Chapter Two

THE ENVIRONMENT OF IN-

TERNATIONAL MARKET-
ING
 Introduction

• Environment highly influences the marketing

operation of firms in many aspects. For your
surprise, the influence becomes even more
significant when a firm goes international. En-
vironment constitutes a major variable within
which a business enterprise has to operate.
• Management of environment for international
marketing necessitates breaking down envi-
ronmental elements into manageable compo-
nents.
• Working in international market involves;
Understanding the range of unfamiliar problems

Design of variety of strategies necessary to cope with

different levels of uncertainty encountered.
Adjustment or adaptation to uncontrollable in a man-
ner consistent with a successful outcome.
• Each foreign country in which a company operates adds
its own unique set of uncontrollable factors.
• The international marketer’s task is more complicated than that
of the domestic marketer;
– Because the international marketer must deal with at least
two levels of uncontrollable uncertainty instead of one.
• Every marketing activities and concepts in domestic
and foreign market are the same, what makes them dif-
ferent is the environment in which the marketers oper-
ate their business.
• Even though marketing principles and concepts are
universally applicable, the environment within which
the marketer must implement marketing plans can
change dramatically from country to country or region
to region.
 1. Economic Environment
Marketing is an economic activity affected by the economic en-
vironment in which it is conducted.
Now days, all countries of the world, both developing and devel-
oped seek;
– Economic growth, Improved standards of living, and
– An opportunity for the good life.
What are the factors changing the way countries will
trade and prosper in the 21st century?
– Transition from socialist to market-driven economies
– Liberalization of trade and investment policies in develop-
ing countries
– Transfer of public-sector enterprises to the private sector
– Rapid development of regional market alliances
 International Economic Integration
• Other influences on international marketer from
the economic environment are different interna-
tional economic groups or institutions.
• In traditional nations trade the problem was na-
tions sovereignty. They arbitrary determine
commercial policy that fully or partially restrict
or allow trade with other nations.
This arbitrary nations action minimizes the inter-
national trade so that different groups were or-
ganized after the world war II
These economic institutions include;
1. GATT (now WTO): General Agreement on Tariffs and Trade
– Tariff cuts
– New international rules for subsidies and countervailing mea-
sures
– Antidumping, Government procurement,
– Technical barriers to trade (standards, customs valuation, and
import licensing).
2. WTO: World trade organization
– Providing a framework for multilateral trade negotiations
– Principle of nondiscrimination: a tariff concession/allowance
granted to one trading partner must be extended to all WTO
members.
– The concept of consultation: When trade disagreements arise,
WTO provides a forum for consultation
3. IBRD (International Bank for Reconstruction and Development)
 World bank
– Provide funds and technical assistance to facilitate economic
development of its poorer member countries.
– furnishes a wide variety of technical assistance.
– provides long term capital to aid economic development.
 IMF(International Monetary Fund)
– Promote international monetary cooperation,
– The expansion of international trade
– Exchange rate stability;
– Provision of short term liquidity
– Alleviate any serious disequilibrium in members’ interna-
tional balance of payments
 Regional Integration
• North American Free Trade Area (NAFTA)
• South American Free Trade Area (SAFTA)
• European Union (EU)
• Southern Cone Free Trade Area (Mercosur)
– Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay
• Caribbean Community and Common Market (CARICOM)
• Big Emerging Markets (BEMs)
– India, China, Brazil, Mexico, Poland, Turkey, and South Africa
• Economic Commission for Africa (ECA)
• Economic Community of West African States (ECOWAS)

• Common Market for Eastern and Southern Africa (COMESA)

• Economic Community of Central African States (ECCAS)
 Purpose of regional integration
Market access Investment
Reduce trade barriers Trade gains
Rules of origin Services
Standards Security
Increased returns and increased competition
Coordination and bargaining power
 2. Cultural environment
– Culture is a set of traditional beliefs and values that are transmit-
ted and shared in a given society.
– Culture is also the total way of life and thinking patterns that are
passed from generation to generation.
– Culture means many things to many people because the concept
encompasses norms, values, customs, art, and mores.
• Culture is prescriptive.
– It prescribes the kinds of behavior considered accept-
able in a society
– So that it simplifies a consumer’s decision-making
process by limiting product choices to those which are
socially acceptable.
• Culture is socially shared. It must be shared by members of a so-
ciety.
• Culture facilitates communication. within a given group, culture
makes it easier for people to communicate with one another.
• Culture is learned. It’s not inherited genetically – it must be
learned and acquired.
• Culture is subjective. What is acceptable in one culture may not
necessarily be so in another.
 Elements of Culture 
• Material Life:The tools, knowledge, techniques, methods, and processes
that a culture utilizes to produce goods and services
• Social Interactions: includes for framework education and marriage.
• Language:Language differences can affect all sorts of business dealings,
contracts, negotiations, advertisings, and labeling.
• Aesthetics: include the art, music, folkways, and architecture endemic to a
society.
• Religion and faith:
• Ethics:The concept of what is right or wrong is based on culture.
 Cultural Change
There are varieties of ways societies change. Such
changes are results of societies seeking to solve the
problems created by changes in its environment.
In other words, culture is the means used in adjusting
to the environment and historical components of hu-
man existence. some of culture change including
Cultural Borrowing:- culture is learn from others.
Similarities- an illusion:-Several nationalities can
speak the same language or have similar race and her-
itage
Resistance to change:-cultures meet most newness
with some resistance or rejection.
Planned and Unplanned Cultural Change:-
 3. Political environment
• Company(firms), domestic or international, large or small,
can conduct business by considering the influence of the
political environment within which it operates.
• IM manager should be aware and knowledgeable about
the role of the forms of government(Parliamentary, Abso-
lutist, Number of political parties), types of government eco-
nomic systems(Communism, Socialism, Capitalism) political instability,
political risk in international marketing and its impact on
each of the four Ps of marketing.
• International laws recognize the sovereign right of nations
to grant or withhold permission to do business within its
political boundaries and to control where its citizens con-
duct business.
 Management of Political Risk
 Risk of loss of investment and information, in foreign lands can be
minimized through proper management of political risk. Political
risk management process can take place either before or after the
investment is made.
1. Pre-investment planning: political risks that arise before the in-
vestment has been made.
There are four options that are available for an international mar-
keter.
i. Avoidance iii. Negotiating the Environment
ii. Insurance iv. Structuring the Environment

2. Post investment planning: political risks that arise after the in-
vestment has been made can be lessened through:
i. Planed Divestment iii. Short term profit maximization
ii. Adaptation iv. Developing local stakeholders
 4. Legal environment
 Multinational enterprises in global exercise
must cope with widely differing laws.
 A foreign firm, therefore, has to be careful
in learning and heeding all local laws and
regulations. an international firm should be
especially careful in obeying laws pertain-
ing to competition, price setting, distribu-
tion arrangements, product quality, per-
sonal selling and others.
 The firm has to comply with taxes, tariffs,
licensing, and other areas related to busi-
ness.
 International Legal Perspective
Two important aspects of international legal sys-
tems are pertinent to marketing:
a. philosophical bases of the laws
i. Common law is based on precedents and
practices established in the past and interpreted
over time. first developed in England and today
used in USA and Canada
ii. Code law is based on detailed rules for all
eventualities. developed by the Romans and is
popularly practiced by a number of free world
countries. and is popularly practiced by a num-
ber of free world countries.
 b. jurisdiction of these laws.
• Counties enact laws to control foreign business in
their economies, and some of these laws are dis-
criminatory against foreign goods and businesses.
• contract contains a jurisdiction clause stipulating
which country’s legal system should be used to set-
tle disputes, the matter can be settled accordingly.
• Same of Jurisdiction of laws are tariffs, antidump-
ing laws, export/import licensing, investment regu-
lations, legal incentives and restrictive laws.
 Jurisdiction in International Legal Disputes
• Legal deputes can arise in three situations: between gov-
ernments, between a company and a government and be-
tween two companies. The world court can adjudicate
disputes between governments whereas the other two sit-
uations must be handled in the courts of the country of
one of the parties involved or through arbitration.
• Jurisdiction is generally determined in one of three ways:
i. on the basis of jurisdiction clauses included in contracts
ii. on the basis of where a contract was entered into or
iii.on the basis of where the provisions of the contract were
performed
 International Dispute Resolution
Most international business people prefer a settlement
through arbitration than by suing a foreign company.
Same of international dispute resolution are:-
i. Conciliation: Conciliation also known as mediation is a
nonbinding agreement between parties to resolve dis-
putes by asking a third party to mediate differences.
ii.Arbitration: if conciliation is not used or an agreement
cannot be reached, the next step is arbitration. or in-
volved to select a neutral third party (mediation)
iii.Litigation: lawsuits in public courts are avoided for
many reasons.
 Protection of Intellectual Property Rights: A Special Problem

Companies spend millions of Birr establishing

brand names or trademarks to symbolize quality
and design a host of other product features meant
to attract customers to buy their brands to the ex-
clusion of all others.
The failure to protect intellectual property rights
adequately in the world marketplace can lead to
the legal loss of rights in potentially profitable
markets. Because patents, trademarks, and copy-
rights are valuable in all countries, some compa-
nies have found their assets appropriated and prof-
itably exploited in foreign countries without li-
cense or reimbursement.
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