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Master of Business Administration- MBA

MK0018 International Marketing

Q1. Discuss the EPRG orientations and give the differences between international and domestic marketing. Answer:- The EPRG orientation identifies 4 types of attitudes towards internationalization:1. E-Ethnocentric 3. R-Regiocentric 2. P-Polycentric 4. G-Geocentric

1. Ethnocentric orientation: A home country orientation or an unconscious bias or belief that the home country approach to business is superior. In this concept, the assumption is that the home country marketing practices will succeed elsewhere without adaptation. Ethnocentrism is a natural result of the observation that most people are more comfortable with and prefer the company of people who are like themselves, sharing similar values and behaving in similar ways. Ethnocentricity: the following features characterize this behavior: Strong orientation toward home country Centralization of decision-making Efficient but not effective

2 Polycentric orientation: The unconscious bias or belief that it is necessary to adopt totally to local culture and practice. It is a host country orientation in management. This is the opposite of ethnocentrism. Polycentrism is the principle of organisation of a region around several political, social or financial centers. In intercultural competence the term polycentrism is understood as attitude and openness towards other cultures, opinions and ways of life: Polycentricity: This comprises of: Strong orientation to host country Decentralization of decision-making Effective but not efficient 3 Regiocentric orientation: It is an approach for staffing of foreign operations on a regional basis. If the firm is an MNC than it would recruit local people under this orientation. Regiocentric orientation is an attitude or orientation toward internationalization with the focus on regional orientation. In this concept, the organisation sees the world as one market and develops a standardized marketing strategy for the entire world. Regiocentric and Geocentric are synonymous with a Global Marketing Orientation where a uniform, standardized marketing strategy is used for several countries, countries in a region, or the entire world.

Geocentric orientation: A management orientation based upon the assumption that there are similarities and differences in the world that can be understood and recognized in an integrated world

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strategy. The geocentric orientation or world orientation is a synthesis of the ethnocentric orientation (home country) and polycentric orientation (host country). Geocentricity: which consists of: World orientation Centralization + decentralization + coordination Efficiency and effectiveness

Difference between domestic marketing and international marketing Domestic and International marketing refer to the same marketing principles. However, there are glaring dissimilarities between the two. Scope The scope of domestic marketing is limited and will eventually dry up. On the other end, international marketing has endless opportunities and scope. Benefits As is obvious, the benefits in domestic marketing are less than in international marketing. Furthermore, there is an added incentive of foreign currency that is important from the point of view of the home country as well. Sharing of technology Domestic marketing is limited in the use of technology whereas international marketing allows use and sharing of latest technologies. Political relations Domestic marketing has nothing to do with political relations whereas international marketing leads to improvement in political relations between countries and also increased level of cooperation as a result. Barriers In domestic marketing there are no barriers but in international marketing there are many barriers such as cross cultural differences, language, currency, traditions and customs. Q.2 Discuss the importance of international business environment for an organization. Answer:- The international business and trade environment is the backbone of global economy. Trade agreements to buying and selling goods and services internationally gives manufacturers in various countries the opportunity to expand beyond the domestic market. Trading across national borders increases sales, creates jobs, balances seasonal fluctuations and provides a variety of products and services. As the global economy continues to strengthen, international trade continues to be in demand. Increases Sales

For some businesses, the drop in the value of the dollar increases business internationally. To capture the international market, businesses have launched Internet marketing campaigns and websites targeted at consumers in specific countries. Creates Jobs

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International business trade and investment agreements open markets worldwide while ensuring fair trade to expand economic growth and create jobs. Job creation and sustained economic growth rely on competitive international markets in both foreign investments and exports. Balances Seasonal Fluctuations

Seasonal swings of your domestic business can affect profits and stability. For example, if you sell winter clothing, your numbers are expected to drop during the spring and summer months. An international business environment creates opportunities to counteract the downturns of seasonal sales by allowing you to export to countries with opposite seasonal trends to help you maintain consistent production and profitability all year. Increases Variety

With international trade the choice of products, services and quality expands beyond the domestic market. For example, mobile telephone equipment became available even in countries that did not manufacture the equipment. Success in the international business environment, with a product or service on the domestic market, encourages local competition and increases the choice of brands and a variety of goods and services available to consumers. Q.3 Write a short note on International Advertising. How is it important for international marketing? Answer:- The role of advertising in international marketing includes: Communicating, to a target audience that differs in terms of language, literacy, and other cultural factors Business activity through which a firm attempts to inform target audiences in multiple countries about itself and its product or service offerings It provides reassurance to the firms and brands and reminds consumers about their offerings Through the selective reinforcement of certain social roles, language and values, it acts as an important force fashioning the cognitions and attitudes that underlie behavior not only in the market place, but also in all aspects of life.

International advertising is usually associated with using the same brand name all over the world. However, a firm can use different brand names for historic reasons. The acquisition of local firms by global players has resulted in a number of local brands. A firm may find it unfavourable to change those names as these local brands have their own distinctive market. Therefore, the company may want to comeup with a certain advertising approach or theme that has been developed as a result of extensive global customer research. Global advertising themes are advisable for marketing across the world with customers having similar tastes. The purpose of international advertising is to reach and communicate to target audiences in more than one country. The target audience differ from country to country in terms of the response towards humour or emotional appeals, perception or interpretation of symbols and stimuli and level of literacy. Sometimes, globalised firms use the same advertising agencies and centralise the advertising decisions and budgets. In other cases, local subsidiaries handle their budget, resulting in greater use of local advertising agencies. Importance of International Advertising in International Marketing In international markets the process of communicating to a target audience is more complex because communication takes place across multiple contexts, which differ in terms of language, literacy, and other

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cultural factors. In addition, media differ in their effectiveness in carrying different appeals. A message may, therefore, not get through to the audience because of people's inability to understand it (due to literacy problems), because they misinterpret the message by attaching different meanings to the words or symbols used, or because they do not respond to the message due to a lack of income to purchase the advertised product. The process of communication in international markets involves a number of steps. First, the advertiser determines the appropriate message for the target audience. Next, the message is encoded so that it will be clearly understood in different cultural contexts. The message is then sent through media channels to the audience who then decodes and reacts to the message. International advertising can also be viewed as a business activity through which a firm attempts to inform target audiences in multiple countries about itself and its product or service offerings. In some cases the advertising message relates to the firm and its activities, i.e. its corporate image. In other cases, the message relates to a specific product or service marketed by the firm. An important issue in determining international advertising strategy is whether or not to develop a global or regional advertising campaign, or rather tailor communication to differences in local markets (Peebles and Ryans 1984). If the purpose of advertising is to develop a strong corporate or global image, a uniform global campaign is more likely to be used. When, on the other hand, the objective is to launch a new product or brand, or to more clearly differentiate the product or brand from other competing brands or products, local campaigns tailored to local markets are more typical. Q4. Explain how Letter of Credit acts as an appropriate mode of payment for both exporter and importer.
Answer:- A letter of credit is basically a guarantee from a bank that a particular seller will receive a payment due from a particular buyer. The bank guarantees that the seller will receive a specified amount of money within a specified time. In return for guaranteeing the payment, the bank will require that strict terms are met. It will want to receive certain documents - for example shipping confirmation - as proof. Letters of credit are most commonly used when a buyer in one country purchases goods from a seller in another country. The seller may ask the buyer to provide a letter of credit to guarantee payment for the goods. The main advantage of using a letter of credit is that it can give security to both the exporter and importer. Advantages for Exporter By asking for an appropriate letter of credit an exporter is reassured that they will receive their money in full and on time. A letter of credit is one of the most secure methods of payment for exporters as long as they meet all the terms and conditions. The risk of non-payment is transferred from the seller to the bank (or banks). Advantages for Importer When an importer uses a letter of credit they get a guarantee that the seller will honor their side of the deal and provide documentary proof of this. There are five commonly used types of letter of credit. Each has different features and some are more secure than others. The most common types are: irrevocable revocable

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Other types include: standby revolving back-to-back

When a buyer arranges a letter of credit they usually do so with their own bank, known as the issuing bank. The seller will usually want a bank in their country to check that the letter of credit is valid. For extra security, the seller may require the letter of credit to be confirmed by the bank that checks it. By confirming the letter of credit, the second bank agrees to guarantee payment even if the issuing bank fails to make it. So a confirmed letter of credit provides more security than an unconfirmed one.

Q5. What are the factors that affect the pricing strategy of an international firm? What different pricing strategies can the firms adopt? Answer:- There are three main factors which affect the export price strategy to be adopted by the exporter in the foreign markets viz. the characteristics of the product and the nature of its demand, the philosophy of its management and the market characteristics. The pricing strategy is a short-term tool to make fit the prices in the changing competitive situations in the short run with its pricing policy decisions. 1. Characteristics of the product and the nature of its demand: It is a major factor in fixing the price of the product at a particular time. In other words, improvement in quality of the product and product adaptation according to the changing competitive conditions in the foreign market should be taken as a continuous process. Elasticity of demand is another factor, which influences the price. If the demand of a product is inelastic the price reduction will not help to increase the revenue. In such a case, higher prices may be fixed taking in view the competitive position in the market. If, on the other hand, product is highly elastic the sales revenue can be appreciably increased by slightly reducing the price. Thus, pricing strategy i.e. whether to fix higher price or lower price as compared to the competitors prices very much depends upon the elasticity of demand and the competitive position. 2. The philosophy of the management: As we know that the main objective of management of every concern is to maximize profits, this is an adverse relationship between the price and the demand. The management can earn more profit at increased revenue by reducing the price if the demand is more elastic. On the other hand, if the objective of the management is to export a committed value of merchandise, the price may be even lower than the marginal cost. 3. Market characteristics: Market characteristics such as number of competitors and degree of competition, supply position, quality of the product, substitutes available in the market etc.

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determines the pricing strategy of the firm. These market characteristics vary from country to country. Thus, different strategies may be used in different markets. In some markets prices may be higher in some others they may be cost price or in many others, they may be less than the cost price. The following pricing strategies are used in the export market: 1. Market Penetration Strategy: Under this strategy, exporters offer a very low introductory price to speed up their sales and, therefore, widening the market base. It aims at capturing the products in the market especially if the quality of the product is proved with its wide acceptance. 2. Probe Pricing Strategy: Fixing low price for its product may have an adverse effect on the image of the firm and of the product. It may raise doubts in the minds of the buyers about the quality of the product if it is lower than the price of competitors or if it is reduced subsequently. When no information is available on the extent of the competition or the likely preferences of the buyers, sufficiently higher prices may be quoted on the first few offers. 3. Follow the Leader Pricing Strategy: In a competitive world market or where adequate market information is not available, it may be useful to follow the leader in the market comparing its product with that of the leader the exporter may then fix the price of its product. In such cases the price of the product is lower than the leaders product. However, this price has no rational or scientific base for fixing the price. 4. Skimming Pricing Strategy: Under this strategy, a very high introductory price is fixed to skim the cream of the demand at the very outset. This policy is generally introduced when there is no competition in the market. Such prices continue to be high till competitors enter the foreign market. As soon as competitors enter the market, the exporter reduces the price. 5. Differential Trade Margins Strategy: Variation in trade margins may be adopted by the exporter as the pricing strategy in foreign market. This strategy allows various types of discounts on the list price. Quantity discounts encourage to procure huge orders. It may be based on the value or on the quantity purchased or on the size of the package purchase. Special discounts may be allowed while introducing the product. These are given on all the purchases. Seasonal discount aims at shifting the storing function in the channels. This approach is buy sooner or more. Cash discount attracts prompt payment. It ensures quick pay-back. Trade discount is a reduction in list price given to channel members in anticipation of a job they are going to perform.

6. Standard Export Pricing Strategy: In some cases, exporter quotes the standard price or list price that is one price for all. But still there should be some margin for negotiations as in many markets especially in under developed countries, bargaining over prices is a part of life. In such cases, fixed prices may serve as a starting point for negotiation. Hence, it is desirable to keep a certain margin for the negotiations. This strategy is generally adopted in the export of capital goods i.e. plant and machinery.

Q6. Write short notes on (a) Licensing (b) Joint venture

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Answer:- (a) Licensing Licensing means renting or leasing of an intangible asset. Examples of intangible assets include a song (Somewhere Over The Rainbow), a character (Donald Duck), a name (Michael Jordan) or a brand (The Ritz-Carlton). An arrangement to license a brand requires a licensing agreement. A licensing agreement authorizes a company which markets a product or service (a licensee) to lease or rent a brand from a brand owner who operates a licensing program (a licensor).[1] A company may choose to license its brand(s) when they believe there is strong consumer acceptance for brand extensions or products. For example, when Apple launched the iPod there was an immediate need for accessories such as headphones, charging and syncing stations and carrying cases. Apple decided not to manufacture these products and instead chose to have a licensee make the products. By doing so, Apple could offer branded Earbud Headphones, iPod docking stations and iPod socks. Each is made by a separate company but together offer the consumer an elegant solution. All of these accessories are sold by licenses. Apart from benefits to licensors, there are benefits to licensees as well. Licensees lease the rights to a brand for incorporation into theirmerchandise, but do not share ownership in it. Having access to major national and global brands, and the logos and trademarks associated with those brands, gives the licensee significant benefits. The most important of these is the marketing power the brand brings to the licensees products. When brand managers enter or extend into new product categories via licensing they create an opportunity for a licensee to grow their company. For example, Crest several years ago extended its brand from toothpaste into whitening (Crest Whitestrips). Below is an example of the licensed product process steps:

Licensor chooses the product categories to be licensed Licensor finds and negotiates a license with the best licensees Licensees develop concepts, prototypes and final production samples and submit for approval Licensor approves licensed products for sale

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Answer (b) Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests

Joint Venture involves sharing risks to accomplish mutual enterprise. Widespread interest in joint ventures is related to: Seeking market opportunities Dealing with rising economic nationalism Preempting raw materials Sharing risk Developing an export base Selling technology

Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation". Joint ventures are a more extensive form of participation than either exporting or licensing. Joint ventures give the following advantages: Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process Joint financial strength May be only means of entry and May be the source of supply for a third country.

They also have disadvantages: Partners do not have full control of management May be impossible to recover capital if need be Disagreement on third party markets to serve Partners may have different views on expected benefits.

If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome.

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