concepts and main issues of Global business. This unit gives students
an understanding of the factors that how the international trade system
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and the economic, political, legal and cultural environments affect a
company`s international marketing decisions.
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The main objectives of the chapter are:to provide an overview of strategic concept of marketing with
the major principles of global market
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to analyse the driving forces and various complexities of
international marketing
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to evaluate the various entry strategies to internationalmarket
to identify the essentials of international market in the
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context of economic development of less developed countries
STRUCTURE
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1.Introduction
1.1
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Meaning of Marketing
1.2
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Meaning of Global Marketing1.3
The Strategic Concept of Marketing
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1.4
The Three Principles of Marketing
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1.5Transition from Domestic to International Marketing
1.6
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Driving Forces for International Market
1.7
Complexities in International Marketing
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1.8
Significance of International Marketing and Economic
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Development1.9
The Global Marketing Environment
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1.10 Fundamental Different between International Trade and
Interregional Trade
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1.11 Why Global Market is Imperative1.12 A Successful Global Marketing Plan
1.13 International Market Orientation ? FPRG
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1.14 International Market Entry Strategies
1.15 Summary
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1.16 Self-Assessment Questions1. INTRODUCTION
This unit is about GLOBAL MARKETING which we define as the
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process of focusing the resources (i.e. people, money, and physical
assets) and objectives of an organization on global market opportunities
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and threats. Two decades ago, the term global marketing did not evenexist. Today, global marketing is essential not only for the realization
of the full success potential of a business, but even more critically for
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the survival of a business. A company which fails to go global is in
longer of losing it`s domestic business to competitors with lower costs,
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greater experience, better products and in a nutshell, more value for thecustomer.
The importance of going global to ensure company survival is a more
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powerful motive for many companies than the attraction of opportunity
abroad. Industries that were entirely national in scope only a few years
ago are dominated today by a handful of global companies. This unit
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concentrate on the major dimensions of global marketing namely
meaning and the strategic concept of marketing, the principles of
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marketing, transition from the domestic to transactional marketing,driving forces and complexities in Inter national Marketing, Global
Marketing Imperative, Global Marketing plan, International market
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orientation (EPRA) and International Market Entry Strategies.
1.1. MEANING OF MARKETING
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Marketing is essentially a creative corporate activity involving theplanning and execution of the conception, pricing, promotion, and
distribution of ideas, products, and services in an exchange that not
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only satisfies customers` current needs but also anticipates and creates
their future needs at a profit. Marketing is not only much broader than
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selling, it also encompasses the entire company`s market orientationtoward customer satisfaction in a competitive environment. In other
words, marketing strategy requires close attention to both customers
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and competitors.
1.2. MEANING OF GLOBAL MARKETING
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Global marketing refers to marketing activities by companies thatemphasize the following:
1. Reduction of cost inefficiencies and duplication of efforts among
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their national and regional subsidiaries
2. Opportunities for the transfer of products, brands, and other ideas
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across subsidiaries3. Emergence of global customers
4. Improved linkages among national marketing infrastructures leading to the
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development of a global marketing infrastructure.Although Levitt`s view that global marketing does not necessarily mean
standardization of products, promotion, pricing, and distribution
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worldwide, but rather, it is a company`s proactive willingness to adopt
a global perspective instead of a country-by-country or region-by-
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region perspective in developing a marketing strategy.1.3 The Strategic Concept of Marketing
During the past three decades the concept of marketing has changed
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dramatically. The marketing concept has evolved from the original
concept, which focused marketing on the product. The objectiv e was
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profit, and the means to achieving the objective was selling, orpersuading the potential customer to exchange his or her money for the
company`s product. (refer Table 1.1)
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Table 1-1 Changing Concept of Marketing
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Old
New
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Strategic
Era
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Pre-19601960-1990
1990
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Focus
Product
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CustomerWay of Doing
Business
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MeansTelling
and Integrated
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Knowledge and
Selling
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Marketing MixExperience
End
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Profit
Value
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MutuallyBeneficial
Relationship
Marketing is.. Selling
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A Function
Everything
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The new concept of marketing, which appeared about 1960, shifted
the focus of marketing from the product to the customer. The objective
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was still profit, but the means of achieving the objective expanded toinclude the entire marketing mix, or the four Ps as they became
known: product, price, promotion, and place (channels of distribution).
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By 1990 it was clear that the consumer concept of marketing was
updated and that the times demanded a strategic concept. The strategic
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concept of marketing, a major evolution in the history of marketingthought, shifted the focus of marketing from the customer or the
product to the customer in the context of the broader external
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environment. Knowing everything there is to know about the customer
is not enough. To succeed, marketers must know the customer in a
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context including the competition, government policy and regulation,and broader economic, social, and political macro forces that shape the
evolution of markets. In global marketing this may mean working
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closely with home-country government trade negotiators and other
officials and industry competitors to gain access to a target country
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market.Another revolutionary change in the shift to the strategic concept of
marketing is in the marketing objective-from profit to stakeholder
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benefits. Stakeholders are individuals or groups who have an interest in
the activity of a company. They include the employees and management,
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customers, society, and government, to mention only the most prominent.There is a growing recognition that profits are a reward for performance
(defined as satisfying customers in a socially responsible or acceptable
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way). To compete in today`s market, it is necessary to have an employee
team committed to continuing innovation and to producing quality
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products. In other words, marketing must focus on the customer in contextand deliver value by creating stakeholder benefits for both customers and
employees.
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Profitability is not forgotten in the strategic concept. Indeed, it is acritical means to the end of creat ing stakeholder benefits. The means of
the strategic marketing concept is strategic management, which
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integrates marketing with the other management functions. One of the
tasks of strategic management is to make a profit, which can be a
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source of funds for investing in the business and for rewardingshareholders and management. Thus, profit is still a critical objective
and measure of marketing success, but it is not an end in itself. The aim
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of marketing is to create value for stakeholders, and the key
stakeholder is the customer.
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Finally, the strategic concept of marketing has shifted the focus of--- Content provided by FirstRanker.com ---
Marketing
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Customer Needs and
R&D
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Engineering
Manufacturing
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Customer ValueWants
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marketing from a microeconomic maximization paradigm to a focus ofmanaging strategic partnerships and positioning the firm between
vendors and customers in the value chain with the aim and purpose of
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creating value for customers. This expanded concept of marketing was
termed boundaryless marketing. The notion of boundaryless marketing
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is shown in Figure 1-1.1.4 THE THREE PRINCIPLES OF MARKETING
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The essence of marketing can be summarized in three great principles.The first is customer value, the second is competitive advantage and the
third principle is concentration of customer need.
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1. The Principle of Customer Value
The essence of marketing is creating customer value that is greater than
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the value created by competitors. Value for the customer can beincreased by expanding or improving product and or service benefits,
by reducing the price, or by a combination of these elements.
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Companies that use price as a competitive weapon must have a strategic
cost advantage in order to create a sustainable competitive advantage.
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This might come from cheap labor or access to cheap raw materials, orit might come from manufacturing scale or efficiency or more efficient
management. Knowledge of the customer combined with innovation
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and creativity can lead to product improvements and service that matter
to customers. If the benefits are strong enough and valued enough by
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customers, a company does not need to be the low-price competitor inorder to win customers.
2. The Principle of Competitive advantage
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The second great principle of marketing is competitive advantage. A
competitive advantage is a total offer, vis-z-vis relevant competition,
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that is more attractive to customers. The advantage could exist in anyelement of the company`s offer: the product, the price, the advertising
and point-of-sale promotion, and the distribution of the products. The
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total offer must be more attractive than that of the competition in order
to create a competitive advantage. A company might have a product
that is equivalent in quality to that of the competition but no better. If it
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offers this product at a significantly lower price, and if it can get
customers to believe that the quality of the company`s product is equal
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to that of the competition, the price advantage will give the company acompetitive advantage. The competitive advantage must exist relative
to relevant competitors. If the company is in a local industry, these
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competitors will be local. In national industry, they will be national,
and in a global industry, they will be global.
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3. The Principle of Concentration of customer need:The third marketing principle is focus, or the concentration of
attention. Focus is required to succeed in the task of creating customer
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value at a competitive advantage. All great enterprises, large and small,
are successful because they have understood and applied this great
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principle. IBM succeeded because it was more clearly focused oncustomer needs and wants than any other company in the emerging data
processing industry. One of the reasons that IBM found itself in crisis
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in the early 1990s was because its competitors had become much more
clearly focused on customer needs and wants. Dell and Compaq were
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giving customers computing power and low prices IBM was offeringthe same computing power with higher prices. In earlier days, the IBM
name was worth the difference today, in the maturing computer market,
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the value of the IBM name is simply not worth much as compared to a
name like Compaq or Dell.
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A clear focus on customer needs and wants and on the competitive offeris needed to mobilize the effort needed to maintain a differential
advantage. This can be accomplished only by focusing or conce ntrating
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resources and efforts on customer needs and wants and on how to
deliver a product that will meet those needs and wants.
1.5. TRANSITION FROM DOMESTIC TO TRANSNATIONAL MARKET
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This section outlines the differences between domestic, export,
international, multinational, global, and transnational marketing.
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1. Domestic MarketingMarketing that is targeted exclusively on the homes -country market is
called domestic marketing. A company engaged in domestic marketing
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may be doing this consciously as a strategic choice or it may be
unconsciously focusing on the domestic market in order to avoid the
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challenge of learning how to market outside the home country.2. Export Marketing
Export marketing is the first stage of addressing market opportunities
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outside the home country. The export marketer targets markets outside
the home country and relies upon home-country production to supply
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product for these markets. The focus in this stage is upon leveraginghome-country products and experience. A export marketer will study
target markets and adapt products to meet the specific needs of
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customers in each country.
3. International Marketing
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The international marketer goes beyond the export marketer andbecomes more involved in the marketing environment in the countrie s
in which it is doing business. For example, the international marketer is
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prepared to source product outside the home country in order to gain
greater competitive advantage. The international marketer is less likely
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to rely upon intermediaries and is mor e likely to establish directrepresentation to coordinate the marketing effort in target markets.
4. Multinational Marketing
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The international marketing organization begins by focusing onleveraging a company`s experience and products. As it focuses upon
this task, it becomes aware of the differences and unique circumstances
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in the country, and establishes a new role for itself adapting the
company`s marketing to the unique needs and wants of customers in the
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country. The multinational marketing organization would develop aunique communication program for its market.
5. Global/Transnational Marketing
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Global/transnational marketing focuses upon leveraging a company`s
assets, experience, and products globally and upon adapting to what is
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truly unique and different in each country. It recognizes culturaluniversals and unique market differences. Instead of an international
company approach of applying the communications campaign
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developed for the home country, or a multinational approach of
creating a unique campaign in each country, the global/transnational
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company would distinguish between what was global and universal andwhat was country specific and unique. For example, it might conclude
based upon in-depth research that it should develop a global creative
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platform for a product where sampling was a key success factor in
gaining market penetration. The task of each country marketing team in
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this case would be to develop a unique national sampling plan. Thecountry marketing team would draw upon global creat ive and combine
that with national sampling.
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Global marketing does not mean entering every country in the world.
The decision to enter markets outside the home country depends upon a
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company`s resources and the nature of opportunities and threats. Cokeand IBM operate in over 100 countries because they began their
international expansion over 50 years ago and they have had the
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resources to establish themselves wherever there is opportunity.1.6. DRIVING FORCES FOR INTERNATIONAL MARKETING
The following are the forces that are contributing to the growth of
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international marketing.
1. Market Needs and Effort
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There is a common element in human nature and in the human psyche thatis the underlying basis for the opportunity to create and serve global
markets. Most global markets do not exist in nature. They must be created
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by marketing effort. For example, soft drinks, one of the biggest successful
global industries, are not needed by anyone and yet today in some countries
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soft-drink consumption per capita exceeds the consumption of water.Marketing has driven this change in behavior.
Advanced global companies have discovered that the same basic segment
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need can be met with a global approach in selected product markets.
Successful global strategies are based on performing a global function or
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serving a global need. Any industry which addresses these universals is acandidate for globalization. The advertising campaign for a global product
may be a global appeal which is adapted to each national culture.
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2. Technology
A powerful force drives the world toward a converging commonality,
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and that force is technology. Technology is a universal, uniform,consistent factor across national and cultural boundaries. There are no
cultural boundaries limiting the application of technology. Once a
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technology is developed, it immediately becomes available everywhere
in the world. If a company knows how to manage a technology in one
country, it has experience that is relevant for the rest of the world.
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3. Cost
The pressure for globalization is intense when new products involve
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major investments and long periods of development. This is true forpharmaceuticals, where new product typically cost $50 million to $100
million to develop over a period of six to ten years. The enormous cost
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and risk of new product development must be recovered in the global
marketplace, as no single national market is large enough to support
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investments of this size.4. Quality
Global volume generates greater revenue and greater operating margins
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to support design and manufacturing quality. A global and a local
company may each spend 5 percent of sales on research and
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development, but the global company may have two, three, or even tentimes the total revenue of the local. With the same percentage of sales
spent on research and development, the global will outspend the local
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by a factor of two, three, or ten times, as the case may be.
5. Communications and Transportation
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The information revolution contributes toward the emergence of globalmarkets. Everybody wants the best, latest, and most modern expression
of a products. In regional markets such as Europe, the increasing
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overlap of advertising across national boundaries and the mobility of
consumers have created a pressure on marketers to align product
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positioning and strategy in adjacent markets. You see this in companieslike Nestle who have a tradition of decentralized country marketing
efforts and who operate in markets where local tastes have developed
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over centuries. Even this combination of local prefere nces anddecentralized marketing is subject to the pressure of overlapping
communications and travel.
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6. Leverage
One of the unique advantages of a global company is an opportunity to
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develop leverage and advantages that it has because it operatessimultaneously in more than one national market. A global can develop
five types of leverage.
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i) Experience Transfers: A global company can leverage its experience
in any market in the world. It can draw upon strategies, products,
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advertising appeals, sales management practices, promotional ideas,and so on that have been tested in actual markets and apply them in
other comparable markets.
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ii) Systems Transfers: A global company can refine its planning,
analysis, research control, and other system and apply the
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refinements worldwide. The leveraging of systems improvementsalso makes it possible for company staff to communicate with each
other.
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iii) Scale Economies: In manufacturing, the global company can take
advantage of its greater volume to obtain the traditional single -plant
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scale advantages and it can also combine into finished productcomponents manufactured in scale efficient plants in different
countries.
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iv) Resource Utilization: A major strength of the global company is its
ability to scan the entire world to identify people, money, and
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materials will enable it to compete most effectively in worldmarkets.
v) Global Strategy: The global company`s greatest single advantage is
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its global strategy. A global strategy is based on scanning the worldbusiness environment to ident ify opportunities, threats, trends, and
resources. The global company searches the world for markets that
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will provide an opportunity to apply its skills and resources to
create value for customers that is greater than the value created by
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its competitors. The global strategy is a design to create a winningoffering on a global scale. This takes great discipline, great
creativity, and constant effort, but the reward is not just success-it`s
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survival.
1.7. COMPLEXITIES IN INTERNATIONAL MARKETING
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This section outlines the various complexity in international marketing.1. Market Differences
In every product category, differences are still great enough across
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national and cultural boundaries to require adoption of at least some
elements of the marketing mix (product, price, advertising and
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promotion, and channels of distribution). Global marketing does notwork without a strong local team who can adapt the product to local
conditions.
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2. Brand History
Even in cases where the product itself may be a good candidate for
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globalization, a brand`s history may require a distinct and differentmarketing strategy and positioning in each country. This is true even
for high-potential products such as the image-driven brands. If a brand
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has an established identity in national markets, it may not be possible
to achieve a single global position and strategy.
3. Management Myopia
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In many cases, products and categories are candidates for globalization,
but management does not seize the opportunity. A good example of
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management myopia is any company that does not maintain leadershipin creating customer value in an expanding geographical territory. A
company that looks backward will not expand geographically.
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4. Organizational Culture
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The successful global companies are marketers w ho have learned howto integrate global vision and perspective with local market initiative
and input.
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5. National Controls/Barriers to Entry
Every country protects local enterprise and interests by maintaining
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control over market access and entry. Today, tariff barriers have beenlargely removed in the high-income countries. The significant barriers
are the so-called non-traiff barriers that make it difficult for foreign
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companies to gain access to a domestic market. The worldwide
movement toward deregulation and privatization, by breaking the link
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between government and enterprise, is an initiative that will lead to asignificant opening up of formerly closed markets.
1.8. SIGNIFICANCE OF INTERNATIONAL MARKETING AND
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ECONOMIC DEVELOPMENT
The role of foreign trade in economic development is considerable. The
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classical and neo-classical economists attached so much importance tointernational trade in a country`s development that they regarded it as
an engine of growth. We shall discuss how international trade helps
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economic development towards the progress of less developedcountries. (LDCs)
This section focus on direct and indirect benefits on foreign trade to
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LDCs
International trade possesses great importance for LDCs.
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It provides the urge to develop the knowledge and experience that makedevelopment possible, and the means to accomplish it. Herberlier
opines, My overall conclusion is that international trade has made a
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tremendous contribution to the development of less developed countries
in the 19th and 20th centuries and can be expected to make an equally
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big contribution in the future.... And that substantial free trade withmarginal, insubstantial correction and deviations, is the best policy
from the point of view of economic development.
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When a country specializes in the production of a few goods due to
international trade and division of labour, it exports those commodities
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which it produces cheaper in exchange for what others can produce at alower cost. It gains from trade and there is increase in national income
which, in turn, raises the level of output and the growth rate of
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economy. Thus the higher level of output through trade tends to break
the vicious circle of poverty and promotes economic development.
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An LDC is hampered by the small size of its domestic market whichfails to absorb sufficient volume of output. This leads to low
inducement to investment. The size of the market is also small because
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of low per capita income and of purchasing power. International trade
widens the market and increases the inducement to invest income and
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saving through more efficient resource allocation.Myint has applied Smith`s vent for surplus theory to the LDCs for
measuring the effects of gains from international trade. The introducing
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of foreign trade opens the possibility of a vent for surplus (orpotential surplus) in the primary producing LDCs. Since land and
labour are underutilized in the traditional subsistence sector in such a
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country, its opening up to foreign trade provides larger opportunities to
produce more primary products in exchange for imports of
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manufactured products which it cannot itself produce. Thus it benefitfrom international trade.
The vent for surplus theory, as applied to an LDC, is explained in
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Fig.1.2. Before trade with under utilised resources, the country is
producing and consuming OX1 of primary products and X1E of
manufactured products at point E inside the production possibilit y
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curve AB. With the opening up of foreign trade, the production point
shifts from E to D on the production possibility curve AB. Now the
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utilisation of formerly underutilised land and labour enables thecountry to increase its production of primary exportables from OX 1 to
OX2 without any sacrifice in the production of other goods and
services. Given the international terms of trade line PP`, the country
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exchanges ED (=X1X2) more of primary exportable against EC larger
manufactured importables.
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P--- Content provided by FirstRanker.com ---
C
e
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lb A
a
t
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ro
p
m
I
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D
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E
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P`
Fig 1.2
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OX1
X2
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B
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ExportableMoreover, many underdeveloped countries specialize in the production of
one or two staple commodities. If efforts are made to export them, they
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tend to widen the market. The existing resources are employed more
productively and the resources allocation becomes more efficient with given
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production functions.As a result, unemployment and underemployment are reduced; domestic
saving and investment increase; there is a larger inflow of factor inputs
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into the expanding export sector; and greater backward and forward
linkages with other sectors of the economy. This is known as the
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staple theory of economic growth, associated with Watkins. Foreigntrade also helps to transform the subsistence sector into the monetized
sector by providing markets for farm produce and raises the income and
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the standards of living of the peasantry. The expansion of the market
leads to a number of internal and external economies, and hence to
reduction in cost of production. These are the direct or static gains from
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international trade.
Let us study the following indirect benefits of foreign trade to under
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developed countries in detail.First, foreign trade helps to exchange domestic goods having low
growth potential for foreign goods with high growth potential. The
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staple commodities of underdeveloped countries are exchanged for
machinery, capital goods, raw materials, and semi-finished products
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required for economic development. Being deficient in capital goodsand materials, they are able to quicken the pace of development by
importing them from developed countries, and establishing social and
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economic overheads and directly productive activities. Thus larger
exports enlarge the volume of imports of equipment that can be
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financed without endangering the balance of payments and the greaterdegree of freedom makes it easier to plan domestic investment for
development.
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Second, foreign trade possesses an educative effect. Underdeveloped
countries lack in critical skills, which are a greater hindrance to
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development than is the scarcity of capital goods. Foreign trade tendsto overcome this weakness.
Third, foreign trade provides the basis for the importation of foreign
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capital in LDCs. If there were no foreign trade, foreign capital would
not flow from the rich to the poor countries. The volume of foreign
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capital depends, among other factors, on the volume of t rade. Thelarger the volume of trade, the greater will be the ease with which a
country can pay back interest and principal. It is, however, much easier
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to get foreign capital for export-increasing industries than for importsubstitution and public utility industries. But from the point of view of
the importing country, the use of foreign capital for import substitution,
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public utilities and manufacturing industries is more beneficial for
accelerating development than merely for export promotion. Foreign
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capital not only helps in increasing employment, output and income butalso smoothens the balance of payments and inflationary pressures.
Further; it provides machines, equipments, know-how, skills, ideas, and
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trains native labour.
Lastly, foreign trade benefits an LDC indirectly by fostering healthy
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competition and checking inefficient monopolies. Healthy competitionis essential for the development of the export sector of such economies
and for checking inefficient exploitative monopolies that are usually
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established on the grounds of infant industry protection.
1.9. THE GLOBAL MARKETING ENVIRONMENT
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1. Demographic EnvironmentDemography is the study of human populations in terms of size,
density, location, age, gender, race, occupation, and other statistics .
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The demographic environment is of major interest to marketers because
it involves people, and people make up markets.
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The world population is growing at an explosive rate. It now totalsmore than 5.9 billion and will exceed 7.9 billion by the year 2025. the
explosive world population growth has major implications for business.
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A growing population means growing human needs to satisfy.
Depending on purchasing power, it may also mean growing market
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opportunities.The world`s large and highly diverse populat ion poses both
opportunities and challenges. Thus, marketers keep close track of
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demographic trends and developments in their markets, both at homeand abroad. They track changing age and family structures, geographic
population shifts, educational charact eristics, and population diversity.
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2. Economic Environment
The economic environment consists of factors that affect consumer
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purchasing power and spending patterns. Nations vary greatly in theirlevels and distribution of income. Some countries have subs istence
economies they consume most of their own agricultural and industrial
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output. These countries offer few market opportunities. At the other
extreme are industrial economies, which constitute rich markets for
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many different kinds of goods. Marketers must pay close attention tomajor trends and consumer spending patterns both across and within
their world markets.
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Marketers should pay attention to income distribution as well as
average income. Income distribution in the still very poor. At the top
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are upper-class consumers, whose spending patterns are not affected bycurrent economic events and who are a major market for luxury goods.
There is a comfortable middle class that is some what careful about its
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spending but can still afford the good life some of the time. The
working class must stick close to the basics of food, clothing, and
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shelter and must try hard to save. Finally, the poor class must counttheir pennies when making even the most basic purchases. Over the
past three decades, the rich have grown richer, the middle class has
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shrunk, and the poor have remained poor.
3. Natural Environment
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The natural environment involves the natural resources that are neededas inputs by marketers or that are affected by marketing activities.
Marketers should be aware of several trends in the natural environment.
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The first involves growing shortages of raw materials. Air and watermay seem to be infinite resources, but some group see long-run
dangers. Air pollution chokes many of the world`s large cities and
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water shortages are already a big problem in some parts of the world.
Renewable resources, such as forests and food, also have to be used
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wisely. Nonrenewable resources, such as oil, coal, and variousminerals, pose a serious problem. Firms making resources, such as oil,
coal, and various minerals, pose a serious problem. Firms making
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products that require these scarce resources face large cost increases,
even if the materials do remain available.
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A second environmental trend is increased pollution. Industry willalmost always damage the quality of the natural environment. Consider
the disposal of chemical and nuclear wastes; the dangerous mercury
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levels in the ocean; the quantity of chemical pollutants in the soil and
food supply; and the littering of the environment with non-
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biodegradable bottles, plastics, and other packaging materials.A third trend is increased government intervention in natural resource
management. The governments of different countries vary in their
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concern and efforts to promote a clean environment.
4. Technological Environment
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The technological environment is perhaps the most dramatic force nowshaping our destiny. Technology has released such wonders as
antibiotics, organ transplants, computers, and the Internet. It also has
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released such horrors as nuclear missiles, chemical weapons, and
assault rifles. It has released such mixed blessing as the automobile,
television, and credit cards.
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New technologies create new markets and opportunities. However,
every new technology replaces an o lder technology. Transistors hurt the
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vacuum-tube industry, xerography hurt the carbon-paper business, theauto hurt the railroads, and compact disks hurt phonograph records.
When old industries fought or ignored new technologies, their
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businesses declined. Thus, marketers should watch the technological
environment closely. Companies that do not keep up with technological
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change soon will find their products outdated. And they will miss newproduct and market opportunities.
4. Political Environment
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Marketing decisions are strongly affected by developments in the political
environment. The political environment consists of laws, government
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agencies, and pressure groups that influence and limit various organizationsand individuals in a given society.
Even the most liberal advocates of free-market economies agree that
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the system works best with at least some regulation. Well-conceived
regulation can encourage competition and ensure fair markets for goods
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and services. Thus, governments develop public policy to guidecommerce-sets of laws and regulations that limit business for the good
of society as a whole. Almost every marketing activity is subject to a
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wide range of laws and regulations.
Legislation affecting business around the world has increased steadily
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over the years. The States has many laws covering issues such ascompetition, fair trade practices, environmental protection, product
safety, truth in advertising, packaging and labeling, pricing, and other
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important areas. The European Commission has been active in
establishing a new framework of laws covering competitive behavior,
product standards, product liability, and commercial transactions for
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the nations of the European Union. Several countries have gone father
than the United States in passing stro ng consumerism legislation. For
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example, Norway bans several forms of sales promotion trading stamps,contests, and premiums as being inappropriate or unfair ways of
promoting products. Thailand requires food processors selling national
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brands to market low-price brands also, so that low-income consumers
can find economy brands on the shelves. In India, food companies must
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obtain special approval to launch brands that duplicate those alreadyexisting on the market.
5. Cultural Environment
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The cultural environment is made up of institutions and other forces
that affect a society`s basic values, perceptions, preferences, and
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behaviors. People grow up in a particular society that shapes their basicbeliefs and values. They absorb a world view that defines the ir
relationships with others.
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People in a given society hold many beliefs and values. Their core
beliefs and values have a high degree of persistence. For example, most
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Indians believe in working, getting married, giving to charity, andbeing honest. These beliefs shape more-specific attitudes and behaviors
found in everyday life. Core beliefs and values are passed on from
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parents to children and are reinforced by schools, churches, business,
and government. The notion of various environmental forces to glo bal
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company is shown in figure 1.3.ographic Economic Natural Technological Political Cultu
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pany's Macro Environmr
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a
Dem
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el
n
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Forces Forces Forces Forces Forces Forces
t
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Com--- Content provided by FirstRanker.com ---
Fig. 1.3 Environmental Forces to Global Company
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1.10. INTERNATIONAL TRADE IS FUNDAMENTALLY DIFFERENT
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FROM INTERREGIONAL TRADE :
Interregional trade refers to trade between regions within a country. It
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is what Ohlin calls inter-local trade. Thus interregional trade isdomestic or internal trade. International trade, on the other hand, is
trade between two nations or countries. A controversy has been going
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on among economists whether there is any difference between
interregional or domestic trade and international trade. The classical
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economists held that there were certain fundamental differencesbetween interregional trade and international trade. Accordingly, they
propounded a separate theory of international trade which is known as
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the theory of comparative costs. But modern economists like Bertil
Ohlin and Haberler contest this view and opine that the differences
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between interregional and international trade are of degree rather thanof kind
There are several reasons to believe the classical view that interna tional
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trade is fundamentally differ from interregional trade as following
manner.
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1. Factor ? Immobility: The classical economists advocated a separatetheory of international trade on the ground that factors of production are
freely mobile within each region as between places and occupations and
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immobile between countries entering into international trade. Labour andcapital are regarded as immobile between countries while they are
perfectly mobile within a country. There is complete adjustment to wage
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differences and factor-price disparities within a country with quick and
easy movement of labour and other factors from low return to high return
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sectors. But no such movements are possible internationally. The reasonsfor international immobility of labour are differences in languages,
customs, occupational skills, unwillingness to leave familiar surroundings,
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and family ties, the high traveling expenses to the foreign country, and
restrictions imposed by the foreign country on labour immigration. The
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international mobility of capital is restricted not by transport costs but bythe difficulties of legal redress, political uncertainty, ignorance of the
prospects of investment in a foreign country, imperfections of the banking
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system, instability of foreign currencies, mistrust of the foreigner, etc.
Thus widespread legal and other restrictions exist in the movement of
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labour and capital between countries. But such problems do not arise inthe case of interregional trade.
2. Differences in Natural Resources : Different countries are endowed
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with different types of natural resources. Hence they tend to specialize
in the production of those commodities in which they are richly
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endowed and trade them with others where such resources are scarce. InAustralia, land is in abundance but labour and capital are relatively
scarce. On the contrary, capital is relatively abundant and cheap in
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England while land is scarce and dear there. Thus commodities
requiring more capital, such as manufactures, can be produced in
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England; while such commodities as wool, mutton, wheat etc. requiringmore land can be produced in Australia. Thus both countries can trades
each other commodities on the basis of comparative cost differences in
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the production of different commodities.3. Geographical and Climate Differences : Every country cannot
produce all commodities due to geographical and climatic conditions,
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except at possibly prohibitive costs. For instance, Brazil has favourable
climate and geographical conditions for the production of co ffee,
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Bangladesh for jute, Cuba for beet sugar, etc. So countries havingclimatic and geographical advantages specialize in the production of
particular commodities and trade them with others.
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4. Different Market : International markets are separated by di fferences
in language, usage, habit, taste, etc. Even the systems of weights and
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measures and pattern and styles in machinery and equipment differfrom country to country. For instance, British railway engines and
freight cars are basically different from those in France or in the United
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States. Thus goods which may be traded within regions may not be sold
in other countries. That is why, in great many cases products to be sold
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in foreign countries are especially designed to confirm to the nationalcharacteristics of that country.
5. Different Currencies : The principle difference between interregional
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and international trade lies in the use of different currencies in foreign
trade but the same currency in domestic trade. Rupee is accepted
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throughout India. But if we cross over to Nepal or Pakistan, we mustconvert our rupee into their rupee to buy good and services there.
It is not the differences in currencies alone that are important in
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international trade, but changes in their relative values. Every time a
change occurs in the value of one currency in terms of another, a
number of economic problems arise. Calculation and execution of
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monetary exchange transactions incident to international trading
constitute costs and risks of a kind that are not ordinarily involved in
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domestic trade. Further currencies of some countries like the Americandollar, the British pound, the German mark and the Japanese yen, are
more widely used in international transactions, while others are almost
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inconvertible. Such tendencies tend to create more economic problems
at the international market.
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6. Problem of Balance of Payment : Another important point whichdistinguishes international trade from interregional trade is the problem
of balance of payments. The problem of balance o f payment is
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perpetual in international trade while regions within a country have no
such problem. This is because there is greater mobility of capital within
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regions than between countries. Further, the policies which a countrychooses to correct its disequilibrium in the balance of payments may
give rise to a number of other problems. If it adopts deflation or
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devaluation or restrictions on imports or the movement of currency,
they create further problems. But such problems do not arise in the case
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of interregional trade.7. Transport Cost : Trade between countries involves high transport
costs as against interregionally within a country because of
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geographical distances.
8. Different Political Groups : A significant distinction between
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interregional and international trade is that all regions within a countrybelong to one political unit while different countries have different political
units. Interregional trade is among people belonging to the same country
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even though they may differ on the basis of castes, creeds, religions, tastes
or customs. They have a sense of belonging to one nation and their loyalty
to the region is secondary. The government is also interested more in the
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welfare of its nationals belonging to different regions. But in international
trade there is no cohension among nations and every country trades with
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other countries in its own interests and often to the detriment of others.9. Different National Policies: Another difference between
interregional and international trade arises fr om the fact that policies
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relating to commerce, trade, taxation, etc. are the same within a
country. But in international trade there are artificial barriers in the
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form of quotas, import duties, tariffs, exchange controls, etc. on themovement of goods and services from one country to another. Such
restrictions are not found in interregional trade to impede the flow of
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goods between regions.
Therefore the classical economists asserted on the basis of the above
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arguments that international trade was fundamentally different fromdomestic or interregional trade. Hence, they evolved a separate theory
for international trade based on the principle of comparative cost
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differences.
1.11. WHY GLOBAL MAKETING IS IMPERATIVE
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In this section, we focus on reasons for global market as imperativeconcept.
First and fundamentally, domestic-market saturation in the
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industrialized parts of the world forced many companies to look for
marketing opportunities beyond their national boundaries. The
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economic and population growths in developing countries also, gavethose companies an additional incentive to venture abroad. Now
companies from emerging economies, such as Korea`s Samsung and
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Hyundai and Mexico`s Cemex and Grupo Modelo, have made inroadsinto the developed markets around the world.
Second, there is a strong competition around the world. About twenty years
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ago, the world`s greatest automobile manufacturers were General Motors,
Ford, and Chrysler. Today, companies like Toyota, Honda, BMW, and
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DaimlerChrysler (a recent merger of Daimler-Benz and Chrysler), amongothers, stand out as competitive nameplates in the automobile market.
Similarly, personal computer was almost synonymous with IBM, which
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dominated the PC business worldwide. Today, the computer market is
crowded with Dell and Compaq from the United States, Toshiba and NEC
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from Japan, Acer from Taiwan, and so on. Color TVs were invented in theUnited States, but today it is almost impossible to find a color TV made by
U.S. companies. Instead, foreign brands such as Sony, Panasonic, and
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Magnavox are in most home in the United States. Even RCA and Zenith
television are made overseas. Nike is a U.S. company with a truly all-
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American shoe brand, but its shoes are all made in foreign countries andexported to the United States. Burger King and Pillsbury (known for its
Haagen-Dazs ice cream brand) are two American institutions owned and
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managed across the Atlantic Ocean by Diageo, a newly created company as
a result of the merger of Britain`s Grand Metropolitan PLC and Guinness
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PLC.Third, another profound change in the last decade is the proliferation of
the Internet and electronic commerce, or e-commerce. The Internet opened
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the gates for companies to sell direct-to-consumers easily across national
bondaries. Many argue that e-commerce is less intimate than face-to-face
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retail, but it could actually provide more targeted demographic andpsychographic information. Manufacturers that traditionally sell through
the retail channel may benefit the most from e-commerce. Furthermore,
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customer information no longer is held hostage by the retail channel. Mostimportant, the data allow for the development of relevant marketing
messages aimed at important customers and loyal relationships on a global
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basis.
An examination of the top one hundred largest companies in the world
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also vividly illustrates the profound changes in competitive milieu thatwe have seen in the past thirty years (see Table 1.2). Of the top
hundred largest industrial companies in the world, sixty-four were from
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the United States in 1970 in 1980 the number declined to forty-five
companies. The latest figure came down to twenty four in 1997 (not
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shown) and went back up to thirty-five in 1999.The number of Japanese companies in the top hundred has increased
from eight in 1970 to twenty-four in 1999, almost a threefold increase.
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A similar increase has also been observed with French companies, from
three in 1970 to ten in 1997. The relative decline in the number of U.S.
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companies in the top is reflected in the banking, insu rance, and otherservices sectors, as well as in the manufacturing sectors. The current
world economy has changed drastically from what it was merely a
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decade ago.
The changes observed in the past thirty years simply reflect that
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companies from other parts of the world have grown in size relative tothose of the United States. In other words, today`s environment is
characterized by much more competition from around the world than in
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the past. As a result, many U.S. executives are feeling much more
competitive urgency in product development, materials procurement,
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manufacturing, and marketing around the world.The competition is not the only force shaping global business today.
Particularly in the past several years, many political and economic
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events have affected the nature of global business. The demise of theSoviet Union, the establishment of the European Union and the North
American Free Trade Agreement, deregulation, and privatization of
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state-owned industries have also changed the market environments
around the world. Furthermore, the emerging markets of Eastern
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Europe and the rapidly re-emerging markets of Southeast Asiacontribute to an international climate.
Table 1.2
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CHANGE IN THE WORLD`S 100 LARGEST COMPANIES AND
THEIR NATIONALITIES
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Country1970
1980
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1990
1999*
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United States64
45
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33
35
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Japan8
8
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16
24
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Germany8
13
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12
13
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France3
12
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10
10
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Switzerland2
3
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3
5
--- Content provided by FirstRanker.com ---
Netherlands4
5
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3
5
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Britain9
7
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8
5
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Italy3
4
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4
3
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Belgium0
1
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1
1
--- Content provided by FirstRanker.com ---
Venezuela0
1
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1
0
--- Content provided by FirstRanker.com ---
China0
0
--- Content provided by FirstRanker.com ---
0
1
--- Content provided by FirstRanker.com ---
South Korea0
0
--- Content provided by FirstRanker.com ---
2
0
--- Content provided by FirstRanker.com ---
Spain0
0
--- Content provided by FirstRanker.com ---
2
0
--- Content provided by FirstRanker.com ---
Sweden0
0
--- Content provided by FirstRanker.com ---
2
0
--- Content provided by FirstRanker.com ---
Brazil0
1
--- Content provided by FirstRanker.com ---
1
0
Mexico
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0
1
--- Content provided by FirstRanker.com ---
10
Austria
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0
0
--- Content provided by FirstRanker.com ---
10
Finland
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0
0
--- Content provided by FirstRanker.com ---
10
South Africa
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0
0
--- Content provided by FirstRanker.com ---
10
Canada
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0
2
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00
Australia
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1
0
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00
Total
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102
103
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102102**
Source: Fortune, various issues up to 2000.
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*Fortune 500 criteria changed to include ser vices firm (including
retailing and trading)
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**Includes joint nationality of firms (joint nationality, has beencounted for both the countries), so the total may exceed 100.
The fluid nature of global markets and competition makes the study of
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global marketing not only interesting but also challenging and
rewarding. The term global epitomizes both the competitive pressure
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and the expanding market opportunities all over the world.1.12. REQUIRMENTS FOR A SUCCESSFUL GLOBAL MARKETING
PLAN
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The successful global plan is an integrated set of effective national
marketing plans. Each national marketing plan should be based upon
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three foundations:1. Knowledge of the market and the marketing environment -especially
of customers, competitors, and the government.
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2. Knowledge of the product-the formal product, its technology, and
its core benefit.
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3. knowledge of the marketing function and discipline.A global/transnational company must decide how it will obtain these
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three key types of knowledge on a global basis. It must a lso decide howit will assign responsibility for formulating a marketing plan. If plan
formulation is assigned to national subsidiaries, the global headquarters
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must ensure that the subsidiary planners are fully informed on the
technical and engineering characteristics of the product as well as up to
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date in their functional skills. One of the ways of doing this is toinvolve headquarters marketing staff specialists in the planning process
so that they can ensure that the highest standard of product and
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functional knowledge is associated with the local marketing staff`s
market knowledge.
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Thus, the global/transnational plan is neither the product of thesubsidiary nor the product of headquarters. It is neither top down nor
bottom up but rather an interact ive product that combines inputs from
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both the global and the local perspective. This balance is essential if
the plan is to approximate the objective of global optimization as
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opposed to national suboptimizaiton.The global/transnational plan should be initiated by a global overview
that assesses the broad nature of opportunity and threat on a global
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basis and breaks down this assessment on a country-by-country basis
with an indication of sales and earnings targets for each country. These
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targets are proposed by headquarters as guidance to each nationalorganization for the formulation of country plans. Guidance at this
stage of the process should be guidance, and not a directive. The
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national organization should come up with its own target, and compare
that to the target suggested by world headquarters. If there is a
difference between the country target and the national organization
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target, this should openly challenge headquarters, and the challenge
should produce a dialogue that searches for the realistic target. After
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receiving guidance from headquarters, country units need to developprograms that will achieve the targets specified by the guidance. After
preparing their plans, headquarters and subsidiaries come together to
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negotiate an agreement. Headquarters is seeking to performance from
each company unit and the integration of its global plan. If a country
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unit is a supplier for home-country and third-country markets,production schedules and transfer prices must be agreed upon. If a
country unit is to market a product produced elsewhere in the company,
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the sales and delivery plans must be coordinated.
The following section explains three types of global marketing plan.
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1. Standardized global marketing planA standardized global marketing plan offer s a number of advantages.
First, there are significant cost savings if standardization is practiced.
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A company that limits the number of models and variants of its product
can achieve longer production runs and greater economies of scale.
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This is elementary and has been demonstrated in actual practicethousands of times over. Henry Ford was probably the first industrialist
to demonstrate the potential of mass production for achieving scale
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economies and creating a national market. Similarly, the Italian
appliance industry during the 1960s achieved remarkable cost reduction
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through standardization and long production runs and in the processtook a leadership position in Europe. Of course, cost savings can be
achieved not only in production but also in packa ging, in distribution,
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and in the creation of advertising materials. There are other benefits of
standardization. In an increasingly mobile world a standardized product
is the same in every national market and is therefore uniform for
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increasing numbers of customers who travel across national boundaries.
There are pressures today to standardize products so that the customer
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can develop standardized programs in its operations. Another benefit ofstandardization is that it extends successful products and good ideas
into all markets. There are, however, a number of obstacles to
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standardization. Market characteristics may be so different in so many
major ways that it is impossible to offer a standardized product. There
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was, for example, simply no significant mar ket in Europe (or Japan andmany other countries) for the 3,500-4,000-1b, 120 wheel-base U.S.
automobile. It was too big to fit in the streets, it consumed too much
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gasoline, it cost too much to license, and it did not appeal to the taste
of automobile buyers outside the United States. American automobile
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manufactures who wish to compete in more than a very minor segmentof the world market must adapt their product or develop products to
suit market preferences in the rest of the world.
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2. Decentralized Global Marketing Plan
Many companies have followed a decentralized planning approach
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either because of poor results using the standardized approach or afternothing the many differences from country to country in market
environments. This approach has received perhaps more support in
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marketing than any other functional area. An executive of a major
international company expressed this view as follows. Marketing is
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conspicuous by its absence from the functions which can be planned atthe corporate headquarters level. It is in this phase of overseas business
activity that the variations in social patterns and the subtlety of local
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conditions have the most pronounced effect on basic business strategy
and tactics. For this reason, the responsibility for marketing planning
must be carried out by those overseas executives who are most familiar
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with the local environment.
A common feature of both the standardized and the decentralized
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approaches is the absence of responsibility for analysis and planning atthe headquarters level for multicountry marketing programs. In the
standardized case such activities are assumed to be unnecessary. Once
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the marketing problem is solved for the home country, it is solved for
the world. In the decentralized company the need for ana lysis and
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planning to respond to local conditions is recognized, but it is assumedthat knowledgeable efforts can only be attempted at the country level
and that there is no opportunity for effective supranational participation
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in these activities.
3. Interactive Global Marketing Plan
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A third approach to formulating a global marketing plan is theinteractive, or integrated, approach. This is superior to either the
standardized or the local plan because it draws on the strengths of each
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of these approaches in planning to formulate a synthesis. Under the
interactive marketing planning approach, subsidiaries are responsible
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for identifying the unique characteristics of their market and ensuringthat the marketing plan responds to local characteristics.
Headquarters, both global and regional, is responsible for establishing a
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broad strategic framework for planning in such matters as deciding on
major goals and objectives and on where to allocate resources. In
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addition, headquarters must coordinate and rationaliz e the productdesign, advertising, pricing, and distribution activities of each
subsidiary operation. Headquarters must constantly be alert to the
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trade-off of concentrating staff activities at headquarters location in anattempt to achieve a high level of performance versus the advantages of
decentralizing staff activities and assigning people directly to
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subsidiaries.
Each decision must stand on its own merit, but there are significant
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opportunities for the improvement of performance and cost saving byconcentrating certain activities at one location. For example, many
companies have successfully centralized the preparation of advertising
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appeals at world or regional headquarters. Another activity that can be
done in one location is product design. Information and design criteria
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need to come from the world, but the design itself can be done by onedesign team in a single location.
1.13. INTERNATIONAL MARKET ORIENTATION ? EPRG
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FRAMEWORK:
Dr. Howard Perlmutter of the University of Pennsylvania first observe d
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that there were three basic orientations guiding the work ofinternational executives: ethnocentric, polycentric, and geocentric. This
was later expanded to include a regional orientation and became an
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EPRG
schema
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(ethnocentrism,polycentrism,
regioncent rism,
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geocentrism). This typology, summarized in Figure 1.4, is the basis for
the stages of corporate development framework.
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The ethnocentric orientation is an assumption that the home country issuperior. It believes that the products and practices that succeed in the
home country are superior and, therefore, should be used everywhere.
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In the ethnocentric company, overseas operations are viewed as being
secondary to domestic and primarily as a means of disposing of surplus
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domestic production. Plans for o verseas markets are developed in thehome office utilizing policies and procedures identical to those
employed at home. There is no systematic marketing research
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conducted overseas, there are no major modifications to products, andthere is no real attention to consumer needs in foreign markets.
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Polycentric--- Content provided by FirstRanker.com ---
Each Host
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Country is Unique
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Ethnocentric :
Sees Differences
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Home Country
in Foreign
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is Superior,
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CountriesSees Similarities
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in Foreign Countries
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Regocentric :
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Sees Similarities
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Geocentricand Differences
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World View
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in a World RegionSees Similarities
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is Ethnocentric or Polycentric
and Differences in
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in its Views of
Home and Host Countries
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the Rest of the World
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Figure 1.4 : EPRG Frame workThe polycentric orientation is the opposite. This is the unconscious
belief that each host country is unique and different and that the way to
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succeed in each country is to adapt to each country`s uniquedifferences. In the polycentric stage, subsidiaries are establish ed in
overseas markets. Each subsidiary operates independently of the others
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and establishes its own marketing objectives and plans. Marketing is
organized on a country-by-country basis, with each country having its
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own unique marketing policy.In the regiocentric and geocentric phases, the company views the region or
entire world as a market and seeks to develop integrated regional or world
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market strategies. The geocentric orientation is a synthesis of the
ethnocentric and the polycentric orientation. The regiocentric or regional
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orientation is a geocentric orientation that is limited to a region; that is,management will have a world view toward its region, but will regard the
rest of the world with either an ethonocentric or a polycentric orientation,
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or a combination of the two. The ethnocentric company is centralized in
its marketing management, the polycentric company is decentralized, and
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the regiocentric and geocentric companies are integrated.The ethnocentric orientation is based on a belief in ho me-country
superiority. This leads to an extension of home country products,
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polices, and programs. The assumption of the polycentric approach is
that there are so many differences in cultural, economic, and market
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conditions in each of the countries of the world that it is impossible toattempt to introduce any product, policy, or program from outside or to
integrate any country`s program in a regional or world context.
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To implement the geocentric orientations, experienced international
management and a great deal of commitment are required. For
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companies with limited experience, it may be wiser to adopt acentralized or a decentralized strategy and wait until experience
accumulates before attempting to design and implement integrated
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marketing programs.1.14. INTERNATIONAL MARKET ENTRY STRATEGIES
Entry decision of global market will heavily influence the firm`s other
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marketing-mix decisions. Several decision need to be made. The firm has
to decide on (1) the target product/market, (2) the goals of target markets,
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(3) the mode of entry, (4) the time of entry, (5) a marketing-mix plan, and(6) a control system to monitor the performance in the entered market. This
section will cover the major decisions that constitute market entry
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strategies.
A crucial step in developing a global expansion strategy is the selection
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of potential target markets. Companies adopt many different approaches topick target markets. A flowchart for one of the approaches is given in
figure 1.5. A four step procedure as given belo w may explain the
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initial screening process.
Step 1: Select indicators and collect data.
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First, you need to pick a set of socioeconomic and political
indicators you believe are critical. The indicators that a
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company selects are, to a large degree, driven by the strategic
objectives spelled out in the company`s global mission.
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Colgate-Palmolive, for instance, views per capita purchasingpower as a major driver behind market opportunities. Coca-Cola
looks at per capita income and the number of minutes that it
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would take somebody to work to be able to afford a Coca-Cola
product. McDonald`s starts with countries that are similar to the
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United States in lifestyle, with a large proportion of womenworking, and shorter hours for lunch. Information on these
country indicators can easily be gathered from publicly
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available data sources. Typically, countries that do well on oneindictor (say, market size) rate poorly on other indicators (say,
market growth). Somehow, we need to combine our information
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to come up with an overall measure of market attractiveness for
43
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these candidate markets.No
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Do we have products that can
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Probably be marketed abroad?--- Content provided by FirstRanker.com ---
Yes
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--- Content provided by FirstRanker.com ---
No
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Should we investigate foreignmarkets?
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--- Content provided by FirstRanker.com ---
Yes--- Content provided by FirstRanker.com ---
Does preliminary screening
No
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indicate potential target
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country markets?
--- Content provided by FirstRanker.com ---
Yes
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Does
secondary
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data
analysis
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NoContinue to
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indicate
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acountry
with
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high
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exploit homesales
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potential?
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market onlyYes
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--- Content provided by FirstRanker.com ---
Do primary (field dataNo
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Support secondary data
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Yes
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Redesign
Is our entry mode the most
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Noentry
appropriate mode, given
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mode
external factors and our
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objectives?
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Yes
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RedesignNo
Is our marketing plan the
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marketing
most appropriate one, given
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planour resources and objectives?
--- Content provided by FirstRanker.com ---
YesNo
Delay
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Should we enter the foreign
entry
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market now?Yes
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Operations
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No
No
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Redesign
Is
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ourperformance
satisfactory?
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Withdraw
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strategyYes
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Yes
No
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Should we investigate other
Stay
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with
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markets?single
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Figure 1.5 Logical Flow Model of the Entry Decision Process
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marke
Step 2 : Determine importance of country indicators.
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The second step is to determine the importance weights of each
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of the different country indicators identified in the previousstep. One common method is the constant-sum allocation
technique. Here, you simply allocate one hundred points across
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the set of indicators according to their importance in achieving
the company`s goals (e.g., market share). So, the more critical
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the indicator, the higher the number of points it gets allocated.The total number of points should add up to 100.
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Step 3 : Rate the countries in the pool on each indicator.Next, you give each country a score on each of the indicators.
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For instance, you could use a 7-point scale (1 meaning very
unfavorable; 7 meaning very favorable). The better the
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country does on a particular indicator, the higher the score.Step 4 : Compute overall score for each country.
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The final step is to derive an overall score for each prospect
country. To that end, you simply sum up the weighted scores
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that the country obtained on each indicator. The weights arethe importance weights that were assigned to the indic ators in
the second step. Countries with the highest overall scores are
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the ones that are most attractive. An example of this four -step
procedure is given in Table 1.3.
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Sometimes, the company might desire to weed out countries thatdo not meet a cut-off for criteria that are of paramount importance to
the company.
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Table 1.3
METHOD FOR PRE-SCREENING MARKET OPPORTUNITIES:
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EXAMPLECountry
Per
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Population Competition Political
Score
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CapitaRisk
Income
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A
50
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2530
40
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3400*
B
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2050
40
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10
3600
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C60
30
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10
70
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3650D
20
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2070
80
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3850
Weights
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2540
25
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10
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*(25 x 50) + (40 x 25) + (30 x 35) + (40 x 10) = 3400.For instance Wrigley, the U.S. chewing gum maker, was not interested
in Latin America until recently because many of the local governments
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imposed ownership restrictions. In that case, the four-step procedure
would be done only for the countries that stay in the pool.
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CHOOSING THE MODE OF ENTRYSeveral decision criteria will influence the choice of entry mode. In general,
two classes of decision criteria can be distinguished. 1. internal (firm-
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specific) criteria 2. external (environment -specific) criteria. Let us first
consider the major external criteria.
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1. Market Size and Growth: The key determinant of entry choice decisionis the size of the market. Large markets justify major resource
commitments in the form of joint ventures or wholly owned
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subsidiaries. Market potential can relate to the current size of the
market. However, future market potential as measured via the growth
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rate is often even more critical, especially when the target marketsinclude emerging markets.
2. Risk: Another major concern when choosing entry modes is the risk
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factor. Risk relates to the instability in the political and economic
environment that may impact the company`s business prosp ects.
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Generally speaking, the greater the risk factor, the less eagercompanies are to make major resource commitments to the country
(or region) concerned. Evidently, the level of country risk changes
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over time. For instance, the peace process in the Midd le East and
the abolishment of the apartheid regime in South Africa have lured
many MNCs to these regions. Many companies opt to start their
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presence with a liaison office in markets that are high-risk but, at
the same time, look very appealing because of their size or growth
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potential. For instance, MetLife, the insurance company, opened aliaison office in Shanghai and Beijing while it is waiting for
permission from the Chinese government to start operations. A
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liaison office functions then as a low-cost listening post to gather
market intelligence and establish contacts with potential distributors.
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3. Government Regulation: Government requirements are also a majorconsideration in entry mode choices. In scores of countries,
government regulations heavily constrain the set of available
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options. Trade barriers of all different kinds restrict the entry choice
decision. In the car industry, local content requirements in countries
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such as France and Italy played a major role behind the decision ofJapanese car makers like Toyota and Nissan to build up a local
manufacturing presence in Europe.
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4. Competitive Environment: The nature of the competitive situation in
the local market is another driver. The dominance of Kellogg Co. as
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a global player in the ready-to-eat cereal market was a keymotivation for the creation in the early 1990s of Cereal Partners
Worldwide, a joint venture between Nestle and General Mills. The
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partnership gained some market share (compared to the combined
share of Nestle and General Mills prior to the linkup) in some of the
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markets, though mostly at the expense of lesser players like QuakerOats and Ralston Purina.
5. Local Infrastructure: The physical infrastructure of a market refers
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to the country`s distribution system, transportation network, andcommunication system. In general, the poorer the local
infrastructure, the more reluctant the company is to commit major
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resources (monetary or human).
All these factors combined determine the overall market attractiveness
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of the countries being considered. Markets can be classified in fivetypes of countries based on their respective market attractiveness.
Platform countries can be used to gather intelligence and establish a
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network. Example include Singapore and Hong Kong.
Emerging countries include Vietnam and the Philippines. Here the
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major goal is to build up an initial presence for instance via aliaison office.
Growth countries such as China and India can offer early mover
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advantages. These often encourage companies to build up a
significant presence in order to capitalize on future market
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opportunities.Maturing and established countries include South Korea, Taiwan,
and Japan. These countries have far fewer growth prospects than the
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other types of markets.
We now given on overview of the key internal criteria:
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1. Company Objectives. Corporate objectives are a key influence inchoosing entry modes. Firms that have limited aspirations will
typically prefer entry options that entail a minimum amount of
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commitment (e.g., licensing). Proactive companies w ith ambitious
strategic objectives, on the other hand, will usually pick entry
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modes that give them the flexibility and control they need toachieve their goals. Bridgestone, the Japanese tire maker, needed a
strong foothold in the U.S. market to become a leading firm in the
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tire industry. To that end, Bridgestone entered into a bidding warwith Pirelli to acquire Firestone. More recently, the company is
setting up factories in Central Europe and China and a joint venture
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in India with Tata, a major truck company, to achieve its goal of a
20 percent market share of the global tire market.
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2. Need for Control. Most MNCs would like to possess a certainamount of control over their foreign operations. Control may be
desirable for any element of the marketing-mix plan: positioning,
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pricing, advertising, product design, branding, and so forth,
Caterpillar, for instance, prefers to stay in complete control of its
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overseas operations to protect its proprietary know-how. For thatreason, Caterpillar avoids joint ventures. To a large degree, the
level of control is strongly correlated with the amount of resource
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commitment: the smaller the commitment, the lower the control. So,
most firms face a trade-off between the degree of control over their
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foreign operations and the level of resource commitment they arewilling to take.
3. Internal Resources, Assets, and Capabilities. Companies with tight
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resources (human and/or financial) or limited assets are constrained to
low commitment entry modes such as exporting and licensing that are
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not too demanding on their resources. Even large companies shouldcarefully consider how to allocate their resources between their different
markets, including the home market. In some cases, major resource
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commitments to a given target market might be premature given the
amount of risk. On the other hand, if a firm is overly reluctant with
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committing resources, the firm might miss the boat by sacrificing majormarket opportunities. Internal competencies also influence the choice-
of-entry strategy. When the firm lacks certain skills that are critical for
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the success of its global expansion strategy, the company can try to fillthe gap by forming a strategic alliance.
4. Flexibility. An entry mode that looks very appealing today is not
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necessarily attractive five or ten years down the road. The local
environment changes constantly. New market segments emerge.
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Local customers become more demanding or more price conscious.Local competitors become more sophisticate. To cope with these
environmental changes, global players need a certain amount of
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flexibility. The flexibility offered by the different entry-mode
alternatives varies a great deal. Given their very nature, contractual
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arrangements like joint ventures or licensing tend to provide verylittle flexibility. When major exit barriers exist, wholly owned
subsidiaries are hard to divest, and, therefore offer very little
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flexibility compared to other entry alternatives.
A Transaction Cost Explanation For Mode-Of-Entry Choice
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The different modes of entry can be classified according to the degreeof control they offer to the entrant from low-control (e.g., indirect
exporting) to high control modes (e.g., wholly owned subsidiary,
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majority stake partnerships). To some extent, the appropriate entry-
mode decision boils down to the issue of how much control is
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desirable, Ideally, the entrant would like to have as much control aspossible. However, entry modes that offer a large degree of control also
entail substantial resource commitments and huge amounts of risk.
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Therefore, the entrant faces a trade-off between the benefits of
increased control and the costs of resource commitment and risk.
One useful framework to resolve this dilemma is the so -called
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transaction-cost analysis (TCA) perspective. A given task can be
looked at as a make-or-buy decision: either the firm contracts the
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task out to outside agents or partners (low-control modes) or the jobcan be done internally (high control modes). TCA argues that the
desirable governance structure (high- versus low-control mode) will
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depend on the comparative transaction costs that is, the cost of running
the operation.
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The TCA approach begins with the premise that markets arecompetitive. Therefore, market pressure minimizes the need for control.
Under this utopian scenario, low-control modes are preferable since the
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competitive pressure force the outside partner to comply with his
contractual duties. When the market mechanism fails, high-control
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entry modes become more desirable. From the TCA angle, marketfailure typically happens when transaction-specific assets become
valuable. These are assets that are only valuable for a very narrow
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range of applications. Examples include brand equity, proprietary
technology, and know-how. When these types of assets become very
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important, the firm might be better off to adopt a high-control entrymode in order to protect the value of these assets against opportunitistic
behaviors and uncertainty.
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An empirical study of entry decisions made by the 180 largest MNCs
over a fifteen-year period found that MNCs are most likely to enter
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with wholly owned subsidiaries when one of the following conditionsholds.
The entry involves an R & D-intensive line of business
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The entry involves an advertising-intensive line of business (high
brand-equity)
The MNC has accumulated a substantial amount of experience with
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foreign entries.
On the other hand, MNCs are most likely to prefer a partnership
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when one of these holds:The entry is in a highly risky country
The entry is in a socioculturally distant country
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There are legal restrictions on foreign ownership of assets.
Merits and Demerits of Different Modes of Entry
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1. Exporting: Most companies start their international expansion withexporting. For many small businesses, exporting is very often the sole
alternative for selling their goods in foreign markets. A fair number of
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Fortune 500 companies, such as Boeing and Caterpillar, also generate a
major part of their global revenues via export sales. In 1998 Caterpillar`s
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exports from the United States were about $6 billion ? this translates into$400,000 per Caterpillar job in the United States.
Companies that plan to engage in exporting have choice between three
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broad options: indirect, co-operative, and direct exporting. Indirect
exporting means that the firm uses a middleman based in its home
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market to do the exporting. With cooperative exporting, the firm entersinto an agreement with another company (local or foreign) where the
partner will use its distribution network to sell the exporter` s goods.
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Direct exporting means that the company sets up its own export
organization within the company and relies on a middleman based in a
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foreign market (e.g., a foreign distributor).Indirect exporting happens when the firm sells its products in the foreign
market via an intermediary located in the firm`s home country. The
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middleman could be an export management company (EMC), a tradinghouse, or simply a broker. Indirect exporting offers several advantages to
the exporting company compared to other entry modes. The firm gets
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instant foreign market expertise. Very little risk is involved. Generally
speaking, no major resource commitments are required.
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There are some downsides with indirect exporting. The company haslittle or no control over the way its product is marketed in the foreign
country. Lack of adequate sales support, wrong pricing decisions, or
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poor distribution channels will inevitably lead to poor sales.
Companies that are not willing to commit the resources to set up their
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own distribution organization but still want to have some control overtheir foreign operations should consider cooperative exporting. One of
the most popular forms of cooperative exporting is piggyback
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exporting. With piggybacking, the company uses the overseas
distribution network of another company (local or foreign) for selling
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its goods in the foreign market.Under direct exporting, the firm sets up its own exporting department
and sells its products via a middleman located in the foreign market.
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Once the international sales potential becomes substantial, direct
exporting often looks far more appealing than indirect exporting. To
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some degree, the choice between indirect and direct exporting is amake-or-buy decision.
2. Licensing : Companies can also penetrate foreign markets via a
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licensing strategy. Licensing is a contractual transaction where the
firm-the licensor-offers some proprietary assets to a foreign company-
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the licensee-in exchange for royalty fees. Examples of assets that canbe part of a licensing agreement include trademarks, technology know-
how, production processes, and patents. Royalty rates range between
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one-eight of 1 percent and 15 percent of sales revenue. For instance,Tokyo Disneyland is owned and operated by Oriental Land Company
under license from Disney. In return for being able to use the Disney
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name, Oriental Land Company pays royalties to Disney. In some
industries, companies cross-licensing agreements are fairly common.
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For many companies, licensing has proven to be a very profitablemeans for penetrating foreign markets. In most cases, licensing is not
very demanding on the company`s resources. Therefore, it is especially
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appealing to small companies that lack the resources and the
wherewithal to invest in foreign facilities. One licensing expert notes
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that overseas licensing account for up to one third of the profits ofsome small companies. Compared to exporting, another low -
commitment entry mode, licensing allows the licensor to navigate
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around import barriers or get access to markets that are completely
closed to imports. For instance, several foreign tobacco companies in
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China use licensing agreements to avoid the 240 percent import taxlevied on imported cigarettes. Local governments may also favor
licensing over other entry modes.
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Companies that use licensing as part of their global expansion strategy
lower their exposure to political or economic instabilities in their
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foreign markets. The only volatility that the licensor faces are the upsand downs in the royalty income stream. Other risks are absorbed by
the licensee.
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In high-tech industries, technology licensing has two further appeals. In
highly competitive environments, rapid penetration of global markets
allows the licensor of define the leading technology standard and to
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rapidly amortize R & D expenditures. A case in point is Motorola`s
licensing of proprietary microprocessor technology to Toshiba.
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3. Franchising : Scores of service industry companies use franchising asa means for capturing opportunities in the global marketpla ce. For
instance, of the 8,000 Tricon restaurants around the world, about 4,400
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are franchised. Franchising is to some degree a cousin of licensing: it
is an arrangement whereby the franchisor gives the franchisee the right
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to use the franchisor`s trade names, trademarks, business models,and/or know-how in given territory for a specific time period, normally
ten years. In exchange, the franchisor gets royalty payment and other
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fees. The package might include the marketing plan, operating manuals,
standards, training and quality monitoring.
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To snap up opportunities in foreign markets, the method of choice isoften master franchising. With this system, the franchisor gives a
master franchise to a local entrepreneur, who will, in turn, sell local
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franchises within his territory. The territory could be a certain region
within a country or a group of countries (e.g., Greater China). Usually,
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the master franchise holder agrees to establish a certain number ofoutlets over a given time horizon.
The benefits of franchising are clear. First and foremost, companies can
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capitalize on a winning business formula by expanding overseas with a
minimum of investment. Just as with licensing, political risks for the rights-
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owner are very limited. Further, since the franchisees` profits are directlytied to their efforts, franchisees are usually highly motivated. Finally, the
franchisor can also capitalize on the local franchisees` knowledge of the
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local market place. They usually have a much better understanding of local
customs and laws than the foreign firm.
4. Contract Manufacturing : With contract manufacturing, the company
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arranges with a local manufacturer to manufacture parts of the product
or even the entire product. Marketing the products is still the
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responsibility of the international firm.Numerous companies have become very successful by specializing in
contract manufacturing. NatSteel Electronics (NEL) is one of the
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leading global electronics contract manufacturers. The company, based
in Singapore, has facilities in countries such as Indonesia, Malaysia,
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Chinna, and Mexico. Its customers include Fortune 500 companies suchas Compaq, IBM, Apple, and Hewlett-Packard.
Cost savings are the prime motivation behind contract manufacturing.
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Significant cost savings can be achieved for labor-intensive production
processes by sourcing the product in a low-wage country. Typically, the
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countries of choice are places that have a substantial comparative laborcost advantage. Labor cost savings are not the only factor. Savings ca n
also be achieved via taxation benefits, lower energy costs, raw
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materials costs, or overhead.
Contract manufacturing is not without drawbacks though. The nurture -
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a-future-competitor concern raised for licensing and franchising alsoapplies here. Because of this risk, many companies prefer to make
high-value items or products that involve proprietary design features
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in-house. A fixation with low labor costs can often have painful
consequences. Low-labor-cost countries typically have very low labor
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productivity. Some of these countries, such as India and South Korea,also have a long tradition of bad labor relation. Too much reliance on
low-cost labor could also create a backlash in the company`s home -
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market among its employees and customers. Monitoring of quality andproduction levels is a must especially during the start -up phase when
teething problems are not uncommon.
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5. Joint Ventures : For many MNCs who want to expand their global
operations, joint ventures prove to be the most viable way to enter
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foreign markets, especially in emerging markets. With a joint venture,the foreign company agrees to share equity and other resources with
other partners to establish a new entity in the target country. The
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partners typically are local companies, but they c an also be local
government authorities, other foreign companies, or a mixture of local
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and foreign players. Depending on the equity stake, three forms ofpartnerships can be distinguished: majority (more than 50 percent
ownership), fifty-fifty, and minority (50 percent or less ownership)
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ventures. Huge infrastructure or high-tech projects that demand a large
amount of expertise and money often involve multiple foreign and local
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partners. Another distinction is between cooperative and equity jointventures. A cooperative joint venture is an agreement to collaborate
between the partners that does not involve any equity investments.
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For instance, one partner might contribute manufacturing technology
whereas the other partner provides access to distribution channels.
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Cooperative joint ventures are quite common for partnerships betweenwell-heeled MNCs and local players in emerging markets. A good
example of the collaborative approach is Cisco`s sales strategy in Asia,
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Instead of investing in its own sales force, Cisco builds up partnerships
with hardware vendors (e.g., IBM), consulting agencies (e.g., KPMG),
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or systems integators (e.g., Singapore based Datacraft). These partnersin essence act as front people for Cisco. They are the ones that sell and
install Cisco`s routers and swiches. An equity joint venture goes one
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step further. It is an arrangement where the partners agree to raisecapital in proportion to the equity stakes agreed upon. A typical example is
the entry strategy of Cable & Wireless (C&W), a British
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telecommunications firm, in Japan. To gain credibility with the Japanese
government, C&W set up a partnership with big Japanese corporations. The
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three major stakeholders ? C& A Toyota, and C.Itoh-each hold roughly17 percent. The other partners share the balance. The alliance has
gained a 16 percent market share of Japan`s international
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telecommunication market.
A major advantage of joint ventures, compared to lesser forms of
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resource commitment such as licensing, is the return potential. Withlicensing, for instance, the company solely gets royalty payment instead
of a share of the profits. Joint ventures also entail much more control
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over the operations that most of the previous entry modes we have
discussed so far. MNCs that like to maximize their degree of control
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prefer full ownership. However, in many instances, local governments(e.g., China) discourage or even forbid wholly owned ventures in
certain industries. Under such circumstances, partnerships are a second -
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best or temporary solution.
Apart from the benefits listed above, the synergy argument is another
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compelling reason for setting up a joint venture. Partnerships not onlymean a sharing of capital and risk. Possible contributions brought in by
the local partner include: land, raw materials, expertise on the local
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environment (culture, legal, political), access to a distribution network,
personal contacts with suppliers, government officials, and so on.
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Combined with the skills and resources owned by the foreign partner,these inputs offer the key to successful market entry. A recent fifty-fifty
joint venture between Canada`s Sun Life Assurance and China
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Everbright Group, a large financial conglomerate, is one example. SunLife, which got approval to sell life insurance in China in April 19 99,
chose China Everbright because it can provide the ventures access to a
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large distribution network and local contacts.
6. Wholly Owned Subsidiaries : Multinational companies often prefer
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to enter new markets with 100 percent ownership. Ownership strate giesin foreign markets can essentially take two routes: acquisitions, where
the MNC buys up existing companies, or Greenfield operations that are
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started from scratch. As with the other entry modes, full ownership
entry entails certain benefits to the MNC but also carries risks.
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Wholly owned subsidiaries give MNCs full control of their operations. Itis often the ideal solution for companies that do not want to be saddled
with all the risks and anxieties associated with partnerships like joint
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venturing. Full ownership means that all the profits go to the company.
Fully owned enterprises allow the investor to manage and control its own
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processes and tasks in term of marketing, production, and sourcingdecisions. Setting up fully owned subsidiaries also sends a strong
commitment signal to the local market. In some market China, for
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example wholly owned subsidiaries can be erected much faster than joint
ventures with local companies, which may consume years of negotiations
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before their final take-off. The latter point is especially important whenthere are substantial advantages to being an early entrant in the target
market.
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Despite the advantages of 100 percent ownership, many MNCs are
quite reluctant to choose this particular mode of entry. The risks of fu ll
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ownership cannot be easily discounted. Complete ownership means thatthe parent company will have to carry the full burden of possible
losses. Developing a foreign presence without the support of a third
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party is also very demanding on the firm`s resources. Obviously, apartfrom the market-related risks, substantial political risks (e.g.
nationalization) must be factored in.
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Companies that enter via a wholly owned enterprise are sometimes also
perceived as a threat to the cultural and/or economic sovereignty of the
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host country. Shortly after Daewoo`s initially successful bid for themultimedia arm of the French group Thomson-CSF in the fall of 1996,
the deal sparked controversy among French trade unions and the media.
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In the end, the French government vetoed the sale of the Thomson
group following the negative opinion of the French privatization
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commission.7. Acquisitions and Mergers : Companies such as Sara Lee have built up
strong global competitive positions via cleverly planned and finely
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executed acquisition strategies. MNCs choose acquisition entry to expand
globally for a number of reasons. First and foremost, when contrasted with
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Greenfield operations, acquisitions provide a rapid means to get access tothe local market. For relative latecomers in an industry, acquisitions are
also a viable option to obtain well-established brand names, instant access
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to distribution outlets, or technology. In recent years, some of the South
Korean chaebols have used acquisition entries in foreign markets to gain a
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foothold in high-tech industries. Highly visible examples includeSamsung`s acquisition of the American computer maker AST and LG
Electronics` takeover of Zenith. LG would have needed to invest more than
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$1 billion to build up a strong global TV brand from scratch.
Sara Lee, a U.S. conglomerate, has been extremely successful in
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building up growth via well-chosen acquisitions. Instead of milking theacquired local brands and replacing them with a global brand, Sara Lee
heavily invest in its local brand assets in the hope that one day they can
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be converted into prestigious regional or even global brand names.Success stories of local brands that became leading European brands
include Douwe Egberts in coffee, Pickwick in tea, and Dim in hosiery.
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Sara Lee is also following the acquisition path in emergin markets, with
an equal amount of success.
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Expansion via acquisitions or mergers carries substantial risks, though.Differences in the corporate culture of the two companies between
managers are often extremely hard to bridge. A well-publicized
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example of a company that has been plagued with corporate culture
disease is Pharmacia & Upjohn, a pharmaceutical company that was
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formed in 1995 via the merger of Sweden-based pharmacia AB and theAmerican drug firm Upjohn. Swedish managers were stunned by the
hard driving, mission-oriented approach of Upjohn executives. Their
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U.S. counterparts were shocked about European vacation habits.
8. Greenfield Operations: Greenfield operations offer the company
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more flexibility than acquisitions in areas such as human resources,suppliers, logistics, plant layout, or manufacturing technology.
Greenfield investments also avoid the costs of integrating the
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acquisition into the parent company. Another motivation is the
package of goodies (e.g. tax holidays) that host government sometimes
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offer to whet the appetite of foreign investors. The down side ofgreenfield operations is that they require enormous investments of time
and capital.
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1.15 SUMMARY
Global marketing is a proactive response to the intertwined nature of
business opportunities and competition that know no political
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boundaries. Global marketing does not necessarily mean that
companies should market the same product in the same way around the
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world as world markets are converging. Global marketing is acompany`s willingness to adopt a global perspective instead of a
country-by-country or region-by-region perspective in developing a
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marketing strategy for growth and profit. The six forces making up the
company`s macro-global environment include demographic, economic,
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natural, technological, political and cultural forces. These forces shapeopportunities and pose threats to the company. Global market
possesses great importance of less developed countries (LDCs) It
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provides all urge to develop knowledge and experience that make
development possible in LDC`s. The remarkable growth of the global
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economy over the post 50 years has occurred because of many drivingforces contributing to the growth of international business , namely,
market needs, modern technology, minimum cost application, higher
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quality, information revolution and leverage advantages. Several
restraining forces also occurred in international trade in the form of
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tariff barriers and non-tariff barriers.There are four identifiable stages in the evolution of marketing across
national boundaries. These are known as Ethnocentrism, poly centrism,
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regiocentrism and geocentrism. Companies have the plan of entry
strategy choices to implement their global expansio n efforts. Each
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alternative has its pros and cons. Global companies often adopt aphased entry strategy. They start off with a minimal risk strategy.
Once the perceived risk declines, they switch to higher commitment
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mode. It is made clear that, a broad range of variables impact the entry
mode choice. The three major dimensions include the resource
commitment a firm is willing to make, the amount of risk the firm is
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willing to take and the degree of control that is desirable.
1.16 SELF-ASSESSMENT QUESTIONS
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1. How is global marketing different from international marketing?2. Discuss how companies can react to the marketing environment.
3. Why do some MNCs prefer to enter certain markets with a
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liaison office first?
4. Discuss the reasons why international business is much more
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complex today than it was twenty years ago.5. What are the three basic principles of marketing? Select a
company that you know and assess how well the company is
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applying these principles?
Reference Books
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1. International Economics ? ML Jhingan2. Marketing ? An Introduction ? Philips Kotler
3. Global Marketing Management Warren J. Keegan
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4. Global Marketing Management Masaaki Kotabe, Kristiaan Helsen
UNIT ? II
INTERNATIONAL MARKETING ENVIRONMENT
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This unit is divided into 4 lessons. First lesson contains an introduction about the
International Marketing Environment along with an analysis of Internal
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Environment and External Environment. The second lesson explains theGeographical and Demographic Environment of International Marketing.
Lesson 3 contains the Economic and Socio-cultural Environment. The last
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lesson analyses the Political and Legal Environment along with the Impact of
Environment on International Marketing Decisions.
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Lesson ? I International Marketing Environment: Internal Environment ?External Environment
Learning Objectives: By the end of this lesson you should be able to: 1.
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understand and describe the meaning of international marketing, the task of an
international marketer, the types of environment ? Internal and External 2.
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explain microenvironment and macro environment (controllable environmentand uncontrollable environment). 3. describe the environmental forces that
affect the company`s ability to serve its customers
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1.1. International Marketing Environment
Marketing does not operate in a vacuum but it occurs in a complex and changing
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environment. Other actors in this environment ? suppliers, intermediaries,customers, competitors, publics and others ? may work with or against the
company. Major environmental forces ? demographic, economic, political and
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cultural ? shape marketing opportunities, pose threats, and affect the company`s
ability to serve its customers and develop lasting relationships with them. To
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understand marketing and to develop effective marketing strategies, we mustfirst understand the context in which marketing operates. Many companies view
the marketing environment as an uncontrollable element to which they must
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adapt. Other companies take an environmental management perspective inwhich the firm takes aggressive actions to affect the publics and forces in its
marketing environment.
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International Marketing is the performance of business activities - flow of a
company`s goods and services to consumers in more than one nation for profit.
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The only difference between domestic marketing and international marketing isthat the marketing activities take place in more than one country. There is no
difference in concepts of marketing but there is difference in the environment
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within which marketing plans are to be implemented. In the case of foreign
marketing there are unfamiliar problems and hence different strategies are
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necessary to cope with the different levels of uncertainty. Hence, although,marketing principles and concepts are universally applicable, the environment
within which the marketer must implement marketing plan can change
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dramatically from country to country. The difficulties created by different
environments are the international marketers primary concern.
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1.2. Marketing EnvironmentAs we know, marketing functions are to be carried out in a given environment.
A company`s marketing environment consists of the factors and forces outside
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marketing that affect marketing management`s ability to develop and maintain
successful transactions with its target customers. Thus, environment consists of
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those factors and forces, which affect the company`s working and decision-making ability. Even the marketing opportunity has to be scanned and identified
carefully by observing the environment. The marketing mix i.e. product, price,
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physical distribution and promotion is also decided in the context of a given
marketing environment. Though marketing managers are not capable of
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controlling the environmental factors, they must take them into account whiletaking marketing decisions. While formulating the market strategies, the
marketer must keep on strict vigil on the environment in which the enterprise is
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functioning.The international environment is very important from the point of view of
certain categories of business. It is particularly important for industries directly
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depending on imports or exports and import competing industries. For example,
a recession in foreign markets, or the adoption of protectionist policies by
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foreign nations, may create difficulties for industries depending on exports. Onthe other hand, a boom in the export market or a relaxation of the protectionist
policies may help the export oriented industries. A liberalisation may help some
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industries, which use imported items, but may adversely affect import
competing industries. It has been observed that major international
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developments have their spread effects on domestic business. The GreatDepression in the United States sent its shock waves to a number of other
countries. Oil price hikes have seriously affected a number of economies. These
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hikes have increased the cost of production and the prices of certain products,
such as fertilizers, synthetic fibres, etc. The high oil price has led to an increase
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in the demand for automobile models that economise energy consumption. Theoil crisis also promoted some companies to resort to de-marketing --the process
of cutting consumer demand for a product back to level that the firm can supply.
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Hence, developments like oil crisis affect the demand, consumption and
investment pattern.
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A good export market enables a firm to develop a more profitable product mixand to consolidate its position in the domestic market. Many companies now
plan production and investment taking into account also the foreign markets.
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Export marketing facilitates the attainment of optimum capacity utilisation; a
company may be able to mitigate the effects of domestic recession by exporting.
However, a company, which depends on the export market to a considerable
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extent, has also to face the impact of adverse developments in foreign markets.
The world is shrinking rapidly with the advent of faster communication,
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transportation and financial flows. Products developed in one country arefinding acceptance in other countries. We would not be surprised to hear about
a German businessman wearing an Italian Suit meeting an English friend at a
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Japanese restaurant who later returns home to drink Russian Vodka.
International trade is booming and global competition is intensifying. Few
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industries are now free from foreign competition. Hence, for companies tocompete is to continuously improve their products at home and expand into
foreign markets.
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All marketing activities occur within in the framework of legal, economic,
cultural, political and other environments to which strategies and policies are to
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be related. Each country has its own legal system, culture, socio economicinfrastructure and so on. The problem in international marketing is that the
environments confronted are vastly more complex and extensive than for
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domestic operations.
1.3. The International Marketing Task
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The international marketer`s task is more complicated than that of the domesticmarkets. The international marketer must deal with at least 2 levels of
uncontrollable uncertainty compared to one by a domestic marketer. Uncertainty
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is created by the uncontrollable elements of all business environments, but
foreign country in which a company operates adds its own unique set of
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uncontrollable. Figure 2.1 illustrates the total environment of an internationalmarketer. The inner circle depicts the controllable elements that constitute a
marketer`s decision area. The second circle encompasses those environmental
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elements at home that have some effect on foreign operation decisions. The
outer circles represent the elements of the foreign environment for each foreign
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market within which the marketer operates. As the outer circles show, each
foreign market in which the company does business can present separate
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problems involving some or all of the uncontrollable elements. Thus, the moreforeign markets in which a company operates, the greater the possible variety of
foreign environmental uncontrollables with which to contend. Often a solution
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to a problem in country market A is not applicable to a problem in country
market B.
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Figure 2.1The International Marketing Task
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Marketing Controllables
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The successful manager constructs a marketing program designed for optional
adjustment to the uncertainty of the business climate.
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The inner circle in figure 2.1 represents the area under control of the marketingmanager. Assuming the necessary overall corporate resources, the marketing
manager blend price, product, promotion, and channels of distribution activities
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to capitalization anticipated demand. The controllable elements can be altered to
adjust to changing market conditions or corporate objectives.
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Domestic UncontrollablesThe second circle (figure 2-1) includes home country elements that can have a
direct effect on the success of a foreign venture, political forces, legal structure
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and economic climate. A political decision involving domestic foreign policy
can have a direct effect on a firm`s international marketing success. For
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example, the U.S government imposed restrictions on sales of computers andcomputer software to South Africa to protest apartheid and hence was restricted
by domestic uncontrollables. Conversely, positive effects occur when there are
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changes in foreign policies and countries are given favoured treatment.
The domestic economic climate is another important home-based uncontrollable
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variable with far reaching effects on company`s competitive position in foreignmarkets. The capacity to invest in plants and facilities either in domestic or
foreign markets is to a large extent a function of domestic economic vitality.
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Currency value is another influence the home environment economy has on the
marketer`s task. e.g. the relative strength of the dollar in world markets.
Foreign Uncontrollables
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In addition to uncontrollable domestic elements, a significant source of
uncertainty is the number of uncontrollable foreign business environments.
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(Figure 2-1 outer circles). The process of evaluating the uncontrollable elementsin an international marketing program involves substantial doses of cultural,
political, and economic shock. A business operating in a number of foreign
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countries might find polar extremes in political stability, class structure, and
economic climate ? critical elements in business decisions. For example, The
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Soviet Union-a single market that divided into 15 independent republics, 11 ofwhich re-formed as the common wealth of independent states (CIS), self-
investors uncertain about the future. This is an example for the uncertainties of
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the uncontrollable political factors of international business.
Thus, international marketers face many challenges in understanding how the
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economic environment will affect the decisions and which global markets toenter and how.
The more significant elements in the uncontrollable international environment
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(shown in the outer circles of fig 2-1) include: 1. Political/legal forces, 2.
Economic forces, 3. Competitive forces, 4. Level of technology, 5. Structure of
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distribution, 6. Geography and infrastructure, 7. Cultural forces. Thus, theseforces constitute the principal elements of uncertainty an international marketer
must cope with in designing a marketing program. The uncertainty of different
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foreign business environments creates the need for a close study of the operating
environment within each new country. Different solutions to fundamentally
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identical marketing tasks are often in order and are generally the result ofchanges in the environment of the market. Thus, a strategy successful in one
country can be rendered ineffective in another by differences in political climate,
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stages of economic development, level of technology, or other cultural variation.
1.3.1. Environmental Adjustment to Foreign Uncontrollables
To adjust and adapt a marketing program to foreign markets, marketers must be
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able to interpret effectively the influence and impact of each of the
uncontrollable environmental elements on the marketing plan for each foreign
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market in which they hope to do business. In a broad sense, the uncontrollableelements constitute the culture; the difficulty facing the marketer in adjusting to
the culture (i.e., uncontrollable elements of the market place) lies in recognizing
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their impact. The task of cultural adjustment is the most challenging and
important one confronting international marketers. They must adjust their
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marketing efforts to cultures to which they are not attuned. In dealing withunfamiliar markets, marketers must be aware of the frames of reference they are
using in making their decisions of a market. The key to successful international
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marketing is adaptation to the environmental differences from one market to
another. Adaptation is a conscious effort on the part of the international
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marketer to anticipate the influences of both the foreign and domesticuncontrollable environments on a marketing mix, and then to adjust the
marketing mix to minimize the effects.
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1.4. Adapting to the Environmental Change
Marketing environment is dynamic, technology, taste and preferences of the
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people, competitive situations changes, demographic factors, includingpopulation size changes, attitude and value system changes, economic factors
like income, government policies and regulations also change to cope with the
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changing environment. Hence marketing policy should be adaptable to the
changing environment. Although an exact prediction of the future event is
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difficult, reliable forecasts are possible in many areas. For example, if relevantdata are available, it is possible to forecasts the demand for a product. Similarly,
forecasts can be made of such other factors as demographic factors, income
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levels, technological etc. Such forecasts of the changing marketing environmentfacilitate the formulation of appropriate marketing strategies. The marketing
environment is fast changing all over the world.
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Successful companies take an outside-inside view of their business. They
recognise that the marketing environment is constantly presenting new
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opportunities and threats, and they understand the importance of continuouslymonitoring and adapting to that environment. Many companies fail to see
change as opportunity. They ignore or resist changes until it is too late. Their
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strategies, structures, systems, and organisational culture grow increasingly
obsolete and disfunctional. Corporations as mighty as General Motors, IBM, and
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Sears have passed through difficult times because they ignored. The majorresponsibility for identifying significant changes falls to the company`s
marketers. Marketers have marketing intelligence and marketing research for
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collecting information about the marketing environment. They also spend more
time with customers and in watching competitors.
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Procedures are needed for the identification of fresh market opportunitiesresulting from environmental change. For this the firm should predict the
external changes that might occur and then it should analyse how they would
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affect the organization and how it should respond. The firm should list the
major functions of businesses followed by an outline of all environmental
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factors likely to affect these functions. The most important external variablesthat might affect a firms operation are:
1.4.1. Internal Environment
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An organisations internal marketing system is largely controllable by the
management. An outline of the important internal factors (organisational) is
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given below.Value System
The value system of the founders and those at the helps of affairs has important
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bearing on the choice of business, the mission and objectives of the organisation,business policies and practices.
Mission and objectives
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The business domain of the company, priorities, direction of development,
business philosophy, business policy etc. are guided by the mission and
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objectives of the company.Management structure and Nature
The organisational structure, the composition of the Board of Directors, extent
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of professionalisation of management etc are important factors influencing
business decisions.
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Internal Power RelationshipFactors like the amount of support the top management enjoys from lower levels
and workers, shareholders and Board of Directors have important influence on
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the decisions and their implementation. The relationship between the members
of the Board of Directors is also a critical factor.
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Human ResourcesThe characteristics of the human resources like skill, quality, morale,
commitment attitudes etc. could contribute the strength or weakness of an
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organisation. Some organisational find it difficult to carry out restricting or
modernisation because of resistance by employees whereas they are smoothly
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done in some others.Company Image
The image of the company matters while raising finance, forming joint ventures
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or other alliances, soliciting marketing intermediaries, entering purchase or salecontracts, launching new products. etc.
Other factors
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In addition to the factors mentioned above, there are other internal factors,
which contribute to business success/failure or influence the decision-making.
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They are: the production capacity, technology and efficiency, the productiveapparatus etc. These factors influence the competitiveness of a firm. Research
and Development, the organisation for marketing, quality of the marketing men,
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distribution network etc. has direct bearing on the marketing efficiency. The
financial policies, financial position and capital structure are also important
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internal environment affecting business performance, strategies and decisions.1.4.2. External Environment
The external environment of a company may be broadly divided into two
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categories: Microenvironment and Macro environment.
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1.4.2.a. External Micro EnvironmentThe microenvironment consists of the forces close to the company that affects
its ability to serve its customers. These forces are external but are a part of a
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company`s marketing system. These forces include suppliers, intermediaries,
competitors, customers and publics. While they are generally uncontrollable,
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these external forces can be influenced. We will explain these factors in a littledetail.
Suppliers
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For production of goods or service, a company requires a variety of inputs. The
individuals or firms who supply these inputs are known as suppliers. They
provide resources needed by the company. For this purpose, the company should
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go for developing specifications, searching the potential suppliers, identifying
and analysing the suppliers and thereafter choosing the suppliers who can supply
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the best mix of quality, quantity, reliability, credit facility, warranties and lowprice. The suppliers are critical to company`s marketing success. Supply
shortages or delays can adversely affect sales and damage company goodwill in
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the long-inn. Marketing manages should also monitor the price trends of their
inputs and negotiate terms and conditions with the suppliers. The most suitable
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suppliers have to be clearly identified and listed.Customers
The customers of a company may be of five kinds. They are i. Ultimate
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consumers: - They may be individuals and householders. ii. Industrial
consumers: - Industrial consumers are organisations, which buy goods and
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services for producing other goods and services for the purpose of either earningprofits or fulfilling other objectives. iii). Resellers: - These are intermediaries
who purchase goods with a view to resell them at a profit. These may be
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wholesalers, retailers, distributors etc. iv. Government customers: - They include
government office or agencies that buy goods and services in order to produce
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public service or transfer the goods and service to others who need them. v).International customers: - These are individuals and organisations of other
countries that buy goods and services either for consumption or for industrial
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use. Such buyers may be consumers, producers, resellers and governments. It
may be noted that each market type has special characteristics, which should be
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carefully studied by the marketer, and he should be fully acquainted with the artof persuading and selling to these customers. It should be remembered that the
satisfaction of customers and consumer is the main motto of every business
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firm.
Competitors
A firm`s competitors include not only the other firms, which market the same or
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similar products, but also all those who compete for the income of the
consumers. E.g. The competition for a company`s televisions may come not
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only from other TV manufacturers but also from two wheelers, refrigerators, CDfrom firms offering savings and investment schemes like banks, company`s
accepting deposits etc. As a consequence, marketers must continually monitor
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competitors marketing activities their products, channel prices and promotional
efforts. They must also gain strategic advantage by positioning their products
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and services strongly against those of their competitors, in the minds of theconsumers. The competitive environment consists of certain basic things which
every marketing manager must take note of. According to Philip Kotler, the
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best way for a company to grasp the full range of its competition is to take the
viewpoint of a buyer what does a buyer think about that which eventually leads
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to purchasing something. Kotler has also explained 4 basic type of competition(Desire, Generic, Form and Brand Competition). He also pointed out four basic
dimensions, which a company must have in mind. These may be called the four
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C`s of marketing positioning. The company must consider the nature of
customers, channels, competitors and its own characteristics.
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Marketing IntermediariesMarketing intermediaries are independent business organisations or firms that
directly help the company to promote, sell and distribute its goods and services
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to the final buyers. There are 2 types of intermediaries a) Middlemen and b)
Facilitating organisations (Physical distribution firms)
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Middlemen (wholesalers and retailers and agents)These are distribution channels that help the company in finding customers or in
making sales to them. They are often called resellers`.
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Various Facilitating OrganisationsVarious Facilitating Organisations that provide necessary marketing facilities
such as physical distribution, marketing service, and financial help. The physical
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distribution firms help to company to stock goods and move them from their
point of origin to their destinations. These firms include warehouses and
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transportations firms. Marketing services agencies or firms include marketingresearch firms, advertising agencies media firms and marketing constancy firms
which help the company in targeting and promoting its products to the right
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market. The financial intermediaries include banks, credit companies, insurance
companies and other firms who aid the company in financial transactions or
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insuring against the trade risks. Marketing intermediaries are vital links betweenthe company and the final consumers. A dislocation or disturbance of this link,
or a wrong choice of the links, may cost the company very heavily.
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Publics
A Public` means any group that has an actual or potential (future) interest in or
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impact on the company`s ability to achieve its objectives. Kotler and Armstrongdescribe seven types of public as follows:
Financial Publics
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They influence the company`s ability to obtain funds. E.g. banks, investment
houses and shareholders.
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Media PublicsThey are consisted of those mechanism or devices that carry news, features of
editorial opinion. e.g.; Newspapers, magazines, Radio and TV s.
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Government PublicsManagement must take Government developments into account. Marketers must
often consult two company`s lawyers on issues of product safety, truth in
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advertising and other matters.
Citizen - Action Public
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Consumer organisations, environmental groups, minority groups and others mayquestion a company`s marketing decisions. Its public relations department can
help it stay in touch with consumer and citizen groups.
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Local Publics
Every company`s has local publics such as neighbourhood residents and
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community organisations.General Publics
A company needs be concerned about the general publics attitude towards its
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product and activities. The public image of the company affects it`s buying.
Internal Publics
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A company`s internal publics include its workers, managers, volunteers and theboard of directors. Large company`s use newsletters and other means to inform
and motivate their internal publics. When employees feel good about their
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company, this positive attitude spills over to external publics.
1.4.2.a. External Macro Environment
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The macro forces are more uncontrollable than the micro forces. Macroenvironment refer to those factors, which are not concerned to the immediate
environment. These factors are external to the company and are quite
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uncontrollable. These factors do not affect the marketing ability of the concern
directly but it indirectly influences marketing decisions of the company. A
company may be able to influence these forces to some extent. The macro
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environment consists of the larger societal forces that affect the
microenvironment- demographic, economic, natural, technological, political and
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cultural forces.Demographic Forces
Demography is the study of human populations in terms of size, density,
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location, age, gender, race, occupation, and other statistics. The demographic
environment is of major interest to marketers because it involves people, and
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people make up markets. A rapidly growing population indicates a risingdemand for products. When population characteristics change, the nature of
demand also changes. For example, when both husband and wife go for jobs, the
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demand for fast foods, electronic home appliances and the need for cr?ches
increase. Rapid growth of population also results in increased labour supply.
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The changing life styles, habits and tastes of the population have potential formarketers.
Economic Forces
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The purchasing power of people in a country is a crucial factor in determining
the demand for products. Marketers must pay close attention to major trends in
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income and consumer spending patterns. In short, the economic conditions of acountry ? the nature of the economy, the stage of development of the economy,
economic resources, the level and distribution of income, etc. are all very
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important factors in marketing. Further economic factors like inflation,
productivity, shortages, unemployment etc have a tremendous impact on prices
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and incomes. Hence, marketers must incorporate these factors while preparingmarketing programmes.
Natural Forces
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The deterioration of the natural environment is a major global problem. In manycities, air and water pollution have reached dangerous levels. The natural
environment involves the natural resources that are needed as inputs by
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marketers or that are affected by marketing activities. Marketers should be
aware of several trends in the natural environment. There are growing shortages
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of raw materials. Moreover, although air and water may seem to be infiniteresources, air pollution and water shortages have become already a big problem
in many countries of the world. Owing to these factors, governments in many
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courtiers have started controlling the use of natural resources. Concern for the
natural environment has resulted in the so-called green movement. Marketers
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shall have to take all these factors into consideration while formulating theirmarketing policies.
Technological Forces
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One of the most dramatic forces shaping people`s lives is technology.
Technological developments are uncontrollable environmental factors that are
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important to the marketers. Technology has tremendous impact on our lifestyles. Technological progress creates new opportunities to some companies
whereas it is a threat to some other companies. As an opportunity, technology is
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a source of new and improved product. As a threat, technological development
may result in loss of markets. The technological changes result in changes in
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consumption pattern and marketing systems. A new technology may improveour lives in one area while creating environmental and social problem in another
area. The marketers should monitor the following trends in technology: the pace
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of change, the opportunities for innovation, varying research and development
budgets, and increased regulation. He should watch the trends in technology and
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adopt the latest technology so as to stay alive in the field.Political Forces
Marketing decisions are strongly affected by developments in the political
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environment. The political environment consists of laws, government agencies,and pressure groups that influence various organisations and individuals in the
group. Well-conceived regulation can encourage competition and ensure fair
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markets for goods and services. Thus, governments develop public policy to
guide commerce-sets of laws and regulations that limit business for the good of
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the society as a whole. Business legislations are made to protect the comps fromeach other, to protect consumers from unfair business practices, to protect the
interests of society against unrestrained business practices. Almost every
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marketing activity is subject to a wide range of laws and regulations. Certain
changes in government policies such as fiscal policy, tariff policy, industrial
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policy etc. may have its impact on marketing. Some policy developments createopportunities as well as threats. The political system spans all of the other
systems. Governments undertake many specific functions that involve the other
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systems, which, as they have expanded, have passed beyond the individuals
control in many respects.
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Cultural ForcesThe cultural environment is made up of institutions and other forces that affect a
society`s basic values, perceptions, preferences, and behaviours. People grew up
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in a particular society that shapes their basic beliefs and values. People absorb a
worldview that defines their relationships to themselves, to others, to
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organisations, to society, to nature, and to the universe. People differ in therelative emphasis they place on self-satisfaction. Marketers must recognize that
there are many different groups with different views of themselves. People also
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vary in their attitudes towards corporations, government agencies, trade unions,
and other organisations. People also vary in their attitude toward society. They
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also vary in their attitude toward nature. People also vary in their beliefs aboutthe origin of the universe. Marketers should also take into account the cultural
characteristics of the people.
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SummaryInternational Marketing is the marketing of goods and services in more than one
country. The marketing activities are carried out in a complex and changing
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environment. Marketing environment consists of the factors and forces outside
marketing that affect marketing management`s ability to develop and maintain
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successful transactions with its target customers. Marketing environment can bebroadly divided in to two. They are internal environment and external
environment. The internal factors, which influence the strategy and decisions of
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a company, are the value system, the mission and objectives, the organisation
structure, the internal power relationship, and the characteristics of human
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resources etc. External environment consists of microenvironment andmacroenvironment. Microenvironment consists of the forces close to the
company that affects its ability to serve its customers like suppliers,
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intermediaries, competitors, customers and publics. The macro environment
consists of the larger societal forces that affect the microenvironment-
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demographic, economic, natural, technological, political and cultural forces.Marketing environment can also be classified into controllable and
uncontrollable forces. Controllable forces consist of marketing policies and
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strategies framed by the company. Uncontrollable forces are those forces, which
are beyond the control of the company. Uncontrollables may be again classified
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into domestic uncontrollables and foreign uncontrollables. Domesticuncontrollables include home country elements that can have a direct effect on
the success of a firm like political forces, legal structure and economic climate.
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Foreign uncontrollables are a significant source of uncertainty in foreign
business environments. The most important among them are geographical,
economic, socio-cultural, political and legal environment. A business operating
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in a number of foreign countries might find polar extremes in political stability,
class structure, and economic climate, which are crucial in business decisions.
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While they are generally uncontrollable, these external forces can be influenced.Successful companies realize that the marketing environment presents a never-
ending series of opportunities and threats. The major responsibility for
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identifying significant changes in the macro environment falls to a company`s
marketers. Marketing managers must be the trend trackers and opportunity
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seekers. Many opportunities are found by identifying trends (major social,economic, political). Within the rapidly growing global picture, marketers must
monitor major environmental forces: demographic, economic, political-legal and
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social cultural. Companies can passively accept the marketing environment as
an uncontrollable element to which they must adapt, avoiding threats and taking
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advantage of opportunities as they arise. Or they can take an environmentalmanagement perspective, proactively working to change the environment rather
than simply reacting to it. Whenever possible, companies should try to be
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proactive rather than reactive.
Self -Assessment Questions (Sass)
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1. Describe the environmental forces that affect the company`s ability to serveits customers.
Marketing operations are carried out in a complex and changing environment.
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The company`s environment consists of micro and macroenvironments. The
microenvironment consists of actors close to the company. The actors in this
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environment are suppliers, intermediaries, customers, competitors, publics andothers. These actors may work with or against the company. The
macroenvironment consist of larger societal forces affecting the environment.
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They are demographic, technological, economic, political and cultural forces.
These forces may shape marketing opportunities and may pose threats, and
affect the company`s ability to save customers. To understand marketing, and to
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develop effective marketing strategies, a marketer must understand the context
in which marketing operates. Many companies view the marketing environment
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as an uncontrollable element to which they must adapt. Other companies take anenvironmental management perspective in which the firm takes aggressive
actions to affect the publics and its marketing environment.
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2. Explain the factors and forces of Internal environment that affect the
company`s ability to serve its customers?
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The internal marketing environment is largely controllable by the management.The internal environmental factors that affect the company are value system of
the founders, the mission and objectives of the company, the organisational
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structure, the composition of the board of directors, and the extent of
professionalisation of management, the amount of support the top management
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enjoys from lower levels and workers, shareholders and Board of Directors, thecharacteristics of the human resources like skill, quality, morale, commitment
etc. could contribute the strength or weakness of an organisation. Thus,
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company image, location, production, finance, human resource, research and
development, ability and skill of marketing managers are the most important
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internal forces that affect the company`s ability to serve its customers.3. Explain the meaning of External environment and how it affects the
company`s ability to serve its customers.
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The external environment of a company may be microenvironment or macro
environment. The forces close to the company are microenvironment and these
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include suppliers, intermediaries, competitors, customers and publics.Although, they are uncontrollable, the company can influence these forces. The
success of marketing depends up on the supply or resources and shortages or
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delays in it can unfavorably affect sales and damage company. There are variouskinds of customers and the marketers should cautiously take this factor while
selling products to these customers. Marketers should also keep an eye on
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competitors marketing behavior. The wholesalers and retailers in the distribution
channels and public are all important micro environmental factors that should be
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taken care of by the marketer. The major external macro environmental forcesaffecting the company are demographic, economic, natural, technological,
political and cultural forces.
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Key words
Cultural environment
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DemographyDomestic Uncontrollables
Economic environment
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Environmental Adjustment
Foreign Uncontrollables
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International Marketing TaskMacroenvironment
Marketing Controllables
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Marketing environment
Marketing intermediaries
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Microenvironment Natural environmentPolitical environment
Public
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Technological environment
Lesson II
Lesson II explains the Geographical and Demographic Environment of
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International marketing.
Learning Objectives: After studying this chapter you should be able to:
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1.understand the importance of geography in international marketing. 2. theeffects of topography and climate on products, population, transportation, and
economic growth 3. the need for conservation of the world`s natural resources.
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4. explain the importance of demographic changes in international marketing.
1. Geographical and Demographic Environment of International Marketing
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Geographical environment of foreign marketing should be understood and mustbe included in foreign marketing plans to a degree commensurate with their
influence on marketing effort. Understanding of a country`s geography is
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essential if a marketer is to interpret a society`s behaviour and fundamental
attitudes. Knowledge about the geographical characteristics by an international
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marketer is also essential for the understanding a country`s culture and to adaptto it`s culture. An international marketer should be familiar with the world ? its
climate, and topographic differences. If not, the important marketing
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characteristics of geography could be completely overlooked when marketing in
another country. Without a historical understanding of a culture, the attitudes
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within the market place may not be understood. Similarly, every marketer isinterested in the demographic environment of a country as people make the
markets. For marketing decisions, various population characteristics like size of
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the world`s population, its geographical distributions, density, mobility
trends, age distribution, birth, death and marriage rates and racial, ethnic and
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religious structure, etc are all important to marketers. These factors have a largerimpact on marketing decisions of a company. Demographic data helps marketers
in preparing their sectoral plans according to the life styles, habits and tastes of
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the population. This lesson concentrates on the important geographiccharacteristics that affect markets and the need to consider these while
examining the environmental aspects of marketing in another country. The
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reader is taken to the broad scope of world markets and the effects of geographic
diversity on the economic profiles of various nations. It also provides an
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awareness of the world`s complexities and diversities that can mean thedifference between success and failure in marketing ventures. The important
demographic characteristics that are important to an international marketer are
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briefly discussed in this lesson.
2.1. Geographical Perspectives on International Marketing
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The Globalization of business has made geography indispensable for the studyof international marketing. Without significant attention to the study of
geography, critical ideas and information about the world in which business
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occurs will be missing. Geography answers questions related to the location of
different kinds of economic activity and the transactions that flow across
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national boundaries. It provides insights into the natural and human factors thatinfluence patterns of production and consumption in different parts of the world.
It explains why patterns of trade and exchange evolve over time. In recent
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decades, however, geography has become more familiar and more relevant to
many people because emphasis has been placed on location, place, interaction,
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movement and region.Geography studies the earth`s surface, climate, continents, countries, peoples,
industries, and resources. It is an uncontrollable environment that confronts
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every marketer although very little attention is paid to this factor. There is a
tendency to study climate, topography, and available resources as isolated
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entities rather than as important causal agents in the marketing environment. Thephysical character of a nation is the principal determinant of the characteristics
of a society and the means by which that society undertakes to supply its needs.
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Thus the study of geography is important for the student of marketing whenevaluating marketing and its environment. Climate and topography are the two
important facets of geography. Also the earth`s resources and population are
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important factors in world markets along with the world trade routes presented
in geography.
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2.1.1. Social Responsibility of Environmental ManagementThe 1990s have been called the decade of the environment. The nations,
companies, and people are attaching utmost priority to environmental protection
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and accepted that it is essential for doing business. The Governments, the Green
activists, media and businesses are focusing on ways to stem the tide of
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pollution and to clean up their environment. Many view the problem as a globalissue rather than a national issue and one that poses common threats to mankind.
These are issue that cannot be addressed by nations in isolation. Companies
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looking to build manufacturing plants in countries with more liberal pollution
regulations are finding that regulations are becoming strictor. Governments all
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over the world are drafting new regulations and are strictly enforcing theexisting ones. Toxic substances pollute Rivers, lakes, and reservoirs and the
disposal of hazardous waste is a critical issue affecting the world environment.
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The export of hazardous waste by developed countries to less developed
countries has ethical implications and environmental consequences.
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Governments, organisations, and businesses are increasingly concerned with thesocial responsibility and ethical issues surrounding the problem of generating
and disposing of wastes.
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Climate, Topography, Location and Place
Climate and topography are important environmental considerations when
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appraising the market. The effect of these geographical features on marketingranges from the obvious influences on product adaptation to more profound
influences on the development of marketing system. Altitude, humidity and
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temperature extremes are climatic features that affect the uses and functions ofproducts and equipment. Products that perform well in temperature zones may
require special cooling to function in tropical zones. Within even a single
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national market, climate can be sufficiently diverse to require major
adjustments. South America is an excellent example of the importance of
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geography in marketing considerations. The social and economic systems can beexplained in terms of the geographical characteristics of the area. It consists of
natural barriers inhibiting national growth, trade, and communication. It is a vast
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land area with population concentrations on the outer periphery and an isolated
and uninhabited interior. National unity and balanced development are hardly
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possible when inadequate roads and poor communications separate major citiesfrom each other. Many citizens of South America are so isolated that they do not
recognise themselves as part of the nation that claims their citizenship.
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Geography has always separated South America into secluded communities.
There are many other regions of the world that have extreme topographic and
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climatic variations as well. China, the former Soviet Union, India and Canadaeach have formidable physical or climatic conditions within their trading
regions. This statement also highlights the importance of locations for
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international marketing. Learning the location and characteristics other places
has always been important to those interested in conducting business outside
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their local areas. The drive to learn about other kinds of places, and especiallytheir resources and potential as markets has stimulated geographic exploration
throughout history. An understanding of the location influences business and
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therefore is critical for the international marketing executive. Without clear
knowledge of an enterprise`s location relative to its suppliers, to its market, and
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to its competitors, an executive operates like the captain of fog-bound vessel thathas lost all navigational instruments and is heading for danger. Climate is
another natural feature that has profound impact on economic activity within a
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place. Many activities are directly affected by climate. Agricultural productionis also influenced by climate. The average daily and evening temperatures, the
amount and timing of precipitation, the timing of frosts and freezing weather,
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and the variability of weather from one year to the next all influence the kinds of
crops grown in an area. Variations in soils have a profound impact on
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agricultural production. In addition to its location, each place has a diverse set ofcharacteristics. The characteristics of places-both natural and human-
profoundly influence the ways that business executives in different places
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participate in international economic transactions.
Geographic hurdles must be recognised as having a direct effect on marketing
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and the related activities of communications and distribution. The effect ofnatural barriers on market development is also important. Because of the ease of
distribution, coastal cities or cities situated on navigable waterways are more
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likely to be trading centres than are land locked cities. Road condition is also an
important factor affecting marketing.
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Natural Features and ResourcesThe location, quality, and availability of resources are all vital factors in
international marketing, as these will affect the pattern of world development
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and trade. International marketers in making worldwide international investment
decisions must weigh this factor. In addition to the raw materials of
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industrialization, there must be sufficient supply of economically feasible energyto transform resources into usable products. Because of the disparity in the
location of the earth`s resources, there is world trade between those who do not
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have all they need and those who have more than they need and are willing to
sell.
Many of the characteristics of a place relate to its natural attributes. Geologic
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characteristics can be especially important, as the presence of critical minerals or
energy resources may make a place a world-renowned supplier of valuable
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products. Gold and diamonds make South Africa`s economy the mostprosperous on that continent. Because of abundant pools of petroleum beneath
desert sands, standards of living in Saudi Arabia and nearby nations have risen
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rapidly to be among the highest in the world. The geology of places also shapes
its terrain. Terrain also plays a critical role in focusing and inhibiting the
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movement of people and goods. The terrain of a place is related to itshydrology. Rivers, lakes, and other bodies of water influence the kinds of
economic activities that occur in a place. In general, abundant supplies of water
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boost economic development, because water is necessary for the sustenance of
people and for both agricultural an industrial production.
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Human Features/ World Population TrendsThe physical features of a place provide natural resources and influence the
types of economic activities in which people engage, but its human
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characteristics also are critical. The population of a place is important because
farm production may require intensive labor to be successful, as is true in rice-
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growing areas of eastern Asia. The skills and qualifications of the populationalso play a role in determining how a place fits into global economic affairs. The
number of people is a significant determinant of potential consumer demand.
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Current population, rates of growth, age levels, and rural/urban population
distribution are closely related to today`s demand for various categories of
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goods. Changes in the composition and distribution of population among theworld`s countries will strongly affect future demand.
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Rural/Urban Shifts
There is a marked shift of the world`s population from rural to urban areas.
Migration from rural to urban areas is largely a result of a desire for greater
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access to sources of education, health care, and improved job opportunities.
Once The trends of increasing population in the developing world with
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substantial shifts from rural to urban areas, and declining birthrates in theindustrialised world, will have profound effects on the state of world business
and world economic conditions. In spite of an increase in world population,
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multinational firms are experiencing a decrease in world markets on a relative
basis owing to the factor that moneyed world is loosing numbers and poor
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nations are gaining numbers. Population size is vital in marketing, but peoplemust have a means to buy to be an effective demand.
Movement/ World Trade Routes
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International marketing exists because movement permits the transportation of
people and goods and communication of information and ideas among different
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places. The location and character of transportation and communication systemslong have had powerful influences on the economic standing of places. Many
ports have become prosperous cities because they channeled the movement of
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goods on people between ocean and inland waterways. Business also has
succeeded at well-situated places along overland routs. Places where transfers
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from one mode of transportation to another were required often were chosen assites for manufacturing activities. Favourable location along transportation lines
is beneficial for a place. Conversely an absence of good transportation severely
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limits the potential for firms to succeed in a specific place. Transportation
patterns change over time, however, and so does their impact on places. The
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role of advanced technology and its effect on international marketing is evenmore apparent with respect to advances in communications systems.
Sophisticated forms of telecommunication that began more than 150 years ago
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with the telegraph have advanced through the telephone to facsimile
transmissions and electronic mail networks. As a result, distance has practically
ceased to be a consideration with respect to the transmission of information.
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Whereas information once moved only as rapidly as the person carrying the
paper on which the information was written, data and ideas now can be sent
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instantaneously almost anywhere in the world. These communication advanceshave had a staggering impact on the way that international marketing is
conducted. They have fostered the growth of multinational corporations, which
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operate in diverse sites around the globe while maintaining effective links with
headquarters and regional control centers. International financial operations also
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have been transformed because of communication advances. Major world traderoutes have developed among the most industrialised countries of the world ?
Europe, North America, and Japan. It might be said that trade routes bind the
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world together, minimizing distance, natural barriers, and the fundamental
differences between peoples and economies. Early trade routes were overland,
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later came sea routes and, finally, air routes to connect countries. Trade routesrepresent the attempts of countries to overcome economic and social imbalances
created in part by the influence of geography.
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Interaction and Region
The international marketing professional seeking to take advantage of
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opportunities present in different places learns not to view each place separately.The way a place function depends not only on the presence and form of certain
characteristics but also on interactions among those characteristics. Growing
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concerns about environmental quality have led many people in more
economically advanced nations to call for changes in economic systems that
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harm the natural environment. Like so many other geographical relationships,the nature of human-environmental interaction changes over time. With
technological advances, people have been able to modify and adapt to natural
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features in increasingly sophisticated ways. The development of air
conditioning has permitted people to function more effectively in hot tropical
environments. Advanced irrigation systems now permit crops to be grown in
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places such as the southwestern United States, Northern Africa, and Israel. A
region is a set of places that share certain characteristics. Many regions are
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defined by characteristics that all of the places in the group have in common.Agricultural region include areas where certain farm products dominate.
2.2. Demographic Environment of International Marketing
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Demography is the study of the characteristics of human populations. Today`s
demographic environment shows a changing age structure, shifting family profiles,
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geographic population shits, a better-educated and more white-collar population,and increasing diversity. Marketers are interested in population data because people
make the markets. Demographic data helps marketers in preparing their sectoral
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plans. In the demographic environment, marketers must be aware of world wide
population growth; changing mixes of age, ethnic composition, and educational
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levels; the rise of non-traditional families; large geographical shifts in population;the size and growth rate of population in cities, regions, and nations; household
patterns; and regional characteristics and movements and the move to micro
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marketing and away from mass marketing. These factors have a larger impact on
marketing decisions of a company. The world population is showing explosive
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growth: it totaled 6.1 billion in 2000 and will exceed 7.9 billion by the year 2025.Explosive population has major implications for business. A growing population
does not mean growing markets unless these markets have sufficient purchasing
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power. However, companies that carefully analyse their markets can find major
opportunities. For example, to control rapid growth of population, the Chinese
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government has passed regulations limiting families to one child. One consequenceof these regulations is these children are spoiled and fussed over as never before.
Known in China as little emperors, Chinese children are being showered with
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everything from candy to computers as a result of the six pocket syndrome. As
many six adults ? parents, grandparent, great grand parents, and aunts and uncles-
may be indulging the whims of each child. This trend has encouraged toy companies
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such as Japan`s Bandi Company, Denmark`s Lego Group to enter the Chinese
market.
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Population Age MixNational populations vary in their age mix. At one extreme is Mexico, a country
with a very young population and rapid population growth. At the other extreme is
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Japan, a country with one of the world`s oldest populations. Milk, school suppliers,
and toys would be important products in Mexico. Japan`s population would
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consume many more adult products. A population can be subdivided into six agegroups: preschool, school-age children, teens, young adults age 25-40, middle-aged
adults age 40-65, and older adults age 65 and up. For marketers, the most populous
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age groups shape the marketing environment.
Ethnic and other markets
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Countries also vary in ethnic and racial makeup. At one extreme is Japan, wherealmost everyone is Japanese; at the other is the United States, where people
come virtually all nations. Each group has certain specific wants and buying
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habits. Several food, clothing, and furniture companies have directed their
products and promotions to one or more of these groups. Within each ethnic
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group, there are consumers who are quite different from each other. Diversitygoes beyond ethnic and racial markets.
Educational Groups
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The population in different countries differs in their achieved educational level.
For example in Japan, 99 percent of the population is literate, whereas the
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United States has one of the world`s highest percentages of college-educatedcitizens, around 36 percent. The high number of educated people in the United
States spells a high demand for quality books, magazines, and travel, and a high
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supply of skills.Household Patterns
The traditional household consists of a husband, wife, and children. Yet, in the
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United States today, one out of eight households is diverse or non-
traditional, and includes single live-alones, adult live-together of one or both
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sexes, single parent families, childless married couples, and others. More peopleare divorcing, choosing not to marry, marrying later, or marrying without the
intention to have children. Each group has a distinctive set of needs and buying
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habits. For example, in the single, separated, widowed, divorced (SSWD) group
need smaller apartments; inexpensive and smaller appliances, furniture, and
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furnishings; and smaller size food packages. Marketers must increasinglyconsider the special needs of nontraditional households, because they are now
growing more rapidly than traditional households.
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Shifts in Population
This is a period of great migratory movements between and within
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countries. Forward-looking companies and entrepreneurs are takingadvantage of the growth in immigrant populations and marketing their
goods specifically to these new members of the population. Population
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movement also occurs as people migrate from rural to urban areas, and
then to suburban areas changing the demand for products. There is
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little excuse for a company for being suddenly surprised bydemographic developments.
Summary
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Geography is the study of the earth`s surface, climate, continents, countries,
people, industries, resources etc. A prospective international marketer should be
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familiar with the world, its climate, and topographic differences. Otherwise, theimportant marketing characteristics of geography will be completely overlooked
when marketing in another country. Location, place, interaction, movement, and
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region are all important geographical factors in international marketing. Thereare complex geographical influences on the development of the general
economy and society of a country. The need for studying geography is to
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provide the marketer with an understanding of why a country has developed.
Geography is one of the important environments of foreign marketing that
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should be understood and that must be included in foreign marketing plans tothe extent they influence on marketing effort.
Climate and topography demands product adaptation. Products that are fit in
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temperature zones may be unfit in cold zones. There are differences even in a
single national market, as climate may be so diverse that require major
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adjustments. The socio-economic characteristics of the people in a country alsodepend upon geography. Other vital factors in geography affecting international
marketing are the location, quality, and availability of resources. Water
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availability is an important factor affecting the economic activity of a region or
place. The qualifications of the population, the number of people, changes in
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the composition and distribution of population among the world`s countries areall important in demand.
Demography deals with population characteristics like size, rate of growth,
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density, location, age, gender, race, occupation, and other statistics. Today`s
demographic environment shows a changing age structure, shifting family
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profiles, geographical shifts in population, and a better-educated population.Changes in the population characteristics will have its impact on the
international marketing decisions. Data on demographic characteristics help
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marketers to produce goods according to the specific requirements of population
and household characteristics. The population in different countries differs in
their achieved educational level and this will have its implications on the
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demand. Changes in household patterns also change the demand for products.
Self Assessment Questions (SAQs)
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1. Describe the importance geography in understanding the internationalmarkets?
Geography is the study of earth`s surface, climate people, resources etc.
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Globalisation of business has made geography very important in
international marketing. The physical character of a nation is crucial in
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determining the character of a society. There should variations in productsand equipments according to the climate. There are natural barriers, which
inhibit national growth trade and communication. Geographic hurdles must
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be recognised as having a direct impact on marketing. Availability of
resources, world population trends, rural urban migration and trade routes
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are vital factors affecting production and marketing and demand.2. Examine the effects of topography and climate on products, population,
transportation, and economic growth?
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The location and climate of a country are important environmental
considerations to an international marketer. It influences production and
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development of marketing systems. There are many regions of the world thathave extreme topographic and climatic variations. For example,
manufacturers found that construction equipment used in the United States
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required extensive modifications to cope with the intense heat and dust of
the Sahara Desert. Locational and climatical differences will result in
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variations in production and marketing. Even within a nation there arelocational and climatical differences which demand variations in product and
marketing. There are natural barriers on market development and these are to
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be recognised as vital factors in international marketing.
3. Explain how changes in the demographic environments affect marketing
decisions?
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Demographic factors like the size, growth rate, age composition, sex
composition of population and family size, educational levels, religion etc. is all
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factors, which are relevant to business. Hence, the marketers must be aware ofchanges in demographic factors like worldwide population growth, age
composition, ethnic composition, and educational levels, the rise of non
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traditional families; large geographic shifts in population, and the move to micro
marketing and away from macro marketing. For the marketers, the most
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populous age groups shape the marketing environment. The level of education isan important factor affecting marketing. For example, the high number of
educated people in the United States has resulted in a high demand for quality
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books, magazines etc. There are rapid changes in the household patterns from
traditional to non-traditional and marketers must meet the special needs of
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nontraditional households, who are growing rapidly than traditionalhouseholds.
Key Words
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Demography
Environmental damage
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Topography and ClimateRural urban shifts
World population trends
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World Trade routes
Lesson III
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Economic and Socio-Cultural Environment
Learning Objectives: By the end of this lesson you should be able to: 1. provide
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an overview of the world economic environment- micro and macro and explainthe economic variables affecting international marketing 2. explain differences
among nations in the levels of economic development 4. the impact of
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economic environment on international marketing strategy 5. explain soico-
cultural elements most relevant to marketing 6. describe the influence of socio-
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cultural factors on people`s lifestyles, behaviour patterns and in market place.3. Economic and Socio-cultural Environments
The economic conditions, economic policies and economic systems are
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important factors affecting international business. The economic
environment of the world is fast changing and economic reforms are
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carried out in almost all countries of the world. These changes willhave vital implications to international marketing. Similarly, the socio-
cultural factors are very important in international marketing. This
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lesson examines the influence of economic and socio-cultural
environments on international marketing. This lesson describes the
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meaning of culture; explore the profound effect of culture onmarketing along with the various elements of culture. The need for
cultural adaptation overseas is explored. An attempt is also made to
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analyse the impact of foreign business on local culture is examined.
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3.1. Economic Environment
The economic environment is of critical importance to marketers because
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business cycles and other economic environment such as inflation,
productivity, shortages, unemployment, resource availability, etc. have a
tremendous impact on marketing. This affects consumer`s real purchasing power
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as well as their confidence in purchasing. Economic changes may affect
different organisations in unequal ways. Hence, they have to prepare the
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marketing programmes and strategies according to their individual requirements.Key factors in the economic environment of a country in which a firm is doing
business are the nature and the extent of competition, growth rates and living
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standards, tax regimes, import controls and market opportunities as a whole.
The balance of payment is also an important economic factor affecting
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international marketing.3.1.1 Economic Differences in Standards of Living
Many variations in marketing systems originate in straightforward economic
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differences- they are due to differences in standards of living found around the
world. The significant differences are those between low, moderate and high-
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income societies.Low Income Countries
Low-income countries are those with percapita national incomes of less than
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$400 per year. The marketing in these societies is relatively simple. A large
proportion of population live by subsistence farming, producing most of the
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food, housing, clothing, and other goods they need with their own labour. Theyengage in a small amount of selling in order to buy a few manufactured goods.
A marketing system exists to accomplish this exchange, but the volume is small
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and the variety of goods involved is very limited. Hence, the volume of goods
limits the marketing process. The channels of distribution are simple. Sales
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promotion is practices, but typically at a low level of development.The Moderate-Income Category: The important distinction between moderate-
income countries and low-income countries is that with the ability to purchase
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many items beyond the bare subsistence level, appreciable discretionary buyingpower emerges in moderate income countries. The magnitude of the marketing
system is greater and therefore, different types of distribution channels appear,
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and the advertising and sales-promotion process develops as sellers seek to steer
the discretionary buying power in one direction or another.
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High Income Societies:The United States is an excellent example for high-income societies and differs
from moderate-income group of societies as the large part of societies in U.S.
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could achieve an adequate level of income by prevailing social standards. In
high-income societies, most people can afford many luxury items of a good life.
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The marketing system in these societies show increased complexity because ofthe greater volume of goods handled. But the most important characteristic is the
high degree to which their distribution and sales promotion systems are geared
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to influence the buyer because they must not only guide but also generate
demand.
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3.1.2. Element of DynamismThe second aspect of the economic dimension in marketing systems is the
element of change. A society that is stagnant is quite different for marketing
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purposes from one that is moving ahead. We have seen many of the low-income
countries move from stagnation to rapid progress. In a stagnant society,
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consumption pattern tend to become set, and the whole marketing processbecomes a routine supply operation. In contrast, in a dynamic society,
consumption patterns are changing and the marketing system must organise
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itself to the new patterns and it has to influence the process of change through
distribution methods and promotion. For example, in Germany, in 1953, 92
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percent of the average family`s income went for necessities, by 1967, incomehad roughly doubled and the portion going for luxuries had jumped from 8
percent to 33 percent.
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3.1.3. GeographyThe third aspect of the economic dimension is geography. The most important
elements in this category are natural resources, climate, and conditions that
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affect transportation. Some of the effects of geography are of simple nature-such
as the greater need for clothing and shelter in harsh climates. Others are more
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complex and influence the character of an economy. For example, somecountries because of their rich natural resources have developed a much greater
money economy than is typical of others in their vicinity ? Venezuela and Saudi
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Arabia, to cite two cases in point. Other countries, weak in natural resources, but
favoured by good transportation conditions, have prospered by importing raw
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materials, manufacturing and exporting finished goods- England and Japanbeing the classic examples. These characteristics are most important in the
development of international marketing plans.
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The economic environment can be viewed from two different angles - the micro
view and the macro view. According to the macro view, people` s wants, needs
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and economic policy of a country establish market scope and economic outlook.A micro environmental view focuses on a firm`s ability to compete within a
market.
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3.1a. Macroeconomic Environment
The most important macroeconomic environmental factors are population and
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income, concept of economic advancement, structure of consumption in additionto other economic indicators like economic systems and mutual economic
dependence.
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Population and income
The aggregate consuming capacity depends upon total population as well as
percapita income. The consumption rate can be satisfied either domestically or
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through imports. The reason for the concentration of U.S. multinationals in
Western Europe, Japan and Canada are due to their high percapita income. In
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contrast, despite a large population, India does not offer a huge market potential.Concept of Economic Advancement
Economic advancement is characterized by such factors as relatively small
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allocation of labour force to agriculture: energy available in large amounts at
low cost; high level of output and income; high level of percapita consumption;
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relatively low rates of population growth etc.Structure of Consumption
Consumption in most advanced countries is characterized by a higher proportion
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of expenditures devoted to capital goods than consumption goods against poor
countries, where substantially more is spent on consumer goods. The structural
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differences with regard to expenditures among nations can be explained by atheory propounded by the German Statistician Engel. The law of consumption
(Engel`s Law) states that poorer families and societies tend to spend a greater
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proportion of their incomes on food than well to ?do people.
Other Economic Indicators
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In addition to population, income, and expenditures, there are many otheraspects of economic environment that are important to an international marketer.
Raw materials ? natural and industrial, production of food stuffs, prices, supply
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of electricity, finance etc are all important as far as international marketing is
concerned. A marketer need not gather information about all these indicators.
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The purpose of the project determines the economic indicators to be examined ata particular time.
Economic Systems
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The economic system of a country - Capitalism, Socialism, Communism andMixed Economy are other economic factors that a marketer must understand.
The nature of economic systems affects the political/regulatory control of the
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economy.
Thus, when performing an economic analysis, an international marketer needs to
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consider the economic perspectives of the overall world economy, particularlythose of its major trading partners and the host country.
3.1b. Microeconomic Environment
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Microeconomic environment refers to the environment surrounding a product or
market of interest to a company. An examination of microenvironment indicates
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whether the company can successfully enter the market. Essentially themicroeconomic environment concerns competition.
Sources of Competition
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A company may face competition in an international market from three different
sources: local business, other companies of the home country and other foreign
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companies. Different competitors may satisfy different types of demand:existing demand, latent demand and incipient demand. Existing demand refers to
a product bought to satisfy a particular need. Latent demand applies in a
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situation where a particular need has been recognized, but no products have
been offered. Incipient demand describes a projected need that will emerge
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when customers become aware of it some time in future. Competition can alsobe analysed by the characteristics of products. Three product categories are in
use and they are breakthrough product ? a unique innovation that is mainly
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technical in nature, such as a digital watch, a colour television etc., a
competitive product - one of many brands currently available in the market and
has no special advantage over the competing products, and an improved product
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- not unique but is generally superior to many existing brands.
The nature of the competition that a company faces in entering an overseas
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market can be determined by relating the three types of products to the threetypes of demand. After examining the competition, a company should be able to
ascertain which product/market is most suitable to the company.
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3.2. Socio-cultural Environment
Cultural differences deeply affect market behaviour. International marketers,
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therefore, need to be familiar with the cultural traits of any country they want todo business with. International business literature is full of instances where
stereotyped notions of countries` cultures have led to insurmountable problems.
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Practically international marketing decisions are culture bound. To understand
the ways in which marketing differs among countries, one should look the role
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of marketing in the structure of society. The simple social systems of theprimitive tribe have progressed in to a proliferation of organisations including
the social, religions, family, educational, and work groups as well as other units
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like fraternal societies that are primarily social in purpose. Since the early days
of subsistence production, the process by making goods and getting them from
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producer to consumer has expanded into our extensive economic structure ofwhich the marketing system is a central component. Religion plays a major role
in family systems, and much education is accomplished. within work units. We
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must therefore consider marketing not only in its direct role as the physical
process by which goods move to the consumer, but also in its relation to the
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other systems of society. Material goods and marketing process contribute to thesatisfaction of the other needs of man. Probably the most significant effects are
in the social area, for the marketing system often satisfies a sizeable part of a
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person`s social needs.
The influences of the religious, family, educational, and social systems of a
society on the marketing system comprise the cultural dimension of our picture.
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The cultural attitudes vary among countries and it is difficult to find a general
pattern. To determine the cultural aspects of markets, we must analyse each
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society by itself without the benefit of guiding generalizations. Religion, Familysystems, social and educational systems are some of the common threads that
run through the cultures of groups of countries.
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Religion
A few major religions have spread over large areas. Religion has much to do
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with the types of products people buy, the way they buy them, and the way theymanage businesses. Roman Catholicism dominates a large segment of the world,
notably Latin America and the southern European countries. Islam covers
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another large area stretching across northern Africa, through the Middle East,
and on as far as Indonesia. These religions have a number of specific marketing
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effects, such as the Moslem prohibition of liquor etc. Religions are a majordeterminant of the moral and ethical standards that play a large part in the
marketing process. Religions are a major determinant of the moral and ethical
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standards that play a large part in the marketing process.
Family System
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Family system differs widely among countries. It differs in placing subordinateor equal role to wife, rights and control over the affairs of the family.
Educational System
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There are also differences in educational methods common to large areas. The
differences in educational system have its effects on marketing management and
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market research.Social Relationships
We know that the value systems of people are strongly influenced by their quest
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for the social prestige attached to status symbols, among which is the ownershipof various material goods. There are attitudes among each population not
encompassed by the basic systems we have been considering. Notable for
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marketing purposes are the artistic tastes of people, which are important factors
in the appearance of products and the character of advertising and other
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promotion efforts. There are also a host of specific elements in the life of eachcountry that are significant in some way- white is for mourning in China, a cow
is sacred in India, and so on. In the socio-cultural arena, marketers must
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understand people`s views of themselves, others, organisations, society, and the
nature. They must market products that correspond to society`s core and
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secondary value, and address the needs of different subcultures within a society.The cultural traits of a country have a profound effect on people`s life style and
behaviour patterns, and these are reflected in the market place. Culture is a
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complex term, and its precise definition is difficult. Broadly defined, however, it
refers to all learned behaviour of all facets of life and living transmitted from
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generation to generation. Cultural differences among countries can be subtle andzealously followed. The study of culture includes material life; social
interactions, between individuals and groups in formal and informal situations;
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language (spoken/written words, symbols and physical expressions that people
use to communicate); aesthetics (art, drama, music); religion and faith; pride and
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prejudice and ethics and more. Cultural traits account for such differencesamong nations as colour preferences, concept of time, and authority patterns.
For example, in Western countries a bride`s gown is usually white. In the Far
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East, however, women wear white during mourning. Cultural differences have
impact on marketing decisions affecting product, price, distribution, and
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promotion. To conduct business successfully across national boundaries,marketers must adapt themselves to local cultures. For cultural adaptation, self-
reference criterion (SRC) should be avoided so as to understand new foreign
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situations. A discussion of culture must also deal with cultural change. Culturesdo change, but change is usually slow in coming. Induatrialisation is an
important factor behind cultural change. Multinational corporations, through
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involvement in the industrialisation process, serve as change agents in foreign
cultures. Their worldwide networks of affiliates transmit the values of the parent
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corporation culture through advertising media and through theinternationalisation of business education.
Each country has its own folkways, norms and taboos when designing
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international marketing strategies. Companies must understand how culture
affects consumer reflections in each of its world markets. In turn, they must also
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understand how their strategies affect local cultures. The seller must examinethe ways consumers in different countries think about and use certain products
before planning marketing program. For example, the average French man uses
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almost twice as many cosmetics and beauty aids as his wife. Italian children
like to eat Chocolate bars between slices of breed as a snack. Women in
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Tanzania will not give their children eggs for fear of making them bald orimpotent. Overlooking cultural differences can result in embarrassing mistakes.
A nations culture represents a collective frame of reference through which a
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wide range of issues and problems are interpreted. It determines how
individuals and affects specialization, friendship patterns, social institutions, and
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aesthetics of language perceive symbols, sounds, pictures and behaviour. Animportant function of culture is that it helps the individual to define concepts.
This is vitally important for the design of advertising images because culturally
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based conceptualizations can determine how a message is interpreted and how
the message recipient responds to its contents. National media that carry
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advertisements are influenced by a nations culture in terms of the spoken andwritten language, the editorial of magazines, newspapers and radio and
television programmes.
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Attitudes Expressed by the Media towards National IssuesCulture affects what people buy (taboos, local tastes, historical traditions etc.),
when they buy (e.g. the spending boom around Christmas in Christian countries)
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who does the purchasing (men or women) and the overall pattern of consumer
buying behaviour. Culture can also affect consumer behaviour in relation to:
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which consumer needs are felt more intensely, which family members takewhich purchasing decisions.
Attitudes Towards Foreign Products
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Cultural influences are evident in some aspects of a country`s demographic
make up. E.g. Fords Pinto car sold poorly in certain parts of Latin America,
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where the word Pinto` is slang for small make sexual organ`.Social Values
These are moral principles or standards against which the desirability of certain
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modes of behaviour may be assessed. Values help determine what an individual
considers important personal priorities, and how he or she assesses other
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people`s worth. Values influence perspectives on a variety of matters: the workethic, honestly, social responsibility, choice of career and so on. Values change
over time; some may disappear entirely as environmental circumstances alter.
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Also values may vary across industries and from state to state.
3.2.1 Concept of Culture
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Culture has been defined in different ways. It includes all learned behaviour andvalues that are transmitted to an individual living within the society through
shared experience. The concept of culture is broad and extremely complex. It
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encompasses virtually every part of person`s life. A nation may embody more
than one culture. The two cultures may exhibit fundamental cultural differences.
Cultural understanding requires examination of cultural elements within a
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country like material life, social interactions, language, aesthetics, religion and
faith, ethics and mores, role and responsibility, and pride and prejudice.
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Material lifeMaterial life refers to economics- how people derive their livelihood. Material
life reflects standard of living and degree of economic advancement. In a less
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developed country, a large proportion of population is engaged in agriculture.
The medium of exchange is a barter system, markets are local, and living is
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entirely rural. These descriptions suggest that the society is primitive and inprimitive societies, multinational business will be nonexistent. In contrast, the
culture of a society where manufacturing industry serves as the major source of
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employment, people live in urban centres, money is the medium of exchange,
business across national boundaries would make sense.
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Social InteractionsSocial interactions establish the role that people play in a society and their
authority/responsibility pattern. Social roles also are established by culture. For
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example a woman can be a wife, a mother, a community leader, and/or
employee. What role is preferred in different situations is culture bound. The
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authority of the aged, the teacher, and the religious in many societies is heldhigh. The educational system, the social settings and customs and traditions
reassert the prescribed roles and patterns of individuals and groups. With
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reference to marketing, the social interactions influence family decision-making
and buying behaviour and define the scope of personal influence and opinion.
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An empirical study showed how cultural differences affect the husband-wifeinfluence in buying decisions. A Singapore husband played a more dominant
role than his U.S. counterpart in family decision-making. Language as part of
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culture is important in international marketing. Some times same word maymean an entirely different thing in different cultures. Therefore, an international
marketer must be careful in handling the matter of language in business
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dealings, contracts, negotiations, advertising, and so on. Symbolic
communication is equally important. In many situations the symbolic language
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of communication is more important than the actual words, and people respondaccordingly. Therefore, an international businessperson must understand cultural
differences and behave accordingly to avoid inadvertently communicating the
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wrong message.
Aesthetics
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Aesthetics include art, the drama, the music, the folkways, and the architectureendemic in a society. These aspects of society convey the concept of beauty and
expression revered in a culture. For example, different colours have different
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meanings worldwide. In Western societies, wedding gowns are usually white,
but in Asia white symbolizes sorrow. The aesthetic values have an impact on the
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design and marketing of different people.Religion and Faith
Religion influences a culture`s outlook on life; it`s meaning, and concept.
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Religion also influences male-female roles, as well as societal institutions and
customs, such as marriage and funeral rites. It also affects patterns of living in
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various other ways. It establishes authority relationships, and individual`s dutiesand responsibilities. The religious traits and tenets may profoundly affect
marketing and international marketers must be sensitive to the religious
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principles of the host country.
Pride and Prejudice
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Culture fosters pride and prejudice in its inhabitants. Cultural pride andprejudice make many nations reject foreign ideas and imported goods.
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Ethics and CustomsThe concept of what is right or wrong is based on culture.
3.2.2 Culture and Marketing
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Culture influences every aspect of marketing. Figure 2.2 describes the linkage
between culture and marketing. A marketing oriented firm should make
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decisions based on customer perspectives. Customers` actions are shaped bytheir lifestyles and behaviour patterns as they stem from their society`s culture.
Thus, the products that people buy, the attributes that they value are all culture-
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based choices. Thus, a person`s perspectives, resources, problems and
opportunities are generated and conditioned by culture to a considerable extent.
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Figure 2.2 Impact of Culture on Marketing Decisions--- Content provided by FirstRanker.com ---
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Culture will have its impact on the food habits of people. Food consumption,
acquisition, and preparation also are interrelated with many of the other
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universals of culture, including religious observances and ceremonies, fasting,folklore, and the division of labour. Cultural pressures easily overrule
physiological necessities. Therefore, it becomes even more difficult for an
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individual alien to a culture to predict that culture`s preference for or rejection of
certain food habits. No matter who shops, or where, cultural differences always
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affect decision making when it comes to the product and its price, as well as tothe way it is distributed and promoted.
The product
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The performance of a product /market depends on a variety of factors. The
failure of a product in a country is traceable to cultural blunders. A product that
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has been highly profitable in a country may fail in another country due tocultural differences. Thus the product positioning in a foreign market should
match the country`s unique cultural environment.
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Distribution
Channels of distribution may need to be modified to suit local conditions. The
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method of door-to door and other direct selling may work in some countries,which may fail in certain other countries.
Promotion
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Promotion practices, particularly advertising, are most susceptible to cultural
error. Examples abound where advertising copy and design were culturally
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revolting and therefore, totally ineffective. Pepsi ran into difficulties in Germanyfor using its U.S. ad, Come alive, you`re in the Pepsi generation, which in
German meant, Come alive out of the grave.``
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3.2.3. Cultural Analysis
The analysis of cultural differences is necessary for the formulation of
international marketing strategy. The cultural analysis may be based on three -
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ethnocentrism, assimilation, and primacy of host country viewpoint. The
ethnocentrism assumes that what is good at home should work in foreign
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countries a well. The assimilation approach assumes that the cultural traitsdemonstrated in one society is relevant anywhere. The primacy of host country
approach concerns market composition and emphasizes basing decisions on host
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country cultural traits. This approach considers domestic information as
inappropriate to successful operation in markets outside the home country.
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3.2.4. Assessment of CultureAn assessment of country`s culture for marketing`s sake involves the analysis of
the people`s attitudes, motivations, perceptions, and learning processes.
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However, simply knowing about the religion or morality of a culture is not
enough. The marketer must analyse the product planned to be introduced into
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the country has any direct or indirect connotations that conflict with the culturalpatterns of the society. Similarly, an examination of advertising themes, phrases,
words, or expressions should confirm the viability of promotional decisions. The
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cultural values of a nation may be studied through either observation or
fieldwork.
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3.2.5. Cultural AdaptationIt refers to the making of business decisions appropriate to the cultural traits of
the society. Thus, the decisions should be sensitive to the local culture to ensure
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that the native customs, traditions, and taboos offer no constraint to their
implementation.
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The impact of culture is ever-present in all marketing decisions. Obviously,international marketers must seek cultural adaptation overseas. All their
decisions and actions should be fully similar with local culture. The cultural
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adaptation is very difficult to practice. The major reason for this difficulty is theSelf Reference Criterion (SRC). The SRC explains that whenever people are
faced with unique situations, their own values are the measure for their
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understanding and response to the circumstances. For example, if some one in
the United States is late for an appointment, that person will feel guilty about it
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and apologize for being late. On the other hand, to the Arab, a 9 A.M. meetingdoes not communicate an exact time but would be understood as sometime in
the morning. The tendency toward SRC is a stumbling block in cultural
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adaptation.
Areas of Adaptation
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There are three areas of foreign business adaptation: product, institutional, andindividual. The product may be modified to fit to the foreign country climate.
The Institutional behaviour includes adaptation of the organisation and business
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interactions to match the host`s perspective. The adaptation of Individuals`
responses to foreign situations should strive to be free of SRC. Such adaptation
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may be required in all regards-the meaning of time, social behaviour, playbehaviour, family interactions, and more.
Views of themselves
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People vary in the relative emphasis they place on self-gratification. In the
United States during the 1960s and 1970s, pleasure seekers sought fun,
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change, and escape. Others sought "self-realization. People bought dream carsand dream vacations and spent more time in health activities, in introspection,
and in arts and crafts. Today, some people are adopting more conservative
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behaviours and ambitions. Marketers must recognize that there are many
different groups with different views of themselves.
Views of others
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People are concerned about the homeless, crime and victims, and other social
problems. They would like to live in a more human society. At the same time,
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people are seeking out their own kind and avoiding strangers. These trendssignify a growing market for social-support products and services that promote
direct relations between human beings, such as health clubs, and religious
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activity. They also suggest a growing market for social surrogates, things that
allow people who are alone to feel that they are not, such as television, home
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video games, and chat rooms on the Internet.Views of Organisations
People vary in their attitudes toward corporations, government agencies, trade
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unions, and other organisations. Most people are willing to work for these
organisations, but there has been an overall decline in organisational loyalty.
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Many people today see work not as a source of satisfaction, but as a requiredtask to earn money to enjoy their no work hours. This outlook has several
marketing implications. Companies need to find new ways to win back
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consumer and employee confidence. They need to make sure that they are good
corporate citizens and that their consumer messages are honest.
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Views of SocietyPeople vary in their attitudes toward their society. Some defend it (preservers),
some want to change it (changers) some are looking for something deeper
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(seekers), and some want to leave it (escapers). Consumption patterns often
reflect social attitude. Changers usually live more thriftily, driving smaller cars
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and wearing simpler clothes. Escapers and seekers are a major market formovies, music, surfing and camping.
Views of Nature
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People vary in their attitudes toward nature. Some feel dominated by it, othersfeel in harmony with it, and still others seek mastery over it. Recently, people
recognise that nature can be destroyed by human activities. Business has
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responded to this as Tour operators are packaging tours to wilderness areas and
Food producers preparing natural food products. There are some other cultural
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characteristics of interest to marketers- the persistence of core cultural values,the existence of subcultures, and shifts of values through time.
3.2.6. Persistence of Core cultural values
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The people living in a particular society hold many core beliefs and values that
tend to persist. Core beliefs and values are passed on from parents to children
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and are reinforced by major social institutions- schools, churches, businesses,and governments. Secondary beliefs and values are more open to change.
Believing in the institution of marriage is a core belief; believing that people
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ought to get married early is a secondary belief. Thus family planning marketers
could make some headway arguing that people should get married later, rather
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than that they should not get married at all. Marketers have some chance ofchanging secondary values but little chance of changing core values.
3.2.7. Existence of Subcultures
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Each society contains subcultures, groups with shared values emerging from
their special life experiences or circumstances. To the extent that sub cultural
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groups exhibit different wants and consumption behaviour, marketers canchoose particular subcultures as target markets. Although core values are fairly
persistent, cultural swings do take place. IN the 1960s, hippies and other cultural
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phenomena had a major impact on young peoples hairstyles, clothing and life
goals. New heroes and new activities influence today`s young people.
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Summary
Economic variables relating to the various markets characteristics - population,
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income, consumption patterns, infrastructure, geography, and attitudes towardforeign involvement in the economy-form a starting point for assessment of
market potential for the international marketer. These data are readily available
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but should be used in conjunction with other, more interpretive data because the
marketer`s plans often require a long-term approach. Data on the economic
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environment produce a snapshot of the past; in some cases, old data are used tomake decisions affecting operations two years in the future. Even if the data are
recent, they cannot themselves indicate the growth and the intensity of
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development. Some economies remain stagnant, plagued by natural calamities,
internal problems and lack of export markets, whereas some witness booming
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economic development. Economic data provide a baseline from which othermore market/product-specific and even experimental data can be collected.
Understanding the composition and interrelationships between economic
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indicators is essential for the assessment of the other environments and their
joint impact on market potential. The international marketer needs to
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understand the impact of the economic environment on social development.The emergence of economic integration in the world economy poses unique
opportunities and challenges to the international marketer. Eliminating barriers
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between member markets and erecting new ones vis-?-vis nonmembers will call
for adjustments in past strategies to fully exploit the new situations. In the late
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1980s and early 1990s, economic integration increased substantially. Thesigning of the North American Free Trade Agreement produced the largest
trading bloc in the world, whereas the Europeans are moving in their
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cooperation beyond the pure trade dimension. In the economic arena, marketers
need to focus on income distribution and levels of saving, debt, and credit
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availability.Culture is one of the most challenging elements of the international market
place. This system of learned behaviour patterns characteristic of the members
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of a given society is constantly shaped by a set of dynamic variables: language,religion, values and attitudes, manners and customs, aesthetics, technology,
education and social institutions. An international manager, to cope with this
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system, needs both factual and interpretive knowledge of culture. To some
extent, the factual can be learned; the interpretation comes only through
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experience. The most complicated problems in dealing with the culturalenvironment stem from the fact that we cannot learn culture-we have to live it.
Two schools of thought exist in the business world on how to deal with cultural
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diversity. One is that business is business the world around, following the
model of Pepsi and McDonald`s. In some cases, globalization is a fact of life,
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however, cultural differences are still far from converging.The other school proposes that companies must tailor business
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approaches to individual cultures. Setting up policies and procedures in each
country has been compared to an organ transplant; the critical question centers
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on acceptance or rejection. The major challenge to the international manager isto make sure that rejection is not a result of cultural myopia or even blindness.
The internationally successful companies all share an important quality-
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patience. They have not rushed into situations but rather built their operations
carefully by following the most basic business principles. These principles are
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to know your adversary, know your audience, and know your customer.Culture has both a pervasive and changing influence on each national market
environment. International marketers must recognize the influence of culture
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and must be prepared to either respond to it or change it. International
marketers have played an important and even a leading role in influencing the
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rate of cultural change around the world. This is particularly true of food, but itincludes virtually every industry, particularly in consumer products. Soap and
detergent manufacturers have changed washing habits, the electronics industry
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has changed entertainment patterns, clothing marketers have changed styles, andso on. In industrial products culture does affect product characteristics and
demand but is more important as an influence on the marketing process,
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particularly in the way business is done. International marketers have learned to
rely upon people who know and understand local customs and attitudes for
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marketing expertise. Often, but not always, these are local nationals. The worldis becoming more and more monocultural. Today you can get Japanese noodles
in the United States and McDonald`s hamburgers in Japan. Cultural factors are
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simply not as important as they were 50, even 10, years ago.
Self-Assessment Questions (SAQs)
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1. What is the impact of economic environment on international marketing?The economic environment of a country is a significant factor in international
marketing. Population and income, consumption expenditure, business cycles,
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productivity, shortages of raw materials, unemployment, resource availability,
etc. have a tremendous impact on marketing. Significant economic factors
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affecting business in a country are the nature and the extent of competition,growth rates and living standards, tax regimes, import controls and market
opportunities etc. The balance of payment of a country is also an important
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economic factor affecting international marketing. Differences in standards of
living among low, moderate and high-income societies are an important factor to
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a marketer. In low-income countries, the volume of goods limits the marketingprocess. In moderate-income countries, the magnitude of the marketing system
is greater. In high income societies, the marketing system is complex, volume of
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goods traded are greater, distribution and sales promotion systems are geared to
influence the buyers to generate even demand.
2. What are the key methods for tracking and identifying opportunities in the
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macro environment?
The economic environment can be divided into micro and macro. The most
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important macroeconomic environmental factors are population and income,level of economic development, pattern of consumption, economic systems are
the most important macroeconomic environmental factors in affecting
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international marketing. Apart from these factors, raw materials, prices, finance
etc are all important as far as an international marketer is concerned.
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3. Explain how changes in Socio -cultural environments affect marketingdecisions?
Almost all international marketing decisions are culture bound. Social,
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religions, family, educational, volume and method of production affect the
international marketing. Religions are a major determinant of the moral and
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ethical standards that play a large part in the marketing process and onmarketing. For example, liquor is prohibited among Muslims. The differences in
the system of families will also influence marketing decisions. Cultural traits
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account for such differences among nations as colour preferences, concept of
time, and authority patterns. For successful business across national boundaries,
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marketers must adapt themselves to local cultures. The self-reference criterion(SRC) should be avoided so as to understand new foreign situations. The
marketers must understand people`s views of themselves, others, organisations,
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societies, nature, and the universe. They must market products that correspond
to society`s core and secondary values, and address the needs of different
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subcultures within a society. Transnational corporations serve as agents ofchange in foreign cultures through their advertising. Neglect of cultural
differences will result in severe damages to the marketer. Aesthetic aspects of
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society convey the concept of beauty and expression and have an impact on the
design and marketing. Cultural adaptation in business appropriate to the local
culture will result in the advantage of the marketer.
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Key words
Cultural environment
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Economic EnvironmentEngle`s law
Macroeconomic environment
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Microeconomic environment
Lesson IV
Political and Legal Environment and The impact of Environment on
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International Marketing Decisions
Learning Objectives: By the end of this chapter you should be able to: 1. explain
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how international law, home country law, and host country law affectinternational marketing. 2. describe the development of international law as it
relates to marketing, 3. explain basic elements of the international legal,
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political, and regulatory environment including the rules and organizations
now in existence to deal with them, the important factors in jurisdiction of
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international legal disputes and 4. describe the impact of environment oninternational marketing decisions
4.1. Political Environment of International Marketing
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The role of the political system on marketing comes from laws, regulations, and
other government actions that restrict or direct the way in which business may
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be conducted. Companies planning international marketing must have an indepth knowledge of the political environment in the countries where they like to
do business. There are many types of political risk associated with actions of the
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governing bodies. There are wide variations in the political environments of
countries and if the political environment is characterized by instability and
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uncertainty, entry for marketing will be prevented. In brief a thorough review ofthe political environment must pave the way to a new market in a foreign
country. Furthermore, the political environments of countries do not remain
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static. Political changes and upheavals may occur after an international marketer
has made a promise and has and established business. Political environment
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connotes diverse happenings. It may be a national difficulty like the conflictbetween the Communist government in Poland and solidarity or acts of
terrorism against business (for example, kidnappings, arson) or conflicts
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between countries in a particular region like the war between India and China oran unending problem like the enmity between Israel and its Arab neighbours.
Political risk is associated with the actions of local and regional governing
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bodies affecting the international company with the overall economic and
political stability within a particular country. Political stability of a country is
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one of the fundamental factors that companies consider when going overseas.There are various types political risks in international marketing. Political risks
will emerge to due to unstable political environment such as violence,
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expropriation, restriction of operations, and restrictions on repatriation of capital
and remittances of profits. If the risk is high in a particular politically unstable
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country, it is necessary to know how to monitor that country`s ongoing politicalsituation. The political conflicts and difficulties in foreign countries and their
effects on overseas business are analysed here. Planned responses to political
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change accessible to multinational marketers are also examined.
4.1.a. Politics and marketing
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Marketing decisions in the international context are deeply affected by thepolitical perspectives of both home and host countries. For example,
government decisions have significantly affected the U.S automotive industry.
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Stringent requirements such as the fuel efficiency standards have burdened the
industry in several ways. Government around the world helps their domestic
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industries to strengthen their competitiveness through various fiscal andmonetary measures. Such political support can play a key role in an industry`s
search for markets abroad. Without such assistance, an industry may face a
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difficult situation. The competition facing U.S manufacturers, therefore, both at
home and in international markets, is potent and resourceful. Moreover a
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number of these overseas competitors are wholly or partly state-owned andrespond to the direction of their governments, which depend heavily on their
export business for the maintenance of employment and the earning of foreign
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exchange. This makes politics important, deeply influencing the perspectives ofinternational marketing. Politics may affect international marketing in various
ways. For example, during late 1980`s Japan liberalized tobacco imports by
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lifting restrictions on price, distribution, and the number of retail outlets that can
handle their products. This was to encourage foreign suppliers to intensify their
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marketing efforts. In July 1985, Mexico approved the long-delayed, once-rejected 100 percent IBM-owned microcomputer plant to encourage more
foreign investment.
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Theoretically, multinational enterprises are affected by politics in three areas.
They are the pattern of ownership in the parent company of the affiliate, the
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direction and nature of growth of the affiliate, and the flow of product,technology, and managerial skills within the companies of the group. The
government can substantially influence the strategy of Multinational
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Corporations (MNCs) affiliates in ways that were thought impossible even a few
years ago. In India, many MNC affiliates had to diversify into areas where
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neither the parent company nor the affiliate had the core capabilities.Competence ceased to be an important factor in strategy formulation compared
to the need to conform to political directives and regulations. In general, the
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transfer of product and technology from the parent company in order to exploit
new markets in the host country meets with obstruction from the government
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unless the technology is in the areas specified by regulation.The political impact does not end here. It has further ramifications on the
MNC`s worldwide operations. With regulations forcing MNC affiliates,
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operating in controlled economies, to move into areas where the parent company
may or may not have prior experience, the parent company will find increasing
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difficulties in developing worldwide strategies to maximize their corporateinterests. The large MNCs will have problems in achieving worldwide
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integration of resources, physical, human, and financial. Dilution of ownershipwill lead to erosion of the power of the parent company to control the
management process in the affiliates. In short, the dissimilarity of business
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between the affiliates and the parent, along with reduced ownership by parent,
will make the latter primarily an investor. If this pattern continues, parent
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companies will soon find that they are no longer in a position to integrate theirresources worldwide.
4.1.b. Sources of Political Problems
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Figure 2.3 illustrates sources of political problems for firms doing business in
foreign countries. Political impact on business comes mainly from political
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sovereignty and political conflict.Figure 2.3 Politics and International Marketing
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Political sovereigntyPolitical sovereignty refers to a country`s aspiration to declare its power over
foreign business through diverse sanctions. Such sanctions are normal and
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evolutionary predictable. An example is increases in taxes over foreign
operations. Many of the less-developed countries impose restrictions on foreign
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business to protect their independence. These nations are envious of theirpolitical freedom and want to protect it at all costs, even if it means going at a
slow economic pace and without the help of multinational corporations. The
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industrialized nations require a more open policy for the economic realities of
today`s world. Today, governments are likely to curtail unemployment, reduce
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inflation, redistribute income, provide health services, and not misuse theenvironment. These objectives make developed countries seek foreign
technology, use foreign capital and foreign raw materials, and sell their products
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in foreign markets. In brief, among the developed countries multinationalism of
business is politically tolerable and economically attractive.
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Political ConflictSeveral countries of the world experience political conflict of diverse sorts.
Political conflicts may be categorized as turmoil, internal war and conspiracy.
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Turmoil refers to instant upheaval on a massive scale against an established.
Internal war means large-scale, organized violence against a government such as
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guerrilla warfare. Conspiracy represents an immediate, deliberate act ofviolence against those in power (for example, the assassination of Egyptian
President Anwar sadat). Political conflict may have an impact on business.
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Political change may also lead to a more favourable business climate. After the
assassination of Prime Minister Indira Gandhi in 1984, India`s policy became
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highly good for international business. Gillette Company, for example, obtainedthe Indian government`s permission to set up a razor blade plant after some
eight years of asking. It is important to make a distinction between political risk
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and political conflict. Political conflict in a country may lead to unstableconditions, but those conditions may or may not result from political unrest.
Business must analyze each occurrence of political conflict and assess the
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likelihood of its impact on business. The effect of political conflict on business
may be direct or indirect. Direct effects would be violence against the firm
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such as the kidnapping of an executive, damage to company property, a labourstrike, and the like. Overall, direct effects are usually temporary and do not
result in huge losses. Indirect effects occur because of changes in government
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policy.
In short, political conflict may change a government`s economic perception.
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Such change may come from a new attitude on the part of an existinggovernment or through a new government. Further, the changes may be
motivated by a sincere desire to set right things to divert public attention from
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other domestic problems of the country. From the viewpoint of foreign
businesses, it is important to understand the nature of political conflict and the
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motivation behind government action. If a change in government policy is fornames sake, it represents less risk to foreign businesses. On the other hand,
when a new policy is expressed through the imposition of certain constraints,
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requirements, and controls on foreign businesses, the government must spread
and enforce the new policy. Otherwise, the new policy will be futile without
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any actual effects on foreign businesses.4.1.c. Political Intervention
Political intervention may be defined as a decision on the part of the host
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country government that may force a change in the operations, policies, and
strategies of a foreign firm. The intervention may range from some sort of
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control to complete take over of the foreign enterprise. The magnitude ofintervention would vary according to the company`s business in the country and
nature of the intervention. There are different forms of intervention:
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expropriation, domestication, exchange control, import restrictions, marketcontrol, tax control, price control, and labour problems.
Expropriation
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Among the various forms of political intervention, expropriation is the most
severe. It is official seizure of foreign property by a host country whose
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intention is to use the seized property in the public interest. Expropriation isrecognized by international law as the right of sovereign states, if the
expropriated firms are given prompt compensation at fair market value, in
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convertible currencies. Other terms used interchangeably with expropriation are
nationalization and socialization. Nationalization refers to a transfer of the
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entire industry within that country from private to public ownership with nodiscrimination as to foreign ownership or local ownership. Socialization, also
referred to as communisation, differs from nationalization in that it is a transfer
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of all the industries within the country. Confiscation means expropriation
without compensation. Patterns of expropriation have been differentiated
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according to industry, region, type of ownership, technology, asset size, andpolitico -economic situation.
Domestication
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Domestication is a process of controls and restrictions placed on the foreign
firm, which gradually reduces the control of the owners. Although,
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domestication may ultimately lead to expropriation, it offers a compromise toboth parties. The multinational corporation continues to operate in the country
while the host government is able to maintain leverage on the foreign firm
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through imposing different controls. Measures of domestication involve several
forms, including gradual transfer of ownership to nationals, promotion of a large
number of nationals to higher levels of management, greater decision-making
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powers to nationals, more products produced locally rather than imported, and
specific export regulations to dictate participation in world markets.
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Other Forms of interventionThe other forms of intervention include government involvement in foreign
enterprise taking the form of legislative action enacted in the national interest.
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Moreover, intervention applies to both domestic and foreign business.
However, in actual practice, certain aspects of the law are irrelevant for
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domestic business and are meant to control foreign business. For example, aclause in a decree restricting repatriation or profits to stockholders outside the
country would be meaningless for native companies.
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Exchange control, import restrictions, market control, tax control, price control,
and labour restrictions are the other important forms of intervention by the
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government.Exchange Control
Those countries having difficulties with the balance of trade impose restrictions
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on the free use of foreign exchange. For example, import of luxuries from
outside the country is restricted. In the same way, limitations are placed on the
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remittances from the country involving hard currency. The exchange controlmay also be an effort to encourage domestic industry. Exchange control
measures affect foreign business in two ways. First, profits and capital cannot
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be returned to the parent company at will. Second, raw material, machinery,
spare parts and the like cannot be liberally imported for operating purposes.
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Most developing countries utilize exchange control to regulate their hardcurrency balances. The need for such regulations is one important reason for
restrictions on imports of consumer in most emerging countries. Sometimes
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even developed countries may resort to exchange control.
Import Restrictions
Import restrictions are primarily for the support of native industries. Consider a
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foreign pharmaceutical company traditionally importing certain compounds and
chemicals from the parent company. If the host country places restrictions on
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imports, it may be forced to depend on local sources of supply for these newmaterials. This can create two types of problems for the foreign firm. First, the
local product may be of inferior quality, which would affect the quality of the
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finished product. Second, locally the product may be in such short supply that
the pharmaceutical manufacturer cannot acquire it in adequate quantity.
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Apparently governments legislate import restrictions to all industries and thedifficulties to be faced by a foreign company do not figure in the discussion.
Further, when a country wants to encourage domestic industry as a matter of
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industrial policy, import restrictions are adopted with the realization that the
local product will be inferior, at least initially. Strictly from the point of view of
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the government, import restrictions seem reasonable, but they ordinarilyjeopardize the functions of foreign business.
Market Control
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The government of a country sometimes imposes controls to prevent foreign
companies from competing in certain markets. For example, until recently
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Japan had prohibited foreign companies from selling sophisticatedcommunication equipment to the Japanese government. As a result many
popular companies could not do business with Japan. The Arab boycott of
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companies doing business with Israel is an interesting example of market
control.
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Tax ControlGovernment may also impose heavy taxes on foreign business. For example, a
new form of excise tax for which there is no precedent may be placed on the
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output of a foreign firm. As a result, problems may arise due to taxes imposed atvariance with the company`s agreement with the government. For example, the
host government may have agreed to give a tax holiday to a company, say for
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five years, to establish its operations in the country. Three years later, the
government chooses to reverse its position for some reason, such as a new
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government`s refusing to live with the agreement entered into by its predecessor.Price Control
For the sake of the public interest, countries may resort price controls. Likewise,
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countries use price control devices in various ways to improve their economies.
For example, a country may set an official price on essential products such as
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drugs, oil, sugar, and cereals. Further, if the product of a particular foreigncompany has been singled out for price control without any economic rationale,
such a measure amounts to undesirable intervention in the working of a foreign
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firm.
Labour Restrictions
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In many nations, labour unions are very strong and have great politicalinfluence. Using its strength, they may be able to talk the government into
passing very restrictive laws that support them at heavy cost to business. For
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example, labour unions in Latin America were able to prevent layoffs, plant
shutdowns, and the like, even when business could not afford to meet such
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demands.Foreign firms may find it difficult to accommodate labour
demands transformed into laws. Even where there are no labour laws to comply
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with, there may be labour problems. Problems can reach such a level that the
foreign enterprise is left with no other choice but to leave.
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4.1.d. Political PerspectivesAn international marketer must make a thorough analysis of the political risks
peculiar to a foreign country`s political system as well as risks peculiar to the
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company`s industry in foreign settings. The political perspectives of a nation canbe studied using very important factors such as type of government, change in
government`s policy, host country`s attitude toward foreign investment etc. The
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importance of these factors varies from country to country, although, it is
desirable to consider them all to ensure a complete knowledge of the political
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outlook for doing business in a particular country.Type of Government
World governments can be realistically grouped in four categories: democratic
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republics, communist dictatorships, dictatorships and monarchies. In each
category there is a spectrum of variation. Democratic governments are formed
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through regular elections and have different party systems. Communistgovernments are rigidly regulated by complete government control of all
business activity. Dictatorships are authoritarian regimes. These governments
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are run either by military dictators or by civilian dictators. Monarchy refers to a
government whose ruler derives power through inheritance. A country may
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have a monarchy and yet be democratic, such as Great Britain, whose QueenElizabeth II is titular head of the country but not head of the British government.
But in many countries, the government is actually run with the monarch as the
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head. Saudi Arabia and Jordan have monarchies. Any review of a country`s
political system and its impact on foreign business must remain free of
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stereotyped notions. Political philosophies change over time. Thus, what agovernment or a party stood for in the 1960s may not hold true in the 1990s.
Obviously, current and emerging perspectives should be analyzed and
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understood. Clearly, economic and political trends in a country require close
scrutiny by potential foreign investors and marketers.
Government Stability
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A country`s government may change frequently. Such changes may create
difficulties in implementing the agreement because the new government may or
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may not subscribe to the commitments made by its predecessor. Thus, its isimportant for the international marketers to examine in advance of making
agreements whether the current government will continue to be in office to
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implement agreements made with it.
Change in Government Policy
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Policy changes may occur even without a change in government. When thistype of environment exists, it makes things so uncertain that foreign business
cannot know what it is getting into. It is important, therefore, for the foreign
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business to analyze the mechanism of governmental policy changes.
Attitude Toward Foreign Investment
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In response to national attitudes, nations legislate a variety of laws andregulations to prescribe the role of foreign investment in their economies. It is
appropriate, therefore, to review the host country`s regulations and identify
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underlying attitudes and motivations. Indirectly, the success of other
multinational business in a country indicates a favourable attitude.
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4.2. Legal Environment of International MarketingInternational legal considerations impose restrictions on contracts of sale,
carriage of goods, insurance of payments and of consignments, and the means
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for financing transactions. Disputes concerning these matters must be resolved,
ultimately, through the courts. There are complications due to different laws,
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interpretations and legal methods applying to commercial litigation within eachnation, and conflicts between the legal systems of specific countries frequently
occur. There is no informal law governing international trade and it is the
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application of a nation`s domestic law to international transactions. However,the domestic commercial laws adhere to rules established via international
conventions. Three bodies of law affect the International marketing. They are
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International laws, Host-country laws and Home-country laws.
International laws
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International laws are a body of rules and regulations that countries agree toabide by. International law addresses agreements among countries with regard to
trade, protection of property, and other issues in the political and economic
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sphere. International law bodies, although not enforceable, can appropriately
address international law agreements. A variety of international laws regulate
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business across national boarders. The agreements of institutions like GeneralAgreement on Tariffs and Trade (GATT), the International Monetary Fund
(IMF) and the World Bank etc are some type of laws, which influence business
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in different ways.
GATT (General Agreement of Tariffs and Trade) is a set of norms and
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procedures that 92 governments have accepted to create order and predictabilityin international trade relations. There are three basic principles in the GATT 1.
nondiscrimination, whereby each member country must treat the trade of all
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other member countries equally; 2. open markets, which are encouraged by the
GATT through a prohibition of all forms of protection except customs tariffs,
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and 3. fair trade, which prohibits export subsidies on manufactured products andlimits the use of export subsidies on primary products.
The real function of GATT is to enable countries to defend national economic
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interests not against the national interests of other countries but against sectional
interests within their own and other countries. Thus, GATT is formally an
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international agreement among countries, but functionally it is part of thedomestic legal order of each country. It serves as a defense that governments
can refer to in defending themselves against pressure groups. The GATT
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regulations are particularly relevant for marketers since they deal with traderestrictions and barriers that affect market potential.
One of the most important influence on business affairs is the actions of
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regulatory agencies (IEOs) that address such matters as price control, valuation
of imports and exports, trade practices, labeling, food and drug regulations,
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employment conditions, collective bargaining, advertising content, competitivepractices, and so on. The influence of regulatory agencies is pervasive, and an
understanding of how they operate is essential to protecting business interests
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and the advancing of new programs.
In addition to these institutions, the other areas covered by international law and
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the agencies that administer international laws are:Protection of Property
Property here refers to patents, trademarks, and the like. Companies spend
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millions of dollars to build up and establish trademarks and brand names. If a
foreign firm steals a company`s established brand name and uses it on a locally
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manufactured product, the interests of the established company could be hurt. Itwould mean not only loosing potential markets, but also gaining a bad name for
poor performance. For the protection of property out side the home country,
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there are international conventions and agreements. The most important among
them are the International Bureau for the Protection of Industrial Property, the
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Inter ? American Convention, UN Treaties and Conventions, UN Guidelines onConsumer Protection, Regional Laws and Arbitration. The United Nations has
established a number of autonomous bodies and agencies to encourage world
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wide economic cooperation and prosperity. Among them, the World Health
Organisation (WHO), International Civil Aviation Organisation (ICAO),
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International Telecommunications Union (ITU), Universal Postal Union (UPI),International Labour Organisation (ILO), International Telecommunications
Satellite Consortium (INTELSAT), and International Standards Organisation
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(ISO) are the most important. ISO is a specialised UN agency, which directlyrelated to marketing. ISO promotes standardization of different products and
processes. The ultimate purpose is to encourage world trade and business
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without hindrance from design/style/feature variations among nations.
Regional Laws pertain to specific areas involving a group of countries tied
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together through some kind of regional economic cooperation (e.g. EuropeanCommunity, NAFTA etc.).
Arbitration is a method by which a multinational firm can resolve a conflict
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regarding the interpretation of the contractual terms with the host country
government; a native firm; or an international firm belonging to a third country
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in a foreign environment. Arbitration can be defined as a process of settlingdisputes by referring the matter to a disinterested party for a review of the merits
of the case and for a judgment. There are a number of institutions for arbitration
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like The International Center for Settlement of Investment Disputes (ICSID),
The Inter-American Commercial Arbitration Commission, The International
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Chamber of Commerce (ICC), and The American Arbitration Association(AAA) etc.
Host-country laws
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Host- country laws are laws of the different countries where the company
operates. The legal system in the host country could differ substantially from
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that of the company`s home country. Hence, countries enact laws to controlforeign business in their economies. Some of the laws are discriminatory against
foreign goods and businesses. Laws are sometimes designed to allow reciprocity
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with on good trading terms with the country. In some instances, extremely
favourable laws may be passed to attract foreign investment. In general, the
legal environment of a country for foreign commerce depends on that country`s
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economic objectives and its obligations and position in relation to worldwide
commerce. In some situations, the laws may have political aims as well. For
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example, a government may decide to restrict all imports in order to promote anational feeling among the people and their political supporters. On the other
hand, political considerations may require a country to liberalize its laws
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pertaining to foreign business.
Laws pertaining to entry into foreign markets take several forms including
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tariffs, antidumping laws, export/import licensing, investment regulations, legalincentives, and restrictive trading laws.
Tariffs
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It is a tax that a government levies on exports and imports. If the tax is imposed
on exports, it is called export duty or customs duty. On the other hand, subsidy
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is a reverse tariff. Many countries provide a subsidy for local manufacturers forexport.
Antidumping Laws
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Dumping is a type of pricing strategy for selling products in foreign markets
below cost, or below the price charged to domestic consumers. Dumping is
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practiced to capture a foreign market and to damage rival foreign nationalenterprises. Host government`s often pass laws against dumping with a view to
protect local industries. In international business, dumping inhibit the orderly
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development of national industry. From this point, attacks on rival markets by
dumping amount to destructive as well as unscrupulous means of securing
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market position. It is for this reason that countries legislate anti-dumping laws.--- Content provided by FirstRanker.com ---
Export Import LicensingMany countries have laws on the books that require exporters and importers to
obtain licenses before engaging in trade across national boundaries. This may be
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for statistical records on exports or to ensure that certain goods are not exported
to certain countries. Import licensing is enforced to control the unnecessary
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purchase of goods from other countries.Foreign Investment Regulations
One of the primary aims of laws and regulations on foreign investment is to
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limit the influence of multinational corporations. It may be also for achieving a
pattern of foreign investment that contributes most effectively to the realization
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of the host country`s objectives.Legal Incentives
Governments to attract foreign investments in most of the developing countries
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provide investment incentives.
Restrictive Trading Laws
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Many governments adopt measures that restrict imports or artificially stimulateexports. Such laws are refereed as non-tariff barriers in international trade. The
major types of non tariff barriers are government participation in trade ?
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subsidies, government procurement, and state trading, or customs and entry
procedures ? documentation, health and safety regulations, or standards ?
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product standards, packaging, specific limitations, or quotas - exchange controls,import restraints and licensing, import charges, or credit restrictions for imports,
special duties etc.
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Home ?country laws
Home-country laws are the laws of the company`s home country. Home country
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laws follow the company all over the world. For example U.S. companies mustabide by all three types of law. They must abide by international trade laws and
agreements, such as World Trade Organisation (WTO) trade regulations; they
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must abide by host ?country laws governing every aspect of the company`soperations; and they must abide by home-country laws, such as anti-trust
regulations and corrupt practices regulations.
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Legal Systems
The three important types of legal systems are: common law, civil codes (code
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law) and Islamic law.Common Law
Common law is based on prior court rulings. It applies in English speaking
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countries and many other countries formerly colonised by Britain.
Code Law (Civil Law)
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Code law has written rules that specify what constitutes legal behaviour. It hasits root in Roman law. This law is shared by most of the countries of the world,
including Latin America, China, Taiwan, Japan and others.
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Islamic Law
Islamic law is a system of law based on the interpretation of the Koran, Islam`s
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holy book. Islamic law establishes rules for business practices that can affectfirm operation s. Islamic law affect a firm`s operations in North Africa, the
Middle East, Pakistan and Malaysia, among others.
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Conflict and Jurisdiction of Laws
The export of goods from one country to another necessarily involves
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transactions that are subject to the laws of different nations, and these lawsmight conflict. Owing to the different legal systems across nations, there is a
need to establish jurisdiction in international legal disputes. There is no
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international body to make rules and oversee their fulfillment by differentparties. Thus, a business incorporated in a particular country carries the burden
of complying with the laws of both the incorporating nation and the host
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country. Often problems occur when laws of more than one country must be
respected and these laws have different values. If a conflict occurs between two
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contracting parties, the question arises as to which nation`s laws should be usedto resolve the problem. If the contract contains a jurisdiction clause stipulated
which country`s legal system should be used to settle disputes, the matter can be
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settled accordingly. However, if the parties have failed to include a jurisdiction
clause in this contract, there are 2 alternatives. They are: settle the dispute by
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following the laws of the country where the agreement was made or resolve thedispute by applying the laws of the country where the contract has to be
fulfilled.
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If these two alternatives were likely to result in different conclusions, each party
naturally would like to settle the issue according to the legal system that favours
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its position. Obviously, this may lead to legal actions, presumably in differentcourts, perhaps in different countries. An alternative to legal action is arbitration.
For example, the Bhopal tragedy in which over 2000 people died from a gas
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leakage accident in a Union Carbide plant in India. The Indian government
would like the question of compensation to survivors settled in the U.S. courts,
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because the U.S. courts have been more liberal than the Indian courts in grantingcompensations to victims in such cases. However, the Union Carbide was
interested to settle the case in Indian courts, in the hope that their liability would
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be reduced substantially.
4.3. Impact of Environment on International Marketing Decisions
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Marketing environment can be internal or external. The most important internalfactors influencing the decisions of a company are the objectives, the
organisational structure, the internal power relationship, and the characteristics
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of human resources etc. The external environment again is divided intomicroenvironment and macro environment. Microenvironment consists of the
forces close to the company that affects its ability to serve its customers.
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Marketing environment can also be classified into controllable and
uncontrollable. Marketing policies and strategies framed by the company are
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controllable forces whereas uncontrollable forces are those forces, which arebeyond the control of the company. Uncontrollables are classified into domestic
uncontrollables and foreign uncontrollables. Political forces, legal structure and
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economic climate are uncontrollables, which affect foreign business. The most
important among them are geographical, economic, socio-cultural, political and
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legal environment.Although marketing principles are universally applicable, the environment
within which the marketer must implement marketing plans can change
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dramatically from country to country. Most problems encountered by the foreign
marketer result from the strangeness of the environment within which marketing
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programmes are to be implemented. An international marketer must have thecapability to adapt to the changing environment. To adapt marketing to foreign
markets, marketers must be able to interpret effectively the influence and impact
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of each of the environmental elements on the marketing plan for each foreign
market in which they hope to do business. In dealing with unfamiliar markets,
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marketers must be aware of the frames of reference they are using in makingtheir decisions of a market. The key to successful international marketing is
adaptation to the environmental differences from one market to another.
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Adaptation is a conscious effort on the part of the international marketer to
anticipate the influences of both the foreign and domestic environments on a
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marketing mix, and then to adjust the marketing mix to minimize the effects.Geography of country is a vital factor affecting the marketing decision of a
marketer. An international marketer must adapt to the climate and topographical
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differences. Location, place, movement, and region are all important factors ininternational marketing. There are geographical influences on the development
of the economy and society of a country. Climate and topography demands
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product adaptation.
Changes in the demographic environment will also have its impact on the
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international marketing decisions. Data on demographic characteristics helpmarketers to produce goods according to the specific requirements of
population. The population in different countries differs in their achieved
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educational level and this will have its implications on the demand. Changes in
household patterns also change the demand for products. Hence an international
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marketer has to adapt his production to suit the requirements of different agegroups.
The international marketer needs to understand the impact of the economic
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environment on social development. Economic environment does affect
international marketing decisions. The impact of the U.S. economic environment
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on international business activity is very popular. For example, U.S. firms enterthe international market during a recession (low economic activity) to sustain
their business only to withdraw as the domestic scene improves. The economic
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environment sets the limit of activity in different sectors of the economy. For
example, when the economy is booming, there will be plenty of jobs, consumers
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will be optimistic, and the international marketer will have more opportunities inthe market place. But when an economy is down, unemployment mar rise,
interest rates may go up, sales could be more difficult and the international
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marketer`s decisions will take a different shape.
Cultural differences have impact on marketing decisions affecting product,
price, distribution and promotion. To conduct business successfully across
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national boundaries, marketers must adapt themselves to local cultures. Culture
is another important factor affecting marketing and an international marketer
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must alter business approaches to individual cultures. Culture has both apervasive and changing influence on each national market environment.
International marketers must recognize the influence of culture and must
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respond to it.
The political situation of a country may or may not be conducive to profitable
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business. Political problems related to foreign business occur mainly because ofpolitical sovereignty. Such troubles may lead a country to intervene politically
in the affairs of a foreign firm. Intervention may range from some form of
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control to complete takeover.
The legal environment in the home country, the environment in the host country,
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and the laws and agreements governing relationship among nations are all-important to the international marketer. These laws can control exports and
imports both directly and indirectly, and can also regulate the international
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business behavior of firms. To avoid the problems that can result from changes
in the political and legal environment, the international marketer must anticipate
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changes and develop strategies for coping with them.Company`s can passively accept the marketing environment as an
uncontrollable element to which they must adapt. They must avoid threats and
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take advantage of opportunities as they arise. Many companies view the
marketing environment as an uncontrollable element to which they must adapt.
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They analyse the environmental forces and design strategies that will help thecompany avoid the threats and take advantage of the opportunities the
environment provides.
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Some other companies take an environmental management perspective andthese firms will try to influence the publics and forces to their advantage. Such
companies influence legislation affecting their industries. They run
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advertisements and editorials to shape public opinion to favour them. They file
complaints with regulators to keep competitors in line, and they form contractual
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agreements to better control their distribution channels. Often companies canfind positive ways to overcome uncontrollable environmental constraints.
Summary
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The political situation of a country may or may not be conducive to profitable
business. Political problems related to foreign business occur mainly because of
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political sovereignty. Such troubles may lead a country to intervene politicallyin the affairs of a foreign firm. Intervention may range from some form of
control to complete takeover.
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The legal environment in the home country, the environment in the host country,
and the laws and agreements governing relationship among nations are all-
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important to the international marketer. These laws can control exports andimports both directly and indirectly, and can also regulate the international
business behavior of firms. To avoid the problems that can result from changes
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in the political and legal environment, the international marketer must anticipate
changes and develop strategies for coping with them.
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An international marketer should be familiar with host country laws pertainingto competition, price setting, distribution arrangements, product liability, patents
and trade marks, and advertising as there are differences among countries
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regarding these laws.
Self-Assessment Questions (SAQs)
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1. Why is it necessary for international marketers to study politicalenvironment? How can foreign politics affect marketing decision?
Political environment consists of laws, agencies, and groups that limit
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marketing actions. The political environment has undergone changes thataffect marketing worldwide. They may increase legislation regulating
business. Political interventions like expropriation, domestication and other
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forms of intervention ?exchange control, import restrictions, market control
etc. are all-important factors affecting the international marketing. The
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political environment of countries may be characterized by instability anduncertainty. Political upheavals may be conflicts between countries in a
particular region. Unstable political environment will result in political risks
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to a foreign business. Political risks may also arise due to violence,
expropriation, restriction of operations, and restrictions on repatriation of
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capital and remittances of profits. Politics may affect international marketingin various ways.
2. Describe how international law, home country law, and host country law
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affect international marketing?
International companies are subject to different sets of laws. They are laws
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of the host country, laws of the home country and international laws.International laws are laws of an international body, such as the WTO.
Under this complex context, jurisdiction often becomes a problem. As such
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it is advisable that firms entering into agreements agree upon jurisdiction
and on the procedure needed for conflict resolution.
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3. Define the terms dumping and arbitration. Why do countries legislateantidumping laws?
Dumping is selling products in foreign markets at a price below the domestic
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price. Arbitration is the process of settling disputes by referring the matter to a
disinterested party for a judgment. Antidumping laws are passed against
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dumping with a view to protect local industries.Key terms
Arbitration
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Code lawCommon law
Communism
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Confiscation
Domestication
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ExpropriationForeign Corrupt Practices Act
Home country laws
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Home country laws
Islamic law
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JurisdictionPolitical risk
Review Questions
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1. Describe the environmental forces that affect the company`s ability to serve
its customers?
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2. Describe the importance geography in understanding the internationalmarkets?
3. Examine the effects of topography and climate on products, population,
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transportation, and economic growth?
4. Explain how changes in the demographic environments affect marketing
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decisions?5. Examine the effects of topography and climate on products, population,
transportation, and economic growth?
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6. Explain how changes in the demographic environments affect marketingdecisions?
7. That are the key methods for tracking and identifying opportunities in the
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macro environment?
8. Explain how changes in Socio -cultural environments affect marketing
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decisions?9. Why is it necessary for international marketers to study political
environment? How can foreign politics affect marketing decision?
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10. Define the terms dumping and arbitration. Why do countries legislate
antidumping laws?
Unit III
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PRODUCT DECISIONS
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The learning objectives from this lesson are as follows:
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1. To understand the basic concept of a product
2. How to position the product in the market.
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3. Product design considerations4. Strategic alternatives towards the product
5. New product in global marketing
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6. To understand the strategic significance of Branding
7. To understand the significance of Packaging
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8. To understand the significance of Sales related ServicesPRODUCTS: DEFFINITION AND CALSSIFICATION
What is a product?
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On the surface, this seems like a simple question with an obvious answer.
A product can be defined in terms of its tangible physical attributes ? such as
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weight,dimensions, and
materials,
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thus, an automobile could be defined as 3,000 kgs of metal or plastic, measuring
190 long, 75 wide, and 59 high. However, any description limited to physical
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attributes gives an incomplete account of the benefits a product provides. At a
minimum, car buyers expect an automobile to provide safe, comfortable
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transportation, which derives from physical features such as air bags andadjustable seats. However, marketers cannot ignore status, mystique, and other
intangible product attributes that a particular model of automobile may provide.
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Indeed, major segments of the auto market are developed around these
intangible attributes.
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A product, can be defined as a collection of physical, psychological, service, andsymbolic attributes that collectively yield satisfaction. Or benefits, to a buyer or
user.
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A number of frameworks for classifying products have been developed. A
frequently used classification is based on users and distinguishes between
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consumer and industrial goods. Both types of goods, in turn, can be furtherclassified on the basis of other criteria, such as how they are purchased
(convenience, preference, shopping, and specialty goods) and their life span
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(durable, nondurable, and disposable). These and other classification
frameworks developed for domestic marketing are fully applicable to global
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marketing.PRODUCTS: LOCAL, NATIONAL, INTERNATIONAL, AND GLOBAL
Many companies find that, as a result of expanding existing businesses or
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acquiring a new business, they have products for sale in a single national
market. For example, Kraft Foods at one found itself in the chewing gum
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business in France, the ice cream business in Brazil, and the pasta business inItaly. Although each of these unrelated businesses was, in isolation, quite
profitable, the scale of each was too small to justify heavy expenditures on
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R&D, let alone marketing, production, and financial management forminternational bead quarters, an important question regarding any product is
whether it has the potential for expansion into other markets. The answer will
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depend on the company`s goals and objectives and on perceptions of
opportunity.
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Managers run the risk of committing two types of errors regarding productdecisions in global marketing.
One error is to fall victim to the not invented here (NIH) syndrome, ignoring
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product decisions made by subsidiary or affiliate managers. Managers who
behave in this way are essentially abandoning any effort to leverage product
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decision policy on all affiliate companies on the assumption that what is rightfor customers in the home market must also be right for customers everywhere.
The four product categories in the local-to-global continuum ?
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local,
national,
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international, andglobal
are described in the following sections.
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1. Local products
A local product is available in a portion of a national market. In the United
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States, the term regional product is synonymous with local product. Theseproducts may be new products that a company is introducing using a rollout
strategy or a product that is distributed exclusively in that region. Originally,
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cape Cod Potato Chips was a local product in the New England market. The
company was later purchased by Frito-Lay and distribution was expanded to
other regions of the United States.
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2. National Products
A national product is one that, in the context of a particular company, is offered
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in a single national market. Sometimes national products appear when a globalcompany caters to the needs and preferences of particular country markets. For
example, Coca-Cola developed a no carbonated, ginseng-flavored beverage for
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sale only in Japan and a yellow, carbonated flavored drink called Pasturing to
compete with Peru`s favorite soft drink, Inca Cola. After years of failing to
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dislodge Inca Cola, Coke followed the old strategic maxim. If you can`t beatthem, buy them, and acquired Inca Cola.
Similarly, Sony and other Japanese consumer electronics companies produce a
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variety of products that are not sold outside of Japan. The reason: Japanese
consumers have a seemingly insatiable appetite for electronic gadgets.
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3. International ProductsInternational products are offered in multinational, regional markets. The classic
international product is the Euro product, offered throughout Europe but not in
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the rest of the world. Renault was for many years a Euro product When Renault
entered the Brazilian market, it became a multiregional company. Most recently,
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Renault invested, in Nissan and has taken control of the company. Thecombination of Renault in Europe: and Latin America, and Nissan in Asia, the
Americas, Europe, the Middle East and! Africa, has catapulted Renault from a
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multiregional to a global position. Renault is an example of how a company can
move overnight through investment or acquisition from an international to a
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global position.4. Global Products and Global Brands
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Global products are offered in global markets. A truly global product is offeredin the Triad, in every world region, and in counties at every stage of
development. Some global products were designed to meet the needs of a global
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market; others were designed to meet the needs of a national market but also,
happily, meet the needs of a global market.
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Note that a product is not a brand.For example, portable personal sound systems or personal stereos are a category
of global product; Sony is a global brand. A global brand, like a national or
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international brand, is a symbol about which customers have beliefs or
perceptions. Many companies, including Sony, make personal stereos. Sony
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created the category more than 10 years ago, when it introduced the Walkman. Itis important to understand that marketers must create global brands; a global
brand name can be used as an umbrella for introducing new products. Although
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Sony, as noted previously, markets a number of local products, the company
also has a stellar track record both as a global brand and "a manufacturer of
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global products.The qualities of a global brand: It has the same name as is the case for Coke,
Sony, BMW, Harley-Davidson, and so on; or it may be the same meaning in
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different languages, as is true of Unilever`s Snuggle (United States) fabric
softener, which carries a cuddly teddy bear logo and the local translation of a
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meaning identical or similar to the meaning of snuggle in American English. Aglobal brand has a similar image, similar positioning, and is guided by the same
strategic principles. However, the marketing mix for a global brand may vary
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from country to country. That means that the product, price, promotion, and
place (channels of distribution) may vary from country to country. Indeed, if one
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tracks the examples-Marlboro, Coke, Sony, Mercedes, and Avon-one willindeed find that the marketing mix for these products varies from country to
country.
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The Mercedes, which is exclusively a luxury car in the United States, is also astrong competitor in the taxi market in Europe. Avon, which is a premium-
priced and packaged cosmetic line in Japan, is popularly priced in the rest of the
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world. In spite of these variations in marketing mix, each of these products is a
world or global brand.
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Global product differs from a global brand in one important respect: It does notcarry the same name and image from country to country. Like the global brand,
however, it is guided by the same strategic principles, is similarly positioned,
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and may have a marketing mix that varies from country to country. Whenever a
company finds itself with global products, it faces an issue: Should the global
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product be turned into a global brand? This requires that the name and image ofthe product be standardized. The two biggest examples of this move were the
shift from Standard Oil's many different local brands to Exxon, and Nissan's
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decision to drop the Datsun marque in the United States and adopt various
model names for Nissan's worldwide product line.
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When an industry globalizes, companies are under pressure to develop globalproducts. A major driver for the globalization of products is the cost of product
R&D. As competition intensifies, companies discover that they can reduce the
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cost of R&D for a product by developing a global product design. Even products
such as automobiles, which must meet national safety and pollution standards,
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are under pressure to become global: With a global product, companies can offeran adaptation of a global design instead of a unique national design in each
country.
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Coke is arguably the quintessential global product and global brand. Coke'spositioning and strategy are the same in all countries; it projects a global image
of fun, good times, and enjoyment. Coke is "the real thing." There is only one
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Coke. It is unique. It is a brilliant example of marketing differentiation. The
essence of discrimination is to show the difference between your products and
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other competing products and services)This positioning is a considerable accomplishment when you consider the fact
that Coke-is a low/no-tech product. It is flavored, carbonated, sweetened water
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in a plastic, glass, or metal container. The company's strategy is to make sure
that the product is within arm's reach of desire. However, the marketing mix for
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Coke varies. The product itself is adapted to suit local tastes; for example, Cokeincreases the sweetness of its beverages in the Middle East, where customers
prefer a sweeter drink. Also, prices may vary to suit local competitive
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conditions, and the channels of distribution may differ. However, the basic,
underlying, strategic principles that guide the management of the brand are the
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same worldwide. Only an ideologue would insist that a global product couldn`tbe adapted to meet local preferences; certainly, no company building a global
brand needs to limit itself to absolute marketing mix uniformity. The issue is not
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exact uniformity but rather offering essentially the same value.
Global marketers should systematically identify and assess opportunities for
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developing global brands. Creating a global brand requires a different type ofmarketing effort-including up-front creative vision than that required to create
one or more national brands. On the other hand, the ongoing effort to maintain
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brand awareness is less for a leading global brand than it is for a collection of
local brands. What criteria do marketers use to decide whether to establish
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global brands? One expert has argued that the decision must be "determined bybottom-up consumer-driven considerations, not by top-down manufacturer-
driven business convenience` A major determinant of success will be whether
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the marketing effort is starting from scratch with a "blank slate, or whether thetask is to reposition or rename an existing local brand in an attempt to create a
global brand. Starting with a blank slate is vastly easier-than repositioning
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existing brands.
Activity:1
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Differentiate between Global Products and Brands. List five Global Productsand Brands.
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PRODUCT POSITIONING
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Product positioning is a communications strategy based on the notion of mental
"space" positioning refers to the act of locating a brand in customers' minds over
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and against other products in terms of product attributes and benefits that thebrand does and does not offer. The word positioning, first formally used in 1969
by Ries and Trout in an article that appeared in Industrial Marketing, describes a
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strategy for "staking out turf' or" filling a slot" in the minds of target customers.Several general strategies have been suggested for positioning products:
positioning by attribute or benefit, quality/price, use or application, and
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use/user? Two additional strategies, high-tech and high-touch, have been
suggested for global products.
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1. ATTRIBUTE OR BENEFITA frequently used positioning strategy exploits a particular product attribute,
benefit, or feature. In global marketing, the fact that a product is imported can
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itself represent a benefit positioning. Economy, reliability, and durability are
other frequently used attribute/benefit positions. Volvo automobiles are known
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for solid construction that offers safety in the event of a crash. In the ongoingcredit card wars, VISA's advertising focuses on the benefit of worldwide
merchant acceptance.
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2. QUALITY/PRICE
This strategy can be thought of in terms of a continuum from high
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fashion/quality and 'nigh price to good value (rather than low quality) at a lowprice.The American Express Card, for example, has traditionally been
positioned as an upscale card whose prestige justifies higher annual fees than
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VISA or MasterCard. The Discover card is at the other end of the continuum.
Discover`s value position results from no annual fee and a cash rebate to
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cardholders each year.3. USE/USER
Positioning can also be achieved by describing how a product is used or
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associating a product with a user or class of users the same way in every market.
For example, Benetton user s the same positioning for it`s clothing when it
targets the global youth market. Marlboro`s extraordinary success as a global
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brand is due in part to the product`s association with cowboys--the archetypal
symbol of rugged independence, freedom, space, and Americana--and
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transformation advertising that targets urban smokers.Why choose Marlboro instead of another brand? Smoking Marlboro is a way of
getting in touch with a powerful urge to be free and independent. Lack of
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physical space may be a reflection of the Marlboro user`s own sense of macho-
ness or a symbol of freedom and
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Independence. The message is reinforced in advertising with an image carefullycalculated to appeal to the universal human desire for those things and urges
smokers to join that rugged, independent cowboy in the Old West! The
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advertising succeeds because it is very well done and, evidently, addresses a
deep, powerful need that is found around the globe, not surprisingly, Marlboro is
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the most popular cigarette brand in the former Soviet Union.4. HIGH-TECH POSITIONING
Personal computers, video and stereo equipment, and automobiles are product
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categories for which high-tech positioning has proven effective. Such products
are frequently purchased on the basis of physical product features, although
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image may also be important. Buyers typically already possess or wish toacquire considerable technical information. High-tech products may be divided
into three categories technical products, special interest products, and
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demonstrable products.
Computers, chemicals, tires, and financial services are technical products in the
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sense that buyers have specialized needs, require a great deal of productinformation, and share a common language. Computer buyers in Russia and the
United States are equally knowledgeable about Pentium microprocessors, hard
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drives, and random access memory (RAM) requirements. Marketing
communications for high-tech products should be in-formative and emphasize
features.
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Special-interest products also are characterized by a shared experience and high
involvement among users, although they are less technical and mote leisure or
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recreation oriented. Again, the common language and symbols associated withsuch products can transcend language and cultural barriers. Fuji bicycles, Adidas
and Nike sports equipment, Canon cameras, and Sega video game players are
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examples of successful global special-interest products.
5. HIGH-TOUCH POSITIONING
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Marketing of high-touch products requires less emphasis on specializedinformation and more emphasis on image. Like high-tech products, however,
high-touch categories are highly involving for consumers. Buyers of high-touch
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products also share a common language and set of symbols relating to themes of
wealth, materialism, and romance. There are three categories of high-touch
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products: products that solve a common problem, 'global village products, andproducts with a universal theme. At the other end of the price spectrum from
high-tech, high-touch products that can solve a problem often provide benefits
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linked to "life's little moments." Ads that show friends talking over a cup of
coffee in a cafe or quenching thirst with a soft drink during a day at the beach
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put the product at the center of everyday life and communicate the benefitoffered in a way that is understood worldwide. Upscale fragrances and designer
fashions are examples of products whose positioning is strongly cosmopolitan in
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nature. Fragrances and fashions have traveled as a result of growing worldwide
interest in high-quality, highly visible, high-priced products that often 'enhance
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social status.Products may have a global appeal by virtue of their country of origin. The
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Americanness of Levi's, Marlboro, McDonald's, and Harley-Davidson enhancestheir appeal to cosmopolitans around the world and offers opportunities for
benefit positioning. In consumer electronics, Sony is a name synonymous with
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vaunted Japanese quality; in automobiles, Mercedes is the embodiment of
legendary German engineering.
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Some products can be positioned in more than one way, within either the high-tech or high-touch poles of the continuum. A sophisticated camera, for example,
could simultaneously be classified as technical and special interest. Other
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products may be positioned in a bipolar fashion, that is, as both high-tech and
high-touch. For example, Bang & Olufsen consumer electronics product by
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virtue of their design elegance, are perceived as both high-tech and high-touch.Activity: 2
Give examples of each type of positioning for both National and Global
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Products .
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PRODUCT DESIGN CONSIDERATIONSProduct design is a key factor in determining success in global marketing.
Should a company adapt product design for various national markets or offer a
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single design to the global market? In some instances, making a design change
may increase sales. However, the benefits of such potential sales increases must
be weighed against the cost of changing a product's design and testing it in the
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market. Global marketers need to consider four factors when making product
design decisions: preferences, cost, laws and regulations, and compatibility.
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1. PREFERENCESThere are marked and important differences in preferences around the world
factors such as color and taste. Marketers who ignore preferences do so at their
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own peril. In the 1960s, for example, Italy's Olivetti Corporation had gained
considerable distinction in Europe for its award-winning modern consumer
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typewriter designs; Olivetti typewriters had been displayed at the Museum ofModern Art in New York City. Although critically acclaimed, Olivetti's designs
did not enjoy commercial success in the United States. The U.S. consumer
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wanted a heavy, bulky typewriter that was ugly by modern European design
standards. American consumers considered bulk and weight prima facie
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evidence of quality, and Olivetti was, therefore, forced to adapt its award-winning design in the United States.
Sometimes, a product design that is successful in one world region does meet
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with success in the rest of the world. BMW and Mercedes dominate the luxury
car market in Europe and are strong competitors in the rest of the world, with
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exactly the same design. In effect, these companies have a world design. Theother global luxury car manufacturers are Japanese, and they have expressed
their flattery and appreciation for the appeal of the BMW and Mercedes look by
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styling cars that are influenced by the BMW and Mercedes line and design
philosophy. If imitation is the most sincere form of flattery, BMW and Mercedes
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have been honored by their competition.2. COST
In approaching the issue of product design, company managers must consider
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cost factors broadly. Of course, the actual cost of producing the product willcreate a cost floor. Other design-related cost whether incurred by the
manufacturer or the end user-must also be consider. It is found out that the cost
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of repair services varies around the world and has an impact on product design.
3. LAWS AND REGULATIONS
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Compliance with laws and regulations in different countries ahs a direct impacton product design decisions, frequently leading to product design adaptations
that increase costs. This may be seen especially clearly in Europe, where one
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impetus for the creation of the single market was to dismantle regulatory and
legal barriers-particularly in the areas of technical standards and health and
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safety standards-that prevented pan-European sales of standardized products. Inthe food industry, for example, there were 200 legal and regulatory barriers to
cross-border trade within the European Union (EU) in 10 food categories.
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Among these were prohibitions or-taxes on products with certain ingredients,
and different packaging and labeling laws. Experts predict that the removal of
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such barriers will reduce the need to adapt product designs and will result in thecreation of standardized Euro-products.
4. COMPATIBILITY
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The last product design issue that must be addressed by company managers is
product compatibility with the environment in which it is used. A simple thing
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such as failing to translate the user's manual into various languages can hurtsales of American-made: home appliances built in America outside the United
States. Also, electrical systems range from 50 to 230 volts and from 50 to 60
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cycles. This means that the design of any product powered by electricity must be
compatible with the power system in the country of use.
Manufacturers of televisions and video equipment find that the world is a very
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in-compatible place for reasons besides those related to electricity. Three
different TV broadcast and video systems are found in the world today: the U.S.
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NTSC system, the French SECAM system, and the German PAL system.Companies that are targeting global markets design multi system TVs and VCRs
that allow users to simply flip a witch for proper operation with any system.
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Companies that are not aiming for the global market design products that
comply with a single type of technical requirements.
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Measuring systems do not demand compatibility, but the absence ofcompatibility in measuring systems can create product resistance. The lack of
compatibility is a particular danger for the United States, which is the only
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nonmetric country in the world. Products calibrated in inches and pounds are at
a competitive disadvantage in metric markets. When companies integrate their
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worldwide manufacturing and design activity, the metric-English measuringsystem conflict requires expensive conversion and harmonization efforts.
5. LABELING AND INSTRUCTIONS
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Product labeling and instructions must comply with national law and regulation.
For example, there are very precise labeling requirements for prescription drugs
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and poisons. In addition, however, labeling can provide valuable consumerinformation on nutrition, for example. Finally, many products require operating
and installation instructions.
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In which languages should labeling and instructions be printed? One approach to
this issue is to print labels and instructions in languages that are used in all of the
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"major markets for the product. The use of multiple languages on labels andinstructions simplifies inventory control: The same packaging can be used for
multiple markets. The savings from simplicity must be weighed against the cost
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of longer instruction booklet and more space on labels for information.
Activity: 3
Give examples of each attributes discussed above for designing a Global
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Product .
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_______________________________________________________________GEOGRAPHIC EXPANSION ? STRATEGIC ALTERNATIVES
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Companies can grow in three different ways. The traditional methods of market
expansion-further penetration of existing markets to increase market share and
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extension of the product line into new-product market areas in a single nationalmarket are both available in domestic operations. In addition, a company can
expand by extending its existing operations into new countries and areas of the
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world. The latter method, geographic expansion, is one of the major
opportunities of global marketing. To pursue geographic expansion effectively,
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a framework for considering alternatives is required. When a company has aproduct/market base, it can select from five strategic alternatives to extend this
base into other geographic markets, or it can create a new product designed for
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global markets
STRATEGY 1. PRODUCT/COMMUNICATION EXTENSION (DUAL
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EXTENSION)
Many companies employ product/communication extension as a strategy for
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pursuing opportunities outside the home market. Under the right conditions, thisis the easiest product marketing strategy and, in many instances, the most
profitable one as well. Companies pursuing this strategy sell exactly the same
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product, with the same advertising and promotional appeals as used in the home
country, in some or all world-market countries or segments.
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The critical difference is one of execution and mind-set. In the stage 2companies, the dual extension strategy grows out of an ethnocentric orientation;
the stage 2 companies are making the assumption that all markets are alike. A
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company in stage 4 or 5 does not make such as assumptions; the company's
geocentric orientation allows it to thorough understand its markets and
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consciously take advantage of similarities in world markets.The product/ communication extension strategy has an enormous appeal to
global companies because of the cost savings associated with this approach. The
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two most obvious sources of savings are manufacturing economies of scale and
elimination of duplicate product R&D costs. Also important are the substantial
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economies associated with standardization of marketing communications. For acompany with worldwide operations, the cost of preparing separate print and TV
ads for each market can be enormous. Although these cost savings are
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important, they should not distract executives Item the more important objective
of maximum profit performance, which may require the use of an adaptation or
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invention strategy. As we have seen, product extension, in spite of its immediatecost savings, may in fact result in market failure.
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STRATEGY 2: PRODUT EXTENSION/COMMUNICATION ADAPTATION
When a product fills a different need, appeals to a different segment, or serves a
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different function under conditions of use that are the same or similar to those in
the domestic market, the only adjustment that may be required is in marketing
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communications. Bicycles and motor scooters are examples of products thathave been marketed with this approach. They satisfy recreational needs in the
United States but serve as basic or urban transportation in many other countries.
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Similarly, outboard marine motors are usually sold to a recreation market in the
high-income countries, whereas the same motors in lower-income countries are
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mainly sold to fishing and transportation fleets. Another example is the U.S.farm machinery company that decided to market its U.S. line of home lawn and
garden power equipment in: less developed countries (LDCs) as agricultural
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implements. The equipment was ideally suited to the needs of farmers in many
LDCs. Equally important was the lower price almost a third less than competing
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equipment especially designed for small acreage farming, and offered for sale bycompeting foreign manufacturers.
As these examples show, the product extension/communication adaptation
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strategy either design or by accident-results in product transformation. The same
physical product ends u serving a different function or use than that for which it
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was originally designed or created.The appeal of the product extension/communication adaptation strategy is its
relative y low cost of implementation. Because the product in this strategy is
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unchanged" R&D, tooling, manufacturing setup, and inventory costs associated
with additions to the product line are avoided. The only costs of this approach
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are hi identifying different product functions and revising marketingcommunications (including advertising, sales promotion, and point of-sale
material) around the newly identified function.
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STRATEGY3:
PRODUCT
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ADAPTATION/COMMUNICATION
EXTENSION
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A third approach to global product planning is to extend, without change, thebasic home-market communications strategy while adapting the product to local
use or preference conditions. Note that this strategy (and the one that follows)
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may be utilized by both stage 3 and stage 4 companies. The critical difference is,
as noted earlier, one of execution and mind-set. In the stage 3 company, the
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product adaptation strategy grows out of a polycentric orientation; the stage 3company assumes that all` markets are different. By contrast, the geocentric
orientation of managers and executives in a Stage 4 global company has
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sensitized them to actual, rather than assumed, differences between markets.
Exxon adheres to this third strategy: It adapts its gasoline formulations to meet
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the weather conditions prevailing in different markets while extending the basiccommunications appeal, "Put a tiger in your tank," without change.
There are many other examples of products that have been adjusted to perform
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the same function around the globe under different environmental conditions.
Soap and detergent manufacturers have adjusted their product formulations to
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meet local water and washing equipment conditions with no change in theirbasic communications approach. Household appliances have been scaled to sizes
appropriate to different use environments, and clothing has been adapted to meet
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fashion criteria. Also, food products, by virtue of their potentially high degree of
environmental sensitivity, are often adapted.
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STRATEGY 4: DUAL ADAPTATIONSometimes, when comparing a new geographic market to the home market,
marketers discover that environmental conditions or consumer preferences
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differ; the same may be true of the function a product serves or consumer
receptivity to advertising appeals. In essence, this is a combination of the market
conditions of strategies 2 and 3. In such a situation, stage 4/5 companies will
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utilize the strategy of product and communications adaptation. As is true about
strategy 3, stage 3 companies will also use dual adaptation-regardless of whether
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the strategy is warranted by market conditions, Preferences, function, orreceptivity.
Unilever`s experience with fabric softener in Europe exemplifies the classic
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multinational road to adaptation. For years, the product was sold in 10 countries
under seven different brand names, with different bottles and marketing
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strategies. Unilever's de-centralized structure meant that product and marketingdecisions were left to country managers. They chose names that had local-
language appeal and selected 'package de-signs to fit local tastes. Today, rival
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Procter & Gamble is introducing competitive products with a pan-European
strategy of standardized product$ with single names, suggesting that the
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European market is more similar than Unilever assumed. In response, Unilever`sEuropean brand managers are attempting to move gradually toward
standardization
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Sometimes, a company will draw on all four of these strategies simultaneously
when marketing a given product in different parts of the world. For example,
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Heinz utilizes a mix of strategies in its ketchup marketing. Whereas a dualextension strategy works in England, spicier, hotter formulations are also
popular in Central Europe and Sweden. Recent ads in France featured a cowboy
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lassoing a bottle of ketchup and, thus, reminded consumers of 'the product's
American heritage. Swedish ads conveyed a more cosmopolitan message; by
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promoting Heinz as "the taste of the big world" and featuring well knownlandmarks such as the Eiffel Tower, the ads disguised the product's origin.
STRATEGY 5: PRODUCT INVENTION
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Adaptation strategies are effective approaches to international and multinationalmarketing, but they may not respond to global market opportunities. They do not
respond to the situation in markets in which customers do not have the
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purchasing power to buy either the existing or adapted product. This latter
situation applies to the LDCs of the world, which are home to roughly three
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quarters of the world's population. When potential customers have limitedpurchasing power, a company may need to develop an entirely new product,
designed to satisfy the need or want at a price that is within the reach of the
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potential customer. Invention is a demanding but potentially rewarding product
strategy for reaching mass markets in LDCs.
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The winners in global competition are the companies that can develop productsoffering the most benefits, which in turn create the greatest value for buyers. In
some instances, value is not defined in terms of performance but rather in terms
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of customer perception. The latter is as important for an expensive perfume or
champagne as it is for an inexpensive soft drink. Product quality is essential-
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indeed, it is frequently a given but it is also necessary to support the productquality with imaginative, value-creating advertising and marketing
communications. Most industry experts believe that a global, appeal and a
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global advertising campaign are more effective in creating the perception, of
value than a series of separate national campaigns.
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Activity: 4Prepare a list of Geographical alternatives while expanding a product reach in
the Global Market.
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HOW TO CHOOSE A STRATEGYMost companies seek a product strategy that optimizes company profits over the
long term. Which strategy for global markets best achieves this goal? There is,
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unfortunately, no general answer to this question. Rather, the answer depends on
the specific product market-company mix.
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Companies differ in both their willingness and capability to identify and produceprofitable product adaptations. Unfortunately, too many stage one and stage two
companies are oblivious to the foregoing issues. One new-product expert has
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described three stages that a company must go through as follows:
1. Cave dweller- The primary motivation behind launching new products
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internationally is to dispose of excess production or increase plant-capacityutilization.
2. Naive nationalist- The Company recognizes growth opportunities outside the
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domestic market. It realizes that cultures and markets differ from country to
country, and as a result, it sees' product adaptation as the only possible
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alternative.3. Globally sensitive- This Company views regions or the entire world as the
competitive marketplace. New-product opportunities are evaluated across
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countries, with some standardization planned as well as some differentiation to
accommodate cultural variances. New-product planning processes and control
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systems are reasonably standardized.To sum up, choice of product and communications strategy in international
marketing is a function of three key factors: (1) the product itself, defined in
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terms of the function or need it serves; (2) the market, defined in terms of theconditions under which the product is used, the preferences of potential
customer and the ability to buy the products in question; and (3) the costs of
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adaptation
and
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manufacture to the company considering theseproduct/communications approaches. Only after analysis of the product/ market
fit and of company capabilities and costs can executives choose the most
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profitable international strategy.
NEW PRODUCTS IN GLOBAL MARKETING
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What is new product? Newness can be assessed in the context of the productitself, the organization, and the market. The product may be an entirely new
invention or innovation; for example, the videocassette recorder (VCR) or the
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compact disc. It may be a line extension (a modification of an existing product)
such as Diet Coke. Newness may also be organizational, as when a company
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acquires an already existing product with which it has no previous experience.Finally, an existing product that is not new to a company may be new to a
particular market.
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In today's dynamic, competitive market environment, many companies realize
that continuous development and introduction of new products are keys to
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survival and growth. Which companies excel at these activities? Gary Rainer, anew-product specialist with the Boston Consulting Group, has compiled the
following list: Honda Compaq, Motorola, Canon, Boeing, Merck, Microsoft,
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Intel, and Toyota. One common characteristic: They are global companies that
pursue opportunities in global markets in which competition is fierce, thus
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ensuring that new products will be world class. Other characteristics noted byReiner are as follows:
1. They focus on one or only a few businesses.
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2. Senior management is actively involved in defining and improving theproduct development process.
3. They have the ability to recruit and retain the best and the brightest
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people in their fields.
4. They understand that speed in bringing new products to market
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reinforces product quality.Activity: 5
Prepare a presentation for adopting new product ideas in the targeted Market.
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________________________________________________________________________________________________________________________________
IDENTIFYING NEW PRODUCT IDEAS
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The starting point for an effective worldwide new-product program is an
information system that seeks new product ideas from all potentially useful
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sources and channels. Those ideas relevant to the company undergo screening atdecision centers within the organization. There are many sources of new-product
ideas, including customers, suppliers, competitors, company salespeople,
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distributors and agents, subsidiary executives; headquarters executives,
documentary sources (for example, information service reports and
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publications), and, finally, actual firsthand observation of the marketenvironment.
NEW-PRODUCT DEVELOPMENT LOCATION
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A global company must make an important decision regarding new-product
development. Should development activity be dispersed to different
country/regional locations, or should new-product activities` be concentrated in
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a single location? The advantage of concentration is that all of the new-product
development people can interact daily on a face-to-face basis. There may also be
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cost efficiencies in a single location. The disadvantage of concentration is that itdoes not take advantage of global thinking and separates the developers from the
ultimate consumer. Utilizing a dispersed strategy requires co-ordination of
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employees and the effective transfer of information between locations, and may
result in duplicated efforts.
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Regardless of which strategy a company selects, a high volume of informationflow is required to scan adequately for new-product opportunities, and
considerable effort is subsequently required tO5creen these opportunities to
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identify candidates for product development. An organizational design for
addressing these requirements is a new-product department. The function of
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such a department is fourfold: (1) to ensure that all relevant information sourcesare continuously tapped for new-product: ideas; (2) to screen these ideas to
identify candidates for investigation; (3) to investigate and analyze selected
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new-product ideas; and (4) to ensure that the organization commits resources to
the most likely. New product candidates and is continuously involved in an
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orderly program of new-product introduction and development on a worldwidebasis.
With the enormous number of possible new products, most companies establish
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screening grids to focus on those ideas that are most appropriate for
investigation. The following questions are relevant to this task:
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1. How big is the market for this product at various prices?2. Can we market the product through our existing structure? If not,
what changes will be necessary and what costs will be required to
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make the changes?
3. Given estimates of potential demand for this product at specified
prices with estimated levels of competition, can we source the
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product at a cost that will yield an adequate profit?
4. What are the likely competitive moves in response to our activity
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with this product?5. Does this product fit our strategic development plan?
a. Is the product consistent with our overall goals and objectives?
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b. Is the product consistent with our available resources?
c. Is the product consistent with our management structure?
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d. Does the product have adequate global potential?)TESTING NEW PRODUCTS IN NATIONAL MARKETS
The major lesson of new product introduction outside the home market has been
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that whenever a product interacts with human, mechanical, or chemical
elements, there is the potential for a surprising and unexpected incompatibility.
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Since virtually every product matches this description, it is important to test aproduct under actual market conditions before proceeding with full-scale
introduction. A test does not necessarily involve a full-scale test-marketing
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effort. It may simply involve observing the actual use of the product in the target
market.
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Failure to assess actual use conditions can lead to big surprises, as in the case ofSinger sewing machines sold in African markets. These machines, manufactured
in Scotland by Singer, were slightly redesigned by Scottish engineers. The
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location of a small bolt on the product's base was changed; the change had no
effect on product performance but did save a few pennies per unit in
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manufacturing costs. Unfortunately, when the modified machine reached Africa,it was discovered that this small change was disastrous for product sales. The
Scottish engineers did not take into account the fact that in Africa, it is
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customary for women to transport any bundle or load-including sewingmachines-on their heads. The relocated bolt was positioned at exactly the place
where head met machine for proper balance; since the sewing machines were no
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longer transportable, demand decreased substantially.
MANAGEMENT OF INTERNATIONAL BRANDS
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In many countries, branding may be nothing more than the simple process ofputting a manufacturer's name, signature, 'or picture on a product or its package.
Many U.S. firms did precisely this in the old days, as illustrated by King
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Gillette's own portrait being used as a trademark for his Gillette razor blades.
Exhibit:
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Marketing Strategy 1Name Selection
Brand name selection, although an artistic process has become more scientific.
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In the case of automobiles, brand names are carefully chosen so they can
connote certain positive meanings.
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Oldsmobile has changed some of its name plates. Calais has become Achieva.Calais is a Seaport in northern France on the Strait of Dover. Achieva, in
contrast, can communicate the idea that the car is a "compact, dependable,
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nimble, and responsive automobile". Achieva is a computer-generated name.
Although it does not really mean anything, it connotes achievement. Olds mobile
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initially called it the Achiever, which implied somewhat negatively a youngurban professional who had "made it."
Just like Achieva, Acura is a neologism. Created by Name Lab, the name
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suggests precision.
One of Honda's desired hallmarks for the brand was precise engineering.
Altima is a neologism. The word has no real meaning but hints at ultimate or best.
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Geo is a morpheme or the smallest meaningful language unit. It means world in
many languages.
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Mondeo menad world in ItalianMitsubishi, in Japanese, means three pebbles. The company changed it to three
diamonds whose design serves as the company's logo.
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The wives of the vice president and the top engineer of ford car product
development were born under the Taurus sign of the Zodiac. As a result, Taurus
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was used as the project code name and in the end stayed as the name of the car.Wind star is a successor to Ford's aero star minivan. The company, while
wanting to keep a family relationship to the Aerostar, also wanted a different
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name to tell buyers that Wind star was a new vehicle.
The basic purposes of branding are the same everywhere in the world. In
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general, the functions of a brand are to (1) create identification and brandawareness, (2) guarantee a certain level of quality, quality, and satisfaction, and
(3) help with promotion. All of these purposes have the same ultimate goal: to
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induce repeat sales. The Spalding name, for example, has a great deal of
marketing clout in Japan. In fact, a group of investors bought the company in
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1982 because they felt that Spalding was the best-known name in sports in thefree world and that the name was underutilized.
For American consumers, brands are important. Overseas consumers are just as
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brand conscious if not more so because of their social aspirations and the social
meanings that brand names can offer. Eastern European consumers recognize
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many Western brand names, including some that are unavailable in theircountries. Among the most powerful brand names are Sony, Adidas, Ford,
Toyota, Volvo, BMW, and Mercedes. When International Semi Tech
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Microelectronics Inc. acquired troubled SSMC Inc.; the most important assetwas probably the Singer trademark.
When a company is for sale, the remainder of the purchase price after deducting
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the fair value of the physical assets is called goodwill, "going concern value:' or
an intangible asset. In the case of service businesses, nearly the entire purchase
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price that companies generate tends to be goodwill. The brand has brand equitywhen there is value that is attached to that brand. Perhaps, Coca-Cola's most
valuable asset is its brand equity, which is worth $39 billion.
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Taking into consideration the importance of branding as a marketing tool, one
would expect that corporate headquarters would normally have a major role in
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brand planning for overseas markets. As a component of an MNC's marketingmix, branding is the area in which standardization appears to be relatively high.
One study found a standardization-branding rate of 82.5 percent among U.S.
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consumer-goods manufacturers. In comparison to the large U.S.-based industrial
firms' European marketing strategies, these same firms' marketing mix strategies
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in Latin America appear to be more standardized. As expected, branding andproduct were least adapted, probably because of the relatively greater cost of
adapting products and brands.
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Another study found that international marketing managers considered some
cultural and socioeconomic conditions of foreign countries in making global
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brand image strategy decisions. If the markets are similar, a firm may be able touse the standardization strategy by extending its brand-image theme to the other
markets. However, when markets differ in cultural uncertainty avoidance,
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individualism, and national socioeconomic, managers tend to employ the image-
customization strategy.
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BRANDING LEVELS AND ALTERNATIVES
There are four levels of branding decisions:
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1. No brand versus brand2. Private brand versus manufacturer's brand
3. Single brand versus multiple brands
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4. Local brands versus worldwide brand
Branding versus No Brand
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To brand or not to brand, that is the question. Most U.S. exported products arebranded, but that does not mean that all products should be. Branding is not a
cost-free proposition because of the added costs associated with marking,
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labeling, packaging, and legal procedures. These costs are especially relevant in
the case of commodities (e.g. salt, cement, diamonds, produce, beef, and other
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agricultural and chemical products).Commodities are "unbranded or undifferentiated products which are sold by
grade, not by brands." As such, there is no uniqueness, other than grade
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differential, that can be used to distinguish the offerings of one supplier from
those of another. Branding is then probably undesirable because brand
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promotion is ineffective in a practical sense and adds unnecessary expenses tooperations costs. The value of a diamond, for example, is determined by the so-
called four Cs cut, color, clarity, and carat weight and not by brand. This is why
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DeBeers promotes the primary demand for diamonds in general rather than the
selective demand for specific brands of diamonds.
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On the positive scale, a brand less product allows flexibility in quality andquantity control, resulting in lower production costs along with lower marketing
and legal costs.
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The basic problem with a commodity or unbranded product is that its demand isstrictly a function of price. The brand less product is thus vulnerable to any price
swing or price cutting. Farmers can well attest to this vulnerability because
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prices of farm products have been greatly affected by competition from overseas
producers. Yet, there are-ways to--remove-a company from this kind-of
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cutthroat competition Branding, when feasible, transforms a commodity into aproduct (e.g., /Chiquita bananas, Dole pineapples, Sunkist oranges, Morton salt,
Holly Farms fryers, and Perdue fryers).
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A product is a "value-added commodity," and this bundle of added values
includes the brand itself as well as other product attributes, regardless of
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whether such attributes are physical or psychological and whether they are realor imaginary. The 3M company developed brand identity and packaging for its
Scotch videotapes for the specific purpose of preventing them from becoming
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just another commodity item in the worldwide, price-sensitive market.
Branding makes premium pricing possible because of better identification,
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awareness, promotion, differentiation, consumer confidence, brand loyalty, andrepeats sales.
Although branding provides the manufacturer with some insulation from price
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competition, a firm must still find out whether it is worthwhile to brand the
product. In general, these prerequisites should be met:
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1. Quality and quantity consistency, not necessarily the best quality orthe greatest quantity.
2. The possibility of product differentiation.
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3. The degree of importance consumers place on the product attribute to
be differentiated.
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As an example, Nike's unique designs (e. -g. waffle sole) allowed the
company to differentiate its brand from others and to become the top-
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rated brand among serious joggers.Activity: 6
Prepare a list of examples of Branding Decisions.
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EXHIBIT Advantages of Each Branding Alternative (from manufacturer's
viewpoint)
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No Brand
Brand
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Lower production cost
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Better identification
Lower marketing cost
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Better awarenessLower legal cost
Better chance for product
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differentiation
More flexibility in quality and
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quantitycontrol
(i.e.,
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Better chance for repeat sales
possibility of less rigidity in
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Possible premium pricing (i.e.,control)
removal from price com
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Good
for
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commoditiesPetition)
(undifferentiated items)
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Possibility of making demand
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more price inelastic--- Content provided by FirstRanker.com ---
Manufacturer's Brand
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Private Brand--- Content provided by FirstRanker.com ---
Better control of products and
Ease in gaining dealers'
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featuresacceptance
Better price because of more
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Possibility of larger market
price inelasticity retention of
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sharebrand loyalty
No promotional hassles and
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Better bargaining power
expenses
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Assuranceof
not
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being
Good for small manufacturer
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bypassed by channel memberswith unknown brand and
identity
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Single Brand (in single market)
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Better marketing impact
Multiple Brands (in single market)
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Permittingmore
focused
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marketing
Brand receiving full attention
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Utilization
of
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marketReduction of advertising costs
segmentation technique
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because of better
Creation of excitement among
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Economies of scale and lack ofemployees
duplication
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Creation of competitive spirits
Elimination of brand confusion
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Avoidanceof
negative
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among employees, dealer, and
connotation of existing brand
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consumersgain of more retail shelf space
Good for product with good
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Retention of customers who
reputation and quality (halo
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are not brand loyal allowanceeffect)
of trading up or down without
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hurting existing brand
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Worldwide Brand
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Better marketing impact and
Local Brands
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focusReduction of advertising costs
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Legal necessity (e.g., name
already used by someone else
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Elimination of brand confusionin local market)
Good for culture-free product
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Elimination of difficulty in
Good for prestigious brand
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pronunciationEasy identification/recognition
Allowance
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for
more
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for international travelersmeaningful names (i.e., more
local identification!
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Good for well-known designer
Elimination
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ofnegative
connotations.
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Avoidance of taxation on
international brand
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Quick market penetration byacquiring
local
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brand
allowance of variations of
quantity and quality across
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marketsPrivate Brand versus Manufacturer's Brand
Branding to promote sales and move product necessitates a further branding
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decision: whether the manufacturer should use its own brand or a distributor'sbrand on its product. Distributors in the world of international business include
trading companies, importers, and retailers, among others; their brands are
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called private brands. Many portable TV sets made in Japan for the U.S. market
are under private labels. In rare instances, Japanese marketers put their brands
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on products made by U.S. companies, as evidenced by Matsushita's purchases ofmajor appliances from White and D&M for sale in the United States. The Oleg
Cassini trademark is put on the shirts actually made by Daewoo.
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Even though it may seem logical for a distributor to carry the manufacturer's
well-known brand, many distributors often insist on their own private brands for
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several reasons.First, a distributor may be able to create a unique product by bundling or
unbundling product attributes and then adjusting the price to reflect the proper
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value. Carrefour, a French retail giant, and sells some 3,000 in-house products at
prices about 15 percent lower than national brands. J. Sainsbury PLC, a British
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retailer, has a private brand that is able to get 30 percent of the detergent market,moving it ahead of Unilever's Persil and just behind Procter & Gamble's Ariel,
which is the market leader. It is believed that private-label products now account
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for 32 percent of supermarket sales in the United Kingdom and 24 percent in
France.
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Second, a private brand is a defensive strategy that guarantees that a distributoris not bypassed by its supplier. For example, Ponder and Best, after losing the
Rolleiflex and Olympus distributorships, came up with its own brand of
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photographic products, Vivitar.
Third, distributors can convert fixed production costs into variable costs by
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buying products made by others. Sperry's products are made by more than 200
manufacturers (e.g., Sperry's personal computer is manufactured by Mitsubishi).
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With this practice, Sperry is able to save cash and research-and-developmentexpenses. Of course, it is important for a distributor with a private brand to have
a reliable supplier.
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Fourth and perhaps the most important reason for a distributor's insistence on a
private brand is brand loyalty, bargaining power, and price. In spite of the lower
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prices paid by the distributor and ultimately by its customers, the distributor isstill able to command a higher gross margin than what a manufacturer's brand
usually offers. The lower price can also be attributed to the distributor's refusal
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to pay for the manufacturer's full costs. A distributor may want to pay for the
manufactures variable costs but not all of the fixed costs. Or a distributor may
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want to pay for production costs only but not the manufacturer's promotionalexpenditures, because a distributor gets no benefit from the goodwill of a
manufacturer's advertised brand. If a firm has any problem with the supplier
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(manufacturer), it has the flexibility of switching .to another supplier to make
the-identical product, thus maintaining brand loyalty and bargaining power
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without any adverse effect on sales. RCA; for example, switched' fromMatsushita to Hitachi for its portable units of VCRs.
Single Brand versus Multiple Brands
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When a single brand is marketed by the manufacturer, the brand is assured of
receiving full attention for maximum impact. But a company may choose to
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market several brands within a single market based on the assumption that themarket is heterogeneous and thus-must be segmented. Consequently, a specific
brand is designed for a specific market segment.
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The watch industry provides a good illustration for the practice-of-using-multiple brands in a single market for different market segments. Bulova, a well-
known brand, also has the Accutron and Caravelle brands. Citizen, in its attempt
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to capture the new youth and multiple-watch owners market, traded down to
include a new brand called Vega. Likewise, Hattori Seiko is well known for its
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Seiko brand, which is sold at the upper-medium price range ($100-300) in betterstores; to appeal to a more affluent segment, the firm traded up with the Lassale
name. Seiko's strategy is to deliberately divorce the Seiko and Lassale names,
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once used together, in the public mind, with the gold-plated Lassale line
retailing for $225-750 and the karat-gold Jean Lassale line retailing for $675-
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35,000. Lassale watches have Seiko movements but are made only in the UnitedStates and Western Europe in order to curb parallel trading and they are
distributed only through jewelers and department stores. The company also
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trades down, with Pulsar (the cheapest model at $50). Lorus ($12.95-49.95), and
Alba ($9.95-19.95) for Asia.
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Multiple brands are suitable when a company wants to trade either up or downbecause both moves have a tendency to hurt the firm's main business. If a
company has the reputation for quality, trading down without creating a new
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brand will hurt the prestige of the existing brand. By the same rationale, if a
company is known for its low-priced. Mass-produced products, trading up
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without creating a new brand is hampered by the image of the existing products.Casio is perceived as a manufacturer of low-priced watches and calculators and
the name adversely affects its attempt to trade up to personal computers and
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electronic musical instruments. To overcome this kind of problem, Honda uses
the Acura name for its sporty cars so that Acura's image is not affected by the
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more pedestrian Honda image.IBM has begun to segment the PC market and has employed a multi brand
strategy. Toward this end, the company aims different brands and separate sales
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channels at different groups of customers. In Europe it has four product lines,which range from a law-priced PS/1 home model to a relatively expensive PS/2
hub far corporate networks. The other two lines are Ambra and Value Paint.
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Ambra is noteworthy because it is it product line of imparted Asian computers
which are said in Europe under a non IBM label.
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Exhibit:Cultural Dimension Multi-brand Marketing
Timex's most valuable asset may be its brand name. Its advertisements
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showing how rugged. Timex watches have been well received over the years.
As a matter of fact, the 1992 Gallup Watch Brand Survey found that Timex is
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number one in terms of name recognition, with 98percent of consumersknowing the Timex name. Seiko, with 87 percent recognition, took second
place.
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Timex's marketing error was its failure to keep' up with market trends as the
watch evolved from a functional object to a fashion accessory. According to
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the Jewelers of America, the average consumer has five watches, drasticallydifferent from 1.5 watches from thirty years ago. Timex's Japanese rivals,
Seiko and Citizen, have long adjusted by introducing a wide variety of styles
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and prices so that customers can have different watches for different looks.
In the meantime, Timex was moving along as a one-brand company. The
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company has finally decided to go multi-brand.Source: "At Timex, They're Positively Glowing," Business Week, 12 July 1993.
141.
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Local Brands versus Worldwide Brand
When the manufacturer decides to put its awn brand name and the product, the
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problem does not end there if the manufacturer is an International marketer. The
possibility of having to modify the trademark cannot be dismissed: The
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international marketer must then consider whether to use just one brand nameworldwide are different brands far different markets are countries. To market
brands worldwide and to market worldwide brands are not the same thing .A
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single, worldwide brand is also known as: an international, universal, or global
brand. A Euro-brand is a slight modification of this approach, as it is a single
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product far a singleFor a brand to be global or worldwide it must by definition have a commonly
understood set of characteristics and benefits in all of the markets where it is
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marketed. Coca cola is a global brand in the sense that it has been successful in
maintaining similar perceptions across countries and cultures. However, most
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other brand does not enjoy this kind of consistency thus making it debatablewhether a gullible brand is a practical solution.
A worldwide brand has several advantages. First, it tends to be associated with
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status and prestige. Second, it achieves maximum market impact overall while
reducing advertising costs because only one brand is pushed. Bata Ltd. a
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Canadian shoe marketer and retailer in ninety-two countries found out form it sresearch that consumers greatly though Bata to be a local concern, no matter the
country surveyed. The company thus decided to become and official sponsor of
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world cup soccer in order to enhance Bata`s international stature. For Bata and
others it is easier to achiever worldwide exposure for one brand than it is for
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multiple local brands. Too many brands create confusion and fragmentation.Third, a worldwide brand provides a convenient identification, and international
travelers can easily recognize the product. There would be no sense in creating
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multiple brands for such international products as Time magazine, American
Express credit card, Diner's Club credit card, Shell gasoline, and so on;
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Finally, a worldwide brand is an appropriate approach when a product has a
good reputation or is known for quality. In such a case, a company would be
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wise to extend the brand name to other products in the product line. Thisstrategy has been used extensively by GE In another case, 3M perceived
commonalities in consumer demographics and market development worldwide;
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in response, it devised a "convergence remarketing" strategy to develop global
identity for its Scotch brand of electronic recording products, whose design
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prominently displays the Scotch name and a globelike logo.The use of multiple brands, also known as the local or individual approach, is
probably much more common than many people realize. The automobile
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industry is a good example. The Japanese strategy is to introduce a new car in
Japan for one year before exporting it to the U.S. market under a different name.
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Toyota XX and Datsun Sunny, dubbed Toyota Supra and Nissan Sentra for theUnited States, are examples of this practice. In the case of Unilever, its fabric
softener is sold in ten European countries under seven names. Due to
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decentralization, the multinational firm allows country managers to choose
names, packages, and formulas that will appeal to local tastes. More recently,
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the company, while keeping local brand names, has been graduallystandardizing packaging and product formulas.
PACKAGING AND LABELING
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Much like the brand name packaging is another integral part of a product.
Packaging serves two primary purposes: functional and promotional. First and
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foremost, a package must be functional in the sense that it is capable ofprotecting the product at minimum cost.
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If a product is not manufactured locally and has to be exported to anothercountry, extra protection is needed to compensate for the time and distance
involved. A country's adverse environment should also be taken into account.
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When moisture is a problem, a company may have to wrap pills in foil or put
food in tin boxes or vacuum-sealed cans. Still, the type of package chosen must
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be economical. In Mexico, where most consumers cannot afford to buydetergents in large packages, detergent suppliers found it necessary to use plastic
bags for small packages because cardboard would be too expensive for that
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purpose.
For most packaging applications, marketers should keep in mind that foreign
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consumers are more concerned with the functional aspect of a package than theyare with convenience. As such, there is usually no reason to offer the great
variety of package sizes or styles demanded by Americans. Plastic and
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throwaway bottles are regarded as being wasteful, especially in LDCs, where the
labor cost for handling returnable is modest. Non-American consumers prefer a
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package to have secondary functions. A tin box or a glass bottle can be usedafter the product content is gone to store something else. Empty glass containers
can be sold by consumers to recoup a part of the purchase price.
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From the marketing standpoint, the promotional function of packaging is just as
critical as the functional aspect. To satisfy the Japanese preference for beautiful
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packaging, Avon upgraded its inexpensive plastic packaging to crystalline glass.Similarly, BSR packs its product into two cartons, one for shipping and one for
point-of purchase display, because Japanese buyers want a carton to be in top
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condition. The successful campaign for Bailey's Irish Cream in the United States
included a fancy gold foil box package that promotes this whiskey-based drink's
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upscale image. In any case, packaging does not have to be dull. Novel shapesand designs can be used to stimulate interest and create excitement.
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MANDATORYPACKAGE
MODIFICATION
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A package change may be either mandatory or at the discretion of the marketer.
A mandatory change is usually necessitated by government regulations.
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Sometimes, it is for safety and other reasons. Sometimes, packaging regulationsare designed more for protection against imports than for consumer protection.
Several countries require bilinguality (e.g., French and English in Canada and
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French and Flemish in Belgium). This requirement may force the manufacturer
to increase package size or shorten messages and product name, as a bilingual
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package must have twice the space for copy communications. In some cases,modification is dictated by mechanical or technical difficulties, such as the
unavailability of certain typographic fonts or good advertising typographers:
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In many cases, packaging and labeling are highway related. Packages may be
required to describe contents, quantity, manufacturer`s name and address, and so
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on in letters of designated sizes. Any pictorial illustration that is used should notbe misleading. In Singapore, Certain foods must be labeled to conform to
defined standards. When terms, are used, that-imply added vitamins or minerals
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(e.g., enriched, fortified, vitaminized), packages must show the quantities of
vitamins or minerals added per metric unit. In addition, if the product is
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hazardous m. any way, marketers should adopt the United Nations'recommendations for the labeling and packaging of hazardous materials.
Exporters of textile products must conform to countries' varying regulations.
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Spain has specific and extensive requirements concerning fiber content,
labeling, and packaging. In addition to its flammability requirements, Sweden's
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labeling regulations include size, material, care, and origin. Venezuela requiresall packaged goods to be labeled in metric units while specifically prohibiting
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dual labeling to show both metric and non metric units. Germany wants thedescription of fiber content to be in German, but labeling for Denmark must be
in Danish or kindred. In the case of France care labeling (if used) must meet an
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International Standardization Organization (ISO) directive.
Different countries' different measurement systems may necessitate some form
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of product modification, and necessity applies to packaging as well. Products,toiletries included, cannot be sold in Australia in ounces. The Australian
regulations require products to be sold in metric numbers, in increments of 25
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mm. In Germany, liquid products must be bottled or packaged in standard metric
sizes. Interestingly, the United States, a non-metric nation, has the same
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requirement for liquor products.OPTIONAL
PACKAGE
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MODIFICATION
Optional modification of package, although not absolutely necessary, may have
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to be undertaken for marketing impact or for facilitating marketing activities.Through accidents and history, users in many countries have grown accustomed
to particular types of packages. Mayonnaise, cheese, and mustard come in tubes
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in Europe, but mustard is sold in jars in the United States. Orange bottles are
popular in the Netherlands. While non-Dutch beer drinkers all over the world
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readily recognize a green Heineken bottle; the domestic Heineken beer comes ina brown bottle. Ironically, because of a strike at home, Heineken was forced to
import 1.8 million gallons at one time from some of its ninety breweries
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worldwide.
In selecting or modifying a package, a marketer should consider local conditions
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related to purchasing habits. Products conventionally sold in packs in the UnitedStates are not necessarily sold that way elsewhere and may require further bulk
breaking. This phenomenon is in part the result of lower income levels overseas
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and in part the result of a lack of unit pricing, which makes it difficult for buyers
to see any savings derived from the purchase of a bigger package. Foreign
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consumers may, desire to buy one bottle of beer or soft drink at a time instead of
buying a six-pack or eight pack. Likewise, one cigarette, not the whole pack,
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may be bought in a purchase transaction.Activity: 7
Prepare a list of examples where Packaging helped in creation of Brand Value..
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_______________________________________________________________
________________________________________________________________
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________________________________________________________________________________________________________________________________
PROVISION OF SALES RELATED SERVICES:
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Business Practices in International Product Delivery
Companies should be aware of basic business practices that are paramount to
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successful international selling. Because cultures vary, there is no single code bywhich to conduct business. These practices transcend culture barriers and will
help the U.S. company conduct business overseas.
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? Keep promises. The biggest complaint from foreign importers about
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U.S. suppliers is failure to ship as promised. A first order is particularlyimportant because it shapes the customer's image of a firm as a dependable or an
undependable supplier.
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? Be polite, courteous, and friendly. However, it is important to avoid
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undue familiarity or slang. Some overseas firms feel that the usual brief U.S.business letter is lacking in courtesy.
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? Personally sign all letters. Form letters are not satisfactory.
Building a Working Relationship
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Once a relationship has been established with an overseas customer,
representative, or distributor, it is important that the exporter work on building
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and maintaining that relationship. Common courtesy should dictate businessactivity. By following the points outlined in this chapter, a U.S. firm can present
itself well. Beyond these points, the exporter should keep in mind that a foreign
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contact should be treated and served as well as a domestic contact. For example,
the U.S. company should keep customers and contacts notified of all changes,
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including price, personnel, address, and phone numbers.Because of distance, a contact can "age" quickly and cease to be useful unless
communication is maintained. For many companies, monthly or quarterly visits
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should be made to customers or distributors. This commitment to the business
relationship, although not absolutely necessary, ensures that both the company
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and the product maintain high visibility in the marketplace.After-sales Service
Quality, price, and service are three factors are critical to the success of any
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export sales effort. Quality and price are addressed in earlier chapters. Service,
which is addressed here, should be an integral part of any company's export
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strategy from the start. Properly handled, service can be a foundation for growth.Ignored or left to chance, it can cause an export effort to fail.
Service is the prompt delivery of the product. It is courteous sales personnel. It
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is a user or service manual modified to meet your customer's needs. It is ready
access to a service facility. It is knowledgeable, cost-effective maintenance,
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repair, or replacement. Service is location. Service is dealer support.Service varies by the product type, the quality of the product, the price of the
product, and the distribution channel employed. For export products that require
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no service - such as food products, some consumer goods, and commercial
disposables - the issue is resolved once distribution channels, quality criteria,
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and return policies have been identified.
On the other hand, the characteristics of consumer durables and some
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consumables demand that service be available. For such products, service is afeature expected by the consumer. In fact, foreign buyers of industrial goods
typically place service at the forefront of the criteria they evaluate when making
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a purchase decision.
All foreign markets are sophisticated, and each has its own expectations of
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suppliers and vendors. U.S. manufacturers or distributors must therefore ensurethat their service performance is comparable to that of the predominant
competitors in the market. This level of performance is an important determinant
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in ensuring a reasonable competitive position, given the other factors of product
quality, price, promotion, and delivery.
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An exporting firm's strategy and market entry decision may dictate that it doesnot provide after-sale service. It may determine that its export objective is the
single or multiple opportunistic entry into export markets. Although this
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approach may work in the short term, subsequent product offerings will be less
successful as buyers recall the failure to provide expected levels of service. As a
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result, market development and sales expenditures may result in one-time sales.Service Delivery Options
Service is an important factor in the initial export sale and ongoing success of
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products in foreign markets. U.S. firms have many options for the delivery of
service to foreign buyers.
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A high-cost option - and the most inconvenient for the foreign retail, wholesale,commercial, or industrial buyer - is for the product to be returned to the
manufacturing or distribution facility in the United States for service or repair.
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The buyer incurs a high cost and loses the use of the product for an extended
period, while the seller must incur the export cost of the same product a second
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time to return it. Fortunately, there are practical, cost-effective alternatives to
this approach.
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If the selected export distribution channel is a joint venture or other partnershiparrangement, the overseas partner may have a service or repair capability in the
markets to be penetrated. An exporting firm's negotiations and agreements with
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its partner should include explicit provisions for repairs, maintenance, and
warranty service. The cost of providing this service should be negotiated into the
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agreement.For goods sold at retail outlets, a preferred service option is to identify and use
local service facilities. Though this requires up-front expenses to identify and
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train local service outlets, the costs are more than repaid in the long run.
For example, a leading Canadian manufacturer of consumer personal care items
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uses U.S. distributors and sales representatives to generate purchases by largeand small retailers across the United States. Individual consumers purchase the
products at retail. The Canadian firm contracted with local consumer electronic
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repair facilities in leading U.S. cities to provide service or replacement for its
product line. Consequently, the manufacturer can include a certificate with each
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product listing "authorized" local warranty and service centers.There are administrative, training, and supervisory overhead costs associated
with such a warranty and service program. The benefit, however, is that the
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company is now perceived to be a local company that competes on equal footing
with domestic U.S. manufacturers. U.S. exporters should keep this example in
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mind when entering foreign markets.Exporting a product into commercial or industrial markets may dictate a
different approach. For the many U.S. companies that sell through distributors,
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selection of a representative to serve a region, a nation, or a market should be
based not only on the distributing company's ability to sell effectively but also
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on its ability and willingness to service the product.
Assessing that ability to service requires that the exporter ask questions about
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existing service facilities; about the types, models, and age of existing serviceequipment; about training practices for service personnel; and about the firm's
experience in servicing similar products.
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If the product being exported is to be sold directly to end users, service and
timely performance are critical to success. The nature of the product may require
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delivery of on-site service to the buyer within very specific time parameters.These are negotiable issues for which the U.S. exporter must be prepared. Such
on-site service may be available from service organizations in the buyer's
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country; or the exporting company may have to send personnel to the site to
provide service. The sales contract should anticipate a reasonable level of on-site
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service and should include the associated costs. Existing performance andservice history can serve as a guide for estimating service and warranty
requirements on export sales, and sales can be costed accordingly. Small and
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large exporters alike accept this practice.
At some level of export activity, it may become cost-effective for a U.S.
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company to establish its own branch or subsidiary operation in the foreignmarket. The branch or subsidiary may be a one-person operation or a more
extensive facility staffed with sales, administration, service, and other personnel,
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most of whom are local nationals in the market. This high-cost option enables
the exporter to ensure sales and service quality, provided that personnel are
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trained in sales, products, and service on an ongoing basis. The benefits of thisoption include the control it gives to the exporter and the ability to serve
multiple markets in a single region.
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Manufacturers of similar or related products may find it cost-effective to
consolidate service, training, and support in each export market. U.S.-based
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personnel, a foreign facility under contract, or a jointly owned foreign-based
service facility can deliver Service. Despite its cost benefits, this option raises a
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number of issues. Such joint activity may be interpreted as being in restraint oftrade or otherwise market controlling or monopolistic. Exporters that are
considering it should therefore obtain competent legal counsel when developing
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this joint operating arrangement. Exporters may wish to consider obtaining an
export trade certificate of review, which provides limited immunity from U.S.
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antitrust laws.Legal Considerations
Service is a very important part of many types of representation agreements. For
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better or worse, the quality of service in a country or region affects the U.S.
manufacturer's reputation there.
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Quality of service also affects the intellectual property rights of themanufacturer. A trademark is a mark of source, with associated quality and
performance. If quality control is not maintained, the manufacturer can lose its
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rights to the product, because one can argue that, within that foreign market, the
manufacturer has abandoned the trademark to the distributor.
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It is, therefore, imperative that agreements with a representative be specificabout the form of the repair or service facility, the number of people on the staff,
inspection provisions, training programs, and payment of costs associated with
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maintaining a suitable facility. The depth or breadth of a warranty in a given
country or region should be tied to the service facility to which the manufacturer
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has access in that market. It is important to promise only what can be delivered.Another part of the representative agreement may detail the training the exporter
will provide to its foreign representative. This detail can include frequency of
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training, who must be trained, where the training is provided, and which party
absorbs travel and per diem costs.
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New Sales Opportunities and Improved Customer Relations
Foreign buyers of U.S.-manufactured products typically have limited contact
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with the manufacturer or its personnel. The foreign service facility is, in fact,one of the major contact points between the exporter and the buyer. To a great
extent, the U.S. manufacturer's reputation is made by the overseas service
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facility.
The service experience can be a positive and reinforcing sales and service
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encounter. It can also be an excellent sales opportunity if the service personnelare trained to take advantage of the situation. Service personnel can help the
customer make life cycle decisions regarding the efficient operation of the
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product, how to update it for more and longer cost-effective operation, and when
to replace it as the task expands or changes. Each service contact is an
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opportunity to educate the customer and expand the exporter's salesopportunities.
Service is also an important aspect of selling solutions and benefits rather than
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product features. More than one leading U.S. industrial products exporter sells
its products as a "tool to do the job" rather than as a "truck" or a "cutting
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machine" or "software." Service capability enables customers to complete theirjobs more efficiently with the exporter's "tool." Training service managers and
personnel in this type of thinking vitalizes service facilities and generates new
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sales opportunities.
Each foreign market offers a unique opportunity for the U.S. exporter. Care and
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attention to the development of in-country sales and distribution capabilities isparamount. Delivery of after-sales service is critical to the near- and long-term
success of the U.S. company's efforts in any market.
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Senior personnel should commit to a program of regular travel to each foreign
market to meet with the company's representatives, clients, and others who are
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important to the success of the firm in that market. Among those persons would
be the commercial officer at the Commercial Service's post and representatives
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of the American Chamber of Commerce and the local chamber of commerce orbusiness association.
The benefits of such a program are twofold. First, executive management learns
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more about the foreign marketplace and the firm's capabilities. Second, the in-
country representative appreciates the attention and understands the importance
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of the foreign market in the exporter's long-term plans. As a result, such visitshelp build a strong, productive relationship.
Conclusion
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A product is a bundle of utilities, and the brand and package are part of this
bundle. There is nothing unusual about consumers' reliance on brand names as a
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guide to product quality. As shown by the perfume industry, the mystique of abrand name may be so strong as to overshadow the product's physical attributes.
When practical and well executed, branding allows a commodity to be
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transformed into a product. In doing so with the aid of product differentiation,
brand loyalty is created, and the product can command a premium price.
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Branding decisions involve more than merely deciding whether a product shouldbe branded or not. Branding entails other managerial decisions. A manufacturer
must decide whether to use its own brand or that of its dealer on its product. A
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marketer must also determine whether to use a single brand for maximum
impact or multiple brands to satisfy the different segments and markets more
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precisely. Regardless of the number of brands used, each brand name must beselected carefully with the international market in mind. Once selected, the
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brand name must be protected through registration, and other measures shouldbe taken to prevent any infringement on that name.
Like the brand name, which may have to be varied from one country to another,
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packaging should be changed when needed. Mandatory modification of
packaging should not be considered a problem because the marketer has no
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choice in the matter-if a marketer wants to market a product; the marketer mustconform to the country's stated packaging requirements. Unilever, for instance,
has to conform to the French requirement of selling cube-shaped packs, not
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rectangular packs, of margarine. Its descriptions for mayonnaise and-salad
dressing also have to vary from country to country.
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Optional or discretionary packaging modification, in contrast, is a morecontrollable variable within a marketer's marketing mix. Usually, discretionary
packaging is moreJe1ated-to product promotion, and it can take on the same
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importance as mandatory packaging. Soft-drink containers are good example-of-
how packaging requirements. must be observed. In many countries bottles are
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manufactured in metric sizes because of government requirements. And thecontainers must be made of glass because consumers abroad regard plastic
throw-away bottles as being wasteful. Therefore, both mandatory and optional
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packaging changes should be considered at the same time.
Questions
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I. What are the requirements that must be met so that a commodity caneffectively be trans-formed into a branded product?
2. Explain the "least dependent person" hypothesis and its branding
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implications.
3. When is it appropriate to use multiple brands in
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(a) the same market and(b) several markets/countries?
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4. What are the characteristics of a good international brand name?5. Explain these legal requirements related to branding:
(a) registration,
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(b) registration eligibility,
(c) use,
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(d) renewal, and(e) generic trademark.
6. Distinguish colorable imitation from counterfeit trademark.
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7. Cite the factors that may force a company to modify its package for overseas
markets. Discuss both mandatory and optional modification.
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UNIT ? IV
AN OVERVIEW
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Lesson OutlinePricing Decisions and
Environmental influences in Pricing Decisions.
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International Pricing policies and strategies and
Promotion Decisions
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Complexities and issues and International AdvertisementPersonal selling
Sales Promotion and
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Public Relations.
Learning Objectives
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Understand the nature and scope of Global Marketing Management.Define Global Marketing Management.
Understand the nature and technique of Pricing Mechanism
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Understand the importance of Personal Selling and Sales promotion
Understand the influences of environmental factors and pricing decisions.
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LESSON ? 1
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Pricing Decisions and environmental influences in pricing decisions.1.1
Introduction
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It is a universally accepted fact that Price is the hero of any transaction,
because the Demand for any commodity or service, depends on the price quoted
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for it; Similarly the supply of any commodity or service also depends an theprice is paid for it.
The transaction takes place where the prices for demand and supply meet. Under
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the conditions of perfect competition, bargaining takes place and an average
price is arrived at.
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Here, it will be pertinent to define the 2 words Price` and Price LevelPrice is defined as the particular value of exchange or money quoted for a
particular commodity at a particular time of a particular day. (For instance the
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price in share market as well as the foreign exchange market varies 3 times a
day i.e., at 10 A.M., 2 A.M. and 5. P.M.)
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Price level is defined as the average of higher quotations and lower quotationsgiven by various dealers for one particular commodity (for example the price of
goods is higher in air ? conditioned shops with all facilites when compared to
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the price of the same commodity on a road ? side dealers shop. This average
price is the basis for demand and also repeated demand for goods. In the matter
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of Services like very popular high class hospitals, the changes ae very high thanthe Government Hospitals.
Therefore wherever a new product is introduced in the market, this factor called
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Price Level` must be considered as the basis for the Sales Price or selling price.
In this connection the famous formula is CP + P = SP. Where CP is cost of
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purchase / production; P is profit margin and SP is the selling price. In themarket economy of the capitalistic countries, this formula is generally followed
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because P is determined by Demand and supply, as per law of Demand.For a need product in the market if there is not much of competition, P can be
more. In contrast, when there is cut ? throat competition P may be less. Here,
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we may recollect the old saying that failing at one unit in a million is better
than aiming at one hundred and getting full success.
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In the long run when the total sales is very high the P (Profit margin may be keptlower). Equally the P has to be fixed at a lowest level in market penetration
conditions for a new product.
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In the global marketing management Price refers to the Export Price
mainly. The global marketing management should pay a special attention to the
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development of suitable policies for pricing. They are analysed thoroughly asproduct policies.
Almost all information on global firms apply a standard mark-ups to sales in
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any part of the global. This is probably because of the greater diversity of
foreign market conditions, the various levels of intervention by government, the
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escalation cost for certain exports, due to tariff and non-tariff barriers and thevolatility of currencies in the exporting and importing countries.
Therefore, the Global Marketing Management must consider the Price as the
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integral part of the whole global marketing strategy. The Price is very closely
related to the utility, as utility in the ability of a commodity to satisfy human
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wants.The global marketing management is comprised of 3 different stages.
(1).
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Export,
(2).
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Create foreign exchange, and(3).
Import
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When these stages or steps are followed especially in multi national corporations
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there will be a smooth outflow of goods. Hence, the export pricing decisions are
very important.
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Generally, the pricing policy covers export pricing as well as transfer pricing.The transfer ? pricing is the pricing within an MNC global system or between 2
countries, if 2 firms that are inter ? dependant in each other, of course, finance`
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is considered as a vital supporting ? activity for global marketing programmes.
The pricing decisions may be divided into the following sections.
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1.Export pricing in the global markets.
2.
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The MNC pricing, including transfer pricing
3.
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Discussion on tax ? incentives4.
Financial Exposure, cash management moving money across national
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boundaries.
5.
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Describing the government support systems for financing exports,foreign investment and foreign trade and
6.
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Comments on foreign aid as finance for creating markets.
1.2
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EXPORT PRICING IN THE GLOBAL MARKETSThe market place in Global Marketing Management may be divided into 3
different segments.
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a.
This is the segment where the market prices are determined by
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the relativity of free play of Demand and Supply factors. Hence,this may be called as the free market ? price segment
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b.
This is the segment where the prices are fixed by the global
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commodity agreements and similar forms of long term contracts
through government decisions and.
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c.This is the Segment for MNC firms and / or other firms that are
not independent but inter ? dependant of each other, Thus, this is
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called as the transfer pricing segment.
Each of the above segments is equally large in terms of values of global trade.
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This lesson mainly deals with free market ? pricing of products as well asservices, including licensing and leasing. The exporters pricing decisions are
depending upon the Demand curve, costs of procurement and the long term
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marketing strategy. Hence the exporter is a price ? taker, with no choice but
to meet the existing global price. Hence, he can use the Cost plus method`.
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This is to fix the price by adding on the full cost of the freight and forwardingcharges, customs and other duties, currency fluetnatious etc., This is how a
price ? maker in the domestic market becomes the price ? taker in the world
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market. In some cases, this is because of the barriers in the domestic market
etc.,
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1.3.EXPORT PRICING IN PRACTICE
High prices, for example, will combine with a high ? quality image and must be
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supported by appropriate distribution and promotion. Low prices may result in
quicker penetration and the target segment wants this and competition permits.
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Globally, pricing must consider costs and then be adopted to local requirementsin foreign markets but, at the same time, it must be consistent with the firms
worldwide objectives, such as profit maximization, ROI (Return on Investment),
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or market ? share. In the global arena the complexity and scope of pricing
tends to raise the member of countries.
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Global pricing decisions include the fees, tariffs, special taxes, additional
packaging, labeling, shipping middle ? men costs, additional risks, insurance,
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and financing costs arising from varying levels of inflation and fluctuation incurrency rates. Volkswagen concluded that may of these charges forced the
price of there Rabbit model in the American market to uncompetitive levels.
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So, they decided to produce Rabbit in the United States of America.
1.4
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MNC`s PRICING IN A NATIONAL MARKETGenerally, the goals of an MNC are achieving a satisfactory ROI,
followed by maintaining the market share and meeting a specific profit
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goal.
TRANSFER PRICING WITHIN AN MNC
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The need occurs for rational systems to price MNC intra ? firm transfer of goodsat various stages of production which would satisfy the goal of manages abroad
to earn adequate profits for their subsidiaries and affiliates, while simultaneously
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furthering corporate project goals. Evidence indivates that head quarters
management, in setting transfer prices, often considers the differential incidence
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in taxation in various nations in which MNC operates.This practice raises 2 kinds of problems. One is an external problem as
government tax authorities in most countries try to contract the MNC. The
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second is internal. Pricing for tax savings causes aberrations in the subsidiary
and affiliate operational result.
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There are 2 alternatives, one is to transfer at cost or cost plus, and the other is totransfer at an arm`s length price, which is the price which would have been
arrived at by independent parties, in a similar transaction.
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In MNCS the corporate costs and projects are affected by import duties.
Sending goods at low prices to countries with high rates of duties adds on to an
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MNC`s profits. Also the transfer prices actually are used as a device at times to
counter act the inflationary erosion of assets. An MNC can also help an oiling
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subsidiary or affiliate, which is faced with a competitive problem, by loweringthe transfer prices charged. MNC operations in the high tax countries can sell at
or below costs to the ones in the low tax rate countries.
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The transfer prices must be acceptable to national tax and customs authorities,
Moreover, it must enable the purchasing unit to meet project targets despite the
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pressure.1.5
ENVIRONMENTAL INELUENCE IN PRICING DECISIONS
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For a study of Global Marketing Management, the environmental analysis is
very important. The differences in culture, the economic environment and
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political and legal factors are considered as important in global marketing.1.6
SOCIAL AND CULTURAL FORCES:-
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Culture is a set of shared values passed down from generation to generation in a
society. These values determine the socially acceptable behaviour. Some of the
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Cultural elements are given below.(a).
Family
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In some countries the family is an extremely close ? knit unit, whereas in some
other countries the family members act more independently.
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(b).Social customs and Behaviour
Customary behaviour varies from country to country. For example, in taking
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medicine, the English and Dutch customers prefer white pills, the French
customers like purple and all the three dislike red which is more popular in
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USA.--- Content provided by FirstRanker.com ---
(c).Education
The literacy level influences advertising, branding and labeling. The Brand`
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mark may become dominant marketing strategy. When customers look into the
label only or the picture in the label.
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(d).Language Differences.
Some words may have different meanings in some language. Therefore it is
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better to print the contents of label in the local and national language. If possible
in the international language English also.
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In the matter of economic environment, a countrys infrastructure and the stageof economic development are the key economic factors that affect the
attractiveness of a market and suggest the appropriate marketing strategy in the
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Global Marketing Management.
1.6
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POLITICAL AND LEGAL FACTORS.In this area, the stability of government and its attitudes towards free trade is
more important. The major legal forces affecting global markets are the barriers
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created by governments to restrict trade to protect domestic industries.
The following are some of such barriers.
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a.Tariff
This is normally a tax imposed on a product, entering a country. The tariffs are
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used to protect the domestic producers. For example, Japan has a very high
tariff on imported rice.
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b.Import Quota
This is a limitation on the amount of a particular product that may be brought
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into a country. Like tariffs, the quotas are also intended to protect the local
industries. For example U.S.A has promulgated a law called The Quantity
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Restriction Act.
c.
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Local content lawThis is a regulation, specifying the particular proportion of a finished products
components and labour which must be provided by the importing country. For
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example, to sell a Japanese Car in Taiwan, the car must be assembled in Taiwan.
A firm may import most of the products parts and buy some parts locally and
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have the final product assembled locally. These laws are used, to provide jobsand protect domestic industries.
1.8
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TRADE AGREEMENTS
These trade agreements will reduce the trade barriers by giving preferential
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treatment to the firms in the member ? countries. By analyzing the major tradeagreements, we can form an impression of the role they play in global
marketing.
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a.
The General Agreement on Tariffs and Trade (GATT)
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This agreement was created in 1948 to develop certain fair trade practicesamong members. Presently, about 100 nations participate in its periodical
negotiations, on such issues like tariff reductions, import restrictions,
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subsidization of industry by government etc.,
b.
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The European Community (E.C.)A political and economic alliance was evolved among to countries (France,
Italy, Belgium, West Germany, Luxembourg and Netherlands) under the Treaty
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of Rome in 1957. This was otherwise known as the European Common Market.
The aim of the E.C. is a single market for its members which would permit the
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free movement of goods, services, people and capital. The member ? countrieswould be governed by the same set of rules for transporting goods, etc.,
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c.The European Free Trade Association (EFTA)
This association was formed in 1960, with a view to eliminate most of the trade
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barriers between the member countries. In 1992, a treaty was reached between
EFTA and E.C. towards the single market concept.
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d.The North American Free Trade Agreement (NAFTA)
The Governments of U.S.A. and Canada have entered into an Agreement in
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1989, with the intention of eliminating tariffs between them, for a period of 10
years.
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Finally we would end lesson one by emphasizing that an understanding of theenvironmental factors of global marketing is yet another important aspect for the
global marketer.
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LESSON ? 2
International Pricing policies and strategies and promotion decisions.
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2.1Introduction
International pricing policies have, probably not been analysed as thoroughly as
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product policies. For example, many global or international firms tend to apply
standard mark ? ups to sales anywhere in the world. This is too simplistic
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because of the greater diversity of foreign markets, the different degrees ofgovernment intervention, the cost escalation that builds into certain exports due
to the tariff and non ? tariff barriers and also the volatility of currencies.
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Moreover the international pricing policies must consider the price` as the
essential part of global marketing strategy. Therefore the policy must be closely
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related to the utilities created by the product, the promotional messages and thechannel structure. The international pricing policy covers export pricing as well
as transfer pricing. The latter is the pricing within an MNC global system or
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between 2 firms which are not independent of each other; but inter ? dependant
of each other.
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The international pricing policy covers all sources of funds and safeguarding of
monies. The exporter, here, is assumed to be marketing to an independent party
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in a foreign country, Therefore, the exporter`s pricing policy is depending uponthe Demand curve, costs, and also the long ? term strategy. On one side is the
case of the very elstic demand curve, under the conditions of the intense
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competitiveness in the global market palace. So, the exports must meet the
existing global price. Also the exporter faces an in elastic demand curve and
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can use the cost ? plus method.The common and more usual case, especially for the branded goods, is to go in ?
between the cost and the price. The demand in the world market place is elastic
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because of profit competition in the world market place. Hence the world
market place prices are generally lowest and that the firm can be a price ? maker
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in the domestic market and a price ? taker in the world market.The international pricing policy process starts with the selection of the target
market. The next step is determining the market mix. The policy must be
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consistent with the firms world ? wide objectives such as profit maximization.
The global marketing management deals with multiple sets of environmental
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constrains, market factors and varying foreign exchange and inflation rates.Hence, the prices, mark ? ups and other allowances will have to vary between
domestic and foreign and also between several foreign markets. The main
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question regarding cost as a price ? determinant is whether to utilize full or
variable costs. Export sales are going to be a significant proportion of total
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sales, the firm must recover full cost to remain profitable.--- Content provided by FirstRanker.com ---
The international pricing policy should recognize that mere cost plus pricingwhere plus is based on the firms usual profit margin is a defensive policy which
pays little attention to foreign demand.
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The combined effect of cost factors and the international environment very
often, signifies that the consumer prices in some foreign markets are far in
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excess of the exporters price in the domestic market. This phenomenon is calledas International price escalation. It can occur for several reasons, for example,
exporting to the less Developed countries (LDCs) where competition is low or
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competition among foreign products with high quality images and consequently
high prices. Also, a product which is already at the maturity stage in the home
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market may initially be introduced in a foreign market as a luxury product at ahigh price. Kentucky`s blended whisky which s exported to West Germany and
Japan and the Perrier mineral water to the united states are best examples. As
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is always seen, profiteering by middlemen could also cause high prices.
Frequently, a relatively large manufacturer ? exporter has to decide on what
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price quotations to submit to foreign markets.A recent survey showed that the cost plus export pricing is common among the
small North ? American manufacturers across a range of electronics, machinery,
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and light industry. Some of the products were as common place as frozen
vegetables, fruits, windshield wipers, display shelves and kiosks, key blanks
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and lock components and sets. Others were in the sectors of avionics, flightsimulators and petroleum exploration supplies.
However, a major firm usually adopts a more aggressive international pricing
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policy which takes due consider action of demand and its selected inter national
marketing segments. It, then, develops its product positioning strategy which
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encompasses pricing as a the key element in the international transactions. TheMNCs are involved in 2 specific types of international pricing policy as their
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own strategy. One relates to pricing in each foreign market and the other relatesto intra ? firm pricing.
2.2
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International pricing strategies
Introduction
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The components of strategic planning process involve 4 sets of inter ? relateddecisions. The first defines the business. The second determines the mission and
sets specific performance expectations. The third formulates functional
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strategies and the fourth connects resource allocation and the required budget.
Also, the strategic planning deals with five areas such as the commitment,
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market selection, mode of entry, marketing organization and marketing mix.2.3
International Marketing Strategy
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To develop a strategy, involves 4 sets of inter ? related decisions.
The first decision defines the business. This includes product and market scope,
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as to what type of products are to be served? Which needs are to be satisfied?and what technologies are to be used to satisfy these needs?
Evolving a strategy on the basis of these questions are related to products, The
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strategy on market segmentation forms the market scope.
The Second decision is to determine the mission and set specific performance
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expectations for each business and progammes across the International marketsin which the firm functions. This involves fixing the market ? share gains,
project etc.,
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The third decision is to formulate functional strategies for international
Marketing, manufacturing, Research and Development (R&D) Service and
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physical distribution.--- Content provided by FirstRanker.com ---
The fourth decision includes the resource allocation and establishing the budget
for executing the plans.
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2.4
Methods of entry, as a Strategy
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The most important strategic decision in international marketing is the mode ofentering into the foreign market. There are many alternatives in between the
choice of a suitable alternative and the foreign market.
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The important international market entry strategies are as shown below.
1.
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Exporting2.
Contract Manufacturing.
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3.
Management contract.
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4.Assembly operations.
5.
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Fully owned manufacturing
6.
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Counter trade7.
Strategies Alliance and
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8.
Third country location
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Besides, what is stated above, there are certain other avenues of strategy, like
joint ventures, joint ownership ventures, Merger and Acquisition etc.,
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JOINT VENTURES
These have become very popular now ? a ? days. An international joint venture
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is an association between 2 or more firms to carry on a separate local entity,established and controlled by the participants. In the widest sense, any form of
association, which implies collaboration for more than a transitory period, is a
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joint venture. There are different forms of joint venture.
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JOINT OWNERSHIP VENTURE
In this venture, ownership and control are shared between a foreign firm and a
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local firm. This may be brought about by a foreign investor baying an interest ina local company, buying an interest in an existing operation of a foreign
company or by both the parties jointly forming a new company. It is a method
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of overseas operation whereby a company in one country (the licensor) enters
into an agreement with a company in another country ( the licensee) to use
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manufacturing, processing, trade mark or name, patent, technical assistance etcprovided by the licensor. In exchange, the licensee pays the licensor some
royalties or fees which are the major source of income to the licensor.
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MERGERS AND ACQUISITIONS
This is considered to be the very important entry strategy as well as expansion
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strategy. This provides the interact access to markets and the distribution network. For example, vijay Mallayas U.B.Group (Indian largest brewing and
distilling group) has acquired a small British company called Wiltshire brewary.
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The attraction of Wiltshire for U.B. is that the former offers a ready made chain
of 40 public houses throughout England.
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This could be used by U.B.Group to market its beer brands like King fisher andU.B.Lager brands in U.K.There are also other advantages such as new
technology and reduction in the level of competition.
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PROMOTION DECISIONS
INTRODUCTION
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It is vital that interntional or global marketing managers understand the powerand the constraints of international promotion decision policy. International or
Global promotion policy determines the positioning of the product abroad.
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The formulation of this technique is dependent, to an extent, on where the
product is in its life cycle in, particular markets. This is likely to vary between
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different foreign markets, depending on the time of entry, market structure,
competitors and customers. Further, the effective implementation of promotion
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decisions are the key points, for the success in the international marketingprogrammes.
The coordinating and integrating of promotional mix elements with other
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aspects of the marketing programme is often more difficult in foreign markets.
The type of promotional tools available and the media vehicles, plus existing
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regulations are the parameters which limit what can be done. The internationalmarketer must know these parameters well.
Used in it wider sense, the promotion in international marketing covers
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advertising, sales literature, trade fairs and other trade exhibitions, international
direct mail, publicity releases and point ? of ? purchase and other materials. It
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also corers a very powerful promotion vehicle ? the sales forece. There are 2parts.
The first part relates to the international advertising and the second part, to the
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remainder of promotion. Prior to the 2 parts, we look at how the promotion
helps the product positioning. Part 1 comprises of sections. The first section
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gives an overview of advertising Worldwide but concentrates an the majorcountries. The second section comments on advertising in selected counties or
segments to yield a flavour of this medicines impact in various countries.
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The third section discuses the aspects of standardization Vs adoption of
international advertising. The fourth section for focuses on the development of
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an international advertising strategy. The fifth section deals with themanagement of advertising function. The sixth section reviews the international
advertising research, and reviews the international advertising research. The
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seventh section looks at the sales literature, trade fairs, direct mail and publicity
relases Also, it deals with the point of purchase promotion and includes an
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example of a new foreign product launch, along with the international sales
force and their management.
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2.5Promotion and Products Positioning
In the early 1950s, only a very few brands competed in most product categories,
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so a little hard-sell TV advertising would generally result in the increase in sales.
In the 1960s, more products were being introduced through TV advertising. The
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hard-sell competition for a smaller market share of each market causedmarketers to seek new methods of communication to differentiate their products.
The idea grew that each brand has to have its own image. ESSO`s put a Tiger
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in your Tank used an animated tiger to build an image for an unromantic
product like gasoline, but imitations crowded in and eventually brought an end
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to the image ? era of the 1960s.Then came, the concept of product positioning ? promotion policy can help in
such positions. The concept positioning emphasizes marketing and promotion
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technique but includes creativity. Two classic North ? American examples are
Seven up the uncola and the Avis rental car we are 2 campaigns. The
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positioning concept, however, is yet to be used extensively on a multi-nationalbasis, although it has helped those who have tried it. To illustrate, the seven up
introduced the Wet and wild campaign it failed.
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Marketing research revealed that even though consumers know seven-up was a
soft drink, they could not differentiate it. Since coke and pepsi accounted for a
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40% share, and both promoted a similar image, the word cola` became genericto mean soft drink. As cola occupied the leading soft drink position in
consumers minds, seven up had to differenhafe itself in terms as an alternative to
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Cola the Uncola. It succeeded.
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The Uncola campaign could not be exported because the slogan could not be
translated into other languages and still retain its special meaning. But J.Walter
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Thompson, the advertising agency, created an unusual character who lived in alittle green box. The activity of this amusing visual device cut across may levels
of sophistication to develop a styole, very distinctive from cola. In effect the
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uncola compaign strategy was being used on a multi ? national basis, but
through the little green box.
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In the second year of campaign, the green box impact was tested in 10 selectednational markets compared to sales over the same period in 10 other markets of
roughly similar siz which used different advertising or promotional material,
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The difference was significant, even after adjustments were made for market
variations.
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LESSON ? 3Complexities and issues and International Advertisement.
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3.1
Introduction
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It is common knowledge that Internation Marketing has received an increasedattention from Governments and Business firms in the four decades since the
end of the second world war. Exports are growing year by year. In this context it
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is very much imperative and essential to understand the special features of
international or global marketing, its basis, its benefits, important and especially
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the complexities and the issues arising from such complexities.Every country is an independent sovereign and hence each Government enacts
its own legislation, the order to control its foreign trade. Proteeting the domestic
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industries, in the eye of cut-throat competition is much more important than
importing goods from outside. International Marketing has to cross many
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barriers, arising from many factors. Similarly, the foreign exchange regulations,
such as the Quantity Regulation Act are a big hurdle. To add to this, there
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will be considerable controls on financing of overseas operations. Likewise thehuman needs and wants will have different attributes in international markets.
3.2
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Competition within and without the country
By competition within, we mean that, within the exporting country, there may
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be a lot of other organizations exporting the same goods to the same samecountries. For example, after the tenth five year plan, India has made a
significant advertisement in the production of electronic goods and computer
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software. When India tries to export these goods, especially to the fully
developed countries like, U.S.A., U.K., CANADA AND FRANCE she has to
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face competition from Japan and other countries who are already exporting suchgoods to these countries.
There are only 2 strategies to be adopted for attracting the foreign markets ? one
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is produce goods of high quality and durability and the other is to fix a
competitive price in the export market. In this connection we may recall the
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famous Devaluation of Indian Rupee on 6th June 1966, reducing voluntarily thevalue of one Indian Rupee by 36.5 percent, This is for the export market only.
The net favourable result was that the importing countries which had to pay 100
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paise per Rupee upto 5th June 1966, had to pay only 63.5 paise. When they pay
127 paise (Rs.1.27) they get 2 units of the same goods (Just for 27 paise more
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according to the previous position)It is said that this Devaluation of 6.6.`66 has brought wonderful and magical
effect on India`s Exports. All the produced goods stocked unsold were sold like
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hot cakes within a period of 3 months. The producers were rid of the
botheration of paying bank interest and installment dues (When the goods are
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not exported).
Competition without or outside the country is more dangerous, i.e., instead of
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fighting at home, we are fighting outside the home country. This is the case ofcocacola and Pepsi. They both are multimillionaire giants in U.S.A., but they
are fighting with each other in their foreign market. As already mentioned the
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competition outside the country is more cruel and more expensive. There are 2
ways ? one is giving new Brand Names for their own additional products like
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Fanta etc., changing the colour of the content ? e.g. from original black plusorange Blue and Green (for the by-product Fanta etc.)
Price ? wise also they have to compete Pepsi and Cocacola are the 2 main
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players in the soft-drinks market in India. One company is carefully watching
the other in the matter of advertisement, size and shape of bottle and other steps
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in sales promotion. To cite one example, if cocacola presents a visible doorrefrigerator to its dealers, immediately Pepsi follows the some technique.
Similarly in the case of painting their name in the name of the dealers. This
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kind of watching, what the competitor does, by way of sales promotion, by one
producer and then copying the same for their goods is called as GAME
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THEORY in Marketing Management. In the matter of global marketingmanagement, it is done in every country to which they export. To sum up, the
exporters are fighting, not in their own native country, but in a foreign country
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for example, the 2 U.S.A. manufacturers (Cocacola and Pepsi) are fighting with
each other in all other countries, (Outside U.S.A.) where they sell their
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products.These activities cause a big blow on their finance in such countries. As they both
are MNCS they transfer the sales - profit of one country to another and then they
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balance. Their annual Balance sheet is for their international market sales. They
look at the total net project from their global operation (and not in individual
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country`s operation). This is possible only for multinational companies.
3.3
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International AdvertisingInternational Advertising Standardisation
For the study of the Global Marketing Management, a scrutiny of developing
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international advertising strategy is necessary. The central issue in the
development of international advertising strategy is the extent to which the
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advertising should be standardized or adopted to the local needs.Therefore, a Two ? Tier advertising strategy has become possible. The first
tier comprises of standard ads crossing the borders through international
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magazines such as Time, Newsweek, the Economist, Asia Magazine, playboy
etc.,
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The second are similar type of ads` in the local media and outdoor or transitsites in urban communities. This latter advertising should look very familiar to
the visitors from abroad, but it should also look local and use the domestic
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language in its messages.
International advertisers are well aware that the visual elements in the
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advertising designs and logos encourage the international familiarity which iseffective across national cultures while it actives cost ? efficiencies.
International campaigns should be with a more common theme.
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In Sum, the following factors influence the need for declaration in international
advertising.
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1.Market Criteria
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Low competition, dis ? similar demographics, sparse distribution and low
industrialization make the market criteria more effective.
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2.
Cultural Criteria
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Cultural taboos, religious barriers towards foreign firms, culture ? bound, assupposed to cosmopolitan outlook will make the cultural criteria.
3.
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Media Criteria
This pertains to the dis ? similar media from others, in the home market.
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4.Other Criteria
High importance for price ? factor, low levels of advertising acceptance, highly
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subjective and concepts, and high emotional appeal in the ads do fall under this
criteria.
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Most of the MNCs use these kinds of standardized ads. Nestle, used itsstandardized fresh ground aroma appeal in several countries when it launched
its New Nescafe in the early 1960`s. Moreover, to accommodate the differences
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in the different national tastes, the Instant Coffee was brewed in 40 different
varieties.
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Goodyear has a universal advertising campaign which uses the basicinternational appeals of tyre safety, durability and road ? holding ability.
These examples point to the fact that market segments are growing up across
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nations, to which the appeals can be made.
However, Standardising requires care. Language translations present a problem
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? symbols in illustrations must be carefully chosen, so that they do not offendtraditions, customs, religious and other related cultural features of different
societies, In Malaysia, a consumer product coloured green failed to sell
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because green suggested illness. Japanese never like black colour, because
Lord Budda, according to them, was against black colour.
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To some Americans yellow colour suggest cowardice. In Holland, Blue
colour is considered as feminine, and warm, whereas, in contrast, the Swedish
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people associate Blue colour for Masculinity and coldness. Union Carbide wasadvised by its agency, not to advertise a money ? back guarantee in Europe.
Generally the Consumers become suspicious whenever they see the money ?
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back guarantee.
3.4
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Pattern and Prototype Standardisation.In pattern campaign, the overall theme, slogan and samples of art ? work,
advertisement copy and merchandise materials are developed to provide the
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uniformity in direction. The Campaign is designed for use in multiple markets.
What
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isnew
in
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pattern
Standardisation
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isthat
it
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is
a
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pre ? planned effort to provide many or all the benefits attributed toStandardisation. In prototype standardization, the same ad is used in multiple
markets with the only difference being the language translation.
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Generally, some people feel that the prototype standardization could be
effectively employed for industrial goods. However, even for these products,
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the advertiser must recognize the differences in product line, size of market,media availability and degree of ownership influences on the actual amount of
standardization used.
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Standardised International Advertising strategy.
An advertising programme designed to respond to market similarities could
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develop to become a source of major international synergy. The particularbenchmark design developed by Colgate ? Palmolive is based on the seven
P principles outlined below.
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1.
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Positioning ? position the product within a specific market segment.
2.
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Promise competitiveness ? identification of consumer benefits.3.
Point of differences - products` differential advantage.
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4.
Platform ? identification of media priority ? Communication of one
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or two most motivating product attributes.5.
Priority ? Communication of one or two most motivating product
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attributes.
6.
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Proof ? show effectiveness of product and7.
presentation ? define important presentation characteristics.
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Colgate`s advertising strategy for tooth ? paste in western Europe is
standardized in two different benchmarks. One, which is most widely used, has
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positioned. Colgate as a therapentie and anti ? cavity tooth ? paste in all countieswhere the consumer ? awareness of the therapeutic attributes of the product is
high.
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The other benchmark appeals to the cosmetic benefits of fresh ? taste and clean
mouth and is used in those countries which have larger, more promising
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cosmetic segments. In contrast Unilever has standardized across Europethrough 2 distinct products. Signal and close ? up are both utilising single
themes all over western Europe, appealing to the other therapeutic and cosmetic
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segments respectively. Colgate used some different brand names in order to take
advantage of linguistics. It is used as Dentagard in West Germany, Spain and
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Switzerland and as odorant in Greece.Advertising for Shampoo
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The international marketers feel that the basic motivation of consumers in laying
a shampoo generally reflects the desire to have healthy and beautiful hair. When
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Bristol introduced Clairol. Herbal shampoo, with its natural ingredieur
benchmark, it had a great suceess in North America. This example was followed
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by Johnson and Johnson which developed the baby shampoo and sunsilk the 2brands whose concepts were communicated across western Europe.
In the toilet soaps, international advertising trends are standardized. There are 4
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market segments ? cosmetics / beauty deodarant, mildness / skin care and
freshness, Lux was connected with film stars, unibrer`s Rexona was positional
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across western Europe on a common theme as a deodorizing soap and it is alsobecoming a major brand. Colgates Irish Spring succeeded in the U.S. but
failed in western Europe.
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To facilitate the process through creative communication, some suggestions
worth consideration follow.
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1.Consumer Orientation is preferable to product orientation
2.
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The concept presentation should be developed within the simplest
possible structure.
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3.The consumer should feel rapport with the characters in the situation
presented in the ad and
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4.
A literal translation of appeal should be avoided. The concept can be
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generally conveyed with minor copy adaptations.MANAGEMENT OF ADVERTISING FUNCTION
The standardized approach is of key importance in the advertising function. It is
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a part of managerial function. The management has to consider the following
areas, (1) Objectives advocacy (2) image building, (3) Budgets, (4) Overall
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strategy (5) Creative strategy (6) Media strategy (7) Control organization (8)Agency Relationship and (9) The general regulations. In the international firm,
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the variety of objectives will be diverse.Most of the MNCs that choose to centalise control over advertising and to make
the least adaptation are likely to lean towards having one agency throughout the
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world. The regulatory impact on advertising is a matter of major concern for the
MNCs. International advertising must be tied to international market planning.
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Goodyears Development of its international Advertising Campaign.Goodyear International Corporation decided to develop an international pattern
advertising campaign. However Goodyear marketing management has allowed
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to pattern standardization concepts to the be modified by subsidiary managers to
ensure a high level cooperation and adequate response to local differences.
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The Head office, along with its network ad agency, work directly with both theagencies in the host countries and the firms local subsidiary representations.
International advertising is necessary for promoting sales globally. For the
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success of any organization, producing and selling, advertising in international
magazines will work as a strong backbone for the firms Global Marketing
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Management.Now ? a ? days, the concept of Multi National Corporation has spread its wings
globally. What is produced, invented or patented in one corner of the earth, will
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be spread all over the world within a very short period. Probably, based an all
these efforts, the world is rightly called as the Global Village.
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LESSON ? 44.1
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PERSONAL SELLING AND SALE PROMOTION
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INTRODUCTIONPhilip Kotler is of the opinion that personal selling involves oral presentation in
a conservation with one or more prospective purchasers, for the purpose of
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making sales. Like advertising, personal selling is also a method of
Communication. It is a two way form of Communication. It involves individual
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and social behaviour. It is also a face ? to ? face conversation. Personal sellinginfluences the buyers to buy a product.
Personal selling reaches the goal of marketing effort i.e., purpose is to bring the
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right products into contact with the right customers. Personal selling creaters
product awareness, stimulates interest, develops brand preferences, negotiable
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price etc.,4.2
OBJECTIVES OF PERSONAL SELLING.
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1.
To do the entire job.
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2.To Serve the existing customers.
3.
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To search out and obtain new customers.
4.
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To secure and maintain customers cooperation in stocking andpromoting the product line.
5.
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To keep the customers well informed of changes in the product line.
6.
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To assist the customers in selling the product line.7.
To provide technical advice and assistance to customers.
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8.
To handle the sales personnel of middlemen.
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9.
To provide advice and assistance to middlemen wherever needed
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and.10.
To collect and report market information in interested matters to the
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company management by periodical returns and in meetings.
QUANTITATIVE OBJECTIVES
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1.To obtain a specified sales volume.
2.
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To obtain the sales volume in certain ways that contribute to profit
objectives, by selling proper mix of products.
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3.To keep the personal selling expenses within a specified limit and
4.
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To secure and retain a specified share of the market.
Based on all the above points salesmanship becomes a key factor in personal
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selling by the sales force of the company. The expressions like Personalselling and Salesmanship are often used interchangeably but thee is an
important difference.
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Personal selling is a broader concept. Salesmanship in only an important part.
Along with the other key marketing elements such as pricing, advertising,
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product development and research, marketing channels and physicaldistribution, the personal selling` is a means through which marketing
programmes are implemented. The very purpose of personal selling is to bring
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the right products into right contact with the right customers and the ownership
transfer.
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As defined by the author stork it is a direct, face ? to face, seller ? to ? buyerinfluence which can Communicate the facts, necessary for marketing a buying
decision or it can utilize the psychology of persuasion to encourage the
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formation of a laying decision. Apart from the knowledge of the product a
salesman has to be a psychologist with one prospect, a human computer with
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another, an adviser to another, and a friend with the buyers, salesmanship may
be implemented, not only through personal selling but also through
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advertisement. Therefore, advertising` has been described as Salesmanship inprint.
Salesmanship is the art of influencing people. It is like Contractors, teachers,
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Ministers, authors, politicians, Industrial engineers and others.
It is pertinent and not out of place to quote hereunder the famous American
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Statement.He who works with his hands is a labourer He who works
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with his hands and his head is a craftsman.
He who works with his hands, head and heart is an artist ? but
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He who works with hands, head, heart and feet is a SalesmanA Salesman is not born, but made
4.3
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Importance of Salesmanship
1.
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Importance to Producers.For pushing the products into the competitive market.
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To Capture new markets.
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To increase the sales volume
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To bring larger profits to producers
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To give suggestions, impressions and complaints of the consumers.Create extra demand.
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To increase thereby, employment.Opportunity as well as personal incomes.
2.
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Importance to Consumers.
Salesman educates and guides the consumers, He gives them more satisfaction
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consumes are right is the motto in marketing. As such the sales man givesmore importance to the consumers. He helps the consumers in making the right
decision and proper selection of the products which they want to buy.
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Salesmanship increases the rate of turnover. And hence reduces the unsold
stock. This minimizes the economic stagnation. So, the consumers can select
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the best products according to their requirements, taste and money.4.4
Qualities of A Good Salesman.
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1.
Sound Health.
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A Salesman must have a good posture when he meets the prospective buyers.Sound health and good physique are essential for a business salesman. The
Travelling Salesman needs good health to travel many places, eating different
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varieties of food, to face the different kinds of whether conditions, because
health is wealth. A salesman, without a sound health fails to carry out his
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duties. A sound mind occupies a sound body.2.
Good Appearance.
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The outward appearance makes some impressions n the mind of the customers.
A good looking salesman, in a neat dress, with a pleasing appearance will
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succeed in computering the minds of the consumers. Cleanliness is importantfor a better look. He must have a cheerful smiling face, which is considered as
the mirror of his mind.
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3.
Good Posture
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The way or the style of holding the body is another controllable factor. A
defective posture makes his appearance unwanted. He must display a good
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posture while standing or sitting and while walking his head must be kept erect.4.
Pleasing Voice
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The Voice is very important. The voice is the index of ones own feelings. The
words uttered by him should be clear, pleasant and sweet.
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THE MENTAL QUALITIES1.
Quick Action
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A Salesman must be alert and quick in action. He has to meet may people of
different temperament. He must have the mentality to face any situation and be
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ready to answer any question. He should not be absent ? minded. He must havea quick thought of answering ? what to say, how to say and how to tackle the
situation etc, without throwing away the Customers.
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2.
Imagination
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The possession of a rich imagination is of great help in solving problems. Thesalesman has to imagine things from the point of view of the Consumers. He
becomes consumer ? oriented and tackles the difficulties and problems of the
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consumers. He should put himself in the buyer`s position.
3.
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Self ? Confidence.A confident man never fails. He has the confidence in his own work, capacity
and power. Confidence makes him optimistic and enthusiastic. He engages or
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talks with a Customer. Makes him believe and the Customer acts on his
suggestions. Experience and knowledge are the lease for confidence.
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4.
Enthusiasm
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It makes the work of a seller Pleasant. Enthusiastic talk is always listened to bypeople. It gains interest and confidence of buyers and in turn, more sales,
thereby the profit enhances, apart from satisfaction of the firm.
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5.
Observation
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A Salesman should have a keen sense of observation. He must have an uptodate knowledge of the products and the changes is style and fashions, attitudes
of competitors and Government etc, to make a clever salesman. When a
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customer enters into his shop, an experienced salesman can imagine the chances
of a sale by a look at his face.
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4.5Sales Promotion
Definition
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According to the American Marketing Association, Sales promotion is those
marketing activities, other than personal selling, advertising and publicity, that
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stimulate consumer purchasing and the dealer effectiveness such as displayshows, expositions, demon - stations and various non ? recurrent selling efforts
which are not in the ordinary routine.
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According to george W.Hopkins, Sales promotion is an organized effort
applied to the selling job to secure the greatest effectiveness for advertising and
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for dealers help.The major function of sales promotion is to serve as a connecting link or a
bridge between advertising and personal selling, which are the 2 wings of
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promotion.
PURPOSE OF SALES PROMOTION
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The basic purpose of sales promotion is to disseminate information to the
potential customers. The sellers use incentive ? type promotions to attract
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customer and to increase the re ? purchase rates of occasional users. SalesPromotions yield faster responses in sales than advertising. Sales Promotion is
considered as a special selling effort to accelerate sales.
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IMPORTANCE OF SALES PROMOTION
Now ? a ? days, the amount spent in sales promotion equals the amount spent
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on advertising. Sales Promotion increases according to the changing marketenvironment. The importance increases due to new ideas for favourable
consideration of selling promoting sales and future expansion.
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4.6
Objectives of Sales Promotion
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1.To increase buying response at the Consumers level.
2.
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To increase the sales effort of dealers and sales personnel.
3.
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To attract new customers.4.
To inform the public abut the new product and its specialties, attraction,
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and advantages.
5.
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To capture the major share of the market6.
To enable a favourable attitude towards the product.
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7.
To simplify the job of middlemen.
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8.To meet the competition of other firms.
9.
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To effect off ? season sales to boost the total sales.
10.
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To stock more at the level of traders, through whom aggressive sales canbe effected.
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11.To stimulate the demand by popular using of the products.
12.
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To establish and maintain communications with large market segments.
13.
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To keep the memory of the product alive in the minds of the buyers.14.
To create brand images.
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15.
To create additional talking points to sales persons.
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16.To remove customers dissatisfaction.
17.
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To bridge the gap between advertising and personal selling
18.
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To retraining the lost account.Sales promotion encourages quick movements of products along with the
channel distribution. It gives extra inclusive to consumers, dealers and
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salesmen, and thereby producers push out maximum products.
All the manufacturers use various sales forces to maintain the current sales and
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more particularly to increase the volume of sales for their products. All vigorousefforts to sell more products by widening the market result in aggressive selling.
The aggressive sales can be gained by utilizing the various sales promotions,
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described is lesson. These promotions will facilitate the progress of the
organization as a whole.
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LESSON ? 5
INTERNATIONAL PUBLIC RELATIONS
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INTRODUCTION5.1
Why International Public Relation is important ?
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Public Relations is in the business of altering or negotiating relationships
between organizations and other nations. Moreover, because of the professions
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research skills, public relations serves as the eyes, ears and the voice oforganizations. When the organizations move into the global economy, the
practioners will need to adjust to see, listen and speak to global publics. An
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Internationalization of public relations is both an opportunity and a analyse for
professionals.
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Public Relations has opportunities to positively affect the developing nations ofthe world through participation in development communication (newson, carrel
& kruck berg 1993) Nathan ? binding (Taylor 1998) and advocating war
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between states (Kunezik 1990) and advocating war between states (Kunezik
1990 and Signitzer & coombs 1992)
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Global Public Relations.5.2
Sri Ramesh and white (1992) suggested that Global Public Relations
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will have to neglect the cultural and social norms of the host nation. This
will create a unique Public Relations situations in every society.
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Languages, probably, will present other problems. Corporate slogans,marketing and other advertising themes and the translation of
organizational materials, all will need to be checked and re ? checked for
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global audiences. Everyone remembers the NOVA, by Chevrolet and
its demise in South America. It is only by research and cultural
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awareness that this situation will not happen again.CONTEXTUALISED RESEARCH
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This has described the practices of public relations in diverse countries of theworld. Hiehert (1994) explored advertising and public relations in the nation of
Hungary and observed that public relations, as a profession is aften mis ?
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interpreted as advertising, Helibert reported that employee relations and internet
communications are becoming even more important than public and media
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relations, because OF CROSS - .............. Communication problems.According to HIebert, two change agents ? new technology and public relations
are influencing the nature of public. Communication in former Communist
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states. In Hierbusfs vision of the post ? communist world, public relations
generate information through new media technologies and this information
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contributes to development.Next, Haug and Koppang (1997) explored the proliferation of certain practices
in Europe and noted that governments in Western European Nations affect
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private Corporations in may ways. Because of large public sector spending, the
inter ? twine of private business and government, the enormity of red ? tape, and
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a system of government subsidies, there is a growing need for the corporationsto use lobbying as a tool to gain maximum influence. Lobbying is conducted
by the Chief Executive officers and the Public Relations Managers.
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PEDAGOGY AND ETHICS
5.3
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This educational approach to global public relations has examined thevarious bodies of knowledge that guide practioners in other parts of the
world. For example, Public relations education and training in India
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have been explored. Newsom and carrel (1994) reported that public
relations education in India suffers from a short supply of qualified
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teachers. Public Relations Courses are taught in Open Universitiesthat serve office and industrial workers. One of the major causes for
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concern in Indian public relations education is the lack of professorswith experience and exposure to the Communication theory and
behavioural services.
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These discussions of pedagogy and ethics in global public relations not only
strengthen our understanding of public relations in the international settings but
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also strengthen our understanding of other countries` educational and ethicalissues.
Exploring presupposition
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5.4
The final stage of global public relations scholarship identified in the
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literature isthe pre-supposition path. J Gruning (1989) argued that thefield of public relations should carefully examine the pre-suppositions to
understand where the field currently is, and more important, where it is
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going. The area of global public relations is not except from this
introspection and some scholars have looked beyond the U.S.
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understanding of public relations to question the assumptions underlyingCross ? cultural public relations theory and practices.
For example, Botan (1992) discussed how culturally based assumptions obscure,
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how they can help organizations to better understand their publics. Conflict as
a function of public relations can make sure that unfair policies are changed
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lest it is also is the loss of time and energy. Either way, simoes argued thatrelationships between organisations and publics create political dimensions to
organisational decisions.
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Banks (1995) also offered scholars` and practitioners` suggestions for improved
inter ? cultural public relations. Banks suggested that public relations
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assumptions has to be flexible and adaptable to whatever the inter ? culturalsituation presented.
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Effective public relations in Multinational organisations :
The convergence of financial markets, technologies and communication is
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festering unprecedented interaction between people and societies. The world
becomes a more and more inter ? dependent as we seek solutions to global
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problems, such as the environment, health, human rights and other mutualchallenges. But, although the interaction of diverse cultural groups can faster
harmony, theory also can produce opposite effect such as more entrenched
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stereotypes and increased suspicious, misunderstandings, tribalism and conflict.
The evolution of public relations in multinationals:
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In the past, those who operated in foreign environments relied in their ownintention. But intention, devoid of any reliable road maps can result in mistakes
that jeopardise millions of dollars in revenues (Harris & Moran 1991 P.21).
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To avoid these calamities, the global public relations people must be guided by
sound knowledge about cross ? cultural practice. They must know how to
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maintain consistent communication and project their entities` reputation aroundthe world. At the same time, the multinationals need to understand the nuances
of public relations between countries, or even in different regions within
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countries and how misunderstandings of those nuances can bring problems in
global scale.
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Unfortunately, public relations and other human elements of organizations havelagged behind as international evaluation followed the bottom- line demands of
markets, production and finance. Organisations typically conducted
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Worldwide management of people as if neither the external economic and
technological environment nor the internal structure and organization of the firm
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had changed. (Adler 1997 p.5)Lacking international savvy, the managers usually resort to one of the two
approaches to international public relations, Some merely extend their domestic
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practices to other countries with a few minor modifications. This approach
ignores the subtle factors in other cultures that mandate departures from the
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traditional programmes.
The reminder of this lesson, sets forth a discussion on how to make public
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relations effective within the multinational. Through this explanation, the lesionshould contribute to the literature an international public relations. It starts with
a discussion of how domestic and international public relations are both similar
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to and different from each other.
5.5
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Simulations between Domestic and International.Public Relations
There is a mounting evidence that many of the basics of public relations are
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more or less universal. The specific tactics certainly change from country to
country, but strategic public relations seems to be valued among practitioners
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worldwide, at least in the surface, some form of media relations occurs almostevery where, as do advertising, promotional, communication with targeted
publics, issues and management, and a growing amount of community relations,
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often, these functions have been introduced by multinational corporations and
public relations firms or by local practitioners who were educated in the united
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states or united kingdom.But, perhaps, the greatest argument comes from why public relations exists in
the first place. All crudities whether domestic or multinational strive to preserve
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their reputation from internal or external threats. They all try to identify and
build relationships with vital publics. They anticipate problems and seek to
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eliminate them or reduce the adverse effects. They want to be like coca ? cola,whose logo is globally consistent and for example, is recognized by 80% of all
consumers in China. Such goals are basic to any organization and never should
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be decentralized, whether domestic or international.
5.6
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A Comprehensive Approach For Balancing Global And Local Public
Relations.
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It seems possible, then to reconcile the apparent contradiction that internationaland domestic public relations are both similar and different. All public relations
should exist to preserve a consistent reputation and build relationships. These
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over all goals must be similar throughout the world, but they can be fulfilled in
different ways from one culture to the next. Achieving these goals is much more
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difficult in global arena due to cultural and languagedifferences, regulatory environments, political and economic systems, media
and other local variables, that must be considered. But with a proper
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organizational thinking, it is possible to respond to all of these factors, while at
the same time pre-serving the local and global mandates.
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5.7Effective public relations in multinationals.
When talking about international public relations, there is no one list of
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prescription. All multinational entities work in the same global arena, but each
has its unique traits and challenges. For example, a few corporations are huge
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and dispersed whereas others are in relatively few countries. Many are productoriented, whereas others are in the service mode, companies in the heavy
manufacturing industries can face significantly more activism than can those in
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technology.
Despite these differences, we believe that certain minimum standards must exist
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within any multinational organization for it to be effective in its public relations.So, the remaining parts of this lesson, risk on proposing some of these minimum
standards. Some managers might say that the guidelines do not apply to their
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organizations, but the suggestions that follow should offer possible foundations
and road maps to start taking international practitioners beyond the dangerous
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realm of intuition. So, in general, what comprises effective public relations in
the Multi-National entity.
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5.8CONCLUSION
As should now be apparent, there are many challenges in creating effective
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public relations for the multi-national entity. Those, just listed really are just a
few of the major organizational challenges. It is not as easy as extending
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traditional domestic activities into the global realm. To be effective, asdescribed, multi-national public relations presupposes qualified personnel. A
team leader should be well versed in international issues and events, skilled in
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cultural integration and knowledgeable about public relations. Local officers
should be experienced in local public relations.
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SELF ? ASSESSMENT QUESTIONS (SAQS)1.
Define export pricing
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2.
High prices will combine with a high Quality image ? Do you agree?
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3.Environmental analysis is an important jobs for the international
marketer Explain.
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4.
What do you understand by International marketing strategy?
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5.Explain the important steps to be taken for methods of entry, as a
strategy
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6.
Explain joint ownership venture
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7.Competition outside the country is more dangerous ? Comment
8.
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What is meant by International Advertising standardization?
9.
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Suggest some measures to facilitate creative communication with othercountries
10.
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What are the objectives of Personal selling?
11.
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Bring out the importance of salesmanship
13.
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Explain why International public relations is important14.
Explain the evolution of public relations in multinationals.
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15.
What do you understand by the term Effective Public Relations?
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SUMMARY
Price for any product is fixed an the general average of both high and low
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quotations. The selling price is the total of cost of production or cost of purchase
and the level of project margin.
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The price paid should be equal to the satisfaction obtained, a per the concept ofconsumer`s surplus. The pricing decision depends upon environment,
especially the political environment. A price-marker in the domestic market is
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the Price-taker in export market. Various trade agreements help the global
community to help each other in international trade.
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International marketing strategy depends an what types of products are to beserved, which needs are to be satisfied and what technologies are to be used to
satisfy the needs.
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The complexities of global marketing management make many hurdles like
Quantity regulation Act of U.S. etc. An exporter has to face the competitions,
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both in the domestic and international markets. The Devaluation of India wasmade with effect from 06.06.1966. The importing countries which had to pay
100 paise per Rupee upto 05.06.1966, had to pay only 63.5 paise from the next
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day.
Personal selling is the best way to promote high sales. Salesmanship becomes a
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key-factor in personal selling, because salesmanship is the art of influencing
people. A salesman`s top quality is enthusiasm.
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The global or international public relation create a good situation for maximuminternational business. Language presents a peculiar problem. Corporate
slogans, marketing themes and translation in other local language - all these are
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necessary. On the label of the product ? both the local language of the importing
country and the international language must be printed.
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ANSWER KEYPrice is the common element in deciding both Demand and supply.
A full analysis of the environment, especially the political environment, must be
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made before exporting any product to any country.
In international marketing strategy, the Cost plus method will be useful
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The exporters should meet the competition from within and without.Every country likes a particular colour of the label.
Personal selling is always better than advertisement ? selling.
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Effective public relations is necessary to boost the export in The Global Market.
More and more advertisement will facilitate more and more global business.
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REFERENCES1.
Czubjita M.R. International Marketing ? Drydon Press, BOSTON
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2.
Fayer weather Internation Marketing ? Prentice Hall ? New Delhi
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3.Jain S.C. International Marketing ? CBS Publications ? New Delhi
4.
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Keegan Warren J.Global Marketing Management ? Prentice Hall New
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Delhi5.
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Orkuisih, Sak and John.S.Shaw _ International Marketing Analysisand strategy ? Prentice Hall, New Delhi.
6.
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Robert L.Heath ? Hand Book of Public Relations ? Sage Publications
India (P) Ltd., M32, Market, Greater Kailash I, New Delhi ? 110 048.
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7.Philip Lesly, Lesly`s Public Relations Hand Book Prentice Hall Inc,
Englewood, New Jersy U.S.A.
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UNIT V
GLOBAL MARKETING MANAGEMENT
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LESSON NO. 1:
DISTRIBUTION CHANNELS
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STRUCTURE1.1
Introduction
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1.2
Meaning of Channel of Distribution
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1.3Types of Channels
1.4
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Channel Structure and Selection
1.5
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Summary1.6
Questions for Discussion
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OBJECTIVES
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After studying the lesson you should be able to understand the differentforms of distribution like institutional and physical in global marketing;
to describe the different channels of distribution and show their
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advantages and disadvantages and, to illustrate the importance and role
of channels of distribution in global marketing.
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1.1INTRODUCTION
'Distribution' is one of the four aspects of marketing. A distributor is the
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middleman between the manufacturer and retailer. After a product is
manufactured by a supplier/factory, it is typically stored in the
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distributor's warehouse. The product is then sold to retailers orcustomers. The other three parts of the marketing mix are product
management, pricing, and promotion.
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Distribution has two elements, the institutional and the physical. Whilst
most agricultural exports from developing countries are either in a
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"primary" format (for example cotton, maize) or "finished" format (for
example flowers, vegetables) increasing attention is being put on
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"processed" or "added value" formats. This means that, whereas in theformer, exporters are in the hands of agents, merchants or other
middlemen, in the latter much more needs to be understood of the
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channel itself. The more is known about the end user and the channel to
reach him/her the better equipped will be the exporter to understand and
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meet the needs and also to perhaps gain more of the exported addedvalue. It is a fact in flowers; for example, that these are sold on from the
Dutch market to the Far East, where the price commanded is much more
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than the original exporter price. If the original exporter could participate
in this channel, the greater would be the return. The longer the channel;
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the more likely that producer profits will be indirectly reduced. This isbecause the end product's price may be too expensive to sell in volume,
sufficient for the producer to cover costs. If the cutting of channel length
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is impossible as per the country`s infrastructure requirements then it may
be beneficial for international consumers and sellers.
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1.2MEANING OF CHANNEL OF DISTRIBUTION
There may be a chain of intermediaries, each passing the product down
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the chain to the next organization, before it finally reaches the consumer
or end-user. This process is known as the 'distribution chain' or, rather
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more exotically, as the 'channel'. Each of the elements in these chainswill have their own specific needs; which the producer must take into
account, along with those of the all-important end-user.
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A channel is an institution through which goods and services are
marketed. Channels give place and time utilities to consumers. In order
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to provide these and other services, channels charge a margin. The
longer the channel the more margins are added. Channels are an
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integrative part of the marketer's activities and as such are veryimportant. They also give a very vital information flow to the exporter.
The degree of control one has over a channel depends on the channel
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type, which is employed.
1.3
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TYPES OF CHANNELSThere are many types of channel members relevant to global marketing.
1.3.1 Brokers
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Brokers do not take title to the goods traded but link suppliers and
customers. They are commonly found in international markets and
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especially agricultural markets. Brokers have many advantages, not leastof which is they can be less costly overall for suppliers and customers.
(i)
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They are better informed by buyers and or sellers;
(ii)
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They are skilled socially to bargain and forge links betweenbuyers and sellers;
(iii)
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They bring the "personal touch" to parties who may not
communicate with each other;
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(iv)They bring economies of scale by accumulating small suppliers
and selling to many other parties;
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(v)
They stabilise market conditions for a supplier or buyer faced
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with many outlets and supply sources.1.3.2 Personalised Trading Networks
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Frequently, relationships may be built up between a buyer and a seller, inwhich over time as confidence grows, unwritten and informal
understandings develop. These relationships reduce information,
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bargaining, monitoring and enforcement costs. Often, as relationships
build, then trust develops which may become proxy for laws. Flexibility
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ensues which often means priorities or "favours" can be expedited. Trustand reciprocity can enable trade to develop in unstable economic
circumstances, but both parties are aware the relationship can be
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undermined through opportunistic behaviour. The Kenyan fresh
vegetable industry is a classic example of personalised trading networks
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enabling international trade between Kenya suppliers and their familial(often Asian) buyers in the United Kingdom.
1.3.3 Associations, Voluntary Chains, Cooperatives
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Associations, voluntary chains and cooperatives can be made up of
producers, wholesalers, retailers, exporters and processors who agree to
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act collectively to further their individual or joint interests. Membersmay have implicit or exclusive contracts, membership terms and
standard operating procedures. These forms of coordination have a
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number of advantages:
(i)
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They counter the "lumpy investment" phenomenon by spreadingthe cost of investment among members;
(ii)
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They can reduce or pool members' risks by bulk buying,
providing insurance and credits, pooling market prices and risk;
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(iii)They lower transaction costs of members through arbitration of
disputes, provision of market information systems, been a first
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stop for output;
(iv)
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They can reduce marketing costs through the provision of
promotion, protection of qualities and monitoring members'
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standards;(v)
They can act as a countervailing power between buyers and
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producers.
This is very important where supermarkets in the UK, for example, are
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now buying in such quantities that they are dictating terms to suppliers.Developing countries do not have a history of good cooperative
development, primarily because of poor management, financial
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ineptitude and over-reaching themselves. However, the Bombay Milk
Scheme in India is working very well. The latter has been very
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successful in going into value added processing as well.1.3.4 Contracting
Contracting represents an intermediate institutional arrangement between
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spot market trading and vertical integration. Marketing and production
contracts allow a degree of continuity over a season, cycle or other
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period of time, without the "instantaneous" of spot trading. The two maintypes of contract are:
(i)
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Forward Markets: These involve commitments by buyers and
sellers to sell and purchase a particular commodity over a stated
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period of time. Specifications usually include weight, volumes,standards and values. Prices may be based on cost plus or
negotiated. These contracts exist between farmers and first
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handlers and exporters and importers.
(ii)
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Forward resource/management contracts: These arrangementscombine forward market sale and purchase commitments with
stipulations regarding the transfer and use of specific resources
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and/or managerial functions. In such a contract the exchange of
raw material or commodity is made on condition that it involves
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the use of certain inputs or methods, advised by the buyer, who
may even take over the distribution function. This is a typical
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Marks and Spencer arrangement. Marks and Spencer is a verysuccessful, high quality and price retail operation in the UK Such
arrangements are found in many franchising, distributor or
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marketing/management agreements and help to internalise many
future product transactions.
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Both these forms of contract reduce the risks on both the buyers' and thesellers' side. By creating forward markets, the seller reduces market risk,
and the buyer ensures that he receives commodities to certain
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specifications. Forward/resource management contracts also have the
advantage of the provision of credit, market information and, perhaps,
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other "trade" secrets. Production contracts to farmers are also a source ofcredit collateral.
1.3.5 Integration
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Integration vertically involves the combination of two or more separate
marketing or production components under common ownership or
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management. It can involve investments "forward" or "backward" inexisting activities or investments in interlinked activities. Integration
horizontally means the linking of marketing or production separables at
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the same level in the system, for example, a group of retailers.
Integration can bring a number of advantages especially in food
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marketing systems, which as follows:(i)
Production/logistical economies: integration can bring economies
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of bulk, transport, and inventories,
(ii)
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Transaction cost economies: integration brings cost economies
because the firm may become the sole supplier of goods and
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services to itself; these include bargaining costs, informationsystem streamlining and centralised decision making,
(iii)
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Risk bearing advantages: vertical integration can overcome risk
and uncertainty, i.e. by internalising flows the organisation can
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eliminate the risk of variability in supplies, outlets, qualities andso on. More direct control over assets may enable the firm to
invest in processing and marketing facilities, which further
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enable the development of economies of scale. Typical examples
include nuclear estates and out grower schemes.
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(iv)Market imperfections: These can be "absorbed" often by
vertically integrated organisations. Taxes, prices and exchange
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controls and other regulations may be "absorbed" to give
pecuniary gain. Also, integration enables the firm to increase its
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market share and leverage with suppliers and customers.For example, Lonrho and Anglo American are vertically integrated
organisations in agricultural marketing at global level. Lonrho, with its estates in
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Kenya, is also in processing. Anglo American is also in agriculture and provides
an interesting case of vertical integration giving advantages. If one takes the
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Anglo American operation in Zimbabwe, it owns, amongst other things, citrusestates. It not only grows, but processes and markets domestically and
internationally. In addition, Anglo owns training facilities, transport facilities
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and gives credit and investment capabilities. Its international operation means it
knows the Government tax, regulations, exchange controls and other measures
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very well, and so can "negotiate" around or within this legal/monetaryframework.
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1.3.6 GovernmentIt can be seen that Government can take a leading role in the distribution of
goods and services via state-owned Marketing Boards. Government may provide
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an infrastructure, which the private sector just cannot afford for example roads,
utilities, training and extension. Government has the sovereign authority to
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provide the regulatory framework within which commodity or agriculturalexport systems can be developed. It can also define the rules for international
trade and market entry. It can negotiate in either a bilateral or multilateral form,
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to facilitate a particular commodity transfer or arrange lower terms of access.
Government also has other roles to play like cooperating or providing services in
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defined markets. It can provide credit or market information. It may stabiliseprices with price controls like floor or ceiling prices, buffer stocks, quantity
controls and so on. Government can regulate the competitive position of markets
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by passing regulations, which protect or promote a market structure. It may
force suppliers into Marketing Boards as the only outlet and so alter the whole
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competitive structure of industry. Both Marketing Boards and Marketing Orderscan be used to control physical commodity flows, enforce market quality
standards and pool market risk. Finally Government can "enable" suppliers
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through the introduction of export incentives, reduced taxes or export retention
schemes.
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1.4CHANNEL STRUCTURE AND SELECTION
The channel decision is very important. In theory at least, there is a form of
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trade-off: the cost of using intermediaries to achieve wider distribution is
supposedly lower. Indeed, most consumer goods manufacturers could never
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justify the cost of selling direct to their consumers, except by mail order. Inpractice, if the producer is large enough, the use of intermediaries (particularly
at the agent and wholesaler level) can sometimes cost more than going direct.
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Many of the theoretical arguments about channels therefore revolve around cost.
On the other hand, most of the practical decisions are concerned with control of
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the consumer. The small company has no alternative but to use intermediaries,
often several layers of them, but large companies 'do' have the choice.
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However, many suppliers seem to assume that once their product has been soldinto the channel, into the beginning of the distribution chain, their job is
finished. Yet that distribution chain is merely assuming a part of the supplier's
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responsibility; and, if he has any aspirations to be market-oriented, his job
should really be extended to managing, albeit very indirectly, all the processes
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involved in that chain, until the product or service arrives with the end-user.Channel structure varies considerably according to whether the product is
consumer or business-to-business oriented. The former tends to have a variety of
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formats, whereas the latter is less complicated. In deciding on channel design the
following have to be considered carefully:
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(i)Market needs and preferences;
(ii)
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The cost of channel service provision;
(iii)
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Incentives for channel members and methods of payment;(iv)
The size of the end market to be served;
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(v)
Product characteristics required, complexity of product, price,
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perishability, packaging;(vi)
Middlemen characteristics - whether they will push products or
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be passive;
(vii) Market and channel concentration and organisation;
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(viii) Appropriate contractual agreements;(ix)
Degree of control.
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In many countries there is a move to vertical or horizontal integration within
channels, especially in developed countries where large chains dominate, as in
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the UK food retail trade. The converse is the scenario in many less developed
countries. In East Africa, for example, small dukas (carrying less than 100 items
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and occupying no more than 506.75 square feet of space) operate widely on amargin of 12% as opposed to the developed countries' average of 24% margin.
Also there can be very thriving parallel market systems, often difficult to track
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down. Decisions on what channels and entry strategy to adopt depend heavily on
the risks, availability and costs of channels.
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Most developing countries rely heavily on agents in distributing their products.Whilst criticism of being "ripped off" is often made, the loss caused by the
shrinkage is less than that associated with more sophisticated channel forms.
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1.5
SUMMARY
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Along with price and promotion decisions, a decision has to be made on thedistribution system. There are two components to this - the physical (order
processing storage/warehousing and transport) and the institutional aspects. The
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latter involves the choice of agents, distributors, wholesalers, retailers, direct
sales or sales forces. Again, each has its own advantages and disadvantages.
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However, it is in the channel of distribution that the international marketer canencounter many risks and dangers. These involve many transaction costs both
apparent and hidden. Risks include loss in transit, destruction, negligence, non-
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payment and so on. So careful choice and evaluation of channel partner is a
necessity.
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1.6QUESTIONS FOR DISCUSSION
1.
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Distinguish between "institutional" and "physical" distribution.
2.
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What are the principle advantages of using brokers, personalised trading
networks and associations in the marketing of international commodities?
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3.For any agricultural product of your choice discuss the factors which
have to be considered in the choice of a channel of distribution.
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4.
What are the benefits of different channels of distribution?
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5.Explain the structure of channels of distribution at global level.
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UNIT V
GLOBAL MARKETING MANAGEMENT
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LESSON NO. 2:
INTERNATIONAL LOGISTICS
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STRUCTURE2.1
Introduction and Definition of Logistics
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2.2
Strategies of Logistics in Global Marketing
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2.3Logistic Operation Design
2.4
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Logistic Information System
2.5
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Logistics Audit Program2.6
Practices in International Logistics
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2.7
The Challenges of International Logistics
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2.8Strategies for International Logistics
2.9
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Summary
2.10 Questions For Discussion
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OBJECTIVESAfter studying the lesson you should be able to define logistics,
understand strategies of logistics in global marketing, logistic operation
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design, logistic information system, and logistics audit program. Further,
the lesson explains practices in international logistics, the challenges of
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international logistics, and strategies for international logistics2.1
INTRODUCTION AND DEFINITION OF LOGISTICS
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The term logistics broadly defined as the flow of material and
information between consumers and suppliers. In our definition of
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logistics we include the interdependent processes of customer service
and order processing, inventory planning and management, supply,
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transportation and distribution, and warehousing. In customer serviceand order processing we include customer service policy design, order
entry, order processing, status communication, invoicing, etc. In
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inventory planning and management we include forecasting, fill rate
policy design, order quantity engineering, replenishment design, and
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deployment. In supply we include supply chain integration, supplierrelationships, procurement, and manufacturing engineering. In
transportation and distribution we include logistics network design,
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routing and scheduling, shipment planning and tracking, mode selection,
and carrier selection. In warehousing we include cross docking,
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receiving and putaway, storage and handling systems, order picking,shipping, and layout. Our logistics planning methodology addresses in
turn performance measures and goals, process design, information
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systems and infrastructure, and organization design.
2.2
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STRATEGIES OF LOGISTICS IN GLOBAL MARKETINGThere are following strategies of logistics may be followed in global
marketing:
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2.2.1 Logistics Master Planning (LMP)
Logistic master planning is a systematic approach to logistics re-
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engineering based our logistics-planning pyramid. The LMP processdefines performance measures and goals, processes, system
requirements, and organization requirements for customer service and
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order processing, inventory planning and management, supply,
transportation and distribution, and DC operations. LMP short-term and
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long-term recommendations are evaluated and time-phased with the
principles of incremental justification and implementation. The LMP
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process requires the client to assemble a cross-functional logisticsplanning and management team. LMP deliverables include detailed,
prioritized, and scheduled short and long-term action plans for
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performance measures and goals, processes, information systems, and
organization design; logistics information system requirements; detailed
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material and information flows; and detailed organizational and trainingrequirements. In some cases Logistics Resources International equips
LMP clients with decision support tools for on-going computer-aided
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logistics planning and management.
2.2.2 Supply Chain Engineering (SCE)
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Supply chain engineering program brings together manufacturers,wholesalers, and retailers in a given industry to jointly re-engineer their
logistics chain. Our SCE program includes the creation of a supply chain
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scoreboard, supply chain value analysis, short and long-term
recommendations for inventory and cycle time reductions, and supply
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chain information systems requirements analysis. The SCE program isconducted in a workshop format with facilitated breakout and general
working sessions.
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2.2.3 Global Logistics (GL)
Global logistics master planning program extends the traditional scope of
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logistics to include international commerce, global sourcing,international transportation and distribution, INCOTERMS, terms of
trade, customs management, global warehousing, international facilities
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management, EDI and documentation strategies, and international cash
flow.
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2.2.3 Logistics Organization Design (LOD)
Logistics organization design program assists clients to determine skill,
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participation, and culture requirements for logistics planning andmanagement teams; to facilitate change and transition management; to
identify appropriate performance measures and incentives; and to instill
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a culture of coordinated, team-based logistics planning and decision
making.
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2.2.4 Business Case Development (BCD)Business case development program assists clients to identify, assess and
convert business opportunities in the logistics industry. Examples
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include the creation of a business case and plan for third-party logistics
in Latin America, a market assessment of pick-to-light systems in North
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America, an evaluation of third-party logistics options for three majorU.S. corporations.
2.3
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LOGISTIC OPERATION DESIGN
The designs for logistic operation are as follows:
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2.3.1 Warehouse Master Planning (WMP)The Warehouse Master Planning program evaluates current warehousing
performance and practices and specifies action steps required to achieve
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world-class performance and practices in warehousing and distribution
center operations. The program addresses all functional areas in the
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warehouse including receiving, put away, storage, replenishment, orderpicking, shipping, layout, and material handling systems engineering.
Typical deliverables include warehouse process definitions, material and
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information flows, layout drawings, material and information handling
system design and justification, and RFPs. The WMS process requires
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between four and eight weeks to complete and requires the client to
assemble a cross-functional warehouse planning and management team.
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2.3.2 Transportation Master Planning (TMP)The Transportation Master Planning program is based on transportation
and distribution-planning pyramid addressing performance measures and
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goals, process design (logistics network design, routing and scheduling,
shipment planning and tracking, mode and carrier selection, and fleet
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configuration and management), transportation management systemrequirements, and transportation organization design. The program
makes use of the logistics modeling software and typical deliverables
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include a reconfigured logistics network design, routing and scheduling
plans, shipment planning tools, and mode/carrier selection policies. The
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TMP process requires between six and ten weeks to complete.2.4
LOGISTIC INFORMATION SYSTEM
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For the purpose of maintaining the relationship with the distributors at global
level, following decision are taken:
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2.4.1 Warehouse Management Systems (WMS)The WMS consulting program assists clients to develop functional and
technical requirements for warehouse management systems; to determine
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appropriate and justifiable system investments; to decide whether to
enhance, build, or buy system functionality to close functional and/or
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technical gaps; to identify and select appropriate WMS vendor(s); toprovide expert facilitation and/or project management throughout the
WMS implementation process.
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2.4.2 Logistics Information Systems (LIS)
The LIS consulting program assists clients to develop functional and
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technical requirements for logistics information systems incorporating
logistics database design, customer response systems, inventory
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management systems, supply and production management systems,transportation management systems, warehouse management systems,
and supporting logistics decision support tools. The program includes
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system requirements definition, system justification, buy/build analysis,
vendor selection criteria, and implementation support.
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2.5LOGISTICS AUDIT
The following programs are prepared for the audit of logistics:
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2.5.1 LOGISTICS AUDIT PROGRAM
The logistics audit program is designed to compare the client's logistics
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performance, practices, systems, and organization with world-classstandards. The framework for the audit is logistics-planning pyramid.
The audit requires between two and four weeks to complete and relies on
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the client's completion of forms provided in our Logistics Audit
Workbook. The deliverables include a performance, practices, systems,
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and organization gap analysis; short and long term recommendations;savings projections associated with recommended logistics initiatives;
and a logistics master planning project plan.
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2.5.2 Warehouse Audit Program
The warehouse audit program is designed to compare the client's
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warehouse performance, practices, systems, and organization withworld-class standards. The framework for the audit is our warehouse-
planning pyramid including receiving, put away, storage, restocking,
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order picking, shipping, and layout. The audit requires between two and
four weeks to complete and relies on the client's completion of forms
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provided in our Warehouse Audit Workbook. The deliverables include a
performance, practices, systems, and organization gap analysis; short and
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long term recommendations; savings projections associated withrecommended logistics initiatives; and a warehouse master planning
project plan.
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2.6
PRACTICES IN INTERNATIONAL LOGISTICS
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Companies seeking to improve their international logistics performanceshould consider these best practice tenets as they construct their
transformation roadmap. 2.6.1
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Envision the Future, Act on The
Foundation
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Best practice winners set the strategy for international logistics in thecontext of how their companies compete as businesses. However, they
realize logistics excellence is a journey. As a result, they focus their
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actions on transforming specific, foundational components on which
they can drive future improvements. Visibility, trade compliance, and
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transportation contract management are some of the most commoncornerstones.
2.6.2 PARTNER FOR SUCCESS
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Unlike in domestic logistics, it`s impossible to go it alone in the
international arena. To drive their success, best practice winners are
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creating better ways to leverage the skills (and technology) of partners.They are figuring out new ways to synchronize activities and increase
process visibility and control with customs brokers, freight forwarders,
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ocean carriers, logistics service providers, and others. Best practice
winners stress that it is vital to choose partners that provide the best
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value, not the lowest contract cost.
2.6.3 Automate with Internet-Based Technology
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Without exception, best practice winners` logistics strategies revolvearound decreasing manual processes and increasing automation. Internet-
based technology is enabling a new level of transaction automation and
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partner synchronization previously not practical or possible. On-demand
global trade management platforms and data gateways are driving more
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electronic collaboration for significantly reduced IT costs.2.6.4 Create Visibility to Create Control
International logistics is all about managing a network of third-party
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providers. The foundation for controlling this process is visibility. For a
number of best practice winners, visibility does not stop at identifying a
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shipment delay or inventory issue. Rather, an alert is the first step in astructured notification, resolution, and root cause analysis process. In
particular, those companies with strong Six Sigma heritage are using that
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discipline to create improved international logistics reliability.
2.6.5 Use Inventory More Effectively
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A number of international logistics leaders are focusing on extractingmore value from their inventory. In some cases, this means creating
better in-transit visibility so they can redirect inventory around port
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congestion or other bottlenecks or to higher points of demand. In other
instances, the focus is on optimizing where and how much inventory to
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hold in the first place. Better leveraging the networks of logisticspartners and using multi-echelon inventory optimization tools are some
of the success tactics being applied.
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2.6.6 Implement Transportation Spend Management.
Although companies have focused on spend management discipline in
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areas like office suppliers, travel expenses, and telecom costs, they have
mostly ignored ocean and air freight costs. Two of the best practice
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winners focused specifically on aspects of transportation spendmanagement to jump-start their improvement initiatives.
2.6.7 Streamline Customs Processes and Maximize Trade Agreements
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Without a solid foundation of trade compliance and documentation,
purchasing will make the wrong sourcing decisions, goods will be
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delayed clearing customs, and the business will be put at risk ofregulatory infractions. Trade agreement management and integration
with broker partners to avoid data keying errors and costs are among the
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key trade compliance initiatives for best practice winners. 2.6.8
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Obsess about Organizational Buy-InBest practice winners are intensely focused on gaining and maintaining
organizational buy-in for their logistics transformation initiatives. This includes
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gaining the CFO and finance organization`s support by focusing not just on
logistics-related savings but also translating the initiatives to tangible, direct
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benefits for them. The heat is turning up on logistics processes as sourcing andmanufacturing activities are increasingly being done internationally. Companies
going global are experiencing unexpected transportation costs, higher inventory
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investment, and longer and more unpredictable cycle times, while at the same
time their local customers are demanding lower prices, more unique execution,
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and improved responsiveness. As a result, companies are seeking ways to maketheir international logistics processes more reliable, more flexible, and less
expensive.
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2.7
THE CHALLENGES OF INTERNATIONAL LOGISTICS
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In most companies, international logistics processes mirror domestic supply
chain practices in the 1970s: logistics staffs keep their supply chains moving
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through experience-based problem solving, and insistent phoning and faxing oflogistics partners. At nearly two-thirds of companies, spreadsheets, department-
built Access database applications, and emails round out the technology
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portfolio. Many international logistics groups have reached the breaking point,
however. As global sourcing and selling increases, so do transactions, partners,
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and problems to be managed. But budgets don`t allow logistics departments tocontinue throwing people at these issues. The current manual-intensive process
of global logistics is becoming unsustainable. Companies adopting automation
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are starting to experience cost and speed advantages over their competitors.
These companies are using automation to tackle both physical distribution
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challenges and cost control challenges.2.7.1 Physical Distribution Challenges
Companies are seeking to improve international logistics processes because of
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longer lead times, greater supply chain uncertainty, and increased business risk.
The greatest handicap to logistics performance, according to two-thirds of firms,
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is the lack of visibility and metrics for managing overseas vendors and logisticsservice providers.
2.7
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Cost Challenges
A parallel issue is cost control. In our domestic supply chain, we can easily
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attribute freight costs and even understand the impact of truck fuel surcharges ata carton level, says a retail international transportation director. But on the
international side, we were challenged to answer even basic questions such as,
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What`s the average ocean freight spend per month, by lane? Because we
lacked integrated systems and normalized data. Companies are finding that
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inadequate transportation spend visibility is leading to unanticipated budgetdiscrepancies, unexpectedly low product margins, and, in some cases, higher
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rather than lower total costs when sourcing from low-cost countries.2.8
STRATEGIES FOR INTERNATIONAL LOGISTICS
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Top performers are succeeding in using international logistics transformation to
drive quantifiable business benefits for their corporations, including cost and
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speed advantages. These companies are able to invest less capital ininternational logistics yet provide better service to their customers. They are
arming their logistics staffs with up-to-date technology and integration-friendly
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logistics partners to support today`s global-intensive business environment.
Analysis of the eight best practice winners found that greater process
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automation, improved technologies, and increased reliance on logistics partnerswere instrumental in driving their successes. Although winners focused on
different areas of international logistics improvement, they shared common
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views on how to achieve success. Companies seeking to improve their
international logistics performance should consider these best practice tenets as
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they construct their transformation roadmap.The strategy for international logistics has to be set in the context of how a
company competes as a business. We have a highly leveraged business model
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based on product leadership, says the senior vice president of operations for a
mid-size high-tech winner. We needed a logistics strategy that supported our
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corporate strategy. For us, this meant outsourcing logistics to a domain expertand creating an international distribution network that was simple, visible, and
accountable. The logistics strategy must envision the future but action needs to
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be taken on the discrete, foundational components. These elements include such
areas as ocean contract management, trade compliance, and visibility. For
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instance, automating the trade compliance process lays the groundwork forbetter total landed costing and margin management, smarter sourcing and
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inventory management decisions, and fewer supply chain delays. Best practice
winners seek rapid time to benefit on their logistics transformation projects,
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often achieving payback on their initiatives in less than a year. The other aspect
of a sound international logistics strategy is that it needs to be built for
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flexibility. Expect and prepare a foundation for change, says the vice presidentof global logistics for an apparel company. C-TPAT, advanced manifest
requirements, changing trade agreements and free trade zones, new partners and
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events to track, new distribution bottlenecks to avoid-- change is constant.
Our next core competency, says an appliance manufacturer`s global value
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chain leader, is focusing on the speed and velocity in which we can execute theresults of new logistics strategies. Being able to .ex the international supply
chain quickly to avoid cost and service issues and take advantage of new
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productivity advances requires technology and partners built for change. Key
areas to address in building an international logistics strategy are shown in
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Figure 2.1.--- Content provided by FirstRanker.com ---
Figure 2.1. International Logistics Strategy
2.8.1
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Partner for SuccessUnlike domestic logistics, it`s impossible to go it alone in the international
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arena. Best practice winners are figuring out new ways to synchronize activitiesand increase visibility and control of processes with customs brokers, freight
forwarders, ocean carriers, logistics service providers, and others. These
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companies are leveraging the skills (and technology) of partners to achieve cost
and lead time benefits. Rather than displace our brokers, we want to automate
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our interactions, says a logistics manager. The manual process of interactingwith them results in high document fees and additional errors because they are
re-keying data. We want to .x that, not take over their activities. Two of the
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best practice winners embraced total logistics outsourcing. Don`t do
outsourcing for the sake of outsourcing, says an executive of one of the
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winners. Your strategy needs to take into account the complexity of yourproducts and business model or it will fail. For this company, logistics
outsourcing was the right strategy and resulted in a 30% decrease in logistics
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costs. If you do outsource, never go with the lowest contract cost, continues
the executive. Go with the best value proposition. If outsourcing is right for
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you, move immediately to a single end-to-end logistics provider that can provideyou with .exibility, reliability, and visibility, urges another logistics executive.
But make sure you`re diligent in your evaluation to pick the right partner and
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consider not just cost but also quality and communications capabilities.
2.8.2
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Automate with Internet-Based TechnologyWithout exception, best practice winners` logistics strategies revolve around
decreasing manual processes and increasing automation. Automation translates
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into speed, says one best practice winner. Manual processes translate into
delays and errors. According to another winner, Having technology that lets
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you manage by exception is instrumental to boosting efficiency. Internet-basedtechnology is enabling a new level of transaction automation and partner
synchronization previously not practical or possible. On-demand global trade
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management platforms and data gateways are driving more electronic
collaboration for significantly reduced IT costs. Best practice winners report
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very little internal resistance to using on-demand technology, also known as
software as a service or hosted, web-based systems. International logistics
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has historically been on the bottom of the corporate IT priority list, so CIOs aregenerally supportive of trying on-demand models in this area rather than having
to reprioritize their projects and reallocate staff for traditional software
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installations. Supplementing existing enterprise systems with advanced
optimization is another favored strategy of best practice winners. They realize
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that optimizing end-to-end inventory or optimizing lane-by-lane awards tocarriers or forwarders is too complex to figure out on spreadsheets. Multi-
echelon inventory optimization and ocean bid optimization are two areas driving
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quickly, multi-million dollar savings for companies.
2.8.3 Lay the Foundation for Visibility and Control
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International logistics is all about managing a network of third-party providers.The foundation for controlling this process is visibility. Some of the best
practice winners have integrated their enterprise customer service and logistics
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systems with the visibility systems of their logistics providers to obtain
automatic status and alert information. Other winners are using on-demand
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visibility solutions that are independent of their logistics providers` technology.This provides more control of how the technology can be used and also enables
easier plug-and-play of logistics providers because technology does not have to
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be reinstalled when switching providers. Companies that still rely on phone
calls, emails, or manual web lookups to track down shipments are at a
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competitive disadvantage. Real-time knowledge of the location of goodsthroughout the supply chain makes for faster-moving inventory speeds, cash
flow, and receivables, all while reducing inventory carrying costs. For a number
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of best practice winners, visibility does not stop at identifying a shipment delay
or inventory issue. Rather, an alert is the first step in a structured notification,
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resolution, and root cause analysis process. In particular, those companies with
strong Six Sigma heritage are using that discipline to create improved
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international logistics reliability.2.8.4 Use Inventory More Effectively
Best practice winners also focus on extracting more value from their inventory.
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In some cases, this means creating better in-transit visibility so they can redirect
inventory around port congestion or other bottlenecks or to higher points of
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demand. In other instances, the focus is on optimizing where and how much tohold inventory in the first place. Aberdeen research shows that traditional
inventory target setting practices are insufficient for situations where there is
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varying demand and supply uncertainty, often resulting in a company holding
20-30% too much inventory across its supply chain. Many companies use weeks
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of supply and rules of thumb based on past history to set raw material and work-in-process (WIP) inventory buffers. Whenever the supply base has poor
performance, inventory planners ratchet up the inventory targets--but they
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rarely ratchet them down to account for better performance. So over time,
companies can find themselves holding more and more of this just-in-case
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inventory. By using multi-echelon inventory optimization, which moreaccurately accounts for supply and demand variability, companies can take out
redundant and unnecessary inventory while improving customer service levels.
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2.8.5 Implement Transportation Spend Management
A missing discipline in many companies is transportation spend management.
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Although companies have focused on spend management in areas like officesuppliers, travel expenses, and telecom costs, they have mostly ignored ocean
and air freight costs. Yet international transportation costs can be two to three
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times higher than domestic costs and much more variable. Two of the best
practice winners focused specifically on aspects of freight spend management to
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jump-start their improvement initiatives. Electronic contract management is the
foundation for spend management, explains an international transportation
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director. We can exploit this foundation to improve product costing and marginmanagement, automate freight audit processes, and take preemptive action on
cost and allocation issues.
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2.8.6 Streamline Customs Processes and Maximize Trade Agreements
Another foundational focus for best practice winners is trade compliance and
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documentation, which drives streamlined, cost-efficient, and low-riskinternational logistics processes. Best practice companies that focus on trade
compliance excellence are realizing improvements in a number of areas:
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automating import/export compliance and documentation processes; maximizing
free trade agreement program benefits and automating certificate of origin
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management with suppliers; and creating paperless workflows with brokers tolower document costs and increase classification consistency.
2.8.7 Obsess about Organizational Buy-In
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Generally, the eight best practice winners are intensely focused on gaining and
maintaining organizational buy-in for their logistics transformation initiatives.
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Communicate and educate everyone on the costs, risks, and benefits involvedmake them aware of how it personally affects them, advises a global logistics
manager. Start with a small, manageable piece, gain success, and build on it.
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In addition to the usual executive support needed for corporate initiatives,
international logistics initiatives need to focus on securing:
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(i)Local operational support: Involve subject matter experts and local
logistics, manufacturing, and purchasing managers early and often. Early,
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collaborative review of workflow, data feeds, and optimization models is vital to
creating buy-in and realizing the savings of new logistics strategies. Focus on
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changing the culture from a We`ve always done it this way mentality to an
innovation mentality where operations staff actively thinks of how to create
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better ways to do business. Intimately involving the operations staff in thetransformation project is the most effective way to foster an innovation
mentality.
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(ii)
Vendor and logistics provider support: Similarly, engage vendors and
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logistics providers as early as possible in the process. Look for ways to leveragetheir expertise while laying the groundwork for paperless transactions.
(iii)
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Finance organization support: CFOs and finance organizations
increasingly realize the value of enhanced international logistics automation and
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visibility. Key to gaining their support is not just focusing on logistics relatedsavings but also translating the initiatives to tangible, direct benefits for them
(e.g., improve margin management, enhance cash flow forward visibility,
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automate human-intensive freight audit and settlement processes, and decrease
cash-to-cash cycles). To succeed, you absolutely need your finance community
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and the functional groups in lock stop with you throughout the process, saysone logistics manager. Other companies cite Lean and Six Sigma leadership and
staff as being key centers of support for international logistics transformations.
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2.9
SUMMARY
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Business success is increasingly linked to effectively managing internationallogistics. Growing low-cost country sourcing and rising sales to international
customers are triggering companies to seek new ways to manage the costs,
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complexities, and uncertainties of moving goods across borders. At global
level, customer service policy design, order entry, order processing, status
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communication, invoicing, etc. are included in customer service and orderprocessing. In inventory planning and management we include forecasting,
fill rate policy design, order quantity engineering, replenishment design, and
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deployment. In supply we include supply chain integration, supplier
relationships, procurement, and manufacturing engineering. These all
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activities are processed through logistics.
2.10 QUESTIONS FOR DISCUSSION
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1.Define logistics at global level.
2.
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What do understand strategies of logistics in global marketing?
3.
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Explain the logistic operation design, logistic information system,and logistics audit program.
4.
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Discuss the practices in International Logistics.
5.
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What are the challenges of International Logistics? Explain.6.
What types of strategies are followed in International Logistics?
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