International marketing management lesson 01

1 INTRODUCTION TO INTERNATIONAL MARKETING MANAGEMENT CONTENTS 1.0 Aims and Objectives 1.1 Introduction 1.1.1 Scope 1.1.2 National and International Marketing 1.2 Benefits of Internationa

UNIT I

1

INTRODUCTION TO INTERNATIONAL MARKETING MANAGEMENT

CONTENTS

1.0 Aims and Objectives

1.1 Introduction

1.1.1 Scope

1.1.2 National and International Marketing

1.2 Benefits of International Marketing

1.2.1 Endurance

1.2.2 Progress of Overseas Markets

1.2.3 Sales Promotion

1.2.4 Diversification

1.2.5 Inflation and Wholesale Price Index

1.2.6 Employment and Placements

International

Marketing Management

1.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to:

 Define International Marketing

 Distinguish between international and domestic marketing

 Describe various marketing orientations in the context of international marketing

1.1 INTRODUCTION

The study of international marketing will not be complete unless we have an understanding

of what marketing is and how it operates in an international context There have beenlarge numbers of definitions of marketing which are currently in use But most of thesedefinitions are convergent because all of them define marketing in almost the same way.Hence, any definition of marketing should be acceptable as long as it captures the essentialidea and as long as the strength and the weaknesses of the definition are acknowledged.Marketing can be conceived as an integral part of two processes, viz., technical andsocial So far as the technical process is concerned, domestic and international marketingare identical The technical process includes non-human factors such as produce, price,cost, brand, etc The basic principles regarding these variables are of universal applicability.But the social aspect of marketing is unique in any given stratum, because it involveshuman elements, namely, the behaviour pattern of consumers and the given characteristics

of human society such as customs, attitudes, values, etc It is obvious from this thatmarketing, as a social process, will be different in varying environments and internationalmarketing, to the extent that it is visualised as a social process, will be different fromdomestic marketing

According to Phillip Kotler, marketing is “analysing, organising, planning and controlling

of the firm’s customers – impinging resources, policies, activities with a view to satisfyingthe needs and wants of a chosen customer group at a profit” Thus, it differs fromtrading which includes the activities of merchandising (buying and selling), physicaldistribution (transportation and warehousing) and facilitation (financing, risk bearing,standardisation, pricing, advertising and sales promotion and marketing research) Inother words, marketing is an act or operation or service by which the original productand final consumer are linked together In between these two points — producer andconsumer — every activity facilitating the movement of goods and services, includingmarket and market research, may be covered under this term

We are more concerned here with international marketing, which means marketing activitycarried on across national boundaries Thus, international marketing includes activitiesthat direct the flow of goods from one country to the users of another country A definitionadopted by the American Marketing Association (AMA) is more appropriate to defineinternational marketing According to AMA, ‘international marketing is the multinationalprocess of planning and executing the conception, pricing, promotion and distribution ofideal goods and services to create exchanges that satisfy individual and organisationalobjectives’ In this definition, the word multinational has been added to the definition ofmarketing given by other experts This word implies that marketing activities are undertaken

in several countries and that such activities should somehow be coordinated across thenations

This definition is not completely free of limitations By placing individual objectives atone end of the definition and organisational objectives at the other, the definition stresses

a relationship between a consumer and an organisation It excludes industrial marketing,

9 Introduction to International Marketing Management

which involves a transaction between two organisations In the world of international

marketing, governments, quasi-government agencies and profit seeking and non-profit

entities are frequently buyers Companies such as Boeing, BHEL and Hindustan Earth

Movers, for example, have nothing to do with consumer products The definition thus

fails to do justice to the significance of industrial purchases

The definition of international marketing has various connotations Firstly, it makes it

clear that what is to be exchanged is not restricted to tangible products but can include

concepts and services as well When the United Nations promotes such concepts as

birth control and breast-feeding, this should be viewed as international marketing

Figure 1.1 shows an international effort to fight AIDS Likewise services or intangible

products are just as relevant to the definition as airline flights, financial services, advertising

services, management consulting services, marketing research and so on as they play a

very significant role in affecting trade balance

World AIDS Day, Birth Control, Breast-feeding, No-smoking, etc.

Safe Sex

Concepts and Services

Figure 1.1: Safe Sex Concept and Services

Secondly, the definition removes the implication that international marketing applies only

to market or business transactions International non-profit marketing, which has received

only scant attention, should not be overlooked The marketing of governments and religions

underscores this point The governments are very active in marketing in order to attract

foreign investments The US is using a variety of local and international media (including

CNN International and BBC World Television Network) to announce the arrival of

newly designed $100 bills which would not involve any devaluation and that there would

never be any recall of the old bills

Religion is also a big business, though most people prefer not to view it that way Religion

has been marketed internationally for centuries Tercentenary of the birth of Khalsa

(300 years of Sikh religion) was celebrated at Anandpur Sahib in 1999 where a large

number of NRIs and foreigners contributed to its success The religious messages were

flashed on the Internet all over the world

Thirdly, the definition recognises that it is improper for a firm to create a product first and

then look for a place to sell it Actually the needs and the wants of the consumers should

first be ascertained through market research and then the new product should be produced

accordingly Suzuki-Maruti has understood the needs of the Indian consumers for a

small car; hence it has become the leader in the car industry though other car manufacturers

are also following a similar international marketing strategy

Fourthly, the definition acknowledges that “place” (distribution) is just part of the marketing

mix and that the distance between the markets makes it neither more nor less important

than the other parts of the mix Thus, it is improper for any firm to regard their international

function as simply as export available products from one country to another

International

Marketing Management

Finally, the “multinational process” implies that the international marketing process is not

a mere repetition of using identical strategies abroad The 4 Ps of marketing (product,place, promotion and price) must be integrated and coordinated across countries in order

to bring about the most effective marketing mix In some cases, the mix may have to beadjusted for a particular market for a better impact For example, Coca Cola and PepsiCola Inc have created new slogans for marketing in India and new chips that differ both

in taste and texture from their American version The Whirlpool Corporation has beenable to use more standardised models of washing machines and refrigerators to breakdown national traditions

1.1.1 Scope

The foundation for a successful international marketing programme is a soundunderstanding of the marketing discipline Marketing is the process of focusing theresources and objectives of an organisation on environmental needs and opportunities.The first and the most fundamental fact about marketing is that it is a universal discipline.The marketing discipline is equally applicable from China to India, United States to Japanand Australia to Zanzibar Marketing is a set of concepts, tools, theories, practices andprocedures and experience

Although the marketing discipline is universal markets and customers are quitedifferentiative This means that marketing practices must vary from country to country.Each person is unique and each country is unique This reality of differences means that

we cannot always directly apply experience from one country to another If the customers,competitors, channels of distribution and available media are different, it may be necessary

to change our marketing plan

The scope of international marketing is to have a borderless world like the multinationalcompanies — Coca Cola, Pepsi, MacDonald, Gillette and so on Their products andbody marketing mix elements are both international and local in nature A central issue ininternational marketing is how to tailor the international marketing concept to fit a particularproduct or business

1.1.2 National and International Marketing

The striking difference between international and domestic marketing lies in theenvironment in which the two take place The important points of difference betweenthe two are:

1 Sovereign Political Entities: Each country is a sovereign political entity and,

therefore, they impose several restrictions for import and export of goods andservices in order to safeguard their national interests The traders, in internationalmarketing, have to observe such restrictions These restrictions may fall in any ofthe following categories

i Tariffs and customs duties are imposed on import and export of goods andservices in order to make them costly in the importing country and not to bantheir entry into the country completely In the post-war period, because of theefforts of General Agreement on Tariffs and Trade (GATT), there has been

a significant reduction in tariffs globally and on a regional basis due to theemergence of regional economic groupings

ii Quantitative restrictions are also imposed with an intention to restrict trade insome specific commodities The major objective behind the restriction is theprotection of home industries from competition with foreign commodities

11 Introduction to International Marketing Management

iii Exchange control is another restriction imposed by almost every sovereign

state The government, in some cases, does not ban the entry of goods in the

country but the importer is not allowed the necessary foreign exchange to

make payment for goods imported But, in some cases, exchange control and

quantitative controls are put together along with the grant of import licence

iv Imposition of more local taxes on imported goods with an object to make the

imported goods costly is one of the restrictions in international marketing

2 Different Legal System: Different countries operate under different legal systems

and they all differ from each other Most countries follow the English Common

Law as modified from time to time Japan and Latin American countries are important

exceptions to this rule The existence of different legal systems makes the task of

businessmen more difficult as they are not sure as to which particular system will

apply to their transactions This difficulty does not arise in domestic trade, as laws

are the same for the whole country

3 Different Monetary Systems: Each country has its own monetary system and the

exchange rates for each country’s currency are fixed under the rules framed by

the International Monetary Fund (IMF) and, therefore, they are more or less fixed

However, in recent years, the exchange rates have been fluctuating and are being

determined by demand and supply forces Some countries operate multiple rates

i.e different rates are applicable to different transactions

4 Lower Mobility of Factors of Production: Mobility of different factors of

production is less between nations than in the country itself However, with the

advent of air transport, the mobility of labour has increased manifold Similarly, the

development of international banking has increased the mobility of capital and labour

In spite of these developments, the mobility of labour and capital is not as much as

it is within the country itself

5 Differences in Market Characteristics: Market characteristics in each segment

are different, i.e demand pattern, channels of distribution, methods of promotion,

etc are quite different from market to market If we treat each country as a

separate market, we can assume different market characteristics there These

differences are accentuated due to the existence of government controls and

regulations However, this is a difference of degree only Even in one single country,

for example India and America, these differences in market patterns may be found

from state to state

6 Differences in Procedure and Documentation: The laws of countries and customs

of trade in each country demand different procedures and documentary requirements

for the import and export of the goods and services Traders residing in the territory

have to comply with these regulations and customs if they want to import and

export goods and services

As there are differences in legal and monetary systems, in government regulations

and controls, in market characteristics, in mobility of factors of production and in

procedures, practices and documentation in foreign trade, the two marketing systems

– international and domestic – are quite different As each country has to protect

its own interests – political, financial and social – it has to put certain restrictions on

foreign trade Restrictions are also there in domestic marketing, but the procedures,

systems and the rules and regulations are applicable equally in all parts of the

country and these are well known to the traders concerned

International

Marketing Management

1.2 BENEFITS OF INTERNATIONAL MARKETING

The importance of international marketing is neither understood nor appreciated byconsumers though they are carrying out international marketing daily Government officials,especially bureaucrats, seem to always point a negative aspect of international business.Many of their charges on international marketing are imaginary than real Hence, it isessential that the benefits of international marketing be explicitly discussed These benefitsare:

i Endurance

ii Progress of overseas marketsiii Sales promotion

iv Diversification

v Inflation and wholesale price index

vi Employment and placementvii Standard of living/styleviii Understanding marketing process

1.2.1 Endurance

Every country is not as fortunate as America in terms of infrastructure, size, resourcesand opportunities Hence, they must trade with other countries to survive Similarly,every country is not as fortunate as India, which has abundant natural resources and atreasure of bio-diversity that it can survive within its resources even if there is a resourcecrunch Even then it has to carry out trading with other countries to get oil and armamentsfor its own survival Hong-Kong cannot survive without food and water from China.The countries of Europe have had similar experience since most European nations arerelatively small in size Without a foreign market, European firms would not have sufficienteconomies of scale to allow them to be competitive with US firms Switzerland lacksnatural resources, forcing it to depend on trade and adopt the geocentric perspective.Similarly, Japanese firms are dependent on raw material from other countries but theyhave better technical know-how as a result of which they are the world leaders inelectronics and software industry

1.2.2 Progress of Overseas Markets

Developing countries, in spite of a poor economy with serious marketing problems, areexcellent markets The US has found that India is the biggest market in the world forconsumer and engineering products According to a report prepared by the US TradeRepresentative US Congress, Latin America and Asia are experiencing the worsteconomic recession though they have potential in the world market

The Conference Board’s study of some 1500 companies found that US manufacturers,with factories or sales subsidiaries overseas, outperformed their counterparts during1980s in terms of growth in 19 out of 20 major industrial groups and higher earnings in 17out of 20 groups American market cannot ignore the vast potential of the internationalmarket The world market is four times larger than US market In the case of AmwayCorporation, a privately held US manufacturer of cosmetics, soaps, and vitamins, Japanrepresents a larger market than the US

13 Introduction to International Marketing Management

1.2.3 Sales Promotion

Foreign markets constitute a large share of total business of many firms that have cultivated

markets abroad Many large US companies have done very well because of their overseas

customers IBM and Compaq sell more computers abroad than at home The case of

Coca-Cola clearly emphasises the importance of overseas markets (Box 1.1) Coca

Cola is coming up with milk-based products as majority of Indians and Asians do not

relish the taste of aerated drinks which are supposed to have caffeine which is addictive

1.2.4 Diversification

In the international market, cyclical factors such as recession and seasonal factors such

as climate affect the demand for most products Due to these variables, there are sales

fluctuations, which frequently be substantial enough to cause lay-off of personnel One

way of diversifying a company’s risk is to consider foreign markets as a solution for

variable demands For example, cold weather may depress demand for cold drink

consumption All countries do not enter the winter season at the same time and some of

the countries are warm round the year Refer Box 1.1 and 1.2

Box 1.1: Coke Coming up With Milk-based Drink

The fragmented, but high potential, packaged flavoured milk market, which has names such

as Amul, Nestle and Britannia vying for the consumer’s attention, will witness a big-ticket

entry shortly In line with its intended ‘beverage revolution’, soft drink major, Coca-Cola,

India (CCI), is mulling the introduction of flavoured, milk-based beverages

“A milk-based product is in the offing We are currently exploring the viability of introducing

such a product in the domestic market,” a Coke official said

The development assumes importance in the domestic market, considering that only last

week, Coke’s Atlanta headquartered parent company had announced its decision to

introduce a dairy drink called Swerve in the US this season, to boost its share of the

nutritional beverage market

The company had been testing the chocolate-flavoured dairy drink, Choglit, through an

existing joint venture with Swiss food giant, Nestle SA, as well as another dairy drink called

Slap Swerve will replace both products in the US

Globally, Coca-Cola also sells the Planet Java line of bottled coffee drinks, which contain

dairy products

The past few months have been witnessing heightened activity in the flavoured milk market

Late last year, foods major, Nestle, had staged an entry in this market with its Fruit’s milk

brand, in 200 ml tetrapaks, manufactured by Dynamix Dairy

This market saw another major development early this year, with Gujarat Cooperative Milk

Marketing Federation (GCMMF) rolling out Amul Shakti, its flavoured milk brand, in

disposable bottles

Amul Shakti had been under development for over six years, and GCMMF has begun its

flavoured milk project with an installed capacity of three lakh bottles per day

Explaining the high interest in the category, Mr RS Sodhi, General Manager, Marketing,

GCMMF, said, “Research studies show that there is a steady consumer movement towards

healthy beverages such as milk and juices Naturally, corporates are looking at tapping the

opportunity the segment presents.”

While other significant players in this market include Britannia, Mother Dairy and Parle

Agro’s N-joi, smaller, regional level players include Vijaya and Energee

The Delhi based Paras group, too, has been working on a flavoured milk project The

milk-based drink market is put as Rs 100 crore

Another beverage Coca-Cola is considering bringing into India next year is its global juice

brand Minute Maid Ethnic beverages such as ‘nimbu pani’ and tender coconut water, too,

are in the offing Meanwhile, Coke’s energy drink, Shock, continues to be a small brand

Source: The Hindu Business Line, dated: May 29, 2003.

International

Marketing Management

Box 1.2: Cola Drinks on the Move

With net profitability and a 40 per cent surge in volumes under its belt, Coca-Cola India(CCI) is now undertaking its fastest capacity expansion yet in the domestic market

The soft drink major is in the process of setting into operation 30 new lines for its CarbonatedSoft Drink (CSD) business Mr Sanjiv Gupta, the company’s deputy division president, saidthat the capacity expansion was being done for both glass and PET bottles “Of the 30 newlines, six are new plants in Tamil Nadu, Andhra Pradesh and Karnataka, while 27 lines havebeen added in existing plants,” he said These are a combination of company-owned andfranchisee-owned operations

A significant portion of the $100 million investment allocated for the current year has beenploughed into this capacity expansion exercise, Mr Gupta said

The company’s rural penetration has increased by 40,000 villages this year, and nine millioncases of glass bottles have been added in the first five months of the year, he added WhileCCI’s 200-ml bottles, priced at Rs 5, continue to be the mainstay of the season, the companywill continue with its variable pricing strategy (between Rs 7 and 8) for its 300 ml bottles.While the month of April saw the soft drinks industry hit by the transporters strike, thecurrent month has seen recovery “The highlights of the year so far have been lower fixedasset costs, price compliance, costs efficiencies and packaging innovation Till one-yearback, CSDs was a highly seasonal market with over 45 per cent volumes being generatedfrom the peak season, which lasted about three months The industry dynamics are changingnow.”

A global market can balance good markets with bad ones While there is no question thatthe US cola market is the biggest in the world, it is a highly mature market, and the profitpotential is limited Cola has shrunk from 63.3 per cent of soft drink sales in the UnitedStates in 1984 to 58.8 per cent in 1993 – a loss of $2.4 billion in potential retail sales

The United States leads the world in Cola-Cola consumption, averaging 296 eight-ounceservings per person per year The comparable figures for other markets are Mexico (275servings), Germany (189), Canada (169), Japan (124), Great Britain (89), France (56), Egypt(18), Russia (2) and China (1) In the case of India’s 890 million people, each person onlyconsumes an average of three servings in a year, well below the levels found in Pakistan (9)and Thailand (75)

In addition to being the world’s most populous nations, China and India are two of theworld’s fastest growing economies, and Japanese, European and American firms are allquite excited about doing business with and in China and India Undoubtedly, China andIndia have plenty of room to grow as a market If the Chinese and Indians can be persuaded

to drink just one more serving per person a year, Coca-Cola and Pepsi can derive additionalsales of more than two billion cans

Coca-Cola has been particularly aggressive in East Europe, Asia and South America It hasopened plants in Romania, Norway, Fiji and India while planning several more in China,Hungary, Lithuania, Russia and Thailand When the Soviet Union collapsed, Pepsi Co held

on to its network of state-run bottlers so as to utilize their ties to old-line management.Coca-Cola, on the other hand, quickly got rid of the government link and spent more than

$ 1.5 billion in former East bloc countries to build a new business from scratch As a result,Pepsi’s lead due to its early distribution deals evaporated Coke now leads in market share

in every Eastern European country In addition it also has a wide lead in Latin America

Source: “Pepsi Fights for India’s Beverage Business”, The Wall Street Journal, 3 June 1994; “In Business This

Week,” Business Week, 27 July, 1992, 40; “Coke Makes China Foray with Accelerated Fizz Sales”, Bangkok Post, 16 November 1993; “Behemoth On a Tear,” Business Week, 3 October 1994, 54-55; “Adding Some Fizz,” The Wall Street Journal, 22 August 1995; and “Companies That Live Alone—and Like it”, Business Week,

30 October 1995, 136,138.

15 Introduction to International Marketing Management

1.2.5 Inflation and Wholesale Price Index

The best way to control inflation is to earn foreign exchange through exports Imports

can also be highly beneficial to a country because they constitute reserve capacity of the

local economy Without imports, there is no incentive for domestic firms to moderate

their prices The lack of imported product alternatives forces consumers to pay more,

resulting in inflation and excessive profits for local firms This development usually acts

as a prelude to workers to demand higher wages, further exacerbating the problem of

inflation Import quotas imposed on Japanese automobiles in 1980s saved 46,200 US

production jobs but at a cost of $ 160 thousand per job per year This huge cost was a

result of the addition of $ 400 to the prices of US cars and $1000 to the prices of

Japanese imports This windfall for Detroit resulted in record high profits for US

automobiles

1.2.6 Employment and Placements

Tariff barriers and trade restrictions in certain countries had contributed significantly to

the great depression of 1930 and have the potential to cause widespread unemployment

again Unrestricted trade, on the other hand, improves the world’s GNP and enhances

employment generally for all nations With the liberalisation of economic policy, 1991,

India has gained tremendously with the inflow of foreign direct investment as a result of

which employment in the country has tremendously improved

1.2.7 Standard of Living/Style

Trade affords countries and their citizen’s a higher standard of living than is otherwise

possible Without trade, product shortages force people to pay more for less Products

taken for granted such as coffee and bananas may become unavailable overnight Life

in most of the countries will be more difficult were it not for the many strategic metals

that must be imported Trade also makes it easier for industries to specialise and gain

access to raw materials, while at the same time fostering competition and efficiency

1.2.8 Marketing Process

International marketing should be considered a special case of domestic marketing It

has earlier been explained that there is very little difference between domestic and

international marketing Only thing is that the word multinational has been added in the

international marketing process Otherwise, the marketing mix is the same for both

With improvements in information technology, the international markets have become

easily accessible and the whole world has become a small global village

Transnational Corporations (TNCs) are incorporated or unincorporated enterprises

comprising parent enterprises and their foreign affiliates A parent enterprise is defined

as an enterprise that controls assets of other entities in countries other than its home

country, usually by owing a certain equity capital stake An equity capital stake of 10%

or more of the ordinary shares or voting power for an incorporated enterprise, or its

equivalent for an unincorporated enterprise, is normally considered as the threshold for

the control of assets A foreign affiliate is an incorporated or unincorporated enterprise

in which an investor, who is a resident in another economy, owns a stake that permits a

lasting interest in the management of that enterprise (an equity stake of 10% for an

incorporated enterprise, or its equivalent for an unincorporated enterprise) In WIR,

subsidiary enterprises, associate enterprises and branches - defined below - are all referred

to as foreign affiliate or affiliates

 A subsidiary is an incorporated enterprise in the host country in which another

entity directly owns more than a half of the shareholder's voting power, and has the

right to appoint or remove a majority of the members of the administrative,

management or supervisory body