Contents
1 NATURE OF INTERNATIONAL MARKETING: CHALLENGES AND OPPORTUNITIES
2 TRADE THEORIES AND ECONOMIC DEVELOPMENT
3 TRADE DISTORTIONS AND MARKETING BARRIERS
4 POLITICAL ENVIRONMENT
5 LEGAL ENVIRONMENT
6 CULTURE
7 CONSUMER BEHAVIOR IN THE INTERNATIONAL CONTEXT
8 MARKETING RESEARCH AND INFORMATION SYSTEM
9 FOREIGN MARKET ENTRY STRATEGIES
10 PRODUCT STRATEGIES: BASIC DECISIONS AND PRODUCT PLANNING
11 PRODUCT STRATEGIES: BRANDING AND PACKAGING DECISIONS
12 CHANNELS OF DISTRIBUTION
13 PROMOTION AND PRICING STRATEGIES
1 NATURE OF INTERNATIONAL MARKETING: CHALLENGES AND OPPORTUNITIES
We are citizens of the world – and citizens of every city and village where we do business. Douglas N.
A study of international marketing should begin with an understanding of what marketing is and how it operates in an international context. A definition adopted by the AMA (American Marketing Association) is used as a basis for the definition of international marketing given here: international marketing is the multinational process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. Only the word multinational has been added. That word implies that marketing activities are undertaken in several countries and that such activities should somehow be coordinated across nations.
This definition is not completely free of limitations. By placing individual objectives at one end of the definition and organizational objectives at the other, the definition stresses a relationship between a consumer and an organization. In effect, it fails to do justice to the significance of business-to-business marketing, which involves a transaction between two organizations. In the world of international marketing, governments, quasigovernment agencies, and profit-seeking and nonprofit entities are frequently buyers. Companies such as Boeing and Bechtel, for example, have nothing to do with consumer products. Likewise, Russia’s export agency, Rosoboron export, has adopted a Western-style marketing approach to sell arms for the country’s 1700 defense plants. Its cheery sales representatives and giant TV screens show Russian jets and helicopters in action. In addition, Rosoboronexport offers competitive prices and will modify the products to suit its customers.
consumers for a firm’s existing product, it is often more logical to determine consumer needs before creating a product. For overseas markets, the process may call for a modified product. In some cases, following this approach may result in foreign needs being satisfied in a new way (i.e., a brand new product is created specifically for overseas markets). Fourth, the definition acknowledges that “place” (distribution) is only part of the marketing mix and that the distance between markets makes it neither more nor less important than the other parts of the mix. It is thus improper for any firms to regard their international function as simply to export (i.e., move) available products from one country to another.
Finally, the “multinational process” implies that the international marketing process is not a mere repetition of using identical strategies abroad. The four 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 be adjusted for a particular market for better impact. Coca-Cola’s German and Turkish divisions, for example, have experimented with berry-flavored Fanta and a pear-flavored drink respectively. In other cases, a multinational marketer may find it more desirable to use a certain degree of standardization if the existing market differences are somewhat artificial and can be overcome. As in the case of General Electric Co.’s GE Medical Systems, it went too far in localizing its medical imaging products to compete with local competitors. Its managers designed and marketed similar products for different markets. Overcustomizing such big-ticket products is an expensive and wasteful duplication of effort One way to understand the concept of international marketing is to examine how international marketing differs from similar concepts. Domestic marketing is concerned with the marketing practices
Domestic marketing involves one set of uncontrollables derived from the domestic market. International marketing is much more complex because a marketer faces two or more sets of uncontrollable variables originating from various countries. The marketer must cope with different cultural, legal, political, and monetary systems. Digital Microwave Corporation’s annual report makes this point very clear when it states.
The Company is subject to the risks of doing business internationally, including unexpected changes in regulatory requirements, fluctuations in foreign currency exchange rates, imposition of tariffs and other barriers and restrictions, the burdens of complying with a variety of foreign laws, and general economic and geopolitical conditions, including inflation and trade 4 relationships.
The varying environments within which the marketing plan is implemented may often rule out uniform marketing strategies across countries. McDonald’s, although world renowned for its American symbols and standardization, has actually been flexible overseas. Recognizing the importance of foreign markets and local customs, the company customizes its menu by region. In fact, it has even excluded beef from its menu in India in deference to the country’s Hindu tradition. Mean that consumers in all parts of the world must or should be satisfied in exactly the same way. Consumers from various countries are significantly different due to varying culture, income, level of economic development, and so on.
Too often, marketing mix is confused with marketing principles. Sound marketing principles are universal. One basic principle states that marketers should adopt the marketing concept (i.e., using the integrated marketing approach to satisfy both customers’ and corporate goals). Regardless of their nationalities, marketers everywhere should be customer-oriented. However, this universal principle in no way implies a uniform marketing mix for all markets. To be customer-oriented does not mean that the same marketing strategy should be repeated in a different environment.
Multinational corporations (MNCs) are major actors in the world of international business. The mention of MNCs usually elicits mixed reactions. On the one hand, MNCs are associated with exploitation and ruthlessness. They are often criticized for moving resources in and out of a country, as they strive for profit without much regard for the country’s social welfare. In addition, they erode a nation’s sovereignty. One study found that globalization undermined domestic airline competition policy. Is globalization detrimental to environment? This question is based on a premise that globalization consumers may use the same product without having the same need or motive, and in turn may use different products to satisfy the same need. For example, different kinds of foods are used in different countries to satisfy the same hunger need. Further, Americans and Europeans may use gas or electric heat to keep warm, whereas people in India may meet the same need by burning cow dung., encourages location of polluting industries in countries with low environmental regulations. Based on survey data from companies in China, globalization has positive environmental effects because of selfregulation pressures on firms in low-regulation countries. “Multinational ownership, multinational customers, and exports to developed countries increase self-regulation of environmental performance.”6 According to another study, the size of a domestic market and other factors are much more important than pollution costs.The attractiveness of China is due more to its market size than its relatively lax pollution-control laws.
On a positive note, MNCs have power and prestige. Also in defense of MNCs, more and more of them have been trying to be responsible members of society. In addition, MNCs create social benefit by facilitating economic balance. Given the fact that natural resources and factors of production are unevenly distributed around the globe, MNCs can act as an effective and efficient mechanism to use these precious resources.
At one time, it was thought that the relationship between a firm’s degree of multinationality and its market performance was a linear and positive one. While studies have found a relationship, the linkage is not straightforward. One recent study found a curvilinear relationship instead. Increasing levels of multinationality provide significant performance benefits up to a certain optimum level. Once that optimum level is achieved, any further increase of multinationality results in decelerating benefits and accelerating costs. In other words, multinationality has both positive and negative impacts on performance. The positive impacts originate in MNCs’ ability to leverage scale economies, access new technologies, and arbitrage factor cost differentials across multiple locations. The negative effects later emerge because of higher costs associated with coordination and control, administrative systems to manage culturally distinct markets, and diverse human resources. Other factors further complicate the relationship. One cross-sectional analysis of twelve industries over a seven-year period found that the “impact of multinationality on both financial and operational performance is moderated by a firm’s R&D and marketing capabilities.”
MNC is not a one-dimensional concept. There is no single criterion that proves satisfactory at all times in identifying an MNC. Varying definitions are not necessarily convergent. As a result, whether or not a company is classified as an MNC depends in part on what set of criteria is used.
The term MNC implies bigness. But bigness also has a number of dimensions. Such factors as market value, sales, profits, assets, and number of employees, when used to identify the largest multinationals, will yield varying results. As an example, although General Motors is in terms of market value, it is No. 3 in terms of sales. While Business Week magazine focuses on market value, Forbes magazine ranks the world’s largest public companies by using a composite ranking of sales, profits, assets, and market value.
Global leaders based on market value, sales, and profits
Rank Market value Sales Profits
1 General Electric Wal-Mart Stores Citigroup
2 Microsoft ExxonMobil General Electric
3 ExxonMobil General Motors Altria Group
4 Pfizer Royal Dutch/Shell Exxon/Mobil
5 Wal-Mart Stores BP Royal Dutch/Shell
Source: Adapted from “Top Global Companies,” Business Week, July 14, 2003, 60.
Many multinational corporations are indeed large. According to UNCTAD, there are some 65,000 transnational corporations (TNCs) worldwide with more than 250,000 foreign affiliates. Some TNCs are even bigger than a number of countries. TNCs control one-third of the world’s private sector productive assets.
According to Aharoni, an MNC has at least three significant dimensions: structural, performance, and behavioral. Structural requirements for definition as an MNC include the number of countries in which the firm does business and the citizenship of corporate owners and top managers. Pfizer, stating that it is a truly global company, does business in more than 150 countries. Citicorp satisfies the requirement for multinationalism through the citizenship of members of its top management. The company has done as much as other major American MNCs to diversify its management. In Asia, a native of Pakistan is in charge of the firm’s $800 million finance business for all of Asia apart from Japan. His colleague, an Indian national, heads the consumer business. They are two of the eight non-Americans in the elite group of fifteen executive vice-presidents
Definition by performance depends on such characteristics as foreign earnings, sales, and assets. These performance characteristics indicate the extent of the commitment of corporate resources to foreign operations and the amount of rewards from that commitment. The greater the commitment and reward, the greater the degree of internationalization. Japanese and British firms have routinely shown willingness to commit their corporate resources to overseas assets. Human resources or overseas employees are customarily considered as part of the performance requirements rather than as part of the structural requirements, though the desirability of separating. lower level employees from top management is questionable. A preferable analysis would be to treat the total extent of the employment of personnel in other countries as another indicator of the structure of the company. In any case, the willingness of a company to use overseas personnel satisfies a significant criterion for multinationalism. Avon, for example, employs 370,000 Japanese women to sell its products house to house across Japan. Siemens, well known worldwide for its consumer and industrial products, has some 300,000 employees in 124 countries
Behavior is somewhat more abstract as a measure of multinationalism than either structure or performance, though it is no less important. This requirement concerns the behavioral characteristics of top management. Thus, a company becomes more multinational as its management thinks more internationally. Such thinking, known as geocentricity, must be distinguished from two other attitudes or orientations, known as ethnocentricity and polycentricity.
Geocentricity is a compromise between the two extremes of ethnocentricity and polycentricity. It could be argued that this attitude is the most important of the three. Geocentricity is an orientation that considers the whole world rather than any particular country as the target market. A geocentric company might be thought of as denationalized or supranational. As such, “international” or “foreign”
Based on his review of a number of the internationalization models which specify the various stages of internationalization, Andersen has proposed his own U-model which has received mixed empirical support. According to this model, there are four stages: (1) no regular export activities, (2) export via independent representatives (agent), (3) establishment of an overseas sales subsidiary, and (4) overseas production/manufacturing. The development is supposed to take place initially within a specific country before being repeated across countries. More recently, an increasingly global economy has given birth to a new theory which states that some companies are destined to go global from the outset.
BENEFITS OF INTERNATIONAL MARKETING: Survival and growth - Sales and profits – Diversification - Inflation and price moderation – Employment - High standards of living
2 TRADE THEORIES AND ECONOMIC DEVELOPMENT
BASIS FOR INTERNATIONAL TRADE Whenever a buyer and a seller come together, each expects to gain something from the other. The same expectation applies to nations that trade with each other. It is virtually impossible for a country to be completely self-sufficient without incurring undue costs. Therefore, trade becomes a necessary activity, though, in some cases, trade does not always work to the advantage of the nations involved. Virtually all governments feel political pressure when they experience trade deficits. Too much emphasis is often placed on the negative effects of trade, even though it is questionable whether such perceived disadvantages are real or imaginary. The benefits of trade, in contrast, are not often stressed, nor are they well communicated to workers and consumers.
Why do nations trade? A nation trades because it expects to gain something from its trading partner. One may ask whether trade is like a zero-sum game, in the sense that one must lose so that another will gain.The answer is no, because, though one does not mind gaining benefits at someone else’s expense, no one wants to engage in a transaction that includes a high risk of loss. For trade to take place, both nations must anticipate gain from it. In other words, trade is a positive-sum game. Trade is about “mutual gain.”. In order to explain how gain is derived from trade, it is necessary to examine a country’s production possibility curve. How absolute and relative advantages affect trade options is based on the trading partners’ production possibility curves.
Because each country has a unique set of resources, each country possesses its own unique production possibility curve. This curve, when analyzed, provides an explanation of the logic behind international trade. Regardless of whether the opportunity cost is constant or variable, a country must determine the proper mix of any two products and must decide whether it wants to specialize in one of the two. Specialization will likely occur if specialization allows the country to improve its prosperity by trading with another nation. The principles of absolute advantage and relative advantage explain how the production possibility curve enables a country to determine what to export and what to import.
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 principle 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 can other nations. Conversely, it should import a commodity that can only be produced at a higher cost than can other nations.
One problem with the principle of absolute advantage is that it fails to explain whether trade will take place if one nation has absolute advantage for all products under consideration. David Ricardo, perhaps the first economist to fully appreciate relative costs as a basis for trade, argues that absolute production costs are irrelevant More meaningful are relative production costs, which determine what trade should take place and what items to export or import. According to Ricardo’s principle of relative (or comparative) advantage, one country may be better than another country in producing many products but should produce only what it produces best. Essentially, it should concentrate on either a product with the greatest comparative advantage or a product with the least comparative disadvantage. Conversely, it should import either a product for which it has the greatest comparative disadvantage or one for which it has the least comparative advantage.
EXCHANGE RATIOS, TRADE, AND GAIN Although an analysis of relative advantage can indicate what a country should export and import, that analysis cannot explain exactly how a country will gain from trading with a partner. In order to determine the extent of trading gain, an examination of the domestic exchange ratio is required.
The principles of absolute and relative advantage provide a primary basis for trade to occur, but the usefulness of these principles is limited by their assumptions. One basic assumption is that the advantage, whether absolute or relative, is determined solely by labor in terms of time and cost. Labor then determines comparative production costs and subsequent product prices for the same commodity.
If labor is indeed the only factor of production or even a major determinant of product content, countries with high labor cost should be in serious trouble. An interesting fact is that Japan and Germany, in spite of their very high labor costs, have remained competitive and have performed well in trade. It thus suggests that absolute labor cost is only one of several competitive inputs that determine product value. As it is misleading to analyze labor costs without also considering the quality of that labor. A country may have high labor cost on an absolute basis; yet this cost can be relatively low if productivity is high. Countries with low wages tend to have low productivity. Any subsequent productivity gains usually result in higher wages and currency appreciation. Furthermore, the price of a product is not necessarily determined by the amount of labor it embodies, regardless of whether or not the efficiency of labor is an issue. Since product price is not determined by labor efficiency alone, other factors of production must be taken into consideration, including land and capital (i.e., equipment). Together, all of these production factors contribute significantly to the creation of value within a particular product.
Each nation possesses factors of production that may be grouped into these broad categories: human resources, physical resources, knowledge resources, capital resources, and infrastructure. Interestingly or surprisingly, a nation’s abundance of a particular production factor may sometimes undermine instead of enhance the country’s competitive advantage. international competitiveness factors: (1) factor conditions, (2) demand conditions, (3) related and supporting industries, and (4) firm strategy, structure, and rivalry. These four determinants interact and form the “diamond” which provides the context in which a nation’s firms are born and compete. Porter’s theory also includes two additional variables: chance and government.
Several studies have investigated the validity of the classical trade theories. MacDougall shortly after World War II showed that comparative cost was useful in explaining trade patterns. Other studies using different data and time periods have yielded results similar to MacDougall’s. Thus there is support for the claim that relative labor productivities determine trade patterns.
These positive results were subsequently questioned. The studies conducted by Leontief revealed that the USA actually exports labor-intensive goods and imports capital-intensive products. These paradoxical findings are now called the Leontief Paradox. Thus, the findings are ambiguous, indicating that, in its simplest form, the Heckscher– Ohlin theory is not supported by the evidence.
In theory, the more different two countries are, the more they stand to gain by trading with each other.There is no reason why a country should want to trade with another that is a mirror image of itself. However, a look at world trade casts some doubt on the validity of classical trade theories. Developed countries trade more among themselves than with developing countries. There is a tendency for corporations in developed countries to prefer to form direct-investment ties in the other more stable, developed countries while avoiding heavy investment in the fast-growing developing world. Trade theories provide logical explanations about why nations trade with one another, but such theories are limited by their underlying assumptions.
Most of the world’s trade rules are based on a traditional model that assumes that (1) trade is bilateral, (2) trade involves products originating primarily in the exporting country, (3) the exporting country has a comparative advantage, and (4) competition focuses primarily on the importing country’s market. However, today’s realities are quite different. First, trade is a multilateral process. Second, trade is often based on products assembled from components that are produced in various countries. Third, it is not easy to determine a country’s comparative advantage, as evidenced by the countries that often export and import the same product. Finally, competition usually extends beyond the importing country to include the exporting country and third countries.
One limitation of classical trade theories is that the factors of production are assumed to remain constant for each country because of the assumed immobility of such resources between countries. This assumption is especially true in the case of land, since physical transfer and ownership of land can only be accomplished by war or purchase (e.g., the US seizure of California from Mexico and the US purchase of Alaska from Russia). At present, however, such means to gain land are less and less likely. As a matter of fact, many countries have laws that prohibit foreigners from owning real estate. Thus, Japan and many other countries remain land-poor. On the other hand, outsourcing and foreign direct investment are a means to gain or use foreign land. Thus, in this regard, one can argue that land is mobile– at least indirectly. But we can consider also capitals-rich countries and their abilities to get loans and attract investments, where some other countries can't do that. Labor as a factor is relatively mobile because people will migrate – legally or not – in search of a better life.
When considering the factors of production, another item that is very significant involves the level of quality of the production factors. It is important to understand that the quality of each factor should not be assumed to be homogeneous worldwide. Some countries have relatively better-trained personnel, better equipment, better-quality land, and better climate. Although a country should normally export products that use its abundant factors as the product’s major input, a country can substitute one production factor for another to a certain extent.
Like Joseph Schumpeter before them, some economists argue that innovation (knowledge and its application to real business problems) counts for more than capital and labor, the traditional factors of production. Entrepreneurs, industrial research, and knowledge are what matters.
ALSO REGIONAL GROUPINGS AND THEIR NATIONS is effective factor giving advantages to these grouped countries where ther are benefits for them from Customs union, Common market, Economic and monetary union.
There are some other factors such as, CULTURAL DIMENSION (like European union), Political union (With France and Germany leading the way, the EU has been moving toward social, political, and economic integration)
3 TRADE DISTORTIONS AND MARKETING BARRIERS
Free trade makes a great deal of sense theoretically because it increases efficiency and economic welfare for all involved nations and their citizens. South Korea’s trade barriers, however, do not represent an isolated case. In practice, free trade is woefully ignored by virtually all countries. Despite the advantages, nations are inclined to discourage free trade.
Why do nations impede free trade when the inhibition is irrational? One reason why governments interfere with free marketing is to protect local industries, often at the expense of local consumers as well as consumers worldwide. Regulations are created to keep out or hamper the entry of foreignmade products. Arguments for the protection of local industries usually take one of the following forms: (1) keeping money at home, (2) reducing unemployment, (3) equalizing cost and price, (4) enhancing national security, and (5) protecting infant industry.
Trade unions and protectionists often argue that international trade will lead to an outflow of money, making foreigners richer and local people poorer. This argument is based on the fallacy of regarding money as the sole indicator of wealth. Other assets, even products, may also be indicators of wealth. For instance, it does not make sense to say that a man is poor just because he does not have much cash on hand when he owns many valuable assets such as land and jewelry. In addition, this protectionist argument assumes that foreigners receive money without having to give something of value in return. Whether local consumers buy locally made or foreign products, they will have to have money to pay for such products. In either case, they receive something of value for their money.
The purposes are: Keeping money at home, Reducing unemployment, protect of local industries, Equalizing cost and price, Enhancing national security, and Protecting infant industry.
So, these countries making marketing barriers and different types of TARIFFS, DUTIES, Combined rates, and Taxes. As there are many other requirements such as Product requirements, Products testing, documents, origin of products, Product specifications, and different types of Quotas.
WORLD TRADE ORGANIZATION (WTO) Virtually all nations seek to pursue their best interests in international trade. The result is that sooner or later international trade and marketing can be disrupted. To prevent or at least alleviate any problems, there is a world organization in Geneva known as the WTO (with General Agreement on Tariffs and Trade (GATT) as its predecessor).
Created in January 1948, the objective of GATT is to achieve a broad, multilateral, and free worldwide system of trading. For example, its code requires international bidding on major projects. GATT provides the forum for tariff negotiations and the elimination of trade discrimination.
The four basic principles of GATT are
1 Member countries will consult each other concerning trade problems.
2 The agreement provides a framework for negotiation and embodies results of negotiations in a legal instrument.
3 Countries should protect domestic industries only through tariffs, when needed and if permitted. There should be no other restrictive devices such as quotas prohibiting imports.
4 Trade should be conducted on a nondiscriminatory basis.
Generalized system of preferences (GSP) Although the benefits derived from the creation of the WTO are rarely disputed, less developed countries do not necessarily embrace GATT because those countries believe that the benefits are not evenly distributed. Tariff reduction generally favors manufactured goods rather than primary goods. Less developed countries rely mainly on exports of primary products, which are then converted by advanced nations into manufactured products for export back to less developed countries. As a result, a less developed country’s exports will usually be lower in value than its imports, thus exacerbating the country’s poverty status.
In response to less developed countries’ needs, the United Nations Conference on Trade and Development (UNCTAD) was created as a permanent organ of the UN General Assembly. Efforts by the UNCTAD led to the establishment of the New International Economic Order (NIEO) program. This program seeks to assist less developed countries through the stabilization of prices of primary products, the expansion of less developed countries’ manufacturing capabilities, and the acquisition by less developed countries of advanced technology.
4 POLITICAL ENVIRONMENT
The political environment that MNCs face is a complex one because they must cope with the politics of more than one nation. That complexity forces MNCs to consider the three different types of political environment: foreign, domestic, and international. As in the case of the US steel industry, it has received a variety of subsidy and government protection for more than thirty years. George W. Bush continued the assistance by imposing quotas for three years, and politics may have played a role. The action should help Republican candidates in the steel producing states. Bush was criticized for shunning free trade for the “pleasure of political opportunism.”2 The measures were like new taxes that would cost consumers of steel products $8 billion. Although political and economic motives are two distinct components, they are often closely intertwined. A country may use economic sanctions to make a political statement. Likewise, a political action may be taken so as to enhance the country’s economic prospects. It is also hardly uncommon for governments as well as companies to ignore politics for the purpose of economic interests. Even while the economic sanctions were in place, the USA was actually importing a large amount of oil from Iraq. While Taiwan and China are supposedly enemies that do not want to do business with one another, the truth of the matter is that there are some 50,000 Taiwanese-owned factories in China.
Developing countries often view foreign firms and foreign capital investment with distrust and even resentment, owing primarily to a concern over potential foreign exploitation of local natural resources. Dependency theory may partially explain why Latin American countries are reluctant to welcome foreign-based multinational firms. According to this theory, the ongoing economic, political, and social transformations have made it necessary for Latin America to rely on the capitalistic system. Consequently, advanced countries are able to extract surplus value from their less developed counterparts, thus leaving them underdeveloped while perpetuating the existence of class conflicts and oppressive governments.
Developed countries themselves are also concerned about foreign investment. Many Americans have expressed their concern that the increasing foreign ownership of American assets poses a threat to their country’s national security, both politically and economically. It should be pointed out that inflows of foreign capital add to the domestic capital stock. This activity contributes to the American standard of living and enhances the country’s ability to service its international indebtedness. As a result, the benefits of foreign investment far outweigh the costs.
In some cases, opposition to imported goods and foreign investment is based on moral principle. For example, the citizens of many nations pressured companies in their countries not to invest in South Africa because of that country’s policy of apartheid. In the mid-1980s the pressure became so great that the South African government ran advertisements in the USA in an attempt to minimize damage. Ironically, American firms that heeded the anti-apartheid movement’s call to divest have found it difficult to re-enter the market and capture back market share.
Regardless of whether the politics are foreign, domestic, or international, the company should keep in mind that political climate does not remain stationary. The political relationship between the USA and a long-time adversary, China, is a prime example. After decades as bitter enemies, both countries became very interested in improving their political and economic ties so as to dilute the power of the Soviet Union.
Although most companies have little control over affecting changes in international politics, they must be prepared to respond to new developments. Companies can derive positive economic benefits when the relationship between two countries improves or when the host government adopts a new investment policy. As in the case of India, the country was a highly regulated, closed economy which discouraged foreign investment. It was not until 1991 that a new government began a reform program which could transform India into one of the world’s most dynamic economies.
On the other hand, serious problems can develop when political conditions deteriorate. A favorable investment climate can disappear almost overnight. In one case, the USA withdrew Chile’s duty-free trade status because of Chile’s failure to take “steps to afford internationally recognized worker rights.” Chile thus joined Romania, Nicaragua, and Paraguay in being suspended from the GSP (generalized system of preferences).
Parliamentary governments consult with citizens from time to time for the purpose of learning about opinions and preferences. Government policies are thus intended to reflect the desire of the majority segment of a society. Most industrialized nations and all democratic nations may be classified as parliamentary.
Many countries’ political systems do not fall neatly into one of these two categories. Some monarchies and dictatorships (e.g., Saudi Arabia and North Korea) have parliamentary elections. The former Soviet Union had elections and mandatory voting but was not classified as parliamentary because the ruling party never allowed an alternative on the ballot. Countries such as the Philippines under Marcos and Nicaragua under Somoza held elections, but the results were suspect due to government involvement in voting fraud.
Another way to classify governments is by the number of political parties. This classification results in four types of governments: two-party, multiparty, single-party, and dominated one-party. In a two-party system, there are typically two strong parties that take turns controlling the government, although other parties are allowed. The USA and the United Kingdom are prime examples. The two parties generally have different philosophies, resulting in a change in government policy when one party succeeds the other. In the USA, the Republican Party is often viewed as representing business interests, whereas the Democratic Party is often viewed as representing labor interests, as well as the poor and disaffected.
In a multi-party system, there are several political parties, none of which is strong enough to gain control of the government. Even though some parties may be large, their elected representatives fall short of a majority. A government must then be formed through coalitions between the various parties, each of which wants to protect its own interests. The longevity of the coalition depends largely on the cooperation of party partners. Usually, the coalition is challenged continuously by various opposing parties. A change in a few votes may be sufficient to bring the coalition government down. If the government does not survive a vote of no confidence (i.e., it does not have the support of the majority of the representatives), the government is disbanded and a new election is called. Countries operating under this system include Germany, France, and Israel. In the 1991 elections in Poland, twenty-nine parties (including the Polish Beer Lovers’ Party) won seats, and no party got more than 13 percent of the vote.
In a single-party system, there may be several parties, but one party is so dominant that there is little opportunity for others to elect representatives to govern the country. Egypt has operated under single-party rule for several decades. This form of government is often used by countries in the early stages of the development of a true parliamentary system. Because the ruling party holds support from the vast majority, the system is not necessarily a poor one, especially when it can provide the stability and continuity necessary for rapid growth. But when serious economic problems persist, citizens’ dissatisfaction and frustration may create an explosive situation. For example, Mexico has been ruled since its revolution by the Institutional Revolutionary Party (PRI), but economic problems caused dissatisfaction with the PRI in the 1980s. The National Action Party (PAN), Mexico’s main opposition party, began gaining strength, possibly foreshadowing a transition away from a single-party system. As a matter of fact, Vicente Fox indeed took Mexico’s presidency away from the PRI.
In a dominated one-party system, the dominant party does not allow any opposition, resulting in no alternative for the people. In contrast, a singleparty system does allow some opposition party. The former Soviet Union, Cuba, Libya, and China are good examples of dominated one-party systems. Such a system may easily transform itself into a dictatorship. The party, to maintain its power, is prepared to use force or any necessary means to eliminate the introduction and growth of other
parties. Such countries as Burma, Cambodia, and Afghanistan have tried to reject outside influences, and it is no accident that they were or are among the most repressive regimes. Understandably, repression or suppression may be their only way of maintaining their ideology.
In addition, countries’ electoral systems may be either majoritarianism or proportionality. In the case of majoritarianism, a country is ruled by a simple numerical majority in an organized group. Proportionality occurs when the number of parliamentary seats is based on vote share. Research shows that spending on social security and welfare is lower under majoritarian systems. In contrast, “certain political factors, such as an electoral system that emphasizes proportionality or a fragmented parliament or government, lead simultaneously to higher transfers, bigger government, and a revenue system that emphasizes labor taxes over consumption taxes.”
Freedom House publishes Freedom in the World, a survey which reports on freedom around the globe. The publication is an annual comparative assessment of the state of political rights and civil liberties in 192 countries and seventeen related and disputed territories. In 2002, eighty-nine countries were “free” and fifty-six are “partly free.” The “not free” category claimed forty-seven countries.7 Freedom House’s Freedom of the Press 2003: A Global Survey of Media Independence reveals that press freedom deteriorated in 2002.
One should not be hasty in making generalizations about the ideal form of government in terms of political stability. It may be tempting to believe that stability is a function of economic development. South Africa and Italy, two developed countries, have been beset with internal and external problems. The political atmosphere from time to time is marred by a weak economy, recurring labor unrest, and internal dissension. In contrast, it may be argued that Vietnam, despite being a developing economy, is politically more stable. This stability is due in part to Vietnam’s relatively closed economy. It may be just as tempting to conclude that a democratic political system is a prerequisite for.
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 conditions. Product price is determined by demand and supply. This system serves the needs of society by encouraging decentralized decision making, risk taking, and innovation. The results include product variety, product quality, efficiency, and relatively lower prices.
The term centrally planned economies is often used to refer to the former Soviet Union, Eastern European countries, China, Vietnam, and North Korea. These economies tend to have the following characteristics: a communist philosophy, an active government role in economic planning, a nonmarket economy, a weak economy, high foreign debt, and rigid and bureaucratic political/economic systems. A contrast between North Korea and South Korea is quite striking. While North Korea’s economy has contracted, South Korea’s economy has been booming. South Korea’s GDP of $931 billion dwarfs North Korea’s GDP of $22 billion. North Korea’s exports of $842 million are no match for South Korea’s exports of $162.6 billion. It should be noted that North Korea is much better endowed than its southern counterpart in terms of natural resources.
Despite communist countries’ preoccupation with control of industries, it would be erroneous to conclude that all communist governments are exactly alike. Although the former Soviet Union and China adhered to the same basic ideology, there was a marked difference between the two largest communist nations. China has been experimenting with a new type of communism by allowing its citizens to work for themselves and to keep any profit in the process. Yet one must remember that “free markets” can exist in China only with the state’s permission, and the operations of such markets are still overseen by government officials.
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 businesses to private ownership. Socialism is a matter of degree, and not all socialist countries are the same. 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.
At one time, Sweden was a role model of what socialism could be, but a middle road between communism and capitalism may now produce stalled economic growth.12 Sweden’s economic decline is due in part to a rapid expansion in regulations and to the rising share of national income spent by central and local governments. During the 1970s and 1980s, Sweden introduced very generous retirement and health benefits, lengthy paid leave for parents, liberal rules for sick workers on taking days off, and many other types of transfer payments. Not surprisingly, on an average day, almost one in four employees is absent from work because of reported illness, parental responsibilities, study leave, and other reasons that allow a worker to stay at home. On a yearly basis, the average Swedish worker is off sick for almost a month of the year while receiving full salary. Moreover, differences in pay by education level, job experience, and other measures of worker productivity have largely disappeared. In the long run, there is no incentive to work hard when one can get paid for staying at home, when education and better jobs do not offer much higher wages, and when taxes offset any increase in pay.
As with the other two economic systems, there are degrees of capitalism. Japan, when compared to the USA, is relatively less capitalistic. Although practically all Japanese businesses are privately owned, industries are supervised very closely by the state. Japan has the MITI and other government agencies that vigorously advise companies what to produce, buy, sell, and so on. Japan’s aim is to allocate scarce resources in such a way as to efficiently produce those products that have the best potential for the country overall. Japan’s central bank also intervenes by buying shares of the listed companies from banks so as to manipulate the stock market.
In searching for the common characteristics of successful corporations, Chandler examined the 200 largest companies in the USA, Britain, and Germany from the 1880s through the 1940s and found that capitalism took a different form in each country.13 It was “managerial capitalism” in the USA, where managers with little ownership ran companies and competed fiercely for markets and products. In Britain, “personal capitalism” took place as owners managed their companies. In Germany, it was “cooperative capitalism”; professional managers were in charge, and companies were urged to share markets and profits among themselves. This kind of Rhineland capitalism attempts to forge social consensus through behind-the-scenes deal making among big business, trade unions, and politicians. But global competition is now threatening this type of cooperation.
There are some other variants of capitalism. Quebec has state-assisted capitalism as the government runs the health system, all colleges and universities, liquor stores, and even a parking monopoly in downtown Montreal. While Quebecers seem to endorse the idea that the government is looking after their economic interests, they do not realize that there are hidden costs in terms of higher taxes, higher prices, and lost economic output.
There are a number of political risks with which marketers must contend. Such as Confiscation, Expropriation, domestication, General instability risk, ownership/control risk, Operation risk and transfer risk. To manage political risk, an MNC can pursue a strategy of either avoidance or insurance. Avoidance means screening out politically uncertain countries. In this, measurement and analysis of political risk can be useful. Insurance, in contrast, is a strategy to shift the risk to other parties.
Political risk, though impossible to eliminate, can at the very least be minimized. There are several measures that MNCs can implement in order to discourage a host country from taking control of MNC assets.
5 LEGAL ENVIRONMENT
There are many products that cannot be legally imported into most countries. Examples include counterfeit money, illicit drugs, pornographic materials, and espionage equipment. It is usually also illegal to import live animals and fresh fruit unless accompanied by the required certificates. Furthermore, many products have to be modified to conform to local laws before these products are allowed across the border. The modification may be quite technical from an engineering standpoint or only cosmetic, as in the case of certain packaging changes. A company’s production strategy can also be affected by the legal environment. The USA bans the importation of the so-called Saturday night specials – cheap, short-barreled pistols – because they are often used in violent crime. Curiously, the gun control legislation does not prohibit the sale of such inexpensive weapons; only the import of such weapons is banned. As a result, Beretta, an Italian gun maker, is able to overcome the import ban by setting up a manufacturing operation in the state of Maryland.
There is no international law per se that prescribes acceptable and legal behavior of international business enterprises. There are only national laws – often in conflict with one another, especially when national politics is involved. This complexity creates a special problem for those companies that do business in various countries, where different laws may demand contradictory actions. For example, Wal-Mart Canada, to comply with the demand of the US government, removed 10,000 pairs of Cuban-made pyjamas. Canada was not pleased and ordered the Canadian branch of Wal-Mart to put the pyjamas back on the shelves.
To understand and appreciate the varying legal philosophies among countries, it is useful to distinguish between the two major legal systems: common law and statute law.
There are some twenty-five common law or British law countries. A common law system is a legal system that relies heavily on precedents and conventions. Judges’ decisions are guided not so much by statutes as by previous court decisions and interpretations of what certain laws are or should be. As a result, these countries’ laws are tradition oriented. Countries with such a system include the USA, Great Britain, Canada, India, and other British colonies.
There are four sources of European Community law: treaties, regulations, directives, and European Court of Justice case law. Member states are bound by European law, and their adopted measures must conform with it. The European Court of Justice ensures that Community law is observed in the interpretation and application of treaties. Treaties are “primary” Community law. Regulations and directives, as “secondary” Community law, expand the treaties and make them more specific. Directives are measures taken by the Community to harmonize the laws of the member states. Directives are binding. Member states’ national courts and tribunals must apply Community law alongside provisions of their own national law.
There is no international law per se that deals with business activities of companies in the international arena. There are only national laws that vary from one country to another. The EU area, for example, has high minimum wages, generous unemployment benefits, and employment protection measures. Dismissal restrictions include notice and severance pay requirements, and they can affect labor productivity. Among the advanced economies, Portugal is most restrictive in employment protection, and it has particularly stringent dismissal restrictions records, trademark, copyright and patent, and enforcement of judgments.
Whenever possible and practical, companies should consider commercial arbitration in place of judicial trials. Arbitration proceedings provide such advantages as an impartial hearing, a quick result, and a decision made by experts. Both IBM and Fujitsu seemed satisfied with the ruling of their two arbitrators in settling a copyright dispute. Intel, in contrast, did not want arbitration and was frustrated by the pace of its copyright lawsuit against NEC. Three important multilateral agreements on international arbitration address the enforcement of agreements to arbitrate and judicial assistance in the execution of arbitral awards. The New York Convention has received broad worldwide acceptance and is now in force in eighty-two countries. The Inter-American Convention, closely paralleling the framework of the New York Convention, states that parties which have agreed to arbitrate may be compelled to do so, and that arbitral awards shall be recognized and enforced in the same manner as final judicial decisions. The ICSID Convention (The Convention on the Settlement of Investment Disputes between States and Nationals of Other States) has established the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C. to facilitate the arbitration of disputes between foreign investors and host governments. As of 1994, ICSID has 139 members. Many Latin American countries adhere to the Calvo Doctrine (after the Argentine jurist Carlos Calvo), which is generally hostile to international arbitration. Under the Calvo Doctrine, disputes between foreign investors and a host government must be submitted to the domestic courts of the host government instead of to an independent third party. The general inclination of Latin American countries against ratification or accession to the New York Convention or adoption of ICSID.
One aspect of the law that does not have universal acceptance involves extraterritorial application of the law. A nation wishing to protect its own interests often applies its laws to activities outside its own territory. Spanish laws allow crimes such as genocide to be tried in Spain even though such crimes were not committed there. In 2003, a Spanish judge asked the government to seek the extradition of forty Argentines, including two former leaders of the military junta. Judges in France, Sweden, and Italy also sought the extradition of several former military officers. Litigation, no matter where it takes place, is never an easy thing. In certain countries, it can be much more complicated. Courts in India have twenty-five million cases pending, and it will take more than 300 years to get through this backlog's.
Most countries do not provide for legal sanctions for the bribery of foreign officials by their companies or nationals to obtain or retain business. The USA feels that it is important to have equitable competitive conditions. As such, there should be internationally recognized standards of behavior to which marketers may refer so as to be able to refuse to engage in illicit practices.While OECD members have agreed with the US government that international cooperation is needed to discourage companies and public officials from resorting to bribery, it took several years before the twenty-six OECD countries agreed in 1996 to prevent bribes (often listed as fees) from being tax deductible.
In the process of filing for patent protection, it is a good idea to make a distinction between common law countries and statute law countries. A common law country determines patent ownership by priority in use. In comparison, the ownership in a statue law country is determined by priority in registration; that is, the first-to-file is granted a patent even if an innovation was actually created or used earlier by someone else. Europe, Japan, China, and most countries have the first-to-file patent system, and they make patent applications public eighteen months after filing. The USA, as a common law country, relies on the first-to-invent system. The US system’s first-to-invent standard is different because it awards patents to the original inventor even though someone else may have got to the patent office first. Based on the US system, the person who had the idea first receives a patent, and patent applications are kept secret – sometimes for years – until a patent is granted. It is true that the European and Japanese systems, by publishing patent information early, encourage imitators, but at the same time, this practice alerts other inventors early enough to avoid redundant research.
6 CULTURE
CULTURE AND ITS CHARACTERISTICS Culture, an inclusive term, may be conceptualized in many different ways. Not surprisingly, the concept is often accompanied by numerous definitions. In any case, a good basic definition of the concept is that culture is a set of traditional beliefs and values that are transmitted and shared in a given society. Culture is also the total way of life and thinking patterns that are passed from generation to generation. Culture means many things to many people because the concept encompasses norms, values, customs, art, and mores.
Culture is prescriptive. It prescribes the kinds of behavior considered acceptable in a society. As a result, culture provides guidance for decision making. For example, principles enjoining compromise are more salient in East Asian cultures than in North American culture. As confirmed by one study, Hong Kong decision makers are more likely than their American counterparts to compromise.
The prescriptive characteristic of culture simplifies a consumer’s decision-making process by limiting product choices to those which are socially acceptable. This same characteristic creates problems for those products not in tune with the consumer’s cultural beliefs. Smoking, for instance, was once socially acceptable behavior, but recently it has become more and more undesirable – both socially and medically.
Culture is socially shared. Culture, out of necessity, must be based on social interaction and creation. It cannot exist by itself. It must be shared by members of a society, thus acting to reinforce culture’s prescriptive nature. For example, at one time Chinese parents shared the preference of wanting their girl children to have small feet. Large feet, viewed as characteristic of peasants and lowclass people, were scorned. As a result, parents from the upper class bound a daughter’s feet tightly so that her feet would not grow large. It did not matter to the parents that the daughter would grow up having difficulty walking about with distortedly small feet.
A worldwide business success requires a respect for local customs. International marketers need to recognize and appreciate varying cultures. Culture plays a significant role in influencing consumer perception, which in turn influences preference and purchase. A good marketing plan can easily go awry when it clashes with tradition. A marketing mix can be effective only as long as it is relevant to a given culture. One should expect that a product may have to be modified, that a new distribution may have to be found, or that a new promotional strategy may have to be considered.
What is more surprising than the blunders which can occur are the underlying causes for these mistakes. The most fundamental problem appears to be the indifferent attitude of many American firms toward international markets. The firms often enter foreign markets with a complete disregard for the customs and traditions there – something they would never do at home. In marked contrast, many Japanese firms have been highly successful in the USA and elsewhere because of their keen awareness and understanding of the local culture.
In order to develop an appreciation for the role of culture in society as well as the marketing implications of culture, Here must consider the following: (1) what culture is, (2) what its characteristics are, and (3) how culture affects consumer behavior. The varying methods of developing cross-cultural communication, verbally and otherwise, are discussed. To lend an understanding of how cultures vary, and will compare a number of cultures. Finally, because population homogeneity within a country is an exception rather than a rule, it is necessary to examine the relevance and bases of subcultural groups.
Consumption patterns, lifestyles, and the priority of needs are all dictated by culture. Culture prescribes the manner in which people satisfy their desires. Hindus and some Chinese do not consume beef at all, believing that it is improper to eat cattle that work on farms, thus helping to provide foods such as rice and vegetables. In Japan, the per capita annual consumption of beef has increased to 11 pounds, still a very small amount when compared to the more than 100 pounds consumed per capita in the USA and Argentina.
The eating habits of many peoples seem exotic to Westerners. The Chinese eat such things as fish stomachs and bird’s nest soup (made from bird’s saliva). The Japanese eat uncooked seafood, and Iraqis eat dried, salted locusts as snacks with drinks. Although such eating habits may seem repulsive to Westerners, consumption habits of the West are just as strange to foreigners. The French eat snails, Americans and Europeans use honey (bee expectorate or bee spit) and blue cheese or Roquefort salad dressing, which is made with a strong cheese with bluish mold. No society has a monopoly on unusual eating habits when comparisons are made among various societies.
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 reference, 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 effects of the SRC. Animals provide a good. Americans and Europeans commonly treat dogs as family members, addressing the animals affectionately and even letting dogs sleep on family members’ beds. Arabs, however, view dogs as filthy animals. Some in the Far East go so far as to cook and eat dogs – a consumption habit viewed as revolting and compared to cannibalism by Americans. Hindus, in contrast, revere cows and do not understand how Westerners can eat beef.
A country may be classified as either a high-context culture or a low-context culture.6 The context of a 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. North America and Northern 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. The words and their meanings, being independent entities, can be separated from the context in which they occur. What is important, then, is what is said, not how it is said and not the environment within which it is said.
4 Culture prescribes acceptable beliefs, traditions, customs, and values that are then socially shared. Culture is subjective, enduring yet dynamic, and cumulative. It affects people’s behavior in diverse ways through logic, communication, and consumption. Although some cultural traits are universal, many others are unique and vary from country to country. And in spite of national norms, cultural differences as a rule even exist within each country. While there may be a tendency to misunderstand different cultures and subcultures, this temptation should be resisted. Being the force that it is, the culture of one country should not be judged as superior to the culture of another country. Each culture
has its own particular values and social practices, and the international marketer will be much further ahead if he or she tries to walk in the other person’s shoes in order to understand more clearly that person’s concerns and ideas. Because marketing takes place within a given culture, a firm’s marketing plan assumes meaning or is appropriate only when it is relevant to that culture. A US company should understand that foreign consumers are not obligated to take on American values – nor may those consumers desire to do so. In addition, it is more important to know
what a person thinks than what that person’s language is. Because of the great differences in language and culture around the world, American firms need to adjust their approach to solving marketing problems in different countries. In a foreign cultural environment, the marketing plan that has worked well at home may no longer be effective. As a result, the firm’s marketing mix may have to undergo significant adaptation and adjustment. Effective marketing in this environment will thus mandate that the company be culturally responsive.
7 CONSUMER BEHAVIOR IN THE INTERNATIONAL CONTEXT
Consumers’ perceptions are highly subjective, and consumers can be quite unpredictable. The complex nature of consumers makes the study and understanding of consumer behavior imperative. Sweden and Colombia have both attempted to affect consumer perceptions. The Juan Valdez campaign of the Federation of Colombian Coffee Growers has been successful in creating a desirable image for its product and using it to communicate with consumers. Volvo, likewise, has successfully nurtured an image of safety.
This acknowledge the role that determinants other than culture play in influencing consumer behavior. It thus examines the psychological and social dimensions, and these include motivation, learning, personality, psychographics, perception, attitude, social class, group, family, opinion leadership, and the diffusion process of innovations.
Consumer behavior, as a discipline of study, has been researched extensively in the USA at both the macro and micro levels. Surprisingly, it has not been so rigorously and diligently investigated in the international context. All too frequently, studies that compare consumers in various countries attribute differences in consumer characteristics and behavior to cultural differences. This convenient approach
(i.e., culture) is inadequate by itself and does not enhance the understanding of consumption behavior overseas.
Instead of explicitly or implicitly attempting to use culture to explain most variations in consumption, researchers should redirect their attention toward smaller units of analysis. This requires a study of psychological concepts as well as social concepts which are not based solely on cultural determinants.
At the psychological level, relevant concepts such as motivation, learning, personality, psychographics, perception, and attitude should be closely examined. Because consumer needs vary across countries, as does the degree of importance attached to a particular need, it is unrealistic to expect consumers everywhere to be motivated in the same way. The varying motives that occur are due in part to individual personality traits and lifestyles. The learning and perception of a product and the attitude toward it will also affect consumers’ motivations in acquiring the product.
At the social level, it is redundant to state that consumer behavior is affected by the cultural environment. It is more important to list specifically the cultural norms in a country and to understand why those norms vary from country to country. It is thus important to appreciate how these norms are shaped by reference groups, social class, family, opinion leadership, and the diffusion process of innovation. Consumer preference depends in part on how well a product fits into the cultural circumstances and on whether the product will have the approval of a consumer’s reference group, social class, and family.
In conclusion, marketers and researchers should guard against using culture as a catch-all term and should not use it on a wholesale basis to explain overseas behavior. It is necessary to go beyond noticing cultural differences and instead to attempt to understand the underlying causes of cultural variations. This goal requires researchers to be more specific and rigorous in their investigation by extending the application of relevant psychological and social concepts to the international scene. It is time to move away from a vague and generic explanation of consumption behavior to a more precise and better-focused avenue of research.
8 MARKETING RESEARCH AND INFORMATION SYSTEM
Lack of knowledge and unfamiliarity with foreign markets usually heighten the risks for a company wanting to do business in a foreign land. The problem is further complicated by the fact that international marketing research is more difficult and more complex than domestic research. The case of Toyota illustrates the value of marketing information and how such information can make the difference between success and failure. The data allow the firm to make timely adjustments to its marketing mix, and the company’s understanding of consumer habits makes it possible for Toyota to better satisfy its customers’ needs.
Given the complexity of today’s fast-changing world and the unpredictability of consumer demands, the use of marketing research is essential if a company is to reduce the serious risks associated with marketing a product. Thus the purpose of this paragraph is to examine the nature and techniques of international marketing research. It's investigates such topics as types of data, types of data collection methods, sampling, and measure. The discussion emphasizes the difficulties associated with cross-cultural research and the necessity for adapting marketing research techniques to international markets.
There is need for information on the one hand and the difficulty of managing information on the other. The primary goal is to provide a basic understanding of the research process and the use of information. Special attention has been given to the information collection process and the use of marketing information. This coverage is far from being exhaustive, and the reader should consult marketing research textbooks for specific details related to particular research topics. Regardless of where the intended market is, a company must understand the market and its consumers. Japan and Western Europe are successful abroad because of their adoption of the marketing concept. Basically, the marketing concept requires companies to understand consumer needs, and marketing research is a necessary undertaking in making that determination. Although it may be true that foreign market information is frequently lacking or of poor quality, this general problem can be a blessing in disguise, because competitors do not have either adequate or reliable information. A company that does a better job in acquiring information can gain a competitive advantage.
A marketer should initiate research by searching first for any relevant secondary data. There is a great deal of information readily available, and the researcher needs to know how to identify and locate the various sources of secondary information both at home and abroad. Private sources of information are provided by general reference publications, trade journals from trade and business associations, syndicated services, and marketing research agencies. Government sources also have many kinds of information available in various forms for free or at reasonable cost.
When it is necessary to gather primary data, the marketer should not approach its collection from a perspective of the home country. A marketer should be aware of numerous extra constraints that exist overseas, since such constraints can affect virtually all steps of the research process. Because of these constraints, the process of data collection in the international context is anything but simple. One cannot simply replicate the methodology used in one country and apply it in all countries. The marketer should expect to encounter problems unique to a particular country, and some adaptation in research strategies may be necessary. In order to make certain that a study is reliable and internally and externally valid, it is important to have conceptual, instrumental, and linguistic equivalence.
A company should set up an MIS to handle the information efficiently and effectively. The system should integrate all information inputs from the various sources or departments within the company. For a multinational operation, this means the integration and coordination of all the information generated by the overseas operations as well. The system should be capable of being more than a compilation of data. It should routinely make meaningful outputs available in the desired format for its users in a timely fashion. With the advanced
development of artificial intelligence, it may be possible in the near future for a computer to perform all necessary functions, including making recommendations for marketing strategies. However, in the final analysis, every marketer must keep in mind that information can never replace judgment. Remember, it is useless to have “data, data everywhere, and not a thought to think.”
9 FOREIGN MARKET ENTRY STRATEGIES
Red Bull has demonstrated a practical way to enter foreign markets. Likewise, Heineken has not entered all markets with a one-track mind and a single-entry method. Even a large multinational corporation, with all its power, still has to adapt its operating methods and formulate multiple entry strategies. The dynamic nature of many overseas markets makes it impossible for a single method to work effectively in all markets. It is devoted here to a coverage of the various market entry strategies. Some of these techniques– such as exporting, licensing, and management contracts – are indirect in the sense that they require no investment overseas. Other techniques, however, require varying degrees of foreign direct investment. These foreign direct investment methods range from joint venture to complete overseas manufacturing facilities, with such strategies as assembly operations, turnkey operations, and acquisitions falling somewhere in between. These strategies do not operate in sequence, and any one of them can be appropriate at any time. Further, the use of one strategy in one market does not rule out the use of the other strategies elsewhere. The methods vary in terms of risk accepted and, to a certain extent, the degree of commitment to the foreign market.
There are advantages and disadvantages associated with each method of market penetration. Factors that have an impact on the appropriateness of entry methods must be studied from the companies in order to provide guidelines for the selection of market entry strategies.
FOREIGN DIRECT INVESTMENT (FDI) Economists usually advocate a free flow of capital across national borders because capital can then seek out the highest rate of return. Owners of capital can diversify their investment, while governments will be less able to pursue bad economic policies. In addition, a global integration of capital markets spreads best practices in corporate governance, accounting rules, and legal traditions.
However, some critics point out that free capital flows are driven by speculative and short-term considerations. For some reason, one noticeable feature of FDI flows is that their share in total inflows is higher in countries where the quality of institutions is lower. In other words, a high share of FDI in a country’s total capital inflows may reflect its institutions’ weakness instead of its strengths. However, empirical evidence indicates that FDI benefits developing host countries.
One indisputable fact is that developed countries are both the largest recipients and sources of FDI. The phenomenon is dominated by the triad of the European Union, the USA, and Japan, accounting for 71 percent of inward flows and 82 percent of outward flows. As a result, its international marketing effort is casual at best. This is very likely the most common overseas entry approach for small firms. Many companies employ this entry strategy when they first become involved with international business and may continue to use it on a more or less permanent basis. R.R. Donnelley Japan K.K., for example, has issued American Showcase/Japan which is a “catalog of catalogs.” This marketing program involves several American catalogers, and allows Japanese consumers to request American catalogs and order merchandise.
The problem with using an exporting strategy is that it is not always an optimal strategy. A desire to keep international activities simple, together with a lack of product modification, make a company’s marketing strategy inflexible and unresponsive.
There are several types of strategies such as LICENSING, Contracting, Joint venture, MANUFACTURING, ASSEMBLY OPERATIONS, TURNKEY OPERATIONS. If a company wants to avoid foreign direct investment when marketing in foreign markets, it has a number of options. It can export its product from its home base, or it can grant a license permitting another company to manufacture and market its product in a foreign market. Another option is to sign a contract to sell its expertise by managing the business for a foreign owner.
If the firm is interested in making foreign direct investment, it can either start its business from the ground up or acquire another company. The acquisition, however, may receive a less than enthusiastic response from the foreign government. If the company decides to start a new business overseas, it must consider whether a sole venture or joint venture will best suit the objective. Sole ventures provide a company with better control and profit.
10 PRODUCT STRATEGIES: BASIC DECISIONS AND PRODUCT PLANNING
Just because a product is successful in one country, there is no guarantee that it will be successful in other markets. A marketer must always determine local needs and tastes and take them into account Some products have universal appeal, and little or no change is necessary when these products are placed in various markets. But for every socalled universal product there are many others, as mentioned above, that have a narrower appeal. For products in this category, modification is necessary in order to achieve acceptance in the marketplace. It is generally easier to modify a product than to modify consumer preference. That is, a marketer should change the product to fit the need of the consumer rather than try to adjust consumers’ needs to fit product characteristics. An awareness of application of this marketing concept in an international setting would provide definite advantages to an international merchant. Although the principle has been universally accepted in domestic marketing, it has often been ignored in international marketing.
In breaking into a foreign market, marketers should consider factors that influence product adoption. As explained by diffusion theory, at least six factors have a bearing on the adoption process: relative advantage, compatibility, trialability/divisibility, observability, complexity, and price. These factors are all perceptual and thus subjective in nature.
For a product to gain acceptance, it must demonstrate its relative advantage over existing alternatives. Products emphasizing cleanliness and sanitation may be unimportant in places where people are poor and struggle to get by one day at a time. Wool coats are not needed in a hot country, and products reducing static cling (e.g., Cling Free) are useless in a humid country. A sunscreen film attached to auto windshields to block out sunlight may be a necessity in countries with a tropical climate, but it has no such advantage in cold countries. Dishwashing machines do not market well in countries where manual labor is readily available and inexpensive.
A product must also be compatible with local customs and habits. A freezer would not find a ready market in Asia, where people prefer fresh food. In Asia and such European countries as France and Italy, people like to sweep and mop floors daily, and thus there is no market for carpet or vacuum cleaners. Deodorants are deemed inappropriate in places where it is the custom for men to show their masculinity by having body odor. Dryers are unnecessary in countries where people prefer to hang their clothes outside for sunshine freshness. Kellogg’s had difficulties selling Pop Tarts in Europe because many homes have no toaster. Unlike American women, European women do not shave their legs, and thus have no need for razors for that purpose.
A new product should also be compatible with consumers’ other belongings. If a new product requires a replacement of those other items that are still usable, product adoption becomes a costly proposition. A new product has an advantage if it is capable of being divided and tested in small trial quantities to determine its suitability and benefits. This is a product’s trialability/divisibility factor. Disposable diapers and blue jeans lend themselves to trialability rather well, but when a product is large, bulky, and expensive, consumers are much more apprehensive about making a purchase. Thus, washers, dryers, refrigerators, and automobiles are products that do not lend themselves well to trialability/ divisibility. This factor explains one reason why foreign consumers do not readily purchase American automobiles, knowing that a mistake could ruin them financially. Many foreign consumers therefore prefer to purchase more familiar products, such as Japanese automobiles, that are less expensive and easier to service and whose parts are easier to replace.
Observation of a product in public tends to encourage social acceptance and reinforcement, resulting in the product’s being adopted more rapidly and with less resistance. If a product is used privately, other consumers cannot see it, and there is no prestige generated by its possession. Blue jeans, quartz watches, and automobiles are used publicly and are highly observable products. Japanese men flip their ties so that labels show. Refrigerators, on the other hand, are privately consumed products, though owners of refrigerators in the Middle East and Asia may attempt to enhance observability (and thus prestige) by placing the refrigerator in the living room, where guests can easily see it. In any case, a distinctive and easily recognized logo is very useful.
Complexity of a product or difficulty in understanding a product’s qualities tends to slow down its market acceptance. Perhaps this factor explains why ground coffee has had a difficult time in making headway to replace instant coffee in many countries. Likewise, 3M tried unsuccessfully in foreign markets to replace positive-acting printing plates with presensitized negative subtractive printing plates, which are very popular in the USA. It failed to convert foreign printers because the sales and technical service costs of changing printers’ beliefs were far too expensive. Computers are also complex but have been gradually gaining more and more acceptance, perhaps in large part because manufacturers have made the machines simpler to operate. Ready-made software can also alleviate the necessity of learning computer languages, a timeconsuming process.
The first four variables are related positively to the adoption process. Like complexity, price is related negatively to product adoption. Prior to 1982, copiers were too big and expensive. Canon then introduced personal copiers with cartridges that customers could change. Its low price (less than $1000) was so attractive to consumers (but not to competitors) that Canon easily dominated the market.
The product stages of life cycle are: Stage 1 – Overseas innovation, Stage 2 – Maturity, Stage 3 – Worldwide imitation, and Stage 4 – Reversal, and products must have their marketing polices in global markets, pricing policy, promoting policy, Place (distribution) policy, as they must be adopted for global markets. Not only products but also services like banking, insurance, travel, and so on must have their own marketing polices and strategies.
Services have several unique characteristics; they are intangible, person-oriented, and perishable. Yet virtually all marketing concepts and strategies used to market tangible products are relevant to the marketing of services.
Like a product, a company’s service should also be defined broadly. American Express, for instance, does not regard itself as being in the credit-card
business. Instead, the company is in the communications and information-processing business, and its computer center in Phoenix processes a quarter of a million credit-card transactions each day from all over the world.
Services also require adaptation from time to time for foreign markets. Even movies distributed abroad, more often than not, must be packaged differently. At the very least, movies distributed internationally require subtitles or overdubbing. Most Japanese were perplexed by Disney’s policies of serving no alcohol and prohibiting bringing in food from outside the park. Disney, however, has made a few changes. It added a Japanese restaurant to serve older patrons. There was no Nautilus submarine. In addition, to protect against rain and snow, more areas are covered.
Regarding market entry strategies, a service firm’s unique characteristics (e.g., low capital intensity and the inseparability of production and consumption) may have some impact on entry–mode choice. In general, service firms prefer full-control modes, but firms with low asset specificity, in responding to the rising costs of integration or the diminishing ability to integrate, may have to relinquish control and seek shared-control ventures.
A product provides a bundle of satisfaction that the consumer derives from the product itself, along with its promotion, distribution, and price. For a product or service to be successful in any market, whether at home or overseas, it must therefore primarily satisfy consumer needs. In order to satisfy these needs more precisely, marketers should employ market segmentation, product positioning, and other marketing techniques. In the past, American marketers have been slow to realize that they must adapt their marketing practices when selling abroad. American marketers have overlooked the particular preferences and needs of customers overseas and have not adapted exported products, brands, and packages to meet these needs. For companies that have committed themselves seriously to their international market needs, performance can be very encouraging. Texas Instruments and Du Pont, for example, have done remarkably well in Japan, a market misunderstood by many, by assigning their best marketing personnel in that market. Du Pont, recognizing the importance of this market, maintains thirteen laboratories in Japan to work closely with customers in order to tailor products to meet customers’ needs.
Although product modification for local markets is a necessity in many cases, it does not mean that all products must be changed. A standardized product designed for one market may fit many other markets as well. But this situation is relatively rare, and the standardized product that is suitable in many markets should be considered as a fortunate random occurrence. A world product, on the other hand, should be created with the world market in mind in order to maximize consumer satisfaction and simplify the production process in the long run. If a world product is not possible due to environmental diversity or other circumstances, a marketing manager should re-examine product characteristics
and consumer needs. If there is a possibility that there is a convergence in the characteristics and needs, then it may be possible to standardize the product. When the characteristics and need variables do not converge, then it becomes a matter of changing the product to fit consumer needs, as long as the associated costs are not prohibitive. The time has clearly come for the export marketer to think less nationally and more internationally. It may in fact be as fundamental as determining that, if the product can satisfy a need at a reasonable price, the product will sell in its international market.
11 PRODUCT STRATEGIES: BRANDING AND PACKAGING DECISIONS
A trademark can be more than a name or logo. Harley Davidson tried unsuccessfully to register the sound of its heavy motorcycles as a trademark. H.J. Heinz Company had better luck in registering a color in England. While words and logos account for a vast majority of trademarks registered in England and while it is unusual for a food company to be granted a trademark on a color alone, the Trademarks Registry granted legal protection to Heinz Baked Beans’ distinctive use of turquoise.The Trademarks Registry has determined that Heinz Baked Beans’ turquoise has “achieved distinctiveness through use.” As the number one brand of baked beans in the United Kingdom for generations, the product is an important part of the British culture, Although companies spend millions of dollars developing logos, some are more effective than others. One study asked consumers to judge a company’s image by looking at its name alone as well as with its logo. Motorola Inc., for example, received a positive score of 55 percent, meaning that the logo adds a sense of quality and trustworthiness. British Airways and Infiniti, on the other hand, received negative scores of –20 percent and –16 percent respectively. In the latter case, the logos, instead of being helpful, may actually hurt corporate image
The basic purposes of branding are the same everywhere in the world. In general, the functions of a brand are to: (1) create identification and brand awareness, (2) guarantee a certain level of quality, quantity, and satisfaction, and (3) help with promotion. All of these purposes have the same ultimate goal: to induce repeat sales. The Spalding name, for example, has a great deal of marketing clout in Japan. In fact, a group of investors bought the company in 1982 because they felt that Spalding was the best-known name in sports in the free world and that the name was underused.
To brand or not to brand, that is the question. Most products are branded, but that does not mean that all products should be. Branding is not a cost-free proposition due to the added costs associated with marking, labeling, packaging, and legal procedures. These costs are especially relevant in the case of commodities (e.g., salt, cement, diamonds, produce, beef, and other agricultural and chemical products). Commodities are “unbranded or undifferentiated products which are sold by grade, not by brands.” As such, there is no uniqueness, other than grade differential, that may be used to distinguish the offerings of one supplier from those of another. Branding is then probably undesirable because brand promotion is ineffective in a practical sense and adds unnecessary expenses to operations costs.
Even though it may seem logical for a distributor to carry the manufacturer’s well-known brand, many distributors often insist on their own private brands for several reasons. First, a distributor may be able to create a unique product by bundling or unbundling product attributes and then adjusting the price to reflect the proper value.
The job of branding cannot be considered done just because a name has been chosen. The brand must also be protected. The first protective step is to obtain trademark registration. Because of the cost involved, it may be neither practical nor desirable to register the name in all countries, especially in places where demand seems weak. It is inexcusable, however, not to do so in major markets. Even Queen Elizabeth II has registered her two private homes (Sandringham in Norfolk and Balmoral Castle in Scotland) as trademarks so that she can sell her own merchandise under the brand names of Sandringham and Balmoral. The names have been registered with the British Trade Marks Registry and represent the first time the Queen has exploited the names of her houses for commercial purposes
Much like the brand name, packaging is another integral part of a product. Packaging serves two primary purposes: functional and promotional. First and foremost, a package must be functional in the sense that it is capable of protecting the product at minimum cost.
If a product is not manufactured locally and has to be exported to another country, extra protection is needed to compensate for the time and distance involved. A country’s adverse environment should also be taken into account. When moisture is a problem, a company may have to wrap pills in foil or put food in tin boxes or vacuum-sealed cans. However, the type of package chosen must be economical. In Mexico, where most consumers cannot afford to buy detergents in large packages, detergent suppliers found it necessary to use plastic bags for small packages because cardboard would be too expensive for that purpose.
For most packaging applications, marketers should keep in mind that foreign consumers are more concerned with the functional aspect of a package than they are with convenience. As such, there is usually no reason to offer the great variety of package sizes or styles demanded by Americans. Plastic and throw-away bottles are regarded as being wasteful, especially in LDCs, where the labor cost for handling returnables is modest. Non-American consumers prefer a package to have secondary functions. A tin box or a glass bottle can be used after the product content is gone to store something else. Empty glass containers can be sold by consumers to recoup a part of the purchase price.
From the marketing standpoint, the promotional function of packaging is just as crucial as the functional aspect. To satisfy the Japanese preference for beautiful packaging, Avon upgraded its inexpensive plastic packaging to crystalline glass. Similarly, BSR packs its product into two cartons, one for shipping and one for point-of-purchase display, because Japanese buyers want a carton to be in tip-top condition. The successful campaign for Bailey’s Irish Cream in the USA included a fancy gold foil box package that promotes this whiskey-based drink’s upscale image. In any case, packaging does not have to be dull. Novel shapes and designs may be used to stimulate interest and create excitement.
In addition to conditions of use, other cultural factors should be taken into consideration since such factors often determine and influence consumer preference. Although the UHT (ultra-high temperature) process for packaging milk and juices in unrefrigerated cartons has long been popular in Europe and Asia, it took quite a while for American consumers who were accustomed to fresh products to start accepting aseptic packaging.
Symbols and colors of packages may have to be changed to be consistent with cultural norms. If packages are offensive, they must be made more acceptable if the product is to be marketed successfully. For example, the controversial Jovan packages, with their sexual connotations, can prove to be too suggestive in some countries. In Japan, since manufacturers of condoms have female customers in mind, packaging tends to be cute. A product is a bundle of utilities, and the brand and package are part of this bundle. There is nothing unusual about consumers’ reliance on brand names as a guide to product quality. As shown by the perfume industry, the mystique of a brand name may be so strong as to overshadow the product’s physical attributes. When practiced and well executed, branding allows a commodity to be transformed into a product. In doing so with the aid of product differentiation, brand loyalty is created, and the product can command a premium price.
Branding decisions involve more than merely deciding whether or not a product should be branded. Branding entails other managerial decisions. A manufacturer must decide whether to use its own brand or that of its dealer on its product. A marketer must also determine whether to use a single brand for maximum impact or multiple brands to satisfy the different segments and markets more precisely. Regardless of the number of brands used, each brand name must be selected carefully with the international market in mind. Once selected, the brand name must be protected through registration, and other measures should be taken to prevent any infringement on that name.
Like the brand name, which may have to be varied from one country to another, packaging should be changed when needed. Mandatory modification of packaging should not be considered a problem because the marketer has no choice in the matter – if a marketer wants to market a product, the marketer must conform to the country’s stated packaging requirements. Unilever, for instance, has to conform to the French requirement of selling cube-shaped, not rectangular, packs of margarine. Its descriptions for mayonnaise and salad dressing also have to vary from country to country.
12 CHANNELS OF DISTRIBUTION
All products need competent distribution. Unfortunately, the distribution of blood diamonds is relatively competent. In any case, any products, no matter how good they are, are unlikely to gain market acceptance without being made available at a time and place that are convenient to final users.
The various channels of distribution that are responsible for moving products from manufacturers to consumers. Both international and domestic channels are examined. This describes the varieties of intermediaries (i.e., agents, wholesalers, and retailers) involved in moving products between as well as within countries. The tasks and functions of the various intermediaries will be examined. It should be kept in mind that certain types of intermediaries do not exist in some countries and that the pattern of use as well as the importance of each type of intermediary varies widely from country to country.
A manufacturer is required to make several decisions that will affect its channel strategy, including the length, width, and number of distribution channels to be used. This is examines the various factors that influence these decisions. For an operation to be a success, a good relationship among channel members is vital. There is no one single distribution method that is always ideal in all markets.
A product, no matter how desirable, must be made accessible to buyers. A manufacturer may attempt to use a direct distribution channel by selling directly to end users abroad. The feasibility of this channel depends on the type of product involved. Generally, the sales opportunity created by direct selling is quite limited. Intermediaries are usually needed to move the product efficiently from the manufacturer to the foreign user.
The manufacturer has the option of selling or assigning sales responsibility to intermediaries in its own country and letting them decide about reselling the product elsewhere. Another option for the manufacturer involves bypassing intermediaries and dealing directly with foreign buyers, assuming that the manufacturer has enough expertise, market familiarity, resources, and commitment. With the myriad intermediaries available, it is impossible to prescribe a single distribution method that is ideal for all products and markets.
A number of factors – such as product type, regulations, customs, and intermediary loyalty – must be taken into account in designing and developing an international channel of distribution. These factors determine how long, how wide, and how many channels are appropriate. Ordinarily, those intermediaries that fail to add some value to the product as it moves through them are likely to be bypassed or dropped from the channel. But the manufacturer cannot afford to dictate terms, since an intermediary will carry a manufacturer’s product only if the manufacturer minimizes channel conflict as well as providing some value to these sales intermediaries in return.
13 PROMOTION AND PRICING STRATEGIES
An overwhelming number of studies does not show evidence that supports standardization. Instead, most studies have found consumer, market, and media differences. However, the empirical evidence that contradicts the use of standardization is indirect in nature. This is not surprising because it is very difficult to design a study that truly proves the validity (or lack of it) of advertising standardization. It is possible though to design a more rigorous study that will address the issue in terms of cause and effect.
All forms of advertising standardization should not be ignored by the marketer. This technique may be appropriate on a modest scale, though definitely not on a worldwide basis. A limited homogeneity does existing in many cultures around the world. Thus it is a good idea to find out when and where this limited scale of homogeneity exists so that some level of standardization may be considered.
For decision-making purposes, market segmentation can provide a practical framework for standardizing advertising,. If the world is treated as one whole market, a standardized advertisement may then be used. But if the world is divided into several segments (i.e., regions or countries), each segment probably requires its own custom-made marketing mix (i.e., a localized advertisement).
In developing countries, advertising is often viewed as something wasteful. In socialist/communist countries, it may be seen as incompatible with political objectives. It is undeniable that certain advertising practices are misleading, deceptive, and wasteful. Just as undeniable, however, is that advertising serves a useful function by providing customers with relevant information for intelligent decision making. Although the US style of advertising is not necessarily suitable for all other countries, it does make a significant contribution to the high standards of living in the USA.
Because of the variations found in advertising regulations, media availability, media approaches, and consumer characteristics, there is a high degree of risk in employing standardized advertising on a worldwide basis. Although a global advertisement may have the advantage of lower cost, cost reduction should not always be the overriding motive. Advertisers need to be less ethnocentric and to show more consideration and regard for foreign consumers. All advertisements, standardized or not, should be tested for suitability for the intended audience before being used in the marketplace.
To set price, the concerns of all affected parties must be addressed. A manufacturer needs to make a profit. So do resellers, who demand adequate margins for their services. Moreover, competitors’ reactions in terms of their price responses must be anticipated. Finally, it is necessary to take into account both consumers and the value they place on the product.
Several factors must be taken into consideration in setting price, including cost, elasticity of demand, supply, product image (prestige), turnover, market share/volume, product life cycle, and the number of products involved. The optimum mix of these ingredients varies by product, market, and corporate objectives.
Price setting in the international context is complicated further by such factors as foreign exchange rates, relative labor costs, and relative inflation rates in various countries. Other important considerations are export packing costs and charges, transportation costs, tariffs, tax laws, and profit remittance restrictions.
References
1 Adam Smith, Wealth of Nations (1776; reprint, Homewood, IL: Irwin, 1963).
2 Amy Chua, World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global
Instability (New York, NY: Doubleday, 2002).
3 Alfred D. Chandler, Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Belknap
Press, 1990).
4 Charles S. Mayer, “Multinational Marketing Research: The Magnifying Glass of Methodological Problems,”
European Research 6 (March 1978)
3 David Ricardo, The Principles of Political Economy and Taxation (1817; reprint, Baltimore: Penguin, 1971).
5 Eli Heckscher, “The Effects of Foreign Trade on the Distribution of Income,” in Readings in the Theory of International Trade, ed. Howard S. Ellis and Lloyd A. Matzler (Homewood, IL: Irwin, 1949); and Bertil Ohlin, Interregional and International Trade (Cambridge, MA: Harvard University Press, 1933).
9 Fareed Zakaria, The Future of Freedom: Illiberal Democracy at Home and Abroad (New York, NY: Norton,
2003).
16 Frederic Jallat and Allan J. Kimmel, “Marketing in Culturally Diverse Environments: The Case of Western
Europe,” Business Horizons 45 (July to August 2002): 30–6.
13 Gary S. Becker, “Rule No. 1 in Switching to Capitalism: Move Fast,” Business Week, May 29, 1995.
8 George F. Will, “Steel Industry Extracts Billions from Bush,” San José Mercury News, March 8, 2002.
9 J. E. Meade, Trade and Welfare (New York, NY: Oxford University Press, 1955); R. G. Lipsey and K. Lancaster, “The General Theory of Second Best,” Review of Economic Studies 24 (1956): 11–32.
6 Michael E. Porter, The Competitive Advantage of Nations (New York, NY: Free Press, 1990).
4 Richard S. Tedlow, Giants of Enterprise: Seven Business Innovators and the Empires They Built (New York, NY: HarperBusiness, 2003).
9 Richard Tansey and Michael R. Hyman, “Dependency Theory and the Effects of Advertising by Foreign-Based
Multinational Corporations in Latin America,” Journal of Advertising 23 (March 1994): 27–42.
12 Ravi Ramamurti, “Why Are Developing Countries Privatizing?” Journal of International Business Studies
15 Terry Clark, “International Marketing and National Character: A Review and Proposal for an Integrative
Theory,” Journal of Marketing 54 (October 1990): 66.
14 Wroe Alderson, Dynamic Marketing Behavior (Homewood, IL: Richard D. Irwin, 1965); Sak Onkvisit and
John J. Shaw, “Myopic Management: The Hollow Strength of American Competitiveness,” Business Horizons
34 (January to February 1991): 13–19.
1 NATURE OF INTERNATIONAL MARKETING: CHALLENGES AND OPPORTUNITIES
2 TRADE THEORIES AND ECONOMIC DEVELOPMENT
3 TRADE DISTORTIONS AND MARKETING BARRIERS
4 POLITICAL ENVIRONMENT
5 LEGAL ENVIRONMENT
6 CULTURE
7 CONSUMER BEHAVIOR IN THE INTERNATIONAL CONTEXT
8 MARKETING RESEARCH AND INFORMATION SYSTEM
9 FOREIGN MARKET ENTRY STRATEGIES
10 PRODUCT STRATEGIES: BASIC DECISIONS AND PRODUCT PLANNING
11 PRODUCT STRATEGIES: BRANDING AND PACKAGING DECISIONS
12 CHANNELS OF DISTRIBUTION
13 PROMOTION AND PRICING STRATEGIES
1 NATURE OF INTERNATIONAL MARKETING: CHALLENGES AND OPPORTUNITIES
We are citizens of the world – and citizens of every city and village where we do business. Douglas N.
A study of international marketing should begin with an understanding of what marketing is and how it operates in an international context. A definition adopted by the AMA (American Marketing Association) is used as a basis for the definition of international marketing given here: international marketing is the multinational process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. Only the word multinational has been added. That word implies that marketing activities are undertaken in several countries and that such activities should somehow be coordinated across nations.
This definition is not completely free of limitations. By placing individual objectives at one end of the definition and organizational objectives at the other, the definition stresses a relationship between a consumer and an organization. In effect, it fails to do justice to the significance of business-to-business marketing, which involves a transaction between two organizations. In the world of international marketing, governments, quasigovernment agencies, and profit-seeking and nonprofit entities are frequently buyers. Companies such as Boeing and Bechtel, for example, have nothing to do with consumer products. Likewise, Russia’s export agency, Rosoboron export, has adopted a Western-style marketing approach to sell arms for the country’s 1700 defense plants. Its cheery sales representatives and giant TV screens show Russian jets and helicopters in action. In addition, Rosoboronexport offers competitive prices and will modify the products to suit its customers.
consumers for a firm’s existing product, it is often more logical to determine consumer needs before creating a product. For overseas markets, the process may call for a modified product. In some cases, following this approach may result in foreign needs being satisfied in a new way (i.e., a brand new product is created specifically for overseas markets). Fourth, the definition acknowledges that “place” (distribution) is only part of the marketing mix and that the distance between markets makes it neither more nor less important than the other parts of the mix. It is thus improper for any firms to regard their international function as simply to export (i.e., move) available products from one country to another.
Finally, the “multinational process” implies that the international marketing process is not a mere repetition of using identical strategies abroad. The four 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 be adjusted for a particular market for better impact. Coca-Cola’s German and Turkish divisions, for example, have experimented with berry-flavored Fanta and a pear-flavored drink respectively. In other cases, a multinational marketer may find it more desirable to use a certain degree of standardization if the existing market differences are somewhat artificial and can be overcome. As in the case of General Electric Co.’s GE Medical Systems, it went too far in localizing its medical imaging products to compete with local competitors. Its managers designed and marketed similar products for different markets. Overcustomizing such big-ticket products is an expensive and wasteful duplication of effort One way to understand the concept of international marketing is to examine how international marketing differs from similar concepts. Domestic marketing is concerned with the marketing practices
Domestic marketing involves one set of uncontrollables derived from the domestic market. International marketing is much more complex because a marketer faces two or more sets of uncontrollable variables originating from various countries. The marketer must cope with different cultural, legal, political, and monetary systems. Digital Microwave Corporation’s annual report makes this point very clear when it states.
The Company is subject to the risks of doing business internationally, including unexpected changes in regulatory requirements, fluctuations in foreign currency exchange rates, imposition of tariffs and other barriers and restrictions, the burdens of complying with a variety of foreign laws, and general economic and geopolitical conditions, including inflation and trade 4 relationships.
The varying environments within which the marketing plan is implemented may often rule out uniform marketing strategies across countries. McDonald’s, although world renowned for its American symbols and standardization, has actually been flexible overseas. Recognizing the importance of foreign markets and local customs, the company customizes its menu by region. In fact, it has even excluded beef from its menu in India in deference to the country’s Hindu tradition. Mean that consumers in all parts of the world must or should be satisfied in exactly the same way. Consumers from various countries are significantly different due to varying culture, income, level of economic development, and so on.
Too often, marketing mix is confused with marketing principles. Sound marketing principles are universal. One basic principle states that marketers should adopt the marketing concept (i.e., using the integrated marketing approach to satisfy both customers’ and corporate goals). Regardless of their nationalities, marketers everywhere should be customer-oriented. However, this universal principle in no way implies a uniform marketing mix for all markets. To be customer-oriented does not mean that the same marketing strategy should be repeated in a different environment.
Multinational corporations (MNCs) are major actors in the world of international business. The mention of MNCs usually elicits mixed reactions. On the one hand, MNCs are associated with exploitation and ruthlessness. They are often criticized for moving resources in and out of a country, as they strive for profit without much regard for the country’s social welfare. In addition, they erode a nation’s sovereignty. One study found that globalization undermined domestic airline competition policy. Is globalization detrimental to environment? This question is based on a premise that globalization consumers may use the same product without having the same need or motive, and in turn may use different products to satisfy the same need. For example, different kinds of foods are used in different countries to satisfy the same hunger need. Further, Americans and Europeans may use gas or electric heat to keep warm, whereas people in India may meet the same need by burning cow dung., encourages location of polluting industries in countries with low environmental regulations. Based on survey data from companies in China, globalization has positive environmental effects because of selfregulation pressures on firms in low-regulation countries. “Multinational ownership, multinational customers, and exports to developed countries increase self-regulation of environmental performance.”6 According to another study, the size of a domestic market and other factors are much more important than pollution costs.The attractiveness of China is due more to its market size than its relatively lax pollution-control laws.
On a positive note, MNCs have power and prestige. Also in defense of MNCs, more and more of them have been trying to be responsible members of society. In addition, MNCs create social benefit by facilitating economic balance. Given the fact that natural resources and factors of production are unevenly distributed around the globe, MNCs can act as an effective and efficient mechanism to use these precious resources.
At one time, it was thought that the relationship between a firm’s degree of multinationality and its market performance was a linear and positive one. While studies have found a relationship, the linkage is not straightforward. One recent study found a curvilinear relationship instead. Increasing levels of multinationality provide significant performance benefits up to a certain optimum level. Once that optimum level is achieved, any further increase of multinationality results in decelerating benefits and accelerating costs. In other words, multinationality has both positive and negative impacts on performance. The positive impacts originate in MNCs’ ability to leverage scale economies, access new technologies, and arbitrage factor cost differentials across multiple locations. The negative effects later emerge because of higher costs associated with coordination and control, administrative systems to manage culturally distinct markets, and diverse human resources. Other factors further complicate the relationship. One cross-sectional analysis of twelve industries over a seven-year period found that the “impact of multinationality on both financial and operational performance is moderated by a firm’s R&D and marketing capabilities.”
MNC is not a one-dimensional concept. There is no single criterion that proves satisfactory at all times in identifying an MNC. Varying definitions are not necessarily convergent. As a result, whether or not a company is classified as an MNC depends in part on what set of criteria is used.
The term MNC implies bigness. But bigness also has a number of dimensions. Such factors as market value, sales, profits, assets, and number of employees, when used to identify the largest multinationals, will yield varying results. As an example, although General Motors is in terms of market value, it is No. 3 in terms of sales. While Business Week magazine focuses on market value, Forbes magazine ranks the world’s largest public companies by using a composite ranking of sales, profits, assets, and market value.
Global leaders based on market value, sales, and profits
Rank Market value Sales Profits
1 General Electric Wal-Mart Stores Citigroup
2 Microsoft ExxonMobil General Electric
3 ExxonMobil General Motors Altria Group
4 Pfizer Royal Dutch/Shell Exxon/Mobil
5 Wal-Mart Stores BP Royal Dutch/Shell
Source: Adapted from “Top Global Companies,” Business Week, July 14, 2003, 60.
Many multinational corporations are indeed large. According to UNCTAD, there are some 65,000 transnational corporations (TNCs) worldwide with more than 250,000 foreign affiliates. Some TNCs are even bigger than a number of countries. TNCs control one-third of the world’s private sector productive assets.
According to Aharoni, an MNC has at least three significant dimensions: structural, performance, and behavioral. Structural requirements for definition as an MNC include the number of countries in which the firm does business and the citizenship of corporate owners and top managers. Pfizer, stating that it is a truly global company, does business in more than 150 countries. Citicorp satisfies the requirement for multinationalism through the citizenship of members of its top management. The company has done as much as other major American MNCs to diversify its management. In Asia, a native of Pakistan is in charge of the firm’s $800 million finance business for all of Asia apart from Japan. His colleague, an Indian national, heads the consumer business. They are two of the eight non-Americans in the elite group of fifteen executive vice-presidents
Definition by performance depends on such characteristics as foreign earnings, sales, and assets. These performance characteristics indicate the extent of the commitment of corporate resources to foreign operations and the amount of rewards from that commitment. The greater the commitment and reward, the greater the degree of internationalization. Japanese and British firms have routinely shown willingness to commit their corporate resources to overseas assets. Human resources or overseas employees are customarily considered as part of the performance requirements rather than as part of the structural requirements, though the desirability of separating. lower level employees from top management is questionable. A preferable analysis would be to treat the total extent of the employment of personnel in other countries as another indicator of the structure of the company. In any case, the willingness of a company to use overseas personnel satisfies a significant criterion for multinationalism. Avon, for example, employs 370,000 Japanese women to sell its products house to house across Japan. Siemens, well known worldwide for its consumer and industrial products, has some 300,000 employees in 124 countries
Behavior is somewhat more abstract as a measure of multinationalism than either structure or performance, though it is no less important. This requirement concerns the behavioral characteristics of top management. Thus, a company becomes more multinational as its management thinks more internationally. Such thinking, known as geocentricity, must be distinguished from two other attitudes or orientations, known as ethnocentricity and polycentricity.
Geocentricity is a compromise between the two extremes of ethnocentricity and polycentricity. It could be argued that this attitude is the most important of the three. Geocentricity is an orientation that considers the whole world rather than any particular country as the target market. A geocentric company might be thought of as denationalized or supranational. As such, “international” or “foreign”
Based on his review of a number of the internationalization models which specify the various stages of internationalization, Andersen has proposed his own U-model which has received mixed empirical support. According to this model, there are four stages: (1) no regular export activities, (2) export via independent representatives (agent), (3) establishment of an overseas sales subsidiary, and (4) overseas production/manufacturing. The development is supposed to take place initially within a specific country before being repeated across countries. More recently, an increasingly global economy has given birth to a new theory which states that some companies are destined to go global from the outset.
BENEFITS OF INTERNATIONAL MARKETING: Survival and growth - Sales and profits – Diversification - Inflation and price moderation – Employment - High standards of living
2 TRADE THEORIES AND ECONOMIC DEVELOPMENT
BASIS FOR INTERNATIONAL TRADE Whenever a buyer and a seller come together, each expects to gain something from the other. The same expectation applies to nations that trade with each other. It is virtually impossible for a country to be completely self-sufficient without incurring undue costs. Therefore, trade becomes a necessary activity, though, in some cases, trade does not always work to the advantage of the nations involved. Virtually all governments feel political pressure when they experience trade deficits. Too much emphasis is often placed on the negative effects of trade, even though it is questionable whether such perceived disadvantages are real or imaginary. The benefits of trade, in contrast, are not often stressed, nor are they well communicated to workers and consumers.
Why do nations trade? A nation trades because it expects to gain something from its trading partner. One may ask whether trade is like a zero-sum game, in the sense that one must lose so that another will gain.The answer is no, because, though one does not mind gaining benefits at someone else’s expense, no one wants to engage in a transaction that includes a high risk of loss. For trade to take place, both nations must anticipate gain from it. In other words, trade is a positive-sum game. Trade is about “mutual gain.”. In order to explain how gain is derived from trade, it is necessary to examine a country’s production possibility curve. How absolute and relative advantages affect trade options is based on the trading partners’ production possibility curves.
Because each country has a unique set of resources, each country possesses its own unique production possibility curve. This curve, when analyzed, provides an explanation of the logic behind international trade. Regardless of whether the opportunity cost is constant or variable, a country must determine the proper mix of any two products and must decide whether it wants to specialize in one of the two. Specialization will likely occur if specialization allows the country to improve its prosperity by trading with another nation. The principles of absolute advantage and relative advantage explain how the production possibility curve enables a country to determine what to export and what to import.
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 principle 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 can other nations. Conversely, it should import a commodity that can only be produced at a higher cost than can other nations.
One problem with the principle of absolute advantage is that it fails to explain whether trade will take place if one nation has absolute advantage for all products under consideration. David Ricardo, perhaps the first economist to fully appreciate relative costs as a basis for trade, argues that absolute production costs are irrelevant More meaningful are relative production costs, which determine what trade should take place and what items to export or import. According to Ricardo’s principle of relative (or comparative) advantage, one country may be better than another country in producing many products but should produce only what it produces best. Essentially, it should concentrate on either a product with the greatest comparative advantage or a product with the least comparative disadvantage. Conversely, it should import either a product for which it has the greatest comparative disadvantage or one for which it has the least comparative advantage.
EXCHANGE RATIOS, TRADE, AND GAIN Although an analysis of relative advantage can indicate what a country should export and import, that analysis cannot explain exactly how a country will gain from trading with a partner. In order to determine the extent of trading gain, an examination of the domestic exchange ratio is required.
The principles of absolute and relative advantage provide a primary basis for trade to occur, but the usefulness of these principles is limited by their assumptions. One basic assumption is that the advantage, whether absolute or relative, is determined solely by labor in terms of time and cost. Labor then determines comparative production costs and subsequent product prices for the same commodity.
If labor is indeed the only factor of production or even a major determinant of product content, countries with high labor cost should be in serious trouble. An interesting fact is that Japan and Germany, in spite of their very high labor costs, have remained competitive and have performed well in trade. It thus suggests that absolute labor cost is only one of several competitive inputs that determine product value. As it is misleading to analyze labor costs without also considering the quality of that labor. A country may have high labor cost on an absolute basis; yet this cost can be relatively low if productivity is high. Countries with low wages tend to have low productivity. Any subsequent productivity gains usually result in higher wages and currency appreciation. Furthermore, the price of a product is not necessarily determined by the amount of labor it embodies, regardless of whether or not the efficiency of labor is an issue. Since product price is not determined by labor efficiency alone, other factors of production must be taken into consideration, including land and capital (i.e., equipment). Together, all of these production factors contribute significantly to the creation of value within a particular product.
Each nation possesses factors of production that may be grouped into these broad categories: human resources, physical resources, knowledge resources, capital resources, and infrastructure. Interestingly or surprisingly, a nation’s abundance of a particular production factor may sometimes undermine instead of enhance the country’s competitive advantage. international competitiveness factors: (1) factor conditions, (2) demand conditions, (3) related and supporting industries, and (4) firm strategy, structure, and rivalry. These four determinants interact and form the “diamond” which provides the context in which a nation’s firms are born and compete. Porter’s theory also includes two additional variables: chance and government.
Several studies have investigated the validity of the classical trade theories. MacDougall shortly after World War II showed that comparative cost was useful in explaining trade patterns. Other studies using different data and time periods have yielded results similar to MacDougall’s. Thus there is support for the claim that relative labor productivities determine trade patterns.
These positive results were subsequently questioned. The studies conducted by Leontief revealed that the USA actually exports labor-intensive goods and imports capital-intensive products. These paradoxical findings are now called the Leontief Paradox. Thus, the findings are ambiguous, indicating that, in its simplest form, the Heckscher– Ohlin theory is not supported by the evidence.
In theory, the more different two countries are, the more they stand to gain by trading with each other.There is no reason why a country should want to trade with another that is a mirror image of itself. However, a look at world trade casts some doubt on the validity of classical trade theories. Developed countries trade more among themselves than with developing countries. There is a tendency for corporations in developed countries to prefer to form direct-investment ties in the other more stable, developed countries while avoiding heavy investment in the fast-growing developing world. Trade theories provide logical explanations about why nations trade with one another, but such theories are limited by their underlying assumptions.
Most of the world’s trade rules are based on a traditional model that assumes that (1) trade is bilateral, (2) trade involves products originating primarily in the exporting country, (3) the exporting country has a comparative advantage, and (4) competition focuses primarily on the importing country’s market. However, today’s realities are quite different. First, trade is a multilateral process. Second, trade is often based on products assembled from components that are produced in various countries. Third, it is not easy to determine a country’s comparative advantage, as evidenced by the countries that often export and import the same product. Finally, competition usually extends beyond the importing country to include the exporting country and third countries.
One limitation of classical trade theories is that the factors of production are assumed to remain constant for each country because of the assumed immobility of such resources between countries. This assumption is especially true in the case of land, since physical transfer and ownership of land can only be accomplished by war or purchase (e.g., the US seizure of California from Mexico and the US purchase of Alaska from Russia). At present, however, such means to gain land are less and less likely. As a matter of fact, many countries have laws that prohibit foreigners from owning real estate. Thus, Japan and many other countries remain land-poor. On the other hand, outsourcing and foreign direct investment are a means to gain or use foreign land. Thus, in this regard, one can argue that land is mobile– at least indirectly. But we can consider also capitals-rich countries and their abilities to get loans and attract investments, where some other countries can't do that. Labor as a factor is relatively mobile because people will migrate – legally or not – in search of a better life.
When considering the factors of production, another item that is very significant involves the level of quality of the production factors. It is important to understand that the quality of each factor should not be assumed to be homogeneous worldwide. Some countries have relatively better-trained personnel, better equipment, better-quality land, and better climate. Although a country should normally export products that use its abundant factors as the product’s major input, a country can substitute one production factor for another to a certain extent.
Like Joseph Schumpeter before them, some economists argue that innovation (knowledge and its application to real business problems) counts for more than capital and labor, the traditional factors of production. Entrepreneurs, industrial research, and knowledge are what matters.
ALSO REGIONAL GROUPINGS AND THEIR NATIONS is effective factor giving advantages to these grouped countries where ther are benefits for them from Customs union, Common market, Economic and monetary union.
There are some other factors such as, CULTURAL DIMENSION (like European union), Political union (With France and Germany leading the way, the EU has been moving toward social, political, and economic integration)
3 TRADE DISTORTIONS AND MARKETING BARRIERS
Free trade makes a great deal of sense theoretically because it increases efficiency and economic welfare for all involved nations and their citizens. South Korea’s trade barriers, however, do not represent an isolated case. In practice, free trade is woefully ignored by virtually all countries. Despite the advantages, nations are inclined to discourage free trade.
Why do nations impede free trade when the inhibition is irrational? One reason why governments interfere with free marketing is to protect local industries, often at the expense of local consumers as well as consumers worldwide. Regulations are created to keep out or hamper the entry of foreignmade products. Arguments for the protection of local industries usually take one of the following forms: (1) keeping money at home, (2) reducing unemployment, (3) equalizing cost and price, (4) enhancing national security, and (5) protecting infant industry.
Trade unions and protectionists often argue that international trade will lead to an outflow of money, making foreigners richer and local people poorer. This argument is based on the fallacy of regarding money as the sole indicator of wealth. Other assets, even products, may also be indicators of wealth. For instance, it does not make sense to say that a man is poor just because he does not have much cash on hand when he owns many valuable assets such as land and jewelry. In addition, this protectionist argument assumes that foreigners receive money without having to give something of value in return. Whether local consumers buy locally made or foreign products, they will have to have money to pay for such products. In either case, they receive something of value for their money.
The purposes are: Keeping money at home, Reducing unemployment, protect of local industries, Equalizing cost and price, Enhancing national security, and Protecting infant industry.
So, these countries making marketing barriers and different types of TARIFFS, DUTIES, Combined rates, and Taxes. As there are many other requirements such as Product requirements, Products testing, documents, origin of products, Product specifications, and different types of Quotas.
WORLD TRADE ORGANIZATION (WTO) Virtually all nations seek to pursue their best interests in international trade. The result is that sooner or later international trade and marketing can be disrupted. To prevent or at least alleviate any problems, there is a world organization in Geneva known as the WTO (with General Agreement on Tariffs and Trade (GATT) as its predecessor).
Created in January 1948, the objective of GATT is to achieve a broad, multilateral, and free worldwide system of trading. For example, its code requires international bidding on major projects. GATT provides the forum for tariff negotiations and the elimination of trade discrimination.
The four basic principles of GATT are
1 Member countries will consult each other concerning trade problems.
2 The agreement provides a framework for negotiation and embodies results of negotiations in a legal instrument.
3 Countries should protect domestic industries only through tariffs, when needed and if permitted. There should be no other restrictive devices such as quotas prohibiting imports.
4 Trade should be conducted on a nondiscriminatory basis.
Generalized system of preferences (GSP) Although the benefits derived from the creation of the WTO are rarely disputed, less developed countries do not necessarily embrace GATT because those countries believe that the benefits are not evenly distributed. Tariff reduction generally favors manufactured goods rather than primary goods. Less developed countries rely mainly on exports of primary products, which are then converted by advanced nations into manufactured products for export back to less developed countries. As a result, a less developed country’s exports will usually be lower in value than its imports, thus exacerbating the country’s poverty status.
In response to less developed countries’ needs, the United Nations Conference on Trade and Development (UNCTAD) was created as a permanent organ of the UN General Assembly. Efforts by the UNCTAD led to the establishment of the New International Economic Order (NIEO) program. This program seeks to assist less developed countries through the stabilization of prices of primary products, the expansion of less developed countries’ manufacturing capabilities, and the acquisition by less developed countries of advanced technology.
4 POLITICAL ENVIRONMENT
The political environment that MNCs face is a complex one because they must cope with the politics of more than one nation. That complexity forces MNCs to consider the three different types of political environment: foreign, domestic, and international. As in the case of the US steel industry, it has received a variety of subsidy and government protection for more than thirty years. George W. Bush continued the assistance by imposing quotas for three years, and politics may have played a role. The action should help Republican candidates in the steel producing states. Bush was criticized for shunning free trade for the “pleasure of political opportunism.”2 The measures were like new taxes that would cost consumers of steel products $8 billion. Although political and economic motives are two distinct components, they are often closely intertwined. A country may use economic sanctions to make a political statement. Likewise, a political action may be taken so as to enhance the country’s economic prospects. It is also hardly uncommon for governments as well as companies to ignore politics for the purpose of economic interests. Even while the economic sanctions were in place, the USA was actually importing a large amount of oil from Iraq. While Taiwan and China are supposedly enemies that do not want to do business with one another, the truth of the matter is that there are some 50,000 Taiwanese-owned factories in China.
Developing countries often view foreign firms and foreign capital investment with distrust and even resentment, owing primarily to a concern over potential foreign exploitation of local natural resources. Dependency theory may partially explain why Latin American countries are reluctant to welcome foreign-based multinational firms. According to this theory, the ongoing economic, political, and social transformations have made it necessary for Latin America to rely on the capitalistic system. Consequently, advanced countries are able to extract surplus value from their less developed counterparts, thus leaving them underdeveloped while perpetuating the existence of class conflicts and oppressive governments.
Developed countries themselves are also concerned about foreign investment. Many Americans have expressed their concern that the increasing foreign ownership of American assets poses a threat to their country’s national security, both politically and economically. It should be pointed out that inflows of foreign capital add to the domestic capital stock. This activity contributes to the American standard of living and enhances the country’s ability to service its international indebtedness. As a result, the benefits of foreign investment far outweigh the costs.
In some cases, opposition to imported goods and foreign investment is based on moral principle. For example, the citizens of many nations pressured companies in their countries not to invest in South Africa because of that country’s policy of apartheid. In the mid-1980s the pressure became so great that the South African government ran advertisements in the USA in an attempt to minimize damage. Ironically, American firms that heeded the anti-apartheid movement’s call to divest have found it difficult to re-enter the market and capture back market share.
Regardless of whether the politics are foreign, domestic, or international, the company should keep in mind that political climate does not remain stationary. The political relationship between the USA and a long-time adversary, China, is a prime example. After decades as bitter enemies, both countries became very interested in improving their political and economic ties so as to dilute the power of the Soviet Union.
Although most companies have little control over affecting changes in international politics, they must be prepared to respond to new developments. Companies can derive positive economic benefits when the relationship between two countries improves or when the host government adopts a new investment policy. As in the case of India, the country was a highly regulated, closed economy which discouraged foreign investment. It was not until 1991 that a new government began a reform program which could transform India into one of the world’s most dynamic economies.
On the other hand, serious problems can develop when political conditions deteriorate. A favorable investment climate can disappear almost overnight. In one case, the USA withdrew Chile’s duty-free trade status because of Chile’s failure to take “steps to afford internationally recognized worker rights.” Chile thus joined Romania, Nicaragua, and Paraguay in being suspended from the GSP (generalized system of preferences).
Parliamentary governments consult with citizens from time to time for the purpose of learning about opinions and preferences. Government policies are thus intended to reflect the desire of the majority segment of a society. Most industrialized nations and all democratic nations may be classified as parliamentary.
Many countries’ political systems do not fall neatly into one of these two categories. Some monarchies and dictatorships (e.g., Saudi Arabia and North Korea) have parliamentary elections. The former Soviet Union had elections and mandatory voting but was not classified as parliamentary because the ruling party never allowed an alternative on the ballot. Countries such as the Philippines under Marcos and Nicaragua under Somoza held elections, but the results were suspect due to government involvement in voting fraud.
Another way to classify governments is by the number of political parties. This classification results in four types of governments: two-party, multiparty, single-party, and dominated one-party. In a two-party system, there are typically two strong parties that take turns controlling the government, although other parties are allowed. The USA and the United Kingdom are prime examples. The two parties generally have different philosophies, resulting in a change in government policy when one party succeeds the other. In the USA, the Republican Party is often viewed as representing business interests, whereas the Democratic Party is often viewed as representing labor interests, as well as the poor and disaffected.
In a multi-party system, there are several political parties, none of which is strong enough to gain control of the government. Even though some parties may be large, their elected representatives fall short of a majority. A government must then be formed through coalitions between the various parties, each of which wants to protect its own interests. The longevity of the coalition depends largely on the cooperation of party partners. Usually, the coalition is challenged continuously by various opposing parties. A change in a few votes may be sufficient to bring the coalition government down. If the government does not survive a vote of no confidence (i.e., it does not have the support of the majority of the representatives), the government is disbanded and a new election is called. Countries operating under this system include Germany, France, and Israel. In the 1991 elections in Poland, twenty-nine parties (including the Polish Beer Lovers’ Party) won seats, and no party got more than 13 percent of the vote.
In a single-party system, there may be several parties, but one party is so dominant that there is little opportunity for others to elect representatives to govern the country. Egypt has operated under single-party rule for several decades. This form of government is often used by countries in the early stages of the development of a true parliamentary system. Because the ruling party holds support from the vast majority, the system is not necessarily a poor one, especially when it can provide the stability and continuity necessary for rapid growth. But when serious economic problems persist, citizens’ dissatisfaction and frustration may create an explosive situation. For example, Mexico has been ruled since its revolution by the Institutional Revolutionary Party (PRI), but economic problems caused dissatisfaction with the PRI in the 1980s. The National Action Party (PAN), Mexico’s main opposition party, began gaining strength, possibly foreshadowing a transition away from a single-party system. As a matter of fact, Vicente Fox indeed took Mexico’s presidency away from the PRI.
In a dominated one-party system, the dominant party does not allow any opposition, resulting in no alternative for the people. In contrast, a singleparty system does allow some opposition party. The former Soviet Union, Cuba, Libya, and China are good examples of dominated one-party systems. Such a system may easily transform itself into a dictatorship. The party, to maintain its power, is prepared to use force or any necessary means to eliminate the introduction and growth of other
parties. Such countries as Burma, Cambodia, and Afghanistan have tried to reject outside influences, and it is no accident that they were or are among the most repressive regimes. Understandably, repression or suppression may be their only way of maintaining their ideology.
In addition, countries’ electoral systems may be either majoritarianism or proportionality. In the case of majoritarianism, a country is ruled by a simple numerical majority in an organized group. Proportionality occurs when the number of parliamentary seats is based on vote share. Research shows that spending on social security and welfare is lower under majoritarian systems. In contrast, “certain political factors, such as an electoral system that emphasizes proportionality or a fragmented parliament or government, lead simultaneously to higher transfers, bigger government, and a revenue system that emphasizes labor taxes over consumption taxes.”
Freedom House publishes Freedom in the World, a survey which reports on freedom around the globe. The publication is an annual comparative assessment of the state of political rights and civil liberties in 192 countries and seventeen related and disputed territories. In 2002, eighty-nine countries were “free” and fifty-six are “partly free.” The “not free” category claimed forty-seven countries.7 Freedom House’s Freedom of the Press 2003: A Global Survey of Media Independence reveals that press freedom deteriorated in 2002.
One should not be hasty in making generalizations about the ideal form of government in terms of political stability. It may be tempting to believe that stability is a function of economic development. South Africa and Italy, two developed countries, have been beset with internal and external problems. The political atmosphere from time to time is marred by a weak economy, recurring labor unrest, and internal dissension. In contrast, it may be argued that Vietnam, despite being a developing economy, is politically more stable. This stability is due in part to Vietnam’s relatively closed economy. It may be just as tempting to conclude that a democratic political system is a prerequisite for.
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 conditions. Product price is determined by demand and supply. This system serves the needs of society by encouraging decentralized decision making, risk taking, and innovation. The results include product variety, product quality, efficiency, and relatively lower prices.
The term centrally planned economies is often used to refer to the former Soviet Union, Eastern European countries, China, Vietnam, and North Korea. These economies tend to have the following characteristics: a communist philosophy, an active government role in economic planning, a nonmarket economy, a weak economy, high foreign debt, and rigid and bureaucratic political/economic systems. A contrast between North Korea and South Korea is quite striking. While North Korea’s economy has contracted, South Korea’s economy has been booming. South Korea’s GDP of $931 billion dwarfs North Korea’s GDP of $22 billion. North Korea’s exports of $842 million are no match for South Korea’s exports of $162.6 billion. It should be noted that North Korea is much better endowed than its southern counterpart in terms of natural resources.
Despite communist countries’ preoccupation with control of industries, it would be erroneous to conclude that all communist governments are exactly alike. Although the former Soviet Union and China adhered to the same basic ideology, there was a marked difference between the two largest communist nations. China has been experimenting with a new type of communism by allowing its citizens to work for themselves and to keep any profit in the process. Yet one must remember that “free markets” can exist in China only with the state’s permission, and the operations of such markets are still overseen by government officials.
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 businesses to private ownership. Socialism is a matter of degree, and not all socialist countries are the same. 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.
At one time, Sweden was a role model of what socialism could be, but a middle road between communism and capitalism may now produce stalled economic growth.12 Sweden’s economic decline is due in part to a rapid expansion in regulations and to the rising share of national income spent by central and local governments. During the 1970s and 1980s, Sweden introduced very generous retirement and health benefits, lengthy paid leave for parents, liberal rules for sick workers on taking days off, and many other types of transfer payments. Not surprisingly, on an average day, almost one in four employees is absent from work because of reported illness, parental responsibilities, study leave, and other reasons that allow a worker to stay at home. On a yearly basis, the average Swedish worker is off sick for almost a month of the year while receiving full salary. Moreover, differences in pay by education level, job experience, and other measures of worker productivity have largely disappeared. In the long run, there is no incentive to work hard when one can get paid for staying at home, when education and better jobs do not offer much higher wages, and when taxes offset any increase in pay.
As with the other two economic systems, there are degrees of capitalism. Japan, when compared to the USA, is relatively less capitalistic. Although practically all Japanese businesses are privately owned, industries are supervised very closely by the state. Japan has the MITI and other government agencies that vigorously advise companies what to produce, buy, sell, and so on. Japan’s aim is to allocate scarce resources in such a way as to efficiently produce those products that have the best potential for the country overall. Japan’s central bank also intervenes by buying shares of the listed companies from banks so as to manipulate the stock market.
In searching for the common characteristics of successful corporations, Chandler examined the 200 largest companies in the USA, Britain, and Germany from the 1880s through the 1940s and found that capitalism took a different form in each country.13 It was “managerial capitalism” in the USA, where managers with little ownership ran companies and competed fiercely for markets and products. In Britain, “personal capitalism” took place as owners managed their companies. In Germany, it was “cooperative capitalism”; professional managers were in charge, and companies were urged to share markets and profits among themselves. This kind of Rhineland capitalism attempts to forge social consensus through behind-the-scenes deal making among big business, trade unions, and politicians. But global competition is now threatening this type of cooperation.
There are some other variants of capitalism. Quebec has state-assisted capitalism as the government runs the health system, all colleges and universities, liquor stores, and even a parking monopoly in downtown Montreal. While Quebecers seem to endorse the idea that the government is looking after their economic interests, they do not realize that there are hidden costs in terms of higher taxes, higher prices, and lost economic output.
There are a number of political risks with which marketers must contend. Such as Confiscation, Expropriation, domestication, General instability risk, ownership/control risk, Operation risk and transfer risk. To manage political risk, an MNC can pursue a strategy of either avoidance or insurance. Avoidance means screening out politically uncertain countries. In this, measurement and analysis of political risk can be useful. Insurance, in contrast, is a strategy to shift the risk to other parties.
Political risk, though impossible to eliminate, can at the very least be minimized. There are several measures that MNCs can implement in order to discourage a host country from taking control of MNC assets.
5 LEGAL ENVIRONMENT
There are many products that cannot be legally imported into most countries. Examples include counterfeit money, illicit drugs, pornographic materials, and espionage equipment. It is usually also illegal to import live animals and fresh fruit unless accompanied by the required certificates. Furthermore, many products have to be modified to conform to local laws before these products are allowed across the border. The modification may be quite technical from an engineering standpoint or only cosmetic, as in the case of certain packaging changes. A company’s production strategy can also be affected by the legal environment. The USA bans the importation of the so-called Saturday night specials – cheap, short-barreled pistols – because they are often used in violent crime. Curiously, the gun control legislation does not prohibit the sale of such inexpensive weapons; only the import of such weapons is banned. As a result, Beretta, an Italian gun maker, is able to overcome the import ban by setting up a manufacturing operation in the state of Maryland.
There is no international law per se that prescribes acceptable and legal behavior of international business enterprises. There are only national laws – often in conflict with one another, especially when national politics is involved. This complexity creates a special problem for those companies that do business in various countries, where different laws may demand contradictory actions. For example, Wal-Mart Canada, to comply with the demand of the US government, removed 10,000 pairs of Cuban-made pyjamas. Canada was not pleased and ordered the Canadian branch of Wal-Mart to put the pyjamas back on the shelves.
To understand and appreciate the varying legal philosophies among countries, it is useful to distinguish between the two major legal systems: common law and statute law.
There are some twenty-five common law or British law countries. A common law system is a legal system that relies heavily on precedents and conventions. Judges’ decisions are guided not so much by statutes as by previous court decisions and interpretations of what certain laws are or should be. As a result, these countries’ laws are tradition oriented. Countries with such a system include the USA, Great Britain, Canada, India, and other British colonies.
There are four sources of European Community law: treaties, regulations, directives, and European Court of Justice case law. Member states are bound by European law, and their adopted measures must conform with it. The European Court of Justice ensures that Community law is observed in the interpretation and application of treaties. Treaties are “primary” Community law. Regulations and directives, as “secondary” Community law, expand the treaties and make them more specific. Directives are measures taken by the Community to harmonize the laws of the member states. Directives are binding. Member states’ national courts and tribunals must apply Community law alongside provisions of their own national law.
There is no international law per se that deals with business activities of companies in the international arena. There are only national laws that vary from one country to another. The EU area, for example, has high minimum wages, generous unemployment benefits, and employment protection measures. Dismissal restrictions include notice and severance pay requirements, and they can affect labor productivity. Among the advanced economies, Portugal is most restrictive in employment protection, and it has particularly stringent dismissal restrictions records, trademark, copyright and patent, and enforcement of judgments.
Whenever possible and practical, companies should consider commercial arbitration in place of judicial trials. Arbitration proceedings provide such advantages as an impartial hearing, a quick result, and a decision made by experts. Both IBM and Fujitsu seemed satisfied with the ruling of their two arbitrators in settling a copyright dispute. Intel, in contrast, did not want arbitration and was frustrated by the pace of its copyright lawsuit against NEC. Three important multilateral agreements on international arbitration address the enforcement of agreements to arbitrate and judicial assistance in the execution of arbitral awards. The New York Convention has received broad worldwide acceptance and is now in force in eighty-two countries. The Inter-American Convention, closely paralleling the framework of the New York Convention, states that parties which have agreed to arbitrate may be compelled to do so, and that arbitral awards shall be recognized and enforced in the same manner as final judicial decisions. The ICSID Convention (The Convention on the Settlement of Investment Disputes between States and Nationals of Other States) has established the International Center for the Settlement of Investment Disputes (ICSID) in Washington, D.C. to facilitate the arbitration of disputes between foreign investors and host governments. As of 1994, ICSID has 139 members. Many Latin American countries adhere to the Calvo Doctrine (after the Argentine jurist Carlos Calvo), which is generally hostile to international arbitration. Under the Calvo Doctrine, disputes between foreign investors and a host government must be submitted to the domestic courts of the host government instead of to an independent third party. The general inclination of Latin American countries against ratification or accession to the New York Convention or adoption of ICSID.
One aspect of the law that does not have universal acceptance involves extraterritorial application of the law. A nation wishing to protect its own interests often applies its laws to activities outside its own territory. Spanish laws allow crimes such as genocide to be tried in Spain even though such crimes were not committed there. In 2003, a Spanish judge asked the government to seek the extradition of forty Argentines, including two former leaders of the military junta. Judges in France, Sweden, and Italy also sought the extradition of several former military officers. Litigation, no matter where it takes place, is never an easy thing. In certain countries, it can be much more complicated. Courts in India have twenty-five million cases pending, and it will take more than 300 years to get through this backlog's.
Most countries do not provide for legal sanctions for the bribery of foreign officials by their companies or nationals to obtain or retain business. The USA feels that it is important to have equitable competitive conditions. As such, there should be internationally recognized standards of behavior to which marketers may refer so as to be able to refuse to engage in illicit practices.While OECD members have agreed with the US government that international cooperation is needed to discourage companies and public officials from resorting to bribery, it took several years before the twenty-six OECD countries agreed in 1996 to prevent bribes (often listed as fees) from being tax deductible.
In the process of filing for patent protection, it is a good idea to make a distinction between common law countries and statute law countries. A common law country determines patent ownership by priority in use. In comparison, the ownership in a statue law country is determined by priority in registration; that is, the first-to-file is granted a patent even if an innovation was actually created or used earlier by someone else. Europe, Japan, China, and most countries have the first-to-file patent system, and they make patent applications public eighteen months after filing. The USA, as a common law country, relies on the first-to-invent system. The US system’s first-to-invent standard is different because it awards patents to the original inventor even though someone else may have got to the patent office first. Based on the US system, the person who had the idea first receives a patent, and patent applications are kept secret – sometimes for years – until a patent is granted. It is true that the European and Japanese systems, by publishing patent information early, encourage imitators, but at the same time, this practice alerts other inventors early enough to avoid redundant research.
6 CULTURE
CULTURE AND ITS CHARACTERISTICS Culture, an inclusive term, may be conceptualized in many different ways. Not surprisingly, the concept is often accompanied by numerous definitions. In any case, a good basic definition of the concept is that culture is a set of traditional beliefs and values that are transmitted and shared in a given society. Culture is also the total way of life and thinking patterns that are passed from generation to generation. Culture means many things to many people because the concept encompasses norms, values, customs, art, and mores.
Culture is prescriptive. It prescribes the kinds of behavior considered acceptable in a society. As a result, culture provides guidance for decision making. For example, principles enjoining compromise are more salient in East Asian cultures than in North American culture. As confirmed by one study, Hong Kong decision makers are more likely than their American counterparts to compromise.
The prescriptive characteristic of culture simplifies a consumer’s decision-making process by limiting product choices to those which are socially acceptable. This same characteristic creates problems for those products not in tune with the consumer’s cultural beliefs. Smoking, for instance, was once socially acceptable behavior, but recently it has become more and more undesirable – both socially and medically.
Culture is socially shared. Culture, out of necessity, must be based on social interaction and creation. It cannot exist by itself. It must be shared by members of a society, thus acting to reinforce culture’s prescriptive nature. For example, at one time Chinese parents shared the preference of wanting their girl children to have small feet. Large feet, viewed as characteristic of peasants and lowclass people, were scorned. As a result, parents from the upper class bound a daughter’s feet tightly so that her feet would not grow large. It did not matter to the parents that the daughter would grow up having difficulty walking about with distortedly small feet.
A worldwide business success requires a respect for local customs. International marketers need to recognize and appreciate varying cultures. Culture plays a significant role in influencing consumer perception, which in turn influences preference and purchase. A good marketing plan can easily go awry when it clashes with tradition. A marketing mix can be effective only as long as it is relevant to a given culture. One should expect that a product may have to be modified, that a new distribution may have to be found, or that a new promotional strategy may have to be considered.
What is more surprising than the blunders which can occur are the underlying causes for these mistakes. The most fundamental problem appears to be the indifferent attitude of many American firms toward international markets. The firms often enter foreign markets with a complete disregard for the customs and traditions there – something they would never do at home. In marked contrast, many Japanese firms have been highly successful in the USA and elsewhere because of their keen awareness and understanding of the local culture.
In order to develop an appreciation for the role of culture in society as well as the marketing implications of culture, Here must consider the following: (1) what culture is, (2) what its characteristics are, and (3) how culture affects consumer behavior. The varying methods of developing cross-cultural communication, verbally and otherwise, are discussed. To lend an understanding of how cultures vary, and will compare a number of cultures. Finally, because population homogeneity within a country is an exception rather than a rule, it is necessary to examine the relevance and bases of subcultural groups.
Consumption patterns, lifestyles, and the priority of needs are all dictated by culture. Culture prescribes the manner in which people satisfy their desires. Hindus and some Chinese do not consume beef at all, believing that it is improper to eat cattle that work on farms, thus helping to provide foods such as rice and vegetables. In Japan, the per capita annual consumption of beef has increased to 11 pounds, still a very small amount when compared to the more than 100 pounds consumed per capita in the USA and Argentina.
The eating habits of many peoples seem exotic to Westerners. The Chinese eat such things as fish stomachs and bird’s nest soup (made from bird’s saliva). The Japanese eat uncooked seafood, and Iraqis eat dried, salted locusts as snacks with drinks. Although such eating habits may seem repulsive to Westerners, consumption habits of the West are just as strange to foreigners. The French eat snails, Americans and Europeans use honey (bee expectorate or bee spit) and blue cheese or Roquefort salad dressing, which is made with a strong cheese with bluish mold. No society has a monopoly on unusual eating habits when comparisons are made among various societies.
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 reference, 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 effects of the SRC. Animals provide a good. Americans and Europeans commonly treat dogs as family members, addressing the animals affectionately and even letting dogs sleep on family members’ beds. Arabs, however, view dogs as filthy animals. Some in the Far East go so far as to cook and eat dogs – a consumption habit viewed as revolting and compared to cannibalism by Americans. Hindus, in contrast, revere cows and do not understand how Westerners can eat beef.
A country may be classified as either a high-context culture or a low-context culture.6 The context of a 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. North America and Northern 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. The words and their meanings, being independent entities, can be separated from the context in which they occur. What is important, then, is what is said, not how it is said and not the environment within which it is said.
4 Culture prescribes acceptable beliefs, traditions, customs, and values that are then socially shared. Culture is subjective, enduring yet dynamic, and cumulative. It affects people’s behavior in diverse ways through logic, communication, and consumption. Although some cultural traits are universal, many others are unique and vary from country to country. And in spite of national norms, cultural differences as a rule even exist within each country. While there may be a tendency to misunderstand different cultures and subcultures, this temptation should be resisted. Being the force that it is, the culture of one country should not be judged as superior to the culture of another country. Each culture
has its own particular values and social practices, and the international marketer will be much further ahead if he or she tries to walk in the other person’s shoes in order to understand more clearly that person’s concerns and ideas. Because marketing takes place within a given culture, a firm’s marketing plan assumes meaning or is appropriate only when it is relevant to that culture. A US company should understand that foreign consumers are not obligated to take on American values – nor may those consumers desire to do so. In addition, it is more important to know
what a person thinks than what that person’s language is. Because of the great differences in language and culture around the world, American firms need to adjust their approach to solving marketing problems in different countries. In a foreign cultural environment, the marketing plan that has worked well at home may no longer be effective. As a result, the firm’s marketing mix may have to undergo significant adaptation and adjustment. Effective marketing in this environment will thus mandate that the company be culturally responsive.
7 CONSUMER BEHAVIOR IN THE INTERNATIONAL CONTEXT
Consumers’ perceptions are highly subjective, and consumers can be quite unpredictable. The complex nature of consumers makes the study and understanding of consumer behavior imperative. Sweden and Colombia have both attempted to affect consumer perceptions. The Juan Valdez campaign of the Federation of Colombian Coffee Growers has been successful in creating a desirable image for its product and using it to communicate with consumers. Volvo, likewise, has successfully nurtured an image of safety.
This acknowledge the role that determinants other than culture play in influencing consumer behavior. It thus examines the psychological and social dimensions, and these include motivation, learning, personality, psychographics, perception, attitude, social class, group, family, opinion leadership, and the diffusion process of innovations.
Consumer behavior, as a discipline of study, has been researched extensively in the USA at both the macro and micro levels. Surprisingly, it has not been so rigorously and diligently investigated in the international context. All too frequently, studies that compare consumers in various countries attribute differences in consumer characteristics and behavior to cultural differences. This convenient approach
(i.e., culture) is inadequate by itself and does not enhance the understanding of consumption behavior overseas.
Instead of explicitly or implicitly attempting to use culture to explain most variations in consumption, researchers should redirect their attention toward smaller units of analysis. This requires a study of psychological concepts as well as social concepts which are not based solely on cultural determinants.
At the psychological level, relevant concepts such as motivation, learning, personality, psychographics, perception, and attitude should be closely examined. Because consumer needs vary across countries, as does the degree of importance attached to a particular need, it is unrealistic to expect consumers everywhere to be motivated in the same way. The varying motives that occur are due in part to individual personality traits and lifestyles. The learning and perception of a product and the attitude toward it will also affect consumers’ motivations in acquiring the product.
At the social level, it is redundant to state that consumer behavior is affected by the cultural environment. It is more important to list specifically the cultural norms in a country and to understand why those norms vary from country to country. It is thus important to appreciate how these norms are shaped by reference groups, social class, family, opinion leadership, and the diffusion process of innovation. Consumer preference depends in part on how well a product fits into the cultural circumstances and on whether the product will have the approval of a consumer’s reference group, social class, and family.
In conclusion, marketers and researchers should guard against using culture as a catch-all term and should not use it on a wholesale basis to explain overseas behavior. It is necessary to go beyond noticing cultural differences and instead to attempt to understand the underlying causes of cultural variations. This goal requires researchers to be more specific and rigorous in their investigation by extending the application of relevant psychological and social concepts to the international scene. It is time to move away from a vague and generic explanation of consumption behavior to a more precise and better-focused avenue of research.
8 MARKETING RESEARCH AND INFORMATION SYSTEM
Lack of knowledge and unfamiliarity with foreign markets usually heighten the risks for a company wanting to do business in a foreign land. The problem is further complicated by the fact that international marketing research is more difficult and more complex than domestic research. The case of Toyota illustrates the value of marketing information and how such information can make the difference between success and failure. The data allow the firm to make timely adjustments to its marketing mix, and the company’s understanding of consumer habits makes it possible for Toyota to better satisfy its customers’ needs.
Given the complexity of today’s fast-changing world and the unpredictability of consumer demands, the use of marketing research is essential if a company is to reduce the serious risks associated with marketing a product. Thus the purpose of this paragraph is to examine the nature and techniques of international marketing research. It's investigates such topics as types of data, types of data collection methods, sampling, and measure. The discussion emphasizes the difficulties associated with cross-cultural research and the necessity for adapting marketing research techniques to international markets.
There is need for information on the one hand and the difficulty of managing information on the other. The primary goal is to provide a basic understanding of the research process and the use of information. Special attention has been given to the information collection process and the use of marketing information. This coverage is far from being exhaustive, and the reader should consult marketing research textbooks for specific details related to particular research topics. Regardless of where the intended market is, a company must understand the market and its consumers. Japan and Western Europe are successful abroad because of their adoption of the marketing concept. Basically, the marketing concept requires companies to understand consumer needs, and marketing research is a necessary undertaking in making that determination. Although it may be true that foreign market information is frequently lacking or of poor quality, this general problem can be a blessing in disguise, because competitors do not have either adequate or reliable information. A company that does a better job in acquiring information can gain a competitive advantage.
A marketer should initiate research by searching first for any relevant secondary data. There is a great deal of information readily available, and the researcher needs to know how to identify and locate the various sources of secondary information both at home and abroad. Private sources of information are provided by general reference publications, trade journals from trade and business associations, syndicated services, and marketing research agencies. Government sources also have many kinds of information available in various forms for free or at reasonable cost.
When it is necessary to gather primary data, the marketer should not approach its collection from a perspective of the home country. A marketer should be aware of numerous extra constraints that exist overseas, since such constraints can affect virtually all steps of the research process. Because of these constraints, the process of data collection in the international context is anything but simple. One cannot simply replicate the methodology used in one country and apply it in all countries. The marketer should expect to encounter problems unique to a particular country, and some adaptation in research strategies may be necessary. In order to make certain that a study is reliable and internally and externally valid, it is important to have conceptual, instrumental, and linguistic equivalence.
A company should set up an MIS to handle the information efficiently and effectively. The system should integrate all information inputs from the various sources or departments within the company. For a multinational operation, this means the integration and coordination of all the information generated by the overseas operations as well. The system should be capable of being more than a compilation of data. It should routinely make meaningful outputs available in the desired format for its users in a timely fashion. With the advanced
development of artificial intelligence, it may be possible in the near future for a computer to perform all necessary functions, including making recommendations for marketing strategies. However, in the final analysis, every marketer must keep in mind that information can never replace judgment. Remember, it is useless to have “data, data everywhere, and not a thought to think.”
9 FOREIGN MARKET ENTRY STRATEGIES
Red Bull has demonstrated a practical way to enter foreign markets. Likewise, Heineken has not entered all markets with a one-track mind and a single-entry method. Even a large multinational corporation, with all its power, still has to adapt its operating methods and formulate multiple entry strategies. The dynamic nature of many overseas markets makes it impossible for a single method to work effectively in all markets. It is devoted here to a coverage of the various market entry strategies. Some of these techniques– such as exporting, licensing, and management contracts – are indirect in the sense that they require no investment overseas. Other techniques, however, require varying degrees of foreign direct investment. These foreign direct investment methods range from joint venture to complete overseas manufacturing facilities, with such strategies as assembly operations, turnkey operations, and acquisitions falling somewhere in between. These strategies do not operate in sequence, and any one of them can be appropriate at any time. Further, the use of one strategy in one market does not rule out the use of the other strategies elsewhere. The methods vary in terms of risk accepted and, to a certain extent, the degree of commitment to the foreign market.
There are advantages and disadvantages associated with each method of market penetration. Factors that have an impact on the appropriateness of entry methods must be studied from the companies in order to provide guidelines for the selection of market entry strategies.
FOREIGN DIRECT INVESTMENT (FDI) Economists usually advocate a free flow of capital across national borders because capital can then seek out the highest rate of return. Owners of capital can diversify their investment, while governments will be less able to pursue bad economic policies. In addition, a global integration of capital markets spreads best practices in corporate governance, accounting rules, and legal traditions.
However, some critics point out that free capital flows are driven by speculative and short-term considerations. For some reason, one noticeable feature of FDI flows is that their share in total inflows is higher in countries where the quality of institutions is lower. In other words, a high share of FDI in a country’s total capital inflows may reflect its institutions’ weakness instead of its strengths. However, empirical evidence indicates that FDI benefits developing host countries.
One indisputable fact is that developed countries are both the largest recipients and sources of FDI. The phenomenon is dominated by the triad of the European Union, the USA, and Japan, accounting for 71 percent of inward flows and 82 percent of outward flows. As a result, its international marketing effort is casual at best. This is very likely the most common overseas entry approach for small firms. Many companies employ this entry strategy when they first become involved with international business and may continue to use it on a more or less permanent basis. R.R. Donnelley Japan K.K., for example, has issued American Showcase/Japan which is a “catalog of catalogs.” This marketing program involves several American catalogers, and allows Japanese consumers to request American catalogs and order merchandise.
The problem with using an exporting strategy is that it is not always an optimal strategy. A desire to keep international activities simple, together with a lack of product modification, make a company’s marketing strategy inflexible and unresponsive.
There are several types of strategies such as LICENSING, Contracting, Joint venture, MANUFACTURING, ASSEMBLY OPERATIONS, TURNKEY OPERATIONS. If a company wants to avoid foreign direct investment when marketing in foreign markets, it has a number of options. It can export its product from its home base, or it can grant a license permitting another company to manufacture and market its product in a foreign market. Another option is to sign a contract to sell its expertise by managing the business for a foreign owner.
If the firm is interested in making foreign direct investment, it can either start its business from the ground up or acquire another company. The acquisition, however, may receive a less than enthusiastic response from the foreign government. If the company decides to start a new business overseas, it must consider whether a sole venture or joint venture will best suit the objective. Sole ventures provide a company with better control and profit.
10 PRODUCT STRATEGIES: BASIC DECISIONS AND PRODUCT PLANNING
Just because a product is successful in one country, there is no guarantee that it will be successful in other markets. A marketer must always determine local needs and tastes and take them into account Some products have universal appeal, and little or no change is necessary when these products are placed in various markets. But for every socalled universal product there are many others, as mentioned above, that have a narrower appeal. For products in this category, modification is necessary in order to achieve acceptance in the marketplace. It is generally easier to modify a product than to modify consumer preference. That is, a marketer should change the product to fit the need of the consumer rather than try to adjust consumers’ needs to fit product characteristics. An awareness of application of this marketing concept in an international setting would provide definite advantages to an international merchant. Although the principle has been universally accepted in domestic marketing, it has often been ignored in international marketing.
In breaking into a foreign market, marketers should consider factors that influence product adoption. As explained by diffusion theory, at least six factors have a bearing on the adoption process: relative advantage, compatibility, trialability/divisibility, observability, complexity, and price. These factors are all perceptual and thus subjective in nature.
For a product to gain acceptance, it must demonstrate its relative advantage over existing alternatives. Products emphasizing cleanliness and sanitation may be unimportant in places where people are poor and struggle to get by one day at a time. Wool coats are not needed in a hot country, and products reducing static cling (e.g., Cling Free) are useless in a humid country. A sunscreen film attached to auto windshields to block out sunlight may be a necessity in countries with a tropical climate, but it has no such advantage in cold countries. Dishwashing machines do not market well in countries where manual labor is readily available and inexpensive.
A product must also be compatible with local customs and habits. A freezer would not find a ready market in Asia, where people prefer fresh food. In Asia and such European countries as France and Italy, people like to sweep and mop floors daily, and thus there is no market for carpet or vacuum cleaners. Deodorants are deemed inappropriate in places where it is the custom for men to show their masculinity by having body odor. Dryers are unnecessary in countries where people prefer to hang their clothes outside for sunshine freshness. Kellogg’s had difficulties selling Pop Tarts in Europe because many homes have no toaster. Unlike American women, European women do not shave their legs, and thus have no need for razors for that purpose.
A new product should also be compatible with consumers’ other belongings. If a new product requires a replacement of those other items that are still usable, product adoption becomes a costly proposition. A new product has an advantage if it is capable of being divided and tested in small trial quantities to determine its suitability and benefits. This is a product’s trialability/divisibility factor. Disposable diapers and blue jeans lend themselves to trialability rather well, but when a product is large, bulky, and expensive, consumers are much more apprehensive about making a purchase. Thus, washers, dryers, refrigerators, and automobiles are products that do not lend themselves well to trialability/ divisibility. This factor explains one reason why foreign consumers do not readily purchase American automobiles, knowing that a mistake could ruin them financially. Many foreign consumers therefore prefer to purchase more familiar products, such as Japanese automobiles, that are less expensive and easier to service and whose parts are easier to replace.
Observation of a product in public tends to encourage social acceptance and reinforcement, resulting in the product’s being adopted more rapidly and with less resistance. If a product is used privately, other consumers cannot see it, and there is no prestige generated by its possession. Blue jeans, quartz watches, and automobiles are used publicly and are highly observable products. Japanese men flip their ties so that labels show. Refrigerators, on the other hand, are privately consumed products, though owners of refrigerators in the Middle East and Asia may attempt to enhance observability (and thus prestige) by placing the refrigerator in the living room, where guests can easily see it. In any case, a distinctive and easily recognized logo is very useful.
Complexity of a product or difficulty in understanding a product’s qualities tends to slow down its market acceptance. Perhaps this factor explains why ground coffee has had a difficult time in making headway to replace instant coffee in many countries. Likewise, 3M tried unsuccessfully in foreign markets to replace positive-acting printing plates with presensitized negative subtractive printing plates, which are very popular in the USA. It failed to convert foreign printers because the sales and technical service costs of changing printers’ beliefs were far too expensive. Computers are also complex but have been gradually gaining more and more acceptance, perhaps in large part because manufacturers have made the machines simpler to operate. Ready-made software can also alleviate the necessity of learning computer languages, a timeconsuming process.
The first four variables are related positively to the adoption process. Like complexity, price is related negatively to product adoption. Prior to 1982, copiers were too big and expensive. Canon then introduced personal copiers with cartridges that customers could change. Its low price (less than $1000) was so attractive to consumers (but not to competitors) that Canon easily dominated the market.
The product stages of life cycle are: Stage 1 – Overseas innovation, Stage 2 – Maturity, Stage 3 – Worldwide imitation, and Stage 4 – Reversal, and products must have their marketing polices in global markets, pricing policy, promoting policy, Place (distribution) policy, as they must be adopted for global markets. Not only products but also services like banking, insurance, travel, and so on must have their own marketing polices and strategies.
Services have several unique characteristics; they are intangible, person-oriented, and perishable. Yet virtually all marketing concepts and strategies used to market tangible products are relevant to the marketing of services.
Like a product, a company’s service should also be defined broadly. American Express, for instance, does not regard itself as being in the credit-card
business. Instead, the company is in the communications and information-processing business, and its computer center in Phoenix processes a quarter of a million credit-card transactions each day from all over the world.
Services also require adaptation from time to time for foreign markets. Even movies distributed abroad, more often than not, must be packaged differently. At the very least, movies distributed internationally require subtitles or overdubbing. Most Japanese were perplexed by Disney’s policies of serving no alcohol and prohibiting bringing in food from outside the park. Disney, however, has made a few changes. It added a Japanese restaurant to serve older patrons. There was no Nautilus submarine. In addition, to protect against rain and snow, more areas are covered.
Regarding market entry strategies, a service firm’s unique characteristics (e.g., low capital intensity and the inseparability of production and consumption) may have some impact on entry–mode choice. In general, service firms prefer full-control modes, but firms with low asset specificity, in responding to the rising costs of integration or the diminishing ability to integrate, may have to relinquish control and seek shared-control ventures.
A product provides a bundle of satisfaction that the consumer derives from the product itself, along with its promotion, distribution, and price. For a product or service to be successful in any market, whether at home or overseas, it must therefore primarily satisfy consumer needs. In order to satisfy these needs more precisely, marketers should employ market segmentation, product positioning, and other marketing techniques. In the past, American marketers have been slow to realize that they must adapt their marketing practices when selling abroad. American marketers have overlooked the particular preferences and needs of customers overseas and have not adapted exported products, brands, and packages to meet these needs. For companies that have committed themselves seriously to their international market needs, performance can be very encouraging. Texas Instruments and Du Pont, for example, have done remarkably well in Japan, a market misunderstood by many, by assigning their best marketing personnel in that market. Du Pont, recognizing the importance of this market, maintains thirteen laboratories in Japan to work closely with customers in order to tailor products to meet customers’ needs.
Although product modification for local markets is a necessity in many cases, it does not mean that all products must be changed. A standardized product designed for one market may fit many other markets as well. But this situation is relatively rare, and the standardized product that is suitable in many markets should be considered as a fortunate random occurrence. A world product, on the other hand, should be created with the world market in mind in order to maximize consumer satisfaction and simplify the production process in the long run. If a world product is not possible due to environmental diversity or other circumstances, a marketing manager should re-examine product characteristics
and consumer needs. If there is a possibility that there is a convergence in the characteristics and needs, then it may be possible to standardize the product. When the characteristics and need variables do not converge, then it becomes a matter of changing the product to fit consumer needs, as long as the associated costs are not prohibitive. The time has clearly come for the export marketer to think less nationally and more internationally. It may in fact be as fundamental as determining that, if the product can satisfy a need at a reasonable price, the product will sell in its international market.
11 PRODUCT STRATEGIES: BRANDING AND PACKAGING DECISIONS
A trademark can be more than a name or logo. Harley Davidson tried unsuccessfully to register the sound of its heavy motorcycles as a trademark. H.J. Heinz Company had better luck in registering a color in England. While words and logos account for a vast majority of trademarks registered in England and while it is unusual for a food company to be granted a trademark on a color alone, the Trademarks Registry granted legal protection to Heinz Baked Beans’ distinctive use of turquoise.The Trademarks Registry has determined that Heinz Baked Beans’ turquoise has “achieved distinctiveness through use.” As the number one brand of baked beans in the United Kingdom for generations, the product is an important part of the British culture, Although companies spend millions of dollars developing logos, some are more effective than others. One study asked consumers to judge a company’s image by looking at its name alone as well as with its logo. Motorola Inc., for example, received a positive score of 55 percent, meaning that the logo adds a sense of quality and trustworthiness. British Airways and Infiniti, on the other hand, received negative scores of –20 percent and –16 percent respectively. In the latter case, the logos, instead of being helpful, may actually hurt corporate image
The basic purposes of branding are the same everywhere in the world. In general, the functions of a brand are to: (1) create identification and brand awareness, (2) guarantee a certain level of quality, quantity, and satisfaction, and (3) help with promotion. All of these purposes have the same ultimate goal: to induce repeat sales. The Spalding name, for example, has a great deal of marketing clout in Japan. In fact, a group of investors bought the company in 1982 because they felt that Spalding was the best-known name in sports in the free world and that the name was underused.
To brand or not to brand, that is the question. Most products are branded, but that does not mean that all products should be. Branding is not a cost-free proposition due to the added costs associated with marking, labeling, packaging, and legal procedures. These costs are especially relevant in the case of commodities (e.g., salt, cement, diamonds, produce, beef, and other agricultural and chemical products). Commodities are “unbranded or undifferentiated products which are sold by grade, not by brands.” As such, there is no uniqueness, other than grade differential, that may be used to distinguish the offerings of one supplier from those of another. Branding is then probably undesirable because brand promotion is ineffective in a practical sense and adds unnecessary expenses to operations costs.
Even though it may seem logical for a distributor to carry the manufacturer’s well-known brand, many distributors often insist on their own private brands for several reasons. First, a distributor may be able to create a unique product by bundling or unbundling product attributes and then adjusting the price to reflect the proper value.
The job of branding cannot be considered done just because a name has been chosen. The brand must also be protected. The first protective step is to obtain trademark registration. Because of the cost involved, it may be neither practical nor desirable to register the name in all countries, especially in places where demand seems weak. It is inexcusable, however, not to do so in major markets. Even Queen Elizabeth II has registered her two private homes (Sandringham in Norfolk and Balmoral Castle in Scotland) as trademarks so that she can sell her own merchandise under the brand names of Sandringham and Balmoral. The names have been registered with the British Trade Marks Registry and represent the first time the Queen has exploited the names of her houses for commercial purposes
Much like the brand name, packaging is another integral part of a product. Packaging serves two primary purposes: functional and promotional. First and foremost, a package must be functional in the sense that it is capable of protecting the product at minimum cost.
If a product is not manufactured locally and has to be exported to another country, extra protection is needed to compensate for the time and distance involved. A country’s adverse environment should also be taken into account. When moisture is a problem, a company may have to wrap pills in foil or put food in tin boxes or vacuum-sealed cans. However, the type of package chosen must be economical. In Mexico, where most consumers cannot afford to buy detergents in large packages, detergent suppliers found it necessary to use plastic bags for small packages because cardboard would be too expensive for that purpose.
For most packaging applications, marketers should keep in mind that foreign consumers are more concerned with the functional aspect of a package than they are with convenience. As such, there is usually no reason to offer the great variety of package sizes or styles demanded by Americans. Plastic and throw-away bottles are regarded as being wasteful, especially in LDCs, where the labor cost for handling returnables is modest. Non-American consumers prefer a package to have secondary functions. A tin box or a glass bottle can be used after the product content is gone to store something else. Empty glass containers can be sold by consumers to recoup a part of the purchase price.
From the marketing standpoint, the promotional function of packaging is just as crucial as the functional aspect. To satisfy the Japanese preference for beautiful packaging, Avon upgraded its inexpensive plastic packaging to crystalline glass. Similarly, BSR packs its product into two cartons, one for shipping and one for point-of-purchase display, because Japanese buyers want a carton to be in tip-top condition. The successful campaign for Bailey’s Irish Cream in the USA included a fancy gold foil box package that promotes this whiskey-based drink’s upscale image. In any case, packaging does not have to be dull. Novel shapes and designs may be used to stimulate interest and create excitement.
In addition to conditions of use, other cultural factors should be taken into consideration since such factors often determine and influence consumer preference. Although the UHT (ultra-high temperature) process for packaging milk and juices in unrefrigerated cartons has long been popular in Europe and Asia, it took quite a while for American consumers who were accustomed to fresh products to start accepting aseptic packaging.
Symbols and colors of packages may have to be changed to be consistent with cultural norms. If packages are offensive, they must be made more acceptable if the product is to be marketed successfully. For example, the controversial Jovan packages, with their sexual connotations, can prove to be too suggestive in some countries. In Japan, since manufacturers of condoms have female customers in mind, packaging tends to be cute. A product is a bundle of utilities, and the brand and package are part of this bundle. There is nothing unusual about consumers’ reliance on brand names as a guide to product quality. As shown by the perfume industry, the mystique of a brand name may be so strong as to overshadow the product’s physical attributes. When practiced and well executed, branding allows a commodity to be transformed into a product. In doing so with the aid of product differentiation, brand loyalty is created, and the product can command a premium price.
Branding decisions involve more than merely deciding whether or not a product should be branded. Branding entails other managerial decisions. A manufacturer must decide whether to use its own brand or that of its dealer on its product. A marketer must also determine whether to use a single brand for maximum impact or multiple brands to satisfy the different segments and markets more precisely. Regardless of the number of brands used, each brand name must be selected carefully with the international market in mind. Once selected, the brand name must be protected through registration, and other measures should be taken to prevent any infringement on that name.
Like the brand name, which may have to be varied from one country to another, packaging should be changed when needed. Mandatory modification of packaging should not be considered a problem because the marketer has no choice in the matter – if a marketer wants to market a product, the marketer must conform to the country’s stated packaging requirements. Unilever, for instance, has to conform to the French requirement of selling cube-shaped, not rectangular, packs of margarine. Its descriptions for mayonnaise and salad dressing also have to vary from country to country.
12 CHANNELS OF DISTRIBUTION
All products need competent distribution. Unfortunately, the distribution of blood diamonds is relatively competent. In any case, any products, no matter how good they are, are unlikely to gain market acceptance without being made available at a time and place that are convenient to final users.
The various channels of distribution that are responsible for moving products from manufacturers to consumers. Both international and domestic channels are examined. This describes the varieties of intermediaries (i.e., agents, wholesalers, and retailers) involved in moving products between as well as within countries. The tasks and functions of the various intermediaries will be examined. It should be kept in mind that certain types of intermediaries do not exist in some countries and that the pattern of use as well as the importance of each type of intermediary varies widely from country to country.
A manufacturer is required to make several decisions that will affect its channel strategy, including the length, width, and number of distribution channels to be used. This is examines the various factors that influence these decisions. For an operation to be a success, a good relationship among channel members is vital. There is no one single distribution method that is always ideal in all markets.
A product, no matter how desirable, must be made accessible to buyers. A manufacturer may attempt to use a direct distribution channel by selling directly to end users abroad. The feasibility of this channel depends on the type of product involved. Generally, the sales opportunity created by direct selling is quite limited. Intermediaries are usually needed to move the product efficiently from the manufacturer to the foreign user.
The manufacturer has the option of selling or assigning sales responsibility to intermediaries in its own country and letting them decide about reselling the product elsewhere. Another option for the manufacturer involves bypassing intermediaries and dealing directly with foreign buyers, assuming that the manufacturer has enough expertise, market familiarity, resources, and commitment. With the myriad intermediaries available, it is impossible to prescribe a single distribution method that is ideal for all products and markets.
A number of factors – such as product type, regulations, customs, and intermediary loyalty – must be taken into account in designing and developing an international channel of distribution. These factors determine how long, how wide, and how many channels are appropriate. Ordinarily, those intermediaries that fail to add some value to the product as it moves through them are likely to be bypassed or dropped from the channel. But the manufacturer cannot afford to dictate terms, since an intermediary will carry a manufacturer’s product only if the manufacturer minimizes channel conflict as well as providing some value to these sales intermediaries in return.
13 PROMOTION AND PRICING STRATEGIES
An overwhelming number of studies does not show evidence that supports standardization. Instead, most studies have found consumer, market, and media differences. However, the empirical evidence that contradicts the use of standardization is indirect in nature. This is not surprising because it is very difficult to design a study that truly proves the validity (or lack of it) of advertising standardization. It is possible though to design a more rigorous study that will address the issue in terms of cause and effect.
All forms of advertising standardization should not be ignored by the marketer. This technique may be appropriate on a modest scale, though definitely not on a worldwide basis. A limited homogeneity does existing in many cultures around the world. Thus it is a good idea to find out when and where this limited scale of homogeneity exists so that some level of standardization may be considered.
For decision-making purposes, market segmentation can provide a practical framework for standardizing advertising,. If the world is treated as one whole market, a standardized advertisement may then be used. But if the world is divided into several segments (i.e., regions or countries), each segment probably requires its own custom-made marketing mix (i.e., a localized advertisement).
In developing countries, advertising is often viewed as something wasteful. In socialist/communist countries, it may be seen as incompatible with political objectives. It is undeniable that certain advertising practices are misleading, deceptive, and wasteful. Just as undeniable, however, is that advertising serves a useful function by providing customers with relevant information for intelligent decision making. Although the US style of advertising is not necessarily suitable for all other countries, it does make a significant contribution to the high standards of living in the USA.
Because of the variations found in advertising regulations, media availability, media approaches, and consumer characteristics, there is a high degree of risk in employing standardized advertising on a worldwide basis. Although a global advertisement may have the advantage of lower cost, cost reduction should not always be the overriding motive. Advertisers need to be less ethnocentric and to show more consideration and regard for foreign consumers. All advertisements, standardized or not, should be tested for suitability for the intended audience before being used in the marketplace.
To set price, the concerns of all affected parties must be addressed. A manufacturer needs to make a profit. So do resellers, who demand adequate margins for their services. Moreover, competitors’ reactions in terms of their price responses must be anticipated. Finally, it is necessary to take into account both consumers and the value they place on the product.
Several factors must be taken into consideration in setting price, including cost, elasticity of demand, supply, product image (prestige), turnover, market share/volume, product life cycle, and the number of products involved. The optimum mix of these ingredients varies by product, market, and corporate objectives.
Price setting in the international context is complicated further by such factors as foreign exchange rates, relative labor costs, and relative inflation rates in various countries. Other important considerations are export packing costs and charges, transportation costs, tariffs, tax laws, and profit remittance restrictions.
References
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2 Amy Chua, World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global
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3 David Ricardo, The Principles of Political Economy and Taxation (1817; reprint, Baltimore: Penguin, 1971).
5 Eli Heckscher, “The Effects of Foreign Trade on the Distribution of Income,” in Readings in the Theory of International Trade, ed. Howard S. Ellis and Lloyd A. Matzler (Homewood, IL: Irwin, 1949); and Bertil Ohlin, Interregional and International Trade (Cambridge, MA: Harvard University Press, 1933).
9 Fareed Zakaria, The Future of Freedom: Illiberal Democracy at Home and Abroad (New York, NY: Norton,
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16 Frederic Jallat and Allan J. Kimmel, “Marketing in Culturally Diverse Environments: The Case of Western
Europe,” Business Horizons 45 (July to August 2002): 30–6.
13 Gary S. Becker, “Rule No. 1 in Switching to Capitalism: Move Fast,” Business Week, May 29, 1995.
8 George F. Will, “Steel Industry Extracts Billions from Bush,” San José Mercury News, March 8, 2002.
9 J. E. Meade, Trade and Welfare (New York, NY: Oxford University Press, 1955); R. G. Lipsey and K. Lancaster, “The General Theory of Second Best,” Review of Economic Studies 24 (1956): 11–32.
6 Michael E. Porter, The Competitive Advantage of Nations (New York, NY: Free Press, 1990).
4 Richard S. Tedlow, Giants of Enterprise: Seven Business Innovators and the Empires They Built (New York, NY: HarperBusiness, 2003).
9 Richard Tansey and Michael R. Hyman, “Dependency Theory and the Effects of Advertising by Foreign-Based
Multinational Corporations in Latin America,” Journal of Advertising 23 (March 1994): 27–42.
12 Ravi Ramamurti, “Why Are Developing Countries Privatizing?” Journal of International Business Studies
15 Terry Clark, “International Marketing and National Character: A Review and Proposal for an Integrative
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14 Wroe Alderson, Dynamic Marketing Behavior (Homewood, IL: Richard D. Irwin, 1965); Sak Onkvisit and
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34 (January to February 1991): 13–19.
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