Balance of Payments

– Record of all economic transactions between

residents of a country and the rest of the world.
– The balance of payment is divided into “current” and
“capital” account.
(a) Current account
• Recurring trade in merchandise and service, private
gifts, private consultations between the countries.
(b) Capital account
• All long term direct investment, portfolio investment,
and other short tem or long term capital flows.

1
 Intellectual Property: Patents And
Trademarks
– Patents and trademarks that are protected
in one country are not necessarily
protected in another country.
– Global marketers must ensure that
patents and trademarks are registered in
each country where the business is
conducted.

2
⇒How companies exploit opportunities offered
by patent and trademark laws in individual
countries?

→In France, designer Yves Saint Laurent was

barred from marketing a new luxury perfume
called Champagne because French laws allow the
name to be applied to sparkling wines produced in
Champagne region.
→Saint Laurent launched Champagne in the U.S.,
England, Germany, and Belgium, as Champagne
and other geographic names are not protected
trademarks in these countries.
→In France the perfume is sold without any name.
3
 Variety of copyright and trademark
infringements
1. Counterfeiting
- Unauthorized copying and production of a product.

2. Associative counterfeit or imitation

– Uses a product name that differs slightly from a well-known
brand but is close enough that consumers will associate it
with genuine product.
3. Piracy
– Unauthorized publication or reproduction of copyrighted
work.
– Particularly damaging to the entertainment and software
industries viz computer programmes, videotapes, cassettes,
and compact discs as they relatively easy to duplicate
illegally. 4
 WORLD INSITUTIONS
– Consists of variety of agencies both governmental
and nongovernmental that enforce laws or set
guidelines for conducting business.
– They create an infrastructure that foster trading
relations.
– A few of the regulatory agencies also referred to as
International Economic Organizations.
– These Initiatives fall into 3 areas:
 Need for International Capital (IBRD)
 International liquidity (IMF)
 Liberalization of International Trade and Tariffs
(GATT/WTO)

5
 WORLD BANK
– Official Name: International Bank for
Reconstruction and Development (IBRD)
– Has 130 member countries-Largest Shareholder
is US
– To provide finance and technical help for
development of poorer countries.
– Raise standard of living in poorer countries
– Supports projects related to agriculture,
education, industry, electricity, rural development,
transportation, water supply and
telecommunications. 6
 WORLD BANK
• Loans are repayable over a 20 year period
and as its funds are obtained on
commercial basis world bank charges a
commercial ROI.
• This has led to DEBIT CRISIS as many
countries bear heavy burden of debts.

7
INTERNATIONAL DEVELOPMENT
ASSOCIATION (IDA)
• Poorer countries needed loans on much
easier terms as compared to World Bank.
• IDA was thus formed to meet this need.
• Thus IDA was affiliated to World bank
• Loans are generally granted for 15 years
without interest except for small
administration charges.

8
INTERNATION MONETARY FUND
(IMF)
• The objective was to regain the stability in
international exchange rates that had
existed under the gold standard.
• Main function is to provide short term
international liquidity to countries with
balance of payments deficit problems
enabling them to continue trade
internationally.

9
 GATT
• The predecessor of World Trade Organization (WTO)
was General Agreement of Trade and Tariffs (GATT)
• GATT was founded in 1948.
• GATT is a treaty and not an organization wherein many
countries underlined their determination to reduce import
tariff.
• Prior to Uruguay Round (1993) there had many a series
of 7 trade liberalization rounds.
• GATT preached multilateral trade and succeeded in
liberalizing world merchandising trade.
• Each signatory of the GATT treaty promised to grant the
same treatment to all other members on a non-
discriminatory basis.

10
 GATT
• The Uruguay Round (Sep 1986) with 107 participants
was widely seen as most ambitious round ever
attempted as it was responsible for considering non-tariff
barriers, protection of intellectual property rights and
Government subsidies.
• The final GATT treaty was signed in December 1993
where it was agreed to reduce the tariffs on a wide range
of goods.
• A New General Agreement of Trade in Services (GATS)
Treaty for the first time agreed that principles of multi-
trade rules will be applied to services
• 76 countries became signatories committing themselves
to free market access to banking, insurance, and
securities
11
 World Trade Organization (WTO)
At Uruguay Round in 1995, WTO replaced
GATT which is a permanent organization
and is endowed with much more decision
making power.
Since its installation in 1995, the WTO has
already dealt with 200 cases.

12
 World Trade Organization (WTO)
– WTO came into existence on 1st January 1995.
Provides a forum for trade related negotiations.
– WTO has Disputes Settlement Body (DSB) that
mediates complaints about unfair trade barriers
and other issues between member countries
and WTO.
– Trade ministers representing the WTO member
nations meet annually to work on improving
world trade.
13
 Process of settlements of disputes
a. 60 days consultation period- parties to a complaint
are expected to engage in negotiations and reach an
amicable resolution.
b. Failing above, complainant asks DSB to appoint a
three-member panel of trade experts to hear the
case behind closed doors.
c. Panel issues it’s ruling within 9 months and DSB is
empowered to act on the panel’s recommendation.
d. The losing party if not satisfied has option to
approach seven-member appellate body.
e. If appellate body finds that WTO rules are being
violated, country is asked to change those policies.
f. If changes are not forthcoming, the WTO authorizes
trade sanctions against the loser.
14
 World Trading Groups/International
Trade Alliances
– Degree of economic cooperation ranges from
agreement between two or more nations to
reduce the trade barriers, to the full scale
economic integration of two or more national
economies.
– NAFTA-Canada, Mexico and United States
– EU-Austria, Belgium, Britain, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain, Sweden
– FTAA-A agreement to create a free-trade area among 34
countries in North and South America
– ASEAN-Brunei, Indonesia, Malaysia, Philippines, Singapore,
Thailand, Vietnam
– MERCOSUR-Argentina, Brazil, Paraguay, Uruguay
– APEC-18 countries-Australia, Brunei, Canada, Chile, China,
Hong Kong, Indonesia, Japan, Malaysia, Mexico, New Zealand,
15
PNG, Philippines, Singapore, South Korea, Taiwan, Thailand,,
 Marketing Implications
– Harmonization of business requirements
such as import duties, packaging
requirements, a common currency, and
economic development.
– Common currency helps consumers to
easily compare pricing across countries
and parity in economic development leads
to more consumers who can afford to buy
more products.

16
 Degrees of International Economic
Integration
Stages of Abolition Common Removal of Harmonization of
Integration of Tariffs Tariff and Restrictions Economic, Social,
and Quota on Factor and Regulatory
Quotas System Movements Policies

Free trade Yes No No No

area
Customs Yes Yes No No
union
Common Yes Yes Yes No
market
Economic Yes Yes Yes Yes
union
17
 Free Trade Area
– A group of countries that have agreed to abolish all
internal trade barriers to trade among themselves.
– Member countries belonging to a free trade area
maintain independent trade policies with other non
member countries.
– There are 3 nations-A, B and C-Under Free Trade Area-
they agree to abolish all tariffs amongst themselves to
permit free trade but beyond free trade area A, B and C
may impose tariffs as they choose.

Examples:
6. EEA (European Economic Area) formed between EU,
EFTA and LAFTA (Latin American Free Trade Area)
7. NAFTA Agreement
8. ASEAN Agreement 18
 Customs Union
– In addition to eliminating the internal barriers to trade,
members of custom union agree to establishment of
common external barriers/tariffs.
– There are 3 nations-A, B and C-Under Customs Union,.
B would not be permitted to have a special relationship
with country X-A,B,C would have a common tariff with X.

⇒The examples of Customs Union are:

• The Central American Common Market (CACM)
established in 1960, the member countries include Costa
Rica, El Salvador, Guatemala, Honduras, and
Nicaragua.
• South African Customs Union (SACU) established in
1969, the member countries are Botswana, Namibia,
South Africa, and Swaziland.

19
 Common Market
– A common market goes beyond elimination of the internal tariff
barriers and establishment of common external tariffs.
– It permits the flow of factors viz. labour and capital within the market.
– Common market creates an open market not only for goods but also
for services and capital.
– There are 3 nations-A, B and C. not only removes all tariffs and
quotas amongst themselves and impose common tariff against other
countries such as X, but would also allow capital and labor to move
freely within their boundaries as if they are one country.
– This means that, for example, a resident of country A is free to accept
a position in Country C without a work permit.

The examples of a Common Market are

• Arab Common Market(ACM) formed in 1964, the members are Egypt,
Iraq, Jordan, Lebanon, Libya, Syria and Mauritania.
• Caribbean Common Market (CARICOM) formed in 1973 the member
countries are Bermudas, Barbados, Dominica, Guyana, Jamaica,
St.Kitts, St.Lucia, St.Vincent and Trinidad.

20
 Economic Union
– Under and Economic Union agreement, Common Market
Characteristics are combined with the harmonization of
economic policy.
– Member countries are expected to pursue common fiscal
and monetary policies.
– Ordinarily this means a synchronization of money supply,
interest rates, regulation of capital market and taxes.
– Involves creation of a unified central bank, the use of
single currency.
– Common policies on agriculture, social welfare, regional
development, taxation, mergers, construction etc.
→The EU is approaching its target to create a full economic
union but still some hurdles remain.
⇒In nutshell, Economic union > Common Market> Customs
Union > Free Trade Area. 21
 Western Europe
– The population of region is approaching 460 million ranging
from 278,000 in Iceland to 83.3 million in Germany.
– Amongst the most prosperous countries of the world though
income is unevenly distributed in the region. Portugal’s average
per capita annual income is US$10,797 which is 30% of
Switzerland
The major impact on marketing throughout Western Europe,
particularly in packaging and advertising, is language.
→The major languages in the region are English, German, and
Spanish. The major religion is Christianity.

22
 Marketing Strategies in European
Community
Marketing-mix Strategies
elements
Product Harmonization in product standards, packaging,
labeling and processing, common patenting
and branding, consolidation of production and
achieving marketing economies.

Pricing More competitive environments, withdrawal of

restrictions to foreign products, widening of
procurement market, high margin products,
introducing low-cost brands.
Distribution Simplification of documents, elimination of
23
customs formalities, centralized distribution.
 Eastern and Central Europe
– Eastern and Central Europe include Albania, Bosnia,
Bulgaria, Croatia, Romania, Slovenia, and Yugoslavia,
the CIS, the Czech, and Slovak Republics, Hungary,
and Poland.
– In early 1990s, extraordinary political and economic
reforms swept the region and focused attention on
more open markets.
– With wage rates much lower than those in Spain,
Portugal, and Greece; Eastern and Central Europe
represent attractive potential locations for low-cost
manufacturing and are important developing markets.
– Countries in this region are good markets for
infrastructure development projects
24
– Consumer products require minimal
adaptation for sales in Eastern Europe
markets as many Eastern bloc consumers
are familiar with Western brand names and
view them as being of higher quality than
domestic products.
→A poor marketing infrastructure in Eastern
Europe such as underdeveloped
wholesalers, lack of proper warehousing
and the monetary situation in CIS countries
is still a deterrent to doing business

25
 North America
– Includes The United States, Canada and
Mexico.
– Combined GNP of the region surpasses $
9,254 billion.
– The U.S. market offers a combination of
high per capita income, large population
(276 million), vast space, and plentiful of
natural resources.
– Foreign companies get attracted to the
sizable market and have greater access to
market than experienced in most countries.
26
– The bulk of Canada’s exports are unprocessed
natural resources.
– Canada takes 22 percent of American exports
and the U.S. buys nearly 80 percent of Canada’s
exports.
– Economically, Mexico is rapidly changing.
Between the periods 1997 to 2000 its net growth
has been 2.6 percent and stands to benefit from
its alliance in NAFTA, which it joined in 1993.
– Companies wanting to do business in Mexico can
set up a wholly owned subsidiary, a joint venture.

27
– Mexican government also allows manufacturing,
assembly, or processing plants to import
materials, components, and equipment duty free
subject to their employing inexpensive Mexican
labour to assemble the product.
– On exports to the USA the manufacturer pays
duty only on the value added in Mexico.
→The official languages of the region are English,
Spanish, and French. After English, the second
language in the U.S. is Spanish and in Canada it
is French.

28
 Asia-Pacific
– Consists of all countries of Asia (except Middle East),
Australia and New Zealand.
– 58 percent of region’s income is concentrated in
Japan which has only 5 percent of the region’s
population.
– South Korea, Taiwan, Singapore, and Hong Kong rank
among the high-income nations of the world.
– Thailand, Malaysia, Indonesia, and China are behind
the East Asian Tigers though Indonesia and Thailand
have lagged behind due to Asian Flu/Internal disorder.
– China with a population of 1.27 billion potential
consumers, no marketer can afford to ignore.
– Major languages are Mandarin Chinese and Hindi but
there are many other languages and dialects spoken.
29
 China
– The fact that it has approximately 15% of the world
population is the motivating factor for many MNCs
to enter in this market..
– China is one of the largest trading partners of the
U.S. Imports by U.S. are mainly electrical
machinery, toys/ games, power generation
machinery, and apparels. U.S. exports to China are
mainly aircrafts, and fertilizers.
– Many foreign companies have made direct
investments in China with varying degree of
success. For instance, freightliner subsidiary of
DaimlerChrysler pulled out after investing money
for three years without producing a single vehicle.
30
 Japan
– 72 percent of Japan’s land area is
mountainous and residential areas
represent only 3 percent of the land area,
industrial area occupy another 1.4 percent.
– Land prices are one of the highest in the
world.
– The major barriers to entry are non-tariff
barriers of expense, custom and tradition,
practice and preferences.

31
Marketing Implications
→The high cost of real estate has been a major
financial obstacle to foreign automobile
companies that need to create a dealer
organization in Japan as a part of marketing
strategy.
→An organization wishing to compete in Japan
must be committed to providing top quality
products and services.
→Japan accounts for nearly half of the world’s
sales of luxury products such as designer
clothes
→Striking feature in its cultural orientation is the
emphasis on group or nation as contrasted with
the U.S. which celebrates the individual. 32
 ANZ region
– No barriers or border restrictions on trade between the two
countries.
– Per capita income is high in both the countries; $21,239 in
Australia and $15,376 in New Zealand.
– Its major exports consist of low value-added agricultural and
mineral products.
– Asia is Australia’s largest market; 20 percent of exports go to
Japan, 16 percent go to the ASEAN countries and 9 percent
goes to South Korea.
– The major markets in Australia are widely dispersed across a
vast continent thereby making distribution and communication
more expensive.
– Over 60 percent of exports from New Zealand consist of
agricultural commodities.
– Since 2000 there has been a decline in relative wealth of New
Zealand because of its failure to respond quickly to the decline
in the prices of agricultural commodities. 33
 Latin America
– Average per capita income ranged from high of
$9,720 in Argentina- a high income country- to a
low of $307 in Haiti, one of the lowest in the world.
– After decades of stagnation, crippling inflation,
increasing foreign debt and protectionism;
privatization is on its way.
– Except for Cuba and Haiti all Latin American
Countries now have democratically elected
governments.
– Free markets, open economies, and deregulation
have begun to replace the policies of the past in
most countries.
– Rapidly moving towards eliminating barriers to
trade & investment.
34
– Latin American countries have also established
regional economic groups viz. FTA and
Common market.
– Chile’s exports world class wines and Fish in
several European countries.
– Brazil is attracting substantial FDI. Telefonica-a
Spanish telecommunication company entered
Brazil and drove down the prices of cellular
phones from approximately $1000 to $150
putting it within the reach of million of
Brazilians.

35
 Middle East
– Business in the Middle East is driven by the price of
oil.
– Bahrain, Iraq, Iran, Kuwait, Oman, Qatar and Saudi
Arabia hold more than 75 percent of the world’s
resources.
– Saudi Arabia is the most important market in the
region having 25 percent of the world’s known oil
reserves.
– Middle East does not have a single societal type and
hence can be differentiated on the basis of social
classes, education, and degree of wealth.
– Tribal pride and generosity towards the guests are
the basic beliefs.

36
– Decision making is by consensus, and seniority
has more weightage than educational expertise.
Authority comes with the age and power is related
to family size and seniority.
– In business relations, Middle Easterners prefer to
act through trusted third parties and prefer oral
communications.
– Most social customs are based on the Arab male-
dominated society an women do not form the prt
of business or entertainment scene.

37
Marketing Implications
– Establishing a personal rapport, mutual trust,
and respect is the most important factor leading
to successful business relationship.
– Avoid bringing up subjects of business before
getting to know your Arab host.
– Avoid asking questions/ making comments
concerning a man’s wife or female children.
– Avoid topics like politics, religion and Israel.

38
 Africa
– African continent is divided into three distinct areas
viz. South Africa, North Africa, and Sub-Saharan
Desert.
– The market is large, developing.
– South Africa with a GNP of $125 billion and per
capita income of $ 536 suffers from slow growth,
big families, and low investment.
– Almost 45 percent of South Africa’ exports consist
of gold and other minerals.
– S.A. is an economic colossus with considerable
promise but also with significant political risk.
– Nigeria, the largest nation of Africa and is a major
supplier of oil to the world. 39
– 30 percent of population lives below poverty line,
which is defined as $1per day.
– Stability of Nigeria’s general economic situation is
highly dependant on the international market.
– Doing business in Nigeria is difficult as the
country’s government is one of the most
incompetent, inefficient, and corrupt in the world.
– In Somalia, almost 75 percent of population is
malnourished. In Congo, Mozambique and
Ethiopia, over 50 percent do not have enough to
eat.
– In North Africa, the 78 million Arabs are
differentiated politically and economically as they
are richer and more developed being benefited
from large oil resources.
– Culturally, countries of Africa are very different40
from each other.
Marketing Implications
– The challenge to marketing in the low-
income markets of Africa is not to stimulate
demand for the products but to identify the
most important needs of the society and
develop the products that fit these needs.
– An opportunity exists to develop unique
products that fit the needs of the people of
developing countries.

41
 Market Information & Research
– In high income countries, the amount of
information available far exceeds the
absorptive capacity of an individual or an
organization.
– The problem is of superabundance and
not of scarcity.
– In case of LDCs, there is a lack of
information available on the market
characteristics.
42
 Challenges for the Marketers
– From where to obtain the information,
which subject areas to investigate and
information to look for.
– Different ways the information can be
acquired.
→For instance, India’s 16 languages, 200
dialects and low level of urbanization
create special research challenges.
43
 Framework of Information
Systems
Category Coverage

Markets Demand estimates, consumer behaviour, products,

channels, availability of communication media and cost.

Competition Corporate, and functional strategies & plans.

Foreign Exchange Balance of Payments, Interest rates, and attractiveness of

country currency.

Prescriptive information Laws and regulations, concerning taxes, earnings,

dividends both in host and home countries.

Resource information Availability of human, financial, information, an physical

resources

General conditions Overall review of sociocultural, political, technological

environments.
44
 Scanning Modes
– Keep your ears and eyes tuned for clues,
nuggets of information, and insights from
other people’s experiences.
– Browsing through newspapers, magazines
and surfing the Internet are ways to ensure
exposure to information on a regular basis.
– Viewing and monitoring programmes and
commercials from around the world via
satellite e.g. entry of a new player in global
industry, say Samsung into automobiles.
45
 Desk Research Sources of Intl.
Market Information.
Information Sources
Import statistics National trade statistics.

Production statistics Nation’s official statistics.

Tariffs & Quotas Embassies, Chamber of Commerce.

Currency restrictions Banks and Embassies

Health restrictions Embassies, Chamber of Commerce.

Political situation Bank reports, press reports, IMF year

46
book.
 Checklist on Overseas Market
Research Survey
(a) Demand Potential
– Annual consumption (production + imports-exports)
(b) Projection, taking into account
– Growth in population
– Growth in income
– Income distribution
– Domestic distribution
– Changes in consumer preferences
– Introduction of substitute/new products.

47
 (c) Market segment
– Per capita income
– Age
– Education
– Profession
– Ethnic background
– Geographic location
(d) Trading Parameters
– Tariff rates
– Quotas
– Import licensing system
– Special product specific regulations e.g. relating to
pharmaceuticals and edible items.
– Membership of customs union or similar trading
arrangements.
– Multilateral preferential arrangements.
– Bilateral trade agreements. 48
 .

(e) Pricing
– Prices of competing products
– Prices prevailing at various levels such as
importers, distributors, wholesalers and retailers.
– Mark-up at each stage of the distribution
channels.
– Agency commission
– Preferred method of quotation such as F.O.B;
C&F; C.I.F. and the preferred currency.
(f) Payment terms
– D/A
– D/P
– Letter of credit
– Credit period
49
 (g) Logistics
– Transport packing
– Retail packaging
– Type of transportation possible
– Frequency of transportation.
– Freight rates
– Warehousing and cold storage facility
(h) Promotion
– Availability of media
– Rates
– Trade fairs and exhibitions.

50
 Field Research
– To secure best possible return out of limited time
that can be spent in export market to conduct
market research, the following steps are useful.
(a) Advance planning of Time Frame
• A complete list of respondents
• Considering language difficulty or transport
bottlenecks, it may not be possible to conduct
more than two or three interviews a day.
• Holiday pattern in the country also needs to be
looked into. For instance, field surveys during
Christmas in western countries and the month of
Ramzan month in Middle Eastern countries
should be avoided.
51
b) Planning of the Tour plan
• Considering the cost of international travel, the
number of prospective countries should be covered
in one go.
(c) Arranging Institutional Help
• Embassies and High Commissions can help in
arranging interviews, if they are contacted well in
advance and the objectives of the interview
communicated
• Similarly, information can be obtained from various
Import Promotion Centres.

52
 Who are the respondents in
International Mktg Research?
• Manufacturers/ Importers/ Distributors/
Wholesalers.
• Chamber of Commerce, Industry and Trade
Associations, Associations of Commercial
Agents etc.
• Institutions like Government Departments,
Import Promotion Offices

53
 Components of International
Product Offer
• Product Benefits
• Products Attributes
• Marketing Support Services

54
 Product Decisions in
International Markets
The four product categories in local to global
continuum are:
(a) Local Products
– A local product is available in a portion of a national
market.
– The product may be a new product introduced by the
company as a part of roll out strategy or a product that
is distributed exclusively in that region.
(b) National Products
– A particular company offers a product in one single
national market.
– Sometimes, a national product appears when a global
company caters to the needs and preferences of a
particular country markets. 55
Examples:
• Coca Cola developed a non-carbonated,
ginseng flavoured beverage for sale only in
Japan.
• Coca Cola developed a yellow, carbonated
flavoured drink called Pasturina to compete
with Peru’s favorites soft drink, Inca Cola.
• Sony and other Japanese consumer
electronics companies produce a variety of
products that are not sold outside Japan.

56
 (c) International Products
– These are offered in multinational, regional
markets.

Example:
• Renault was for many years a European
product; when it entered the Brazilian market, it
became a multiregional company.
• Renault has invested in Nissan and has taken
control of the company.
• The combination of Renault in Europe and Latin
America, and Nissan in Asia, the Americas,
Europe, the Middle East and Africa has raised
Renault from multiregional to a global position.

57
 (d) Global
Products and Global Brands
– A truly global product is offered in the
Triad, in every world region, and in
countries at every stage of development.
– Some global products are designed to
meet the needs of a global market; others
are designed to meet the needs of a
national market as well as the needs of a
global market.
– Personal sound systems or personal
stereos are a category of global product
while Sony is a global brand.
– Global brands are created by marketers
that can advantageously be used as an
umbrella for introducing new products. 58
 Reasons for Adaptation of the
Product
1. Cultural Products- E.g..: Kellog
2. Usage Factory-E.g..: Unilever and P& G have a
large basket of products
3. Legal Factor: E.g.: Different systems and
standards by MOH of each country
4. Product Accessibility and Ethical Issues: E.g.:
After Sales Service
5. Shortened PLC
6. Effect of different Market Entry Methods: E.g.:
Joint Ventures, Franchising.
7. Changes in Marketing Management
59
 Reasons for Adaptation of the
Product
8. Different physical conditions
9. Functional requirements may vary from market to
market.
10.People in different places may use products
differently or for different purposes.
11. Different cultural factors

A few examples:
* A manufacturer of men’s suits exporting to France
and Germany would have to take into account tha
the arms of Frenchmen tend to be longer in
proportion to the rest of their bodies than those o
Germans. 60
Many products may require some adaptation in
respect of certain technical factors making them
suitable to foreign markets, such as differences in
voltages (110 or 220); right hand drive or lef hand
drive.

Adaptation may pertain to

• size
• functions
• materials
• style
• colour
• tastes
• standards
61
 Environmental factors and
Adaptation
Environmental Factors Design Change

Level of technical skills Product simplification

Level of labour cost Automation or manual operation of

product

Level of income Quality and price

Level of maintenance Change of tolerances

Differences in standards Recalibration of products

Expensive repairs Improvement in durability

62
 Product adaptation /modification as
a marketing strategy
⇒An adapted/modified product can have a better chance of
succeeding in the market as is evident in following instances.
1. Westinghouse while exporting washing machines to
Europe, realized that European housewives are
accustomed to boiling clothes and prefer hot water in
washing machines than their American counterparts.
Therefore, Westinghouse installed special heating
elements in its machines being exported to Europe.
2. Japanese companies like Cannon and Ricoh
manufacturing photocopiers captured the lower end of
the market at the expense of Xerox by using liquid ink or
toner instead of powder preferred by Xerox.
→ This meant dispensing with the complex mechanism used to
apply and fuse dry toner paper leading to the reduction in63cost
considerably.
 The Product Standardization
The factors favouring international product standardization
are:
A. Economic Factors
• Economies of scale in production- standardization leads
to larger production run resulting into lower
manufacturing costs.
• Economies in product research and development-
product standardization leads to recovery of costs
incurred on product R&D from the entire sales. Also,
additional expenditure incurred on adapting product to
each individual market can be avoided.
• Economies in marketing- product standardization also
leads to economies in terms of sales literature, inventory
management and after-sales service requirements.
64
B. Marketing Factors
* Consumer Mobility- As the consumers are
becoming more mobile and transcontinental
travel becoming fairly common, the brand loyal
consumer is likely to remain loyal even in a
foreign country.
* Made in Image- Sometimes the name of a country
is associated with a high standard of quality in
minds of consumers. A product manufactured in
that country may enjoy a psychological premium
in the foreign markets.
* Impact of Technology-Generally, Industrial
products tend to have standard specifications and
do not require much adaptation for foreign
markets, unless climatic and similar
considerations call for it.
65
 C. Similarities in Physical conditions-
especially for appliances, automobiles and
similar equipments.
• “Indian equipments are finding greater acceptance
as compared to products of advanced countries
which have dominated so far the markets of
Bangladesh because these are capable of
withstanding the physical conditions peculiar to the
sub-continent.”
• Indian equipments have been found to be good
enough to take on sudden power cuts. Vehicles
manufactured in India can withstand overloading
unlike foreign ones.
• Indian equipments are easier to handle and
maintain and are less sophisticated. These are
cheaper than those of advanced countries.
• Spare parts, also, can be had from India at a short
notice. 66
 D. Globalization of Markets
• Powerful force of technology is driving the world
towards a converging commonality.
• As a result of above, global markets are emerging
for standardized products.
• This reality enables corporations to benefit from
enormous economies of scale in production,
promotion, and distribution.
The examples are:
5. Revlon Cosmetics
6. Sony Televisions
7. Levi Jeans
8. Hollywood Movies
→The customers would prefer world standardized
products if the companies force the costs and thus
the prices down and push quality and reliability up.
67
 Product Standarisation
• Company has to identify benefit that consumer
recognizes Eg: Sony Walkman, had competitive
advantage of Technical breakthrough-Portable Music
• Cost Benefit Analysis
• Satisfy Immediate demand
Advantages:
5. Rapid Recovery of investment,
6. Easier Organization,
7. Control of Product Management
8. Possibility of reducing cost through economies of scale
and experience effect throughout most of the firms
operation such as production, advertising, distribution.

68
 Product Strategies
SWYG Sell what You have Got
 It is mot common export strategy
 Objective is for most firms to fill production lines at home rather than
meet a market need.

SWAB Sell what People Actually Buy

 Eg: French in marketing their Cheddar Cheese in the UK
 Possible to penetrate one market at one time
 Difficult to compete with local firms on their own terms
 Tough to estalish credibility as a supplier of products which has
strong domestic demand

GLOB Sell the same thing GLOBally disregarding national

frontiers
Eg: Johnnie Walker, Heinz

69
Global Product Planning Strategic
Alternatives

.Product extension, Dual Adaptation

Different Communications adaptation (Greeting cards)
(Bicycles & Motor cycles)
Communications

Same
Dual Extension Product adaptation,
(Application software) Communication extension
(Electrical products)

Same Different

Product
70
Strategy 1: Product/communication Extension (Dual
extension)

– One product, One Message Worldwide.

– Companies pursuing this strategy sell exactly the
same product, with same advertising and promotional
appeals as used in the home country, in some or all
world-market countries or segments.
→Companies learn the hard way that dual extension
approach does not wok in every market. For instance,
Campbell soup tried to sell its tomato soup in the
United Kingdom and realized after substantial losses
that the English prefer a more bitter taste than
Americans.

71
– The product/communication strategy achieves
considerable savings in manufacturing
economies of scale, standardizing marketing
communications and eliminates duplicate
product R&D costs.
– For a company with world wide operations, the
cost of preparing separate print and T.V. ads for
each market can be enormous.

72
Strategy 2: Product Extension/
Communication Adaptation

- Product remains the same, this strategy

allows for adaptation of the
communication/promotional effort to target
either new customer segments or appeal to a
particular tastes of individual countries.
- For instance, Bicycles and Motor cycles
satisfy the recreational needs in the US but
serve as basic or urban or rural
transportation in many other countries. 73
Strategy 3: Product Adaptation/ Communication
Extension.

– This strategy is used if a promotional campaign has

achieved international appeal, but the product
needs to be adapted because of the local needs.
Examples:
1) Soap and detergent manufacturers have adjusted
their product formulations to meet the local water
and washing equipment conditions with no change
in their basic communications approach.
2) Clothing has been adapted to meet fashion criteria.
3) Food products due to high degree of environmental
sensitivity are often adapted such as Kellogg.
74
Strategy 4: Dual Adaptation

– Marketers experience that environmental

conditions and consumer preferences in the
foreign markets are different when compared to
home markets.
– This calls for a different product offering as well as
different receptivity to advertising appeals.

Examples:
→Because of decentralized structure of Unilever,
product and marketing decisions were left to
country managers, they chose names that had
local-language appeal and selected package
designs to fit local tastes
75
• In Europe the function of greeting cards is
to provide for a space for a sender to write
an individual message whereas U.S. cards
contain a prepared message.

• In Europe the cards are handled frequently

by customers that make it necessary to
wrap greetings cards in cellophane.

→This calls for changing both product and

communications in response to
environmental differences.

76
Strategy 5: Product Invention

– Product invention is adopted by firms

usually from advanced nations who are
supplying products to less well-developed
countries.
– Products are specifically developed to
meet the needs of the individual markets.
– For instance, in case of LDCs, potential
customers have limited purchasing power,
a company may need to develop an
entirely new product, designed to satisfy
the need at a price that is within the reach
77
of potential customer.
→Colgate pursued this strategy in developing
‘Total’ a toothpaste brand whose formulation,
imagery and ultimate consumer appeal have
been designed catering to countries with
different cultural profile.

→The product was tested in the Philippines,

Australia, Colombia, Greece, Portugal, and
the United Kingdom and is now sold in 100
countries.

78
 Global e-marketing
– Traditionally, an important variable influencing
international trade has been the distance.
– The primary trading partners of every country are
proximate neighbours e.g. for the US, they are Canada
and Mexico, and for Canada and Mexico it is the US; for
France it is Germany, and for Germany it is France.
– However, improvement of transportation and
communication technology has been a major driver
pushing the world towards greater globalization.
– Consumers anywhere in the world can communicate
directly with the supplier, who can receive payments via
credit card with card authorization and ship anywhere in
the world via express delivery.
– Reduction in shipping costs and decline in tariff and non-
tariff barriers has opened up world markets.
– E-mail is instant, free to most users, and insensitive to 79
time zone.
 Beyond Segmentation
– Objective of segmentation is to create a unique
value offer for as many customers as possible.
– WWW has forced marketers to reconsider the
notion of segmentation.
– With Internet, it has become possible to create
marketing programmes to target a segment of
one.
– With IT and Internet, companies can now
respond to the individual customer regardless of
where he is located.

80
 Relationship Marketing
– Internet has opened up immense
opportunities for creating relationships
with global potential customers, suppliers
and channel members.
– End of segmentation would mean that a
marketer can focus on delivering value to
the individual customer and this can be
achieved by creating a win-win
relationship with the customer.

81
 Interactivity
– Particularly true for on-line retailer who
can use customer purchase behaviour
information to tailor communications to
their customers.
→For instance, a customer who purchases
sunscreen skin protection from an on-line
retailer can be advised of other products
that also provide sun protection.

82
 Speed to Market
– Before Internet and IT created instant
global communications, the pace of
information and communications traveled
slowly.
– Products were introduced in one country
at a time or at best one region at a time.
Today, that has changed.

83
Impact of Technology on Costs
Impact of Technology on Costs

Transportation Communication

Advances in air travel

and speedier loading •Reduced cost of long-
and unloading of distance telecommunication.
container shipments. •Reduced cost of computer
processing power.

84
 New Business Models- A Few
Examples
1. Amazon.com: Using a virtual network that seamlessly
connects suppliers and customers the firm has
changed he way books are traded.
– Amazon not only offers books but also informs
customers about new publications and encourages
readers to post reviews of books they have read.
– Virtual chat rooms and meetings with authors have
established an Amazon community.
2. Dell computers has developed its business through e-
commerce.
3. eBay offers on-line auction.
– Customers provide the entire content, starting from
goods on offer up to the background information on
these goods. 85
 Changing rules of competition
(a) Dominant Market Position
– It will be important for the companies to gain market
share quickly in order to achieve strategic control.
(b) Strategic Alliances
– Move toward symbiotic alliances with external
partners.
– Involve legally and economically independent firms to
fulfill various tasks leading to reduction of transaction
costs.
– Videoconferencing, offer companies involved in
symbiotic alliances cost-efficient means of
communication.
86
→Strategic Alliances can be of three different kinds
b) Vertical cooperation- collaboration between the
manufacturer and a retailer in marketing of an
innovative product.
c) Horizontal cooperation involves companies in the same
industry, such as research and development
cooperation of two or more microelectronic companies.
d) Diagonal cooperation refers to situations in which
companies from different industries collaborate.
Driver of cooperation is desire to gain market access and
market share.

87
 Components of electronic value
chain
(a) Context Suppliers
– Known as portals support the use of electronic channel both for
customers and the suppliers.
– Main function is to offer access to the channel.
– Important context providers are Internet on-line services such as America
Online, NetScape Communicator, Microsoft explorer, and search engines
such as Yahoo.
(b) Sales Agents
– Support suppliers through offering high-quality address banks of potential
customers.
– Metromail provides carefully sifted address banks of potential customers
containing wealth of information about customers’ preferences,
demographics, and other data.
(c) Purchase Agents
– Electronic purchase agents help the Internet shopper to find the desired
goods or services.
– Auto-By-Tel helps customers find the right car for the right price.
– PriceSCAN helps consumers to find best price on thousands of computer
hardware and software products.
88
(d) Market Makers
– Mediators that bring together buyers and sellers and
increase market efficiency.
– Onsale and eBay have million of registered users and are
part of the world’s leading person-to-person on-line trading
community.
(e) Payment & Logistics Specialists
– One of the major stumbling blocks for the use of electronic
markets is the means of payment via the Internet.
– Physical distribution via Internet is possible for software
product or information services such as stock market,
database information. All other products have to be shipped
via traditional channels.
– Physical distribution aspect can be outsourced using
international distribution experts such as UPS.
– Logistic function of warehousing can also be outsourced to89
logistic experts
 Global Advertising
– Marketing communications refer to all forms of
communication used by organization to inform,
remind, explain, persuade, and influence the
attitudes and buying behaviour of customers.
– The elements of the promotional mix are
advertising, public relations, personal selling, sales
promotion, and direct marketing.
– Eighteen year olds in Paris have more in common
with 18 year olds in New York than with their
parents. They buy the same products, go to the
same movies, listen to the same music, and sip the
same colas. Global advertising works on that
premise. 90
Global Advertising and Branding
– A global company successfully transforms a
domestic campaign into a worldwide campaign i.e.
suitable for multiple-country segments.
– Since advertising is often designed to add
psychological value to a product or brand, it plays
more important communication role in marketing
consumer products than in marketing industrial
products.
– Frequently purchased, low cost products generally
require heavy advertising support to remind the
consumers about the product.
– Automobiles, personal care, and food are the top
three global product categories measured by their
advertising expenditure.
91
– Companies are realizing the concepts of product
culture hence are segmenting on the basis of
global demography such as youth culture rather
than ethnic or national culture.

→Athletic shoes and other clothing products are

being targeted to a worldwide segment of 18 to
25 year old males.

→MTV is one of the media vehicles that enable

people virtually anywhere to see how the rest of
the world lives and to learn about products that
are popular in other cultures.

92
 Impact of global advertising on
distribution channels
– A global brand supported by global
advertising becomes quite attractive from
retailer’s standpoint as a global brand is
less likely to languish on the shelves.
– In case where the shelf space is at
premium it becomes easier for the global
companies to convince retailers to carry its
products rather than those of its
competitors.

93
 Global Advertising –
Standardization versus
Adaptation.
→Standardization is not always required or
advised. For instance, Nestlé’s Nescafe is
marketed as a global brand even though
advertising messages and product
formulation vary to suit cultural
differences.

94
⇒The several criteria for selecting appropriate
strategy are:
• Type of the product: Certain products are sold
on the basis of physical characteristics and
consumers regard these characteristics as
identical regardless of market differences. This
suggests that same appeals will be effective in
all the markets. The examples are razor blades,
electric iron, automobile tyres, ballpoint pens etc.
• Nature of markets: When the markets are
homogenous in nature i.e. characteristic like
income, education, and occupations are alike;
the characteristics of individual customers such
as attitudes and preferences may also be alike.
This implies that the advertisers should use the
same selling points. 95
Major difficulties in Communication
1. Message may not reach the intended
recipient.
– Can occur because of advertiser’s lack of
knowledge about the appropriate media for
reaching certain types of audiences.
– For instance, effectiveness of television as a
media to reach mass audiences will vary
proportionately with the extent to which television
viewing occurs within the country.
2. Message may reach the target audience but
may not be understood or may be
misunderstood.
– This is due to inadequate understanding of the
target audience’s level of sophistication. 96
 3. Message may reach and understood by
the target audience but still may not
induce the recipient to take the desired
action.
– The above may happen due to lack of
cultural knowledge about a target audience.

4. Effectiveness of message may get

impaired by noise.
– Noise may be competitive advertising, sales
promotion programmes etc.

97
 Arguments favouring
Standardization Strategy
– In the era of global village, the tastes and
preferences are converging worldwide.
– People everywhere want the same
products for the same reasons.
– Companies can achieve economies of
scale by unifying advertising around the
globe.

98
 Criticism of Standardization
Strategy
– Coca Cola, the most global brand in the
world, records radio spot in 40 languages
with 140 different musical backgrounds.
– Coca Cola assets that consumers differ
from country to country and must be
reached by advertising tailored to their
respective countries.

99
Can we transfer the domestic advertising to
foreign markets?
→Whether or not such transfer is possible
depends upon three factors namely
• Markets
• Culture
• Media

100
 Trade-off involved
– Benefits of global campaign in terms of
substantial cost savings, increased control, and
potential creative leverage of global appeal.
– Advantage of localized appeals lies in its focus
on most important attributes of a product in each
nation or culture.
→In the final analysis, when to use which
approach depends on the product involved and
the company’s objectives in a particular market.

101
Selecting an Advertising agency
⇒The issues to be addressed are
2. Whether to create ads in-house,
3. Use an outside agency, or
4. Combine both strategies.
– When one or more outside agencies are used,
they can serve product accounts on a
multicountry or even global basis.
– It may be beneficial to select a local agency in
each national market or an agency with both
domestic and overseas offices. For example,
Coca Cola and Polaroid use local agencies. 102
 Emerging Trends
– Companies tend to designate global
agencies for product accounts in order to
support the integration of the marketing
and advertising functions.
– Due to the above agencies are pursuing
international acquisitions and joint
ventures to extend their geographic reach
and their ability to serve clients on a global
account basis.

103
 →In selecting an advertising agency, the
issues to be considered are:

(a) Company organization

– Decentralized organizations may want to
leave the choice to the local subsidiary.

(b) National responsiveness

– Is the global agency familiar with the local
culture and buying habits in a particular
country, or should the local selection be
made?

104
 (c) Area coverage
– Does the agency cover all relevant
markets?

(d) Buyer perception

– What kind of brand image does the
company want to project? If the product
needs strong local identification, it would be
best to select a national agency.
→The companies with geocentric orientation
adapt to global market requirements and
select the best agency or agencies
accordingly.
105
 Problems encountered in global
markets
1. Western companies find South Korea
and Japan very complex.
2. Japanese and Korean agencies find it
difficult to establish local agency
presence in Western markets.

106
 Global Media Considerations
– Availability of television, newspapers, and other form
of electronic and print media varies around the world.
– The rapid use of Internet users is also changing global
advertising.
– In Japan, circulation of newspapers on a per capita
basis is very high i.e. one newspaper for every two
people.
– In Europe, television advertising either does not exist
or is very limited, as in Denmark, Sweden and
Norway.
– The time allowed for advertising each day varies from
12 minutes in Finland to 80 in Italy, with 12 minutes
per hour per channel allowed in France and 20 in
Switzerland, Germany, and Austria.
107
– In Germany, advertising time slots are reserved
and paid for one year in advance.
– In Saudi Arabia, where all advertising is subject
to censorship, regulations prohibit a long list o
subjects, as indicated below:
• Advertising of horoscopes or fortune-telling
books, publications, or magazines are to be
avoided.
• Advertisements that frighten or disturb children
are to be avoided.
• Use of comparative advertising claims is
prohibited.

108
• Non-censored films cannot be advertised.
• Women may appear only in those
commercials that relate to family affairs,
and their appearance must be in decent
manner that ensures their feminine dignity.
• Female children under 6 years of age may
appear in commercials provided that their
roles are limited to a childhood-like activity.
• Women should wear a long, suitable dress
that fully covers their body except face and
palms. Swimsuits or similar garments are
not allowed.

109
 Emerging Media Vehicles
– Global television channels such as MTV,
ITN, and CNN are rapidly expanding.
– An exploding advertising medium is the
World Wide Web.
– Organizations plant a flag on the net and if
they are willing to create their Web site,
they can establish a global presence.

110
 Other Promotional Methods
⇒Direct Mailing
• In context of a firm from developing country
with a narrow sales base, advertising in
national newspapers, T.V. and radio is an
expensive proposition.
• In case of specialized industrial items,
national advertising campaign may not be
required.
→In such cases one of the most cost efficient
methods of promotion are the direct mailing
method. The features are:
• The system is selective and personal. 111
• Generally less costly than conventional
newspaper and magazine advertising.
• Sufficient care needs to be taken to design
the product brochures, catalogues, etc.
⇒ Stores promotion
• Country’s merchandise is promoted by a
chain or a department store.

⇒ Trade Fairs and Exhibitions

• Trade fairs help reach people which may not
be possible in any other way. The types of
the trade fairs are:

112
(1) General Fairs:
• Exhibit all types of products and attract both
business firms as well as household
buyers.
• Separate pavilion for separate product
groups.
• National pavilions exhibiting diverse
products.
→Milan Trade Fair is one such example.
(2) Specialized Fairs
• Only specific products are displayed e.g.
leather fair in Paris or Book fair in Frankfurt.
• Intended only for the trade and not for
general public. 113
⇒ Objectives of such fairs are:
– To have first hand knowledge of
technical developments in that particular
sector.
– To identify business partners on a long
term basis.
– To get ideas for product development.

(3) Solo Exhibitions

• Exhibition organized by the Government
of the country of its export products in a
market where the prospects are bright.
114
• Exhibition may be specialized one where
only small number of related product
groups are displayed, or
• General exhibition showing all important
export products of the country.

(4) Company Exhibitions

• Organized by an exporting firm to exhibit its
own products.
• Open to trade and consumers both.

115
Generic Promotion in International
Marketing
→This has been used successfully in the
marketing of agro-based products like tea
and coffee. The generic promotion can be
introduced as
• National government promoting “Use Indian
Spices”.
• Several producing countries promoting
“drink more coffee”.
116
 International Pricing Decisions
The following are the pricing considerations for marketing
outside the home country.
• Does the price reflect the product’s quality?
• Is the price competitive?
• Should the firm pursue market penetration, or market
skimming as a pricing objective?
• What type of discount i.e. trade, cash, quantity and other
allowances like advertisement or promotional be offered to the
international customers?
• Should prices differ by market segment?
• Is the demand in the target market elastic or inelastic?
• Are the firm’s prices likely to be viewed by the host-country
government as reasonable or exploitative?
• Do the target country’s dumping laws pose a problem?

117
 Environmental Influences on
Pricing Decisions
a. Currency Fluctuations
– When currency fluctuations result in appreciation in the value of
the currency of exporter’s country, companies make efforts to
reduce their costs to protect their margins.
– In short run, lower margins enable companies to hold prices in
target markets.
– In the long run, driving down costs enable them to improve
operating margins.

→A company with a strong competitive advantage in the market can

pass on the price increase to customers without any significant
decrease in sales volume.
→In more competitive markets, companies in a strong-currency country
will absorb any price increase by maintaining international market
prices at pre-revision level.

118
 How to reduce costs?
• Both manufacturer and distributor work together to
maintain market share in international markets.
• Either party, or may be both, may agree to work on a
lower profit percentage.
• Distributor may decide to buy more quantities to achieve
volume discounts or alternatively,.
• Distributors maintain leaner inventory if manufacturer
can provide just-in-time delivery.
– If exporter country’s currency weakens relative to trading
partner’s currency, the exporter can cut export prices to
hold market share or leave prices alone for healthier
profit margins.

119
b. Exchange Rate Clauses
• An exchange rate clause allows the
buyer and seller to agree to supply and
purchase at fixed price in each
company’s national currency.
• For instance, if the exchange rate
fluctuates within a specified range, say
plus or minus 5 percent, the fluctuations
do not affect the pricing agreement.
120
Example of Exchange Rate Clause
• Purpose is to protect parties from
unforeseen larger swings in currencies.
• Exchange rate review is made quarterly to
determine possible adjustments for next
period.
• Comparison basis is three month-daily
average and the initial average.

121
(c) Government Controls and Subsidies
– If government action limits the freedom of management of prices,
maintenance of margins is definitely compromised.
– Countries undergoing severe financial crisis such as foreign
exchange shortage, impose selective price controls.
– Government controls would include
• Requirement of non-interest bearing cash deposits for a specific
period of time, imposed on importers.
• The above requirement creates an incentive for a company to
minimize the price of imported products; lower prices mean
smaller deposits.
• Restrictions on the transfer of profits out of the country.
• Government subsidies may force a company to make a strategic
change in sourcing to be price competitive.

122
(d) Competitive Behaviour
– If competitors do not adjust their prices in
response to the rising costs, the exporting
company will be severely restricted in its ability to
adjust to the prices accordingly.
– If competitors are manufacturing or sourcing in a
lower-cost country, it may be necessary to cut
prices to stay competitive.
(e) Price and Quality Relationship
– Do consumers perceive relationship between the
price and quality?
– Whether consumers perceive that they are getting
value for money?
123
How Japanese Keep Costs Low?
United States Japan

Market Research Market Research

Product Product
Characteristics Characteristics
Design
Planned Selling Price
Less Desired Profit
Engineering

Target Cost
Supplier Pricing

If cost is
too high, Supplier
Design Engineering
Cost return to Pricing
design
phase
Manufacturing Target costs for each component force
marketers, designers, and engineers from all
departments and suppliers to struggle and
Periodic Cost negotiate trade-offs.
Reduction Manufacturing

124
Continuous Cost Reduction
 Market Holding Strategy
– A strategy frequently adopted by companies that want to maintain
their share of the market.
– In a single-country marketing, it involves reacting to price
adjustments by competitors.
→For instance, when one airline announces special bargain fares,
most competing carriers match the offer or risk losing passengers.
→ In global marketing, currency fluctuations trigger price adjustments.
– Market holding implies that company must carefully examine all its
costs to ensure that it will be able to remain competitive in target
markets.
• A strong home currency and rising costs in the home country may
force a company to shift its procurement to foreign sources or third
country manufacturing or licensing agreement rather than exporting
from the home country to maintain market share.
• When the country’s currency becomes weaker, imported products
become expensive.

125
Cost Plus/Price Escalation Strategy
– Companies new to exporting use a
strategy known as cost-plus pricing to gain
a foothold in the global market place.
– Cost plus pricing requires adding up all the
costs required to get the product to where
it must go, plus shipping and ancillary
charges, and a profit percentage.

126
Merits
– It is relatively easy to arrive at a selling price, assuming
that all costs are readily available.
Demerits
– Ignores demand and competitive conditions in target
markets.
– These will be frequently either too high or too low in the
light of market and competitive conditions.
Price Escalation- is the increase in a product’s price as
transportation, duty, and distributor’s margins are added
to the factory price.

127
An example of c.i.f quotation of container cargo
from Mumbai to Mombassa
– Raw material costs+ Labour cost + Packaging +
Inland transport cost + custom clearing
expenses + Customs duty, if any + loading cost
= Total Cost
– Total Cost less Duty Drawback incentives, if any
+ Margin = FOB value, Mumbai
– FOB, Mumbai + Ocean freight from Mumbai to
Mombassa + Insurance=C.I.F. price, Mombassa

128
An example of Market-oriented pricing
Market Price less Retail Margin on selling price=
Cost of retailer.
Cost of retailer less wholesaler’s mark up on his
cost= Cost of the wholesaler.
Cost of the wholesaler less Importer’s mark up on
his cost= Cost of the importer
Cost of the importer less Import duty=CIF price.
CIF price less Freight and insurance charges=
FOB realization of the exporter.
129
 Gray Market Goods
– Branded goods that are exported from one country to another, where they
are sold by unauthorized persons or organizations.
– Quite often, gray marketers bring a product produced in one country e.g.
French Champagne, in another country market in competition to authorized
importers.
– The gray marketers sell at prices that undercut those set by the legitimate
importers. Parallel importing.
– Parallel importing flourishes when a product is in short supply or when
manufacturers attempt to set high prices.
– The common examples of parallel importing in international markets are
• French Champagne in the US.
• Pharmaceuticals in European markets.
– Gray market offers the opportunity to market the goods at lower prices than
goods sold by authorized distributors or domestically produced goods
thereby providing the customers benefit of lower prices and increased
choice.

130
 Dumping- An important global
pricing strategy
– Dumping is defined as the sale of an imported product at a
price lower than that normally charged in a domestic market
or country of origin.
– Many countries come out on their own policies and
procedures for protecting domestic companies from dumping.
→GOI considers dumping as an unfair trade practice that results
in “injury, destruction, or prevention of the establishment of
Indian industry.”
→GOI considers dumping to have occurred when imports are
sold in Indian market at price levels that are less than the cost
of production or levels below those prevailing in the
manufacturing country.
→GOI imposes antidumping duty over and above customs duty
over and above customs duty on such imported products to
make them more expensive compared to local industry.

131
 Global Pricing Policies
(a) Extension/Ethnocentric
– Price of the product is the same around the world.
– Importer absorbs freight and import duties.
– Simple approach as no information on competitive market conditions is
required.
Does not respond to market conditions and therefore neither maximizes the
company’s profits in each national market nor globally.
(b) Adaptation/Polycentric
– Permits subsidiary or affiliate managers to establish prices that are most
desirable in their circumstances.
(c) Geocentric
– Recognizes unique local market factors that are used in arriving at pricing
decisions.
– Sensitive to local conditions where local costs plus a return on invested
capital and personnel fix the floor price for long term.
– Enterprising managers take advantage of price disparities by buying in
lower-price market and selling in higher price markets.

132