Concepts of International Marketing

Asian School of Business Management

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Objectives

To appreciate marketing shifts under globalization To explain the concept of international marketing To distinguish between domestic and international marketing decisions To identify the reasons for entering international markets To understand the evolutionary process of global marketing

To understand the international marketing process

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Why International Marketing?

During the last century, marketing activities around the world witnessed an unprecedented change. Breakthroughs in information and communication technology and means of transport have contributed to the convergence in tastes and preferences of the consumers around the world. Competitors have become global in their outlook and approach to business and are ready to experiment and adopt different competitive marketing strategies in various markets. These developments have led to interdependency in international trade among nations. Income growth has triggered the consumers desire for more and newer varieties of goods, thereby creating markets for foreign products. Lower trade barriers have triggered a new global organization of production to take advantage of diversity in comparative advantage across the world. Technological progress and income growth have been spurred by increased global competition and efficiency gains through global markets.
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Globalization
Globalization is defined as the process of economic integration of the entire world through the removal of barriers to free trade and capital mobility as well as through diffusion of knowledge and information. It is a historical process of moving at different speeds in different countries and in different sectors. Firms, whose output was previously significantly more limited by the size of their domestic market, now have the chance to reap greater advantages from economies of scale by being global.

Global firms rely on technological innovation to enhance their capabilities.

Growing importance of trade in world economy is an indication of increasing global integration.
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Globalization Index
The level of globalization varies among countries. According to a survey by A.T.Kearney in 2004, Ireland is the most global country followed by Singapore, Switzerland, Netherlands and Finland. The key components of global integration are: Economic Integration: trade, foreign direct investment, investment income Personal Integration: telephone, travel, remittances, personal transfers Technology Integration: Internet users, Internet hosts, secure Internet services Political Organizations: international organizations, UN peacekeeping, treaties
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Globalization of Production and Markets

The process of globalization for a firm mainly consists of globalization of production and globalization of markets.

Globalization of Production
The firms evaluate various locations worldwide for manufacturing activities so as to take advantage of local resources and optimize their manufacturing competitiveness. The firms from the USA, the EU and Japan manufacture at overseas locations more than three times of their exports output produced in their home country. Toyota, one of the worlds leading automakers, has a total of 51 overseas manufacturing companies in 26 countries and markets cars worldwide through its overseas network consisting of more than 160 m and numerous dealers.

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Globalization of Markets
Technology strides in telecommunication, transport and travel have created a new consumer segment in the isolated places of the world. Standardized products are increasingly finding markets across the globe. The globalization of the world market has increased the scope for marketing activities internationally and has also increased the competitive intensity of the global brands in the market.

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Concept of International Marketing

International marketing would involve:

Identifying needs and wants of customers in international markets.

Taking marketing mix decisions related to product, pricing, distribution and communications keeping in view the diverse consumer and market behavior across different countries on one hand and firms goals towards globalization on the other hand. Penetrating into international markets using various modes of entry Taking decisions in view of dynamic international marketing environment

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Terms in International Marketing

Domestic Marketing: Marketing practices within the domestic markets. Foreign Marketing: Methods and practices used in the home market and also applied in overseas markets with little adaptation. For instance, an Indian firm using domestic marketing methods for the European market is known as foreign marketing. Comparative Marketing: Comparative study of two or more marketing systems to find out the differences and similarities. International Trade: A macro-economic term used at national level with a focus on flow of goods, services and capital across national borders. It also involves analysis of commercial and monetary conditions and their effect on transfer of resources and balance of payment.

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Terms in International Marketing (contd)

International Business: A much wider term encompassing all commercial transactions that take place between two countries. These transactions, including sales, investment and transportation may be initiated by government or private companies with an objective to make profit or not. International Marketing: It focuses on the firm-level marketing practices across the border including market identification and targeting, entry mode selection, marketing mix and strategic decisions to compete in the international markets. Global/World Marketing: Global marketing treats the whole world as a single market and standardizes the marketing mix of the companies as far as feasible. A global company does not differentiate between the home country and a foreign country and considers itself as a corporate citizen of the world.
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Domestic Marketing and International Marketing Decisions

International marketing is not simply an extension of domestic marketing. The marketing strategy which is effective in domestic markets can hardly be extended to the overseas markets. An international marketer has to deal with environmental challenges which are beyond the firms control in the international markets and vary significantly among country markets. Environmental challenges in each country market influence the marketing strategy of a firm. The interaction among the environmental factors within a country market and its impact on the marketing mix need to be evaluated while designing an international marketing strategy so as to achieve the desired marketing output.
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Domestic Environmental Challenges

The environmental challenges such as economic, legal and infrastructure affect a firm even though it is marketing solely in the domestic market.

Economic Environment
The domestic tariff structure and various import duty exemption schemes offered by the home government determine the cost of imported inputs which contribute to the final cost of production and therefore affect the cost of competitiveness. The exchange rates and the foreign exchange regulations of the country influence the cost of imported inputs and options available for making and receiving payments from the international market. The national policies on FDI determine the kind and magnitude of foreign investment in the country and the entry mode for foreign firms.
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Legal Environment
The changes in trade policies, fiscal policies and other matters related to bilateral and multilateral trade are made in view of the political priorities of governments in power. The change in government policy also affects the trade policy changes in a country. National governments have the rights to impose restrictions on international trade transactions on the grounds of national security, integrity and preservation of moral and cultural values.

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Infrastructure
The development of physical, financial, human and institutional infrastructure has a positive impact on firms and also encourages them to market internationally. The constraints faced by developing countries including India in terms of physical infrastructure, such as roads, telecommunications and porthandling capacities hinder international marketing efforts and add to the cost of logistics for international trade.

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Overseas Environmental Challenges

The environmental factors which are beyond a firms control in the international markets make the tasks much more complex than marketing domestically. The major factors are: Political Economic Legal Cultural and Social Competition Marketing Channels Technology
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Political Factor
The political stability and the government policies greatly affect the international markets. The CIS countries passing through a transition phase make the business environment very unpredictable for an international marketer.

A firm needs to adopt a risk-avoidance marketing strategy in such cases.

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Economic Factor
The economic stability in the target market facilitates an international marketers task. Economic uncertainties generate severe problems related to certainty of payment and call for specific strategies to manage delayed payments under inflationary conditions. The situation becomes graver in case the payment is to be received in the currency of the importing country

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Legal Factor
Well-developed sound legal systems in the target market help to reduce the marketing risks and a firm can expect a relatively unbiased and fair treatment. Countries at a higher stage of economic development and democratic form of government generally provide a relatively independent and more just legal system.

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Cultural and Social Factors

Countries which have cultural similarity in the target market segments can generally be approached more easily as compared to countries with cultural diversities. The culture of the target market affects product modification especially in case of consumer products such as garments and foodstuffs. Social environment also affects the motives to make a buying decision and the communication strategies need to be customized as per the varied social traits for different markets. The socio-cultural factors greatly influence the buyer-seller relationship in various markets. One has to carefully study the socio-cultural traits of the buyers before designing the marketing strategy.
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Competition
A firm generally faces more severe competition in international markets than in its domestic markets. The competition in international markets includes products imported from various parts of the world produced locally and competitors from the exporters own country. The products imported from other competing countries which have significantly different business environments affect the competitiveness of the products. Various marketing barriers (tariff and non-tariff) make the marketing mix decisions much more complex in international markets.
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Technology
There are vast variations in the availability of technology between developed and emerging markets. Cost-effective technology finds easy access into the markets in developing and least developed countries.

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Reasons for Entering International Markets

The reasons for entering international markets vary from firm to firm and country to country depending upon the market characteristics. However, firms often decide to enter into international markets due to the following reasons: Growth Profitability Achieving Economies of Scale Risk Spread Access to Imported Inputs Uniqueness of Products and Services Marketing Opportunities due to Life Cycle Spreading R&D Cost
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Growth
Firms enter international markets when the domestic market potential saturates and they are forced to explore alternative marketing opportunities overseas. Countries with smaller market size, such as Singapore, Hong Kong and others had no other option but to internationalize.

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Profitability
The price differential among markets also serves as an important incentive to internationalize. Exporters benefit from the higher profit margins in the foreign markets. Strong competition in domestic market limit a firms profitability in that market. Price differentials and enhanced profits in the international markets are some of the fundamental motives for exporting. Some of the policy incentives such as exemption from indirect taxes and duties, several incentives by the governments for export-oriented production and marketing support schemes contribute to enhance the profitability of firms in international marketing.

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Achieving Economies of Scale

Large scale production capacities necessitate domestic firms to dispose their goods in international markets once the domestic markets become saturated. One of the basic reasons behind the internationalization of Great Britain during the Industrial Revolution was domestic market saturation.

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Risk Spread
A company operating in domestic markets is highly vulnerable to economic upheavals in the home market. Overseas markets provide an opportunity to reduce their dependence on one market and spread the market risks.

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Access to Imported Inputs

The national trade policies provide for import of inputs used for export production. There are a number of incentive schemes which provide duty exemption or remission on import of inputs for export production.

It helps the companies in accessing imported inputs and technical know-how to upgrade their operations and increase their competitiveness.

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Uniqueness of Product or Service

The products with unique attributes are unlikely to meet any competition in the overseas markets and enjoy enormous opportunities in international markets. Herbal and medicinal plants, handicrafts, value-added BPO services and software development at competitive prices provide Indian firms an edge over other countries and smoothen their entry into international markets.

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Market Opportunities due to Life Cycle

Each market shows a different stage of life cycle for different products, which varies widely across country markets. When a product or service gets saturated in the domestic market, a firm may make use of such challenges and convert them into marketing opportunities by operating into international markets. Strategies to launch new products in the existing markets or identify new markets for existing products may be adopted.

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Spreading R&D Costs

By way of spreading the potential market size, a firm quickly recovers the costs incurred on research and development. It is especially true for products involving higher R&D costs. International markets facilitate speedy recovery of such costs because of the large market size and also due to larger coverage of the right market segments in international markets.

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Evolutionary Process of Global Marketing

Domestic Marketing

Export Marketing
International Marketing

Multinational Marketing
Global Marketing

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Domestic Marketing
Market Focus: Domestic Orientation: Ethnocentric Marketing Mix Decisions: Focused on domestic customers

Ethnocentrism is defined as the predisposition of a firm to be predominantly concerned with its viability and legitimacy only in its home country.

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Export Marketing
Marketing Focus: Overseas (Targeting and entering foreign markets)

Orientation: Ethnocentric
Marketing Mix Decisions:

Focused mainly on domestic customers

Overseas marketing generally an extension of domestic marketing Decisions made at headquarters

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International Marketing
Marketing Focus: Differentiation in country markets by way of developing or acquiring new brands. Orientation: Polycentric Marketing Mix Decisions: Developing local products depending on country needs Decisions by individual subsidiaries

The polycentric orientation recognizes the differences among markets and the need to respond to the market forces with market-specific strategies.
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Multinational Marketing
Marketing Focus:

Consolidation of operations on regional basis Gains from economies of scale

Orientation: Geocentric Marketing Mix Decisions: Globalization of marketing mix decisions with local variants Joint decision making across firms global operations

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Globalization of Markets
The globalization of markets leads to:

Reduction of cost efficiencies and duplication of efforts among national and regional subsidiaries.
Opportunities for the transfer of products, brands and other ideas across subsidiaries. Emergence of global customers.

Improved linkages among national marketing infrastructures leading to the development of a global marketing infrastructure.

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Process of International Marketing

Motivation for International Marketing SWOT Analysis Decision to enter International Markets International Marketing Decisions

Enter International Markets

Review Performance Consolidate marketing efforts to Global Marketing

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International Marketing Decisions

Market Identification and Targeting Entry Mode Selection Product Decisions Distribution Channels

Market Promotion Decisions

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