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NEED OF STUDY
There are several good reasons for studying marketing.
First of all, marketing issues are important in all areas of the
organization—customers are the reasons why businesses exist!
In fact, marketing efforts (including such services as promotion
and distribution) often account for more than half of the price of
a product. As an added benefit, studying marketing often helps
us become more savvy consumers. We will learn, for instance,
that the per unit price of a bigger package is frequently higher
than that of a smaller one, and that more expensive products are
frequently not better in quality.
Criteria that must be met for marketing to occur:
Several criteria must be met for marketing to occur:
There must be two parties, each with unsatisfied needs or
wants. This want, of course, could be money for the seller.
Each must have something to offer. Marketing involves
voluntary “exchange” relationships where both sides must
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be willing parties. Thus, a consumer who buys a soft drink
in a vending machine for 60¢ must value the soft drink,
available at that time and place, more than the money.
Conversely, the vendor must value the money more. (It is
interesting to note that money is, strictly speaking, not
necessary for this exchange to take place. It is possible,
albeit a bit cumbersome, to exchange two ducks for a pair
of shoes.)
The parties must be able to communicate. This could be
through a display in a store, an infomercial, or a posting on
eBay.
The marketing vs. the selling concept: Two approaches to
marketing exist. The traditional selling concept emphasizes
selling existing products. The philosophy here is that if a
product is not selling, more aggressive measures must be taken
to sell it—e.g., cutting price, advertising more, or hiring more
aggressive (and obnoxious) sales-people. When the railroads
started to lose business due to the advent of more effective
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trucks that could deliver goods right to the customer’s door, the
railroads cut prices instead of recognizing that the customers
ultimately wanted transportation of goods, not necessarily
railroad transportation. Smith Corona, a manufacturer of
typewriters, was too slow to realize that consumers wanted the
ability to process documents and not typewriters per se. The
marketing concept, in contrast, focuses on getting consumers
what they seek, regardless of whether this entails coming up
with entirely new products.
The 4 Ps—product, place (distribution), promotion, and
price—represent the variables that are within the control of the
firm (at least in the medium to long run). In contrast, the firm is
faced with uncertainty from the environment.
The suggested framework of international marketing includes
motivation for internationalization, SWOT analysis, a mix of
international marketing decisions and consolidation of
marketing efforts on the basis of reviewing markets
performance.
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KEY TERM
Re-geocentric orientation: the approach that considers a region
as a uniform market segment and a firm following this approach
adopts a similar marketing strategy within the region but not
across the region.
Geocentric orientation: the approach that treats the whole
world as a single market and attempt to formulate integrated
marketing strategies.
Self reference criterion: an unconscious reference to one’s own
cultural value, experience and knowledge as a basis for decision
making.
Theory of mercantilism: attributes wealth of a nation by the
size of its accumulated treasures, usually measured in terms of
gold. A theory that holds that national should accumulate
financial wealth in the form of gold by encouraging exports and
discouraging imports.
Theory of international product life cycle: the cyclical pattern
followed by the international markets over a time due to a
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variety of factors which explains the shift in the markets as well
as manufacturing bases of the firms.
Domestic marketing: marketing practice within the domestic
markets.
Foreign marketing: methods and practices used in the home
markets and also applied in overseas markets with little
adaptation.
Comparative marketing: Comparative study of two or more
marketing system to find out the differences and similarities.
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REVIEW OF SUBJECT
What is marketing?
Almost every marketing textbook has a different definition
of the term “marketing.” The American Marketing Association
(AMA) uses the following: “The process of planning and
executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy
individual and organizational objectives.” From this definition,
we see that:
Marketing involves an ongoing process. The environment
is “dynamic.” This means that the market tends to change
—what customers want today is not necessarily what they
want tomorrow. For example, sales of beef are declining in
the United States because consumers have become health
oriented. Similarly, Tupperware parties are less popular
today than they once were because there are fewer
housewives who do not work outside the home.
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This process involves both planning and implementing
(executing) the plan.
Some of the main issues involved include:
o Marketers help design products, finding out what
customers want and what can practically be made
available given technology and price constraints.
o Marketers distribute products—there must be some
efficient way to get the products from the factory to
the end-consumer.
o Marketers also promote products, and this is perhaps
what we tend to think of first when we think of
marketing. Promotion involves advertising—and
much more. Other tools to promote products include
trade promotion (store sales, coupons, and rebates),
obtaining favorable and visible shelf-space, and
obtaining favorable press coverage.
o Marketers also price products to “move” them. We
know from economics that, in most cases, sales
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correlate negatively with price—the higher the price,
the lower the quantity demanded. In some cases,
however, price may provide the customer with a
“signal” of quality. Thus, the marketer needs to price
the product to (1) maximize profit and (2)
communicate a desired image of the product.
o Marketing is applicable to services and ideas as well
as to tangible products. For example, accountants
may need to market their tax preparation services to
consumers.
THE MARKETING ENVIRONMENT
ELEMENTS OF THE ENVIRONMENT:
The marketing environment involves factors that, for the
most part, are beyond the control of the company. Thus, the
company must adapt to these factors. It is important to observe
how the environment changes so that a firm can adapt its
strategies appropriately. Consider these environmental forces:
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Competition:
Competitors often “creep” in and threaten to take
away markets from firms. For example, Japanese auto
manufacturers became a serious threat to American car
makers in the late 1970s and early 1980s. Similarly, the
Lotus Corporation, maker of one of the first commercially
successful spreadsheets, soon faced competition from
other software firms. Note that while competition may be
frustrating for the firm, it is good for consumers. (In fact,
we will come back to this point when we consider the legal
environment). Note that competition today is increasingly
global in scope.
Economics:
Some firms in particular are extremely vulnerable to
changes in the economy. Consumers tend to put off buying
a new car, going out to eat, or building new homes in bad
times. In contrast, in good times, firms serving those needs
may have difficulty keeping up with demand.
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Political:
Businesses are very vulnerable to changes in the
political situation. For example, because consumer groups
lobbied Congress, more stringent rules were made on the
terms of car leases. The tobacco industry is currently the
target of much negative attention from government and
public interest groups. Currently, the desire to avoid aiding
the enemy may result in laws that make it more difficult
for American firms to export goods to other countries.
Legal:
Firms are very vulnerable to changing laws and
changing interpretations by the courts. Firms in the U.S.
are very vulnerable to lawsuits. McDonald’s, for example,
is currently being sued by people who claim that eating the
chain’s hamburgers caused them to get fat. Some impacts
of the legal environment.
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Firms are significantly limited in what they can do by
various laws—some laws, for example, require that
disclosures be made to consumers on the effective interest
rates they pay on products bought on installment. A
particularly interesting group of laws relate to antitrust.
These laws basically exist to promote fair competition
among firms. Some principles involved here include:
o Collusion: Firms may not “conspire” to fix prices
(agree that they will not sell below an agreed upon
price) or reduce services.
o Predation: Firms may not sell their products below
their cost of production for the purpose of driving
competitors out of business so that they, themselves,
can raise prices when competition is reduced.
o Market share: Firms which have an unacceptably
large market share may be “broken” up by court
order so that many smaller firms will be around to
compete. (This is what happened to AT&T, and at
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times, IBM has been worried about this prospect). •
Tying: A firm that controls a valuable product may
not require the consumer to buy a more
commonplace one to get the scarce product. For
example, Intel controls many of the newest
microprocessors (e.g., Pentium IV). Intel also makes
motherboards for computers; however, motherboards
are made by a lot of firms. Intel would be thought to
abuse its effective monopoly power if it required
consumers to buy a motherboard in order to get its
newest chips.
Technological:
Changes in technology may significantly influence
the demand for a product. For example, the advent of the
fax machine was bad news for Federal Express. The
Internet is a major threat to travel agents.
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Social:
Changes in customs or demographics greatly
influence firms. Fewer babies today are being born,
resulting in a decreased demand for baby foods. More
women work outside the home today, so there is a greater
demand for prepared foods. There are more unmarried
singles today. This provides opportunities for some firms
(e.g., fast food restaurants) but creates problems for others
(e.g., manufacturers of high quality furniture that many
people put off buying until marriage). Today, there are
more “blended” families that result as parents remarry
after divorce. These families are often strapped for money
but may require “duplicate” items for children at each
parent’s residence.
Environmental scanning:
Its helps the firm understand developments in the market.
Such developments may involve changes in the market place
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due to social trends (e.g., Gerber, a manufacturer of baby
products, faces a serious challenge with declining U.S. birth
rates), technology (e.g., VCR makers are threatened by DVD
players), or new or potential competitors (e.g., Internet service
providers are being threatened by increasing marketing efforts
from MSN). Note that environmental scanning must be
performed continuously, since environmental change does not
cease.
Economic cycles:
The economy goes through cycles. In the late 1990s, the
U.S. economy was quite strong, and many luxury goods were
sold. Currently, the economy is somewhat weak, and many
firms are facing the results. Car makers, for example, have seen
declining profit margins (and even losses) as they have had to
cut prices and offer low interest rates on financing. Generally, in
good economic times, there is a great deal of demand, but this
introduces a fear of possible inflation. In the U.S., the Federal
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Reserve will then try to prevent the economy from
“overheating.” This is usually done by raising interest rates.
This makes businesses less willing to invest, and as a result,
people tend to make less money. During a recession,
unemployment tends to rise, causing consumers to spend less.
This may result in a “bad circle,” with more people losing their
jobs due to lowered demands. Some businesses, however, may
take this opportunity to invest in growth now that things can be
bought more cheaply.
STRATEGIC PLANNING AND THE MARKETING
PROCESS
Plans and planning:
Plans are needed to clarify what kinds of strategic
objectives an organization would like to achieve and how this is
to be done. Such plans must consider the amount of resources
available. One critical resource is capital. Microsoft keeps a
great deal of cash on hand to be able to “jump” on opportunities
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that come about. Small startup software firms, on the other
hand, may have limited cash on hand. This means that they may
have to forego what would have been a good investment
because they do not have the cash to invest and cannot find a
way to raise the capital. Other resources that affect what a firm
may be able to achieve include Trademarks/brand names: It
would be very difficult to competefactors such as: Patents: It
would be difficult toagainst Coke and Pepsi in the cola
market. Compete against Intel and AMD in the microprocessor
market since both these People: firms have a number of
patents that it is difficult to get around. Even with all of
Microsoft’s money available, it could not immediately hire the
Distribution: Stores have spacepeople needed to manufacture
computer chips. For only a fraction of the products they are
offered, so they must turn many away. A firm that does not have
an established relationship with stores will be at a disadvantage
in trying to introduce a new product.
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Plans are subject to the choices and policies that the
organization has made. Some firms have goals of social
responsibility, for example. Some firms are willing to take a
greater risk, which may result in a very large payoff but also
involve the risk of a large loss, than others.
Strategic marketing is best seen as an ongoing and never-
ending process. Typically:
The organization will identify the objectives it wishes to
achieve. This could involve profitability directly, but often
profitability is a long term goal that may require some
intermediate steps. The firm may seek to increase market
share, achieve distribution in more outlets, have sales grow
by a certain percentage, or have consumers evaluate the
product more favorably. Some organizations have
objectives that are not focused on monetary profit—e.g.,
promoting literacy or preventing breast cancer.
An analysis is made, taking into consideration issues such
as organizational resources, competitors, the competitors’
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strengths, different types of customers, changes in the
market, or the impact of new technology.
Based on this analysis, a plan is made based on tradeoffs
between the advantages and disadvantages of different
options available.
This strategy is then carried out. The firm may design new
products, revamp its advertising strategy, invest in getting
more stores to carry the product, or decide to focus on a
new customer segment.
After implementation, the results or outcome are
evaluated. If results are not as desired, a change may have
to be made to the strategy. Even if results are satisfactory,
the firm still needs to monitor the environment for
changes.
Levels of planning and strategies:
Plans for a firm can be made at several different levels. At
the corporate level, the management considers the objectives of
the firm as a whole. For example, Microsoft may want seek to
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grow by providing high quality software, hardware, and services
to consumers. To achieve this goal, the firm may be willing to
invest aggressively.
Plans can also be made at the business unit level. For
example, although Microsoft is best known for its operating
systems and applications software, the firm also provides
Internet access and makes video games. Different managers will
have responsibilities for different areas, and goals may best be
made by those closest to the business area being considered. It is
also more practical to hold managers accountable for
performance if the plan is being made at a more specific level.
Boeing has both commercial aircraft and defense divisions.
Each is run by different managers, although there is some
overlap in technology between the two. Therefore, plans are
needed both at the corporate and at the business levels.
Occasionally, plans will be made at the functional level, to
allow managers to specialize and to increase managerial
accountability. Marketing, for example, may be charged with
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increasing awareness of Microsoft game consoles to 55% of the
U.S. population or to increase the number of units of Microsoft
Office sold. Finance may be charged with raising a given
amount of capital at a given cost. Manufacturing may be
charged with decreasing production costs by 5%.
The firm needs to identify the business it is in. Here, a
balance must be made so that the firm’s scope is not defined too
narrowly or too broadly. A firm may define its goal very
narrowly and then miss opportunities in the market place. For
example, if Dell were to define itself only as a computer
company, it might miss an opportunity to branch into PDAs or
Internet service. Thus, they might instead define themselves as a
provider of “information solutions.” A company should not
define itself too broadly, however, since this may result in loss
of focus. For example, a manufacturer of baking soda should
probably not see itself as a manufacturer of all types of
chemicals. Sometimes, companies can define themselves in
terms of a customer need. For example, 3M sees itself as being
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in the business of making products whose surfaces are bonded
together. This accounts for both Post-It notes and computer
disks.
A firm’s mission should generally include a discussion of
the customers served (e.g., Wal-Mart and Nordstrom’s serve
different groups), the kind of technology involved, and the
markets served.
Several issues are involved in selecting target customers.
We will consider these in more detail within the context of
segmentation, but for now, the firm needs to consider issues
such as:
The size of various market segments;
How well these segments are being served by existing
firms;
Changes in the market—e.g., growth of segments or
change in technology;
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How the firm should be positioned, or seen by customers.
For example, Wal-Mart positions itself as providing value
in retailing, while Nordstrom’s defines itself more in terms
of high levels of customer service.
The Boston Consulting Group (BCG) matrix provides a firm
an opportunity to assess how well its business units work
together. Each business unit is evaluated in terms of two factors:
market share and the growth prospects in the market. Generally,
the larger a firm’s share, the stronger its position, and the greater
the growth in a market, the better future possibilities. Four
combinations emerge:
A star represents a business unit that has a high share in a
growing market. For example, Motorola has a large share
in the rapidly growing market for cellular phones.
A question mark results when a unit has a small share in a
rapidly growing market. The firm’s position, then, is not as
strong as it would have been had its market share been
greater, but there is an opportunity to grow. For example,
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Hewlett-Packard has a small share of the digital camera
market, but this is a very rapidly growing market.
A cash cow results when a firm has a large share in a
market that is not growing, and may even be shrinking.
Brother has a large share of the typewriter market.
A dog results when a business unit has a small share in a
market that is not growing. This is generally a somewhat
unattractive situation, although dogs can still be profitable
in the short run. For example, Smith Corona how has a
small share of the typewriter market.
Firms are usually best of with a portfolio that has a balance
of firms in each category. The cash cows tend to generate cash
but require little future investment. On the other hand, stars
generate some cash, but even more cash is needed to invest in
the future—for research and development, marketing
campaigns, and building new manufacturing facilities.
Therefore, a firm may take excess cash from the cash cow and
divert it to the star. For example, Brother could “harvest” its
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profits from typewriters and invest this in the unit making color
laser printers, which will need the cash to grow. If a firm has
cash cows that generate a lot of cash, this may be used to try to
improve the market share of a question mark. A firm that has a
number of promising stars in its portfolio may be in serious
trouble if it does not have any cash cows to support it. If it is
about to run out of cash—regardless of how profitable it is—is
becomes vulnerable as a takeover target from a firm that has the
cash to continue running it.
A SWOT (“Strengths, Opportunities, Weaknesses, and
Threats”) analysis is used to help the firm identify effective
strategies. Successful firms such as Microsoft have certain
strengths. Microsoft, for example, has a great deal of
technology, a huge staff of very talented engineers, a great deal
of experience in designing software, a very large market share, a
well respected brand name, and a great deal of cash. Microsoft
also has some weaknesses, however: The game console and
MSN units are currently running at a loss, and MSN has been
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unable to achieve desired levels of growth. Firms may face
opportunities in the current market. Microsoft, for example, may
have the opportunity to take advantage of its brand name to
enter into the hardware market. Microsoft may also become a
trusted source of consumer services. Microsoft currently faces
several threats, including the weak economy. Because fewer
new computers are bough during a recession, fewer operating
systems and software packages.
Rather than merely listing strengths, weaknesses,
opportunities, and threats, a SWOT analysis should suggest how
the firm may use its strengths and opportunities to overcome
weaknesses and threats. Decisions should also be made as to
how resources should be allocated. For example, Microsoft
could either decide to put more resources into MSN or to
abandon this unit entirely. Microsoft has a great deal of cash
ready to spend, so the option to put resources toward MSN is
available. Microsoft will also need to see how threats can be
addressed. The firm can earn political good will by engaging in
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charitable acts, which it has money available to fund. For
example, Microsoft has donated software and computers to
schools. It can forego temporary profits by reducing prices
temporarily to increase demand, or can “hold out” by
maintaining current prices while not selling as many units.
Criteria for effective marketing plans:
Marketing plans should meet several criteria:
The plan must be specific enough so that it can be
implemented and communicated to people in the firm.
“Improving profitability” is usually too vague, but
increasing net profits by 5%, increasing market share by
10%, gaining distribution in 2,000 more stores, and
reducing manufacturing costs by 2% are all specific.
The plan must be measurable so that one can see if it has
been achieved. The above plans involve specific numbers.
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The goal must be achievable or realistic. Plans that are
unrealistic may result in poor use of resources or lowered
morale within the firm.
The goals must be consistent. For example, a firm cannot
ordinarily simultaneously plan improve product features,
increase profits, and reduce prices.
Consumer Behavior:
Consumer behavior involves the psychological processes
that consumers go through in recognizing needs, finding ways to
solve these needs, making purchase decisions (e.g., whether or
not to purchase a product and, if so, which brand and where),
interpret information, make plans, and implement these plans
(e.g., by engaging in comparison shopping or actually
purchasing a product).
Sources of influence on the consumer:
The consumer faces numerous sources of influence. Often,
we take cultural influences for granted, but they are significant.
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An American will usually not bargain with a store owner. This,
however, is a common practice in much of the World. Physical
factors also influence our behavior. We are more likely to buy a
soft drink when we are thirsty, for example, and food
manufacturers have found that it is more effective to advertise
their products on the radio in the late afternoon when people are
getting hungry.
THE GLOBAL MARKETPLACE
Globalization of Markets and Competition:
Trade is increasingly global in scope today. There are
several reasons for this. One significant reason is technological
—because of improved transportation and communication
opportunities today, trade is now more practical. Thus,
consumers and businesses now have access to the very best
products from many different countries. Increasingly rapid
technology lifecycles also increases the competition among
countries as to who can produce the newest in technology. In
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part to accommodate these realities, countries in the last several
decades have taken increasing steps to promote global trade
through agreements such as the General Treaty on Trade and
Tariffs, and trade organizations such as the World Trade
Organization (WTO), North American Free Trade Agreement
(NAFTA), and the European Union (EU).
Stages in the International Involvement of a Firm:
We discussed several stages through which a firm may go
as it becomes increasingly involved across borders. A purely
domestic firm focuses only on its home market, has no current
ambitions of expanding abroad, and does not perceive any
significant competitive threat from abroad. Such a firm may
eventually get some orders from abroad, which are seen either
as an irritation (for small orders, there may be a great deal of
effort and cost involved in obtaining relatively modest revenue)
or as "icing on the cake." As the firm begins to export more, it
enters the export stage, where little effort is made to market the
product abroad, although an increasing number of foreign orders
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are filled. In the international stage, as certain country markets
begin to appear especially attractive with more foreign orders
originating there, the firm may go into countries on an ad hoc
basis—that is, each country may be entered sequentially, but
with relatively little learning and marketing efforts being shared
across countries. In the multi-national stage, some efficiencies
are pursued by standardizing across a region (e.g., Central
America, West Africa, or Northern Europe). Finally, in the
global stage, the focus centers on the entire World market, with
decisions made optimize the product’s position across markets
—the home country is no longer the center of the product. An
example of a truly global company is Coca Cola.
Note that these stages represent points on a continuum
from a purely domestic orientation to a truly global one;
companies may fall in between these discrete stages, and
different parts of the firm may have characteristics of various
stages—for example, the pickup truck division of an auto-
manufacturer may be largely domestically focused, while the
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passenger car division is globally focused. Although a global
focus is generally appropriate for most large firms, note that it
may not be ideal for all companies to pursue the global stage.
For example, manufacturers of ice cubes may do well as
domestic, or even locally centered, firms.
Some forces in international trade:
The text contains a rather long-winded appendix
discussing some relatively simple ideas. Comparative
advantage, discussed in more detail in the economics notes,
suggests trade between countries is beneficial because these
countries differ in their relative economic strengths—some have
more advanced technology and some have lower costs. The
International Product Life Cycle suggests that countries will
differ in their timing of the demand for various products.
Products tend to be adopted more quickly in the United States
and Japan, for example, so once the demand for a product (say,
VCRs) is in the decline in these markets, an increasing market
potential might exist in other countries (e.g., Europe and the rest
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of Asia). Internalization/transaction costs refers to the fact that
developing certain very large scale projects, such as an
automobile intended for the World market, may entail such large
costs that these must be spread over several countries.
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MARKETING RESEARCH
Primary vs. secondary research:
There are two kinds of market research: Primary research
refers to the research that a firm conducts for its own needs
(e.g., focus groups, surveys, interviews, or observation) while
secondary research involves finding information compiled by
someone else. In general, secondary research is less expensive
and is faster to conduct, but it may not answer the specific
questions the firm seeks to have answered (e.g., how do
consumers perceive our product?), and its reliability may be in
question.
Secondary sources:
A number of secondary sources of country information are
available. One of the most convenient sources is an almanac,
containing a great deal of country information. Almanacs can
typically be bought for $10.00 or less. The U.S. government also
publishes a guide to each country, and the handbook
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International Business Information: How to Find It, How to Use
It.
Several experts may be available. Anthropologists and
economists in universities may have built up a great deal of
knowledge and may be available for consulting. Consultants
specializing in various regions or industries are typically
considerably more expensive. One should be careful about
relying on the opinions of expatriates (whose views may be
biased or outdated) or one’s own experience (which may relate
to only part of a country or a certain sub segment) and may also
suffer from the limitation of being a sample of size 1.
Hard vs. soft data:
"Hard" data refers to relatively quantifiable measures such
as a country’s GDP, number of telephones per thousand
residents, and birth rates (although even these supposedly
"objective" factors may be subject to some controversy due to
differing definitions and measurement approaches across
countries). In contrast, "soft" data refers to more subjective
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issues such as country history or culture. It should be noted that
while the "hard" data is often more convenient and seemingly
objective, the "soft" data is frequently as important, if not more
so, in understanding a market.
Data reliability:
The accuracy and objectivity of data depend on several
factors. One significant one is the motivation of the entity that
releases it. For example, some countries may want to exaggerate
their citizens’ literacy rates owing to national pride, and an
organization promoting economic development may paint an
overly rosy picture in order to attract investment. Some data
may be dated (e.g., a census may be conducted rarely in some
regions), and some countries may lack the ability to collect data
(it is difficult to reach people in the interior regions of Latin
America, for example). Differences in how constructs are
defined in different countries (e.g., is military personnel counted
in people who are employed?) may make figures of different
jurisdictions non-comparable.
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Cost of data:
Much government data, or data released by organizations
such as the World Bank or the United Nations, is free or
inexpensive, while consultants may charge very high rates.
Issues in primary research:
Cultural factors often influence how people respond to
research. While Americans are used to market research and tend
to find this relatively un-threatening, consumers in other
countries may fear that the data will be reported to the
government, and may thus not give accurate responses. In some
cultures, criticism or confrontation are considered rude, so
consumers may not respond honestly when they dislike a
product. Technology such as scanner data is not as widely
available outside the United States. Local customs and
geography may make it difficult to interview desired
respondents; for example, in some countries, women may not be
allowed to talk to strangers.
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ELECTRONIC COMMERCE
Prospects for electronic commerce:
Electronic commerce—usually in the form of sales,
promotion, or support through the Internet—is a hot topic at the
moment, evidenced by the high market capitalization of firms
involved in this kind of business. Growth rates have been
considerable over the last two years and are expected to persist,
at least to some extent, for at least the next several years. Yet, it
should be recognized that so far, sales over the Internet account
for only a small portion of sales—especially outside the U.S.
Obstacles to diffusion:
Obstacles to the diffusion of Internet trade come both
from enduring sources and temporary roadblocks which may be
overcome as consumer attitudes change and technology is
improved. Currently, Internet connections are slower than
desired so that downloading pictures and other information may
take longer than consumers are willing to wait. "Glitches" in
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online ordering systems may also frustrate consumers, who are
unable to place their orders at a given time or have difficulty
navigating through a malfunctioning site. The lack of non-
English language sites in some areas may also be off-putting to
consumers, and registering domain names in some countries is
difficult. Further, shipping small packages across countries may
be inefficient due to high local postage rates and inefficiencies
in customs processing. Most of these obstacles may be
overcome within next few years.
Other obstacles may, however, have considerably greater
staying power. First, there are legal problems, as several
different countries may seek to impose their jurisdiction on
advertising and laws of product assortment and business
practices. Further, the maintenance of databases, which are
essential to delivering on the promises of e-commerce, may
conflict with the privacy rules of some countries—this is
currently a hot issue of contention between the United States
and the European Union. Finally, there are issues of taxation and
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collection. While the Clinton Administration has sought to get
the WTO to go along with a three year tax "moratorium" on
Internet purchases much like the one observed in the U.S.,
strong opposition is expected. A great attraction of e-commerce
in Europe is that people may order from other countries and thus
evade local sales taxes, which can be prohibitive (e.g., 25% in
Denmark and 16% in Germany). Some firms will ship to
customers in neighboring countries without collecting sales
taxes or duties, with the responsibility of paying falling on the
consumer. Although most consumers who order and do not
arrange to pay for these taxes get away with it, fines for those
caught through random checks can be severe.
Locus of the site:
Some firms have chosen to maintain a global site, with
reference only to local sales or support offices; others, in
contrast, have unique sites for each country. In some cases, a
global site wills hyperlink surfers to a country or region relevant
site. Note that some confusion exists since many sites outside
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the U.S. maintain the ".com" designation rather than their
countries’ respective suffix (e.g., ".de" for Germany, ".se" for
Sweden, and ".au" for Australia). Some firms have experienced
problems getting their banks to accept credit card charges in
more than one currency, and thus it may be difficult to indicate
precise prices in more than one denomination (one site based in
Britain offered its American customers to be as accurate as
possible, based on current exchange rates, although the charge
could be off "by a few pennies.")
Lifecycle stages across the World:
It has been suggested that Europe runs some five years
behind the U.S. in electronic commerce, but some sources
dispute this, suggesting that lack of success among American
retailers may have other origins, such as inadequate adaptation
(for example, some British users are put off by American
English). There are, however, some factors which cause most
countries run behind. Even in Europe, Internet access
penetration rates are lower than they are in the U.S., and the
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slower speed associated with downloading Asian characters is
discouraging. In some countries, credit card penetration is
lower, and even in European countries with high penetration
rates, consumers are reluctant to use them. Further, the fact that
consumers in most countries have to pay a per minute phone
charge discourages the essential casual and relaxed browsing
common in the U.S. so long as unlimited cable or hardwired
access is not offered.
ECONOMICS
Historical Basis for Trade:
Throughout history, countries have tended to trade with
each other, but usually to a much lesser extent than they do
today. There are several reasons:
Difficulties in transportation and communication made it
difficult to transport manufactured goods which would, in
any event, arrive with long delays after manufacturing;
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Border disputes, a history of invasions, and other tensions
between countries discouraged trade with historical or
potential enemies; and
Paper money was less readily available, so it was more
difficult to match products for barter between the same
buyer and sellers.
Nevertheless, countries did have to trade with each other to
a more limited extent since:
Certain natural resources (e.g., iron, gold) were not readily
available in some countries;
Some countries did not have the technology to produce
certain goods (e.g., when steel was introduced, it could be
made only in some countries);
In some countries, there was a demand for certain
specialized goods, but not enough of a market to justify
local production within reasonable economies of scale.
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Today, trade is necessitated by several factors:
Technological advances are so fast that, at any point, a
different country may have the latest and most effective
technology in compelling areas (e.g., computers, medical);
Certain product lines (e.g., automobiles) require
tremendous economies of scale to be cost effective, so
these costs must be spread over several different markets;
With advances in transportation, it becomes essential to
take advantage of relative strengths that different countries
have (e.g., technological leadership, low labor costs).
Absolute advantage is typically measured in terms of labor
input and refers to the number of units that one worker can
produce in one unit of time. For example, suppose that a
Japanese worker can produce fifteen shirts in one hour, while a
Malaysian worker can produce only five. Thus, the Japanese
worker has the absolute advantage. However, suppose that the
Japanese worker can produce two cars a week, while the
Malaysian worker can produce only one tenth of a car in that
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amount of time. It can be shown that, assuming that these are the
only two countries that can trade with each other; it would be to
the advantage of both countries to trade Japanese cars for
Malaysian shirts. This is known as relative advantage. In
practice, it is often more useful to think of relative technological
sophistication vs. lower labor costs.
Protectionism:
Although trade generally benefits a country as a whole,
powerful interests within countries frequently put obstacles—
i.e., they seek to inhibit free trade. There are several ways this
can be done:
Tariff barriers: A duty, or tax or fee, is put on products
imported. This is usually a percentage of the cost of the
good.
Quotas: A country can export only a certain number of
goods to the importing country. For example, Mexico can
export only a certain quantity of tomatoes to the United
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States, and Asian countries can send only a certain quota
of textiles here.
"Voluntary" export restraints: These are not official
quotas, but involve agreements made by countries to limit
the amount of goods they export to an importing country.
Such restraints are typically motivated by the desire to
avoid more stringent restrictions if the exporters do not
agree to limit themselves. For example, Japanese car
manufacturers have agreed to limit the number of
automobiles they export to the United States.
Subsidies to domestic products: If the government
supports domestic producers of a product, these may end
up with a cost advantage relative to foreign producers who
do not get this subsidy. U.S. honey manufacturers receive
such subsidies.
Non-tariff barriers, such as differential standards in
testing foreign and domestic products for safety, disclosure
of less information to foreign manufacturers needed to get
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products approved, slow processing of imports at ports of
entry, or arbitrary laws which favor domestic
manufacturers.
Justifications for protectionism: Several justifications have
been made for the practice of protectionism. Some appear to
hold more merit than others:
Protection of an "infant" industry: Costs are often
higher, and quality lower, when an industry first gets
started in a country, and it thus be very difficult for that
country to compete. However, as the industry in the
country matures, it may be better able to compute. Thus,
for example, some countries have attempted to protect
their domestic computer markets while they gained
strength. The U.S. attempted to protect its market for small
autos American manufacturers were caught unprepared for
the switch in demand away from the larger cars caught
U.S. auto makers unprepared. This is generally an
accepted reason in trade agreements, but the duration of
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this protection must be limited (e.g., a maximum of five to
ten years).
Resistance to unfair foreign competition: The U.S. sugar
industry contends that most foreign manufacturers
subsidize their sugar production, so the U.S. must follow
to remain competitive. This argument will hold little merit
with the dispute resolution mechanism available through
the World Trade Organization.
Preservation of a vital domestic industry: The U.S.
wants to be able to produce its own defense products, even
if foreign imports would be cheaper, since the U.S. does
not want to be dependent on foreign manufacturers with
whose countries conflicts may arise. Similarly, Japan
would prefer to be able to produce its own food supply
despite its exorbitant costs. For an industry essential to
national security, this may be a compelling argument, but
it is often used for less compelling ones (e.g.,
manufactures of funeral caskets or honey).
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Intervention into a temporary trade balance: A country
may want to try to reverse a temporary decline in trade
balances by limiting imports. In practice, this does not
work since such moves are typically met by retaliation.
Maintenance of domestic living standards and
preservation of jobs: Import restrictions can temporarily
protect domestic jobs, and can in the long run protect
specific jobs (e.g., those of auto makers, farmers, or steel
workers). This is less of an accepted argument—these
workers should instead by retrain to work in jobs where
their country has a relative advantage.
Retaliation: The proper way to address trade disputes is
now through the World Trade Organization. In the past,
where enforcement was less available, this might have
been a reasonable argument.
Note that while protectionism generally hurts a country
overall, it may be beneficial to specific industries or other
interest groups. Thus, while sugar price supports are bad for
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consumers in general, producers are an organized group that can
exert a great deal of influence. In contrast, the individual
consumer does not have much of an incentive to take action to
save about $5.00 a year.
Effects of protectionism:
Protectionism tends to lead to additional tariffs or other
protectionist measures by other countries in retaliation, reduced
competition (which results in inflation and less choice for
consumers), a weakening of the trade balance (due in part to
diminished export abilities resulting from foreign retaliations
and in part because of the domestic currency loses power as
there is less demand for it). An overall effect may be a vicious
cycle of trade wars as each country responds to the other with a
"tit for tat."
EFFORTS TO ENCOURAGE TRADE:
The General Agreement on Trade and Tariffs (GATT), which
was negotiated at the Bretton Woods Conference in 1947,
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sought to encourage international trade following World War II,
when many countries were in bad shape after the war.
There were several objectives:
To encourage trade in general;
To replace non-tariff barriers with tariff barriers—i.e., it is
acceptable but not encourage able to impose some burden
on foreign products, but this must be in the form of a
readily identifiable duty rather than a more vague
restriction which is less transparent;
Reciprocity: Countries should respond in kind when other
countries reduce tariffs or barriers;
Providing the most favorable trade terms offered to anyone
to all members of the agreement.
Note that the above represent general principles, which in
practice are implemented with numerous exceptions. For
example, the Uruguay Roundtable Agreement, which set up the
World Trade Organization, literally runs several thousand pages.
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The EU and NAFTA are accepted, but go against the provision
of offering the best terms available to everyone.
The 1994 Uruguay Round Table Agreement resulted in the
establishment of the World Trade Organization (WTO). The
main thrust of this organization is to expand the scope of trade
affected (e.g., services are now covered), the protection of
intellectual property (e.g., patents, copyrights, and trademarks)
and, most importantly, to provide binding decisions on disputes
which member countries must meet.
Stages in International Trade Agreements:
Trade between countries is generally started gradually—it
takes a long time before barriers are eliminated entirely or even
reduced dramatically. The stages on slide 11 are points on a
continuum. Starting with heavy barriers to trade, countries may
decide to move toward a "free trade area," where two countries
agree on one or more trade liberalizations—e.g., two countries
agree that bananas and steel can now be traded between the two
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countries with only a three percent duty (in contrast, say, to a
fifteen percent duty that existed earlier). Water melons and
charcoal may then be added later, along with products that may
follow over time.
A customs union involves a more systematic trade
agreement with reductions in duties and quotas covering a large
spectrum of goods and services. For example, NAFTA
systematically reduced tariffs and improved access of Canada,
the U.S., and Mexico, to each others’ markets. Significant
barriers still exist, however.
In a common market, goods can be moved freely from one
member country to another. Although the EU has been calling
itself a common market since the 1970s, it has not quite reached
that reality yet. To understand what is going on here, we need to
understand the distinction between duties (taxes imposed on
goods which are imported, but not on goods produced in the
home country) and excise taxes (such as the American sales tax,
which is imposed on all goods, whether they are produced at
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home or abroad). Currently, individuals can bring almost
anything they want in from other member countries, although
businesses are somewhat less free. For example, one firm
offered to deliver a pallet of two thousand five-hundred beers
from Germany, where "sin" taxes are lower, to Denmark. The
authorities intervened and it was decided that the consumers
would have to go and pick up the beers abroad themselves to
benefit from the lower rates. One can now no longer take in duty
free goods moving from one EU country to another, but one can
buy whatever one wants in another EU country, paying a
possibly lower sales tax there, and bring it back to one’s home
country. It used to be that many Danish consumers would take a
ferry to Germany and buy a limited quantity of duty free alcohol
and tobacco which could be taken into Denmark with no
additional duties or excise taxes. This is no longer possible,
since both countries are part of the EU, but now it is possible to
take the ferry and not even go aboard in Germany, buying all
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desired goods in German territorial waters at the lower German
sales tax.
A monetary union involves countries abandoning their
own currencies and monetary policies. The European Union will
soon replace the currencies of some member countries with the
Euro (not all countries are eligible to join, since some have too
high a national debt or too large a government budget deficit,
and others have chosen not to join at this time). A monetary
union removes the ability of each country to control its own
currency—it can no longer devalue its currency to improve
export opportunities—but also introduces greater stability in
exchange rates so that trade will not be interrupted by actual
exchange rate fluctuations or avoided due to fears or exchange
rate instability. Note that actually implementing a monetary
union is difficult. The EU monetary union will be implemented
over time—although contracts can now be specified in terms of
Euros, actual currency will not be introduced until next year,
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and even when it is introduced, there will be a period of overlap
where the Euro and the original currencies will coexist.
A political union involves countries actually merging,
which laws of the union superseding national laws. At the
present time, no such unions exist, although many trade related
decisions in the EU are now handled through the European
Parliament. (The states of the United States and various other
countries such as Mexico, Brazil, and Germany are not
genuinely sovereign.) The bottom line here is to recognize that
trade liberalization is a gradual process and that not all countries
will move all the way toward completely free trade.
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ECONOMIC ISSUES:
"Open" vs. "closed" currencies: Not all currencies can
be freely traded—some countries prohibit their currencies
from leaving their borders, although this is mostly
confined to developing countries that want to encourage
tourists to spend their remaining currency rather than
converting it back to their own currencies and spending it
in their home countries. There are, however, some
currencies for which international markets are not readily
available, because the demand for those currencies is
limited.
Exchange rates come in two forms:
"Floating"—here, currencies are set on the open market
based on the supply of and demand for each currency. For
example, all other things being equal, if the U.S. imports
more from Japan than it exports there, there will be less
demand for U.S. dollars (they are not desired for
purchasing goods) and more demand for Japanese yen—
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thus, the price of the yen, in dollars, will increase, so you
will get fewer yen for a dollar.
"Fixed"—currencies may be "pegged" to another
currency (e.g., the Argentinean currency is guaranteed in
terms of a dollar value), to a composite of currencies (i.e.,
to avoid making the currency dependent entirely on the
U.S. dollar, the value might be 0.25*U.S.
dollar+4*Mexican peso+50*Japanese yen+0.2*German
mark+0.1*British pound), or to some other valuable such
as gold. Note that it is very difficult to maintain these fixed
exchange rates—governments must buy or sell currency
on the open market when currencies go outside the
accepted ranges. Fixed exchange rates, although they
produce stability and predictability, tend to get in the way
of market forces—if a currency is kept artificially low, a
country will tend to export too much and import too little.
Trade balances and exchange rates: When exchange
rates are allowed to fluctuate, the currency of a country
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that tends to run a trade deficit will tend to decline over
time, since there will be less demand for that currency.
This reduced exchange rate will then tend to make exports
more attractive in other countries and imports less
attractive at home.
Measuring country wealth:
There are two ways to measure the wealth of a country.
The nominal per capita gross domestic product (GDP) refers to
the value of goods and services produced per person in a
country if this value in local currency were to be exchanged into
dollars. Suppose, for example, that the per capita GDP of Japan
is 3,500,000 yen and the dollar exchanges for 100 yen, so that
the per capita GDP is (3,500,000/100)=$35,000. However, that
$35,000 will not buy as much in Japan—food and housing are
much more expensive there. Therefore, we introduce the idea of
purchase parity adjusted per capita GDP, which reflects what
this money can buy in the country. This is typically based on the
relative costs of a weighted "basket" of goods in a country (e.g.,
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35% of the cost of housing, 40% the cost of food, 10% the cost
of clothing, and 15% cost of other items). If it turns out that this
measure of cost of living is 30% higher in Japan, the purchase
parity adjusted GPD in Japan would then be ($35,000/(130%) =
$26,923.
In general, the nominal per capita GPD is more useful for
determining local consumers’ ability to buy imported goods, the
cost of which are determined in large measure by the costs in the
home market, while the purchase parity adjusted measure is
more useful when products are produced, at local costs, in the
country of purchase. For example, the ability of Argentineans to
purchase micro computer chips, which are produced mostly in
the U.S. and Japan, is better predicted by nominal income, while
the ability to purchase toothpaste made by a U.S. firm in a
factory in Argentina is better predicted by purchase parity
adjusted income.
It should be noted that, in some countries, income is quite
unevenly distributed so that these average measures may not be
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very meaningful. In Brazil, for example, there is a very large
underclass making significantly less than the national average,
and thus, the national figure is not a good indicator of the
purchase power of the mass market. Similarly, great regional
differences exist within some countries—income is much higher
in northern Germany than it is in the former East Germany, and
income in southern Italy is much lower than in northern Italy.
Economic trends:
Certain countries have high levels of inflation; this figure,
for example, has run at several hundred percent at various times
in Brazil. In that case, then, it becomes important to adjust
figures for inflation. Suppose that, as an illustration that the
Brazilian economy grew from 1997 to 1998 from 200 trillion
cruzeiros to 410 trillion while there was an inflation of 100%.
The economy, then, did not really double. Therefore, the "real"
growth, adjusted for inflation, is (410-200)/(100%+100%)-1 =
(210/200)-1=5%. (You will not have to do such calculations on
the exam, but you should understand the principle of real
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[inflation adjusted] vs. nominal growth.) Please note that even in
countries that have inflation rates as moderate as 1-5%,
adjustment for inflation is still essential.
When one looks at an entire country, note that overall
GDP may increase as population increases while its per capita
GDP increases less or even decreases. Suppose, for example,
that the GDP of India from 1997 to 1998 increases from $1
trillion to $1.02 trillion and that there is no inflation but the
population increases by 3%. The population adjusted economic
growth would be ((1.02-1.00)/1.03)- 100%=98.5%-100%=-
1.5%. Again, you will not be asked to make actual calculations
on the exam.
Some countries run trade deficits over long periods of
time, and when this happens, their currency is expected to
weaken over time. In principle, this weakening ought to increase
exports and decrease exports, but since countries may be able to
borrow from foreign lenders, this may not always happen in
practice. The U.S., for example, has been able to finance deficit
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spending by foreign borrowing. While the U.S. dollar declined
sharply against the yen in the 1980s and early 1990s, it has
remained much more stable in recent years at 100-130 yen per
dollar.
CULTURE
Dealing with culture: Culture is a problematic issue for many
marketers since it is inherently nebulous and often difficult to
understand. One may violate the cultural norms of another
country without being informed of this, and people from
different cultures may feel uncomfortable in each other’s
presence without knowing exactly why (for example, two
speakers may unconsciously continue to attempt to adjust to
reach an incompatible preferred interpersonal distance).
Warning about stereotyping:
When observing a culture, one must be careful not to over-
generalize about traits that one sees. Research in social
psychology has suggested a strong tendency for people to
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perceive an "out-group" as more homogenous than an "in-
group," even when they knew what members had been assigned
to each group purely by chance. When there is often a "grain of
truth" to some of the perceived differences, the temptation to
over-generalize is often strong. Note that there are often
significant individual differences within cultures.
Definition:
The text defines culture as "A learned, shared, compelling,
interrelated set of orientations for members of society." While
memorizing definitions is not essential, note the following parts
of the definition:
Learned: Culture is not genetically based—if that were
the case cultures across the World would have been much
more similar to each other. We learn what is considered
appropriate in our culture through trial and error. If a child
engages in competitive behavior, this might be rewarded in
the United States with the expression of parental approval,
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while in Japan it might result in subtle shows of
disapproval, such as lack of attention.
Shared: The beliefs, interpretations, and behaviors are
shared by all or most of the people within the culture, so
that it becomes a truly society-wide phenomenon.
Compelling: Culture must have implications (such as
social disapproval if contradicted) in order to be
considered important.
Interrelated: Although there may be conflicts between
elements of culture (e.g., respect for seniority may come
into conflict with a growing value of achievement in
Singapore), for the most part, elements of culture
constitute a coherent and relatively consistent whole. For
example, the tendency for Japanese business people to
bow when meeting each other and the tendency of lower
level Japanese employees to show great deference to their
superiors are both manifestations of a strong emphasis on
respect.
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Cultural lessons:
We considered several cultural lessons in class; the
important thing here is the big picture. For example, within the
Muslim tradition, the dog is considered a "dirty" animal, so
portraying it as "man’s best friend" in an advertisement is
counter-productive. Packaging, seen as a reflection of the
quality of the "real" product, is considerably more important in
Asia than in the U.S., where there is a tendency to focus on the
contents which "really count." Many cultures observe
significantly greater levels of formality than that typical in the
U.S., and Japanese negotiator tend to observe long silent pauses
as a speaker’s point is considered.
Elements of culture:
The text considers several elements of culture, such as the
material culture, education, and religion. Another way to look at
cultural contents involves the areas of:
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Beliefs: While Americans may attribute success to hard
work or skill, it may be attributed to luck or connections in
other cultures.
Attitudes: Beliefs, feelings, and behavioral intentions may
differ. While the American may appreciate getting a
bargain in a sale, this may conjure up images of not being
able to afford the full price in other cultures.
Goals: While "progress" (having new and improved
products, for example) is considered a good thing in the
U.S., many Japanese parents are concerned that the "wa-
pro" leaves their children unable to write the traditional
Japanese pictographs.
Values: In the U.S., individual uniqueness is generally
considered a good thing while in some cultures fitting in
with the group is a higher priority. Thus, for example, an
American may enjoy wearing relatively innovative
clothing, which may be frowned upon in a more
collectivistic society.
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Cultural characteristics as a continuum:
There is a tendency to stereotype cultures as being one
way or another (e.g., individualistic rather than collectivistic).
Note, however, countries fall on a continuum of cultural traits.
Hofstede’s research demonstrates a wide range between the
most individualistic and collectivistic countries, for example—
some fall in the middle.
Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was
able to interview a large number of IBM executives in various
countries, and found that cultural differences tended to center
around four key dimensions:
Individualism vs. collectivism: To what extent do people
believe in individual responsibility and reward rather than
having these measures aimed at the larger group? Contrary
to the stereotype, Japan actually ranks in the middle of this
dimension, while Indonesia and West Africa rank toward
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the collectivistic side. The U.S., Britain, and the
Netherlands rate toward individualism.
Power distance: To what extent is there a strong
separation of individuals based on rank? Power distance
tends to be particularly high in Arab countries and some
Latin American ones, while it is more modest in Northern
Europe and the U.S.
Masculinity vs. femininity involves a somewhat more
nebulous concept. "Masculine" values involve competition
and "conquering" nature by means such as large
construction projects, while "feminine" values involve
harmony and environmental protection. Japan is one of the
more masculine countries, while the Netherlands rank
relatively low. The U.S. is close to the middle, slightly
toward the masculine side.
Uncertainty avoidance involves the extent to which a
"structured" situation with clear rules is preferred to a
more ambiguous one; in general, countries with lower
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uncertainty avoidance tend to be more tolerant of risk.
Japan ranks very high. Few countries are very low in any
absolute sense, but relatively speaking, Britain and Hong
Kong are lower, and the U.S. is in the lower range of the
distribution.
Although Hofstede’s original work did not address this, a
fifth dimension of long term vs. short term orientation has been
proposed. In the U.S., managers like to see quick results, while
Japanese managers are known for take a long term view, often
accepting long periods before profitability is obtained.
High vs. low context cultures:
In some cultures, "what you see is what you get"—the
speaker is expected to make his or her points clear and limit
ambiguity. This is the case in the U.S.—if you have something
on your mind, you are expected to say it directly, subject to
some reasonable standards of diplomacy. In Japan, in contrast,
facial expressions and what is not said may be an important clue
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to understanding a speaker’s meaning. Thus, it may be very
difficult for Japanese speakers to understand another’s written
communication. The nature of languages may exacerbate this
phenomenon—while the German language is very precise,
Chinese lacks many grammatical features, and the meaning of
words may be somewhat less precise. English ranks somewhere
in the middle of this continuum.
Ethnocentrism and the self-reference criterion:
The self-reference criterion refers to the tendency of
individuals, often unconsciously, to use the standards of one’s
own culture to evaluate others. For example, Americans may
perceive more traditional societies to be "backward" and
"unmotivated" because they fail to adopt new technologies or
social customs, seeking instead to preserve traditional values. In
the 1960s, a supposedly well read American psychology
professor referred to India’s culture of "sick" because, despite
severe food shortages, the Hindu religion did not allow the
eating of cows. The psychologist expressed disgust that the
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cows were allowed to roam free in villages, although it turns out
that they provided valuable functions by offering milk and
fertilizing fields. Ethnocentrism is the tendency to view one’s
culture to be superior to others. The important thing here is to
consider how these biases may come in the way in dealing with
members of other cultures.
POLITICAL AND LEGAL INFLUENCES
The political situation:
The political relations between a firm’s country of
headquarters (or other significant operations) and another one
may, through no fault of the firm’s, become a major issue. For
example, oil companies which invested in Iraq or Libya became
victims of these countries’ misconduct that led to bans on trade.
Similarly, American firms may be disliked in parts of Latin
America or Iran where the U.S. either had a colonial history or
supported unpopular leaders such as the former shah.
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Certain issues in the political environment are particularly
significant. Some countries, such as Russia, have relatively
unstable governments, whose policies may change dramatically
if new leaders come to power by democratic or other means.
Some countries have little tradition of democracy, and thus it
may be difficult to implement. For example, even though Russia
is supposed to become a democratic country, the history of
dictatorships by the communists and the czars has left country of
corruption and strong influence of criminal elements.
Laws across borders:
When laws of two countries differ, it may be possible in a
contract to specify in advance which laws will apply, although
this agreement may not be consistently enforceable.
Alternatively, jurisdiction may be settled by treaties, and some
governments, such as that of the U.S., often apply their laws to
actions, such as anti-competitive behavior, perpetrated outside
their borders (extra-territorial application). By the doctrine
known as compulsion, a firm that violates U.S. law abroad may
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be able to claim as a defense that it was forced to do so by the
local government; such violations must, however, be compelled
—that they are merely legal or accepted in the host country is
not sufficient.
The reality of legal systems:
Some legal systems, such as that of the U.S., are relatively
"transparent"—that is, the law tends to be what its plain
meaning would suggest. In some countries, however, there are
laws on the books which are not enforced (e.g., although Japan
has antitrust laws similar to those of the U.S., collusion is
openly tolerated). Further, the amount of discretion left to
government officials tends to vary. In Japan, through the
doctrine of administrative guidance, great latitude is left to
government officials, who effectively make up the laws.
One serious problem in some countries is a limited access
to the legal systems as a means to redress grievances against
other parties. While the U.S. may rely excessively on lawsuits,
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the inability to effectively hold contractual partners to their
agreement tends to inhibit business deals. In many jurisdictions,
pre-trial discovery is limited, making it difficult to make a case
against a firm whose internal documents would reveal guilt.
This is one reason why personal relationships in some cultures
are considered more significant than in the U.S.—since
enforcing contracts may be difficult, you must be sure in
advance that you can trust the other party.
Legal systems of the World:
There are four main approaches to law across the World, with
some differences within each:
Common law, the system in effect in the U.S., is based on
a legal tradition of precedent. Each case that raises new
issues is considered on its own merits, and then becomes a
precedent for future decisions on that same issue.
Although the legislature can override judicial decisions by
changing the law or passing specific standards through
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legislation, reasonable court decisions tend to stand by
default.
Code law, which is common in Europe, gives considerably
shorter leeway to judges, who are charged with "matching"
specific laws to situations—they cannot come up with
innovative solutions when new issues such as patentability
of biotechnology come up. There are also certain
differences in standards. For example, in the U.S. a
supplier whose factory is hit with a strike is expected to
deliver on provisions of a contract, while in code law this
responsibility may be nullified by such an "act of God."
Islamic law is based on the teachings of the Koran, which
puts forward mandates such as a prohibition of usury, or
excessive interest rates. This has led some Islamic
countries to ban interest entirely; in others, it may be
tolerated within reason. Islamic law is ultimately based on
the need to please God, so "getting around" the law is
generally not acceptable. Attorneys may be consulted
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about what might please God rather than what is an
explicit requirements of the government.
Socialist law is based on the premise that "the government
is always right" and typically has not developed a sophisticated
framework of contracts (you do what the governments tells you
to do) or intellectual property protection (royalties are
unwarranted since the government ultimately owns everything).
Former communist countries such as those of Eastern Europe
and Russia are trying to advance their legal systems to
accommodate issues in a free market.
U.S. laws of particular interest to firms doing business
abroad:
Anti-trust. U.S. antitrust laws are generally enforced in
U.S. courts even if the alleged transgression occurred
outside U.S. jurisdiction. For example, if two Japanese
firms collude to limit the World supply of VCRs, they may
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be sued by the U.S. government (or injured third parties)
in U.S. courts, and may have their U.S. assets seized.
The Foreign Corrupt Influences Act came about as
Congress was upset with U.S. firms’ bribery of foreign
officials. Although most if not all countries ban the
payment of bribes, such laws are widely flaunted in many
countries, and it is often useful to pay a bribe to get foreign
government officials to act favorably. Firms engaging in
this behavior, even if it takes place entirely outside the
U.S., can be prosecuted in U.S. courts, and many
executives have served long prison sentences for giving in
to temptation. In contrast, in the past some European firms
could actually deduct the cost of foreign bribes from their
taxes! There are some gray areas here—it may be legal to
pay certain "tips" –known as "facilitating payments"—to
low level government workers in some countries who rely
on such payments as part of their salary so long as these
payments are intended only to speed up actions that would
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be taken anyway. For example, it may be acceptable to
give a reasonable (not large) facilitating payment to get
customs workers to process a shipment faster, but it would
not be legal to pay these individuals to change the
classification of a product into one that carries a lower
tariff.
Anti-boycott laws. Many Arab countries maintain a
boycott of Israel, and foreigners that want to do business
with them may be asked to join in this boycott by stopping
any deals they do with Israel and certifying that they do
not trade with that country. It is illegal for U.S. firms to
make this certification even if they have not dropped any
actual deals with Israel to get a deal with boycotters.
Trading With the Enemy. It is illegal for U.S. firms to
trade with certain countries that are viewed to be hostile to
the U.S.—e.g., Libya and Iraq.
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SEGMENTATION, TARGETING, AND
POSITIONING
The importance of STP:
Segmentation is the cornerstone of marketing—almost all
marketing efforts in some way relate to decisions on who to
serve or how to implement positioning through the different
parts of the marketing mix. For example, one’s distribution
strategy should consider where one’s target market is most
likely to buy the product, and a promotional strategy should
consider the target’s media habits and which kinds of messages
will be most persuasive. Although it is often tempting, when
observing large markets, to try to be "all things to all people,"
this is a dangerous strategy because the firm may lose its
distinctive appeal to its chosen segments.
In terms of the "big picture," members of a segment should
generally be as similar as possible to each other on a relevant
dimension (e.g., preference for quality vs. low price) and as
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different as possible from members of other segments. That is,
members should respond in similar ways to various treatments
(such as discounts or high service) so that common campaigns
can be aimed at segment members, but in order to justify a
different treatment of other segments, their members should
have their own unique response behavior.
Approaches to global segmentation:
There are two main approaches to global segmentation. At
the macro level, countries are seen as segments, given that
country aggregate characteristics and statistics tend to differ
significantly. For example, there will only be a large market for
expensive pharmaceuticals in countries with certain income
levels, and entry opportunities into infant clothing will be
significantly greater in countries with large and growing
birthrates (in countries with smaller birthrates or stable to
declining birthrates, entrenched competitors will fight hard to
keep the market share).
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There are, however, significant differences within
countries. For example, although it was thought that the Italian
market would demand "no frills" inexpensive washing machines
while German consumers would insist on high quality, very
reliable ones, it was found that more units of the inexpensive
kind were sold in Germany than in Italy—although many
German consumers fit the predicted profile, there were large
segment differences within that country. At the micro level,
where one looks at segments within countries. Two approaches
exist, and their use often parallels the firm’s stage of
international involvement. Intra-market segmentation involves
segmenting each country’s markets from scratch—i.e., an
American firm going into the Brazilian market would do
research to segment Brazilian consumers without incorporating
knowledge of U.S. buyers. In contrast, inter-market
segmentation involves the detection of segments that exist
across borders. Note that not all segments that exist in one
country will exist in another and that the sizes of the segments
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may differ significantly. For example, there is a huge small car
segment in Europe, while it is considerably smaller in the U.S.
Inter-market segmentation entails several benefits. The
fact that products and promotional campaigns may be used
across markets introduces economies of scale, and learning that
has been acquired in one market may be used in another—e.g., a
firm that has been serving a segment of premium quality cellular
phone buyers in one country can put its experience to use in
another country that features that same segment. (Even though
segments may be similar across the cultures, it should be noted
that it is still necessary to learn about the local market. For
example, although a segment common across two countries may
seek the same benefits, the cultures of each country may cause
people to respond differently to the "hard sell" advertising that
has been successful in one).
The international product life cycle suggests that product
adoption and spread in some markets may lag significantly
behind those of others. Often, then, a segment that has existed
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for some time in an "early adopter" country such as the U.S. or
Japan will emerge after several years (or even decades) in a "late
adopter" country such as Britain or most developing countries.
(We will discuss this issue in more detail when we cover the
product mix in the second half of the term).
Positioning across markets:
Firms often have to make a tradeoff between adapting their
products to the unique demands of a country market or gaining
benefits of standardization such as cost savings and the
maintenance of a consistent global brand image. There are no
easy answers here. On the one hand, McDonald’s has spent a
great deal of resources to promote its global image; on the other
hand, significant accommodations are made to local tastes and
preferences—for example, while serving alcohol in U.S.
restaurants would go against the family image of the restaurant
carefully nurtured over several decades, McDonald’s has
accommodated this demand of European patrons.
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ENTRY STRATEGIES
Methods of entry:
With rare exceptions, products just don’t emerge in foreign
markets overnight—a firm has to build up a market over time.
Several strategies, which differ in aggressiveness, risk, and the
amount of control that the firm is able to maintain, are available:
Exporting is a relatively low risk strategy in which few
investments are made in the new country. A drawback is
that, because the firm makes few if any marketing
investments in the new country, market share may be
below potential. Further, the firm, by not operating in the
country, learns less about the market (What do consumers
really want? Which kinds of advertising campaigns are
most successful? What are the most effective methods of
distribution?) If an importer is willing to do a good job of
marketing, this arrangement may represent a "win-win"
situation, but it may be more difficult for the firm to enter
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on its own later if it decides that larger profits can be made
within the country.
Licensing and franchising are also low exposure methods
of entry—you allow someone else to use your trademarks
and accumulated expertise. Your partner puts up the
money and assumes the risk. Problems here involve the
fact that you are training a potential competitor and that
you have little control over how the business is operated.
For example, American fast food restaurants have found
that foreign franchisers often fail to maintain American
standards of cleanliness. Similarly, a foreign manufacturer
may use lower quality ingredients in manufacturing a
brand based on premium contents in the home country.
Contract manufacturing involves having someone else
manufacture products while you take on some of the
marketing efforts yourself. This saves investment, but
again you may be training a competitor.
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Direct entry strategies, where the firm either acquires a
firm or builds operations "from scratch" involve the
highest exposure, but also the greatest opportunities for
profits. The firm gains more knowledge about the local
market and maintains greater control, but now has a huge
investment. In some countries, the government may
expropriate assets without compensation, so direct
investment entails an additional risk. A variation involves
a joint venture, where a local firm puts up some of the
money and knowledge about the local market.
MARKET ANALYSIS TOOLS:
Country Map - (Country Map is free to all users worldwide
and does not require a login or password.)
Benchmarking national and sectoral trade performance and
competitiveness. Profiles of 184 countries and territories, freely
available. Country Map provides a wide range of analytical
tools, including the Trade Performance Index on export
competitiveness, National Export Performance and Import
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Profile, the econometric trade simulation model Trade Sim on
bilateral trade potential and an assessment of the reliability and
characteristics of national trade statistics. Country Map also
includes links to Trade Information Sources, Trade Support
Institutions and current ITC projects for the country concerned.
Trade Map:
Trade statistics for international business development.
An online database of global trade flows in goods and
services and tariff measures for international business
development and trade promotion, providing detailed export and
import profiles and trends for over 5,300 products in over 200
countries and territories. Based on the world’s largest database
COMTRADE, Trade Map presents import/export values and
quantities, growth rates, market shares and market access
information. It allows users to analyze markets, select priority
countries for export diversification, review the performance of
competing countries and assess opportunities for product
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diversification by identifying existing and potential trade
between countries.
Product Map
Business information for going global a Web portal
presenting business information and intelligence in a product
context for 72 product clusters. The product clusters range from
agricultural machinery to wood products. Product Map includes
market studies, price indicators, links to product information,
trade data and links to over 20,000 companies and
organizations. Companies can also create their own basic web
site, which is hosted on the portal.
Market Access Map:
Making market access barriers transparent Market Access
Map is an interactive database of tariffs and market access
barriers. It contains the market access conditions applied at the
bilateral level by over 170 importing countries to the products
exported by over 200 countries and territories. Market Access
Map’s strength lies in its wide geographical coverage; its taking
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into account of almost all multilateral, regional and bilateral
trade agreements; the integration of ad valorem equivalents of
specific tariffs; as well as certificates and rules of origin.
Market Access Map allows users to analyze the protection of
any geographic grouping and sectoral aggregation. It also offers
the possibility of simulating tariff reductions using various
negotiation formulae. Developed by ITC in collaboration with
CEPII, UNCTAD and WTO, Market Access Map aims to
enhance market transparency, support international trade
promotion, and to facilitate the analysis of related trade policy
issues.
Investment Map:
Identifying foreign investment opportunities
Investment Map is an interactive web-based tool that
combines statistics on foreign direct investment (FDI),
international trade and market access into a single portal. It
allows analyses by country, partner and industry. It also
includes information on the location, sales, employment and
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parent company for over 70,000 foreign affiliates located in
developing countries and economies in transition. Investment
Map, the foreign direct investment with foreign companies,
international trade and tariffs is available online free to Sub-
Saharan Africa users.
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OPINION OF RESPONDENT
It is a process of executing, planning, effective marketing
mix for the purpose of achieving objects for all those
whose involve in the process.
International marketing will helps to improve to banking
facilities and advantages.
International marketing helps to improve to the import &
export goods & services.
The informal interviewing gives valuable indication as to
how use.
International marketing is helps to develop good relations
between two countries and at international level we get
best quality product.
The concept of International marketing is necessary to
developing countries & it improves economic
development of country.
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International marketing will improve the quality &
quantity of the product.
International marketing improved the competitive
efficiency of forms.
International marketing product is reasonable one
customer like the product and they keep on demanding.
International marketing depends product life cycle and
individual capacity.
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HYPOTHESIS
No planned activities existing in marketing.
Use of modern technology is essential.
Globalization brings all markets closer.
Political stability is essential for global market.
Goods can be made available in a global market.
Clear cut import –export policies are necessary.
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MAJOR FINDINGS
(Conclusions)
A product faces competition in a global market.
Political instability affects International market.
Environmental challenges create hurdles like natural
calamities.
International marketing decisions are differ than others.
Quality products are necessary for global market.
Advance changes in communication system bring market
closer.
Fastest movement of goods and proper logistic
management is possible.
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SUGGESTIONS
Quality product should be produced.
Cost of productions should be under control.
People should vote for political stability.
Simple rules and regulations for import & export business
are necessary.
E-commerce & E-banking should be used.
Research & development using should be proper.
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- SAMPLE DESIGN -
The present research work is important for planning are
development of international marketing, for effective research
purpose, 50 sample are selected from various organization. They
are of different age groups and they are engaged directly on
indirectly in the field.
AGE GROUP
18 - 25 27
26 - 35 12
36 - 45 09
46 - 55 02
56 - 65 00
Total 50
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The age group of the respondent is stated as above-
SEX
Male Female Total
34 16 50
For research purpose 34 males and 16 females were selected. The
questionnaire containing 17 guest ions were developing with the help of project guide.
The questions are as under:
Question type Question
no.
Yes / no. types
Personal information
Multiple choice
09
04
04
Total 17
The questionnaire was circulated among the 50 respondent for
getting information on the subject.
ANALYSIS OF DATA
Section -2 (questions wise)
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Q.1- Have you noticed\witnessed as unplanned
changes in
Marketing activities?
Yes No Total
45 05 50
45 respondents witnessed unplanned changes in marketing
activities.
05 respondents do not notice.
Q.2-Is their any good effect of modern technology on
International Marketing?
Yes No Total
48 02 50
Almost all agreed to above & very few do not agree.
Q.3-Development of Information & Communication
brings closer- International Markets? Do you
agree with?
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Yes No Total
47 03 50
47 respondents say that development in information &
communication brings closer international markets.
03 do not agree.
Q.4- Globalization brings changes in International
Marketing System is it true?
Yes No Total
40 10 50
40 respondents agreed to this & 10 do not respond
positively.
Q.5- Is it possible to globalize production of goods
and services?
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100
Yes No Total
41 09 50
41 respondents said product can be globalizes.
09 respondents disagreed to this.
Q.6- Domestic Marketing Decisions And
International Marketing Decisions Are Not Same? Is
It True?
Yes No Total
50 Nil 50
All respondents agreed to above statement.
Q.7- It Is True That Political Forces Within A
Country Affect The International Marketing
Decisions?
100
101
Yes No Total
45 05 50
45 respondents agree.
05 respondents disagree.
Q.8- Do you agree that environmental challenges
influence the marketing strategy?
Yes No Total
42 08 50
42 respondents agree.
08 respondents do not agree.
Q.9-Do You Agree That Political Stability And
Government Policy Greatly Affects The International
Markets?
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Yes No Total
40 10 50
40 respondents agree that political stability & govt.
policies affect international marketing.
10 do not agree.
Q.10-Do You Agree That More Competition Is One
Of The Demerits Of International Market?
Yes No Total
47 03 50
47 respondents are agreeing for stiff competition.
03 respondents disagree.
ANALYSIS OF DATA
Section -2 (percentage wise)
Q.1- Have You Noticed\Witnessed As Unplanned Changes In Marketing Activities?
Yes No Total
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90 10 100
90% respondents witnessed unplanned changes in
marketing activities.
10% respondents do not notice.
Q.2- Is Their Any Good Effect Of Modern Technology On International Marketing?
Yes No Total
96 06 100
Almost all agreed to above & very few do not agree.
Q.3- Development Of Information & Communication Brings Closer- International
Markets? Do You Agree With?
Yes No Total
94 06 100
94% respondents say that development in information &
communication brings closer international markets.
06% do not agree.
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Q.4- Globalization Brings Changes In International
Marketing System Is It True?
Yes No Total
80 20 100
80% respondents agreed to this & 20% do not respond
positively.
Q.5- Is It Possible To Globalize Production Of Goods
And Services?
Yes No Total
82 18 100
82% respondents said product can be globalizes.
18% respondents disagreed to this.
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Q.6- Domestic Marketing Decisions And
International Marketing Decisions Are Not Same? Is
It True?
Yes No Total
100 Nil 100
All respondents agreed to above statement.
Q.7- It Is True That Political Forces Within A
Country Affect The International Marketing
Decisions?
Yes No Total
90 10 100
90% respondents agree.
10% respondents disagree.
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Q.8- Do you agree that environmental challenges
influence the marketing strategy?
Yes No Total
84 16 100
84 respondents agree.
16 respondents do not agree.
Q.9-Do You Agree That Political Stability And
Government Policy Greatly Affects The
International Markets?
Yes No Total
80 20 100
80% respondents agree that political stability & govt.
policies affect international marketing.
20% do not agree.
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Q.10-Do You Agree That More Competition Is One Of The Demerits Of International
Market?
Yes No Total
94 06 100
94% respondents are agreeing for stiff competition.
06% respondents disagree.
BIBLIOGRAPHY
www.google.com
www.yahoo.com
International marketing
Vipul Prakashan
International marketing
Himalaya Publication
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APPENDIX
The concept of international marketing
Questionnaire:
Name:
Age:
Sex: male/female
Qualification :
Profession:
Have You Noticed\Witnessed As Unplanned Changes In
Marketing Activities?
Yes/No
Is Their Any Good Effect Of Modern Technology On
International Marketing?
Yes/No
Development Of Information & Communication Brings
Closer- International Markets? Do You Agree With?
Yes/No
Globalization Brings Changes In International Marketing
System Is It True?
Yes/No
Is It Possible To Globalize Production Of Goods And Services?
Yes/No
Domestic Marketing Decisions And International Marketing
Decisions Are Not Same? Is It True?
Yes/No
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It Is True That Political Forces Within A Country Affect The
International Marketing Decisions?
Yes/No
Do You Agree That Environmental Challenges Influence The
Marketing Strategy?
Yes/No
Do You Agree That Political Stability and Government Policy
Greatly Affects the International Markets?
Yes/No
Do You Agree That More Competition Is One Of The Demerits
Of International Market?
Yes/No
Your Opinion?
110
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