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NEED OF STUDY

There are several good reasons for studying marketing. First of all,

marketing issues are important in all areas of the organization—customers are

the reasons why businesses exist! In fact, marketing efforts (including such

services as promotion and distribution) often account for more than half of the

price of a product. As an added benefit, studying marketing often helps us

become more savvy consumers. We will learn, for instance, that the per unit

price of a bigger package is frequently higher than that of a smaller one, and

that more expensive products are frequently not better in quality.

Criteria that must be met for marketing to occur: Several criteria

must be met for marketing to occur:

 There must be two parties, each with unsatisfied needs or wants. This

want, of course, could be money for the seller.

 Each must have something to offer. Marketing involves voluntary

“exchange” relationships where both sides must be willing parties. Thus,

a consumer who buys a soft drink in a vending machine for 60¢ must

value the soft drink, available at that time and place, more than the

money. Conversely, the vendor must value the money more. (It is

interesting to note that money is, strictly speaking, not necessary for this

exchange to take place. It is possible, albeit a bit cumbersome, to

exchange two ducks for a pair of shoes.)

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 The parties must be able to communicate. This could be through a

display in a store, an infomercial, or a posting on eBay.

The marketing vs. the selling concept: Two approaches to marketing exist.

The traditional selling concept emphasizes selling existing products. The

philosophy here is that if a product is not selling, more aggressive measures

must be taken to sell it—e.g., cutting price, advertising more, or hiring more

aggressive (and obnoxious) sales-people. When the railroads started to lose

business due to the advent of more effective trucks that could deliver goods

right to the customer’s door, the railroads cut prices instead of recognizing that

the customers ultimately wanted transportation of goods, not necessarily

railroad transportation. Smith Corona, a manufacturer of typewriters, was too

slow to realize that consumers wanted the ability to process documents and not

typewriters per se. The marketing concept, in contrast, focuses on getting

consumers what they seek, regardless of whether this entails coming up with

entirely new products.

The 4 Ps—product, place (distribution), promotion, and price—represent the

variables that are within the control of the firm (at least in the medium to long

run). In contrast, the firm is faced with uncertainty from the environment.

The suggested framework of international marketing includes motivation for

internationalization, SWOT analysis, a mix of international marketing

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decisions and consolidation of marketing efforts on the basis of reviewing

markets performance.

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KEY TERM

Re-geocentric orientation: the approach that considers a region as a uniform

market segment and a firm following this approach adopts a similar marketing

strategy within the region but not across the region.

Geocentric orientation: the approach that treats the whole world as a single

market and attempt to formulate integrated marketing strategies.

Self reference criterion: an unconscious reference to one’s own cultural value,

experience and knowledge as a basis for decision making.

Theory of mercantilism: attributes wealth of a nation by the size of its

accumulated treasures, usually measured in terms of gold. A theory that holds

that national should accumulate financial wealth in the form of gold by

encouraging exports and discouraging imports.

Theory of international product life cycle: the cyclical pattern followed by

the international markets over a time due to a variety of factors which explains

the shift in the markets as well as manufacturing bases of the firms.

Domestic marketing: marketing practice within the domestic markets.

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Foreign marketing: methods and practices used in the home markets and also

applied in overseas markets with little adaptation.

Comparative marketing: Comparative study of two or more marketing

system to find out the differences and similarities.

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INTRODUCTION

What is marketing?

Almost every marketing textbook has a different definition of the term

“marketing.” The American Marketing Association (AMA) uses the following:

“The process of planning and executing the conception, pricing, promotion,

and distribution of ideas, goods, and services to create exchanges that satisfy

individual and organizational objectives.” From this definition, we see that:

 Marketing involves an ongoing process. The environment is “dynamic.”

This means that the market tends to change—what customers want

today is not necessarily what they want tomorrow. For example, sales of

beef are declining in the United States because consumers have become

health oriented. Similarly, Tupperware parties are less popular today

than they once were because there are fewer housewives who do not

work outside the home.

 This process involves both planning and implementing (executing) the

plan.

 Some of the main issues involved include:

o Marketers help design products, finding out what customers want

and what can practically be made available given technology and

price constraints.

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o Marketers distribute products—there must be some efficient way

to get the products from the factory to the end-consumer.

o Marketers also promote products, and this is perhaps what we

tend to think of first when we think of marketing. Promotion

involves advertising—and much more. Other tools to promote

products include trade promotion (store sales, coupons, and

rebates), obtaining favorable and visible shelf-space, and

obtaining favorable press coverage.

o Marketers also price products to “move” them. We know from

economics that, in most cases, sales correlate negatively with

price—the higher the price, the lower the quantity demanded. In

some cases, however, price may provide the customer with a

“signal” of quality. Thus, the marketer needs to price the product

to (1) maximize profit and (2) communicate a desired image of

the product.

o Marketing is applicable to services and ideas as well as to

tangible products. For example, accountants may need to market

their tax preparation services to consumers.

THE MARKETING ENVIRONMENT

ELEMENTS OF THE ENVIRONMENT:

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The marketing environment involves factors that, for the most part, are

beyond the control of the company. Thus, the company must adapt to these

factors. It is important to observe how the environment changes so that a firm

can adapt its strategies appropriately. Consider these environmental forces:

 Competition:

Competitors often “creep” in and threaten to take away markets

from firms. For example, Japanese auto manufacturers became a serious

threat to American car makers in the late 1970s and early 1980s.

Similarly, the Lotus Corporation, maker of one of the first commercially

successful spreadsheets, soon faced competition from other software

firms. Note that while competition may be frustrating for the firm, it is

good for consumers. (In fact, we will come back to this point when we

consider the legal environment). Note that competition today is

increasingly global in scope.

 Economics:

Some firms in particular are extremely vulnerable to changes in

the economy. Consumers tend to put off buying a new car, going out to

eat, or building new homes in bad times. In contrast, in good times,

firms serving those needs may have difficulty keeping up with demand.

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 Political:

Businesses are very vulnerable to changes in the political

situation. For example, because consumer groups lobbied Congress,

more stringent rules were made on the terms of car leases. The tobacco

industry is currently the target of much negative attention from

government and public interest groups. Currently, the desire to avoid

aiding the enemy may result in laws that make it more difficult for

American firms to export goods to other countries.

 Legal:

Firms are very vulnerable to changing laws and changing

interpretations by the courts. Firms in the U.S. are very vulnerable to

lawsuits. McDonald’s, for example, is currently being sued by people

who claim that eating the chain’s hamburgers caused them to get fat.

Some impacts of the legal environment.

 Firms are significantly limited in what they can do by various laws—

some laws, for example, require that disclosures be made to consumers

on the effective interest rates they pay on products bought on

installment. A particularly interesting group of laws relate to antitrust.

These laws basically exist to promote fair competition among firms.

Some principles involved here include:

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o Collusion: Firms may not “conspire” to fix prices (agree that

they will not sell below an agreed upon price) or reduce services.

o Predation: Firms may not sell their products below their cost of

production for the purpose of driving competitors out of business

so that they, themselves, can raise prices when competition is

reduced.

o Market share: Firms which have an unacceptably large market

share may be “broken” up by court order so that many smaller

firms will be around to compete. (This is what happened to

AT&T, and at times, IBM has been worried about this prospect). •

Tying: A firm that controls a valuable product may not require the

consumer to buy a more commonplace one to get the scarce

product. For example, Intel controls many of the newest

microprocessors (e.g., Pentium IV). Intel also makes

motherboards for computers; however, motherboards are made by

a lot of firms. Intel would be thought to abuse its effective

monopoly power if it required consumers to buy a motherboard

in order to get its newest chips.

 Technological:

Changes in technology may significantly influence the demand

for a product. For example, the advent of the fax machine was bad news

for Federal Express. The Internet is a major threat to travel agents.

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 Social:

Changes in customs or demographics greatly influence firms.

Fewer babies today are being born, resulting in a decreased demand for

baby foods. More women work outside the home today, so there is a

greater demand for prepared foods. There are more unmarried singles

today. This provides opportunities for some firms (e.g., fast food

restaurants) but creates problems for others (e.g., manufacturers of high

quality furniture that many people put off buying until marriage). Today,

there are more “blended” families that result as parents remarry after

divorce. These families are often strapped for money but may require

“duplicate” items for children at each parent’s residence.

Environmental scanning:

Its helps the firm understand developments in the market. Such

developments may involve changes in the market place due to social trends

(e.g., Gerber, a manufacturer of baby products, faces a serious challenge with

declining U.S. birth rates), technology (e.g., VCR makers are threatened by

DVD players), or new or potential competitors (e.g., Internet service providers

are being threatened by increasing marketing efforts from MSN). Note that

environmental scanning must be performed continuously, since environmental

change does not cease.

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Economic cycles:

The economy goes through cycles. In the late 1990s, the U.S. economy

was quite strong, and many luxury goods were sold. Currently, the economy is

somewhat weak, and many firms are facing the results. Car makers, for

example, have seen declining profit margins (and even losses) as they have had

to cut prices and offer low interest rates on financing. Generally, in good

economic times, there is a great deal of demand, but this introduces a fear of

possible inflation. In the U.S., the Federal Reserve will then try to prevent the

economy from “overheating.” This is usually done by raising interest rates.

This makes businesses less willing to invest, and as a result, people tend to

make less money. During a recession, unemployment tends to rise, causing

consumers to spend less. This may result in a “bad circle,” with more people

losing their jobs due to lowered demands. Some businesses, however, may take

this opportunity to invest in growth now that things can be bought more

cheaply.

STRATEGIC PLANNING AND THE MARKETING PROCESS

Plans and planning:

Plans are needed to clarify what kinds of strategic objectives an

organization would like to achieve and how this is to be done. Such plans must

consider the amount of resources available. One critical resource is capital.

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Microsoft keeps a great deal of cash on hand to be able to “jump” on

opportunities that come about. Small startup software firms, on the other hand,

may have limited cash on hand. This means that they may have to forego what

would have been a good investment because they do not have the cash to invest

and cannot find a way to raise the capital. Other resources that affect what a

firm may be able to achieve include Trademarks/brand names: It would be very

difficult to competefactors such as: Patents: It would be difficult toagainst

Coke and Pepsi in the cola market. Compete against Intel and AMD in the

microprocessor market since both these People: firms have a number of

patents that it is difficult to get around. Even with all of Microsoft’s money

available, it could not immediately hire the Distribution: Stores have

spacepeople needed to manufacture computer chips. For only a fraction of

the products they are offered, so they must turn many away. A firm that does

not have an established relationship with stores will be at a disadvantage in

trying to introduce a new product.

Plans are subject to the choices and policies that the organization has

made. Some firms have goals of social responsibility, for example. Some firms

are willing to take a greater risk, which may result in a very large payoff but

also involve the risk of a large loss, than others.

Strategic marketing is best seen as an ongoing and never-ending process.

Typically:

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 The organization will identify the objectives it wishes to achieve. This

could involve profitability directly, but often profitability is a long term

goal that may require some intermediate steps. The firm may seek to

increase market share, achieve distribution in more outlets, have sales

grow by a certain percentage, or have consumers evaluate the product

more favorably. Some organizations have objectives that are not focused

on monetary profit—e.g., promoting literacy or preventing breast cancer.

 An analysis is made, taking into consideration issues such as

organizational resources, competitors, the competitors’ strengths,

different types of customers, changes in the market, or the impact of

new technology.

 Based on this analysis, a plan is made based on tradeoffs between the

advantages and disadvantages of different options available.

 This strategy is then carried out. The firm may design new products,

revamp its advertising strategy, invest in getting more stores to carry the

product, or decide to focus on a new customer segment.

 After implementation, the results or outcome are evaluated. If results are

not as desired, a change may have to be made to the strategy. Even if

results are satisfactory, the firm still needs to monitor the environment

for changes.

Levels of planning and strategies:

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Plans for a firm can be made at several different levels. At the corporate

level, the management considers the objectives of the firm as a whole. For

example, Microsoft may want seek to grow by providing high quality software,

hardware, and services to consumers. To achieve this goal, the firm may be

willing to invest aggressively.

Plans can also be made at the business unit level. For example, although

Microsoft is best known for its operating systems and applications software, the

firm also provides Internet access and makes video games. Different managers

will have responsibilities for different areas, and goals may best be made by

those closest to the business area being considered. It is also more practical to

hold managers accountable for performance if the plan is being made at a more

specific level. Boeing has both commercial aircraft and defense divisions. Each

is run by different managers, although there is some overlap in technology

between the two. Therefore, plans are needed both at the corporate and at the

business levels.

Occasionally, plans will be made at the functional level, to allow

managers to specialize and to increase managerial accountability. Marketing,

for example, may be charged with increasing awareness of Microsoft game

consoles to 55% of the U.S. population or to increase the number of units of

Microsoft Office sold. Finance may be charged with raising a given amount of

capital at a given cost. Manufacturing may be charged with decreasing

production costs by 5%.

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The firm needs to identify the business it is in. Here, a balance must be

made so that the firm’s scope is not defined too narrowly or too broadly. A firm

may define its goal very narrowly and then miss opportunities in the market

place. For example, if Dell were to define itself only as a computer company, it

might miss an opportunity to branch into PDAs or Internet service. Thus, they

might instead define themselves as a provider of “information solutions.” A

company should not define itself too broadly, however, since this may result in

loss of focus. For example, a manufacturer of baking soda should probably not

see itself as a manufacturer of all types of chemicals. Sometimes, companies

can define themselves in terms of a customer need. For example, 3M sees itself

as being in the business of making products whose surfaces are bonded

together. This accounts for both Post-It notes and computer disks.

A firm’s mission should generally include a discussion of the customers

served (e.g., Wal-Mart and Nordstrom’s serve different groups), the kind of

technology involved, and the markets served.

Several issues are involved in selecting target customers. We will

consider these in more detail within the context of segmentation, but for now,

the firm needs to consider issues such as:

 The size of various market segments;

 How well these segments are being served by existing firms;

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 Changes in the market—e.g., growth of segments or change in

technology;

 How the firm should be positioned, or seen by customers. For example,

Wal-Mart positions itself as providing value in retailing, while

Nordstrom’s defines itself more in terms of high levels of customer

service.

The Boston Consulting Group (BCG) matrix provides a firm an opportunity

to assess how well its business units work together. Each business unit is

evaluated in terms of two factors: market share and the growth prospects in the

market. Generally, the larger a firm’s share, the stronger its position, and the

greater the growth in a market, the better future possibilities. Four

combinations emerge:

 A star represents a business unit that has a high share in a growing

market. For example, Motorola has a large share in the rapidly growing

market for cellular phones.

 A question mark results when a unit has a small share in a rapidly

growing market. The firm’s position, then, is not as strong as it would

have been had its market share been greater, but there is an opportunity

to grow. For example, Hewlett-Packard has a small share of the digital

camera market, but this is a very rapidly growing market.

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 A cash cow results when a firm has a large share in a market that is not

growing, and may even be shrinking. Brother has a large share of the

typewriter market.

 A dog results when a business unit has a small share in a market that is

not growing. This is generally a somewhat unattractive situation,

although dogs can still be profitable in the short run. For example, Smith

Corona how has a small share of the typewriter market.

Firms are usually best of with a portfolio that has a balance of firms in

each category. The cash cows tend to generate cash but require little future

investment. On the other hand, stars generate some cash, but even more cash is

needed to invest in the future—for research and development, marketing

campaigns, and building new manufacturing facilities. Therefore, a firm may

take excess cash from the cash cow and divert it to the star. For example,

Brother could “harvest” its profits from typewriters and invest this in the unit

making color laser printers, which will need the cash to grow. If a firm has cash

cows that generate a lot of cash, this may be used to try to improve the market

share of a question mark. A firm that has a number of promising stars in its

portfolio may be in serious trouble if it does not have any cash cows to support

it. If it is about to run out of cash—regardless of how profitable it is—is

becomes vulnerable as a takeover target from a firm that has the cash to

continue running it.

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A SWOT (“Strengths, Opportunities, Weaknesses, and Threats”) analysis

is used to help the firm identify effective strategies. Successful firms such as

Microsoft have certain strengths. Microsoft, for example, has a great deal of

technology, a huge staff of very talented engineers, a great deal of experience in

designing software, a very large market share, a well respected brand name,

and a great deal of cash. Microsoft also has some weaknesses, however: The

game console and MSN units are currently running at a loss, and MSN has

been unable to achieve desired levels of growth. Firms may face opportunities

in the current market. Microsoft, for example, may have the opportunity to take

advantage of its brand name to enter into the hardware market. Microsoft may

also become a trusted source of consumer services. Microsoft currently faces

several threats, including the weak economy. Because fewer new computers are

bough during a recession, fewer operating systems and software packages.

Rather than merely listing strengths, weaknesses, opportunities, and

threats, a SWOT analysis should suggest how the firm may use its strengths

and opportunities to overcome weaknesses and threats. Decisions should also

be made as to how resources should be allocated. For example, Microsoft could

either decide to put more resources into MSN or to abandon this unit entirely.

Microsoft has a great deal of cash ready to spend, so the option to put resources

toward MSN is available. Microsoft will also need to see how threats can be

addressed. The firm can earn political good will by engaging in charitable acts,

which it has money available to fund. For example, Microsoft has donated

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software and computers to schools. It can forego temporary profits by reducing

prices temporarily to increase demand, or can “hold out” by maintaining

current prices while not selling as many units.

Criteria for effective marketing plans:

Marketing plans should meet several criteria:

 The plan must be specific enough so that it can be implemented and

communicated to people in the firm. “Improving profitability” is usually

too vague, but increasing net profits by 5%, increasing market share by

10%, gaining distribution in 2,000 more stores, and reducing

manufacturing costs by 2% are all specific.

 The plan must be measurable so that one can see if it has been achieved.

The above plans involve specific numbers.

 The goal must be achievable or realistic. Plans that are unrealistic may

result in poor use of resources or lowered morale within the firm.

 The goals must be consistent. For example, a firm cannot ordinarily

simultaneously plan improve product features, increase profits, and

reduce prices.

Consumer Behavior:

Consumer behavior involves the psychological processes that consumers

go through in recognizing needs, finding ways to solve these needs, making

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purchase decisions (e.g., whether or not to purchase a product and, if so, which

brand and where), interpret information, make plans, and implement these

plans (e.g., by engaging in comparison shopping or actually purchasing a

product).

Sources of influence on the consumer:

The consumer faces numerous sources of influence. Often, we take

cultural influences for granted, but they are significant. An American will

usually not bargain with a store owner. This, however, is a common practice in

much of the World. Physical factors also influence our behavior. We are more

likely to buy a soft drink when we are thirsty, for example, and food

manufacturers have found that it is more effective to advertise their products on

the radio in the late afternoon when people are getting hungry.

THE GLOBAL MARKETPLACE

Globalization of Markets and Competition:

Trade is increasingly global in scope today. There are several reasons for

this. One significant reason is technological—because of improved

transportation and communication opportunities today, trade is now more

practical. Thus, consumers and businesses now have access to the very best

products from many different countries. Increasingly rapid technology

lifecycles also increases the competition among countries as to who can

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produce the newest in technology. In part to accommodate these realities,

countries in the last several decades have taken increasing steps to promote

global trade through agreements such as the General Treaty on Trade and

Tariffs, and trade organizations such as the World Trade Organization (WTO),

North American Free Trade Agreement (NAFTA), and the European Union

(EU).

Stages in the International Involvement of a Firm:

We discussed several stages through which a firm may go as it becomes

increasingly involved across borders. A purely domestic firm focuses only on

its home market, has no current ambitions of expanding abroad, and does not

perceive any significant competitive threat from abroad. Such a firm may

eventually get some orders from abroad, which are seen either as an irritation

(for small orders, there may be a great deal of effort and cost involved in

obtaining relatively modest revenue) or as "icing on the cake." As the firm

begins to export more, it enters the export stage, where little effort is made to

market the product abroad, although an increasing number of foreign orders are

filled. In the international stage, as certain country markets begin to appear

especially attractive with more foreign orders originating there, the firm may

go into countries on an ad hoc basis—that is, each country may be entered

sequentially, but with relatively little learning and marketing efforts being

shared across countries. In the multi-national stage, some efficiencies are

pursued by standardizing across a region (e.g., Central America, West Africa, or

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Northern Europe). Finally, in the global stage, the focus centers on the entire

World market, with decisions made optimize the product’s position across

markets—the home country is no longer the center of the product. An example

of a truly global company is Coca Cola.

Note that these stages represent points on a continuum from a purely

domestic orientation to a truly global one; companies may fall in between these

discrete stages, and different parts of the firm may have characteristics of

various stages—for example, the pickup truck division of an auto-manufacturer

may be largely domestically focused, while the passenger car division is

globally focused. Although a global focus is generally appropriate for most

large firms, note that it may not be ideal for all companies to pursue the global

stage. For example, manufacturers of ice cubes may do well as domestic, or

even locally centered, firms.

Some forces in international trade:

The text contains a rather long-winded appendix discussing some

relatively simple ideas. Comparative advantage, discussed in more detail in the

economics notes, suggests trade between countries is beneficial because these

countries differ in their relative economic strengths—some have more

advanced technology and some have lower costs. The International Product

Life Cycle suggests that countries will differ in their timing of the demand for

various products. Products tend to be adopted more quickly in the United States

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and Japan, for example, so once the demand for a product (say, VCRs) is in the

decline in these markets, an increasing market potential might exist in other

countries (e.g., Europe and the rest of Asia). Internalization/transaction costs

refers to the fact that developing certain very large scale projects, such as an

automobile intended for the World market, may entail such large costs that

these must be spread over several countries.

MARKETING RESEARCH

Primary vs. secondary research:

There are two kinds of market research: Primary research refers to the

research that a firm conducts for its own needs (e.g., focus groups, surveys,

interviews, or observation) while secondary research involves finding

information compiled by someone else. In general, secondary research is less

expensive and is faster to conduct, but it may not answer the specific questions

the firm seeks to have answered (e.g., how do consumers perceive our

product?), and its reliability may be in question.

Secondary sources:

A number of secondary sources of country information are available.

One of the most convenient sources is an almanac, containing a great deal of

country information. Almanacs can typically be bought for $10.00 or less. The

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U.S. government also publishes a guide to each country, and the handbook

International Business Information: How to Find It, How to Use It.

Several experts may be available. Anthropologists and economists in

universities may have built up a great deal of knowledge and may be available

for consulting. Consultants specializing in various regions or industries are

typically considerably more expensive. One should be careful about relying on

the opinions of expatriates (whose views may be biased or outdated) or one’s

own experience (which may relate to only part of a country or a certain sub

segment) and may also suffer from the limitation of being a sample of size 1.

Hard vs. soft data:

"Hard" data refers to relatively quantifiable measures such as a

country’s GDP, number of telephones per thousand residents, and birth rates

(although even these supposedly "objective" factors may be subject to some

controversy due to differing definitions and measurement approaches across

countries). In contrast, "soft" data refers to more subjective issues such as

country history or culture. It should be noted that while the "hard" data is often

more convenient and seemingly objective, the "soft" data is frequently as

important, if not more so, in understanding a market.

Data reliability:

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The accuracy and objectivity of data depend on several factors. One

significant one is the motivation of the entity that releases it. For example,

some countries may want to exaggerate their citizens’ literacy rates owing to

national pride, and an organization promoting economic development may

paint an overly rosy picture in order to attract investment. Some data may be

dated (e.g., a census may be conducted rarely in some regions), and some

countries may lack the ability to collect data (it is difficult to reach people in

the interior regions of Latin America, for example). Differences in how

constructs are defined in different countries (e.g., is military personnel counted

in people who are employed?) may make figures of different jurisdictions non-

comparable.

Cost of data:

Much government data, or data released by organizations such as the

World Bank or the United Nations, is free or inexpensive, while consultants

may charge very high rates.

Issues in primary research:

Cultural factors often influence how people respond to research. While

Americans are used to market research and tend to find this relatively un-

threatening, consumers in other countries may fear that the data will be

reported to the government, and may thus not give accurate responses. In some

cultures, criticism or confrontation are considered rude, so consumers may not

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respond honestly when they dislike a product. Technology such as scanner data

is not as widely available outside the United States. Local customs and

geography may make it difficult to interview desired respondents; for example,

in some countries, women may not be allowed to talk to strangers.

ELECTRONIC COMMERCE

Prospects for electronic commerce:

Electronic commerce—usually in the form of sales, promotion, or

support through the Internet—is a hot topic at the moment, evidenced by the

high market capitalization of firms involved in this kind of business. Growth

rates have been considerable over the last two years and are expected to persist,

at least to some extent, for at least the next several years. Yet, it should be

recognized that so far, sales over the Internet account for only a small portion

of sales—especially outside the U.S.

Obstacles to diffusion:

Obstacles to the diffusion of Internet trade come both from enduring

sources and temporary roadblocks which may be overcome as consumer

attitudes change and technology is improved. Currently, Internet connections

are slower than desired so that downloading pictures and other information

may take longer than consumers are willing to wait. "Glitches" in online

ordering systems may also frustrate consumers, who are unable to place their

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orders at a given time or have difficulty navigating through a malfunctioning

site. The lack of non-English language sites in some areas may also be off-

putting to consumers, and registering domain names in some countries is

difficult. Further, shipping small packages across countries may be inefficient

due to high local postage rates and inefficiencies in customs processing. Most

of these obstacles may be overcome within next few years.

Other obstacles may, however, have considerably greater staying power.

First, there are legal problems, as several different countries may seek to

impose their jurisdiction on advertising and laws of product assortment and

business practices. Further, the maintenance of databases, which are essential to

delivering on the promises of e-commerce, may conflict with the privacy rules

of some countries—this is currently a hot issue of contention between the

United States and the European Union. Finally, there are issues of taxation and

collection. While the Clinton Administration has sought to get the WTO to go

along with a three year tax "moratorium" on Internet purchases much like the

one observed in the U.S., strong opposition is expected. A great attraction of e-

commerce in Europe is that people may order from other countries and thus

evade local sales taxes, which can be prohibitive (e.g., 25% in Denmark and

16% in Germany). Some firms will ship to customers in neighboring countries

without collecting sales taxes or duties, with the responsibility of paying falling

on the consumer. Although most consumers who order and do not arrange to

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pay for these taxes get away with it, fines for those caught through random

checks can be severe.

Locus of the site:

Some firms have chosen to maintain a global site, with reference only to

local sales or support offices; others, in contrast, have unique sites for each

country. In some cases, a global site wills hyperlink surfers to a country or

region relevant site. Note that some confusion exists since many sites outside

the U.S. maintain the ".com" designation rather than their countries’ respective

suffix (e.g., ".de" for Germany, ".se" for Sweden, and ".au" for Australia).

Some firms have experienced problems getting their banks to accept credit card

charges in more than one currency, and thus it may be difficult to indicate

precise prices in more than one denomination (one site based in Britain offered

its American customers to be as accurate as possible, based on current

exchange rates, although the charge could be off "by a few pennies.")

Lifecycle stages across the World:

It has been suggested that Europe runs some five years behind the U.S.

in electronic commerce, but some sources dispute this, suggesting that lack of

success among American retailers may have other origins, such as inadequate

adaptation (for example, some British users are put off by American English).

There are, however, some factors which cause most countries run behind. Even

in Europe, Internet access penetration rates are lower than they are in the U.S.,

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and the slower speed associated with downloading Asian characters is

discouraging. In some countries, credit card penetration is lower, and even in

European countries with high penetration rates, consumers are reluctant to use

them. Further, the fact that consumers in most countries have to pay a per

minute phone charge discourages the essential casual and relaxed browsing

common in the U.S. so long as unlimited cable or hardwired access is not

offered.

ECONOMICS

Historical Basis for Trade:

Throughout history, countries have tended to trade with each other, but

usually to a much lesser extent than they do today. There are several reasons:

 Difficulties in transportation and communication made it difficult to

transport manufactured goods which would, in any event, arrive with

long delays after manufacturing;

 Border disputes, a history of invasions, and other tensions between

countries discouraged trade with historical or potential enemies; and

 Paper money was less readily available, so it was more difficult to match

products for barter between the same buyer and sellers.

Nevertheless, countries did have to trade with each other to a more limited

extent since:

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 Certain natural resources (e.g., iron, gold) were not readily available in

some countries;

 Some countries did not have the technology to produce certain goods

(e.g., when steel was introduced, it could be made only in some

countries);

 In some countries, there was a demand for certain specialized goods, but

not enough of a market to justify local production within reasonable

economies of scale.

Today, trade is necessitated by several factors:

 Technological advances are so fast that, at any point, a different country

may have the latest and most effective technology in compelling areas

(e.g., computers, medical);

 Certain product lines (e.g., automobiles) require tremendous economies

of scale to be cost effective, so these costs must be spread over several

different markets;

 With advances in transportation, it becomes essential to take advantage

of relative strengths that different countries have (e.g., technological

leadership, low labor costs).

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Absolute advantage is typically measured in terms of labor input and

refers to the number of units that one worker can produce in one unit of time.

For example, suppose that a Japanese worker can produce fifteen shirts in one

hour, while a Malaysian worker can produce only five. Thus, the Japanese

worker has the absolute advantage. However, suppose that the Japanese worker

can produce two cars a week, while the Malaysian worker can produce only

one tenth of a car in that amount of time. It can be shown that, assuming that

these are the only two countries that can trade with each other; it would be to

the advantage of both countries to trade Japanese cars for Malaysian shirts.

This is known as relative advantage. In practice, it is often more useful to think

of relative technological sophistication vs. lower labor costs.

Protectionism:

Although trade generally benefits a country as a whole, powerful

interests within countries frequently put obstacles—i.e., they seek to inhibit

free trade. There are several ways this can be done:

 Tariff barriers: A duty, or tax or fee, is put on products imported. This

is usually a percentage of the cost of the good.

 Quotas: A country can export only a certain number of goods to the

importing country. For example, Mexico can export only a certain

quantity of tomatoes to the United States, and Asian countries can send

only a certain quota of textiles here.

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 "Voluntary" export restraints: These are not official quotas, but

involve agreements made by countries to limit the amount of goods they

export to an importing country. Such restraints are typically motivated

by the desire to avoid more stringent restrictions if the exporters do not

agree to limit themselves. For example, Japanese car manufacturers have

agreed to limit the number of automobiles they export to the United

States.

 Subsidies to domestic products: If the government supports domestic

producers of a product, these may end up with a cost advantage relative

to foreign producers who do not get this subsidy. U.S. honey

manufacturers receive such subsidies.

 Non-tariff barriers, such as differential standards in testing foreign and

domestic products for safety, disclosure of less information to foreign

manufacturers needed to get products approved, slow processing of

imports at ports of entry, or arbitrary laws which favor domestic

manufacturers.

Justifications for protectionism: Several justifications have been made for

the practice of protectionism. Some appear to hold more merit than others:

 Protection of an "infant" industry: Costs are often higher, and quality

lower, when an industry first gets started in a country, and it thus be very

difficult for that country to compete. However, as the industry in the

country matures, it may be better able to compute. Thus, for example,

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some countries have attempted to protect their domestic computer

markets while they gained strength. The U.S. attempted to protect its

market for small autos American manufacturers were caught unprepared

for the switch in demand away from the larger cars caught U.S. auto

makers unprepared. This is generally an accepted reason in trade

agreements, but the duration of this protection must be limited (e.g., a

maximum of five to ten years).

 Resistance to unfair foreign competition: The U.S. sugar industry

contends that most foreign manufacturers subsidize their sugar

production, so the U.S. must follow to remain competitive. This

argument will hold little merit with the dispute resolution mechanism

available through the World Trade Organization.

 Preservation of a vital domestic industry: The U.S. wants to be able

to produce its own defense products, even if foreign imports would be

cheaper, since the U.S. does not want to be dependent on foreign

manufacturers with whose countries conflicts may arise. Similarly,

Japan would prefer to be able to produce its own food supply despite its

exorbitant costs. For an industry essential to national security, this may

be a compelling argument, but it is often used for less compelling ones

(e.g., manufactures of funeral caskets or honey).

 Intervention into a temporary trade balance: A country may want to

try to reverse a temporary decline in trade balances by limiting imports.

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In practice, this does not work since such moves are typically met by

retaliation.

 Maintenance of domestic living standards and preservation of jobs:

Import restrictions can temporarily protect domestic jobs, and can in the

long run protect specific jobs (e.g., those of auto makers, farmers, or

steel workers). This is less of an accepted argument—these workers

should instead by retrain to work in jobs where their country has a

relative advantage.

 Retaliation: The proper way to address trade disputes is now through

the World Trade Organization. In the past, where enforcement was less

available, this might have been a reasonable argument.

Note that while protectionism generally hurts a country overall, it may

be beneficial to specific industries or other interest groups. Thus, while sugar

price supports are bad for consumers in general, producers are an organized

group that can exert a great deal of influence. In contrast, the individual

consumer does not have much of an incentive to take action to save about

$5.00 a year.

Effects of protectionism:

Protectionism tends to lead to additional tariffs or other protectionist

measures by other countries in retaliation, reduced competition (which results

in inflation and less choice for consumers), a weakening of the trade balance

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(due in part to diminished export abilities resulting from foreign retaliations

and in part because of the domestic currency loses power as there is less

demand for it). An overall effect may be a vicious cycle of trade wars as each

country responds to the other with a "tit for tat."

EFFORTS TO ENCOURAGE TRADE:

The General Agreement on Trade and Tariffs (GATT), which was negotiated at

the Bretton Woods Conference in 1947, sought to encourage international trade

following World War II, when many countries were in bad shape after the war.

There were several objectives:

 To encourage trade in general;

 To replace non-tariff barriers with tariff barriers—i.e., it is acceptable

but not encourage able to impose some burden on foreign products, but

this must be in the form of a readily identifiable duty rather than a more

vague restriction which is less transparent;

 Reciprocity: Countries should respond in kind when other countries

reduce tariffs or barriers;

 Providing the most favorable trade terms offered to anyone to all

members of the agreement.

Note that the above represent general principles, which in practice are

implemented with numerous exceptions. For example, the Uruguay Roundtable

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Agreement, which set up the World Trade Organization, literally runs several

thousand pages. The EU and NAFTA are accepted, but go against the provision

of offering the best terms available to everyone.

The 1994 Uruguay Round Table Agreement resulted in the

establishment of the World Trade Organization (WTO). The main thrust of this

organization is to expand the scope of trade affected (e.g., services are now

covered), the protection of intellectual property (e.g., patents, copyrights, and

trademarks) and, most importantly, to provide binding decisions on disputes

which member countries must meet.

Stages in International Trade Agreements:

Trade between countries is generally started gradually—it takes a long

time before barriers are eliminated entirely or even reduced dramatically. The

stages on slide 11 are points on a continuum. Starting with heavy barriers to

trade, countries may decide to move toward a "free trade area," where two

countries agree on one or more trade liberalizations—e.g., two countries agree

that bananas and steel can now be traded between the two countries with only a

three percent duty (in contrast, say, to a fifteen percent duty that existed

earlier). Water melons and charcoal may then be added later, along with

products that may follow over time.

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A customs union involves a more systematic trade agreement with

reductions in duties and quotas covering a large spectrum of goods and

services. For example, NAFTA systematically reduced tariffs and improved

access of Canada, the U.S., and Mexico, to each others’ markets. Significant

barriers still exist, however.

In a common market, goods can be moved freely from one member

country to another. Although the EU has been calling itself a common market

since the 1970s, it has not quite reached that reality yet. To understand what is

going on here, we need to understand the distinction between duties (taxes

imposed on goods which are imported, but not on goods produced in the home

country) and excise taxes (such as the American sales tax, which is imposed on

all goods, whether they are produced at home or abroad). Currently, individuals

can bring almost anything they want in from other member countries, although

businesses are somewhat less free. For example, one firm offered to deliver a

pallet of two thousand five-hundred beers from Germany, where "sin" taxes are

lower, to Denmark. The authorities intervened and it was decided that the

consumers would have to go and pick up the beers abroad themselves to benefit

from the lower rates. One can now no longer take in duty free goods moving

from one EU country to another, but one can buy whatever one wants in

another EU country, paying a possibly lower sales tax there, and bring it back

to one’s home country. It used to be that many Danish consumers would take a

ferry to Germany and buy a limited quantity of duty free alcohol and tobacco

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which could be taken into Denmark with no additional duties or excise taxes.

This is no longer possible, since both countries are part of the EU, but now it is

possible to take the ferry and not even go aboard in Germany, buying all

desired goods in German territorial waters at the lower German sales tax.

A monetary union involves countries abandoning their own currencies

and monetary policies. The European Union will soon replace the currencies of

some member countries with the Euro (not all countries are eligible to join,

since some have too high a national debt or too large a government budget

deficit, and others have chosen not to join at this time). A monetary union

removes the ability of each country to control its own currency—it can no

longer devalue its currency to improve export opportunities—but also

introduces greater stability in exchange rates so that trade will not be

interrupted by actual exchange rate fluctuations or avoided due to fears or

exchange rate instability. Note that actually implementing a monetary union is

difficult. The EU monetary union will be implemented over time—although

contracts can now be specified in terms of Euros, actual currency will not be

introduced until next year, and even when it is introduced, there will be a

period of overlap where the Euro and the original currencies will coexist.

A political union involves countries actually merging, which laws of the

union superseding national laws. At the present time, no such unions exist,

although many trade related decisions in the EU are now handled through the

European Parliament. (The states of the United States and various other

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countries such as Mexico, Brazil, and Germany are not genuinely sovereign.)

The bottom line here is to recognize that trade liberalization is a gradual

process and that not all countries will move all the way toward completely free

trade.

ECONOMIC ISSUES:

 "Open" vs. "closed" currencies: Not all currencies can be freely

traded—some countries prohibit their currencies from leaving their

borders, although this is mostly confined to developing countries that

want to encourage tourists to spend their remaining currency rather than

converting it back to their own currencies and spending it in their home

countries. There are, however, some currencies for which international

markets are not readily available, because the demand for those

currencies is limited.

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 Exchange rates come in two forms:

 "Floating"—here, currencies are set on the open market based on the

supply of and demand for each currency. For example, all other things

being equal, if the U.S. imports more from Japan than it exports there,

there will be less demand for U.S. dollars (they are not desired for

purchasing goods) and more demand for Japanese yen—thus, the price

of the yen, in dollars, will increase, so you will get fewer yen for a

dollar.

 "Fixed"—currencies may be "pegged" to another currency

(e.g., the Argentinean currency is guaranteed in terms of a dollar value),

to a composite of currencies (i.e., to avoid making the currency

dependent entirely on the U.S. dollar, the value might be 0.25*U.S.

dollar+4*Mexican peso+50*Japanese yen+0.2*German

mark+0.1*British pound), or to some other valuable such as gold. Note

that it is very difficult to maintain these fixed exchange rates—

governments must buy or sell currency on the open market when

currencies go outside the accepted ranges. Fixed exchange rates,

although they produce stability and predictability, tend to get in the way

of market forces—if a currency is kept artificially low, a country will

tend to export too much and import too little.

 Trade balances and exchange rates: When exchange rates are

allowed to fluctuate, the currency of a country that tends to run a trade

deficit will tend to decline over time, since there will be less demand for

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that currency. This reduced exchange rate will then tend to make exports

more attractive in other countries and imports less attractive at home.

Measuring country wealth:

There are two ways to measure the wealth of a country. The nominal per

capita gross domestic product (GDP) refers to the value of goods and services

produced per person in a country if this value in local currency were to be

exchanged into dollars. Suppose, for example, that the per capita GDP of Japan

is 3,500,000 yen and the dollar exchanges for 100 yen, so that the per capita

GDP is (3,500,000/100)=$35,000. However, that $35,000 will not buy as much

in Japan—food and housing are much more expensive there. Therefore, we

introduce the idea of purchase parity adjusted per capita GDP, which reflects

what this money can buy in the country. This is typically based on the relative

costs of a weighted "basket" of goods in a country (e.g., 35% of the cost of

housing, 40% the cost of food, 10% the cost of clothing, and 15% cost of other

items). If it turns out that this measure of cost of living is 30% higher in Japan,

the purchase parity adjusted GPD in Japan would then be ($35,000/(130%) =

$26,923.

In general, the nominal per capita GPD is more useful for determining

local consumers’ ability to buy imported goods, the cost of which are

determined in large measure by the costs in the home market, while the

purchase parity adjusted measure is more useful when products are produced,

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at local costs, in the country of purchase. For example, the ability of

Argentineans to purchase micro computer chips, which are produced mostly in

the U.S. and Japan, is better predicted by nominal income, while the ability to

purchase toothpaste made by a U.S. firm in a factory in Argentina is better

predicted by purchase parity adjusted income.

It should be noted that, in some countries, income is quite unevenly

distributed so that these average measures may not be very meaningful. In

Brazil, for example, there is a very large underclass making significantly less

than the national average, and thus, the national figure is not a good indicator

of the purchase power of the mass market. Similarly, great regional differences

exist within some countries—income is much higher in northern Germany than

it is in the former East Germany, and income in southern Italy is much lower

than in northern Italy.

Economic trends:

Certain countries have high levels of inflation; this figure, for example,

has run at several hundred percent at various times in Brazil. In that case, then,

it becomes important to adjust figures for inflation. Suppose that, as an

illustration that the Brazilian economy grew from 1997 to 1998 from 200

trillion cruzeiros to 410 trillion while there was an inflation of 100%. The

economy, then, did not really double. Therefore, the "real" growth, adjusted for

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inflation, is (410-200)/(100%+100%)-1 = (210/200)-1=5%. (You will not have

to do such calculations on the exam, but you should understand the principle of

real [inflation adjusted] vs. nominal growth.) Please note that even in countries

that have inflation rates as moderate as 1-5%, adjustment for inflation is still

essential.

When one looks at an entire country, note that overall GDP may increase

as population increases while its per capita GDP increases less or even

decreases. Suppose, for example, that the GDP of India from 1997 to 1998

increases from $1 trillion to $1.02 trillion and that there is no inflation but the

population increases by 3%. The population adjusted economic growth would

be ((1.02-1.00)/1.03)- 100%=98.5%-100%=-1.5%. Again, you will not be

asked to make actual calculations on the exam.

Some countries run trade deficits over long periods of time, and when

this happens, their currency is expected to weaken over time. In principle, this

weakening ought to increase exports and decrease exports, but since countries

may be able to borrow from foreign lenders, this may not always happen in

practice. The U.S., for example, has been able to finance deficit spending by

foreign borrowing. While the U.S. dollar declined sharply against the yen in the

1980s and early 1990s, it has remained much more stable in recent years at

100-130 yen per dollar.

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CULTURE

Dealing with culture: Culture is a problematic issue for many marketers

since it is inherently nebulous and often difficult to understand. One may

violate the cultural norms of another country without being informed of this,

and people from different cultures may feel uncomfortable in each other’s

presence without knowing exactly why (for example, two speakers may

unconsciously continue to attempt to adjust to reach an incompatible preferred

interpersonal distance).

Warning about stereotyping:

When observing a culture, one must be careful not to over-generalize

about traits that one sees. Research in social psychology has suggested a strong

tendency for people to perceive an "out-group" as more homogenous than an

"in-group," even when they knew what members had been assigned to each

group purely by chance. When there is often a "grain of truth" to some of the

perceived differences, the temptation to over-generalize is often strong. Note

that there are often significant individual differences within cultures.

Definition:

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The text defines culture as "A learned, shared, compelling, interrelated

set of orientations for members of society." While memorizing definitions is

not essential, note the following parts of the definition:

 Learned: Culture is not genetically based—if that were the case

cultures across the World would have been much more similar to each

other. We learn what is considered appropriate in our culture through

trial and error. If a child engages in competitive behavior, this might be

rewarded in the United States with the expression of parental approval,

while in Japan it might result in subtle shows of disapproval, such as

lack of attention.

 Shared: The beliefs, interpretations, and behaviors are shared by all or

most of the people within the culture, so that it becomes a truly society-

wide phenomenon.

 Compelling: Culture must have implications (such as social disapproval

if contradicted) in order to be considered important.

 Interrelated: Although there may be conflicts between elements of

culture (e.g., respect for seniority may come into conflict with a growing

value of achievement in Singapore), for the most part, elements of

culture constitute a coherent and relatively consistent whole. For

example, the tendency for Japanese business people to bow when

meeting each other and the tendency of lower level Japanese employees

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to show great deference to their superiors are both manifestations of a

strong emphasis on respect.

Cultural lessons:

We considered several cultural lessons in class; the important thing here

is the big picture. For example, within the Muslim tradition, the dog is

considered a "dirty" animal, so portraying it as "man’s best friend" in an

advertisement is counter-productive. Packaging, seen as a reflection of the

quality of the "real" product, is considerably more important in Asia than in the

U.S., where there is a tendency to focus on the contents which "really count."

Many cultures observe significantly greater levels of formality than that typical

in the U.S., and Japanese negotiator tend to observe long silent pauses as a

speaker’s point is considered.

Elements of culture:

The text considers several elements of culture, such as the material

culture, education, and religion. Another way to look at cultural contents

involves the areas of:

 Beliefs: While Americans may attribute success to hard work or skill, it

may be attributed to luck or connections in other cultures.

 Attitudes: Beliefs, feelings, and behavioral intentions may differ. While

the American may appreciate getting a bargain in a sale, this may

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conjure up images of not being able to afford the full price in other

cultures.

 Goals: While "progress" (having new and improved products, for

example) is considered a good thing in the U.S., many Japanese parents

are concerned that the "wa-pro" leaves their children unable to write the

traditional Japanese pictographs.

 Values: In the U.S., individual uniqueness is generally considered a

good thing while in some cultures fitting in with the group is a higher

priority. Thus, for example, an American may enjoy wearing relatively

innovative clothing, which may be frowned upon in a more collectivistic

society.

Cultural characteristics as a continuum:

There is a tendency to stereotype cultures as being one way or another

(e.g., individualistic rather than collectivistic). Note, however, countries fall on

a continuum of cultural traits. Hofstede’s research demonstrates a wide range

between the most individualistic and collectivistic countries, for example—

some fall in the middle.

Hofstede’s Dimensions. Gert Hofstede, a Dutch researcher, was able to

interview a large number of IBM executives in various countries, and found

that cultural differences tended to center around four key dimensions:

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 Individualism vs. collectivism: To what extent do people believe in

individual responsibility and reward rather than having these measures

aimed at the larger group? Contrary to the stereotype, Japan actually

ranks in the middle of this dimension, while Indonesia and West Africa

rank toward the collectivistic side. The U.S., Britain, and the

Netherlands rate toward individualism.

 Power distance: To what extent is there a strong separation of

individuals based on rank? Power distance tends to be particularly high

in Arab countries and some Latin American ones, while it is more

modest in Northern Europe and the U.S.

 Masculinity vs. femininity involves a somewhat more nebulous

concept. "Masculine" values involve competition and "conquering"

nature by means such as large construction projects, while "feminine"

values involve harmony and environmental protection. Japan is one of

the more masculine countries, while the Netherlands rank relatively low.

The U.S. is close to the middle, slightly toward the masculine side.

 Uncertainty avoidance involves the extent to which a "structured"

situation with clear rules is preferred to a more ambiguous one; in

general, countries with lower uncertainty avoidance tend to be more

tolerant of risk. Japan ranks very high. Few countries are very low in

any absolute sense, but relatively speaking, Britain and Hong Kong are

lower, and the U.S. is in the lower range of the distribution.

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Although Hofstede’s original work did not address this, a fifth

dimension of long term vs. short term orientation has been proposed. In the

U.S., managers like to see quick results, while Japanese managers are known

for take a long term view, often accepting long periods before profitability is

obtained.

High vs. low context cultures:

In some cultures, "what you see is what you get"—the speaker is

expected to make his or her points clear and limit ambiguity. This is the case in

the U.S.—if you have something on your mind, you are expected to say it

directly, subject to some reasonable standards of diplomacy. In Japan, in

contrast, facial expressions and what is not said may be an important clue to

understanding a speaker’s meaning. Thus, it may be very difficult for Japanese

speakers to understand another’s written communication. The nature of

languages may exacerbate this phenomenon—while the German language is

very precise, Chinese lacks many grammatical features, and the meaning of

words may be somewhat less precise. English ranks somewhere in the middle

of this continuum.

Ethnocentrism and the self-reference criterion:

The self-reference criterion refers to the tendency of individuals, often

unconsciously, to use the standards of one’s own culture to evaluate others. For

example, Americans may perceive more traditional societies to be "backward"

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and "unmotivated" because they fail to adopt new technologies or social

customs, seeking instead to preserve traditional values. In the 1960s, a

supposedly well read American psychology professor referred to India’s culture

of "sick" because, despite severe food shortages, the Hindu religion did not

allow the eating of cows. The psychologist expressed disgust that the cows

were allowed to roam free in villages, although it turns out that they provided

valuable functions by offering milk and fertilizing fields. Ethnocentrism is the

tendency to view one’s culture to be superior to others. The important thing

here is to consider how these biases may come in the way in dealing with

members of other cultures.

POLITICAL AND LEGAL INFLUENCES

The political situation:

The political relations between a firm’s country of headquarters (or other

significant operations) and another one may, through no fault of the firm’s,

become a major issue. For example, oil companies which invested in Iraq or

Libya became victims of these countries’ misconduct that led to bans on trade.

Similarly, American firms may be disliked in parts of Latin America or Iran

where the U.S. either had a colonial history or supported unpopular leaders

such as the former shah.

Certain issues in the political environment are particularly significant.

Some countries, such as Russia, have relatively unstable governments, whose

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policies may change dramatically if new leaders come to power by democratic

or other means. Some countries have little tradition of democracy, and thus it

may be difficult to implement. For example, even though Russia is supposed to

become a democratic country, the history of dictatorships by the communists

and the czars has left country of corruption and strong influence of criminal

elements.

Laws across borders:

When laws of two countries differ, it may be possible in a contract to

specify in advance which laws will apply, although this agreement may not be

consistently enforceable. Alternatively, jurisdiction may be settled by treaties,

and some governments, such as that of the U.S., often apply their laws to

actions, such as anti-competitive behavior, perpetrated outside their borders

(extra-territorial application). By the doctrine known as compulsion, a firm that

violates U.S. law abroad may be able to claim as a defense that it was forced to

do so by the local government; such violations must, however, be compelled—

that they are merely legal or accepted in the host country is not sufficient.

The reality of legal systems:

Some legal systems, such as that of the U.S., are relatively

"transparent"—that is, the law tends to be what its plain meaning would

suggest. In some countries, however, there are laws on the books which are not

enforced (e.g., although Japan has antitrust laws similar to those of the U.S.,

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collusion is openly tolerated). Further, the amount of discretion left to

government officials tends to vary. In Japan, through the doctrine of

administrative guidance, great latitude is left to government officials, who

effectively make up the laws.

One serious problem in some countries is a limited access to the legal

systems as a means to redress grievances against other parties. While the U.S.

may rely excessively on lawsuits, the inability to effectively hold contractual

partners to their agreement tends to inhibit business deals. In many

jurisdictions, pre-trial discovery is limited, making it difficult to make a case

against a firm whose internal documents would reveal guilt. This is one reason

why personal relationships in some cultures are considered more significant

than in the U.S.—since enforcing contracts may be difficult, you must be sure

in advance that you can trust the other party.

Legal systems of the World:

There are four main approaches to law across the World, with some differences

within each:

 Common law, the system in effect in the U.S., is based on a legal

tradition of precedent. Each case that raises new issues is considered on

its own merits, and then becomes a precedent for future decisions on

that same issue. Although the legislature can override judicial decisions

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by changing the law or passing specific standards through legislation,

reasonable court decisions tend to stand by default.

 Code law, which is common in Europe, gives considerably shorter

leeway to judges, who are charged with "matching" specific laws to

situations—they cannot come up with innovative solutions when new

issues such as patentability of biotechnology come up. There are also

certain differences in standards. For example, in the U.S. a supplier

whose factory is hit with a strike is expected to deliver on provisions of

a contract, while in code law this responsibility may be nullified by such

an "act of God."

 Islamic law is based on the teachings of the Koran, which puts forward

mandates such as a prohibition of usury, or excessive interest rates. This

has led some Islamic countries to ban interest entirely; in others, it may

be tolerated within reason. Islamic law is ultimately based on the need to

please God, so "getting around" the law is generally not acceptable.

Attorneys may be consulted about what might please God rather than

what is an explicit requirements of the government.

Socialist law is based on the premise that "the government is always

right" and typically has not developed a sophisticated framework of contracts

(you do what the governments tells you to do) or intellectual property

protection (royalties are unwarranted since the government ultimately owns

everything). Former communist countries such as those of Eastern Europe and

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Russia are trying to advance their legal systems to accommodate issues in a

free market.

U.S. laws of particular interest to firms doing business abroad:

 Anti-trust. U.S. antitrust laws are generally enforced in U.S. courts even

if the alleged transgression occurred outside U.S. jurisdiction. For

example, if two Japanese firms collude to limit the World supply of

VCRs, they may be sued by the U.S. government (or injured third

parties) in U.S. courts, and may have their U.S. assets seized.

 The Foreign Corrupt Influences Act came about as Congress was upset

with U.S. firms’ bribery of foreign officials. Although most if not all

countries ban the payment of bribes, such laws are widely flaunted in

many countries, and it is often useful to pay a bribe to get foreign

government officials to act favorably. Firms engaging in this behavior,

even if it takes place entirely outside the U.S., can be prosecuted in U.S.

courts, and many executives have served long prison sentences for

giving in to temptation. In contrast, in the past some European firms

could actually deduct the cost of foreign bribes from their taxes! There

are some gray areas here—it may be legal to pay certain "tips" –known

as "facilitating payments"—to low level government workers in some

countries who rely on such payments as part of their salary so long as

these payments are intended only to speed up actions that would be

taken anyway. For example, it may be acceptable to give a reasonable

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(not large) facilitating payment to get customs workers to process a

shipment faster, but it would not be legal to pay these individuals to

change the classification of a product into one that carries a lower tariff.

 Anti-boycott laws. Many Arab countries maintain a boycott of Israel,

and foreigners that want to do business with them may be asked to join

in this boycott by stopping any deals they do with Israel and certifying

that they do not trade with that country. It is illegal for U.S. firms to

make this certification even if they have not dropped any actual deals

with Israel to get a deal with boycotters.

 Trading With the Enemy. It is illegal for U.S. firms to trade with certain

countries that are viewed to be hostile to the U.S.—e.g., Libya and Iraq.

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SEGMENTATION, TARGETING, AND POSITIONING

The importance of STP:

Segmentation is the cornerstone of marketing—almost all marketing

efforts in some way relate to decisions on who to serve or how to implement

positioning through the different parts of the marketing mix. For example,

one’s distribution strategy should consider where one’s target market is most

likely to buy the product, and a promotional strategy should consider the

target’s media habits and which kinds of messages will be most persuasive.

Although it is often tempting, when observing large markets, to try to be "all

things to all people," this is a dangerous strategy because the firm may lose its

distinctive appeal to its chosen segments.

In terms of the "big picture," members of a segment should generally be

as similar as possible to each other on a relevant dimension (e.g., preference for

quality vs. low price) and as different as possible from members of other

segments. That is, members should respond in similar ways to various

treatments (such as discounts or high service) so that common campaigns can

be aimed at segment members, but in order to justify a different treatment of

other segments, their members should have their own unique response

behavior.

Approaches to global segmentation:

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There are two main approaches to global segmentation. At the macro

level, countries are seen as segments, given that country aggregate

characteristics and statistics tend to differ significantly. For example, there will

only be a large market for expensive pharmaceuticals in countries with certain

income levels, and entry opportunities into infant clothing will be significantly

greater in countries with large and growing birthrates (in countries with smaller

birthrates or stable to declining birthrates, entrenched competitors will fight

hard to keep the market share).

There are, however, significant differences within countries. For

example, although it was thought that the Italian market would demand "no

frills" inexpensive washing machines while German consumers would insist on

high quality, very reliable ones, it was found that more units of the inexpensive

kind were sold in Germany than in Italy—although many German consumers

fit the predicted profile, there were large segment differences within that

country. At the micro level, where one looks at segments within countries. Two

approaches exist, and their use often parallels the firm’s stage of international

involvement. Intra-market segmentation involves segmenting each country’s

markets from scratch—i.e., an American firm going into the Brazilian market

would do research to segment Brazilian consumers without incorporating

knowledge of U.S. buyers. In contrast, inter-market segmentation involves the

detection of segments that exist across borders. Note that not all segments that

exist in one country will exist in another and that the sizes of the segments may

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differ significantly. For example, there is a huge small car segment in Europe,

while it is considerably smaller in the U.S.

Inter-market segmentation entails several benefits. The fact that products

and promotional campaigns may be used across markets introduces economies

of scale, and learning that has been acquired in one market may be used in

another—e.g., a firm that has been serving a segment of premium quality

cellular phone buyers in one country can put its experience to use in another

country that features that same segment. (Even though segments may be similar

across the cultures, it should be noted that it is still necessary to learn about the

local market. For example, although a segment common across two countries

may seek the same benefits, the cultures of each country may cause people to

respond differently to the "hard sell" advertising that has been successful in

one).

The international product life cycle suggests that product adoption and

spread in some markets may lag significantly behind those of others. Often,

then, a segment that has existed for some time in an "early adopter" country

such as the U.S. or Japan will emerge after several years (or even decades) in a

"late adopter" country such as Britain or most developing countries. (We will

discuss this issue in more detail when we cover the product mix in the second

half of the term).

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Positioning across markets:

Firms often have to make a tradeoff between adapting their products to

the unique demands of a country market or gaining benefits of standardization

such as cost savings and the maintenance of a consistent global brand image.

There are no easy answers here. On the one hand, McDonald’s has spent a great

deal of resources to promote its global image; on the other hand, significant

accommodations are made to local tastes and preferences—for example, while

serving alcohol in U.S. restaurants would go against the family image of the

restaurant carefully nurtured over several decades, McDonald’s has

accommodated this demand of European patrons.

ENTRY STRATEGIES

Methods of entry:

With rare exceptions, products just don’t emerge in foreign markets

overnight—a firm has to build up a market over time. Several strategies, which

differ in aggressiveness, risk, and the amount of control that the firm is able to

maintain, are available:

 Exporting is a relatively low risk strategy in which few investments are

made in the new country. A drawback is that, because the firm makes

few if any marketing investments in the new country, market share may

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be below potential. Further, the firm, by not operating in the country,

learns less about the market (What do consumers really want? Which

kinds of advertising campaigns are most successful? What are the most

effective methods of distribution?) If an importer is willing to do a good

job of marketing, this arrangement may represent a "win-win" situation,

but it may be more difficult for the firm to enter on its own later if it

decides that larger profits can be made within the country.

 Licensing and franchising are also low exposure methods of entry—

you allow someone else to use your trademarks and accumulated

expertise. Your partner puts up the money and assumes the risk.

Problems here involve the fact that you are training a potential

competitor and that you have little control over how the business is

operated. For example, American fast food restaurants have found that

foreign franchisers often fail to maintain American standards of

cleanliness. Similarly, a foreign manufacturer may use lower quality

ingredients in manufacturing a brand based on premium contents in the

home country.

 Contract manufacturing involves having someone else manufacture

products while you take on some of the marketing efforts yourself. This

saves investment, but again you may be training a competitor.

 Direct entry strategies, where the firm either acquires a firm or builds

operations "from scratch" involve the highest exposure, but also the

greatest opportunities for profits. The firm gains more knowledge about

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the local market and maintains greater control, but now has a huge

investment. In some countries, the government may expropriate assets

without compensation, so direct investment entails an additional risk. A

variation involves a joint venture, where a local firm puts up some of the

money and knowledge about the local market.

MARKET ANALYSIS TOOLS:

Country Map - (Country Map is free to all users worldwide and does not

require a login or password.)

Benchmarking national and sectoral trade performance and

competitiveness. Profiles of 184 countries and territories, freely available.

Country Map provides a wide range of analytical tools, including the Trade

Performance Index on export competitiveness, National Export Performance

and Import Profile, the econometric trade simulation model Trade Sim on

bilateral trade potential and an assessment of the reliability and characteristics

of national trade statistics. Country Map also includes links to Trade

Information Sources, Trade Support Institutions and current ITC projects for

the country concerned.

Trade Map:

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Trade statistics for international business development.

An online database of global trade flows in goods and services and tariff

measures for international business development and trade promotion,

providing detailed export and import profiles and trends for over 5,300

products in over 200 countries and territories. Based on the world’s largest

database COMTRADE, Trade Map presents import/export values and

quantities, growth rates, market shares and market access information. It

allows users to analyze markets, select priority countries for export

diversification, review the performance of competing countries and assess

opportunities for product diversification by identifying existing and potential

trade between countries.

Product Map

Business information for going global a Web portal presenting business

information and intelligence in a product context for 72 product clusters. The

product clusters range from agricultural machinery to wood products. Product

Map includes market studies, price indicators, links to product information,

trade data and links to over 20,000 companies and organizations. Companies

can also create their own basic web site, which is hosted on the portal.

Market Access Map:

Making market access barriers transparent Market Access Map is an

interactive database of tariffs and market access barriers. It contains the market

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access conditions applied at the bilateral level by over 170 importing countries

to the products exported by over 200 countries and territories. Market Access

Map’s strength lies in its wide geographical coverage; its taking into account of

almost all multilateral, regional and bilateral trade agreements; the integration

of ad valorem equivalents of specific tariffs; as well as certificates and rules of

origin. Market Access Map allows users to analyze the protection of any

geographic grouping and sectoral aggregation. It also offers the possibility of

simulating tariff reductions using various negotiation formulae. Developed by

ITC in collaboration with CEPII, UNCTAD and WTO, Market Access Map

aims to enhance market transparency, support international trade promotion,

and to facilitate the analysis of related trade policy issues.

Investment Map:

Identifying foreign investment opportunities

Investment Map is an interactive web-based tool that combines statistics

on foreign direct investment (FDI), international trade and market access into a

single portal. It allows analyses by country, partner and industry. It also

includes information on the location, sales, employment and parent company

for over 70,000 foreign affiliates located in developing countries and

economies in transition. Investment Map, the foreign direct investment with

foreign companies, international trade and tariffs is available online free to

Sub-Saharan Africa users.

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OPINION OF RESPONDENT

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 It is a process of executing, planning, effective marketing mix for the

purpose of achieving objects for all those whose involve in the process.

 International marketing will helps to improve to banking facilities and

advantages.

 International marketing helps to improve to the import & export goods

& services.

 The informal interviewing gives valuable indication as to how use.

 International marketing is helps to develop good relations between two

countries and at international level we get best quality product.

 The concept of International marketing is necessary to developing

countries & it improves economic development of country.

 International marketing will improve the quality & quantity of the

product.

 International marketing improved the competitive efficiency of forms.

 International marketing product is reasonable one customer like the

product and they keep on demanding.

 International marketing depends product life cycle and individual

capacity.

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HYPOTHESIS

 No planned activities existing in marketing.

 Use of modern technology is essential.

 Globalization brings all markets closer.

 Political stability is essential for global market.

 Goods can be made available in a global market.

 Clear cut import –export policies are necessary.

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MAJOR FINDINGS

(Conclusions)

 A product faces competition in a global market.

 Political instability affects International market.

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 Environmental challenges create hurdles like natural calamities.

 International marketing decisions are differ than others.

 Quality products are necessary for global market.

 Advance changes in communication system bring market closer.

 Fastest movement of goods and proper logistic management is possible.

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SUGGESTIONS

 Quality product should be produced.

 Cost of productions should be under control.

 People should vote for political stability.

 Simple rules and regulations for import & export business are necessary.

 E-commerce & E-banking should be used.

 Research & development using should be proper.

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- SAMPLE DESIGN -

The present research work is important for planning are development of

international marketing, for effective research purpose, 50 sample are selected

from various organization. They are of different age groups and they are

engaged directly on indirectly in the field.

AGE GROUP

18 - 25 27
26 - 35 12
36 - 45 09

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46 - 55 02
56 - 65 00

Total 50

The age group of the respondent is stated as above-

SEX

Male Female Total

34 16 50

For research purpose 34 males and 16 females were selected. The

questionnaire containing 17 guest ions were developing with the help of project

guide. The questions are as under:

Question type Question no.

 Yes / no. types 09

 Personal information 04

 Multiple choice 04
Total 17

The questionnaire was circulated among the 50 respondent for getting

information on the subject.

ANALYSIS OF DATA

Section -2 (questions wise)

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Q.1- Have you noticed\witnessed as unplanned changes in

Marketing activities?

Yes No Total
45 05 50
 45 respondents witnessed unplanned changes in marketing activities.

 05 respondents do not notice.

Q.2-Is their any good effect of modern technology on

International Marketing?

Yes No Total
48 02 50
 Almost all agreed to above & very few do not agree.

Q.3-Development of Information & Communication brings

closer- International Markets? Do you agree with?

Yes No Total
47 03 50
 47 respondents say that development in information & communication

brings closer international markets.

 03 do not agree.

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Q.4- Globalization brings changes in International Marketing

System is it true?

Yes No Total
40 10 50
 40 respondents agreed to this & 10 do not respond positively.

Q.5- Is it possible to globalize production of goods and services?

Yes No Total
41 09 50
 41 respondents said product can be globalizes.

 09 respondents disagreed to this.

Q.6- Domestic Marketing Decisions And International

Marketing Decisions Are Not Same? Is It True?

Yes No Total
50 Nil 50
 All respondents agreed to above statement.

Q.7- It Is True That Political Forces Within A Country Affect The

International Marketing Decisions?

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Yes No Total
45 05 50
 45 respondents agree.

 05 respondents disagree.

Q.8- Do you agree that environmental challenges influence the

marketing strategy?

Yes No Total
42 08 50
 42 respondents agree.

 08 respondents do not agree.

Q.9-Do You Agree That Political Stability And Government

Policy Greatly Affects The International Markets?

Yes No Total
40 10 50
 40 respondents agree that political stability & govt. policies affect

international marketing.

 10 do not agree.

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Q.10-Do You Agree That More Competition Is One Of The

Demerits Of International Market?

Yes No Total
47 03 50
 47 respondents are agreeing for stiff competition.

 03 respondents disagree.

ANALYSIS OF DATA

Section -2 (percentage wise)

Q.1- Have You Noticed\Witnessed As Unplanned Changes In

Marketing Activities?

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Yes No Total
90 10 100
 90% respondents witnessed unplanned changes in marketing activities.

 10% respondents do not notice.

Q.2- Is Their Any Good Effect Of Modern Technology On

International Marketing?

Yes No Total
96 06 100
 Almost all agreed to above & very few do not agree.

Q.3- Development Of Information & Communication Brings

Closer- International Markets? Do You Agree With?

Yes No Total
94 06 100
 94% respondents say that development in information & communication

brings closer international markets.

 06% do not agree.

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Q.4- Globalization Brings Changes In International Marketing

System Is It True?

Yes No Total
80 20 100
 80% respondents agreed to this & 20% do not respond positively.

Q.5- Is It Possible To Globalize Production Of Goods And

Services?

Yes No Total
82 18 100
 82% respondents said product can be globalizes.

 18% respondents disagreed to this.

Q.6- Domestic Marketing Decisions And International

Marketing Decisions Are Not Same? Is It True?

Yes No Total
100 Nil 100
 All respondents agreed to above statement.

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Q.7- It Is True That Political Forces Within A Country Affect

The International Marketing Decisions?

Yes No Total
90 10 100
 90% respondents agree.

 10% respondents disagree.

Q.8- Do you agree that environmental challenges influence the

marketing strategy?

Yes No Total
84 16 100
 84 respondents agree.

 16 respondents do not agree.

Q.9-Do You Agree That Political Stability And Government

Policy Greatly Affects The International Markets?

Yes No Total
80 20 100

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 80% respondents agree that political stability & govt. policies affect

international marketing.

 20% do not agree.

Q.10-Do You Agree That More Competition Is One Of The Demerits Of International

Market?

Yes No Total
94 06 100

 94% respondents are agreeing for stiff competition.

 06% respondents disagree.

BIBLIOGRAPHY

 www.google.com

 www.yahoo.com

 International marketing

Vipul Prakashan

 International marketing

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Himalaya Publication

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APPENDIX

The concept of international marketing

Questionnaire:

 Name:

 Age:

 Sex: male/female

 Qualification :

 Profession:

 Have You Noticed\Witnessed As Unplanned Changes In Marketing

Activities?

Yes/No

 Is Their Any Good Effect Of Modern Technology On International

Marketing?

Yes/No

 Development Of Information & Communication Brings Closer-

International Markets? Do You Agree With?

Yes/No

 Globalization Brings Changes In International Marketing System Is

It True?

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Yes/No

 Is It Possible To Globalize Production Of Goods And Services?

Yes/No

 Domestic Marketing Decisions And International Marketing

Decisions Are Not Same? Is It True?

Yes/No

 It Is True That Political Forces Within A Country Affect The

International Marketing Decisions?

Yes/No

 Do You Agree That Environmental Challenges Influence The

Marketing Strategy?

Yes/No

 Do You Agree That Political Stability and Government Policy

Greatly Affects the International Markets?

Yes/No

 Do You Agree That More Competition Is One Of The Demerits Of

International Market?

Yes/No

 Your Opinion?

INDEX

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SR.NO. CONTENT PAGE NO.

1 Need of Study

2 Key term

3 Review of subject

4 Opinion of respondent

5 Hypothesis

6 Analysis of interpretation

7 Conclusion of study

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8 Suggestion

9 Bibliography

10 Appendix

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