CHAPTER ONE

OVERVIEW OF INTERNATIONAL MARKETING

1.What is Marketing?
Many People think of marketing only as selling and advertising. However, selling and advertising is only
the tip of the marketing iceberg.
Today, marketing must be understood not in the old sense of making a sale but in the new sense it is
satisfying customer needs. The simplest definition of marketing is: “It is the delivery of customer
satisfaction at a profit”. The twofold goal of marketing in this definition is:
a) To attract new customers by promising superior value
b) To keep current customers by delivering satisfaction.
1.1. International Marketing Defined
Marketing is the process of focusing the resources and objectives of an organization on
environmental opportunities and needs. The first and most fundamental fact about marketing is
that it is universal. It is a set of concepts, tools, theories, practices, procedures, and experience.
Although marketing is universal, marketing practice, of course, varies from country to country.
Each person is unique, and each country is unique. This reality of differences means that we
cannot always directly apply experience from one country to another. Because of customers,
competitors, channels of distribution and media are different, it make us to change our marketing
plan.
1.1 MEANING AND NATURE OF INTERNATIONAL MARKETING

What do we mean by international marketing?

An organization whose products are marketed in two or more countries is engaged in
international marketing.
The fundamentals of marketing apply to international marketing in the same way they apply to
domestic marketing. Marketing program should be built around a good product that is properly
priced, promoted, and distributed to a market that has been carefully selected.
International markets create attractive opportunities, but the competition is intense. Success goes
to the firms that understand and adapt to the environmental factors that influence international
marketing.

The American Marketing Association (AMA) defines the term international marketing as follows

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“International Marketing is the multinational process of planning and executing the
conception, pricing, promotion and distribution of ideas, goods, and services to create an
exchange that satisfy individual and organizational objectives. “
A firm selling abroad its merchandise often faced with cultural, economic, and legal systems that
are quite different from those in its home country. Thus a firm must understand and adapt to a
new and unfamiliar environment.
A firm moves beyond domestic markets into international trade for several reasons.
The first is simply the existence of foreign markets. There is a strong demand for a wide variety
of consumer products in the developed nations of the world. And with in the developing as well
as the developed nations of the world, there is a demand for business products such as machine
tools, construction, equipment and computers. Second, as domestic markets become saturated,
producers even those with no previous international experience, look to foreign markets.
Third, some countries possess unique natural or human resources that give them a comparative
advantage when it comes to producing particular products.
1.3 TYPES OF MARKETING
One way to understand the concept of international / global world marketing is to examine how
international marketing differs from such similar concept as domestic marketing, Foreign
marketing, comparative marketing, international trade and multinational marketing.
Domestic marketing is concerned with the marketing practices with n a marketer’s home
country. From the perspective of domestic marketing, marketing methods used outside the home
market are foreign marketing.
Therefore, foreign marketing encompasses the domestic operation with in a foreign country.
A study becomes comparative marketing when its purpose is to contrast two or more marketing
systems rather than examine a particular country’s marketing system for its own sake.
Similarities and differences between systems are identified.
International marketing must be distinguished from international trade. International trade is
concerned with the flow of goods and capital across national borders. The focus of the analysis is
on commercial and monetary conditions that affect balance of payment and resource transfers.
Some marketing authorities differentiate international marketing from multinational marketing
because international marketing in its literal sense signifies marketing between nations.
Domestic marketing involves are set of uncontrollable derived from the domestic market.

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International marketing is much more complex because a marketer faces two or more sets of
uncontrollable variables originating from various countries.
1.4 DISTINCTION BETWEEN DOMESTIC VS INTERNATIONAL MARKETS
Some basic distinctions between domestic and international markets are as enumerated below.
i) Domestic market
1. One language, one nation, one culture
2. Market is much more homogeneous
3. Single currency
4. No problems of exchange controls, tariffs
5. Relatively stable business
6. Minimum government interference in business decision
7. Data in marketing research available, easily collected, and accurate etc.
ii) International Markets
1. Many languages, many nations, many cultures
2. Markets are diverse and fragmented
3. Multiple currencies
4. Exchange controls and tariffs normal obstacles
5. Multiple and unstable business environments
6. Due to national economic plans government influence usual in business decisions
7. Marketing research very difficult, costly and cannot give desired accuracy, etc.
8. Domestic and International Enterprises: Characteristics and Practices Environme
1.5 BENEFITS OF INTERNATIONAL MARKETING
The nation will be benefited through International Marketing, as discussed below :
 To meet imports of industrial needs
The developing countries need imports of capital equipments, raw materials of critical nature,
technical know how for building the industrial base in the country with a view to rapid
industrialization and developing the necessary infrastructure.

 Debt servicing
All most all underdeveloped countries have been receiving external aid over the years for their
industrial development.

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 Rapid economic growth
An expanding export trade can be a dynamic factor in a country’s development process. The
country should have to utilize domestic resources and to provide technological improvement and
improved production at lower costs.

 Facing competition successfully

Better quality and lower prices improve the image of the producer as well as of the country in
minds of foreign customers.
 Increase in employment opportunities
In an effort to increase the export, many export oriented industrial units are established. In
underdeveloped countries, the problem of the employment and underemployment is very serious
that can be solved to some extent by increasing the level of export.
 Role of exports in national income
Exports play an important role in the national income of the country and it can be increased to a
sizeable extent through organized export marketing.
 Increase in the standard of living
Export marketing improve the standard of living of the countrymen in the following ways: -
i) The imports of necessary item for consumptionand help improve standard of living.
 International collaboration
Export marketing results in international collaboration. Developed country fix their import
quotas for different countries and for different commodities.

 Closer cultural relations

International trade brings various countries closer. Better trade relations are established among
the countries.
 Help in political peace
The economic relations between two countries help improve their political relations.

1.6 BARRIERS TO INTERNATIONAL MARKETING

The major legal, political and economical forces affecting international marketers are barriers
created by governments to restrict trade and protect domestic industries. Examples includes the
following: -

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 Tariff: - a tax imposed on a product entering a country. Tariffs are used to protect domestic
producers and / or to raise revenue. E.g. Japan has a high tariff on imported rice.
 Import quota: - a limit on the amount of a particular product that can be brought into a
country. Like tariffs, quotas are intended to protect local industry.
 Unstable governments: - high indebt-ness, high inflation, and high unemployment in several
countries have resulted in high unstable governments that exposed foreign firms in business
risks and profit repatriation.
 Foreign exchange problems: - high indebtedness and economic and political instability
decrease the value of a country’s currency.
 Foreign government entry requirements and bureaucracy. Government places many
regulations on foreign firms. For example: - they might require joint ventures with the
majority share going to the domestic partner, a high number of nationals to be hired, limits on
profit repatriation etc.
 Corruption: - officials in several countries requires bribes to cooperate. They award
business to the highest briber rather than the lowest bidder. Etc.
 Technological pirating: - a company locating its plant abroad worries about foreign
managers learning how to make its product and breaking away to compete openly. I.e.
machinery, electronics, chemicals, pharmaceuticals area
1.7 CHARACTERISTICS OF MULTINATIONAL CORPORATION

Multinational Corporations (MNCs): Pros and Cons

Several firms have passed beyond the international division – stage and have become truly global
organizations. They have stopped thinking of themselves as national marketers who have
ventured abroad and now think of themselves as global marketers. Their top corporate
management and staff plan worldwide manufacturing facilities, marketing policies, financial
flows, and logistical systems.
The global operating units report directly to the chief executives or executive committee, not to
the head of an international division.
What is a Global industry?
“A global industry is an industry in which the strategic positions of competitors in major
geographic or national markets are fundamentally affected by their overall global positions.”

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What is a Global firm?
“A global firm is a firm that operates in more than one country and captures R&D,
production, logistical, marketing, and financial advantages in its costs and reputation that are
not available to purely domestic competitors. “
The mention of MNCS usually elicits mixed reactions. On the one hand, MNC S are associated with
exploitation and ruthlessness. They are often criticized for moving resources in and out of a
country, as they strive for profit, without much regard for the country’s social welfare.
On the other hand, MNCS have power and prestige. Additionally they create social benefits by
facilitating economic balance.
According to Aharoni, an MNC has at least three significant dimensions: structural, performance
and behavior.
1. Structural
Structural requirements for definition as a MNC include the number of countries in which the
firm does business and the citizenship of corporate owners and top managers.
2. Performance
Definition by performance depends as such characteristics, as earnings, sales and assets. These
performance characteristics indicate the extent of the commitment of corporate resources to
foreign operations and the amount of rewards from the commitment. The greater the
commitment and reward, the greater the degree of internationalization.
3. Behavior
Behavior is somewhat less reliable as a measure of multinational’s than either structure or
performance, though it is no less important. Thus a company becomes more multinational as its
management thinks. Such thinking, known as Geocentricityand others.
a) Ethnocentricity: - is a strong orientation toward themust be distinguished from the two
other attitudes or orientations, known as ethnocentricity and Polycentr home country.
Markets and consumers abroad are viewed as unfamiliar and even inferior in taste,
sophistication and opportunity. Centralization of decision-making is thus a necessity.
b) Polycentricity: - is the opposite of ethnocentricity, is or strong orientation to the host The
assumption is that each market is a unique and consequently difficult for outsiders to
understand country. The attitude places emphasize on differences between markets that are
caused by variation with in, such as income, culture, laws and politics.

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c) Geocentricity: - is a compromise between the two extremes of ethnocentricity and
polycentricity. Geocentricity is an orientation that considers the whole world rather than any
particular country as the target market. A geocentric company might be thought of as a
denationalized or supranational.

1.8 The Process of Internationalization

Many companies may have begun as domestic firms concentrating on their own domestic
markets before shifting or expanding the focus to international markets. As they become more
international, they are supposed to move from being sporadic exporters to being frequent
exporters before finally doing manufacturing abroad. It is thus useful to investigate the stages of
internationalization. There are four identifiable stages in a firm’s internationalization. The four
stages are: non-exporters, export intenders, sporadic exporters, and regular exporters. The
process shows how firms were constrained initially by resource limitations and a lack of export
commitment, and how they are able to become more and more internationalized as more
resources are allocated to international activity. According to Andersen there are four stages: (1)
no regular export activities, (2) export via independent representatives (agent), (3) establishment
of an overseas sales subsidiary, and (4) overseas production/manufacturing.

At present, there is no conclusive evidence to show that domestic firms have generally indeed
progressed from one stage to another as prescribed on their way to becoming more
internationally oriented. Likewise, no empirical evidence has been provided so far to support the
competing hypothesis that some firms are “born global” in the sense that their mission is to
become MNCs which engage in international business activities from the outset.

1.9 International Trade Concepts

Whenever a buyer and a seller come together, each expects to gain something from the other.
The same expectation applies to nations that trade with each other. It is virtually impossible for a
country to be completely self-sufficient without incurring undue costs. Therefore, trade becomes
a necessary activity, though, in some cases, trade does not always work to the advantage of the
nations involved. Virtually all governments feel political pressure when they experience trade
deficits. Too much emphasis is often placed on the negative effects of trade, even though it is
questionable whether such perceived disadvantages are real or imaginary. The benefits of trade,
in contrast, are not often stressed, nor are they well communicated to workers and consumers.

A nation trades because it expects to gain something from its trading partner. One may ask
whether trade is like a zero-sum game, in the sense that one must lose so that another will gain.
The answer is no, because, though one does not mind gaining benefits at someone else’s
expense, no one wants to engage in a transaction that includes a high risk of loss. For trade to

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take place, both nations must anticipate gain from it. In other words, trade is a positive-sum
game. Trade is about “mutual gain.

1.2 Absolute Advantage Theory

Adam Smith may have been the first scholar to investigate formally the rationale behind foreign
trade. In his book Wealth of Nations, Smith used the principle of absolute advantage as the
justification for international trade. According to this principle, a country should export a
commodity that can be produced at a lower cost than can other nations. Conversely, it should
import a commodity that can only be produced at a higher cost than can other nations.

Consider, for example, a situation in which two nations are each producing two products. The
following table provides hypothetical production figures for the USA and Japan based on two
products: the computer and the automobile. Case 1 shows that, given certain resources and labor,
the USA can produce twenty computers or ten automobiles or some combination of both. In
contrast, Japan is able to produce only half as many computers (i.e., Japan produces ten for every
twenty computers the USA produces).

This disparity may be the result of better skills by American workers in making this product.
Therefore, the USA has an absolute advantage in computers. But the situation is reversed for
automobiles: the USA makes only ten cars for every twenty units manufactured in Japan. In this
instance, Japan has an absolute advantage. Based on the Table, it should be apparent why trade
should take place between the two countries. The USA has an absolute advantage for computers
but an absolute disadvantage for automobiles. For Japan, the absolute advantage exists for
automobiles and an absolute disadvantage for computers. If each country specializes in the
product for which it has an absolute advantage, each can use its resources more effectively while
improving consumer welfare at the same time. Since the USA would use fewer resources in
making computers, it should produce this product for its own consumption as well as for export
to Japan. Based on this same rationale, the USA should import automobiles from Japan rather

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than manufacture them itself. For Japan, of course, automobiles would be exported and
computers imported. An analogy may help demonstrate the value of the principle of absolute
advantage. A doctor is absolutely better than a mechanic in performing surgery, whereas the
mechanic is absolutely superior in repairing cars. It would be impractical for the doctor to
practice medicine as well as repair the car when repairs are needed. Just as impractical would be
the reverse situation, namely for the mechanic to attempt the practice of surgery. Thus, for
practicality, each person should concentrate on and specialize in the craft which that person has
mastered. Similarly, it would not be practical for consumers to attempt to produce all the things
they desire to consume. One should practice what one does well and leave the manufacture of
other commodities to people who produce them well.

1.3 Principle of Comparative/Relative Advantage

One problem with the principle of absolute advantage is that it fails to explain whether trade will
take place if one nation has absolute advantage for all products under consideration. Case 2 of
the table shows this situation. Note that the only difference between Case 1 and Case 2 is that the
USA in Case 2 is capable of making thirty automobiles instead of the ten in Case 1. In the second
instance, the USA has absolute advantage for both products, resulting in absolute disadvantage
for Japan for both. The efficiency of the USA enables it to produce more of both products at
lower cost. At first glance, it may appear that the USA has nothing to gain from trading with
Japan. But nineteenth-century British economist David Ricardo, perhaps the first economist to
fully appreciate relative costs as a basis for trade, argues that absolute production costs are
irrelevant. More meaningful are relative production costs, which determine what trade should
take place and what items to export or import.

According to Ricardo’s principle of relative (or comparative) advantage, one country may be
better than another country in producing many products but should produce only what it
produces best. Essentially, it should concentrate on either a product with the greatest
comparative advantage or a product with the least comparative disadvantage. Conversely, it
should import either a product for which it has the greatest comparative disadvantage or one for
which it has the least comparative advantage. Case 2 shows how the relative advantage varies
from product to product. The extent of relative advantage may be found by determining the ratio
of computers to automobiles. The advantage ratio for computers is 2:1 (i.e., 20:10) in favor of the
USA. Also in favor of the USA, but to a lesser extent, is the ratio for automobiles, 1.5:1 (i.e.,
30:20). These two ratios indicate that the USA possesses a 100 percent advantage over Japan for
computers but only a 50 percent advantage for automobiles. Consequently, the USA has a greater
relative advantage for the computer product. Therefore, the USA should specialize in producing
the computer product. For Japan, having the least comparative disadvantage in automobiles
indicates that it should make and export automobiles to the USA.

1.10 International Product Life Cycle (IPLC)

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IPLC theory is developed and verified to explain trade in a context of comparative advantage,
describes the diffusion process of an innovation across national boundaries. The life cycle begins
when a developed country, having a new product to satisfy consumer needs, wants to exploit its
technological breakthrough by selling abroad. Other advanced nations soon start up their own
production facilities, and before long less developed countries do the same.
Efficiency/comparative advantage shifts from developed countries to developing nations.
Finally, advanced nations, no longer cost-effective and import products from their former
customers. The moral of this process could be that an advanced nation becomes a victim of its
own creation. IPLC theory has the potential to be a valuable framework for marketing planning
on a multinational basis. There are five distinct stages (Stage 0 through Stage 4) in the IPLC.

1. Stage 0 – Local Innovation: Stage 0, represents a regular and highly familiar product life
cycle in operation within its original market. Innovations are most likely to occur in highly
developed countries because consumers in such countries are affluent and have relatively
unlimited wants. From the supply side, firms in advanced nations have both the technological
know-how and abundant capital to develop new products. Many of the products found in the
world’s markets were originally created in the USA before being introduced and refined in
other countries. In most instances, regardless of whether a product or not is intended for later
export, an innovation is designed initially with an eye to capture the US market, the largest
consumer nation.
2. Stage 1 – Overseas innovation: As soon as the new product is well developed, its original
market well cultivated, and local demands adequately supplied, the innovating firm will look
to overseas markets in order to expand its sales and profit. Thus this stage is known as a
“pioneering” or “international introduction” stage. The technological gap is first noticed in
other advanced nations because of their similar needs and high income levels. Not
surprisingly, English-speaking countries when first introduced to overseas countries with
similar cultures, and economic conditions are often perceived by exporters as posing less risk
and thus are approached first before proceeding to less familiar territories. Competition in
this stage usually comes from US firms, since firms in other countries may not have much
knowledge about the innovation. Production cost tends to be decreasing at this stage because
by this time the innovating firm will normally have improved the production process.
3. Stage 2 – Maturity: Growing demand in advanced nations provides an impetus for firms
there to commit themselves to starting local production, often with the help of their
governments’ protective measures to preserve infant industries. Thus these firms can survive
and thrive in spite of relative inefficiency. Development of competition does not mean that
the initiating country’s export level will immediately suffer. The innovating firm’s sales and
export volumes are kept stable because LDCs are now beginning to generate a need for the
product. Introduction of the product in LDCs helps offset any reduction in export sales to
advanced countries.
4. Stage 3 – Worldwide Imitation: This stage means tough times for the innovating nation
because of its continuous decline in exports. There is no more new demand anywhere to

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 cultivate. The decline will inevitably affect the US innovating firm’s economies of scale, and
its production costs thus begin to rise again. Consequently, firms in other advanced nations
use their lower prices (coupled with product differentiation techniques) to gain more
consumer acceptance abroad at the expense of the US firm. As the product becomes more
and more widely disseminated, imitation picks up at a faster pace. Toward the end of this
stage, US export dwindles almost to nothing, and any US production still remaining is
basically for local consumption. The US automobile industry is a good example of this
phenomenon. There are about thirty different companies selling cars in the USA, with several
on the rise. Of these, only two (General Motors and Ford) are US firms, with the rest being
from Western Europe, Japan, South Korea, and others.
5. Stage 4 – Reversal: Not only must all good things end, but misfortune frequently
accompanies the end of a favorable situation. The major functional characteristics of this
stage are product standardization and comparative disadvantage. This innovating country’s
comparative advantage has disappeared, and what is left is comparative disadvantage. This
disadvantage is brought about because the product is no longer capital-intensive or
technology-intensive but instead has become labor-intensive – a strong advantage possessed
by LDCs. Thus LDCs – the last imitators – establish sufficient productive facilities to satisfy
their own domestic needs as well as to produce for the biggest market in the world.

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