An Overview of the International Marketing Environment

Dr. Suresh Malodia

Chapter 2

Chapter Objectives
Discuss the world economic environment and examine different development perspectives. Discuss the importance of emerging markets Examine political risk and risk management Discuss the impact of different legal systems and jurisdiction issues Address intellectual property laws and the challenges involved in operating in legally ambiguous environments

The World Economy

Rather than rising and falling separately, national economies have become interdependent and respond to the same environmental forces.

The international economy has become one single unit.

The Economic Development Disparity

Firms from industrialized countries dominate the world economy, allocating resources based on market potential, rather than based on local needs.

Increasing economic gap between developed and developing countries

Developing countries maintain control over own resources (raw materials, labor) and access to local consumers.

Lessen economic gap by imposing barriers to international corporations

Economic Development Models

The Rostow Modernization Model

Each stage is a function of productivity, economic exchange, technological improvements and income Growth requires advancing from one stage to the next

Traditional Society

Transitional Society Take Off Drive to Maturity

High Mass Consumption

Economic Development Models, continued

The Marxist-Leninist Model

Similar to Rostow model in first stages Subsequent stages depicted as a class struggle ending in revolution Advancement is a function of control over the means of production, production outcomes, resource allocation, and the development of a mindset devoid of materialist needs

Economic Development Models, continued

The Marxist-Leninist Model
Primitive Society Slavery-Based Society Feudalism Capitalism Socialism Communism

Levels of Development
Developed Countries GNP per capita of US $9,266 and above

Well-developed industrial and service sectors Markets in maturity stage Consumers with established preferences Intense competition

Levels of Development, continued

Emerging Countries GNP per capita of US $766 $9,265

Developing rapidly Great potential

Big Emerging Markets

Present the greatest potential for international trade and expansion

Levels of Development, continued

Developing Countries GNP per capita of of less than US $755

Primarily agrarian Located in different regions in Asia and SubSaharan Africa Often neglected or under-served by large multinationals Represent potential niche markets

Examples of Emerging Markets

Asia: China, India, Indonesia, Malaysia,
Philippines, Singapore, South Korea, Thailand

Africa and the Middle East:

South Africa and Israel

Eastern Europe:
The Czech Republic, Hungary, Greece, Portugal, Turkey

The Former Soviet Union:

Russia, Ukraine, and the Baltic's

Latin America:
Argentina, Brazil, Chile, Mexico, Venezuela

Emerging Markets
Big Emerging Markets

China,India (populations exceeding one billion) South Korea Argentina, Brazil, Mexico South Africa Poland, Turkey Russia

Characteristics of Emerging Markets

High political stability Sound currency, low inflation Pro business, fiscally-conservative, transparent government policies Guarantees for the repatriation of dividends and capital Sound corporate law Liquid securities market reflecting fair prices Work ethics and a culture of integrity

Political Environment & Int. Mktg.

At the basis of international law and international relations: sovereignty (self determination and independence from external interference) International trade limits sovereignty Governments can invoke sovereignty and jeopardize firms operations

Political Risk
Evaluating political risk:

Business periodicals (The Economist, WSJ)

Commercial sources (EIU, Chase, RUNDTs)

Poor economic performance Repression of ethnic groups and/or general repression by the elite Internal diversity and incongruent interests Radically changing government structures Fierce nationalist sentiment

Political risk signals

Political Risk, continued

Risks related to government trade policies

Tariffs, exchange-rate controls, quotas, export/import license requirements, and other trade barriers Controlling foreign investment through taxes or transfer of assets from company to local ownership:
Confiscation Expropriation Nationalization Creeping expropriation Domestication

Risks related to government economic policy

Risks related to labor and action groups Risks related to terrorism

Minimizing Political Risk

Understand both ruling and opposing parties; remain politically neutral Be exemplary corporate citizens Sell a quality product or service that is essential for local development Partner with local companies and create local expertise Use local suppliers Obtain insurance coverage against expropriation, nationalization, confiscation, and terrorism

International Legal Environment

International Laws Host Country Laws Home Country Laws
Legal Systems

Common law Code law Islamic law

Jurisdiction
Not usually automatic European Court of Justice The International Court of Justice
MEDIATION
Independent Third Party Non-binding

ARBITRATION
Independent Third Party Binding

Intellectual Property Rights

Violation of intellectual property rights is the most significant threat to the competitiveness of international corporations.
Losses attributed to the violation of intellectual property rights are estimated to be $60 billion a year.

Intellectual Property Protection

Patent

Protection of the rights of the inventor or of the firm to use and sell the invention for a specified period of time

Copyright

Rights of owner of original work of art to reproduce, sell, perform, or film the work
Brand name, mark, symbol, motto, or slogan that identifies a brand and distinguishes it from competitors brands Know-how, formulas, and special blends that are not registered and are thus not protected by law

Trademark

Trade Secret

Factors Influencing Intellectual Property Violations

Lack of appropriate legislation Lax enforcement Unavailability of authentic products High prices for authentic products that limit their accessibility to local consumers Cultural Factors

Values that perceive imitation as a form of flattery Feelings of interpersonal distrust and not getting fair deal Emphasis on material wealth Belief that technology is common domain

Protecting Intellectual Property

Countries that join the World Trade Organization must sign on to the TRIPS agreement (Trade-Related Aspects of Intellectual Property Rights) International conventions have been gaining strength Developed countries are lending support to emerging countries

Home Country Legislation

ANTITRUST LAWS

Prevent anticompetitive activities such as the creation of monopolies and cartels

CORRUPTION LAWS

Prevent multinational corporations from using unethical means to obtain competitive advantage in a particular market Foreign Corrupt Practices Act makes it illegal to bribe politicians

Chapter Summary
Competing models evaluate economic development: The Rostow model regards it as a function of productivity, exchange, technology, and income; the Marxist-Leninist model depicts development as a class struggle. Based on development, countries are categorized as: developing, developed, and emergingthe latter offer most potential. Firms must evaluate and manage political risk related to government trade policies, economic policies, labor/political action groups, and terrorism.

Firms are affected by international, home-country, and host country lawsbelonging to one of three judicial systems: common, code, and Islamic. Firms must decide jurisdiction and conflict resolution methods before conflicts arise.
Protection of intellectual property rights constitutes a priority for international firms.