BLOC 2: INTERNATIONAL MARKETING ENVIRONMENT

1. INTERNATIONAL ECONOMICAL AND POLITICAL ENVIRONMENT

2. INTERNATIONAL CULTURAL AND SOCIAL ENVIRONMENT
7. INTERNATIONAL ECONOMICAL AND POLITICAL ENVIRONMENT

There are two types of factors that ​affect business performance:​

➢ Controllable factors​: those factors that can be determined and designed directly by the firm.
Firms have to regulate them and design them, since they have the control over them. It
includes:
○ Marketing mix: ​price, product, promotion, place (distribution channels)...

➢ Uncontrollable factors​: those factors that cannot be controlled by the firm, but firms have
to understand them, constantly monitoring them, cope with them, adapt and try to take
advantage of them. Thus, firms can analyze them, cope with them, understand them and
adapt to them, but they cannot design them. It includes:
○ Political environment
○ Economical environment​: GDP, resources, shocks, etc. This environment includes
the one from home country, the one from the host country and the global economic
environment.
○ Socio-cultural environment​: demographics (age, gender), consumption behaviour,
etc. You might become part of the culture, but culture is not something that you can
design.

Demand is a consequence, it is a function of controllable and uncontrollable factors. Furthermore it

is one dimension of the performance. Therefore, depending on how you design your marketing mix
and how you deal with the environment, demand will be determined in one way or another.

We have to regulate and design the controllable factors, while we must understand, analyze, cope
with and adapt to the uncontrollable factors.

ECONOMICAL ENVIRONMENT

First of all, we can differentiate firms into different groups depending of their ​economical activities:
1. Primary activities​: agricultural, mining, extracting activities, etc
2. Secondary activities: ​manufacturing activities (processing of the outcome of primary
activities), and industries
3. Tertiary activities: ​services such as healthcare, education, leisure, etc

Firms generate and create value in each of these activities.

Depending on whether the country we want to enter is industrialized or not among other
characteristics, firms will have to cope with different structures, different purchase behavior,
different purchasing power, etc. The main factors we have to consider are:
❖ Exchange rate: ​it is an important factor to take into account when a country wants to export
its product to another country. Why is it so relevant?
➢ Costs: it affects the costs, because if we import a product to a country with a
different currency (for instance, Ron currency in Romania), we can beneficiate or not
from it:
■ If initially 1€ = 4.6 Ron and then it changes to 1€ = 6 Ron, this is not good
because now the price of Gazpacho abroad will be higher, thus we will not
import that much. This will lead to lower profits for the firm
➢ Devaluation: ​if our currency is weaker we can export more because we can make our
products available at a lower price at the international level, so we have an
advantage in highly competitive markets. This is, the price of export in global market
declines. Some governments even devalue their currency in order to make their
offerings more competitive in the global market. For instance, the Chinese currency
is more valuable than what we can actually perceive.
■ If your currency gets weaker (devaluates), you can increase your revenues as
an exporter (firm producing Gazpacho in Romania will benefit from this).
From all these reasons, marketers prefer entering in a country with a ​stable currency
because with a stable exchange rate, there is lower level of uncertainty. Otherwise, the
higher the volatility of a currency and when the currencies are not stable, there are more
interest costs due to a more expensive insurance, which difficulties marketing activities.
❖ Development level: ​in which stage of market development we are? How developed the
market is?
➢ Stages of the market development: ​We will rank countries considering two main
factors:
■ Income: level of income of its population and how the wealth is distributed
in the country. It signals the purchasing power of consumers
● GDP: total value of your economic activities (goods and services)
that you produce inside the borders of your country
● GNP: total value of your economic activities (goods and services)
that national companies produce inside your country but also
abroad
● GDP/Capita: we need to look at the Gini index in order to analyze
inequality and distribution
■ Industrialization: in the market development, industrialization is important
for the efficiency of the distribution system (logistics) or communication.
That is, the access to better infraestructures: easier transportation,
manufacturing, etc. It will have an impact on consumer behaviour, and also
a direct impact on controllable factors.
The type of customers is totally different depending on the industrialization
level of the country (on average) so they will demand different products
because they are at a different level in the hierarchy of needs. However, it is
not only about looking at the factors on average terms but also looking at
the distribution of these factors. For example, using the GINI index.
Depending on the income and the industrialization, we can differentiate ​different stages of
market development:
 1. Low/Least Developed Countries (LDC): these countries are characterized by a low
GDP/capita (lower than $3,000/year), economies are dependent on a single product
(their economy mainly depends on the commercialization of one product such as
Cuba on Sugar, Colombia on Coffee, etc.), there’s low level of industrialization, and
there are high tariffs to enter the market (paid to the government).
2. New Industrialized Countries (NIC): these countries are economies growing very fast
characterized by the economy is improving rapidly, paternalistic governments, not
completely free economies since there are still several regulations in different
aspects of the economy... Such as Honk Kong, Singapore and chewing gum, BRIC
countries (Brasil, Russia, India, China) where customers are gaining more and more,
and can be considered a different stage of market development (a forth one). They
have a significant growth potential, and lots of business opportunities.
3. Advanced Industrialized Countries (AIC): these countries are characterized by
advanced distribution networks, high GDP per capita, high purchasing power, free
government, free market, highly industrialized, they are more saturated than NIC,
high services, etc. There are also different purchasing behaviours: the share of
income is not dedicated only to satisfy primary needs, but also additional ones (so
additional products and not focused on the production of one product as LDC).
Therefore, the competition on these countries is much higher between companies,
since there are more options for customers. For this reason, innovation is very
important and also knowledge.

With this classification, we have an idea of the extreme cases. However, there are always
intermediate situations.

POLITICAL ENVIRONMENT

We have to consider the political environment in three different markets:

❖ Home-country environment: political decisions and the ​political relationship of your country
with the others can constrain your international operations (for example US - Cuba and the
sanctions imposed). The political situation of your country can also have a significant impact
on your brand image. Some policies ​support exports or any international activities, in other
words, promotional activities (policies promoting the exports of gazpacho in Spain) can also
affect a business. Home governments can also ​provide information ​about other countries, so
information service for those brands that want to go global is very important.
Conclusions:​
➢ Constraint int. operations
➢ Promotional activities
➢ Info. services
❖ Host-country environment: import restriction from the host country, which affects our
operations... There are some ​political risks​that arise from governmental actions​:
➢ Ownership risk: ​determinant of the security of your investment (if the government
is going to make efforts to protect your property). Things that can affect the firm are
the ​nationalization or expropriation (for some political concerns the country decides
to nationalize an industry by owning 100% of that industry and force you to sell all
the properties to them).
 ➢ Operating risk: if the government is going to intervene in your daily activities. Such
as ​import restrictions (on raw materials, on the machines we have to use for
production...), ​local-content laws (a fraction of your product has to be from the
host-country)​, domestication or c​reeping expropriation (the government highly
interfere in your business and they closely monitor and control the decisions and
activities), trade barriers (​they are introduced in order to protect national
industries/domestic producers and to make money through high tariffs and so
generating revenue for the government). They represent a risk for our operations.
We can distinguish between two types of trade barriers:
■ Tariffs: simplest and faster way of putting trade barriers and generating
revenues, mainly used by poorer countries
■ Non-tariff barriers: less predictable barriers. For example, administrative
delays (to discriminate foreign players from the domestic firms),
bureaucratic barriers, import and export quotas, which means putting a
limit on the amount of goods leaving and entering the country. For example,
import quotas are imposed in order to protect the local industry, create
some competition among those who want to enter. Only will import the
foreign country that adapts better to our regulations. On the other hand,
export quotas are imposed in order to maintain the adequate level of supply
in the home country, to regulate the price in your home country market (if
you export all the production of a product, price will increase in home
country), to limit supply in global market so the price goes up.
➢ Transfer risk: the government can make ​exchange controls​, so it can regulate the
supply of foreign currencies. For example, there are some countries that may
devalue their currency in order to make it weaker and cheaper to export more. If
you can’t get money in the currency that you want, or there is a shortage of foreign
exchange it will be a risk for the transfer.
❖ Global environment: the global market is formed by highly interconnected markets (global
suppliers, global customers, global competitors...) so a change in any part of the world can
affect your company even if you are not in that part of the world (strong interdependencies).

The three environments matter because they can influence our business, so we have to understand
them. If you are a huge brand you can consider to build relationships with governments from other
countries. Most used practices are lobbying, corruption...which are quite bad practices.

8. SOCIO-CULTURAL ENVIRONMENT

CULTURAL ENVIRONMENT

Culture ​is an obvious source of differentiation across countries, and thus firms have to take it into
account when making marketing decisions. Culture is related with the ​behaviour and ​beliefs ​of a
country. It also involves ​traditions, religion, language (it is not only a method of communication, but
also a way of thinking), etc. Furthermore, culture is developed during time and it is affected by
historical events that influence the society, and thus are transferred from one generation to another.

Therefore, ​culture ​is developed over time through ​recurrent social relationships, which form
patterns that are eventually ​internalized among the different members of the entire
group/community/society. It is also ​shared among all the members of the group, and it is something
learned​. Culture influences the decisions.

Culture changes over time. However, the concept of culture is relatively similar today than it was 100
years ago. What changes are the characteristics that define a particular culture.

There are visible elements of a culture, but also some that are difficult to see.

Iceberg Model: ​categorizes elements of culture in three levels.