TOPIC 5: International Marketing Decisions Introduction This topic introduces the students to various challenging and strategic decisions

to be taken in international marketing. Objectives By the end of this topic, you will be able to; 1. 2. 3. 4. Discuss the strategic decisions necessary in international marketing. Explain the important environmental analysis model for international marketing concept. Evaluate the Social, Legal, Economical, Political and Technological influences in International Marketing. Highlight the importance of Multi National Companies ( MNCs).

Your Learning Activity Core Task Read the topic notes on International Marketing Decisions and participate in the discussion in the topic discussion forum.

Assessment The discussion will be graded Discussion Giving an example in each case , discuss the SLEPT (Social Legal, Economical Political and Technological) influences in International Marketing.

TOPIC NOTES TOPIC 5: INTERNATIONAL MARKETING DECISIONS International Marketing presents a more complex task than domestic marketing because of the uncontrollable international marketing environment and their heterogeneity. Hence, though the basic marketing decisions to be made are similar in international and domestic marketing, making international marketing decision is generally more challenging. In international marketing, a company has to make, broadly five strategic decisions. 1. International marketing decision: The first decision a company has to make, is whether to take up international marketing or not. This decision is based on a serious consideration of a number of important factors, such as the present and future overseas opportunities, present and future domestic market opportunities, the resources of the company in terms of skills, experience, production and marketing capabilities and finance, company objectives etc. 2. Market Selection Decision: Once it has been decided to do international marketing, the next important step is the selection of the most appropriate market. For this purpose, a thorough study of potentials of the various overseas markets and their respective marketing environment is essential. Company resources and objectives may not permit a company to do business in all the overseas markets. Further, some markets are not potentially good, and it may be suicidal to waste company resources in such markets. A proper selection of the overseas markets therefore is very important. 3. Entry and Operating Decisions: Once the market selection decision has been made, the next important task is to determine the appropriate mode of entering the foreign market such as export, contract manufacturing, direct manufacturing plant etc. on the basis of this decision, proper arrangements must be made to continue the activities of marketing. 4. Marketing Mix Decision: As in the domestic marketing, the success highly depends upon the applicability of proper Marketing Mix, in International marketing also; Marketing Mix plays a major role. The elements of marketing mix product, promotion, price and physical distribution should be suitably designed so that they may be adapted to the characteristics of the overseas market. INTERNAL AND EXTERNAL INTERNATIONAL MARKETING CONCEPT The key difference between domestic and international marketing is the multidimensionality and complexity of foreign country markets a country may operate in. Knowledge and awareness of these complexity and implications for international marketing is a must. The important environmental analysis model for international marketing concept may be explained as: SLEPT(Social, Legal, Economical, Political and Technological)influences. 1. SOCIAL AND CULTURAL INFLUENCES a. SOCIAL: Difference in social conditions, religion and culture determines whether the customers are similar or dissimilar across the globe. McDonalds had to understand the same in India when they had to enter such huge market with its burger. In 1995 / 6 Indias vegetarian

market was 40%. These vegetarians preferred that the burger should be made in a clean and separate kitchen. Also their love for spicy food was required to be considered. Among the nonveg. eaters, their disliking towards pork and beef among mean eater was very well known. McDonalds realize that they need to serve Indians more than just burger, a burger that satisfies Indians taste. b. CULTURE: Culture describes the kind of behaviour considered acceptable in society. The prescriptive characteristic of culture simplifies a consumers decision-making process by limiting product choices to those which are socially acceptable. The same feature creates problems for those products, which are not in time with culture. Coca Cola had to withdraw its 2 liters bottle from Spain market as Spaniards were not having refrigerator having larger compartments. Johnsons floor wax was doomed to failure in Japan as it made the wooden floors very slippery and Johnson failed to take into account the custom of not wearing shoes inside the home. Coca Cola when introduced in china the name sounded like KOOKE KOULA meaning thirsty mouth, full of candle wax. So they had to change the name to KEE KOU KEELE which means joyful taste and happiness. In Japan, White face is associated with mask of death. The size of refrigerators in USA is very big compared to Indian refrigerators, as women there believe in storing vegetables and other eatable items, which can be consumed till longer period of time. Even the value and beliefs associated with colour vary significantly between different cultures. Blue considered as feminine and worm in Holland, is seen as masculine and cold in Sweden. Green is a favorite color in Muslims, but in Malaysia, it is associated with illness. White is associated with death and mourning in China, Korea and in some traditions in India. The same colour expresses happiness and is colou` r of wedding dress of the bride in English country. Such differences suggest that same marketing mix cannot be used for all markets. 2. Legal Environment: Legal systems vary both in content and interpretations. A successful marketer will modify his marketing strategies in accordance with such variations. Laws affect the marketing mix in terms of products, price, distribution and promotional activities quite dramatically. For many firms such laws are burdensome regulations. For example in Germany environmental laws mean a firm is responsible for the retrieval and disposal of packaging waste it creates and must produce packaging which is recyclable. In Canada, if the information does not appear in both French and English, the goods may be confiscated. An international Marketer should learn about the advertising, packaging, and labeling regulations in foreign markets. India has been seen by many firms to be an attractive emerging market having many legal difficulties, bureaucratic delays and lots of official procedures. Many international business enterprises have found it difficult to break such hard structure. Foreign companies are often viewed with suspicion. However, some firms have been innovative in overcoming difficulties. 3. ECONOMIC ENVIRONMENT: The economic situation varies from country to country. There are variations in the levels of income and living standards, interpersonal distribution of income, economic organization, occupational structure and so on. These factors affect market conditions. The level of development in a country and the nature of its economy will indicate the type of products that

may be marketed in it and the marketing strategy that may be employed in it. In high income countries there is a good market for a large variety of consumer goods. But in low-income countries where a large segment does not have sufficient income even for their basic necessities, the situation is quite different. 4. POLITICAL ENVIRONMENT: The political environment of international marketing includes any national or international political factor that can affect the organizations operations or its decision-making. The tendencies of governments to change regulations can seriously affect an international strategy providing both opportunities and threat. An unstable political climate can expose firms to many commercial, economic and legal risks. Political risk is defined as being: A risk due to a sudden or gradual change in a local political environment that is disadvantageous to foreign firms and markets. 5. TECHNOLOGICAL ENVIRONMENT: The Technological Environment is perhaps the most dramatic force now shaping our destiny. An international marketer should very well keep in his mind the change taking place in technology and thereby affecting the product. New technologies create new markets and opportunities. However, every new technology replaces an old technology. Xerography hurt carbon-paper industry, computer hurt typewriter industry, and examples are so on. when any international marketer ignores or forgets new technologies, his business has to decline. Thus, the marketer should watch the technological environment closely. Companies that do not keep up with technological changes, soon find their products outdated. The United States leads the world in research and development spending. Scientists today are researching a wide range of promising new products and services ranging from solar energy, electric car, and cancer cures. All these researches give a marketer an opportunity to set his products as per the current desired standard. The challenge in each case is not only technical but also commercial which means manufacturing products that can be afforded by mass customers. MULTINATIONAL CORPORATIONS (MNCs) A Multinational Corporation is a business unit which operates simultaneously in different parts of the world either by manufacturing or marketing or both by keeping its headquarter elsewhere as a strategic nerve centre. Although MNC took birth in the early 1860s, it was after the Second World War that the Multinationals have grown rapidly. Generally, an MNC meets five criteria: 1. It operates in many countries at different levels of economic development. 2. Its local subsidiaries are managed by nationals. 3. It maintains complete industrial organizations including R & D and manufacturing facilities, in several countries. 4. It has direct investment base in different countries. 5. It derives 20 % to 50 % or more of its net profits from foreign operations. CLASSIFICATIONS OF MNCS Pyramid Model, Umbrella Model, Inter/ Conglomerate MNC a. Pyramid Model MNC: These organizations have strong Headquarters and weak subsidiaries. Head Quarter is rude, arrogant and gives no powers to its subsidiaries. The

decision making capacity is also not centralized. For E.g. Siemens, Johnson & Johnson, IBM, McDonalds, Marks & Spencer etc. This model of MNC is very power conscious. b. Umbrella Model MNC: This model is very good among others. There is a relationship of mutual help between the Head quarter and the subsidiary. Ideas and money flow freely. Making money and using power is not the primary motto of the organizations. Head quarters give full freedom to the subsidiaries. Both HQ and subsidiaries are very strong. Problems: These organizations are very image conscious. If anything damages their image, strong actions are taken for that. c. Inter conglomerate Model MNC: For such organizations, money is main aim. Investment and Rate of Investments are very high. No loyalty towards any subsidiary countries. E.g. Unilever etc. Companies enter any segment and adapt the approach of Multi segments, Multi markets, Multi products and Multi countries. Such companies try to acquire monopoly and take over its competitors there by reducing competition. E.g. Brooke Bond and Lipton are taken over by HLL. How MNCs expand their business: 1. International Licensing: MNC permits the domestic company to use its trademark, brand name or technical know-how for manufacturing and marketing purpose. The license is given against payment of fee which acts as source of income to the MNCs. E.g. Brand 555 is the licensed user of British American Tobacco company. The BAT does not provide any raw material but just the brand name is given. This company took 45 years to establish. The licensor generally keeps supervisor in the plant of licensee. 2. International Franchising: the licensor not only provides the brand name but also the raw material. E.g. McDonalds. (Syrup pharmaceutical companies, printed circuit boards to electronic items). 3. Turnkey projects: MNCs undertake to complete the whole project and handover the same when ready to the host country. Such projects may be supplied on tender basis. They provide new opportunity to expand the business activities. 4. Joint Ventures: Like marriage, binding between home country representative and host country representative, to set up a project either in home country or host or 3rd country with a commitment of joint risk taking and joint profit sharing. E.g. Modi Luft Modi and Lufthansa. 5. Collaborations: It deals with any one part of management function, either finance or technology collaboration. (it is not possible to have collaboration in consumer products. It happens generally with medicines, technological products etc.) Collaborations are time bound and not permanent.

Merits of Multinational Corporations: 1. Change and progress: MNCs are said to be the agents of change and progress worldwide. 2. Enables maximum use of resources.

3. To the host countries, the plants, equipments, and technical knowhow necessary for its operations which is not available otherwise is made available thru MNCs. 4. MNCs create employment opportunities in the host countries. Local recruitment of Junior Managers creates a pool of managerial talent in the host country. 5. Goods are made available at cheaper price due to economies of scale. 6. MNCs contribute enormously to technology transfer between rich and poor countries. 7. MNCs stimulate domestic employment. 8. Helps removal of monopoly and improve the quality of domestic made products. 9. Promotes exports and reduce imports by raising domestic productions. 10. Provides benefits of Research & Development. DEMERITS OF MNCs (Students please elaborate the following points) 1. Provides out-dated technology. 2. MNCs exploit local labour by paying relatively lesser rates. 3. MNCs involvement often results in the lack of development of local research and development. 4. Use of capital-intensive technology reduces jobs in local country. 5. MNCs ruin domestic companies. 6. Adverse effect on life style / culture in host countries. 7. Charge very high fees.