are creating new multinational companies (MNCs). The importance of international marketing is derived from the fact that driving forces have a much greater influence on companies than the restraining forces. hi the last section, some of the successful principles that have guided companies to succeed in international markets have been presented in a condensed form. 3.2 MOTIVATING FACTORS The factors which motivate firms to go international may be broadly divided into two groups, vis., the pull factors and push factors. pull factors, The most of which are proactive reasons, are those forces of attraction which pull the business to the foreign markets. In other words, companies are motivated to internationalise because of the attractiveness of the foreign market. The attractiveness includes, broadly, the relative profitability and growth prospect. The push factorsrefer to the compulsions of the domestic market, like saturation of the market, which prompts companies to internationalise. Most of the push factors are reactive reasons. Important reasons for firms involved in exports and imports are discussed below: 1. Profit Motive One of the most important reasons of internationalisation of business is to earn profit.

Unit 3

Why Firms Go International

Often it has been found that International business could be more profitable than selling in the domestic market. One of the important motivation for foreign investment is to reduce the cost of production by taking advantage of cheap labor input or raw material.

2.

Growth OpportunitiesThe growth potential of many foreign markets is a strong attraction for foreign companies. In a number of developing countries both the population and income are growing fast. It may be noted that the several developing countries, the newly industrialising countries (NICs) and the Peoples' Republic of China in particular have been growing much faster than the developed countries.

3.

Domestic Market ConstraintsDomestic demand constraints drive many companies to expand the market beyond the national border. The market for a number of products tends to saturate or decline in the advanced countries. This often happens when the market potential has been almost fully tapped. Another type of domestic m

International Marketing 1

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Transcript of International Marketing 1