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Unit 15
Unit 15
Structure: 15.1 Introduction Learning Objectives 15.2 Nature of International marketing concept 15.3 International marketing concept 15.4 International market entry strategies 15.5 Approaches to international marketing 15.6 International product policy 15.7 International promotions policy 15.8 International branding 15.9 Country of origin effects 15.10 International pricing 15.11 Summary 15.12 Terminal questions 15.13 Answers
15.1 Introduction
In the previous units our study was focused on how marketing strategies are formulated, implemented and controlled in the Indian marketing. After the globalization and liberalization of the Indian economy in the year 1991, Indian enterprises started facing the competition from the global brands. In this context it has become inevitable for all the companies small or big to analyze the international marketing environment and strategies to adapt to it. The companies which were operating in the domestic market are also aggressively redrafting their policies and strategies to suit the global needs. Companies express their desire to enter into the international market because of the following reasons: 1. It identified potential growth opportunities in the foreign markets for its products. 2. The domestic market is matured. 3. Existing customers demand for the international availability of organizations products and services.
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Learning Objectives After studying this unit, you will be able to: Understand the nature of international market. Analyze the appropriate entry strategies for the firm in international market. Examine the approaches to the international market. Asses the importance of components of marketing mixes in the international market. Bring out the importance of country of origin effects.
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Advantages of International marketing: 1. International marketing provides growth opportunities for the companies whose domestic market is maturing. For example, General Motors focuses its strategies on the emerging markets like India 2. It brings the major portion of sales and profits to the company. For example, Unilevers major revenue comes from the Asian markets. 3. It generates employment: Indian textile sector which exports majority of the product produced is a large employer after agriculture and retail. 4. International market also acts as survival place for the companies. If one market becomes unattractive, either they establish their operations in another country or outsource the major functions to streamline the businesses. 5. It helps in improving the standard of living in the country.
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Thats why companies evaluate each country against the market size, market growth, and cost of doing business, competitive advantage and risk level. Checklist for country evaluation
Characteristics 1. Political rights 2. Civil liberties 3. Control of corruption 4. Government effectiveness 5. Rule of law or legal issues 6. Health expenditure 7. Education expenditure 8. Regulatory quality 9. Cost of starting a business 10. Days to start a business 11. Trade policy 12. Inflation 13. Fiscal policy 14. Consumption patterns 15. Competition weightages score
Once the market is found to be attractive, companies should decide how to enter this market. Companies can enter the international market by adoptingany one of the following strategies. They are a. Exporting b. Licensing c. Contract manufacturing d. Management contract e. Joint ownership f. Direct investment Exporting is the technique of selling the goods produced in the domestic country in a foreign country with some modifications. For example, Gokaldas textiles export the cloth to different countries from India. Exporting may be indirect or direct. In case of indirect exporting, company works with independent international marketing intermediaries. This is cost effective
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and less risky too. Direct exporting is the technique in which organization exports the goods on its own by taking all the risks. Maruti Udyog Limited, Indias leading car manufacturer exports its cars on its own. Company can also set up overseas branches to sell their products. Adani Exports, another leading exporter from India has international office in Singapore. Licensing: According to Philip Kotler, licensing is a method of entering a foreign market in which the company enters into an agreement with a license in the foreign market, offering the right to use a manufacturing process, trademark, patent, or other item of value for a fee or royalty. For example, Torrent Pharmaceuticals has license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may cause some problems to the parent company. Licensee may violate the agreement and can use the technology of the parent company. Contract manufacturing: Company enters the international market with a tie up between manufacturer to produce the product or the service. For example, Gigabyte Technology has contract manufacturing agreement with D- link India to produce and sell their mother boards. Another significant manufacturer is TVS Electronics; it produces key boards in its own name as well as for other companies too. Management contracting: In this case, a company enters the international market by providing the know how of the product to the domestic manufacturer. The capital, marketing and other activities are carried out by the local manufacturer, hence it is less risky too. Joint ownership: A form of joint venture in which an international company invests equally with a domestic manufacturer. Therefore it also has equal right in the controlling operations. For example, Barbara, a lingerie manufacturer has joint venture with Gokaldas Images in India. Direct Investment: In this method of international market entry, Company invests in manufacturing or assembling. The company may enjoy the low cost advantages of that country. Many manufacturing firms invested directly in the Chinese market to get its low cost advantage. Some governments provide incentives and tax benefits to the company which manufactures the product in their country. There is government restriction in some countries to opt only for direct investment, as it produces the jobs to the local people.
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This mode also depends on the country attractiveness. It may become risky if the market matures or unstable government exists. Exhibit 1 Shale Gas the next big global opportunity in the fuel market Reliance Industries, which has executed the worlds single largest refinery complex at one place, and one of the most complex gas projects in the depth of the Bay of Bengal on the East coast of India, may join global oil majors in search of shale gas. RIL has been studying the break-throughs and the new technologies that are being used in producing shale gas, which is now a huge rage in US. We are studying the prospects and we will take a decision on the investment in the next six months. RIL is looking at the overseas market and it plans to go big in new technology. We now have the balance sheet to support such a move, said a senior RIL executive. Shale gas is natural gas produced from shale a fine grained sedimentary rock composed of flakes of clay and minerals such as quartz and calcite. The future of energy is a low-carbon regime. Shale gas is one such example. It is somewhat like coal bed methane and is on land. US has made major strides in technology in shale gas, which has made it now a commercial proposition, said the same executive. According to Vijay Kelkar, former petroleum secretary and chairman of the thirteenth finance commission, it is innovative technology using horizontal drilling (allowing the gas to be brought out easily) that made this fuel a commercial possibility. Kelkar had floated a paper on how such non-conventional possibilities existed in gas hydrates-deposits in sea near the Andaman Nicobar islands. RIL which has used advanced technology in its exploration projects in the Krishna Godavari basin, is betting on its expertise in technology to tap unconventional energy sources in the energy value chain. The conglomerate has been eyeing unconventional energy sources such as solar for some time now. But industry analysts are of the view that a fuel like Shale gas is perhaps the best bet as it has already been proved as a viable commercial proposition.
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RIL has had technological collaboration with several international oil companies and a tie up with one of them for making a foray is a possibility. What looks certain is that RIL is planning to make its next big stride in overseas market. According to energy analyst in a brokerage firm, RIL is now set to reap the benefits of its investments in refinery and gas projects within the country. Since it has the necessary balance sheet strength, the company would now look to scaling up in new geographies. We are looking at overseas investments and now that we have the expertise, we want to use it, the senior company executive said. This unconventional gas has caught the fancy of every big oil company ever since new technology made the fuel commercial. According to an energy analyst the cost of production of shale gas has come down by as much as 80% over the last five years in the US with new technologies and fiscal incentives provided by that country to encourage exploration. The largest known reserves of this gas are found in Canada and the US followed by Australia and some parts of Europe. Royal Dutch Shell, Exxon Mobil, Chevron and British Petroleum are among the latest entrants in shale gas exploration. It is estimated that almost 50% of North Americas energy consumption would be met by Shale gas b 2020, said Rick Bott COO of Carin India. Large finds and lowered costs have had implications for the entire gas market in the US as this new unconventional gas has come as a major alternative at a cheaper price. Back in India, early steps are being taken for this new age fuel as well. Cairn India, which recently started producing oil from its field in Barmer, Rajasthan has begun work on Shale gas in its fields. Bott, who has come as the new COO, is leading a team of technologists and explorers to search through the layers of rock in the Barmer hills. We are very excited with the studies and possibilities and are hoping to have pilot projects over the next 12 to 18 months before we submit a detailed plan. The early signs are very positive. (Source: The Economic Times - 16th November 2009)
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1. 2. 3. 4. 5.
Product extension Communication adaptation Product adaptation Product and communication adaptation Product invention.
1. Product extension is marketing a product in the international market without change in the product and promotion activities. Microsoft office 2007 and Microsoft servers are similar to USA market and communication is also unaltered. 2. Communication adaptation: Company does not change the product but adopts a different communication strategy in the foreign market. Colgate sells its toothpaste in the same way all over the world. Their communication strategy varies in different countries. In India and USA, white teeth are preferred by the consumers, while in Indonesia yellow teeth are preferred. Hence Colgate changed its communication strategies for these countries. 3. Product adaptation: Marketer understands the different needs of the consumer and adopts the product according to the local tastes but keeps the communication strategies same. Majority of the Indian consumers are vegetarians. KFC started selling vegetarian burgers in India though it is famous for chicken. The communication strategies of KFC remain the same all over the world. 4. Product and communication adaptation: The product will be modified according to the needs of local market. Nokia, worlds largest cell phone manufacturer increased the volume options in India as most of the places are overcrowded. Consumers in India are not so familiar with English language. Hence Nokia changed its promotion to regional languages also. This is adaptation of product and communication by the company. This strategy is also known as dual strategy. 5. Product invention: Here, marketer develops entirely new product to suit the requirements of the local customers. Nokia manufactured 1100 cell phone only for the Indian market and promoted it as made for India. In this strategy, company may adopt same communication strategy as in the other country or change according to the local market.
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Self Assessment Questions 1. The method in which management know-how is transferred a. Exporting b. Licensing c. Management contract d. Contract manufacturing 2. Global market orientation focuses on product standardization. a. True b. False 3. The strategy in which a company does not change the product but adopts a different communication strategy in the foreign market is known as __________. 4. Product and communication adaptation is also known as a. Product invention b. Straight product extension c. Dual adaptation d. All the above. 5. ____________ is a method of international market entry in which company invests in manufacturing or assembling directly.
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objectives of the promotion program. As we discussed in the promotion unit, media budget in the international marketing is also determined by percentage sales method, competitive parity, resource allocation and objective and task method. Global promotion program may be standardized or adapted. Standardization will help the company to reduce cost and add the value to the product. The pitfall of standardization is local customers who cannot understand global messages. One of the famous companies in the world was showing its advertisements on supply chain management software in India in the same way as in the USA. The advertisement evaluation results were very strange. People can recall only the horse word in the advertisement. As we discussed in the earlier section of the unit, company can adapt its communication strategy only to the local market, or both product and communication can be adapted. Advertisements will have modifications. If marketer wants to sell their products in Japan, he should not use white color as it is considered only for mourning. Communication should not contain anything using cow in Nepal as it is considered as sacred. The following examples of the United Colors of Benetton and Microsoft depict the different advertisements strategies adopted by them.
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Global marketers also use sales promotion, public relations and direct marketing techniques to communicate it to the consumer. Amway direct marketing company adapts same strategy in India, while Cadbury and Microsoft also use public relations and sales promotion techniques to communicate the messages. Sales promotion covers the issue of coupons, the design of competitions, special offers, and distribution of free samples. International businesses who want to employ sales promotions for cross border campaigns face a number of serious practical difficulties, because in many nations the use of certain sales promotion techniques is regarded as unfair competition and as such is subject to stringent legal control. Indeed conflicting laws sometimes apply to these matters in various countries. Money off vouchers is legal in Spain but not in Germany; Lower price for the next purchase are legal in Belgium but illegal in Denmark. In Germany and certain other countries free gifts are forbidden if they constitute a genuine incentive to buy.
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acquire different brands in the international markets. Brand valuation can be done based on the following factors 1. Brand image in the market. 2. Consumer lifestyle and brand influence 3. Branded sales versus unbranded sales 4. Brands contribution to the corporate image. 5. Length of brand loyalty. 6. Market share of brand in each category it operates. 7. Adaptability and standardization of the brand in different countries. 8. Brands ability to be extended to other lines or category. The top 10 brands of 2007 (Source: Business week) INTERBRAND TAKES lots of ingredients into account when ranking the world's most valuable brands. To even qualify for the list, each brand must derive about a third of its earnings outside its home country, be recognizable outside of its base of customers, and have publicly available marketing and financial data. One or more of those criteria eliminate such heavyweights as Visa, Wal-Mart, Mars, and CNN. Interbrand doesn't rank parent companies, which explains why Procter & Gamble doesn't show up. And airlines are not ranked because it's too hard to separate their brands' impact on sales from factors such as routes and schedules. BUSINESSWEEK CHOSE Interbrand's methodology because it evaluates brands much the way analysts value other assets: on the basis of how much they're likely to earn in the future. The projected profits are then discounted to a present value, taking into account the likelihood that those earnings will actually materialize. THE FIRST STEP IS figuring out what percentage of a company's revenues can be credited to a brand. (The brand may be almost the entire company, as with McDonald's Corp., or just a portion, as it is for Marlboro.) Based on reports from analysts at J.P. Morgan Chase, Citigroup, and Morgan Stanley, Interbrand projects five years of earnings and sales for the brand. It then deducts operating costs, taxes, and a charge for the capital employed to arrive at the intangible earnings. The company strips out intangibles such as patents and management strength to assess what portion of those earnings can be attributed to the brand.
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Finally, the Brands strength is assessed to determine the risk profile of those earnings forecasts. Considerations include market leadership, stability, and global reach or the ability to cross both geographic and cultural borders. That generates a discount rate, which is applied to brand earnings to get a net present value. Business Week and Interbrand believe this figure comes closest to representing a brand's true economic worth.
Brand 1. Coca cola 2. Microsoft 3. IBM 4. GE 5. Nokia 6. Toyota 7. Intel 8. McDonalds 9. Disney 10. Mercedes Country of origin USA USA USA USA Finland Japan USA USA USA Germany Sector Beverages Software Software Diversified Telecommunication Automobiles Computer Hardware Restaurants Media Automotive Valuation (in Million$) 65,324 58,709 57,091 51,569 33,696 32,070 30,954 29,398 29,210 23,568
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China or made in USA it may or may not have effect on the people of another country. Ambiguous country of origin labeling While many products made within the European Union carry the country of origin label or marking "Made in EU" or "Made in EC", some non-EU manufacturers in Europe and some others outside the continent of Europe use ambiguous markings, such as "Made in Europe" (made anywhere else in Europe, but not in the EU or EC; this may constitute any country geographically close to Europe or the EU that also wishes to be in) or "Made for Europe" (made anywhere else in the world, but not in Europe or the European Union). These tactics appear to be intended for consumer deception, whereby a buyer not proficient in English may come to believe from looking at the label that the non-EU product he is interested in is made in the EU. Country of origin in international trade When shipping products from one country to another, the products may have to be marked with country of origin, and the country of origin will generally be required to be indicated in the export/import documents and governmental submissions. Country of origin will affect its admissibility, the rate of duty, its entitlement to special duty or trade preference programs, antidumping, and government procurement. Today, many products are an outcome of a large number of parts and pieces that come from many different countries, and that may then be assembled together in a third country. In these cases, it's hard to know exactly what the country of origin is, and different rules apply as to how to determine their "correct" country of origin. Generally, articles only change their country of origin if the work or material added to an article in the second country constitutes a substantial transformation, or, the article changes its name, tariff code, character or use (for instance from wheel to car). Value added in the second country may also be an issue.
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a) b) c) d) e) f) g) h)
Customer perception towards the product. Total demand for the good The degree of competition in the market. Competitors price reactions Substitute products and its effect on the product. Products brand image Cost of production and distribution. Price elasticity of demand for the product
Special problems apply to international pricing, particularly in relation to lack of information, uncertain consumer response, and foreign exchange rate influences and the difficulty of estimating all the extra costs associated with foreign sales. These extra costs might include translating and interpreting fees, export packaging and documentation costs, insurance payments, clearing agents fees, pre-shipment inspection and many other items. Credit periods are very long in some countries. Government price controls apply in certain states. A company may adopt penetration pricing, skimming pricing, cost plus pricing and product life cycle pricing. (As discussed in Pricing Unit) Transfer pricing: Transfer pricing means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries. A crucial feature of large centralized MNCs is their ability to engage in transfer pricing at artificially high or low prices. To illustrate, consider an MNC which extracts raw materials in one country, uses them as production inputs in another, assembles the party finished goods in a third and finishes and sells them in a fourth. The governments of the extraction, production, and assembly countries will have sales or value added taxes; while the production assembly and finished goods countries will impose tariffs on imports of goods. Suppose the MNC values its goods at zero prior to their final sale at high prices. The government of the extraction country receives no revenue from sales taxes because the MNCs subsidiary in that country is selling its output to the same MNCs subsidiary in the production country at a price of zero. Equally the production country raises no income from import tariffs on this transaction, because the raw materials are imported at zero prices! The only tax the MNC pays is a sales tax in the last country in the chain. Transfer pricing at unacceptably low values has been major problem for many developing nations. itself. Thus the government of host country will
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ensure that it receives an appropriate amount of sales tax. Similarly importing countries might impose quantity based instead of price based import duties to ensure reasonable revenues from taxes on imports of an MNCs goods. Tax considerations aside, transfer prices need to be realistic in order that the profitability of various international operations may be assessed. Possible criteria for setting the transfer price include 1. The price at which the item could be sold in the open market. 2. Cost of production or acquisition. 3. Acquisition/ production cost plus a profit mark up 4. Senior managements perceptions of the value of the item to the overall international operations. 5. Political negotiations between the units involved. Normally the solution adopted is at which profits maximized for the company taken as a whole and which best facilities the parent control over subsidiaries operations. Arms length pricing is the method generally preferred by national governments and is recommended in a 1983 code of practice on the subject drafted by the organization for economic cooperation and development. Note how subsidiary that charges a high transfer price will accumulate cash which might be invented more profitability in the selling country than elsewhere. There are some problems with setting a realistic transfer price that are as follows. 1. Differences in the accounting systems used by subsidiaries in different countries. 2. Executives in operating units deliberately manipulate the transfer to enhance the book value of subsidiary profits. 3. Disparate tax rates and investment subsidy levels in various countries. 4. Possible absence of competition in local markets at various stages in the supply chain. Thus a market price in such an area may be artificially high in consequences of the lack of local competition. 5. There might not be any other product directly comparable to the item in question, again making it difficult to establish a market price. 6. If the price is set too high, the selling unit will be able to attain its profit targets too easily and lead perhaps to idleness and inefficiency in the selling subsidiaries.
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Self Assessment Questions 6. Money off vouchers is illegal in a. Spain b. Brazil c. Germany d. Denmark. 7. ___________ means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries. 8. Country of origin need not be marked on the shipping goods but should be entered in the export/import documents a. True b. False. 9. ___________ is Worlds No 1. Brand on the basis of its valuations. 10. Which of the following is not used while setting the transfer pricing a. The price of the product b. Political negotiations c. Cost of production d. Competitors price.
15.11 Summary
International marketing is defined as The performance of business activities designed to plan, price, promote and direct the companys flow of goods and services to consumers or users in more than one nation for a profit. International market entry strategies are exporting, licensing, contract manufacturing, management contract, direct investment and joint ownership. International marketing approaches are of three types. They are domestic market orientation, multi domestic market orientation and global market orientation. Country of origin is the country of manufacture, production, or growth where an article or product comes from. There are differing rules of origin under various national laws and international treaties. Transfer pricing means the determination of the prices at which an MNC moves goods between its subsidiaries in various countries.
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List of Key terms: Information system Data warehousing Data Mining Marketing Intelligence system Marketing research Report
15.13 Answers
Answers to Self Assessment Questions: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Management contract True Communication adoption. Dual adaptation Direct investment Germany Transfer pricing False Coca cola Competitors price
Answers to Terminal Questions: 1. 2. 3. 4. 5. 6. Refer Refer Refer Refer Refer Refer 15.2 15.2 15.4 15.6 15.9 15.10
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Acknowledgement and References: 1) Aaker David, Managing Brand Equity and Building Strong Brands 2) Adrian Palmer (2004), Introduction to Marketing -Theory and Practice (Indian edition), Oxford University Press 3) Arun Kumar and N. Meenakshi (2006), Marketing Management (First edition), Vikas Publishing House Pvt. Ltd. 4) Borne and Kurtz (2007), Contemporary Marketing, Thomson 5) Etzel, Walker, Stanton (2007), Marketing: Concepts and Cases (13th edition), McGraw-Hill
6) Keller and Kotler, Marketing Management
7) Kotler and Armstrong (2008), Principles of Marketing (11th Edition), PHI 8) Lamb, Hair, and McDaniel (2008), Marketing, Thomson 9) Masaki Kotabe and John Wiley & Sons Helsen (2008), Marketing management,
10) Rajan Saxena (2002), Marketing Management (Second edition), Tata McGraw-Hill 11) Sommers and Barnes (2007), Fundamentals of Marketing, McGraw Hill
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