Amity School of Business

Amity School of Business

BBA, V Semester
International Marketing
Prof. Ruchi Khandelwal

Introduction

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Concept of Globalization
Globalization constitutes multiplicity of linkages and
interconnections that transcend the nation states (and by
implication the societies) which make up the modern
world system.
It defines a process through which events, decisions and
activities in one part of the world can come to have a
significant consequence for individuals and communities
in quite distant parts of the globe.
Globalization is manifested in
economic growth and development,
political structures and relations, and
social and cultural movements and transformations. 2
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Need for International Marketing

 Exploiting worldwide market imperfections
 Seeking markets abroad
 Seeking to make themselves more efficient
 Seeking new avenues for innovation and knowledge creation
 Factor inputs could be sourced or extracted cheaper
 Firm-based knowledge capital could be improved
 Oligopolistic interdependence
 Environmental reasons
 Responding to macro-economic imperatives for globalization
 Globalization of capital markets
 Declining costs of transportation and communication
 Growth of regional and international trading arrangements
 Exploiting competitive advantage of nations.
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Defining International Marketing

• Cateora defines international marketing as, “the performance
of business activities that direct the flow of goods and services
to consumers and users in more than one nation.”
• International marketing, therefore is ‘marketing carried on
across boundaries.’
• According to a definition adopted from AMA’s definition of
marketing, ‘International Marketing is the multinational
process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to
create exchanges that satisfy individual and organizational
objectives.

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International Marketing Vs. Domestic

Marketing
 Sovereign Political Entities
 Different Legal Systems
 Different Monetary Systems
 Lower mobility of factors of production
 Differences in market characteristics
 Differences in procedures and documentation
 Greater degree of risk
 Cultural dimensions of international marketing
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Multinational Corporations
 Definition by size
 Business Week magazine focuses on market value.
 Forbes magazine ranks the world’s largest public companies by using a
composite ranking of sales, profits, assets and market value.
 World Investment report of UNCTAD rank TNCs by their foreign assets.
 Definition by structure
 Structural requirements include the number of countries in which the firm
does business and the citizenship of corporate owners and top managers.
 Definition by performance
 Depends on foreign earnings, sales and assets which indicate the extent of
commitment of corporate resources to foreign operations and the amount of
rewards from that commitment.
 Definition by behavior
 Orientation of company management in decision making- ethnocentric/
polycentric/geocentric behavior.
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Stages of International Marketing Involvement

No direct Foreign Marketing

Infrequent Foreign Marketing

Regular Foreign Marketing

International Marketing

Global Marketing

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Evolutionary Process of Global Marketing

Stage Market Focus Orientation Marketing Mix
Domestic Domestic markets Ethnocentric Focused on
marketing domestic
customers
Export marketing Overseas Ethnocentric Focused mainly on
(targeting and domestic
entering markets) customers
Overseas
marketing-
generally an
extension of
domestic
marketing
Decisions made at
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Evolutionary Process of Global Marketing

Stage Market Focus Orientation Marketing Mix
International Differentiation in Polycentric Developing local
Marketing country markets products depending
by way of upon country needs
acquiring or Decisions at
developing new individual
brands subsidiaries
Multinational Consolidation of Regio-centric Product
Marketing operations on standardization
regional basis within regions but
not across them on
regional basis

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Evolutionary Process of Global Marketing

Stage Market Focus Orientation Marketing Mix
Global Marketing Consolidating Geocentric Globalization of
firm’s operations marketing mix
on global basis decisions with local
variations
Joint decision
making across
firm’s global
operations

towards

GLOCAL MARKETING 10
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Self Reference Criterion and Ethnocentrism

The phenomenon of making unconscious

reference to one’s own cultural values,
experiences and knowledge as a basis for
decision is known as
SRC (Self Reference Criterion).

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SRC creates problems…

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How to deal with SRC???

To avoid SRC influences:
– Define the business problem or goal in home country’s
cultural traits, habits or norms.
– Define the business problem or goal in foreign country’s
cultural traits, habits or norms. Make no value judgments.
– Isolate the SRC influence in the problem and examine it
carefully to see how it complicates the problem.
– Redefine the problem without the SRC influence and solve
for the optimum business goal situation.

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What has changed the world trade scene?

• Transition from socialist to market-driven economies
• Liberalization of trade and investment policies in
developing countries
• Transfer of public-sector enterprises to the private
sector
• Rapid development of regional market alliances

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Major Trading Blocs

EUROPE, ASIA, AMERICA

Fully Industrialized Countries (Germany, Japan, Us)

Rapidly Industrializing Countries (Mexico, Poland, South Korea)
Other Countries Achieving Economic Development at more Modest Rate

INDONESIA, MALAYSIA, THAILAND AND THE PHILLIPINES

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Marketing and Economic Development

• Stage of economic growth affects
– The attitude towards foreign business activity
– The demand for goods
– The distribution system
– The marketing process
• In static economies, marketing is typically nothing more than a supply effort
whereas in dynamic economies, marketing is constantly faced with the challenges
of demand creation and supplying to fulfill needs and wants.
• UN classifies countries stage of economic development based on its level of
industrialization:
– MDCs (more developed countries, such as Canada, England, France, Germany, Japan and
the United States)
– LDCs (less-developed countries, such as Asia and Latin America)
– LLDCs (least-developed countries, as those found in Central Africa and parts of Asia)
• UN Classification lacks to explain countries that are experiencing rapid economic
expansion and industrialization, the NICs (Newly Industrialized countries), such as
Chile, Brazil, Mexico, South Korea, Singapore and Taiwan.

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NIC Growth Factors

• Political stability in policies
• Economic and legal reforms
• Entrepreneurship – free enterprise in tha hands of the self employed.
• Strong central planning
• Outward orientation
• Outsourcing factors of production
• Incentives to force a high domestic rate of savings and to direct capital to
update the infrastructure, transportation, housing, education, and training.
• Strategically directed industrial and international trade policies
• Privatization of state-owned enterprises (SOEs) that placed a drain on
national budgets.
• Large accessible markets with low tariffs.
• Growth of Information Technology

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Market Indicators in Selected Countries (World Bank, 2003)
Country Population (in GDP (per capita) Cars (per 1000 TVs (per 1000 PCs (per 1000
millions) USD people) people) people)
United States 290.8 35566 759 871 659

Argentina 36.8 7165 181 326 82

Australia 19.9 21688 601 722 565

Brazil 176.6 3510 79 369 75

Canada 31.6 24222 582 707 487

China 1288.4 5196 12 350 119

France 59.8 22723 592 632 347

Germany 82.5 22868 529 675 485

India 1064.4 511 9 84 7

Indonesia 214.6 781 25 153 12

Italy 57.6 19090 591 494 231

Japan 127.6 38222 581 785 382

Kenya 31.9 341 13 44 6

South Korea 47.9 12232 292 458 558

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United Kingdom 59.3 25742 424 950 406
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Marketing in a Developing Country

• Marketing efforts have to be keyed to each situation, custom tailored for
each set of circumstances, they can’t be superimposed from one economy
to another.
• Level of Market development : the more developed an economy, the
greater variety of marketing functions demanded and the more
sophisticated and specialized the institutions become to perform marketing
functions.
• Demand in a developing country: co-existence of three distinct kinds of
markets- the traditional rural/agricultural sector, the modern urban/high-
income sector and the often very large transitional sector usually
represented by low income urban slums. Each of these markets can prove
profitable but requires its own customized marketing program.
• Bottom-of-the-Pyramid Markets (BOPMs): About 4 billion people across
the globe with annual incomes of less than $1200 are commercially viable
markets having long term potential.

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Developing Countries and Emerging Markets

• Traits:
– Are all physically large
– Have significant populations
– Represent considerable markets for a wide range of
products
– Have strong rates of growth or the potential for significant
growth
– Have undertaken significant programs of economic reform.
– Are of major political importance within their regions.
– Are “regional economic drivers”
– Will engender further expansion in neighboring markets as
they grow.

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Big Emerging Markets (BEMs)

• Latin America
– Most of the countries have moved from military dictatorships to
democratically elected governments.
– Import substitution and protectionism has been replaced by
privatization and trade policy reforms.
– The market of nearly 460 million people has attracted investment of
billion of dollars in manufacturing plants, airlines, banks, public works,
and telecommunications systems.
– However, Argentina, Brazil, Mexico, the three BEMs in Latin America
suffered severely due to economic meltdown and financial crisis.
Nevertheless, Latin America is still working towards economic
reforms.
– The exports of Latin America are also very big, like Meat and Agro
products from Argentina, Tiles from Brazil.
– Mexico is the gateway market for the countries like Honduras, Puerto
Rico, Costa Rica etc. Mexico in itself is a very big market.

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Big Emerging Markets (BEMs)

• Eastern Europe and the Baltic States
– Several countries in central Europe are fully integrated with the world economy and
have joined the European Union, while some countries in the former Soviet Union,
and the Balkans are still struggling, e.g. Poland’s economic output has continued at
a steady pace upward since 1990, whereas Ukraine’s has shrunk by half in
production, but if taken uranium and nuclear reserves of Ukraine, it the biggest east
European economy.
– In Eastern Europe different countries have fared differently depending upon how
quickly they allowed transformation into free market pricing systems, relaxing
import controls, privatizing SOEs. (Czech Republic Vs Hungary, Poland and
Romania). Yugoslavia plagued with internal strife over ethnic divisions and four of
its republics (Croatia, Slovenia, Macedonia and Bosnia/Herzegovina) secede from
the federation, leaving Serbia and Montenegro. An ethnic war broke out in Croatia
and Bosnia/Herzegovina decimating their economies.
– The Baltic states- Estonia, Latvia, and Lithuania adopted good policies and with
time progressed. Estonia, soon after regaining independence, dropped the ruble,
privatized companies and land and adopted the freest trading regime of the three
countries. Though the other two countries also steadily grew but common problems
like bureaucracy, corruption still exist.

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Big Emerging Markets (BEMs)

• Asia
– Fastest growing area in the world for the past three decades.
– In spite of the serious financial crisis which culminated in the meltdown of
Asian stock market, the leading economies (Japan, Hong Kong, South Korea,
Singapore and Taiwan) were able to contribute about 29% to the global output
by the year 2000.
– The “four tigers” across the Asian-Pacific Rim were first ones , besides Japan, to
move to the status of NICs from developing countries. From suppliers of
component parts and assemblers of Western products , they have become major
competitors in electronics, shipbuilding, heavy machinery etc.
– China’s dual economic system (socialism along with many tenets of capitalism),
ability to deregulate industry, import modern technology, privatize, overstaffed,
inefficient SOEs has produced an economic boom that can only match US or
Japan. China’s entry to WTO and United States’ granting China normal trade
relations on a permanent basis (PNTR) have a profound effect on Chinese
economy. Because of China’s size, diversity and political organization, each of
its six regions can be viewed as different markets. China needs to improve on its
human rights and legal systems. In the long run, the economic strength of China
will not be as an exporting machine but as a vast market.

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Big Emerging Markets (BEMs)

• Asia
– In 1997, Hong Kong became a special administrative region (SAR) of
the People’s Republic of China. Hong Kong is the largest investor in
China, investing more than $100 billion in the last few years in
factories and infrastructure. The keys to Hong Kong’s economic
success are its free market philosophy, entrepreneurial drive, absence
of trade barriers, well-established rule of law, low and predictable
taxes, transparent regulations, and complete freedom of capital
movement.
– China and Taiwan’s economic ties have to be refurbished as both sides
implement WTO provisions. Trade fits well with both countries’ needs,
China offers a limitless pool of cheap labor and engineering talent as
well as a huge consumer market for Taiwan’s tech powerhouses.

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Big Emerging Markets (BEMs)

• The newest emerging markets are those of Vietnam and South
Africa.
• Vietnam has the ingredients of becoming another Asian tiger
viz., highly educated and motivated population, and
government’s commitment towards economic growth. Also the
bilateral trade agreement between US and Vietnam leading to
NTR status for Vietnam is going to aid in boosting country’s
exports and in bringing foreign capital and technology.
• South Africa’s economic growth increased significantly after
UN lifted the economic embargo. South Africa has a good
industrial base, as well as well developed infrastructure making
it a good access point for nearby markets. The country has a
domestic market of nearly $500 billion with most investor-
friendly investment policies and free market orientation.

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Basis of International Trade

• Trade- a zero-sum game or positive-sum game?
• Trade: the route to economic development

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Basis for International Trade (contd.)

• Production Possibility Curve

Units of A
computer

B
0
Units of automobiles

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Basis for International Trade (contd.)

• Principle of Absolute Advantage : A country should export
a commodity that can be produced at a lower cost than can
other nations; and conversely, should import a commodity
that can only be produced at a higher cost than can other
nations.
EXAMPLE Product USA JAPAN
CASE 1 Computers 20 10
Automobiles 10 20

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Basis of International Trade (contd.)

• Principle of Comparative/Relative advantage: A country

may be better than another country in producing many
products but should produce only what it produces best. It
should export a product with the greatest comparative
advantage and import a product which has greatest
comparative disadvantage.
EXAMPLE
Product USA JAPAN
CASE 2 Computers 20 10
Automobiles 30 20
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Exchange Ratios, Trade and Gain

• International trade is a function of varying domestic
exchange ratios, and these ratios cause variations in
comparative costs or prices.
• Theoretically, trade should equalize the previously
unequal domestic exchange ratios and bring about a
new ratio, known as the world market exchange
ratio, or terms of trade. However, it should be noted
that such benefits from trade do not imply that trade
must always take place and that all nations will
always gain from trade.
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Exchange Ratios, Trade and Gain

• To examine the extent of trading gain, countries consider the
domestic exchange ratio.(DER)
Product USA JAPAN

CASE2 Computers 20 10 Japan’s DER – 1:2

US’s DER – 1:1.5
Automobiles 30 20
CASE3 Computers 20 10 Japan’s DER – 1:2
US’s DER – 1:2
Automobiles 40 20

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Factor Endowment Theory

• One basic assumption of Relative and absolute advantage theories is that
the advantage is solely determined by labor in terms of time and cost. Thus
countries with high labor cost should be in serious trouble, but that is not
the case with Germany or Japan.
• It is misleading to analyze labor cost without analyzing the quality of that
labor.
• Price of a product is not necessarily determined by the amount of labor it
embodies, other factors of production must be taken into consideration.
• The varying factor inputs and proportions for different commodities
together with the uneven distribution of such factors of production in
different regions of the world, are the basis of the Heckscher-Ohlin theory
of factor endowment.
• This theory holds that the inequality of relative prices is a function of
regional factor endowments and that comparative advantage is determined
by the relative abundance of such endowments.

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The Competitive Advantage of Nations

• Traditionally, factors of Comparative Advantage for
countries:
– Land
– Location
– Natural resources
– Labor
– Local Population size
• Determinants of International Competitiveness:
– Firm Strategy, Structure and Rivalry
– Demand Conditions
– Related Supporting Industries
– Factor Conditions
• Additional Variables:
– Government
– Chance events
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Porter’s Diamond Model for The Competitive

Advantage of Nations
GOVERNEMNT FIRM’S STRATEGY
STRUCTURE AND
RIVALRY

FACTOR DEMAND CONDITIONS

CONDITIONS

RELATED AND
SUPPORTING
INDUSTRIES

CHANCE
EVENTS 34