INTERNATIONAL

MARKETING
MGMT 2122
Credit Hour 3
Delivered by:Bewketu Zeleke /Ass. Prof/
 Course Objectives
At the end of the course students will be able to:
 Know the strategic implications of competition in different countries.
 Differentiate an approach and framework for identifying and analyzing the important
cultural and environmental factors.
 Know how to identify idea in seeking market opportunities outside the home country
 Know the importance of viewing international marketing management strategies from a
global perspective
 Describe the trends in International Trade;
 Analyze International Marketing environment;
 Explain the various international market entry modes/strategies.
 Know about multinational companies and their international business operation;
 Explain the various approaches of marketing mix strategies in the international Market
context;
 Discuss the formality of export/Import, International finance, insurance (risk management)
and quality control
 CHAPTER ONE

CONCEPTS OF INTERNATIONAL MARKETING

 Chapter contents
1.1 Definitions and distinctions
1.2 Domestic marketing Vs IM
1.3 International trade concepts
1.4. Export marketing and IM
1.5. Strategic Marketing
1.6. Absolute advantage theory
1.7. Comparative advantage theory
1.8. Opportunities and challenges of IM
1.9. International product life cycle
1.10. Concepts of foreign exchange and balance of payment
1.11. Barriers to international trade
 1. Overview of International Marketing
1.1 Importance of International Marketing
 There has never been a time in modern economic
history when more change has occurred in so short a
period than that which has occurred in the last decade of
the 20th century.
 The economic, political, and social changes that have
occurred over the last decade have dramatically altered
the landscape of global business.
 The
world is shrinking rapidly with the advent of faster
communication, transportation, and financial flows.
 International marketing is important because the world
has become globalized.
 Products developed in one country are finding
enthusiastic acceptance in other countries.
 Successful international marketing, however, holds the
promise of an improved quality of life, a better society,
and, as some have stated, even a more peaceful world.
 Regarding the firm, today there is intensified global
competition.
 Foreign firms are expanding aggressively into new
international markets, and home markets are no longer
rich in opportunity.
 Few industries are now safe from foreign competition.

 So the companies have to continuously improve their

products at home and expand into foreign markets so
as to face the global competition.
 Firms that concentrate only on domestic market for
safety reasons may not only lose the opportunity of
entering lucrative/profitable overseas markets but also
may risk losing their home markets.
 Domestic marketers that never thought of competition
from foreign marketers in their home market suddenly
have found foreign competition in their base market.
1.2 What is International Marketing?
 Though international marketing has distinct characteristics, it
is similar to domestic marketing in terms of technical factors.
 The marketing process consists of two factors such as
technical and social.
 The technical factors cover non-human factors such as
product, price, brand, etc. The basic principles regarding
these factors are universally applicable.
 On the other hand, social aspect of marketing is unique,
because it associates with human elements such as behavior
of consumers, characteristics of society which includes
customs, attitudes, values, etc.
 It is true that marketing as a social process is not uniform
in different environments.
Definition
 According to Philip R. Cateora and John L. Graham,
‘International marketing is the performance of business
activities designed to plan, price, promote, and direct the flow
of company’s goods and services to consumers or users in
more than one nation for a profit.’
 The fact that a transaction takes place " more than one nation
…" accounts for the complexity and diversity found in
international marketing.
 Marketing concepts, processes, and principles are universally
applicable, and the marketer's task is the same whether doing
business in a domestic market or international market.
 If this is the case, what is the difference between domestic
and international marketing?
• The answer lies not with different concepts of marketing but
with the environment within which marketing plans must be
implemented.
• The uniqueness of foreign marketing comes from the range
of unfamiliar problems and the variety of strategies necessary
to cope with different levels of uncertainty encountered in
foreign markets.
 Competition, legal restraints, government controls, weather,
and any number of other uncontrollable elements can, and
frequently do, affect the profitable outcome of good, sound
marketing plans.
 What makes marketing interesting is the challenge
of molding the controllable elements of marketing
decisions (product, price, promotion, and
distribution) within the framework of the
uncontrollable elements of the marketplace
(competition, politics, laws, consumer behavior,
level of technology, and so forth) in such a way that
marketing objectives are achieved.
 Even though marketing principles and concepts are
universally acceptable, the environment within
which the marketer must implement marketing plans
can change dramatically from country to country or
region to region.
 Thus, the more foreign markets in which a
company operates, the greater the possible variety
of foreign environmental uncontrollable with
which to contend by the international marketer.
 Frequently, a solution to a problem in country
market A is not applicable to a problem in country
market B.
 Environmental Adaptation Needed
 To adjust and adapt a marketing program to foreign
markets, marketers must be able to interpret effectively
the influence and impact of each of the uncontrollable
environmental elements on the marketing plan for each
foreign market in which they hope to do business.
 In a broad sense, the uncontrollable elements constitute
the culture; the difficulty facing the marketer in
adjusting to the culture lies in recognizing its impact.
 The task of cultural adjustment, however, is the
most challenging and important one confronting
international marketers; they must adjust their
marketing efforts to cultures to which they are not
attuned.
For example, time-conscious Americans are not
culturally prepared to understand the culturally
nuanced meaning of time to Latin Americans.
• Such a difference must be learned to avoid
misunderstandings that can lead to marketing
failures.
 The Self-Reference Criterion and Ethnocentrism:
Major Obstacles
 The key to successful international marketing is
adaptation to environmental differences from one market
to another.
 Adaptation is a conscious effort on the part of the
international marketer to anticipate the influences of both
the foreign and domestic uncontrollable factors on a
marketing mix and then to adjust the marketing mix to
minimize the effects.
 The primary obstacles to success in international
marketing are a person’s self-reference criterion (SRC)
and an associated ethnocentrism.
The SRC is an unconscious reference to one’s own
cultural values, experiences, and knowledge as a
basis for decisions.
Closely connected is ethnocentrism, that is, the
notion that people in one’s own company, culture, or
country know best how to do things.
Ethnocentrism is generally a problem when
managers from affluent/developed countries work
with managers and markets in less affluent
countries.
Both the SRC and ethnocentrism impede the ability
to assess a foreign market in its true light.
1.3 Why Firms go International / Reasons for
International Marketing
A. Increasing the share of the market
B. Extending the Product Life Cycle
• Finding new markets abroad may help extend the maturity
stage of the product life cycle.
• This can be particularly important when domestic markets
have reached "saturation point" for a product.
• Market saturation can provide a major incentive for firms to
search for new opportunities.
C. Supporting International Specialization
D. Helping Reduce Investment Pay-Back Periods
E. Reducing Stock-holding Costs
F. Risk Diversification
G. Foreign Market Opportunities
H. Small Domestic Market
I. Unique Product/ Technology Competence
1.4 Stages of International Marketing Involvement
 Once a company has decided to be international, it
has to decide the degree of marketing involvement
and commitment it is prepared to make.
 These decisions should reflect considerable study
and analysis of market potential and company
capabilities - a process not always followed.
 In general, one of five but overlapping stages can
describe the international marketing involvement
of a company.
 A firm may begin its international involvement at
any one stage or be in more than one stage
simultaneously.
1. No Direct Foreign Marketing
 A company in this stage does not actively cultivate customers
outside national boundaries; however, this company’s products
may reach foreign markets.
2. Infrequent Foreign Marketing
 Temporary surpluses caused by variations in production levels
or demand may result in infrequent marketing overseas.
3. Regular Foreign Marketing
 At this level, the firm has permanent productive capacity
devoted to the production of goods to be marketed on a
continuing basis in foreign markets.
 The primary focus of operations and production is to service domestic
market needs. Profit expectations move from being seen as a bonus to
regular domestic profits
4. International Marketing
 Companies at this stage are fully committed and involved in
international marketing activities.
 Such companies seek markets all over the world and sell products
that are a result of planned production for markets in various
countries.
 This generally entails not only the marketing but also the production
of goods outside the home market.
 At this point the company becomes an international or multinational
marketing firm.
5. Global Marketing
 At the global marketing level, the most profound change is the
orientation of the company toward markets and its planning.
 At this stage, companies treat the world, including their home
market, as one market.
1.5 The International Marketing Orientation
 The differences in the international orientation and
approach to international markets that guide the
international business activities of companies can be
described by one of three orientations to international
marketing management:
1. Domestic Market extension Orientation
2. Multi domestic Marketing Orientation
3. Global Marketing C Orientation
 The differences in the complexity and sophistication
of a company’s marketing activity depend on which
orientation guides its operations.
 Among the approaches describing the different
orientations that evolve in a company in different
stages of international marketing - from casual
exporting to global marketing - is the often-quoted
EPRG schema.
 The schema suggest that firms can be classified as
having an ethnocentric, polycentric, regiocentric, or
geocentric orientation (EPRG), depending on the
international commitment of the firm.
 EPRG framework shows the degree of
internationalization to which management is committed
or willing to move towards affects the specific
international strategies and decision rules of the firm."
1. Domestic Marketing Extension Concept
 The domestic company seeking sales extension of its domestic
products into foreign markets illustrates this orientation to
international marketing.
 It views its international operations as secondary to and an
extension of its domestic operations; the primary motive is to
market excess domestic production.
 Domestic business is its priority and foreign sales are seen as
profitable extension of domestic operations.
 The firm’s orientation is to market to foreign customers in the
same manner the company markets to domestic customers.
 This domestic market extension concept strategy can be very
profitable.
 Firms with this marketing approach are classified as ethnocentric
in the EPRG schema.
2. Multi domestic Market concept
 Used when companies recognizes the importance of differences in
overseas markets and the importance of offshore business to the
organization.
 Firms with this orientation market on a country-by-country basis, with
separate marketing strategies for each country.
 Products are adapted for each market without coordination with other
country markets; advertising campaigns are localized, as are the pricing
and distribution decisions.
 A company with this concept does not look for similarity rather, it aims
for adaptation to local country markets.
 Control is typically decentralized to reflect the belief that the uniqueness
of each market requires local marketing input and control.
 Firms with this orientation would be classified in the EPRG schema as
polycentric.
3. Global Marketing Concept
 A company guided by this orientation or philosophy is generally
referred to as global company, its marketing activity is global
marketing, and its market coverage is the world.
 A company employing a global marketing strategy strives for
efficiencies of scale by developing a standardized product of
dependable quality, to be sold at a reasonable price to a global
market, that is, the same country market set throughout world.
 Important to the global marketing concept is the premise that
world markets are being " driven toward a converging
commonality" seeking in much the same ways to satisfy their
needs and desires.
 The global marketing company would fit the regiocentric or
geocentric classifications of EPRG schema.
1.6 Opportunities and Challenges in International Marketing
 The growth of global business activities offers increased
opportunities.
 International activities can be crucial to a firm's survival and
growth.
 By transferring knowledge around the globe, an international
firm can build and strengthen its competitive position.
 Market saturation can be avoided by lengthening or
rejuvenating product life cycles in other countries.
 International opportunities require careful exploration.
 What is needed is an awareness of global developments, and
understanding of their meaning, and a development of
capabilities to adjust to change. Firms must adopt to the
international market if they are to be successful.
1.7 Strategic Marketing ?
 What is Strategic Marketing?
 It is a market-driven process of strategy development,
taking into account a constantly changing business
environment and the need to deliver superior customer
value.
 It links the organization with the environment and views
marketing as a responsibility of the entire business rather
than a specialized function (Craven & Piercy, 2009).
 Also known as strategic market management.
 It is a system designed to help management both precipitate
and make strategic decisions, as well create strategic vision
(Aaker, 2001).1999 John Wiley & Sons
 It is a process of analyzing external environments,
internal factors, identifying and selecting a strategy so
that the organization can achieve its long term goals
and its vision.
 Why Strategic Marketing Management?
 Force long-range view
 Make visible resource allocation decisions
 Aid strategic analysis and decision making
 Provide a strategic management and control system
 Provide horizontal and vertical communication and
coordination systems
 Cope with change
 MARKET DRIVEN STRATEGY
 WHAT IS MARKET-DRIVEN STRATEGY?
 The strategy that is formulated based on the
customer’s needs and wants and the environments.
 The starting point of development of the strategy is
always the customers that form the market and then
comes competitors, the strengths and weaknesses of
the firm, the economic condition, the cultural forces
and other market environments.
CHARACTERISTICS OF MARKET- DRIVEN
STRATEGY
 According to Craven and Piercy (2009), there are four main
characteristics of market-driven strategy which are:
1) Market oriented.
2) Matching customer value with the firm’s capabilities.
3) Identifying distinctive capabilities.
4) Delivering superior customer value.
 WHAT IS MARKET ORIENTED FIRM OR MARKET
ORIENTATION?
 Generally there are two widely accepted definition of market
orientation.
 Market orientation by Kohli & Jaworski
 The authors defined market orientation as the
organization wide generation of market intelligence
pertaining to current and future customer needs,
dissemination of intelligence across departments, and
organization wide responsiveness to it.
 Thus, based on this definition, we say the company is
market oriented when it collects information regarding
the customer needs, share it among its employees and
take necessary actions towards those information.
 1. Market orientation according to Slater and Narver.
 The authors defined market orientation as a business
culture that consists five main components such as:
1. Customer focus/orientation/intelligence
2. Competitor focus/orientation/intelligence.
3. Cross functional or departmental coordination.
4. Long-term focus (appropriate investment is
necessary).
5. Profitability (so that the company can sustain its
business and achieve its long term goals)
 Thus from those two point of views we can summarize that:
 Market orientation is a culture of organization that requires a
whole employees effort on acquiring information regarding
the customers, the competitors and the market, share the
information and take actions.
 It also focus on the customer’s satisfaction needs and wants,
focus on competitors and requires all effort and coordination
of all department in the organization.
 All of these efforts focus on achieving long term profit and
goals.
 “A business is market oriented when its culture is
systematically and entirely committed to the continuous
creation of superior customer value”
 2. MATCHING CUSTOMER VALUE WITH FIRM’S
CAPABILITIES.
 Capabilities are complex bundle of skills and
accumulation of knowledge, exercised through
organizational process, that enable the organization
to coordinate activities and make use of its assets
(Day,1994).
 There are wide range of capabilities such as product
development capability, pricing capability,
marketing information system capability, export
capability, and etc.
 Each firms has different capabilities and even they have
the same capabilities but the levels are different form
each other.
 Firm must be able to match its customer’s value or needs
and wants with its own capabilities.
 Capabilities can be improved by knowledge.
 Get new knowledge through training and retraining,
R&D, and etc.
 3. Identifying distinctive capabilities.
• According to Cravens & Piercy, (2006), The
Major components of distinctive capabilities are:
 Organizational Processes.
 Skills and Accumulated Knowledge.
 Coordination of Activities.
 Assets.
 Summary on Market Driven Strategy
 Market Driven Strategy requires the firm:
 Customer focus (satisfaction of the needs and wants and
thus customer analysis is very important
 Competitor focus (competitors analysis is crucial).
 Market environment analysis is crucial.
 Generate information, shared it and take actions.
 4. Delivering superior customer value.

 To build and develop capabilities that match up with

the customer’s expectation and value.
 Treat human capital as the main resources of the
firm (human as a source of capabilities).
 Customer focus, competitor focus, market focus and
development of capabilities will lead to superior
performance.
• To build and develop capabilities that match up with
the customer’s expectation and value.
• Treat human capital as the main resources of the firm
(human as a source of capabilities).
• Customer focus, competitor focus, market focus and
development of capabilities will lead to superior
performance.
1.8 International trade concepts
1.8.1 What Is International Trade?
 International trade is the exchange of goods and services
between countries.
 This type of trade gives rise to a world economy, in which
prices, or supply and demand, affect and are affected by global
events.
 Political change in Asia, for example, could result in an increase
in the cost of labor, thereby increasing the manufacturing costs
for an American sneaker shoe company based in Malaysia,
which would then result in an increase in the price that you have
to pay to buy the tennis shoes at your local mall.
 A decrease in the cost of labor, on the other hand, would result
in you having to pay less for your new shoes.
 Trading globally gives consumers and countries the
opportunity to be exposed to goods and services not
available in their own countries.
 Almost every kind of product can be found on the
international market: food, clothes, spare parts, oil,
jewelry, wine, stocks, currencies and water. Services
are also traded: tourism, banking, consulting and
transportation.
 A product that is sold to the global market is an
export, and a product that is bought from the global
market is an import.
 Imports and exports are accounted for in a
country's current account in the balance of payments
  Increased Efficiency of Trading Globally:
Theories of trade
 Global trade allows wealthy countries to use their
resources - whether labor, technology or capital - more
efficiently.
 Because countries are endowed with different assets and
natural resources (land, labor, capital and technology),
some countries may produce the same good more
efficiently and therefore sell it more cheaply than other
countries.
 If a country cannot efficiently produce an item, it can
obtain the item by trading with another country that can.
This is known as specialization in international trade. In
this regard we have two theories of trade, this are;
 Absolute advantage: Adam smith in his book wealth of nation
developed this theory.
 The crux/core of this theory is a country has an absolute
advantage over another in producing a good, if it can produce
that good using fewer resources than another country.
 For example if one unit of labor in Ethiopia can produce 10
Shoes or 5 Quintals of coffee; while in U.S one unit of labor
makes 300 Shoes or 1 Quintals of coffee, then Ethiopia has an
absolute advantage in coffee and U.S has absolute advantage in
shoe production.
 Ethiopia will benefit by producing more coffee and trading it
with U.S shoe.
 U.S will benefit by producing more shoe and trading it with
coffee with Ethiopia.
 Comparative advantage: This theory was developed by
David Ricardo in this model; countries specialize in producing
what they produce best.
 This framework predicts that countries will fully specialize
instead of producing a broad array of goods.
 This model does not directly consider factor endowments,
such as the relative amounts of labor and capital within a
country.
 The principle of comparative advantage explains how trade
can benefit all parties involved (countries, regions, individuals
and so on), as long as they produce goods with different
relative costs.
 The net benefits of such an outcome are called gains from
trade.
 Other Possible Benefits of Trading Globally
 International trade not only results in increased
efficiency but also allows countries to participate in
a global economy, encouraging the opportunity of
foreign direct investment (FDI), which is the amount
of money that individuals invest into foreign
companies and other assets.
 In theory, economies can therefore grow more
efficiently and can more easily become competitive
economic participants.
 For the receiving government, FDI is a means by
which foreign currency and expertise can enter the
country.
 These raise employment levels, and, theoretically,
lead to a growth in the gross domestic product.
 For the investor, FDI offers company expansion
and growth, which means higher revenues.
 Free Trade vs. Protectionism
 As with other theories, there are opposing views.
International trade has two contrasting views regarding
the level of control placed on trade: free trade and
protectionism.
 Free trade is the simpler of the two theories: a
laissez-faire approach, with no restrictions on trade.
 The main idea is that supply and demand factors,
operating on a global scale, will ensure that production
happens efficiently.
 Therefore, nothing needs to be done to protect or
promote trade and growth, because market forces will
do so automatically.
 In contrast, protectionism holds that
regulation of international trade is important to ens
ure that markets function properly
.
 Advocates of this theory believe that market
inefficiencies may hamper the benefits of
international trade and they aim to guide the market
accordingly.
 Protectionism exists in many different forms, but
the most common are tariffs, subsidies and quotas.
 These strategies attempt to correct any inefficiency
in the international market.
 1.9 Barriers to International Trade
 Trade barriers are restrictions on free flow of goods
and service by government. Taxes, Tariffs, quotas,
foreign exchange control and trade agreement are
some of the trade barriers on international trade.
 We can classify trade barriers in two:
1. Tariff barrier
2. Non-Tariff barrier or administrative barrier.
 1. Tariff barrier
 There are various reasons site by government why
they are imposing measures to restrict free flow of
goods and services in their boundary.
 To Protect infant home industry from advanced
foreign competitors
 To conserve foreign currency
 To maintain favorable balance of payment
 To protect national economy from dumping
 To make economy self-reliant\Types of Tariffs trade
barriers
 Tariffs are taxed imposed on goods crossing one
country.
 There are various classification of tariffs based on
various criteria.
 Based on Direction
Import Tariff- is tariff imposed on imported goods to the
country. Tariff is levied on products which are entering
in the country.
Export Tariff- is tariff levied on export of scarce
resource to other countries. This is levied on products
which are going out of the country when there is
insatiable demand in the home market.
 Based on Purpose
Protective Tariff- the purpose of the tariff is to protect
home country industry from foreign competitors heavy
tariff will be levied to make that product more expense
as compared to domestic competitors.
Revenue Tariff- the purpose is to generate tax
revenue’s for the government.
Compared to a protective tariff it is relatively low.
 Based on Length
Tariff Surcharge- is protective tariff which is
temporarily imposed for short period of time to
stabilize local economy.
Countervailing Duty- a permanent surcharge,
imposed on certain imports when products are
subsidized by foreign governments until the foreign
government stop its subsidy.
 Based on Rates
Specific duties-are duties which are charged fixed
amount of money per volume or per weight.
• The duty is calculated based on standard physical
unit of a product.
• Product cost or price is not used to calculate this
tariff.
Ad valorem duties- in this duty the tariff is calculated
based on the invoice value of the product.
• The percentage is fixed.
Combined rates- are a combination of specific duty and
ad valorem.
 Based on Production Distribution, Consumption
Single Stage sales tax- a tax is collected only at once in
the supply value chain.
• Tax is not collected until the product is sold by final
consumer.
Value added Tax (VAT) is a multistage, non-cumulative
tax on multiple channels.
• At every stage the product is sold to other party tax is
charged on the added value by deducting the tax
already paid.
• This is applied to any type of firms which have more
than ETB 500,000 turnover transaction.
Cascade Tax- are collected at each stage in the
manufacturing and distribution chain and tax is
calculated on the total value of a product including
taxed paid earlier in the value chain.
Excise tax- a onetime tax levied on sale of specific
type of product e.g. on alcohol.
2. Non-Tariff barrier or administrative barrier.
• Non-tariff is trade barriers that restrict free flow of
goods in international market in indirect manner.
• Non-tariff barriers are in the form of taxes and
customs duties.
• Non-tariff barriers are in the form of quotas and
licenses. It includes all measures, other than
traditional tariffs, that are used to distort
international trade flows.
• WTO is appreciating tariff barrier and discourage
non-tariff barriers.
 There are various types of Non-Tariff barriers the most
common includes:
 Government Participation in trade
• The government might participate in trade in various ways.
 Administrative guidance- the government might provide
various encouragement and discouragement.
• Government is providing various incentives to exporters and
discourages importers that might affect international
marketers.
• Government procurement and state trading- government is
big customer for various types of products.
• Government buys product from home country companies that
will discourage international companies.
Subsidies- government subsidize local companies by
reducing interest rage, value added tax rate reduction or
by providing infrastructure over international
companies.
Customs and entry procedures
• There are various customs and entry procedures like
classification, valuation, inspection, heath and safety
regulations
Classification- products classification might be
arbitrary and a product which is classified as raw
material for importing might be at another time
classified as finished product to charge higher duty.
Valuation- For import duty charge the goods which are
imported to a country will be estimated by custom
officers and the officers estimate of monetary value
might be assessed more than what it worth to make the
product less competitive in the country that might affect
competitiveness of international companies.
Inspection-Before importing a product it has to be
examined to determine the quality and quantity. This
procedure might be time taking.
Quotas
Quotas are restricting the amount of product imported in
the country to protect the local firms from fierce
competition.
Financial Control
• There are various financial measures taken by
government to restrict international trade these
include:
Exchange control- is limiting the amount of hard
currency that is going out of the country to import goods.
Multiple exchange rates- in this different rate is applied
to sale hard currency for importers.
• For encouraging export for manufacturers the national
bank sale hard currency to import raw materials.
• To discourage import the banks sale hard currency at
higher rate.
Credit restrictions- for importers the government might
not allow loan.
• But for exporters’ government provide loan at
favorable interest rates.
Profit remittance restriction- the profit earned by
international firms might not be allowed to send back to
home country by local governments.
Prior import deposit and credit restriction- in prior
import deposit the importer will be forced to deposit
money in block account before getting permission.
• In credit restriction National bank will allow credit
only to selected category of product importation.
Price control- in this government will set floor or
ceiling price of import products.
Political sanction in this governments will prohibit the
local company to import form some country or some
companies
Thanks !
 CHAPTER TWO

International Marketing Environment

 2. International Marketing Environment
2.1 The Economic Environment
 Marketing is an economic activity affected by the economic
environment in which it is conducted.
 A major characteristic of the international marketer’s world is the
diversity of marketing environments in which business may be done.
 In particular, the economic dimensions of the world market
environment are of prime importance.
 Economic forces, affect the international marketer by the impact that
they have on market potential and, at any point in time, market
actualization.
 The economic environment includes factors and trends related to
income levels and the production of goods and services.
 A nation’s infrastructure and stage of economic development are key
economic factors that affect the attractiveness of a market and suggest
what may be an appropriate strategy.
A. Infrastructure
A country’s ability to provide transportation, communications,
and energy is its infrastructure.
B. Level of economic development
The level of development in a country is a general indication of
the types of products that are likely to be in demand.
• The most common criterion for assessing economic development
is gross domestic product (GDP), a measure of the value of all
goods and services produced in a country during a year.
• Or the gross domestic product (GDP) represents the total size of a
country’s economy measured in the amount of goods and services
produced. Changes in GDP indicate trends in economic activity.
 when analyzing a given foreign market, management must
also consider other indications of development.
 Common economic indicators include the
(1) distribution of income,
(2) rate of growth of buying power, and
(3) extent of available financing.
 Useful noneconomic indicators are
1. infant mortality rate,
2. percent of the population that lives in urban areas, and
3. the number of daily newspapers.
Income distribution :
The income and wealth of the people are relevant because they
determine purchasing power.
2.2 The Political Environment
 The political environment of international marketing includes
any national or international political factor that can affect its
operations.
 A factor is political when it derives from the government
sector.
 The political environment comprises three dimensions:
1. the host-country environment, = National sovereignty
2. the international environment, and
3. the home-country environment.
 Managers are concerned primarily about political risk – the
possibility of any government action affecting adversely (or
favorably) their operations.
2.3 The Legal Environment
 The nation’s laws and regulations pertaining to business – also
influences the operations of a foreign firm.
 A firm must know the legal environment in each market because
these laws constitute the "rules of the game."
 At the same time, the firm must know the political environment
because it determines how the laws are enforced and indicates the
direction of new legislation.
 The legal environment of international marketing is complicated,
having three dimensions. For a domestic/ Ethiopian firm, these are
(1) Local / Ethiopian laws, =exporting, antitrust / monopoly, and organization and
ownership arrangements

(2) International law, and = treaties, conventions, and agreements e.g IMF ,
WTO ,UNCITRAL, ISO

(3) Domestic laws in each of the firm’s foreign markets.

2.3.3 Foreign Laws and International Marketing
 Ethiopianlocal laws play a ubiquitous / ever-present/ role in
Ethiopian business practice.
 The laws of other nations play a similar role regarding the
activities of business within their boundaries.
 The importance of foreign laws to the international marketer
lies primarily in domestic marketing in each foreign market.
 Problemsarise from the fact that the laws in each market tend
to be somewhat different from those in every other market.
Differing Legal Systems
Most countries derive their legal system from either the common law or the
civil code law traditions.
i) Common =the interpretation of what the law means on a given subject is
heavily influenced by previous court decisions as well as by usage and
custom.
ii) Civil or Code Law= code law countries do not rely on previous court
decisions, various applications of the same law may yield different
interpretations.
iii) Islamic Law=Islamic law represents the third major legal system.
About 27 nations follow Islamic law in varying degrees, usually mixed
with civil common, and / or indigenous law.
Rules not defined by Shari’a are left to decision by government regulations
and Islamic judges.
Foreign Laws and Marketing Mix
 Foreign laws influence the four P’s of marketing of the international
marketer.
2.3.4 The Firm in the International Legal Environment
Whose Law? Whose Courts?
• Domestic laws govern marketing within a country.
• Questions of the appropriate law and the appropriate courts may arise,
however, in cases involving international marketing.
Arbitration or Litigation?
• The international marketer must be knowledgeable about laws and
contracts.
• Contracts identify two things:
• (1) the responsibilities of each party and
• (2) the legal recourse/Choice to obtain satisfaction.
2.4 The Socio – Cultural Environment
 The socio - cultural environment influences the behavior of
customers who comprise markets, the managers who plan and
implement international marketing programs, and the marketing
intermediaries who participate in international marketing process.
 Culture should not be simply considered as an obstacle to doing
business across cultures.
 Culture can provide tangible benefits and can be used as a
competitive tool or as a basis of a competitive strategy.
 In short, cultural differences can, and should be managed.
 It is when they are mismanaged that problems arise and profits are
adversely affected.
 The buying decision process of buyers whether consumer or industrial is influenced by the socio-
cultural characteristics of buyers,
 The set of factors included in socio-cultural characteristics are such
things as material culture, language, education, values and attitudes,
social organization, political-legal structure, and philosophy.
 On a more general level, consumer in each nation is different from
consumers in every other country.
 There are major cultural differences among these consumers of
different nations which affect purchase behavior.
 International marketing managers all too often lack cultural
awareness which can lead to errors or loss of potential gains in
marketing process.
 The process of acculturation – adjusting and adapting to a specific
culture other than one’s own – is one of the keys to success in
international marketing.
2.4.1 The Nature of Culture
 Cultural factors exert the major influence on consumer behavior as it is the most
fundamental determinant of a person’s wants and behavior.
 The success of international marketing operations depends upon the
understanding of culture.
 Major subcultures may be based on nationality, religion, race, and location.
2.4.2 Culture and Communication
Every culture reflects in its language what is of value to the people.
 Language – whether written, spoken, or silent – becomes the embodiment of
culture and is a means whereby people communicate to other people, either
within their own culture or in other cultures.
 The major dimensions of the silent language as they operate within international
marketing as being: (1) Time; (2) Space; (3) Material Things; (4) Friendships,
and; (5) Agreements. These five dimensions can form the basis of real
understanding of foreign cultures.
 Finally, the international marketer needs to recognize that doing business in
foreign markets involves cross- cultural communication in all aspects of the
relationship
 Thus, in becoming involved in cross- cultural situation, the international
marketer should heed the advice: ‘assume difference until similarity is proven.’
3. International Market Selection, Segmentation,
And Positioning
3.1(a) Segmentation, Targeting and Positioning
• Target Marketing vs Mass Marketing
1. Global Market Segmentation: Market segmentation is the
process of subdividing a market into distinct subsets of customers
that behave in the same way or have similar needs.
• Today, global companies ( and the advertising agencies that
serve them) are likely to segment world markets according to
one or more key criteria: geography, demographics (including
national income and size of population), psychographics (values,
attitudes, and lifestyles), behavioral characteristics, and benefit
sought.

86
• It is also possible to cluster different national markets in terms
of their environments (e.g., the presence or absence of
government regulation in a particular industry) to establish
groupings.
• Another powerful tool for global segmentation is horizontal
segmentation by user category.
1.1 Geographic Segmentation: Is dividing the world into
geographic subsets.
• The advantage of geography is proximity.
• Geographic segmentation also has major limitations. Does
not mean that they are similar but Japan and Vietnam are
both in East Asia, but one is a high-income, postindustrial
society and the other is an emerging, less developed,
preindustrial society. 87
1.2 Demographic Segmentation: Demographic
trends – aging population, fewer children, more women
working outside the home, and higher incomes and living
standards – suggest the emergence of global segments.
• The World Bank segments countries into
 high income,
 upper
 middle income Population. (

88
 1.3 Psychographic Segmentation:
a) In the United States, psychographics is primarily
associated with SRI International, a market research
organization whose original VALS and updated VALS 2
analyses of U.S. consumers are widely known.
• Porsche, the German sports-car maker used
psychographics after watching worldwide sales decline
from 50,000 units in 1986 to about 14,000 in 1993.
• A psychographic study showed that, demographics aside,
Porsche buyers could be divided into five distinct
categories (see Table 7-1).
• Porsche used the profiles to develop advertising, tailored
89
to each type. Porsche’s U.S. sales improved nearly 50
90
b) Backer Spielvogel & Bate’s (BSB) Global Scan: Global
scan is a study that encompasses 18 countries.
• To identify attitudes that could help explain and predict
purchase behavior for different product categories, the
researchers studied consumer attitudes and values as well as
media viewership/readership, buying patterns, and product
use.
• Combining all the country data yielded a segmentation study
known as Target Scan, a description of five global
psychographic segments that BSB claims represent 95 percent
of the adult populations in the 18 countries surveyed. BSB has
labeled the segments as Strivers, Achievers, Pressured,
Traditionals , and Adapters.
91
• Strivers (26 percent): Young people with a median age of 31 who live
hectic, on-the-go lives. Driven to achieve success, they are materialistic
pleasure seekers for whom time and money are in short supply.
• Achievers (22 percent): Older than the Strivers, the affluent, assertive
Achievers are upwardly mobile and already have attained a good measure
of success. Achievers are status-conscious consumers for whom quality is
important.
• Pressured (13 percent): Pressured segment, largely comprised of women,
cuts across age groups and is characterized by constant financial and
family pressures. Life’s problems overwhelm the members of this segment.
• Adapters (18 percent): This segment is composed of older people who are
content with their lives and who manage to maintain their values while
keeping open minds when faced with change.
• Traditionals (16 percent): This segment is “rooted to the past” and clings
ot the country’s heritage and cultural values. 92
93
c) D’arcy Massius Benton & Bowles’s Euroconsumer Study: DMBB’s research team
focused in Europe and produced a 15-country study titled “The Euro consumer:
Marketing Myth or Cultural Certainty?”. Identified four lifestyle groups.
• The first two groups represent the elite, the latter two, mainstream European
consumers.
1. Successful Idealists: Comprising from 5 to 20 percent of the population, this segment
consists of persons who have achieved professional and material success while
maintaining commitment to abstract or socially responsible ideals.
2. Affluent Materialists: These status-conscious ‘up-and-comer,” many of whom are
business professionals, use conspicuous consumption to communicate their success
to others.
3. Comfortable Belongers: Comprising one quarter to one half of a country’s
population, this group, like Global Scan’s Adapters and Traditionals, is conservative
and most comfortable with the familiar.
4. Disaffected Survivors: Lacking power and affluence, this segment harbors little hope
for upward mobility and tends to be either resentful or resigned. This segment
94
is
concentrated in high-crime, urban inner city neighborhoods. Their Attitudes
nevertheless tend to affect the rest of society.
• DMBB study divides Russians into five categories, based on their
outlook, behavior, and openness to Western products.
• The categories include kuptsy, Cossacks, students, business
executives, and “Russian Souls”. Members of the largest group,
the kuptsy, theoretically prefer Russian products but look down
on mass-produced goods of inferior quality. Kuptsy are most
likely to admire automobiles and stereo equipment from
countries with good reputations for engineering, such as
Germany and Scandinavia.
d) Young & Rubicam’s Cross-Cultural Consumer
Characterizations (4Cs):
 Young & Rubicam’s 4Cs is a 20-country psychographic
segmentation study focusing on goals, motivations, and values
that help to determine consumer choice.

95
The research is based on the assumption that “there are underlying
psychological processes involved in human behavior that are culture-
free and so basic that they can be found all over the globe.
Three overall groupings can be further subdivided into a total of
seven segments:
• Constrained (Resigned Poor and Struggling Poor),
• Middle Majority (Mainstreamers,
• Aspirers, and Succeeders), and
• Innovators (Transitionals and Reformers).
The goals, motivations, and values of these segments range from
“survival.” “given up,” and “subsistence” (Resigned Poor) to “Social
betterment,” “social conscience,” and “social altruism” (Reformers).
Table 7.2 shows some of the attitudinal, work, lifestyle, and purchase
behavior characteristics of the seven groups. 96
 97

(See Page. 198)

1.4 Behavior Segmentation: Focuses on whether people buy and
use a product, as well as how often and how much they use it.
Consumers can be categorized in terms of usage rates heavy,
medium, light and nonuser.
Japan has the highest number of cash dispensers, 1,115 per 1
million population, followed by Switzerland, Canada, and the United
States, where the average is slightly higher than 600. The average
dollar amount withdrawn also varies considerably. In Japan, the
average withdrawal is $289. This is followed by Switzerland at $187
and Italy at $185. the United States is far down the list with $68 as
the average withdrawal. Japanese people tend to carry around a lot
more cash than people in other countries.
(See Page. 199)
1.5 Benefit Segmentation: V = B/P. Nestle discovered that cat
owner’s attitudes toward feeding their pets are the same
everywhere. In response, a pan-European campaign was created for
Friskies dry cat food. The appeal was that dry cat food better suits a
Cat’s universally recognized independent nature.
98

(See Page. 199)

1.6 Vertical Versus Horizontal Segmentation: Vertical
segmentation is based on product category or modality and
price points. In medical imaging there is X-ray, computed axial
tomography (CAT) scan, magnetic resonance imaging (MRI),
and so on. Each modality has its own price points. These price
points were the traditional way of segmenting the medical
imaging market. One company decided to take a different
approach and segment the same market by the health care
delivery system: national research and teaching hospitals,
government hospitals, and so on. Campaign that was regional,
national and finally global, which was tailored for each different
type of health care delivery. This horizontal segmentation
approach worked as well in markets outside the home-country
launch market as it did in the home country.
2. Global Targeting: Targeting is the act of evaluating and
comparing the identified groups and then selecting one or more
of them as the prospect(s) with the highest potential. A
marketing mix is then devised that will provide the organization
with the best return on sales while simultaneously creating
99 the
maximum amount of value of consumers.
2.1 Criteria for Targeting: The three basic criteria:
a) Current Segment Size and Growth Potential: Segment
currently large enough that it presents a company with the
opportunity to make a profit? One of the advantages of targeting
a market segment globally is that, whereas the segment in a
single-country market might be too small, even a narrow
segment can be served profitably with a standardized product if
the segment exists in several countries.
b) Potential Competition: Market segment characterized by
strong competition may be a segment to avoid or one in which
to utilize a different strategy. Often a local brand may present
competition to the entering multinational.
(See Page. 200)
c) Compatibility and Feasibility: If a global target market is
judged to be large enough, and if strong competitors are either
absent or not deemed to represent insurmountable obstacles,
then the final consideration is whether a company can and
should target the market. Reaching global market segments
requires considerable resources, expenditure for distribution
100
and
travel by company personnel.
2.2 Selecting a Global Target Market Strategy: After
evaluating in terms of the three criteria, a decision is made to
proceed, an appropriate targeting strategy must be developed.
Three basic categories of target marketing strategies:
standardized marketing, concentrated marketing, and
differentiated marketing.
a) Standardized Global Marketing: Analogous to mass
marketing in a single country. The same marketing mix for a
broad market of potential buyers. Extensive distribution in the
maximum number of retail outlets. The appeal of standardized
global marketing is clear: greater sales volume, lower production
costs, and greater profitability. The same is true of standardized
global communications: lower production costs and, if done well,
higher quality and greater effectiveness of marketing
communications.
Coca-Cola, one of the world’s most global brands, uses the
appeal of youthful fun in its global advertising.
b) Concentrated Global Marketing: Marketing mix to reach a
single segment of the global market. Used successfully
101 by the
House of Lauder, Chanel, and other cosmetics houses that
 Define their markets narrowly. They go for global depth rather
than national breadth. Winterhalter, the company has never sold
a dishwasher to a consumer. Hospital, school, company, or any
other organization. It focuses exclusively on dishwashers for
hotels and restaurants.
c) Differentiated Global Marketing: It is a Variation of
concentration global marketing. It entails targeting two or more
distinct market segments with different marketing mixes. The
strategy allows a company to achieve wider market coverage.
Masters of differentiated global marketing is SMH, the Swiss
Watch Company. SMH offers watches ranging from the Swatch
fashion accessory watch at $50 worldwide to the
$100,000+Blancpain. SMH brand is managed by a completely
separate organization that targets a concentrated, narrow
segment in the global market.
3. Global Product Positioning: Positioning is the location of your
product in the mind of your customer. Position that a product
occupies in the mind of a customer depends on a host of
variables, many of which are controlled by the marketer.
102

(See Page. 202)

 One or more segments have been targeted, it is essential to plan a
way to reach the target(s). To achieve this task, marketers use
positioning. In today’s global market environment, many
companies find it increasingly important to have a unified global
positioning strategy.
One study suggests that global positioning is most effective for
product categories that approach either end of a “high-touch/high-
tech” continuum. Characterized by high levels of customer
involvement and by shared “language’ among consumers.
(See Page. 202)
3.1 High-Tech Positioning: Personal computers, video and
stereo equipments, and automobiles are frequently purchased on
the basis of concrete product features. Buyers wish to acquired
considerable technical information. High-tech products may be
divided into three categories: technical products, special-interest
products, and demonstrable products.
a) Technical Products: Computers, chemicals, tires, and financial
services are just a sample of the product categories whose buyers
have specialized needs, require a great deal 103of product
information, and chare a common “ language”.
b) Special-Interest Products: Less technical and more leisure or
recreation oriented, special-interest products also are characterized
by a shared experience and high involvement among users. Again,
the common language and symbols associated with such products
can transcend language and cultural barriers. Fuji, Adidas sports
equipment, and Canon cameras are examples of successful global
special-interest products.
c) High-Touch Positioning: High-touch categories are highly involving
for consumers, share a common language and set of symbols
relating to themes of wealth, materialism, and romance. The three
categories of high-touch products are :
i) Products that Solve a Common Problem,
ii) Global Village Products: Fragrances and fashions have
traveled as a result of growing worldwide interest in high-quality,
highly visible, high-priced products that often enhance social
status,
iii)Products that use Universal Themes: Product appeals are
thought to be basic enough that they are truly transnational.
Heroism, play, procreation. 104

(See Page. 204)

4. Foreign Market Entry Strategies
 4.1 Analyzing international marketing
How should it enter new markets? Directly via “green fields” expansion, directly
through acquisition of a local established company, or indirectly using agents or
representatives? Should the new market be supplied with imported product from
the home or third countries or locally manufactured product, “go international”
starting with exporting and advancing to foreign direct investment. These options
are not mutually exclusive and may be used concurrently.
Manufacturers can achieve competitive advantage by shifting production among
different sites. It is little wonder that most of the world’s leading automakers have
set their sights on Brazil and China. Both countries are big emerging markets; they
boast the biggest populations in their respective regions as well as rapidly growing
economies. Nearly 2 million vehicles were sold in Brazil in 1996, and analysts
forecast sales of 3 million units by 2000. In 2010 they are all manufacturing in
India.
The presence of VW, Fiat, GM, and other automakers in Brazil illustrates the fact
that every firm, at various points in its history, faces a broad range of strategy
alternatives.
 Companies fail to appreciate the range of alternatives open to them and,
therefore, employ only one strategy – often to their grave disadvantage. The
same companies also fail to consider the strategy alternatives open to their
competitors and thereby set themselves up to be victims of the dreaded “Titanic”
syndrome – the thud in the night that comes without warning and sinks the ship.
Companies must also address issues of marketing and value chain management
before deciding to enter or expand their share of global markets by means of
licensing, joint ventures or minority ownership, and majority or 100 percent
ownership. These decisions are affected by issues of investment and control as
well as a company’s attitude toward risk.
3.2 Decision Criteria for International Business: Company must look at conditions
in the potential country to analyze what the advantages, disadvantages, and
costs will be and whether it is worth the risk.
3.2.1 Political Risk: Risk of a change in government policy that could
adversely impact a company’s ability to operate effectively and profitably, is a
deterrent to expanding internationally.

108
Lower political risk, the more likely it is that a company will invest in a
country or market. The difficulty of assessing political risk is inversely
proportional to a country’s stage of economic development. The less
developed a country, the more difficult it is to predict political risk. Inverse
relationship between political risk and the stage of development of a country.
The higher the level of income per capita, the lower the level of political
risk.
3.2.2 Market Access: Local content laws, balance-of-payments problems,
or any other reason, it may be necessary to establish a production facility
within the country itself. The Japanese automobile companies invested in
U.S. plant capacity. Supply that is not exposed to the threat of tariff or
nontariff barriers.

3.2.3 Factor Costs and Conditions: Factor costs are land, and capital
costs. Labor includes the cost of workers at every level: manufacturing and
production, professional and technical , and management. Basic
manufacturing direct labor costs today range from $0.50 per hour in the
109
typical less developed country (LDC) to $6 to $20 or more per hour in the
typical developed country.
Compared to the United States, manufacturing compensation costs are
higher in Western European countries despite a recent decline, and Asia’s
emerging countries have increased relative to the United States since 1980.
Do lower wage rates demand that a company relocate its manufacturing to
the low-wage country? Hardly, In Germany, VW Chairman is trying to
improve his company’s competitiveness by convincing unions to allow
flexible work schedules. For example, during peak demand employees
would work six-day weeks; when demand slows, factories would produce
cars only three days per week.
Land, materials, and capital. The cost of these factors depends on their
availability and relative abundance. United States has abundant land and
Germany has abundant capital. These advantages partially offset each other.
When this is the case, the critical factor is management, professional, and
worker team effectiveness.
Manufacturing can be divided into three tiers. The first tier consists of the
industrialized countries where factors costs are tending to equalize.
110
The second tier consists of the industrializing countries – for example, Singapore and
other Pacific Rim countries – that offer significant factor costs savings as well as an
increasingly developed infrastructure and political stability, making them extremely
attractive manufacturing locations. The third tier includes Russia and other countries
that have not yet become significant locations for manufacturing activity. Third-tier
countries present the combination of lower factor costs (especially wages) offset by
limited infrastructure development and greater political uncertainty.
Today’s cheap factor costs can disappear as the law of supply and demand drives up
wages and land prices.
3.2.4 Shipping Considerations: Greater the distance between the product
source and the target market, the greater the time delay for delivery and the higher
the transportation cost. Today Intermodal services allow containers to be transferred
between rail, boat, air, and truck carriers. Transportation expenses for U.S. exports
present 5 percent of total costs. In Europe, greatly speeds up delivery times and
lower costs.
3.2.5 Country Infrastructure: Infrastructure be sufficiently developed to support a
manufacturing operation.

111
It will include power, transportation and roads, communications, service and
component suppliers, a labor pool, civil order, and effective governance. Reliable
access to foreign exchange for the purchase of necessary material and components
from abroad as well as a physically secure setting where work can be done and
product can be shipped to customers.
One of the challenges of doing business is an infrastructure that is woefully
inadequate to handle the increased volume of shipments.
3.2.6 Foreign Exchange: Exchange rates are so volatile today that many
companies pursue global sourcing strategies as a way of limiting exchange related
risk. An attractive location for production may become much less attractive due to
exchange rate fluctuation. Company will incorporate exchange volatility into its
planning assumptions and be prepared to prosper under a variety of exchange rate
relationships. The dramatic shifts in price levels of commodities and currencies are a
major characteristic of the world economy today.
3.2.7 Creating a Product-Market Profile: Establish the key factors influencing
sales and profitability of the product in question. For product-market profile, nine
basic questions to be answered.

112
1. Who buys our product?
2. Who does not buy our product?
3. What need or function does our product serve?
4. What problem does our product solve?
5. What are customers currently buying to satisfy the need and/or solve the
problem for which our product is targeted?
6. What price are they paying for the products they are currently buying?
7. When is our product purchased?
8. Where is our product purchased?
9. Why is our product purchased?
If a company wants to penetrate an existing market, it must offer more value
than its competitors – better benefits, lower prices, or both. This applies to export
marketing as well as marketing in the home country.

113
 3.3 Market Selection Criteria: Six criteria should be assessed:
a) Market Potential: Does it have the Potential? The cost of assembling sales
literature, catalogs, and technical bulletins should also be considered in comparison
to market potential and profitability. This cost is particu­larly important in selling highly
technical products.
b) Market Access: Entire set of national controls that applies to imported merchandise
and any restrictions that the home-country government might have. Export license,
import duties, import restrictions or quotas, foreign exchange regulations, and
preference arrangements.
c) Shipping Costs and Time: It is important to investigate alternative modes of
shipping as well as ways to differentiate a product to offset the price disadvantage.
d) Potential Competition: The commercial representative could provide a very useful
report based on a comparison of the company's product with market needs and
offerings.
e) Service Requirements: If service is required for the product, can it be delivered at a
cost that is consistent with the size of the market?

114
f) Product Fit: With information on market potential, cost of access to the market,
and local competition, the final step is to decide how well a company's product fits
the market in question. In general, a product fits a market if it satisfies the criteria
discussed previously and is profitable.
Suppose a company has identified China, Russia, and Mexico as potential export
markets. The table shows the countries arranged in declining rank by market size.
At first glance, China might appear to hold the greatest potential simply on the
basis of population and GNP. Although it is true that population and GNP are
major factors in assessing market potential, there are other important issues to be
considered.
Multiplying the market size and competitive advantage index yields a market
potential of 10 in China, 8.4 in Russia, and 22.0 in Mexico.
The market access considerations are more favorable in Mexico than in Russia,
perhaps due to NAFTA. Multiplying the market potential and the market access
considerations index shows that Mexico, despite its small size, holds far greater
potential than China or Russia.
The market selection frame­work can, of course, be expanded to include additional
criteria such as political risk, growth potential, and so on.

115
Table 2 Market Selection Framework

Market Market Market Competitive Market Terms of Export

Population GNP Size Advantage Potential Access Potential
Index

China 1,042 100 0.10 = 10.0 0.20 2.00

(1.2 billion) =

Russia 440 42 0.20 = 8.4 0.60 5.04

(150 million) =

Mexico 456 44 0.50 = 22.0 0.90 19.80

(96 million) =

116
 VISITS TO THE POTENTIAL MARKET: First, it should confirm
(or contradict) assumptions regarding market potential. A second major purpose is
to gather additional data necessary to reach the final go/no-go decision.
Visit a potential market is through a trade show. Hundreds of trade fairs are held in
major markets.
By attending trade shows company can conduct market assessment, develop or
expand markets, find distributors or agents, and locate potential end users. It is
possible to learn a great deal about competitors' technology, pricing and the depth
of their market penetration. Company managers should be able to get a good
general impression of competitors in the marketplace while at the same time trying
to sell their own company's product.
3.4 Entry And Expansion Decision Model:
First issue is whether to export or produce locally. In many emerging markets,
national policy that requires local production.In high-income countries, local
production is normally not required.

117
The trade-offs for local versus re­gional or global production are cost, quality, delivery,
and customer value. Costs include labor, materials, capital, land, and transportation.
Scale economies are an important factor in determining cost.
If a company decides to source locally, it has a choice of buying, building, or renting
its own manufacturing plant or signing a local contract manufacturer. A contract
manufacturer may be in a position to add production to an existing plant with less
investment than the manufacturer would require to achieve the same volume of
production.
1. Exporting: Export selling does not involve tailoring the product, the price, or the
promotional material to suit the requirements of global markets. The only marketing
mix element that differs is the place – that is, the country where the product is sold.
This selling approach may work for some products or services; for unique products
with little or no international competition, such and approach is possible. As
companies mature in the global marketplace or as new competitors enter the picture,
it becomes necessary to engage in export marketing.

118
 Export is just one strategy. Other options are licensing, franchising, joint ventures,
and foreign direct investment. (See Figure 1). If customers are nationalistic, they may
put a positive value on the feature “ made in the home country.” Such preferences
must be identified using market research and factored in to solve for value in the
equation. A successful global company can source its product from any location: The
customers trust the brand and don’t care about the country of origin.
Exporting Decision Criteria: The product offered in the home market is modified as
needed to meet the preferences of international target markets. Prices to fit the
marketing strategy and does not merely extent home country pricing to the target
market.

Export marketing is the integrated marketing of goods and services that are
destined for customers in international markets. Export marketing requires:

1. An understanding of the target market environment;

2. The use of marketing research and the identification of market potential;

119
FIGURE: 1 Ownership and Control

120
3. Decisions concerning product design, pricing, distribution and channels,
advertising and communications – the marketing mix;
Exporting, in and of itself, is essential a developmental process that can be
divided into the following distinct stages;
1. The firm is unwilling to export;
2. The firm fills unsolicited export orders but does not pursue unsolicited orders.
3. The firm explores the feasibility of exporting.
4. The firm exports to one or more markets on a trial basis.
5. The firm is experienced exporter to one or more markets.
6. After this success, the firm pursue country – or region – focused marketing based
on certain criteria.
7. The firm evaluate global market potential before screening for the best target
markets to include in its marketing strategy and plan.

121
Moving from stage 2 to stage 3 depends on management’s attitude toward the
attractiveness of exporting and its confidence in the firm’s ability to complete
internationally. Before a firm can reach stage 4, it must receive and respond to
unsolicited export orders. The quality and dynamism of management are
important factors that can lead to such orders. Success in stage 4 can lead a
firm to stages 5 and 6. A company that reaches stage 7 is a mature, geocentric
enterprise that is relating global resources to global opportunity. To reach this
stage requires management with vision and commitment.

The decision to engage in export marketing should be based on a number of

criteria, including potential market size, competitor activities, and overall
marketing mix issues such as price, distribution, and promotion. The choice of
one or more export markets to target. The selection process should begin with a
product-market profile or plan.

122
123
 Organizing for Exporting:
a) Organizing in the Manufacturer’s Country: Assign export responsibility inside the
company or work with an external organization.
i) In-House Export Organization: Depending on the company’s size, responsibilities
may be incorporated into an employee’s domestic hob description. These
responsibilities may be handled as part of a separate division or organizational
structure.
The possible arrangements for handling exports include the following:
1. As a part-time activity performed by domestic employees
2. Through an export partner affiliated with the domestic marketing structure that takes
possession of the goods before they leave the country.
3. Through an export department that is independent of the domestic marketing
structure.
4. Through an export department within an international division.
5. For multidivisional companies, each of the foregoing possibilities exists within each
division.

124
ii) External Independent Export Organization: Export trading companies (ETCs),
export management companies (EMCs), export merchants, export broker,
combination export managers, manufacturer’s export representatives or
commission agents, and export distributors.
b) Organizing in the Market Country: Also make arrangements to distribute the
product in the target market country. To what extent do we rely on direct market
representation as opposed to representation by independent intermediaries?
i) Direct Representation: Own employees in a market: control and
communications allows decisions concerning program development, resource
allocation, and price changes to be implemented unilaterally. Special offers are
necessary to achieve sales. These special efforts are ensured by the marketer’s
investment. Possibilities for feedback and information from the market are much
greater. Direct representation involves selling to wholesalers or retailers.
ii) Independent Representation: In smaller markets, not feasible to establish
direct representation because the low sales volume does not justify the cost.

125
 A small manufacturer usually lacks adequate sales volume to justify the cost of
direct representation; therefore, use of an independent distributor is an effective
method of sales distribution. Finding good distributors can be the key to export
success.
iii) Piggyback Marketing: One manufacturer obtains distribution of products
through another’s distribution channels. Both parties can benefit: The active
distribution partner makes fuller use of its distribution system capacity and
thereby increases the revenues generated by the system. The manufacturer
using the piggyback arrangement does so at a cost that is much lower than that
required for any direct arrangement. Appeal to the same customer, and they must
not be competitive with each other.
3.5 Additional Alternatives for International entry modes :
a) Sourcing: Imports can be subdivided into two categories: goods that are
purchased ready-made and goods that a foreign company has a voice in their
design and packing. These latter goods are referred to as sourced good

126
In both consumer and industrial goods. Nike doesn’t make any athletic shoes. It does
not own any manufacturing facilities. All its shoes are sourced in other countries,
primarily in Asia. As shown in Table 8-5, six factors must be taken into account in the
sourcing decision.

127
b) Licensing: A contractual arrangement whereby one company (the licensor)
makes an asset available to another company (the license) in exchange for
royalties, license fees, or some other form of compensation. Patent trade secret,
or company name. A company with advanced technology, know-how, or a strong
brand image can use licensing agreements to supplement its bottom-line
profitability with little initial investment. The only cost is signing the agreement and
of policing its implementation.
The principal disadvantage of licensing is that it can be very limited form of
participation. When licensing technology or know-how, what a company does not
know can put it at risk. Potential returns from marketing and manufacturing may
be lost, and the agreement may have a short life if the licensee develops its own
know-how and capability to stay abreast of technology in the licensed product
area. Licensees have a troublesome way of turning themselves into competitors
or industry leaders. Licensing enables a company to borrow - leverage and exploit
– another company’s resources. In Japan, for example Meiji Milk produced and
marketed Lady Borden premium ice cream under a licensing agreement with
Borden., Inc.

128
 Meiji learned important skills in dairy product processing, and, as the expiration
dates of the licensing contracts drew near, rolled out its own premium ice cream
brands.
Conversely, the failure to seize an opportunity to license can also lead to
dire(horrible) consequences. Mid-1980s, Apple Computer chairman John Sculley
decided against licensing Apple’s famed operating system. Such a move would
have allowed other computer manufacturers to produce Macintosh-compatible
units. Meanwhile, Microsoft’s growing world dominance in computer operating
systems and applications got a boost from Windows, which featured a Mac-like
graphical interface. Apple belatedly reversed direction and licensed its operating
system.
When companies do decide to license, they should sign agreements that
anticipate more extensive market participation in the future. Insofar as is
possible, a company should keep options and paths open for other forms of
market participation. One path is a joint venture with the license.
c) Investment: Joint Ventures: Sharing of risk and the ability to combine different
value chain strengths – for example, international marketing capability and
manufacturing.

129
One company might have in-depth knowledge of a local market, an extensive
distribution system, or access to low-cost labor or raw materials. Such a
company might link up with a foreign partner possessing considerable know-how
in the area of technology, manufacturing, and process applications. Finally, a
joint venture may be the only way to enter a country or region if government bid
award practices routinely favor local companies or if laws prohibit foreign control
but permit joint ventures.
Companies should think beyond the equity joint venture (EJV) with a well-
connected local partner and consider the alternative of a wholly foreign-owned
enterprise (WFOE).
It is possible to use a joint venture as a source of supply for third-country
markets. This must be carefully thought out in advance. One of the main reasons
for joint venture “divorce” is disagreement about third-country markets in which
partners face each other as actual or potential competitors. It is essential to work
out a plan for approaching third-country markets as part of the venture
agreement.

130
Joint venture partners must share rewards as well as risks. The main disadvantage
of this global expansion strategy is that a company incurs very significant costs
associated with control and coordination issues that arise when working with a
partner. A dynamic joint venture partner can evolve into a stronger competitor. In
some instances, country-specific restrictions limit the share of capital held by foreign
companies. Cross-cultural differences in managerial attitudes and behavior can
present formidable challenges as well.
Difficulties are so serious that, according to one study of 170 multinational firms,
more than one third of 1,100 joint ventures were instable, ending in “divorce” or a
significant increase in the U.S. firm’s power over its partner. Another researchers
found that 65 joint ventures with Japanese companies were either liquidated or
transferred to the Japanese interest in 1976. The most fundamental problem was the
different benefits that each side expected to receive.

Japanese and Korean firms seem to excel in their ability to leverage new knowledge
that comes out of a joint venture.

131
 Toyota learned many new things from its partnership with GM – about U.S.
supply and transportation and managing American workers – that have been
subsequently applied at its Camry plant in Kentucky. However, some American
managers involved in the venture complained that the manufacturing expertise
they gained was not applied broadly throughout GM.

d) Investment: Ownership and Control: Key variable in the location decision is

the vision and values of company leadership. The sourcing decision highlights
three roles for marketing in a global competitive strategy. The first relates to the
configuration of marketing. Although many marketing activities must be
performed in every country, advantage can be gained by concentrating some of
the marketing activities in a single location, Service, for example, must be
dispersed to every country. Training however, might be at least partially
concentrated in a single location for the world. A second role for marketing is the
coordination of marketing activities across countries to leverage a company’s
know-how. This integration can take many forms, including the transfer of
relevant expertise across national boundaries in areas such as global account
management and the use of similar approaches or methods for marketing
research, product positioning, or other marketing activities.

132
A third critical role of marketing is its role in tapping opportunities in product development
and research and development (R&D).
On forms of cooperation and control, there are many, ranging from the management
contract to wholly owned subsidiaries and global strategies partnerships. The issues that
these alternatives raise are control and ownership.

As shown in Table 8-7 below:-

133
 There are many options that vary the amount of ownership and investment and
the degree of control of country marketing. Although it is possible to have
ownership without control and control without ownership, greater ownership is
normally linked with greater control. Companies with wholly owned affiliates or
subsidiaries have complete control over every aspect of the affiliate’s operations:
strategy and structure, human resources, financial strategy and policy, marketing
strategy and policy, and so on.
e) Ownership / Investment: The desire for control and ownership of operations
outside the home country drives the decision to invest. Foreign direct investment
(FDI) figures record investment flows as companies invest in or acquire plant,
equipment, or other assets outside the home country.

134
By definition, direct investment presumes that the investor has control or significant
influence over the investment, as opposed to portfolio investment, in which it is
assumed that the investor does not have significant influence or control. The
operational definition of direct investment is ownership of 20 percent or more of the
equity of a company.
100 percent ownership, which may be achieved by start-up or acquisition, requires
the greatest commitment of capital and managerial effort and offers the fullest
means of participating in a market.
Large-scale direct expansion by means of establishing new facilities can be
expensive and require a major commitment of managerial time and energy.
Alternatively, acquisition is an instantaneous – and sometimes less expensive –
approach to market entry. Although full ownership can yield the additional advantage
of avoiding communication and conflict-of-interest problems that may arise with a
joint venture or coproduction partner, acquisitions still present the demanding the
challenging task of integrating the acquired company into the worldwide
organization and coordinating activities.

135
 The decision to invest abroad – whether by expansion or acquisition –
sometimes clashes with short-terms profitability goals. This is an especially
important issue for publicly held companies. Despite these challenges, there is
an increasing trend toward foreign investment by companies.

Licensing, joint ventures, and ownership – are intact points along a continuum of
alternative strategies or tools for global market entry and expansion. The overall
design of a company’s global strategy may call for combinations of
exporting/importing, licensing, joint ventures, and ownership among different
operating units.

f) Investment in Developing Countries: Investment in developing nations grew

rapidly in the 1990s. The appeal is their rapid growth, expanding purchasing
power, and expanding markets.
Foreign investments may take the form minority or majority shares in joint
ventures, minority or majority equity stakes in another company.

136
3.6 Marketing Strategy Alternatives:
Regardless of the entry form selected, companies must decide in their
marketing strategy for each market. Broadly, the alternatives are to use
independent agents and distributors or to establish a company-owned marketing
subsidiary. These alternatives trade off ownership and investment with control, as
shown in the Figure below.
The advantage of the agent/distributor option is a pay-as-you-go option. It does
not create a company presence in the market and it does not give a company
control over its marketing effort. Agents and distributors are not necessarily a no-
investment option.
Companies combine the company-owned marketing subsidiary with agents and
distributors. This option gives the company local presence and control of the
marketing effort and, where cost-effective, takes advantage of distributor and
agent capabilities. The local presence of the company can provide a much better
communications link with the regional and world headquarters and, if it is well
executed, ensure that the company’s effort reflects the fullest potential of the
company’s ability to execute a global strategy with local responsiveness.

137
138
3.6.1 Five Market Expansion Strategies: Whether to expand by seeking new
markets in existing countries or, alternatively, seeking new country markets for already
identified and served market segments. These two dimensions in combination produce
four strategic options as shown in Table 8-10. Strategy 1 concentrates on a few
segments in a few countries. This is typically a starting point for most companies. It
matches company resources and market investment needs. Unless a company is large
and endowed with ample resources this strategy may be the only realistic way to begin.
In strategy 2, country concentration and segment diversification, a company serves
many markets in a few countries.
Strategy 3, country diversification and market segment concentration, is the classic
global strategy whereby a company seeks out the world market for a product. The
appeal of this strategy is that by serving the world customer, a company can achieve a
greater accumulated volume and lower costs than any competitor and, therefore, have
an unassailable competitive advantage.
Strategy 4, country and segment diversification, is the corporate strategy of a global
multi business company such as Matsushita. Success in overseas markets can boost a
company’s total volume and lower its cost position.

139
140
5. International Marketing Product Policy
The core of a firm’s international operations is a product or service. This
can be defined as the complex of tangible and intangible elements that
distinguishes it from the other entities in the marketplace.
4.1 Adaptation Versus Standardization of the Product
A central issue in approaching global markets is whether products sold in
the home market should be adapted or standardized for international
markets.
4.1.1 Factors Encouraging Standardization
 The attractions of standardization are obvious.
 It can result in lower costs and economies of scale in
manufacturing, product development, and marketing.
 Managerial complexity is reduced, and export marketing is
facilitated when the same product is exported to several
countries.
Factors Encouraging Standardization
1. High Costs of Adaptation
2. Industrial Products
3. Convergence and Similar Tastes in Diverse Country Markets
4. Marketing to Predominantly Similar Countries
5. Centralized Management and Operating via Exports
6. Economies of Scale in Production
7. Economies in Research and Development
8. Economies in Marketing
4.1.2 Factors Encouraging Adaptation
• The greatest argument for adapting products is that by doing so
the firm can realize higher profits.
• Specific factors encouraging product adaptation include:
1. Differences in Technical Standards
2. Consumer and Personal Use Products
3. Variation in Consumer Needs and Differing Use Conditions
4. Variation in Ability to Buy-Differing Income Levels
5. The Impact of Cultural Differences
6. Environmentally Induced Adaptation: The Influence of
Governments
4.2 Product Attributes in International Markets
4.2.1 Brands and Trademarks
A major focus in international marketing is protecting the company’s brands and
trademarks.
Branding
• A brand, once developed and recognized, can have a long life: A big question
then is how to build up brand recognition in international markets.
• Brands can be built up through adverting, but advertising merely builds on the
brand’s foundation, which rests on(a) quality, (b) innovation, (c) superior
service, (d) customer satisfaction, and (e) value.
 The return of good branding to the firm is brand loyalty and repeat purchases
and a loyal customer; since acquiring customers is costly, loyal customers who
buy regularly are valuable to a firm.
Brand extensions :Allows a firm with an existing presence in overseas markers
to quickly establish its new products.
Brand protection
 Protecting a brand in international markets can begin with registering
them in the countries of interest with the appropriate authorities.
 Blanket registration in all countries might be wise if the costs of
registration,
 Smaller firms may wish to be more selective.
 A problem in brand protection is imitation brands:
Product piracy and counterfeiting
 As more trade becomes technology intensive, intellectual property
protection is essential to maintaining competitive advantage.
Private Branding
• In private branding, which is common in consumer goods marketing,
• The manufacturer supplies goods but the retailer sells these goods
under its own brand names.
4.2.3. Country – Of – Origin Effect
 Country –of–origin effect can be defined as any influence that the
country of manufacture has on a consumer’s positive or negative
perception of a product.
 Numerous studies have shown that consumers evaluate a product
not only by its appearance and physical characteristics but also by
the country in which it was produced. This is the country–of–
origin effect.
 Certain countries have a good image for certain kinds of
products- Germany for cars, France for women's fashion, and
Japan for electronic products and cameras.
 If a firm is producing a product in a country that does not have a
favorable image for that product, it may have a hard task
marketing it.
 Packaging and Labeling
4.3.1 Packaging
Examples of factors that require packaging adaptation:
1. Changes in climate across countries, requiring more protective
packaging against extremes of cold and heat.
2. Lengthy and difficult transportation and logistics networks, requiring
that packaging protect goods against breakage and damage.
3. Lengthy periods on shelves at retailers before final sale, again
requiring that packaging be protective and maintain freshness.
4. Varying sizes of packaging, with smaller- sized packages required in
lower-income countries because they may be more affordable;
 smaller size may also be more common in countries where more
frequent shopping trips are made and shoppers may carry their
purchases on foot back to their dwellings.
5. Differences in packaging forms because of consumer preferences:
6. Growing environmental consciousness on the part of consumers attempting to
persuade firms to ensure that their packaging material are biodegradable and /or
recyclable and cause the least harm to the environment.
7. Packaging adds bulk to a product and takes up more space during shipment.
Labeling
 Primary considerations in labeling are providing information to the consumers
and the use of multiple languages.
 Regulations in many countries require that detailed product compositions and
nutritional information be provided as well as warning messages in the case of
products that may be harmful or hazardous.
 Firms may also want to provide instructions for proper product use
 Country regulations may also require that information be presented in all of a
country’s or region’s official languages.
 Language complexities motivate manufacturers to use diagrams and cartoons to
instruct consumers in the use of their products
 Packaging and Labeling
4.3.1 Packaging

Packaging is very much part of a product’s attributes and companies

expend considerable effort in developing packaging that is recognizable
and distinctive as well as functional. Examples of factors that require
packaging adaptation:

Changes in climate across countries, requiring more protective packaging

against extremes of cold and heat.
Lengthy and difficult transportation and logistics networks, requiring that
packaging protect goods against breakage and damage.
Lengthy periods on shelves at retailers before final sale, again requiring
that packaging be protective and maintain freshness.
Varying sizes of packaging, with smaller- sized packages required in
6. Pricing in International Marketing