International Marketing Environments PDF

**Framework for analysing international Marketing environments** In simple terms, 'environment' implies everything that is external to the organization. It is something that surrounds an enterprise i.e. the sum-total of external factors within which the enterprise operates. The international marketing environment is a complex constellation of demands & constraints which the firm faces as it attempts to compete and grow. This international marketing environment consists of a number of elements most of which lie outside the control of the firm. International marketing environmental analysis is a pre-entry operation that starts from analysis which is defined as the process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic, and social settings to determine opportunities and threats to their firms. Environmental diagnosis consists of managerial decisions made by analysing the significance of the data (opportunities and threats) of the environmental analysis. Today a much greater emphasis is given than in the past to the fact that environmental analysis is an essential prerequisite for strategic management decision-making. It is now unquestionably accepted that the prospects of a business depend not only on its resources but also on the environment. Just as the life and success of an individual depend on his innate capability, including physiological factors, traits and skills, to cope with the environment, the survival and success of a business firm depend on its innate strength the physical resources, financial resources, skill and organization and its adaptability to the environment. Environmental forces influence organization marketing. Some of these forces are external to the firm, while others come from within Successful marketing depends largely on a company\'s ability to manage its marketing programs within its environment. To do this, firm marketing executives must determine what makes up the firm's environment and then monitor it in a systematic, ongoing fashion. These marketing executives must be alert to spot environmental trends that could be opportunities or problems for their organization. And they must be able to respond to these trends with the resources they can control. External forces have considerable influence on any organizations marketing system. Therefore, environmental monitoring also called environmental scanning is deemed necessary. *Environmental monitoring* is the process of gathering information regarding a company\'s external environment, analyzing it, and forecasting the impact of whatever trends the analysis suggests. These uncontrollable external forces that influence an organization\'s marketing activities includes: Political and legal forces, Social and cultural forces, Economic condition, Demography, Competition, and Technology **International Marketing Environment--5 Major Factors Affecting International Marketing Environment** The successful companies in the global perspectives are constantly scanning the marketing environment and presenting new opportunities and threats. The successful x business firms are continuously updating their products with the latest technology and requirements in the changing marketing environment globally. It is difficult to survive for those companies, which fails to see changes as an opportunity in the international business. It is for the marketing managers in an organization to make such efforts regularly for scanning the international marketing environment forces. In the economic area and in the global perspectives the companies and consumers are increasingly affected by the international market and other forces. Therefore the firm must monitor the following major forces, within the changing global scenario. It includes geographical factors, demographical factors, economic forces, socio-cultural forces, political forces and legal forces in the international marketing. A marketer must pay his attention to all these forces as the analyses of all these factors present new opportunities and there after methods to cope with threats in the international business. ***2.1. Geographical Environment:*** Geographical environment is determined on the basis of the analysis of various geographical units such as, neighbourhoods, cities regions, states and nations etc. The business firm operates its business in one or a few geographical areas or in all but pay its specific attention on the potential areas. A firm divides the market into different targeted units on the basis of geographical characteristics. The environment prevailing in the particular location helps a marketer to decide the marketing mix in the international business. For example the purchasing power of the consumers of two nations may be different. It influences the buying behavior of the individuals, which ultimately influences the marketing decision making process as well as market mix. If a company has planned to enter the U.S. market, the firm should understand the geography of that country before deciding about the marketing strategy to be adopted there. It must understand the characteristics of the buyers at different locations and to decide the product and other features accordingly. The geographical characteristics should be examined very carefully in the international marketing decisions. **The geographical environment can be determined by the following:** i\. Geographical characteristics of the people. ii\. Consumer's taste for the product. iii\. Geographical characteristics of the market. iv\. Attitude of the host country. v\. Potential for growth. The manufacturers should distinguish carefully among the regions, in which they are planning to operate and to select those markets where they have favourable environment to operate and also have a comparative advantages of business in the international marketing. **The world market can be subdivided on the basis of following market characteristics:** i\. High market potential zones. ii\. Less market potential zones. iii\. Average market potential zones. iv\. High risk countries. v\. Low risk countries. vi\. Developed economies. vii\. Developing economies or third world countries. viii\. Market potential in the home country. ix\. Other demographical factors. The marketing strategy is determined on the basis of above mentioned characteristics of the world market in the international business. It varies from market to market and product to product. In one market setup one product can be a luxurious, whereas it may be necessities in the other market. The marketing environment of a particular nation is also depends upon the market characteristics. In high risk nations the marketing environment is always different in comparison to low risk countries. It also more or less depends upon the political structure of that country and how frequently the government of that country is accepting the different changes in the market. The marketing environment of developed nations and developing nations is also different in many ways. The people of the developed nations do have good purchasing power. They are very quality conscious. The demographical variables also play an important role to analyze all the above mentioned variables in depth. The age groups of a particular zone, educational qualification, household system, sex, marital status and background etc. are the basis for examining the geographical environment in the international business. Therefore it is for the marketers to analyze, examine and scan all other variables while taking any decision and making any strategy about the marketing mix in the international business. The geographical environment helps the marketers to concentrate their marketing efforts to the potential countries so that all other marketing efforts could be utilized fruitfully. It is evident that geographical mobility always changes the habits of the consumers. Therefore the scanning of geographical environment should be carried out scientifically in the international business. ***2.2 Demographic Environment:*** Demographic environment of a country explain the pattern of population and other changes in the societies, cities, regions and nations. It is explained on the basis of age classification, sex classification, educational level, marital status, household patterns, religion based classification and nationality etc. The analysis of demographical environment is useful for market segmentation, taking marketing decisions and formulating marketing strategies. Demography provides an analysis of quantitative as well as qualitative aspects of the population. **i Worldwide Population Growth:** The world population is showing an explosive growth rate. The world population is growing at an alarming rate. The majority of the world population is still residing in the less developed nations. According to one report, it is about 76 percent of world population who are residing in the less developed regions of the world. The death rate is falling in every part of the world but the birth rate is still stable in the developing nations. **ii. Population Age Mix:** The population of different countries varies in their age mix. The age factor is an important factor in deciding marketing strategy in the international business. The Mexico is a country with very young population in the world. On the other hand Japan is a country with one of the oldest population in the world. The age mix can be further subdivided, for example for marketers, the most populous age groups decide the international marketing environment. The marketing strategy is decided according to the most populous factor. It depends which group in the age mix is dominating. **The Impact of Higher Growth Rate of Population on Marketing Strategy:** The higher growth rate of population do have a big impact on the international business scenario. If the population of a country is growing very rapidity, it does not mean that the market is also growing. It must be supported by sufficient purchasing power. Therefore the company must analyze the market opportunities of their product before deciding about the marketing mix. Thus it can be said that while deciding marketing strategy for the business it is not only that the growth pattern is considered, but the study of potentiality of a particular segment is also equally important. Unless or until the growth rate of population or the entire population structure is not backed with the purchasing power, it will be meaningless from marketing point of view. **iii. Educational Groups:** The population of any country can be divided on the basis of following subgroups of educational qualifications- (i) Illiterates groups (ii) High school dropouts (iii) High school certificates (iv) College degrees and (v) Other professional degrees. The impact of our educational qualification can be observed from our day to day behaviour. An educated to the higher level will be demanding for the quality products of each kind. The consumer behaviour also tends to influenced by the educational level. Therefore the marketing strategy for a product or market is to be decided by keeping in mind the educational level of that particular society, culture and nation etc. **iv. Household Pattern:** The household patterns of a family do have its big impact on the buying patterns. It may consist of a husband and wife, couples with children, single parent families, children married couples, traditional families, non-traditional families. The buying behaviour of the customers is influenced by all these factors. A marketer must consider all these factors while taking any kind decisions of such kinds in the international business. It is evident that the factors like age, sex, educational level, life style and household pattern etc. influences the marketing environment to a great extent in the international business. Each group do have their own preferences and choices. The demographic patterns are considered highly reliable in the short run as well as medium period of time. The various multinational companies are designing their marketing product, strategy and market programmes for the specific markets instead of man's market. **v. Gender Groups:** Men and women tend to have different attitude and behaviour. It is based partly upon genetic characteristics and partly upon sociological features. "Women tend to take in more of the data in their immediate environment whereas men tend to focus on the part of the environment that helps them in achieving a goal." The gender based environmental factors are helpful in deciding marketing mix in the international business. The product can be designed specifically for each group. The scanning of demographic environment pertaining to the gender groups should be considered while deciding marketing strategy for the product and a particular market. **2.3. Technological Environment** The most dramatic force that shaping the destiny of an international firm is technological environment. Technological know-how impacts all spheres of an international marketer's operations including production, information system, marketing etc. The international marketers must understand technological development and its impact on its total operations.\ The marketing intelligence system may help the international firm to know technological orientations of other enterprises and to update its own technologies to remain competitive. Research and Development (R&D) has a vital role to play in increasing technological ability of a firm. Technology is a major driving force both in international marketing and in the move towards a more global marketplace. The impact of technological advances can be seen in all aspects of the marketing process. The ability to gather data on markets, management control capabilities and the practicalities of carrying out the business function internationally have been revolutionized in recent years with the advances in electronic communications. Shrinking communications means, increasingly, that in the international marketplace information is power. The technological changes result in changes in consumption pattern and marketing systems. Anew technology may improve our lives in one area while creating environmental and social problem in another area. The marketers should monitor the following trends in technology: the pace of change, the opportunities for innovation, varying research and development budgets, and increased regulation. He should watch the trends in technology and adopt the latest technology so as to stay alive in the field. **2.4. Economic environment** People alone do not make a market. They must have money to spend and be willing to spend it. Consequently, the economic environment is a significant force that affects the marketing activities of just about any organization. A marketing program is affected especially by such economic factors as the current and anticipated stage of the business cycle, as well as inflation and interest rate. Firms are very sensitive for the following major and other economic factors: *Energy price; Interest rates; Exchange rates; Taxation; Inflation/deflation and Economic* growth of the nation. There is also a range of economic factors at an industry level such as the availability of land, capital and labor in different economies and regions. In economic language, the three central economic tasks of every society are really about choices among on economy\'s inputs and outputs. Inputs are commodities or services used by firms in their product processes. Outputs are the various useful goods or services that are either consumed or employed in further production. We classify inputs, also called factors of production, into three broad categories. **Land** or more generally natural resources represents the gift of nature to our production processes. It consists of land used for farming or for underpinning houses, factories and roads **Labor** consists of the human time spent in production -- working in automobile, factories, teaching school etc. **Capital** resources form the durable goods of an economy, produced in order to produce yet other goods. Capital goods include machines, roads, computers, hammers, trucks etc. **2.4.1 Economic Systems** Economic organization can be briefly discussed as follows: a. **Command Economy** A command economy is one in which the government makes all decisions about production and distribution. In a command economy, the government owns considerable fractions of the means of production (land and capital). b. **Market Economy** A market economy is one in which individuals and private firms make the major decisions about production and consumption. Firms produce the commodities that yield the highest profits (the what) by the technique of production that is least costly. Consumption is determined by individual decisions about how to spend the wages and property incomes generated by their labor and property of consuming (the for whom) c. **Mixed Economy** With elements of market and command, there has never been a 100% market economy. Today most decisions are made in the market place. But the government plays an important role in modifying the functioning of the market. Government sets laws and rules that regulate economic life, produces educational and police services, and regulates production and business. **2.4.2 Trade Barriers** Even though a nation will be benefited from international marketing, dealing in international market is subject to some barriers. Government will impose several barriers to discourage international trade: depending upon the political situation; economic development; imports adverse effect to balance of payment of a country; etc. Some of the barriers imposed by most government to protect the local industries could be broadly classified under two major heads: tariff barriers and non-tariff barriers. A. **Tariff barriers** Tariff is derived from a French word meaning rate, price, or list of charges is a Customs duty or a tax on products that moves across borders." Classification of Tariff: **1. Direction: Import and Export** Tariff is often imposed on the basis of the direction of product movement that is, on imports or exports, with the latter being the less common one. When exports Tariff are levied, they usually apply to an exporting country's scarce resources or raw materials (rather than finished manufactured materials.) **2. Purpose: Protective and Revenue** The purpose of protective Tariff is to protect home industry, agriculture, and labor against foreign competitors by trying to keep foreign goods out of country. The purpose of revenue tariff, in contrast is to generate tax revenues for the Government. Compared to a protective tariff, a revenue tariff is relatively low. **3. Length: Tariff surcharge and countervailing duties** Protective Tariff can be further classified according to length of time. A tariff surcharge is a temporary action, whereas a countervailing duty is a permanent surcharge. Countervailing duty is charged on certain imports when foreign Governments subsidize products. These duties are thus assessed to offset a special advantage or discount allowed by an exporter Government. Usually, a government provides an export subsidy by rebating certain taxes of goods is exported. **4. Import Restraints: Special duties and Variable duties** Special duties are extra duties for certain items. The purpose is to make it difficult to import and to sell those products. Variable duties mean different rates for different product categories, depending on how much the products have been processed and how much more processing they will undergo. **5. Rates: - Specific, Advalorem** Specific duties are a fixed or specified amount of money per unit of weight gauge, or other measure of quantity based on a standard physical unit of a product. Advalorem duties are duties according to value. They are stated as fixed percentage of the invoice value and are applied as a percentage to the duty able value of the imported goods. **6. Distribution Point: - Distribution and Consumption taxes** Single stage sales tax is a tax collected only at one point in the manufacturing and distribution chain. The single stage sales tax is not collected until products are purchased by final consumers. **A value added tax (VAT)** is a multi-stage, non-cumulative tax on consumption. It is a national sales tax levied at each stage of the production and distribution system through only on the value added at that stage. **1. Customs entry procedures** Customs and entry procedures can be employed as non-tariff barriers. These restrictions involve classification, valuation, documentation, license, inspection, and health and safety regulation. ** Classification** How a product is classified is can be arbitrary and inconsistent and is often based on a custom officer's judgment, at least at the time of entry. ** Valuation** Regardless of how products are classified, each product must still be valued. The value affects the amount of tariff levied. A customs appraiser is the one who determines the values. ** Documentation** Documentation can present another problem at entry because many documents and forms are often necessary, and the documents required can be complicated. ** License or permit** Not all the product can be freely imported. Controlled imports require license or permit. E.g., Importation of distilled spirits, wines, malt beverages, arms, ammunition, and explosives etc require a license or permit. ** Inspection** Inspection is an integral part of product clearance. Goods must be examined to determine quality and quantity. This step is highly related to other customs and entry procedure. First, inspection classifies and values products for tariff purpose. **2. Product Requirement** **Packaging, Labelling, and Marking**: - Packaging, Labelling, and Marking are considered together because they are highly interrelated. Many products must be packaged in a certain way for safety and other reasons. **3. Quota**  Quotas are a quantity control on imported goods. Generally, they are specific provisions limiting the number of foreign products imported in order to protect local firms and to conserve foreign currency. ***Absolute Quota***: - An absolute quota is the most restrictive of all. It limits in absolute terms the amount imported during a quota period. ***Tariff Quota:*** - a tariff quota permits the entry of limited quantity of the quota product at reduced rate of duty. Quantities in excess of the quota can be imported but are subject to a higher duty rate. **Voluntary Quota**: - voluntary quota is a formal agreement between nations or between a nation and an industry. This agreement usually specifies the limits of supply by product, country and volume. **4. Financial Control**  Financial regulations can also function to restrict international trade. These restrictive monetary policies are designed to control capital flow so that currencies can be defended or imports controlled. **Exchange Control: -** An exchange control is a technique that limits the amount of the currency that can be taken abroad. **Multiple exchange rates: -** The objective of multiple exchange rates is twofold: to encourage export and import of certain goods and to discourage exports and imports of others. Prior import deposit and credit restriction: Financial barriers can also include specific limitations or import restraints, such as prior import deposits and credit restriction. Both of these barriers operate by imposing certain financial restriction on importers. **2.4.3 Economic Systems** Economic systems provide another basis for classification of governments. These systems serve to explain whether businesses are privately owned or government owned, or whether there is a combination of private and government ownership. Basically, these systems can be identified: Communism, Socialism and Capitalism. i. **Communism** A movement toward communism is accompanied by an increase in government interference and more control of factors of production. A movement toward capitalism is accompanied by an increase in private ownership. Communist theory holds that all resources should be owned and shared by all the people (I. e. not by profit seeking enterprises) for the benefit of the society. In practice, it is the government that controls all productive resources and industries, and as a result the government determines jobs, production, price, education, and just about anything else. (Centrally- planned economies). E.g., China, Soviet Union, Eastern Europe, Vietnam, North / Korea: ii. **Socialism** The degree of government control that occurs under Socialism is somewhat less than under communism. A socialist government owns and operates the basic, major industries but leaves small business to private ownership. Socialism is a matter of degree, and not all socialist countries are the same. I.e., a socialist country such as Poland leans toward communism, as evidenced by its rigid control over prices and distribution. France's socialist system, in comparison, is much closer to capitalism than it is to communism. iii. **Capitalism** At the opposite end of the continuum from communism is Capitalism. The philosophy of capitalism provides for a free -- market system that allows business competition and freedom of choice for both consumers and companies. It is a market-oriented system in which individuals, motivated by private gain, are allowed to produce goods or services for public consumption. Under competitive condition, product price is determined by demand and supply. **2.4.4 Economic Cooperation** In an attempt to reduce trade barriers and improve trade, many countries with in the same geographic area often join together to establish various forms of economic cooperation. Some forms of economic cooperation are as illustrated below: - **A. Free Trade Area** The countries involved eliminate duties among themselves while maintaining separately their own tariff against outsiders. The purpose of free trade area is to facilitate trade among member nations. The problem with this kind of arrangement is the lack of coordination of tariff against non-members, enabling non-members to direct their exported products to enter the free trade area at the point of lowest external tariff. **B. Customs Union** A custom union is an extension of the free trade area in the sense that member countries must also agree on a common schedule of identical tariff rates. In effect, the objective of the customs union is to harmonize trade regulations and to establish common barriers against outsiders. **C. Common Market** A common market is a higher and more complex level of economic integration than either a free trade area or a customs union. In a common market, countries remove all customs and other restrictions on the movement of the factors of production (such as services. raw materials, labor and capital) among the members of the common market **D. Political Union** A political union is the ultimate type of economic corporation because it involves the integration of both economic and political policies. **2.5 Socio-cultural environment** **2.5.1 Social Environment** Human beings live in a society. A contemporary society is comprised of various social classes depicting a wide range of values, attitudes and behaviour. The social and cultural influences on international marketing are immense. The international marketer intends to provide an insight into the social environment to know the constituents of a foreign society and to understand how social classes differ in their buying habits, brand choice and living patterns. Differences in social conditions, religion and material culture all affect consumers' perceptions and patterns of buying behaviour. It is this area that determines the extent to which consumers across the globe are either similar or different and so determines the potential for global branding and standardisation. Also, researches on social environment have come out with the following social classification and their buying/consumption pattern which are helping international marketer to decide about their strategy: **a) Upper Class:** Consumers belonging to Upper Class serve as a reference group for others to the extent that their consumption decisions trickle down and are imitated by other social classes. They constitute a good market for jewellery, antiques, homes and vacations. **b) Lower Upper Class**: This class tends to show patterns of conspicuous consumption to impress those belonging to less than their social position. They seek to buy the symbols of homes, schools, automobiles etc. **c) Upper Middle Class**: This class is a quality market for good homes, clothes, furniture's and appliance. They seek to run gracious home, entertaining friends and clients.\ **d) Middle Class**: This class constitutes a major market for do-it-yourself products. This group is involved in religious activities and tries to avoid highly styled clothing's.\ **e) Working Class**: This class basically aims at meeting salient human needs. They also strive for security and interested in items that enhanced their leisure. **f) Upper lower Class**: The upper lowers are found to be sports fan, heavy smokers. In view of their financial conditions, they tend to show interest in the low-priced consumer goods.\ **g) Lower-lower Class**: Individuals belonging to this class usually have broken down homes, dirty clothes and raggedy possessions. **2.5.2 Cultural Environment** Culture is everything that people have, think and do as members of the society. It is the sum total of knowledge, beliefs, arts, morals, laws, and customs and any other capabilities and habits acquired by humans as members of the society. The environment which is comprised of norms, taboos, religious sentiments, habits that determines the lifestyle, attitude towards different goods and buying decisions is regarded as cultural environment. Since consumer behavior is highly influenced by cultural environment, a firm pursuing international marketing must know the cultural differences in which international efforts are made. **2.5.2.1 Environmental sensitivity for cultural understanding** Environmental Sensitivity is the extent to which products must be adapted to the culture-specific needs of different national markets. A useful approach is to view products on a continuum of environment sensitivity. At one end of the continuum are environmentally insensitive products that do not require significant adaptation to the environments of various world markets. At the other end of the continuum are products that are highly sensitive to different environmental factors. A company with environmentally insensitive products will spend relatively less time determining the specific and unique conditions of local markets because the product is basically universal. The greater a product's environmental sensitivity, the greater the need for managers to address country-specific economic, regulatory, technological, social and cultural environmental conditions. **Influence of culture on consumption** Consumption patterns, living styles, and the priority of needs are all dictated by culture. Culture prescribes the manner in which people satisfy their desires. Not surprisingly, consumption habits vary greatly. **Influence of culture on thinking process** In addition to consumption habits, thinking processes are also affected by culture. When traveling overseas, it is virtually impossible for a person to observe foreign cultures without making references, perhaps unconsciously, back to personal cultural values. This phenomenon is known as the self -- reference criterion (SRC). Because of the effect of the SRC, the individual tends to be bound by his or her own cultural assumptions. It is thus important for the traveler to recognize how perception of overseas events can be distorted by the effect of the SRC. **Influence of culture on communication process** A country may be classified as either a high -- context culture or a low -- context culture. The context of culture is either high or low in terms of in -- depth background information. This classification provides an understanding of various cultural orientations and explains how communication is conveyed and perceived. I.e., North America and North Europe (e.g., Germany, Switzerland, and Scandinavian countries) are examples of low context cultures. In these types of society, messages are explicit and clear in the sense that actual words are used to convey the main part of information in communication. I.e., Japan, France, Spain, Italy, Asia, Africa, and the Middle Eastern Arab nations, in contrast are high -- context cultures. In such cultures, the communication may be indirect, and the expressive manner in which the message is delivered becomes critical. Because the verbal part (i.e., words) does not carry most of the information, much of the information is contained in the non-verbal part of the message to be communicated. The context of communication is high because it includes a great deal of additional information, such as the message sender's values, position, background, and associations in the society. **2.6. Political and Legal environment** **2.6.1 Political Environment** The political environment of international marketing includes any national or international political factor that can affect the organization's operations or its decision making. Politics has come to be recognized as the major factor in many international business decisions, especially in terms of whether to invest and how to develop markets. Politics is intrinsically linked to a government's attitude to business and the freedom within which it allows firms to operate. Unstable political regimes expose foreign businesses to a variety of risks that they would generally not face in the home market. This often means that the political arena is the most volatile area of international marketing. The tendencies of governments to change regulations can have a profound effect on international strategy, providing both opportunities\ and threats. **Political environment refers to the variables like below:** a\) Stability of Government Policies. b\) Philosophies of the political parties. c\) State of Nationalism. d\) Kinds of Political risks e\) State of bureaucracy. f\) Economic Risks. g\) Attitude toward foreign investment. **2.6.1.1. Types Of Politics** A. **Foreign politics** Foreign politics are the politics of host country. This part of international business environment can range from being favorable and friendly to being hostile and dangerous. The host country's political and economic circumstances determine the kind of political climate a company faces. When the company decides to export a product from its home base country, it may quickly discover that the host country's political environment is not always hospitable. The host government, as a rule, views imports negatively, because of imports adverse contribution to the host country's balance of payments. B. **Domestic politics** Domestic politics is that exists in the company's home country, also known as the parent or source county. The government of the home country, instead of providing support for international trade, can turn out to be a significant hindrance. There may be many government regulations that interfere with the free flow of trade, and the actions taken by a home country may be motivated more by political considerations than by sound economic reasoning. C. **International politics** International politics are the interaction of the overall environmental factors of two or more countries. The complexity of the political environment increases significantly when the interest of the company, the host country, and the home country do not coincide. Regardless of whether the politics are foreign, domestic or international, the company should keep in mind that political climate does not remain stationery. The political relationship between the United States and a long -- time adversary, China is a prime example. After decades of bitter opponents, both countries become very interested in improving their political and economic ties. **2.6.1.2 Marketing implications of political factors** Political factors give rise to a number of marketing implications. These include the following: \* Is the product ever subject to political debate regarding, say, adequacy of supply, for example, oil? \* Is the product a critical input for other industries, for example, cement? \* Is the product socially or politically sensitive, for example, food? \* Is the product of national defence significance? \* Is the product taking a disproportional amount of capital repayment? \* Is the product leading to the locus of control being held outside of the host country? Answers to these questions will enable the marketer to assess the degree to which the product being marketed has to be priced and resourced, so as to either avoid or reduce the risk of expropriation or other political reactions. **2.6.1.3 Political Risks** According to Charles De Gaulle, there are a number of political risks with which marketers must contend. Hazards based on a host government's action include confiscation, expropriation, nationalization and domestication. **Confiscation**: Is a process of a government taking ownership of a property without compensation. An example of confiscation is the Chinese government's seizure of American property after the Chinese communists took power in 1949. **Expropriation**: Differs somewhat from confiscation in that there is some compensation, though not necessarily just compensation. More often than not, a company whose property is being expropriated agrees to sell its operations -- not by choice but rather because of some explicit or implied coercion. **Nationalization**: After property has been confiscated or expropriated it can be either nationalized or domesticated. Nationalization involves government ownership, and it is the government that operates the business being taken over. **Domestication**: In the case of domestication, foreign companies relinquish control and ownership, either completely or partially to the nationals. The result is that private entities are allowed to operate the confiscated or expropriated property. Another classification system of political risk is the one used by **Root**: based on this classification, four sets of political risk can be identified **General instability risk**: Is related to the uncertainty about the future viability of a host country's political system. **Ownership / control risk**: Is related to the possibility that a host government might take actions (e.g., expropriation) to restrict an investor's ownership and control of a subsidiary in that host country. **Operation risk**: Proceeds from the uncertainty that a host government might constrain the investor's business operations in all areas, including production, marketing and finance. **Transfer risk**: Applies to any future acts by a host government that might constrain the ability of a subsidiary to transfer payments, capital or profit out of the host country back to the parent firm. **2.6.1.4 Indicators of Political Risks** To assess a potential marketing environment, a company should identify and evaluate the relevant indicators of political difficulty. Potential source of political complications includes social unrest, the attitudes of nationals, and the policies of the host government. **Social unrest**: Social disorder is caused by such underlying conditions as economic hardship, internal dissension and insurgency and ideological, religious, racial and cultural differences. **Attitudes of nationals**: The national's attitude toward foreign enterprises and citizens can be quite inhospitable. Nationals are often concerned with foreigners' intentions in regard to exploitation and colonialism, and these concerns are often linked to concerns over foreign governments' actions that may be seen as improper. **Policies of the host government**: Government policy formulation can affect business operations either internally or externally. The effect is internal when the policy regulates the firm's operations with in the home country. The effect is external when the policy regulates the firm's activity in another country. **2.6.1.5 Measures to Curb Political Risks** Political risk though impossible to eliminate, can at the very least be minimized. Some strategies used by MNCs: **a) Stimulation of the local economy** A local economy can be stimulated in a number of different ways. One strategy may involve the company's purchasing local products and raw materials for its production and operations. By assisting local firms, it can develop local allies who can provide variable political contacts. **b) Employment of nationals** Frequently foreigners make the simple but costly mistake of assuming that citizens of least developing countries are poor by choice. It serves no useful purpose for a company to assume the local people are lazy, unintelligent, unmotivated or uneducated. Such an attitude may become a self -- fulfilling prophecy. Thus, the hiring of local workers should go beyond the filling of labor positions. I.e., united Brand's policy is to hire only locals as managers. **c) Sharing ownership** Instead of keeping complete ownership for itself, a company should try to share ownership with others, especially with local companies. One method is to convert from a private company to a public one or form a foreign company to local one (Joint venture). **d) being civic minded** To shed the undesirable perception, multinationals should combine investment projects with civic projects. Corporations rarely undertake civic projects out of total generosity, but such projects make economic sense in the long run. It is highly desirable to provide basic assistance because many civic entities exist in areas with slight or non-existent municipal infrastructures that would normally provide these facilities. **e) Political neutrality** For the best long-term interest of the company, it is not wise to become involved in political disputes among local groups or between countries **2.6.2 Legal Environment** Government set rules and regulation to normalize the business activities while safeguarding the societal well-being. Many of the rules set by the government may have an adverse effect on the business. **2.6.2.1 Multiplicity of the Legal Systems** Much like the political environment discussed, there are a multiplicity of legal environments: domestic, foreign, and international. i. **Domestic legal environment** In the domestic environment, a businessperson must abide by the laws of the home country. Such laws can affect both imports and exports. Various countries design their legal system on which one system differs with others. ii. **Foreign legal environment** Once a product crosses a national border, it becomes subject to both an entirely different set of laws and a new enforcement system. iii. **International legal environment** In many cases, agreements between nations must be secured before marketers can enter a particular market. **2.6.2.2 The Law and The Marketing Mix** Government regulations are designed to serve societal interest by preserving business competition on the one hand and protecting consumers on the other. Such regulations not only increase a company's cost of doing business, but also affect its marketing strategies. Any one of the 4p's of marketing can be affected as illustrated. i. **Product** There are many products that cannot be legally imported into most countries. Examples include counterfeit money, illicit drugs, pornographic materials, etc. it is usually also illegal to import live animals and fresh fruits unless accompanied by the required certificates. Furthermore, many products have to be modified to conform to local laws before these products are allowed to cross the border. ii. **Place** In various countries the restriction in regards to distribution channels differ. As a result, it affects the firms marketing activities. I.e., in the USA a manufacturer has a number of distribution channels from which to choose as long as competition is not stifled in the process. In most other countries, the manufacture does not have such freedom. iii. **Promotion** There are virtually no limits on how much an advertiser can spend for promotion in the USA, but free spending is usually regarded as improper elsewhere. Some governments use advertising tax to discourage advertising so that demand and inflation can be cured. Other government use advertising restrictions as a non-tariff barrier to foreign exports. I.e., Japan does not allow foreign cigarettes to be advertised in the Japanese language. Obstacles to overseas advertising can also take a less explicit form. I.e., some countries do not allow advertising materials produced elsewhere to be shown in the native country. I.e., Australia requires all TV commercials to be filled by local firm producers etc. Another problem that a company must be prepared to deal with is the varying interpretations that occur with advertisement. What is acceptable to one country may be 'misleading' in another. iv. **Price** The general policy for using price control is to protect consumers' interests or to control inflation. Generally, the company has no choice but to obey the wage and price control imposed by the government. **2.6.2.3 Intellectual Property** Intellectual property is a general term that describes inventions or other discoveries that have been registered with government authorities for the sale or use by their owner. Such terms as patent, trademark, copyright or trade secret fall in to the category of intellectual property. i. **Trade mark: -** A trademark is a symbol, work or thing used to identify a product made or marketed by a particular firm. It becomes a registered trademark when the mark is accepted for registration by the trademark office. ii. **Copy right** A copy right which is the responsibility of the copyright office in the library of congress, offers protection against unauthorized copying by others to an author or artist for his / her literary, musical, dramatic and artistic works. A copyright protects the form of expression rather than the subject matter. iii. **Patent right** A patent protects an invention of a scientific or technical nature, it is a statutory grant from the government (the patent office) to an inventor in exchange for public disclosure giving the patent holder exclusive right to the functional and design inventions patented and excluding other firm using those inventions for a certain period of time. iv. **Trade secret** The term trade secret refers to know -- how (i.e., manufacturing methods, formulas, plans and so on) that is kept secret with in a particular business. This knows -- how, generally unknown in the industry, may offer the firm a competitive advantage. **2.6.2.4 Unfair Competition** Even though, there are firms who would like to enjoy their sweats, there is also a business who would like to prosper via short cut. These firms are unfairly competing with their competitors. The government role in the free-market economy is to regulate unfair competition by preserving of the intellectual properties. Some of the unfair competition takes the following forms: i. Infringement occurs when there is commercial use (i.e., recopying or imitating) without owner\'s consent, with the intent of confusing or deceiving the public. ii. **Counterfeiting** Counterfeiting is the practice of unauthorized and illegal copying of a product. In essence, it involves infringement on a patent or trademark or both. I.e., according to the Us Lanham Act, a counterfeit trademark is a "spurious trade mark, which is identical with, or substantially indistinguishable from a registered trademark." Section 42 of the US trademark Act of 1942 prohibits imports of counterfeit goods in to the United States. In South Korea it is not a matter of priority. There are several levels of counterfeiting. **1. The true counterfeit product,** which uses the name of the original and looks like it. **2. A look alike or knock off,** which duplicates the organize design but does not use its name. **3. Reproduction or replica,** a close but not exact copy and **4. Imitation or associative counterfeit,** which is a cheap but poor copy of the original**.** But it is illegal use of the name and a product shape that differs little from the original that leads consumers to associate an imitation with the original. iii. **Gray market** A gray market exists when a manufacture ends up with unintended channel of distribution that performs activities similar to the planned channel -- hence the term parallel distribution. Through this extra channel, gray market goods move, internationally as well as domestically. In an international context, a gray market product is one imported by an unauthorized party. iv. **Bribery** Bribery is both unethical and illegal. A closer look, however, reveals that bribery is not really that straight forward an issue. There are many questions about what bribery is, how it is used, and why it is used. The ethical and legal problems associated with bribery can also be quite complex. I.e., according to the foreign corrupt practices Act of 1997, bribery is "the use of intensive commerce to offer, pay, promise to pay, or authorize giving anything of value to influence an act or decision by a foreign government, politician or political party to assist in obtaining, retaining, or directing business to any person. Most issues in the legal/political environment center around the following: - a\) "**Institutional environment**" - made up of political, social and legal ground rules within which the global marketer must operate. b\) **Property rights** - patents, trademarks. c\) **Taxation** - what taxation schemes will be faced abroad? d\) **Recourse** - possibility and length of action with the possibility of image damaging necessitating arbitration. e\) **Movement of equity and expropriation threats** -- often necessitating protocols or the signing of trade frame working agreements. International Marketer also needs to understand the legal dispute settlement process to protect his justifiable interest. We know that legal disputes can arise in three situations such as:\ a) Between Governments b\) Between Company and a Government c\) Between Two Companies. Dispute between Governments can be settled by the International Courts but disputes of other two categories must be settled through Arbitration or in the courts of the country of one of the parties involved in the dispute. Most International Marketing disputes can be settled by any of the following three methods:\ a) Conciliation b\) Arbitration c\) Litigation **2.6.2.1 Marketing implications of Legal Factors** The implications of international law on marketing operations are legion. The principal ones are as follows: ***Product*** ***decisions*** - physical, chemical, safety, performance, packaging, labelling, warranty\ ***Pricing*** ***decisions*** - price controls, resale price maintenance, price freezes, value added systems and taxation ***Distribution*** - contracts for agents and distribution, physical distribution, insurance\ ***Promotion*** - advertising codes of practice, product restriction, sales promotion and,\ **Market research** - collection, storage and transmission of data. **2.7. GLOBAL TRADING ENVIRONMENT** ***Definition of Global Trade*** **Global trade**, also known as international trade, is simply the import and export of goods and services across international boundaries. Global trade is **the exchange of products between international borders**. It is the lifeblood of the world economy since it allows different countries to expand their markets and help in the availability of products that may not be available domestically. As a result, the market faces high competition. Global trade refers to the exchange of products and services between different countries. Goods and services that enter into a country for sale are called **imports**. Goods and services that leave a country for sale in another country are called **exports**. For example, a country may import wheat because it doesn\'t have much arable land, but export oil because it has oil in abundance. A fundamental concept underlying global trade is the concept of **comparative advantage**, developed by David Ricardo in the 19th century. In a nutshell, the doctrine of comparative advantage states that a country can produce some goods or services more cheaply than other countries. In technical terms, the country is able to produce a specific good or service at a lower opportunity cost than others. An **opportunity cost** is the benefit one gives up in making an economic choice. The classic example is guns and butter - domestic investment over defence spending. The more guns you produce, the less funds are available to invest in public schools and infrastructure, for example. The more you invest in the domestic economy, the less you can spend on defense. **GLOBAL TRADING ENVIRONMENT** The Global Trading Environment consists of trade negotiations between nations to form agreements by giving away some of their sovereign rights for a common mutual beneficial goal. The concept of global trading environment is based on the principle of economic co-operation between nations. Global trading environment reflects the conceptual framework of international economic integration. Global economic integration is the establishment of transnational rules and regulations that enhance economic trade and cooperation among countries. The following are the levels of economic integration: - - - - - https://commerceiets.com/wp-content/uploads/2020/09/image.png **Preferential Trade Agreement**: Preferential Trade agreement is also known as Preferential Trade Area. This is a trading bloc which gives preferential access to certain products from the participating countries. This is done by reducing the tariffs. For example: SAFTA i.e. South Asia Preferential Trade Agreement, which grants tariff concession to member countries on the selected products. **Free Trade Area**: A free trade area is a trade bloc whose member countries have signed a free trade agreement. According to the agreement there is elimination of tariffs, import quotas and preferences on most goods and services traded between them. For Example: NAFTA i.e. North American Free Trade Agreement, a free trade area currently consisting of Canada, the US and Mexico. **Customs Union**: It is the third stage of economic integration. A custom union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas. Purposes of establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. **Common Market**: A common market is a form of economic integration characterized by: - - - European Union was the first example of successful common market, but it was an economic union sine it had additionally emerges as customs union. **Economic Union**: An economic union is a type of trade bloc which is composed of a common market with a customs union. An economic union: - - - The purposes of establishing an economic union normally include increasing economic efficiency and establishing closer political and cultural ties between the member countries. **Political Union**: A political union goes beyond the economic integration, in which all the economic policies are unified and has a single government. This represents the total economic integration and it occurs only when countries give up their national powers to develop leadership under a single government. European Union is a way towards becoming a political union. ***Advantages*** What can we learn from this example? Global trade allows for specialization and lower costs to consumers. Countries can focus on what they are best suited to do - engage in activities with the lowest opportunity costs for them. Focusing on their comparative advantages means they can maximize production and efficiency, which leads to greater potential for profit and economic growth. Global trade can create economic wealth on a global scale as each country maximizes its revenue and growth by focusing on what it does best and saving money on imports that would be more costly for it to produce domestically. A country generates revenue from exporting the excess goods and services that its domestic market doesn\'t need to other countries that have a different comparative advantage. The money it receives from the exports can then be used to import goods and services it does not produce from the countries that have a comparative advantage in the production of those goods and services. Global trade can also reduce international conflict and war. It may not make intuitive sense at first glance, but think about it for a moment. Global trade creates long-term mutually beneficial relationships or a symbiosis. If you start a war with someone who provides you needed goods, such as wheat or oil, you may have just shot yourself in the foot. In other words, global trade cultivates cooperation rather than conflict. **Other Possible Benefits of Trading Globally ** International trade not only results in increased efficiency but also allows countries to participate in a global economy, encouraging the opportunity for foreign direct investment (FDI). In theory, economies can thus grow more efficiently and become competitive economic participants more easily. For the receiving government, FDI is a means by which foreign currency and expertise can enter the country. It raises employment levels and, theoretically, leads to a growth in the gross domestic product (GDP). For the investor, FDI offers company expansion and growth, which means higher revenues. **Free Trade vs. Protectionism** As with all theories, there are opposing views. International trade has two contrasting views regarding the level of control placed on trade between countries. **Free Trade** Free trade is the simpler of the two theories. This approach is also sometimes referred to as laissez-faire economics. With a laissez-faire approach, there are no restrictions on trade. The main idea is that supply and demand factors, operating on a global scale, will ensure that production happens efficiently. Therefore, nothing must be done to protect or promote trade and growth because market forces will do this automatically. **Protectionism** Protectionism holds that regulation of international trade is important to ensure that markets function properly. Advocates of this theory believe that market inefficiencies may hamper the benefits of international trade, and they aim to guide the market accordingly. Protectionism exists in many different forms, but the most common are tariffs, subsidies, and quotas. These strategies attempt to correct any inefficiency in the international market. As international trade opens up the opportunity for specialization, and thus more efficient use of resources, it has the potential to maximize a country\'s capacity to produce and acquire goods. Opponents of global free trade have argued, however, that international trade still allows for inefficiencies that leave developing nations compromised. What is certain is that the global economy is in a state of continual change. Thus, as it develops, so too must its participants. *What Are the Benefits of International Trade for a Business?* The benefits of international trade for a business are a larger potential customer base, meaning more profits and revenues, possibly less competition in a foreign market that hasn\'t been accessed as yet, diversification, and possible benefits through foreign exchange rates. *What Creates the Need for International Trade?* International trade arises from the differences in certain areas of each nation. Typically, differences in technology, education, demand, government policies, labor laws, natural resources, wages, and financing opportunities spur international trade. *What Are Common Barriers to International Trade?* The barriers to international trade are policies that governments implement to prevent international trade and protect domestic markets. These include subsidies, tariffs, quotas, import and export licenses, and standardization ***Barriers*** A **trade barrier** is anything that hinders trade. You can generally divide barriers to trade into two categories: policy barriers and natural barriers. *Policy Trade Barriers* **Policy trade barriers** are barriers to trade intentionally imposed by national governments. Primary policy barriers include: **Tariffs**, which are special taxes imposed on imported goods that make them more expensive. The purpose of a tariff is to make domestic goods that compete against imported goods more competitive. **Quotas** limit the amount of imported goods that can enter a country within a certain period of time. Again, the intent is to make it easier for domestic companies to compete. **CHAPTER TTHREE** **INTERNATIONAL MARKET SELECTION, SEGMENTATION & POSITIONING** **3.1. International Market segmentation & selection\`** **3.1.1 Segmenting international markets** International market segmentation is the process of identifying and dividing the customers around the world into distinct subsets that respond to a particular marketing strategy. As the customers of a particular segment have similar needs that can be addressed through a uniform marketing strategy, it is advisable to adopt differentiated marketing strategies for different market segments. Interest in global market segmentation dates back several decades. In the late 1960s, one observer suggested that the European market could be divided into three broad categories-international sophisticate, semi sophisticate, and provincial-solely on the basis of consumers' presumed receptivity to a common advertising approach. Another writer suggested that some themes (e.g.; the desire to be beautiful, the desire to be healthy and free of pain, the love of mother and child) were universal and could be used in advertising around the globe. In the 1980s, Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly seek variety and that the same new segments are likely to show up in multiple national markets. Thus, ethnic or- regional foods such as sushi, Greek salad, or hamburgers might be in demand anywhere in the world. Levitt described this trend as the "pluralization of consumption" and "segment simultaneity" that provides an opportunity-for-marketers to pursue a segment on a global scale. Today, global companies (and the advertising agencies that serve them) are likely to segment world market according to one or more key criteria: geography, demographics (including national income and size of population), psychographics (values, attitudes, and lifestyles), behavioural characteristics, and benefits sought. It is also possible to cluster different\ national markets in terms of their environments (e.g., the presence or absence of government regulation in a particular industry) to establish groupings. Another powerful tool for global segmentation is horizontal segmentation by user category. While making decisions for international markets, major types of segmentation used are discussed below: **A) Geographic Segmentation:** Under geographic segmentation the markets are divided into geographical subsets. Although geographical segmentation is easier to monitor and measure, it does not always ensure uniformity in customer habits among the consumers due to geographical proximity. However, for segmenting international markets, geography has been ranked as the lowest criteria. **B) Demographic Segmentation:** Segmentation of international markets on the basis of demographic characteristics such as age, gender, family size, education, etc. is known as demographic segmentation. This type of market segmentation has reasonable accuracy in measurement and is easy to access. Besides, demographic information is readily available, updated, and relatively accurate in most countries. **C) Country Segmentation on the Basis of Income:** The World Bank segments countries on the basis of income for operational and analytical purposes. Each economy is divided on the basis of income. **D) Segmentation of Market on the Basis of Household Income:** The household income influences the family's consumption pattern both in terms of willingness and ability to buy. On the basis of income, the Indian households may be segmented as follows:  Rich (Benefit Maximizers)  Consuming (Cost-benefit Optimizers)  Climbers (Cash-constrained Benefit Seekers)  Aspirants (New Entrants into Consumption)  Destitute (Hand-to-Mouth Existence) **E) Segmentation of Markets on the Basis of Age:** The consumption patterns within a country are significantly influenced by age. For example: The demographic classification of Chinese market on the basis of age indicates the following three distinct segments: - ***Generation I Age 45 to 59***  Generation of the socialistic society  The talented got university education and have become high-ranking government officials, but many work for state owned enterprises. Some are already retired. - ***Generation II Age 30 to 44***  Lost opportunity to get proper education  Mainly working for state-owned enterprises where income does not reflect job performance\  Those married are willing to spend as much as possible for 'Little Emperor', their only child, at the expense of their pleasures. In many cases, what Generation II purchases\ are based on what the child wants or needs. - ***Generation III Age 18 to 29***  Good educational background, with opportunity to work for foreign-affiliated firms.\  They are blessed with a good aspect of the market economy system that promises a brighter future for people who earn enough money.  For international marketers, Generation III is the most attractive market segment, also known as s-generation (single child generation) **F) Psychographic Segmentation:** Dividing the consumers into different groups on the basis of lifestyle, personality, or values is termed as psychographic segmentation. Consumers within the same demographic clusters may have different psychographic profiles. As psychographic market segments go beyond national boundaries, it facilitates in developing an international marketing strategy. **G) Segmentation of International Markets on the Basis of Core Values:** Core values are associated much deeper than behavior and attitudes; it affects the consumer desires and choices over the long term. Consumer attitude and behavior is greatly influenced by belief systems, known as core values. International markets can be segmented on the basis of core values as given below: - **Strivers (12%) -** Place higher emphasis on material and professional goals and slightly more likely to include men than women. One third of Asians are Strivers. - **Davout's (22%) -** Place more value on traditions and duty and include more women than men. In developing Asia, Middle East, and Africa devout are more common, but rarely found in Western Europe and developed Asia. - **Altruists (18%) -**They are more interested in social issues and social welfare and consist of slightly more women than men of older age with a median age of 44. Latin America and Russia have more altruists than any other country. - **Intimates (15%) -** Place more value on close personal relationships and family above all, and include men and women almost equally. One fourth of American and Europeans are intimates compared to only 7% in developing Asia. - **Fun Seekers (12%) -** The youngest group with a male-female ratio of 54:56 found in disproportionate numbers in developing Asia. - **Creatives (10%) -** This market segment has strong interest in education, knowledge, and technology. Creatives are more common in Latin America and Western Europe. The core-value-based segmentation of international markets is based on interviews conducted by Roper Reports of 1000 people in 35 countries. As the people in each segment differ in terms of their activities, product, preference and use, and media use, understanding the dominance of these segments in various countries facilitates decision-making in international markets. **H) Segmentation on the Basis of International Marketing Opportunity:** The stage of demands for products and services varies significantly in countries. On the basis of opportunity international markets can be classified as given below: **Existing Markets:** These are the markets which are already serviced by existing suppliers and where customer needs are known. Marketing opportunities can be evaluated by estimating the consumption rates and import patterns in these countries. Since competing suppliers are already in the market, the market entry is difficult unless a superior product is offered.\ **Latent Markets**: These markets have recognized potential customers but no company has so far offered a product to fulfil the latent needs; therefore, there is no existing market. As the market demand potential is known and there is no direct competition in the market, market entry is relatively easier once a firm is able to convince the customers about the benefits of its market offerings **Incipient Markets:** There is no demand at present in the market, but the conditions and trends that indicate future emergence of needs can be identified. The incipient markets have the potential to become existing markets once the need is identified, created, and customers are persuaded to use the product resulting in market creation. **Competitive Product:** Competitive product is one which has no significant advantage over those already on offer. It is a 'me too' market offering. **Improved Product: Although** an improved product is not unique, it provides some improvement over the presently available market offering. **Breakthrough Product:** It represents significant differentiation with innovation and therefore has considerable competitive advantage. The demand patterns are different for these three types of products. In existing markets, a product needs to be breakthrough or superior so as to offer a highly competitive strength. Since there is no direct competition in latent markets, an improved product may also succeed. In incipient markets, as demand for the product is yet to be generated, competitive products in other markets may also be launched. However, breakthrough products offer considerable competitive advantage if market need is identified or created. **I) Segmentation on the Basis of Market Attractiveness:** The overall attractiveness of the market primarily depends on market size and growth, risk, government regulations, competitive intensity, and physical and institutional infrastructure. Markets can be classified on the basis of overall market attractiveness' 'under the following five categories: **Platform countries** can be used to gather intelligence and establish a marketing network. Examples include Singapore and Hong Kong, **Emerging markets** include Vietnam and the Philippines. Here the major goal is to build up an initial presence, for instance, via a liaison office. **Growth markets** such as China, India, Thailand, Indonesia, Malaysia, and the Philippines can offer early mover advantages. These often encourage companies to build up a significant presence in order to capitalize on future market opportunities. **Maturing markets** such as Taiwan and Korea offer far fewer growth prospects than the other types of markets. Many a time, the local competitors are well entrenched. On the other hand, these markets have a sizeable middle class and solid infrastructure. The prime task here is to look for ways to further develop the market via strategic alliances, major investments, or acquisitions of local or smaller foreign players. **The established markets** such as Japan. Similar to maturing markets, the growth prospects are much lower than the other types of markets. An international firm often enters into these markets by way of joint ventures or acquisitions and integrates into regional or global operations as a part of its consolidation strategy. **3.1.2 Preliminary Screening of International Markets** While carrying out preliminary screening of a country for market selection, the following criteria may be adopted: **3.1.2.1 Market Size** A firm looking forward to entering the international market needs to assess the present market size and future potential. It should be borne in mind that developed countries are not always the largest markets. Market size depends on a number of factors as discussed below: **i) Population:** The population of the market broadly gives a rough estimate of market size, though it has to be used with some other indicators for example China, India are the most populous countries, however, it does not always mean that the most populous countries\ are the largest markets in the world. However, for 'necessary goods' with low unit value such as food products, health care items, educational products, bicycles, etc., population provides a gross indicator of market size. The ease of reach to a market is often determined by the\ density of population. The higher the population density, the easier it is to reach the market. It becomes difficult to maintain marketing channels in sparsely populated countries. **ii) Income**: Consumers need money to buy the products in a market. The gross domestic product of a country provides a better estimate of the market size as compared to population. The growth rate of per capita GDP facilitates in the estimation of future market potential. Per capita income is a better indicator of purchasing power of the residents of a country. The per capita income calculation assumes that the country's income is evenly distributed. India has a sizeable middle class but there are a number of countries that have a bimodal income distribution with no middle class. This indicates the existence of different market segments within a country. The purchasing power of money varies very significantly across countries, which significantly influences the cost of living. Therefore, purchasing power needs to be taken into consideration. **3.1.2.2 Accessibility to International Markets** The market needs to be accessed in terms of various marketing barriers (both tariff and non-tariff). A high-potential profitable market may not be attractive due to a variety of marketing barriers.\ **A) Tariff Barriers:** These are official constraints on import of certain goods and services in the form of customs duties or tax on products moving across the borders. The tariff barriers may be classified as follows: **On the Basis of Direction of Trade: Imports vs. Exports Tariffs:** Tariffs may be imposed on the basis of direction of product movement, i.e., either on exports or imports. Generally, import tariffs or customs duties are more common than tariffs on exports. However, countries sometimes resort to imposition of export tariffs to conserve scarce resources. Such tariffs are generally imposed on raw materials or primary products rather than on manufactured or value-added goods. **On the Basis of Purpose: Protective VS Revenue Tariffs:** The purpose of protective Tariff is to protect home industry, agriculture, and labor against foreign competitors by trying to keep foreign goods out of country. The purpose of revenue tariff, in contrast is to generate tax revenues for the Government. Compared to a protective tariff, a revenue tariff is relatively low. **On the Basis of Time Length: Tariff Surcharge vs. Countervailing Duty: Based** on the basis of duration of imposition, tariffs may be classified either as a surcharge or as a countervailing duty. - Tariff surcharge is a temporary action, whereas a countervailing duty is a permanent surcharge**.** - Countervailing duty is charged on certain imports when foreign Governments subsidize products. These duties are thus assessed to offset a special advantage or discount allowed by an exporter Government. The reason for imposition of countervailing duties is to offset the subsidies provided by the exporting countries' governments. **On the Basis of Tariff Rates: Specific, Ad valorem, and Combined:** Duties fixed as specific amount per unit of weight or any other measure is known as specific duties. For instance, these duties are in terms of rupees or US\$ per kg of weight or per metre or per litre of the product. The CIF value or product cost or prices are not taken into consideration while deciding specific duties. Specific duties are considered to be discriminatory in nature but effective in protecting cheap value products because of their lower unit value. Duties levied on the basis of value are termed ad valorem duties. Such duties are levied as a fixed percentage of dutiable value of imported products. Contrary to specific duties, it is the percentage of duty that is fixed in case of ad valorem duties. The duty collection increases or\ decreases on the basis of value of the product. Ad valorem duties help protect against any price increase or decrease for an imported product. A combination of specific and ad valorem duties on a single product is known as combined or compound duty. Under this method, specific as well as ad valorem rates are applied to an import product. **On the Basis of Production and Distribution Points** ü **Single Stage Sales Tax:** Tax collected at only one point in the manufacturing and distribution chain is known as single stage sales tax. Single stage sales tax is generally not collected unless products are purchased by the final consumer. **Valued Added Tax (VAT):** It is a multi-stage noncumulative tax on consumption levied at each stage of production and distribution system and at each stage of value addition. A tax has to be paid each time the product passes from one hand to another in the marketing channel. However, the tax collected at each stage is based on the value addition made during that stage and not on the total value of the product till that point. The VATis collected by the seller in the marketing channel from a buyer, deducted from the VAT amount already paid by them on purchase of the product and remitting the balance to the government. Since VAT\ applies to products sold in domestic markets and imported goods, it is considered non-discriminatory. Besides, VAT also conforms to World Trade Organization (WTO) norms.\ **Cascade Tax**: It is levied on the total value of the product at each point in the manufacturing and distribution channel, including taxes borne by the product at earlier stages, are known as cascade taxes. Such a taxation system adds to the cost of the product making goods non-competitive in the market. **Excise Tax:** It is a onetime tax levied on the sale of a specific product. Alcoholic beverages and cigarettes in most countries tend to attract more excise duty. **Turnover Tax:** In order to compensate for similar taxes levied on domestic products, a turnover or equalization tax is imposed. Although the equalization or turnover tax hardly\ equalizes prices, its impact is uneven on domestic and **B) Non-Tariff Marketing Barriers:** Non-tariff barriers are non-transparent and inhibit trade on a discriminatory basis. As the WTO regime calls for binding of tariffs wherein the member countries are not free to increase the tariffs at their will, non-tariff barriers in innovative forms are emerging as powerful tools to restrict imports on a discriminatory basis. The major non-tariff marketing barriers include: **Government Participation in Trade:** Providing consultations to foreign companies on a regular basis, governments' procurement policies and state trading is often used as disguised protection of national interests and as a barrier to foreign marketers. A subsidy is a financial contribution provided directly or indirectly by a government that confers a benefit. Various forms of subsides include cash payment, rebate in interest rates, value added tax, corporate income tax, sales tax, insurance, freight, and infrastructure, etc. As subsides are discriminatory in nature, direct subsidies are not permitted under the WTO trade regime.\ **Customs Entry Procedures**; Customs and entry procedures can be employed as non-tariff barriers. These restrictions involve classification, valuation, documentation, license, inspection, and health and safety regulation**.** **Classification** - How a product is classified is can be arbitrary and inconsistent and is often based on a custom officer's judgment, at least at the time of entry. **Valuation -** Regardless of how products are classified, each product must still be valued. The value affects the amount of tariff levied. A customs appraiser is the one who determines the values. **Documentation**- Documentation can present another problem at entry because many documents and forms are often necessary, and the documents required can be complicated**.** **License or permit**- Not all the product can be freely imported. Controlled imports require license or permit. E.g. importation of distilled spirits, wines, malt beverages, arms, ammunition, and explosives etc require a license or permit. **Inspection**- is an integral part of product clearance. Goods must be examined to determine quality and quantity. This step is highly related to other customs and entry procedure. First, inspection classifies and values products for tariff purpose. **Product Requirements:** Product standards and specifications, regulations are primarily related to packaging, labelling and marking, and product testing are frequently used as innovative barriers to trade mainly by high income countries. For example, instance of the EU countries on banning the azo dyes had severely hampered India's exports of cotton textiles and readymade garments to Europe and the firms had to resort to the use of vegetable dyes. The US Consumer Product Safety Commission in August 1994 imposed a ban on the import of Indian-made rayon and cotton-blended skirts on the grounds of fire hazard as they were considered to be highly inflammable. The Commission banned Indian skirts without any\ reported incidence of fire on preventive grounds. **C) Quotas:** These are the quantitative restrictions on exports intended to protect local industry and to conserve foreign currencies. Various types of quotas include: **Absolute quota:** These quotas are the most restrictive, limiting in absolute terms the quantity imported during the quota period. Once the quantity of the import quota is fulfilled, no further imports are allowed. **Tariff quota:** It allows import of a specified quantity of quota products at reduced rate of duty. However, excess quantities over the quota can be imported subject to a higher rate of import duty. Such a combination of quotas and tariffs facilitates import and at\ the same time discourages, through higher tariffs, excessive quantities of imports.\ **Voluntary quota:** Voluntary quotas are unilaterally imposed in terms of a formal arrangement between countries or between a country and an industry. Such agreements generally specify the import limit in terms of product, country, and volume. The Multi-fibre Agreement (MFA) was the largest voluntary quota arrangement, wherein the developed countries forced the agreement on economically weaker countries to provide artificial protection to their domestic industries. **Financial Controls:** The national governments often impose a variety of financial restrictions to conserve the foreign currencies restricting their markets. Such restriction includes exchange control, multiple exchange rate, prior import deposit, credit restrictions, and restriction on repatriation of profits. India had long followed a stringent exchange control regime to conserve foreign currencies. **3.1.2.3 Profitability** A market needs to be evaluated in terms of profitability in addition to market potential and growth. Profitability of a market can be significantly affected by the cost of logistics, government subsidies to local firms, price controls, import tariffs, and other statutory\ provisions of the target market. Besides, various types of risks associated with stability in the target markets, exchange rate, and payment ability of the importing firm. Despite being a high-potential and accessible market, Latin America is not always profitable due to higher logistic costs. **3.2 Final Selection and Targeting International Markets** For final selection of international markets, product specific estimation of market size is made for the select number of markets shortlisted by preliminary screening using the following methods: **Trade Analysis Method:** One of the easiest and relatively quick methods of estimating market size for a country is analysis of its trade data. The market size of a country is theoretically estimated as total production in the country plus imports, subtracting total\ exports for the product category. Changes in stocks need to be taken into consideration while arriving at an effective market size. **Analogy Method**: The information in countries with lower level of development is often not adequate to precisely estimate market size. In these situations, various types of analogy methods may be adopted. In the analogy method, a country at similar stage of economic development and of comparable consumer behaviour is selected whose market size is known. Alternatively, the analogy method for different time periods, which may be compared with similar demand patterns in two different countries, may also be used. **3.2.1 Tools for International Market Analysis** International marketing planning and strategy development calls for use of market analysis tools to adopt differentiated strategies for different segments. Two of the widely used tools for analysing international markets are discussed below: **3.2.1.1 Growth-Share (Boston Consulting Group) Matrix** The Boston Consulting Group (BCG) matrix was developed about 30 years ago by BCG as a model for the classification of strategic business units (SBUs) of an organization. As depicted in Figure 3.1, the BCG matrix classifies the markets on the basis of growth rate and market share. Such a matrix can be prepared either for a country's exports or a firm's exports so as to facilitate segmentation of the products under the following broad categories. - **High-Growth High-Share Products (Stars):** Such markets offer high growth potential but require lot of resources to maintain the\ share in high-growth markets. Forty-two per cent of India's exports fall under this category. Gems and jewellery, drugs and pharmaceuticals, readymade garments, etc. constitute the stars for India's exports. - **Low-Growth High-Share Products (Cash Cows)**: Products under this category bring higher profits but have a slow market growth rate. Marine products, leather and manufacture, oil meals, etc., constitute this category constituting 26% of India's exports. - **High-Growth Low-Share Products (Question Marks)**: These are the products under the high-risk category with an uncertain future, sometimes called 'problem children.' Roughly nine per cent of India's exports fall under this category which includes petroleum products, tea, cosmetics and toiletries, glass, glassware, and\ ceramics. It indicates a highly competitive market and strategic ***Decision Making Process for International Markets*** ***International Marketing:*** decision is required to invest resources to bring it to the category of stars by achieving a higher market share. - **Low-Growth Low-Share Products (Dogs)**: These products have low growth and low market share; therefore, they generally do not\ call for investing resources. India's exports under this category include handicrafts, carpets (handmade), tobacco un-manufactured, coffee, basmati and non-basmati rice, cashew, castor oil, etc. ![](media/image3.png) The growth share matrix may be used for working out differentiated strategies for international marketing of each product category. **3.2.2 Market Attractiveness/Company Strength Matrix** An analysis is carried out for measuring attractiveness of international markets and the competitive strength of a company. Various factors such as market size, market growth, customers' buying power, average trade margins, seasonality and fluctuations in the market, marketing barriers, competitive structures, government regulations, economic and political stability, infrastructure, and psychic distance contribute to market attractiveness. The competitive strength of a firm is determined by its market share, familiarity, and knowledge about the country, price, product fit to the market, demands, image, contribution margin, technology position, product quality, financial resources, access to distribution channels, and\ their quality. An analysis can be carried out in the form of a matrix assigning weight to each of these factors. Based on this analysis a matrix may be drawn as below: **Primary Markets** These countries offer the highest marketing opportunities and call for a high level of marketing commitment. Firms often strive to establish permanent marketing presence in such markets.\ **Secondary Markets** In these markets the perceived political-economic risks are too high to make long-term irrevocable commitments. A firm has to explore and identify the perceived risk factors or the firm limitations in these markets and adopt individualized strategies such as joint ventures to take care of the marketing limitations. **Tertiary Markets** These are markets with a high number of perceived risks; therefore, allocation of firm's resources is minimal. Generally, a firm does not have any long-term commitment in such markets and opportunistic marketing strategies such as licensing are often followed. Based on the above analysis, a firm should focus its market targeting and expansion strategies in countries at the top left of the matrix where the country attractiveness and the competitive strength of the company are very high. On the other hand, the firm should focus on harvesting/divesting its resources from countries where the market attractiveness and company strength are both very low. However, a firm may use licensing as a mode of operation with little resource commitment but continue to receive royalties. Countries at the extreme right top of the matrix signify higher market attractiveness but lower company strength. A firm should identify its competitive weaknesses in these markets and strive to gain competitive strength. It may also enter into a joint venture with other firms, which most\ of the time are local and have complementarities to gain competitive strength. In markets where a firm has medium competitive strength and marketing attractiveness, it needs to carefully study the market condition and adopt an appropriate strategy. **3.2.3 Positioning Statements and Approaches** The positioning statement focuses on the key benefits the product provides to consumers. "Nike will provide authentic, innovative products that improve athletic performance" serves as an example. Effective positioning can be achieved in at least seven ways. In international marketing, emphasizing one of these approaches consistently across markets whenever possible remains the most advisable approach. This allows for reduction in production and marketing costs, reduced consumer confusion when visiting other markets, and can lead to increased marketing expertise in building the product's position. - **Product Attributes** A trait or characteristic that distinguishes one product from others is a product attribute. It can be used to position a product, such as a "reduced fat" food item or a "no ironing needed" feature for a piece of clothing. Marketing efforts emphasize the attribute as the key selling point. - **Competitors** Competitors can be used to establish position by contrasting the company's product against others. Legal and/or cultural pressures may limit direct comparisons with a competitor, such as through comparison advertising; however, competitor positioning may still be emphasized in other ways. Companies in multiple countries often face a complex and differing combination of competitors in each market. Competition arises from other international brands or locally produced brands. The country in which the product was manufactured may also enter into consumer evaluations. When products ranging from drywall to children's toys made in China reached U.S. markets with major defects, many Chinese brands suffered in various global markets, and some were sued by injured consumers. - **Use Or Application** Use or application positioning involves creating a memorable set of uses for a product. Bleach may be used as a cleaning product for clothes in one country, as a "germ-killer" in another, and as a way to extend the life of cut flowers in yet another. Use or application positioning requires the identification of the target markets that purchase the product and then notes how those products are used in other countries. - **Price-Quality Relationships** A price-quality relationship approach may be used for positioning purposes when businesses offer products at the extremes of the price range. At the high end, the emphasis becomes quality. In the low range, price will be emphasized. Price-quality perceptions may also be affected by the nation in which an item is produced. Many technological innovations that are exported from Japan enjoy favorable views about quality due to the country of origin. German-made automobiles often possess the same price-quality status. - **Product User** The product user positioning method distinguishes a brand or product by clearly specifying who might use it. In transition economies, companies that differentiate by targeting younger consumers as part of a "global" market segment may position products as being more universal or worldly. Services such as hotels, credit cards, and airline travel can be positioned as favouring business travellers or vacationers. Whereas some product users may drink tea for its potential health benefits, more infrequent users may only consume tea for ceremonial reasons. - **Product Class** Product class indicates a general category of items within which the good fits. For example, "undergarments for men" include t-shirts and underwear. Other product class groups include "soft drinks" and "energy drinks." Perceptions of product class vary by the culture and the economic circumstances of a country or region. Silk pajamas are targeted to a different set consumer than those made of cotton. - **Cultural Symbol** Cultural symbol positioning involves an item or brand achieving unique status within a culture or region. Cultural symbols reflect a characteristic of a nation or region and may evolve from popular culture, religion, or other factors that make an area distinct. Any product endorsed by the sports stars Yao Ming in China or Pelé in Brazil would have the potential to be positioned as a cultural symbol. **CHAPTER FOUR** **FOREIGN MARKET ENTRY STRATEGIES** 1. **International Market Entry Modes** 1. **Analyzing international marketing** 1. **Indicators of International Marketing Opportunity** Broadly speaking, international marketing opportunities could be identified by recognizing the existence of unfulfilled demand in a foreign country that your company can effectively service; or, by recognizing the existence of goods and services in foreign markets that your company can obtain to fulfill domestic demand. **In other words, international marketing opportunities exist in one of these three forms:** Existing, latent, or incipient demands in foreign countries that a firm can effectively fulfill through its offerings. The managerial task is to assess the nature of foreign market demand and your company\'s ability to serve that demand. - ***Existing Demand in foreign Countries*** The primary indicators of international marketing opportunity are the demand and supply situation for products; in foreign country, moderated by the international marketer\'s ability to effectively service those markets. When there is already existing demand for certain products and services in foreign countries, you may choose to serve that market by offering products and services that meet the current demand. Your marketing task, in this context, is to offer superior value to the customers, whereby their preferences can be channeled in favor of your company\'s offerings. Such existing demand is visible in local shortage of goods, substantial imports, or higher prices charged for these goods in local markets. - ***Latent Demand in foreign Countries*** Latent demand may exist in foreign markets because of unavailability of certain products that will fulfill the need or want of a substantial number of people in the country. Such unavailability of products could be due to the lack of technological solutions for certain problems. In many countries, we can see this, in the need for drugs or vaccines to cure AIDS or prevent cancer. In other cases, latent demand may exist when technological solutions are available but marketers have not yet developed liable products to meet customer needs. In order to benefit your company of the opportunities in latent markets, you must study the needs and wants of people in foreign markets and then be prepared to undertake market development activities to stimulate the latent demand into \'ready demand\' for products and services that you will offer to these markets. - ***Incipient Demand in foreign Countries*** One of the most exciting opportunities for international marketing arises when there is incipient demand for some products in foreign markets. Incipient markets are usually characterized by emerging demand for certain products and services. They provide early signals for a high market growth that one would expect to follow in the near future. Since most marketers like to be in growth markets, they are likely to be attracted to incipient markets. Incipient demand usually corresponds with the emerging and growth stages of market evolution. International marketers interested in identifying such opportunities often look for trends in recent growth rates and consumption patterns of certain products. It is not the volume of the market, which is important, but the rate of growth and potential inte

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