I

ANOVERVIEW OF INTERNATIONAL MRKETING

International marketing is the application of marketing principles in more than one country, by companies
overseas or across national borders.

International marketing is based on an extension of a company’s local marketing strategy, with special
attention paid to marketing identification, targeting, and decisions internationally.

Def1

“International Marketing is the multinational process of planning and executing the conception,
pricing, promotion and distribution of ideas, goods, and services to create an exchange that satisfy
individual and organizational objectives. “

The American Marketing Association (AMA)

Def 2

“To make available company's products and services to more than one countries customers for use.”

Philip Kotler

DOMESTICS VS INTERNATIONAL MARKETS

i) Domestic market
 Local language
 One nation
 Common culture
 Homogeneous market
 Local/single currency
 No problems of exchange controls, tariffs
 Relatively stable business
 Minimum government interference in business decision
 Data in marketing research available, easily collected, and accurate, etc.
ii) International Markets
 Different languages, nations, cultures

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  Markets are diverse and fragmented
 Multiple currencies
 Challenges on exchange controls and tariffs
 Multiple and unstable business environments
 Due to national economic plans government influence usual in business decisions
 Marketing research very difficult, costly and cannot give desired accuracy, etc.
Characteristics of international marketing
 Broader market is available
 Involves at least two set of uncontrollable variables
 Requires broader competence
 Competition is intense
 International restrictions
 Sensitive character
 Involves high risk and challenges
 Large-scale operation
 Domination of multinationals and developed countries

International marketing is highly sensitive and flexible. The demand for a product in a market is highly
influenced by political and economic factors.

These factors can create as well as decrease the demand for a product. In fact, use of advanced technology by
a competitor or the launch of a new Product by another competitor may affect the sale of a particular firm’s
product worldwide.

 Importance of Advanced Technology

 Need for specialized institutions

 Need for long term planning

 Lengthy & Time Consuming

The activities in international marketing are very time-consuming and knotty or complex. The main cause of
these difficulties are the local laws and policies enforced on different nations, issues in payment as different
countries use different currencies, distance between the participating nations and time taking formalities involved
therein.

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BENEFITS OF INTERNATIONAL MARKETING

 Rapid economic growth

 Profitable use of natural resources
 Facing competition successfully
 Increase in employment opportunities
 Increase in the standard of living
 International collaboration
 Closer cultural relations
 Help in political stability
 Increased Network Opportunity & Increased Revenue Potential

Other benefits;
A) To consumers:
 Consumption of unpronounced goods
 Consumption of goods at a low price
 Enjoying benefits of competition
 Consumption of new products
 Increase in consumption
B) To producers :
 Export of surplus production
 Expansion of market in foreign countries
 Production of goods at a low cost
 Increase in production
 More profitable
 Reduce business risk
 Reduce cost
C) From economic point of view:

 Increases total production

 Increases export earnings
 Challenging natural calamities
 knowledge and cultural progress
 Increases international peace and assistantship

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  Extension of industry
 Export of unusual goods
 Optimum utilization of natural resources
 Progress in technological knowledge
 Image development

BARRIERS TO INTERNATIONAL MARKETING

 Tariff: - a tax imposed on a product entering a country. Tariffs are used to protect domestic
producers and / or to raise revenue.
E.g. Japan has a high tariff on imported rice.
 Import quota: - a limit on the amount of a particular product that can be brought into a
country. Like tariffs, quotas are intended to protect local industry.
 Unstable governments: - high in debtness, high inflation, and high unemployment in several
countries have resulted in high unstable governments that exposed foreign firms in business
risks and profit repatriation.
 Foreign exchange problems: - high indebtedness and economic and political instability
decrease the value of a country’s currency. Profit repatriation for foreign firms are not available
in many markets.
 Foreign government entry requirements and bureaucracy. Government places many
regulations on foreign firms. For example: - they might require joint ventures with the majority
share going to the domestic partner, a high number of nationals to be hired, limits on profit
repatriation etc.
 Corruption: - officials in several countries require bribes to cooperate. They award business to
the highest briber rather than the lowest bidder, etc.
 Technological pirating: - a company locating its plant abroad worries about foreign managers
learning how to make its product and breaking away to compete openly. i.e. machinery,
electronics, chemicals, pharmaceuticals area

FACTORS INFLUENCING INTERNATIONAL MARKETING

International marketing can directly or indirectly affected by different factors which are mainly
associated with internal and external variables such as;

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 i) Internal factors

All factors existing within the marketing firm are under the internal factors. These are the
controllable factors which can be modified according to the environment.

ii) External factors

The external factors which influence the international marketing decisions of a business
organization relates with;

a) Economic Environment

b) Social and Cultural Environment

c) Political Environment

d) Legal Environment

e) Physical Environment

f) Technological Environment

g) Business Environment

Marketing Strategies

For those industries in the worldwide imitation stage or the maturity stage, things are likely to get worse
rather than better. The prospect, though bleak, can be favorably influenced. What is critical for firms to
understand the implications of the IPLC so that they can adjust marketing strategies accordingly.

i) Product Policy/ strategies

The IPLC emphasizes the importance of cost advantage. The innovative firm must keep its product cost
competitive. To reduce production cost,
a. Cutting labor costs through automation and robotics
b. Eliminating unnecessary options, since such options increase inefficiency and complexity. This
strategy may be critical for simple products or those at the low end of the price scale. In such
cases, it is desirable to offer standardized products with standard package of features or options

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 included.
c. A firm may use local manufacturing in other countries as an entry strategy. The company not
only can minimize transportation costs and entry barriers but also can indirectly slow down
potential local competition firm starting up manufacturing facilities. Another benefit is that those
countries can eventually become a springboard for the U.S. company to market its products
throughout that geographic region.
d. Manufacturers should examine the traditional vertical structure in which they make all or most
components and parts themselves, because in many instances outsourcing may prove to be more
cost – effective. Out sourcing is the practice of buying parts or whole products form other
manufacturers while allowing a buyer to maintain its own brand name. A modification of
outsourcing involves producing various components or having them produced under contract in
different countries. That production in each country before assembling components into final
products form worldwide distribution.

Once in the maturity stage, the innovator’s comparative advantage is gone, and the firm should switch
from producing simple versions to producing sophisticated models or new technologies in order to
remove itself from cut – throat competition.

ii) Pricing Strategy

Initially, an innovating firm can afford to behave as a monopolist, changing a premium price for its
innovation. But this price must be adjusted down - ward in the second and third stages of IPLC to
discourage potential newcomers and to maintain market share.

In the last stage of the IPLC, it is not practical for the innovating firm to maintain low price because of
competitions cost advantage. But the firm’s above – the – market price is feasible only if it is
accompanied by top – quality or sophisticated products. A high standard of excellence should partially
insulate the firm’s product from direct price competition.

iii) Promotion Strategy

Promotion and pricing in the IPLC are highly related. The innovative firm’s initial competitive edge is
its unique product, which allows it to made a premium price. To maintain this price in the face of
subsequent challenges from imitators, uniqueness can only be retained in the form of superior quality,
style, or service.

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The innovating marketer must plan for a non price promotional policy at the outset of a product
diffusion. Timken is able to compete effectively against the Japanese by offering more services and
meeting customers’ needs at all times. For instance, it offers technological support by sending engineers
to help customers design bearings in gearboxes.

One implication that can be drawn is that a new product should be promoted as a premium product with
a high-quality image. In this case promotional goal is to sell image rather than a specific product.

By starting out with a high- quality reputation, the innovating company can trade down later with a
simpler version of the product while still holding on to the high price, most profitable segment of the
market. One thing the company must never do is to allow its product to become a commodity item with
prices as the only buying motive, since such a product can be easily duplicated by other firms. Product
differentiation, not price, is most important for insulating a company from the crowded, low profit
market segment. A product can be so standardized that it can be easily duplicated, but image is a much
different proposition.

iv) Place (Distribution) Policy/ strategy

A strong dealer network can provide the U.S. innovating firm with a good defensive strategy.
Because of its near-monopoly situation at the beginning, the firm is in a good position to be able
to select only the most qualified agents/distributors and the distribution network should be
expanded further as the product becomes more diffused. A firm must also watch closely for the
development of any new alternative channel that may threaten the existing channel

 Principle of Absolute Advantage

Adam Smith may have been the first scholar to investigate formally the rationale behind foreign trade.
In his book "Wealth of Nations" Smith used the principles of absolute advantage as the justification for
international trade.

According to this principle, a country should export a commodity that can be produced at a lower
cost than other nations. Conversely it shared import of a commodity that can only be produced at a
higher cost than can other nations.

Consider a hypothetical example of the nations producing two products.

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 Product Ethiopia Djibouti
Computer 20 10

Automobile 10 20

It shows that given certain resources and labor, the Ethiopia can produce 20 computer or 10 automobiles
or some combination of both. In contrast, Djibouti is able to produce only half as many computers (i.e.,
Djibouti Produces 10 for every 20 the Ethiopia produces).
The disparity might be the result of better skills by Ethiopia workers in making this product. Therefore
the Ethiopia is having an absolute advantage in computers. If the situation is reversed for automobiles,
the Ethiopia makes only 10 cars for every 20 units manufactured in Djibouti. In this instance, Djibouti
has an absolute advantage.

 Principle of Comparative Advantage

The principle of comparative advantage holds that each country will specialize in the production and
export of those goods that it can produce at relatively low cost (in which it is relatively more efficient
than other countries). Conversely each country will import those goods that it produces at relatively high
cost or in which it is relatively less efficient than other countries.

For simplicity, Ricardo worked with only two countries and only two goods, and he chooses to
measure all production costs in terms of labor hours. We shall follow his lead here; analyze food and
clothing for Europe and America.

American and European Labor Requirements for Production

Necessary Labor (Labor – Hours)

Product In America In Europe

1 Unit of food 1 3

1 Unit of clothing 2 4

Note: In hypothetical example, America has lower labor costs in both food and clothing; American labor
productivity is between 2 and 3 times Europe's (twice in clothing, thrice in food). Yet it benefits both
regions to trade with each other.

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In America it takes 1 hour of labor to produce a unit of food while a unit of clothing costs 2 hours of
labor. In Europe the cost is 3 hours of labor for food and 4 hours of labor for clothing. We see that
America has an absolute advantage in both goods, for it can produce them with greater absolute
efficiency, than can Europe. However America has comparative advantage in food, while Europe has
comparative advantage in clothing, because food is relatively inexpensive in America while clothing is
less expensive in Europe.
International Product Life Cycle
Introducing a new product at the proper time will help maintain a company's desired level of profit.
Striving to maintain its dominant position in the market, the company has to face that challenge often.

There are certain reasons for new products failures,such as;

 Inadequate market analysis and market appraisal
 Insufficient marketing support
 Bad timing of entry
 Failure to recognize changing market environment
 Absence of formal product planning and development proceeds
 Failure to the product to fill consumer needs
 Technical or production problems
 New entrants
 Poor on forecasting the strength of competition
International Product Life Cycle (IPLC)is relatively unknown. The theory developed and verified by
economists to explain international trade in a context of comparative advantage, has been covered rather
briefly in some international economics and international marketing texts and in a few marketing
articles.
The IPLC theory describes the diffusion process of an innovation across national boundaries. The life
cycle begins when a developed country, having a new product to satisfy consumer needs, wants to
exploit its technological breakthrough by selling abroad. Other advanced nations soon start up their own
production facilities, and before long Least Developed Countries (LDCs) do the same.
Efficiency/comparative advantage shifts from developed countries to developing nations. Finally,
advanced nations, no longer cost – effective, import products from their former customers. The moral of
this process could be that an advanced nation becomes a victim of its own creation.

One reason that IPLC theory has not made a significant impact is that its marketing implications are
somewhat obscure, even though it has the potential to be a valuable framework for marketing planning

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on a multinational basis. In this section, the IPLC is examined from the marketing perspective, and
marketing implications for both innovators and imitators are discussed.

Stages and characteristics

There are five distinct stages (stage 0 through Stage 4) in the IPLC. Table 2-1 shows the major
characteristics of the IPLC stages, this shows three life – cycle curves for the same innovation:

One for the initiating country (i.e., the United States in this instance), one for other advanced nations,
and one for LDCs. For each curve, net export results when the curve is above the horizontal line; if
under the horizontal line, net import results for that particular country. As the innovation moves through
time, directions of all three curves change. Time is relative, because the time needed for a cycle to be
completed varies from one kind of product to another. In addition, the time interval also varies from one
stage to the next.

IPLC Curve
Other AdvancedNations
Exporting

LDC’s
2
1 3 4
0 Time
Importing

USA (Initiating Country)

IPLC curves

1. Stage 0 – Local Innovation

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Stage 0, depicted as time 0 on the left of the vertical importing/exporting axis, represents a regular and
highly familiar product life cycle in operation within its original market. Innovations are most likely to
occur in highly developed countries because consumers in such countries are affluent and have relatively
unlimited wants. From the supply side, firms in advanced nations have both the technological know-how
and abundant capital to develop new products. Developed countries, in addition to being the original
case where innovation takes place, in all likelyhood will be the place where such new products are first
introduced to the public. Introduction occurs there because marketers are familiar with local desires and
marketing conditions, making them believe that the risks in introducing any product at home, rather than
somewhere else, are smaller. Furthermore, it is common for a new product to have technical problems
even after market introduction and acceptance, perhaps necessitating significant modifications. Products
sold overseas may have to be adjusted to be suitable for their intended markets. All of these
considerations together may be too complicated for innovative firms to deal with at the beginning. Thus,
it is easier and more logical for a firm to concentrate its effort in its home market before looking to
overseas markets.
Many of the products found in the world’s market where originally created in the United States before
being introduced and refined to other countries. In most instances, regardless of whether a product is
intended for later export or not, an innovation is initially designed with an eye to capture the U.S.
market, the largest consumer nation.
1. Stage 1- Overseas Innovation
As soon as the new product is well developed, its original market well cultivated, and local demands
adequately supplied, the innovating firm will look to overseas markets in order to expand its sales and
profit. Thus, this stage is known as a “pioneering” or “International Introduction” stage. The
technological gap is first noticed in other advanced nations because of their similar needs and high
income levels. Not surprisingly, English – Speaking countries such as the United Kingdom, Canada, and
Austria account for about half of the sales of US innovations when such products are first introduced
overseas. Countries with similar cultures and economic conditions are often perceived by exporters as
posing less risk and thus are approached first before proceeding to less familiar territories.

Competition in this stage usually comes from US firms, since firms in other countries may not have
much knowledge about the innovation. Production cost tends to be decreasing at this stage because by
this time the innovating firm will normally have improved the production process. Supported by
overseas sales, aggregate production costs tend to decline further because of increase economies of
scale. A low introductory price overseas is usually not necessary because of the technological

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breakthrough; a low price is not desirable because of the heavy and costly marketing effort needed in
order to educate consumers in other countries about the new product. In any case, as the product
penetrates the market during this stage, there will be more export from the United States and,
correspondingly, an increase in imports by other developed countries.
2. Stage 2 – Maturity
Growing demand in advanced nations provides an impetus for firms there to commit themselves to
starting local production, often with the help of their governments’ protective measures to preserve
infant industries. Thus, these firms can survive and thrive in spite of relative inefficiency. This process
may explain the changing national concentrations of high – technology exports and the laws of the US
share to Japan, France, and perhaps the United Kingdom.

Development of competition does not mean that the initiating countrie’s export level will immediately
suffer. The innovating firm’s sales and export volumes are kept stable because LDCs are now beginning
to generate a need the product. Introduction of the product in LDCs helps offset any reduction in export
sales to advanced countries.

3. Stage 3 – World Wide Imitation

This stage means tough times for the innovating nation because of its continuous decline in export.
There is no more new demand anywhere to cultivate. The decline will inevitably affect the innovating
firm’s economies of scale and its production costs thus begin to rise again. Consequently, firms in other
advanced nations use their lower prices (coupled with product - differentiation techniques) to gain more
consumer acceptance abroad at the expense of the firm. As the product becomes more and more widely
disseminated, imitation picks up at a faster pace. Toward the end of this stage, US export dwindles
almost to nothing, and any production still remaining is basically for local consumption. The US
automobile industry is a good example of this phenomenon. There are about 30 different companies
selling cars in the United States, with several on the rise. Of these, only 4 are US firms, with the rest
being from Western Europe, Japan, South Korea, Taiwan, Mexico, Brazil, and Malaysia.

4. Stage 4 – Reversal
Not only must all good things end, but also misfortune frequently accompanies the end of a favorable
situation. The major functional characteristics of this stage are product standardization and comparative
disadvantage. The innovative country’s comparative advantage has disappeared, and what is left is
comparative disadvantage. This disadvantage is brought about because the product is no longer capital –
intensive or technology – intensive but instead has become labor – intensive - a strong advantage

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possessed by LDCs. Thus, LDCs – the last imitators – establish sufficient production facilities to satisfy
their own domestic needs as well as to produce for the biggest market in the world, the United States.
US firms are now undersold in their own country. Black – and – white television sets, for example, are
no longer manufactured in the United States because many Asian firms can produce them much less
expensively than any US firm. Consumers’ price sensitivity exacerbates the problem for the initiating
country.

The IPLC is probably more applicable for products related through an emerging technology. These
newly emerging products are likely to provide functional utility rather than aesthetic values.
Furthermore, these products likely satisfy basic needs that are universally common in most parts of the
world.

Washers, for example, are much more likely to fit this theory than are dryers. Dish washing machines
are not useful in countries where labor is plentiful and cheap, and the diffusion of this kind of innovation
as described in IPLC is not likely occur
BENEFITS OF INTERNATIONAL MARKETING

The nation will be benefited through International Marketing, as discussed in the summarized form
below:
 To meet imports of industrial needs
The developing countries need imports of capital equipments, raw materials of critical nature, technical
knowhow for building the industrial base in the country with a view to rapid industrialization and
developing the necessary infrastructure.

 Debt servicing

All most all underdeveloped countries have been receiving external aid over the years for their industrial
development. Hence it is necessary to aim at sufficient export earnings to cover both imports and debt
servicing.

 Rapid economic growth

An expanding export trade can be a dynamic factor in a country’s development process. The country
should have to utilize domestic resources and to provide technological improvement and improved
production at lower costs.

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The benefits include: -
iii) The foreign exchange earnings can be used for the import of agricultural implements
and fertilizers to raise the production of agricultural produce and that can provide a base for many
agriculture-based industries.
iv) Mitigate unemployment in labor – intensive industries
v) Full utilization of idle resources
vi) Spin of benefits for the domestic consumer by exposing the industry to international markets and
making it more competitive as well as conscious of costs and quality.
 Profitable use of natural resources
Earning from exports can be utilized in establishing industrial unit based on different natural resources
available in the country by making the necessary imports of plant and machinery for the purpose.
 Facing competition successfully
Better quality and lower prices improve the image of the producer as well as of the country in minds of
foreign customers.
 Increase in employment opportunities
In an effort to increase the export, many export oriented industrial units are established. In
underdeveloped countries, the problem of the employment and underemployment is very serious that
can be solved to some extent by increasing the level of export.
 Role of exports in national income
Exports play an important role in the national income of the country and it can be increased to a sizeable
extent through organized export marketing.
 Increase in the standard of living
Export marketing improve the standard of living of the countrymen in the following ways: -

i) The imports of necessary item for consumption can be made which may help improve
standard of living.
ii) Exports increase the employment opportunities, which in turn, increase the purchasing
power of the people.
iii) Exports are responsible for the rapid industrialization of the country. New items are
produced for consumption in domestic market, which increases the level of standard of
living.
iv) In order to face the competition in the international market, the producer improves the
quality of the product by applying the latest technology. In this way, people get better
quality products at cheaper rates. It helps improve the standard of living of the people.

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 International collaboration
Export marketing results in international collaboration. Developed countries fix their import quotas for
different countries and for different commodities.

 Closer cultural relations

International trade brings various countries closer. Better trade relations are established among the
countries.
 Help in political stability
The economic relations between two countries help improve their political relations

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