DIRECTORATE OF DISTANCE EDUCATION
  Prof. Michael Raj
Edited by
Ahmedabad.
I
Marketing 10
II
2.2 Geographical and Demographic Environment o
International Marketing. 87
2.4
Marketing Decisions.
3.2 Management o International Brands 175
IV
4.3 Complexities and Issues in International
Advertisement 223
4.5 International Public Relations 238
V 5.1 Distribution Channels 244
5.2 International Logistics 256
 
international perspectives, and
  o be able to decide suitable marketing strategies or the dynamic
international market
Unit – I
ramework; International market entry strategies – market segmentation
– Global market entry strategies
External environment- geographical, demographic, economic, socio-cul-
tural, political and legal environment; Impact o environment on interna-
tional marketing decisions.
Management o international brands; Packaging and labeling; Provision
o sales related services.
promotion and public relations.
agents and managing relations with them; International logistics decisions.
References
Czinkota, M.R,  INERNAIONAL MARKEING, Dryden Press, Boston.
Fayerweather, John, INERNAIONAL MARKEING, Prentice Hall,
New Delhi
Jain, S.C., INERNAIONAL MARKEING, CBS Publications, New
Delhi
Hall, New Delhi
UNIT - I
Learning Objectives
  o provide an overview o strategic concept o marketing with the
major principles o global market
o analyze the driving orces and various complexities o
international marketing
o evaluate the various entry strategies to international market
o identiy the essentials o international market in the context o
economic development o less developed countries
Unit Structure
Lesson 1.2 - ransition rom Domestic to International Marketing
Lesson 1.3 - International Market Entry Strategy 
 
Introduction
  his unit is about “GLOBAL MARKEING” which is deined as the
process o ocusing the resources (i.e. people, money, and physical assets)
and objectives o an organization on global market opportunities and
threats. Prior to nineties, the term global marketing or even international
business in a broader sense, i.e. a major area o management studies, which
encompasses the global marketing management as one o the subject o
international business stream, probably  did not even exist. In the global
world o  today, global marketing is essentially not only or the realization
o the ull potential o a business, but even more critically or the survival
o a business. In the era o globalization, a company which ails to go
global may also ind itsel in situation o losing domestic business to its
competitors with lower costs, greater experience, better quality products
and in a nutshell, more value or the customers.
  he importance o going global to ensure a company’s survival
is a more powerul motive or many companies than the attraction o
opportunity abroad only. Industries that were entirely national in scope
only a ew years ago are dominated today by a handul o global companies.
hese units concentrate on the major dimensions o global marketing. It
is, thereore, essential to understand and appreciate the various concepts,
the driving orces and principles o international or global marketing
that determine a irm’s successul transormation rom the domestic
to international one. he relevant topics to study here, thus, include
concepts in International Marketing, Global Marketing Imperative, Global
Marketing plans, International Marketing Orientations/Approaches
(EPRG), International Market Entry Strategies, etc.
Meaning of Marketing
planning and execution o the conception, pricing, promotion, and distri-
 
Notes
5
ies customers’ current needs but also anticipates and creates their uture
needs at a proit. Marketing is not only much broader than selling; it also
encompasses the entire company’s market orientation toward custom-
ers’ satisaction in a competitive environment. In other words, marketing
strategy requires close attention to both customers and competitors.
Meaning of Global Marketing
  Global marketing reers to marketing activities by companies that
emphasize the ollowing:
1. Reduction o cost ineiciencies and duplication o eorts among
their national and regional subsidiaries
2. Opportunities or the transer o products, brands, and other ideas
across subsidiaries
4. Improved linkages among national marketing inrastructures lead-
ing to the development o a global marketing inrastructure.
  Although Levitt’s view that global marketing does not necessarily
mean standardization o products, promotion, pricing, and distribution
worldwide, but rather, it is a company’s proactive willingness to adopt a
global perspective instead o a country-by-country or region-by-region
perspective in developing a marketing strategy.
The Strategic Concept of Marketing
  During the past three decades the concept o marketing has
changed dramatically. he marketing concept has evolved rom the origi-
nal concept, which ocused marketing on the product. he objective was
proit, and the means to achieving the objective was selling, or persuading
the potential customer to exchange his or her money or the company’s
product. (able)
Business
Relationship
  he “new” concept o marketing, which appeared about 1960,
shited the ocus o marketing rom the product to the customer. he ob-
 jective was still proit, but the means o achieving the objective expand-
ed to include the entire marketing mix or the “our Ps” as they became
known: product, price, promotion, and place (channels o distribution).
  By 1990 it was clear that the consumer concept o marketing was
updated and that the times demanded a strategic concept. he strate-
gic concept o marketing, a major evolution in the history o marketing
thought, shited the ocus o marketing rom the customer or the prod-
uct to the customer in the context o the broader external environment.
Knowing everything there is to know about the customer is not enough.
o succeed, marketers must know the customer in a context including the
competition, government policy and regulation, and broader economic,
social, and political macro orces that shape the evolution o markets. In
global marketing this may mean working closely with home-country gov-
ernment trade negotiators and other oicials and industry competitors to
gain access to a target country market.
  Another revolutionary change in the shit to the strategic concept
o marketing is in the marketing objective-rom proit to stakeholder ben-
eits. Stakeholders are individuals or groups who have an interest in the
activity o a company. hey include the employees and management, cus-
tomers, society, and government, to mention only the most prominent.
here is a growing recognition that proits are a reward or perormance
(deined as satisying customers in a socially responsible or acceptable
way). o compete in today’s market, it is necessary to have an employee
team committed to continuing innovation and to producing quality prod-
ucts. In other words, marketing must ocus on the customer in context
and deliver value by creating stakeholders’ beneits or both customers
and employees.
Notes
7
  Proitability is not orgotten in the strategic concept. Indeed, it is a
critical means to the end o creating stakeholders’ beneits. he means o
the strategic marketing concept is strategic management, which integrates
marketing with the other management unctions. One o the tasks o stra-
tegic management is to make a proit, which can be a source o unds or
investing in the business and or rewarding shareholders and manage-
ment. hus, proit is still a critical objective and measure o marketing
success, but it is not an end in itsel. he aim o marketing is to create
 value or stakeholders, and the key stakeholder is the customer.
  Finally, the strategic concept o marketing has shited the ocus o
marketing rom a microeconomic maximization paradigm to a ocus o
managing strategic partnerships and positioning the irm between ven-
dors and customers in the value chain with the aim and purpose o creat-
ing value or customers. his expanded concept o marketing was termed
boundary less marketing. he notion o boundary less marketing is shown
in Figure. (Figure shown in below)
The Three Principles of Marketing
  he essence o marketing can be summarized in three great princi-
ples. he irst is customer value, the second is competitive advantage and
the third principle is concentration on customers’ need.
1. The Principle of Customer Value
  he essence o marketing is creating customer value that is greater
than the value created by competitors. Value or the customer can be in-
creased by expanding or improving product and or service beneits, by
reducing the price, or by a combination o these elements. Companies
that use price as a competitive weapon must have a strategic cost advan-
tage in order to create a sustainable competitive advantage. his might
come rom cheap labor or access to cheap raw materials, or it might come
rom manuacturing scale or eiciency or more eicient management.
Knowledge o the customer combined with innovation and creativity can
lead to product improvements and service that matter to customers. I the
beneits are strong enough and valued enough by customers, a company
 
   N   e  e   d  s   a  n
   W   a  n
   t  s
   R    &    D
   E   n   g   i  n   e  e  r   i  n   g
   M   a  n   u   f  a  c   t  u  r   i  n
  g
   V   a   l  u  e
   M   a   r   k   e   t   i  n   g
   V    a    l   u    e
    C     h    a    i   n    B    o    u    n
    d    a   r   y
 
Te second great principle o marketing is competitive advantage.
A competitive advantage is a total offer, vis-à-vis relevant competition, that
is more attractive to customers. Te advantage could exist in any element
o the company’s offer: the product, the price, the advertising and point-o-
sale promotion, and the distribution o the products. Te total offer must
be more attractive than that o the other competition in order to create a
competitive advantage. A company might have a product that is equivalent
in quality to that o the competition but no better. I it offers this product
at a significantly lower price, and i it can get customers to believe that
the quality o the company’s product is equal to that o the competition,
the price advantage will give the company a competitive advantage. Te
competitive advantage must exist relative to relevant competitors. I the
company is in a local industry, these competitors will be local. In national
industry, they will be national, and in a global industry, they will be global.
3. The Principle of Concentration on Customers’ Need
  Te third marketing principle is ocus, or the concentration o at-
tention. Focus is required to succeed in the task o creating customer val-
ue at a competitive advantage. All great enterprises, large and small, are
successul because they have understood and applied this great principle.
IBM succeeded because it was more clearly ocused on customer needs and
wants than any other company in the emerging data processing industry.
One o the reasons that IBM ound itsel in crisis in the early 1990s was be-
cause its competitors had become much more clearly ocused on customer
needs and wants. Dell and Compaq were giving customers computing pow-
er and low prices, whereas IBM was offering the same computing power
with higher prices. In earlier days the IBM name was worth the difference
but today in the maturing computer market, the value o the IBM name is
simply not worth much, as compared to a name like Compaq or Dell.
A clear ocus on customer needs and wants and on the competi-
tive oer is needed to mobilize the eort needed to maintain a dierential
advantage. his can be accomplished only by ocusing or concentrating
resources and eorts on customer needs and wants and on how to deliver
a product that will meet those needs and wants.
****
 
his section outlines the dierences between domestic, export,
international, multinational, global, and transnational marketing.
1. Domestic Marketing
market is called domestic marketing. A company engaged in domestic
marketing may be doing this consciously as a strategic choice or it may
be unconsciously ocusing on the domestic market in order to avoid the
challenge o learning how to market outside the home country.
2. Export Marketing
  Export marketing is the irst stage o addressing market opportunities
outside the home country. he export marketer targets markets outside
the home country and relies upon home-country production to supply
product or these markets. he ocus in this stage is upon leveraging
home-country products and experience. An export marketer will study
target markets and adapt products to meet the speciic needs o customers
in each country.
3. International Marketing
becomes more involved in the marketing environment in the countries
in which it is doing business. For example, the international marketer is
prepared to source products or related inputs or materials rom outside
the home country in order to gain greater competitive advantage. he
international marketer is less likely to rely upon intermediaries and is
more likely to establish direct representation to coordinate the marketing
eort in target markets.
 
  he international marketing organization begins by ocusing on
leveraging a company’s experience and products. As it ocuses upon this
task, it becomes aware o the dierences and unique circumstances in
the country, and establishes a new role or itsel adapting the company’s
marketing to the unique needs and wants o customers in the country.
he multinational marketing organization would develop a unique
communication program or its market.
5. Global/Transnational Marketing
  Global/transnational marketing ocuses upon leveraging a
company’s assets, experience, and products globally and upon adapting to
what is truly unique and dierent in each country. It recognizes cultural
universals and unique market dierences. Instead o an international
company approach o applying the communications campaign developed
or the home country, or a multinational approach o creating a unique
campaign in each country, the global/transnational company would
distinguish between what was global and universal and what was country
speciic and unique.
For example, it might conclude, based upon in-depth research,
that it should develop a global creative platorm or a product where
sampling was a key success actor in gaining market penetration. he task
o each country marketing team in this case would be to develop a unique
national sampling plan. he country marketing team would draw upon
global creative and combine that with national sampling.
  Global marketing does not mean entering every country in the
world. he decision to enter markets outside the home country depends
upon a company’s resources and the nature o opportunities and threats.
Coke and IBM operate in over 100 countries because they began their
international expansion over 50 years ago and they have had the resources
to establish themselves wherever there is opportunity.
 
Driving Forces for International Marketing
  he ollowing are the orces that are contributing to the growth o
international marketing.
1. Market Needs and Effort
  here is a common element in human nature and in the human
psyche that is the underlying basis or the opportunity to create and serve
global markets. Most global markets do not exist in nature. hey must be
created by marketing eort. For example, sot drinks (one o the biggest
and successul global industries) are not needed by anyone, and yet today
in some countries, per capita sot-drinks’ consumption exceeds the con-
sumption o water. Marketing has driven this change in behavior.
  Advanced global companies have thus, discovered that the basic
need o the same segment can be met with a global approach in the se-
lected product markets. Successul global strategies are based on perorm-
ing a global unction or serving a global need. Any industry, which ad-
dresses these universals, is a candidate or globalization. he advertising
campaign or a global product may have a global appeal, which has to be
adapted to each nation’s culture.
2. Technology 
  A powerul orce, that drives the world towards a converging com-
monality, is the technology. echnology is a universal, uniorm, consist-
ent actor across national and cultural boundaries. here are no cultural
boundaries limiting the application o technology, provided one knows
how to use it. Once a technology is developed, it immediately becomes
available everywhere in the world. I a company knows how to manage a
technology in one country, it has the relevant experience or the rest o the
world.
  he pressure or globalization is intense when new products
 
Notes
13
million to develop over a period o six to ten years. he enormous cost
and risk o new product development must be recovered in the global
marketplace, as no single national market is large enough to support
investments o this size.
  Global volume generates greater revenue and greater operating
margins to support design and manuacturing quality. A global and a local
company may each spend 5 per cent o sales on research and development,
but the global company may have two, three, or even ten times the total
revenue o the local. With the same percentage o sales spent on research
and development, the global will outspend the local by a actor o two,
three, or ten times, as the case may be.
5. Communications and Transportation
  he inormation revolution contributes toward the emergence
o global markets. Everybody wants the best, latest, and most modern
expression o products. In regional markets such as Europe, the increasing
overlap o advertising across national boundaries and the mobility
o consumers have created a pressure on marketers to align product
positioning and strategy in adjacent markets. You may, or example, see
that the companies like the Nestle has a tradition o decentralized country
marketing eorts and operates in dierent markets where local tastes
have developed over centuries. Even this combination o local preerences
and decentralized marketing is subject to the pressure o overlapping
communications and travel.
6. Leverage
  One o the unique advantages o a global company is an opportunity
to develop leverages and advantages that it has because it operates
simultaneously in more than one national market. A global company can
develop ive types o leverages:
i) Experience Transfers: A global company can leverage its experience
in any market in the world. It can draw upon strategies, products,
advertising appeals, sales management practices, promotional
 
Notes
14
ideas, and so on that have been tested in actual markets and apply
them in other comparable markets.
ii) Systems Transfers: A global company can reine its planning,
analysis, research control, and other systems and apply the
reinements worldwide. he leveraging o systems’ improvements
also makes it possible or the company sta to communicate with
each other.
iii) Scale Economies: In manuacturing, the global company can take
advantage o its greater volume to obtain the traditional single-
plant scale advantages and it can also combine into inished product
components manuactured in scale eicient plants in dierent
countries.
iv) Resource Utilization: A major strength o the global company is its
ability to scan the entire world to identiy people, money, materials,
and any type o required resources, which enables it to compete
most eectively in world markets.
 v) Global Strategy : he global company’s greatest single advantage is
its global strategy. A global strategy is based on scanning the world
business environment to identiy opportunities, threats, trends,
and resources. he global company searches the world or markets
that will provide an opportunity to apply its skills and resources
to create value or customers that is greater than the value created
by its competitors. he global strategy is a design to create a
winning oering on a global scale. his takes great discipline, great
creativity, and constant eort, but the reward is not just success - it
is survival and growth.
Complexities in International Marketing
marketing.
1. Market Differences
  In every product category, dierences are still great enough across
national and cultural boundaries to require adoption o at least some ele-
 
Notes
15
and channels o distribution). Global marketing does not work without a
strong local team who can adapt the product to local conditions.
2. Brand History 
  Even in cases where the product itsel may be a good candidate
or globalization, a brand’s history may require a distinct and dierent
marketing strategy and positioning in each country. his is true even or
high-potential products such as the image-driven brands. I a brand has an
established identity in national markets, it may not be possible to achieve
a single global position and strategy.
3. Management Myopia
globalization, but management does not seize the opportunity. A good
example o management myopia is any company that does not maintain
leadership in creating customer value in an expanding geographical
territory. A company that looks backward will not expand geographically.
4. Organizational Culture
  he successul global companies are marketers who have learned
how to integrate global vision and perspective with local market initiative
and input.
  Every country protects local enterprise and interests by
maintaining control over market access and entry. oday, tari barriers
have been largely removed in the high-income countries. However, the
other signiicant barriers, so-called the non-tari barriers (NBs), make
it diicult or oreign companies to gain access to a domestic market. he
worldwide movement toward deregulation and privatization, particularly
during the nineties that started with the disintegration o USSR in 1991
resulting in the emergence o CIS countries, has sotened or broken the
 
  he role o oreign trade in economic development is considerable.
he classical and neo-classical economists attached so much importance
to international trade in a country’s development that they regarded it
as an engine o growth. We shall discuss how international trade helps
economic development towards the progress o less developed countries
(LDCs).
  his section ocuses on direct and indirect beneits on oreign
trade to LDCs. International trade possesses great importance or LDCs.
It provides the urge to develop the knowledge and experience that make
development possible, and the means to accomplish it.
When a country specializes in the production o a ew goods due
to international trade and division o labour, it exports those commodi-
ties which it produces cheaper in exchange or what others can produce at
a lower cost. It gains rom trade and there is increase in national income
which, in turn, raises the level o output and the growth rate o economy.
hus, the higher level o output through trade tends to break the vicious
circle o poverty and promotes economic development.
  An LDC is hampered by the small size o its domestic market
which ails to absorb suicient volume o output. his leads to low in-
ducement to investment. he size o the market is also small because o
low per capita income and o purchasing power. International trade wid-
ens the market across the borders and increases the inducement to invest
income and saving through more eicient resource allocation. Myint 1 has
applied Smith’s2 “vent or surplus” theory to the LDCs or measuring the
eects o gains rom international trade. he introducing o oreign trade
opens the possibility o a “vent or surplus” (or potential surplus) in the
primary producing LDCs. Since, land and labour are underutilized in the
traditional subsistence sector in such a country, its opening up to oreign
trade provides larger opportunities to produce more primary products
in exchange or imports o manuactured products which it cannot itsel
produce. hus, it beneit rom international trade.
he vent or surplus theory, as applied to an LDC, is explained in
 
1 E o manuactured prod-
ucts at point E inside the production possibility curve AB. With the open-
ing up o oreign trade, the production point shits rom E to D on the
production possibility curve AB. Now the utilization o ormerly under
utilized land and labour enables the country to increase its production o
primary exportable product rom OX 1  to OX
2  without any sacriice in the
production o other goods and services. Given the international terms o
trade line PP’, the country exchanges ED (=X 1 X
2 ) more o primary export-
able product against EC larger manuactured importable products.
Moreover, many underdeveloped countries specialize in the pro-
duction o one or two staple commodities. I eorts are made to export
them, they tend to widen the market. he existing resources are employed
more productively and the resources allocation becomes more eicient
with given production unctions.
As a result, unemployment and underemployment are reduced;
domestic saving and investment increase; there is a larger inlow o ac-
tor inputs into the expanding export sector; and greater backward and
orward linkages with other sectors o the economy. his is known as the
“staple theory o economic growth”, associated with Watkins 3. Foreign
trade also helps to transorm the subsistence sector into the monetized
sector by providing markets or arm produce and raises the income and
the standards o living o the peasantry. he expansion o the market leads
to a number o internal and external economies, and hence to reduction in
cost o production. hese are the direct or static gains rom international
trade.
  Let us now study the ollowing indirect beneits o oreign trade to
under developed countries in detail.
  First, oreign trade helps to exchange domestic goods having low
growth potential or oreign goods with high growth potential. he staple
commodities o underdeveloped countries are exchanged or machinery,
capital goods, raw materials, and semi-inished products required or eco-
nomic development. Being deicient in capital goods and materials, they
are able to quicken the pace o development by importing them rom de-
 veloped countries, and establishing social and economic overheads and
 
Notes
18
imports o equipment that can be inanced without endangering the bal-
ance o payments and the greater degree o reedom makes it easier to plan
domestic investment or development.
Second, oreign trade possesses an “educative eect”.
Underdeveloped countries lack in critical skills, which are a greater hin-
drance to development than is the scarcity o capital goods. Foreign trade
tends to overcome this weakness.
  hird, oreign trade provides the basis or the importation o or-
eign capital in LDCs. I there was no oreign trade, oreign capital would
not low rom the rich to the poor countries. he volume o oreign capi-
tal depends, among other actors, on the volume o trade. he larger the
 volume o trade, the greater will be the ease with which a country can
pay back interest and principal. It is, however, much easier to get or-
eign capital or export-increasing industries than or import substitution
and public utility industries. But rom the point o view o the importing
country, the use o oreign capital or import substitution, public utilities
and manuacturing industries is more beneicial or accelerating develop-
ment than merely or export promotion. Foreign capital not only helps in
increasing employment, output and income but also soothes  the adverse
   I  m    p   o   r   t  a    b
    l  e
Notes
19
balance o payments and inlationary pressures. Further; it provides ma-
chines, equipments, know-how, skills, ideas, and trains native labour.
  Lastly, oreign trade beneits an LDC indirectly by ostering healthy
competition and checking ineicient monopolies. Healthy competition is
essential or the development o the export sector o such economies and
or checking ineicient exploitative monopolies that are usually estab-
lished on the grounds o inant industry protection.
The Global Marketing Environment
1. Demographic Environment
  Demography is the study o human populations in terms o size,
density, location, age, gender, race, occupation, and other statistics. he
demographic environment is o major interest to marketers because it in-
 volves people, and people make up markets.
  he world population is growing at an explosive rate. It now totals
more than 5.9 billion and will exceed 7.9 billion by the year 2025. he
explosive world population growth has major implications or business.
A growing population means growing human needs to satisy. Depending
on purchasing power, it may also mean growing market opportunities.
  he world’s large and highly diverse population poses both oppor-
tunities and challenges. hus, marketers keep close track o demographic
trends and developments in their markets, both at home and abroad. hey
track changing age and amily structures, geographic population shits,
educational characteristics, and population diversity.
2. Economic Environment
  he economic environment consists o actors that aect consum-
er purchasing power and spending patterns. Nations vary greatly in their
levels and distribution o income. Some countries have subsistence econo-
mies and consume most o their own agricultural and industrial output.
hese countries oer ew market opportunities. At the other extreme are
industrial economies, which constitute rich markets or many dierent
kinds o goods. Marketers must pay close attention to major trends and
 
  Marketers should pay attention to income distribution as well as
average income. Distribution o Income in the world is still very poor and
there are wide disparities. At the top are upper-class consumers, whose
spending patterns are not aected by current economic events and who
are a major market or luxury goods. here is also a comortable middle
class, which is some what careul about its spending but can still aord
some good lie, even at the time when their incomes are declining. he
working class must stick close to the basics o ood, clothing, and shelter
and must try hard to save. Finally, the poor class must count their pennies
when making even the most basic purchases. Over the past three decades,
the rich have grown richer, the middle class has shrunk, and the poor have
remained poor.
  he natural environment involves the natural resources that are
needed as inputs by marketers or that are aected by marketing activities.
  Marketers should be aware o several trends in the natural environ-
ment. he irst involves growing shortages o raw materials. Air and water
may seem to be ininite resources, but some group see long-run dangers.
Air pollution chokes many o the world’s large cities and water shortages
are already a big problem in some parts o the world. Renewable resourc-
es, such as orests and ood, also have to be used wisely. Non-renewable
resources, such as oil, coal, and various minerals, pose a serious problem.
Firms making use o resources, such as oil, coal, and various minerals,
pose serious environmental problems. Similarly, irms making products
that require these scarce resources may also ace cost o production to go
up, even i the materials do remain available but in short supply.
  Another concerned here is o increased environmental pollution.
Many industries are almost always prone to damage the quality o the nat-
ural environment. Consider the disposal o chemical and nuclear wastes;
the dangerous mercury levels in the ocean; the quantity o chemical pol-
lutants in the soil and ood supply; and the littering o the environment
with non-biodegradable bottles, plastics, and other packaging materials.
  he increased government intervention the world over or natural
 
Notes
21
adds to cost o production. he governments o dierent countries vary
in their concern and eorts to promote a clean environment and have laid
down various rules and regulation to be complied with to entry into their
countries. And there are strict control and ines or those who do not all
in the line o ollowing these regulations
  he new EU restrictions on use o hazardous substances (RoHS)
in electrical and electronic appliances, or example is one o the case, that
may be cited here. Accordingly, rom July 1, 2006 electrical and electronic
appliances/equipment or EU markets should not contain any toxic ma-
terial such as lead, chromium and mercury beyond a certain percentage
by weight (Exhibit). his has posed a challenge particularly or small and
medium size industrial units to meet the required criterion i desire to
remain in the EU markets.
EU Restrictions on Hazardous Substances in Electrical and
Electronic Appliances
India’s engineering sector, which largely consists o small and
medium players rom the electrical and electronics sectors, may see
exports to the European Union (EU) plunge by a third i exporters
ail to meet the new standards on hazardous materials.
  he new restrictions on hazardous substance in electrical and
electronic appliances, introduced by EU on July 1, could cost India
around ` 1,500 crore worth o exports, said the Indian Electrical and
Electronics Manuacturers Association (IEEA). he electrical and
electronics (E&E) segment is a major contributor to India’s engineer-
ing exports. According to rough estimates, exports rom the E&E
segment comprise as high as one-third the total engineering exports
rom the country.
O the total, EU accounts or about `  2,000 crore o the
sector’s exports, making it the second largest market ater the United
States.
  Earlier, majority o the Indian companies in this sector were
immune to the restriction o the use o certain hazardous substances
directive (RoHS) in electrical and electronic equipment, said Sunil
More, secretary general, IEEMA.
  Large manuacturers like Larsen and oubro (L&) and
Crompton Greaves had prepared themselves or the regulation issued
in ’05. But many small and medium-sized companies have ailed to
comply with the new norms as yet, said industry observers.
  Experts said manuacturers should upgrade not just their own
production equipment but also ensure that suppliers o parts too met
the standards. However, many companies in the Indian engineering
sector are unable to do so as it would hit their bottom lines. he regu-
lation requires a maximum concentration o 0.1% by weight o many
environmentally hazardous substances such as lead, chromium and
mercury that are inevitable in the production o electrical products.
  As per the RoHS directive, all the member states o EU un-
ion shall ensure that rom July 1, ’06, new E&E equipment put on
the European market do not contain restricted substances, which are
toxic. he implementation o the directive is necessary to protect the
environment as also through recycling o electrical and electronic
waste.
  he authorized enorcement agencies will purchase the mate-
rial or equipment rom the market to test or RoHS compliance. In
case, it is ound to be non-conirming with the standards, the product
will be banned throughout Europe. A heavy ine will be imposed on
the producer that may dier rom country to country in Europe.
  For instance, a leading multinational lost C 90m because the
cadmium content was on the higher side in one o their products.
he supply was halted by the Dutch who have implemented a ban
on cadmium. o remain a ‘supplier o choice’ in the green markets,
manuacturers must comply with regulations restricting the use o
hazardous substances.
 
  he technological environment is perhaps the most dramatic orce
now shaping our destiny. echnology has released such wonders as antibi-
otics, organ transplants, computers, and the Internet. It also has released
such horrors as nuclear missiles, chemical weapons, and assault riles. It
has released such mixed blessing as the automobile, television, and credit
cards.
every new technology replaces an older technology. ransistors hurt the
 vacuum-tube industry, xerography hurt the carbon-paper business, the
auto hurt the railroads, and compact disks hurt phonograph records.
When old industries ought or ignored new technologies, their businesses
declined. hus, marketers should watch the technological environment
closely. Companies that do not keep up with technological change soon
will ind their products outdated. And they will miss new product and
market opportunities.
  Marketing decisions are strongly aected by developments in the
political environment. he political environment consists o laws, gov-
ernment agencies, and pressure groups that inluence and limit various
organizations and individuals in a given society.
  Even the most liberal advocates o ree-market economies agree
that the system works best with at least some regulation. Well-conceived
regulation can encourage competition and ensure air markets or goods
and services. hus, governments develop public policy to guide commerce
and sets out laws and regulations that limit business or the good o soci-
ety as a whole. Almost every marketing activity is subject to a wide range
o laws and regulations.
  Legislation aecting business around the world has increased stead-
ily over the years. he States has many laws covering issues such as compe-
tition, air trade practices, environmental protection, product saety, truth
in advertising, packaging and labeling, pricing, and other important areas.
 
liability, and commercial transactions or the nations o the European
Union. Several countries have gone arther than the United States in pass-
ing strong consumerism legislation. For example, Norway bans several
orms o sales promotion trading stamps, contests, and premiums as being
inappropriate or unair ways o promoting products. hailand requires
ood processors selling national brands to market low-price brands also,
so that low-income consumers can ind economy brands on the shelves.
In India, ood companies must obtain special approval to launch brands
that duplicate those already existing on the market.
6. Cultural Environment
  he cultural environment is made up o institutions and other
orces that aect a society’s basic values, perceptions, preerences, and
behaviors. People grow up in a particular society that shapes their basic
belies and values. hey absorb a world view that deines their relation-
ships with others.
  People in a given society hold many belies and values. heir core
belies and values have a high degree o persistence. For example, most
Indians believe in working, getting married, giving to charity, and being
honest. hese belies shape more-speciic attitudes and behaviors ound
in everyday lie. Core belies and values are passed on rom parents to
children and are reinorced by schools, churches, business, and govern-
ment. he notion o various environmental orces to global company is
shown in igure.
   E   c   o
   n   o  m
  i c   N a tural T e c h n o l  o  g i  c a l   
P    o   
C     
u    
F     o   
 
 Macr o  E  n v  i  r    o   n    m   e    
n    
t       
 
Trade
Interregional trade reers to trade between regions within a coun-
try. It is what Ohlin calls inter-local trade. hus interregional trade is do-
mestic or internal trade. International trade, on the other hand, is trade
between two nations or countries. A controversy has been going on among
economists whether there is any dierence between interregional or do-
mestic trade and international trade. he classical economists held that
there were certain undamental dierences between inter-regional trade
and international trade. Accordingly, they propounded a separate theory
o international trade which is known as the theory o comparative costs.
But modern economists like Bertil Ohlin4 and Haberler5 contest this view
and opined that the dierences between interregional and international
trade are o degree rather than o kind.
  here are several reasons to believe the classical view that interna-
tional trade is undamentally dier rom interregional trade as ollowing
manner.
  he classical economists advocated a separate theory o interna-
tional trade on the ground that actors o production are reely mobile
within each region as between places and occupations and immobile be-
tween countries entering into international trade. Labour and capital are
regarded as immobile between countries while they are perectly mobile
within a country. here is complete adjustment to wage dierences and
actor-price disparities within a country with quick and easy movement
o labour and other actors rom low return to high return sectors. But,
no such movements are possible internationally. he reasons or interna-
tional immobility o labour are dierences in languages, customs, occupa-
tional skills, unwillingness to leave amiliar surroundings, amily ties, the
high traveling expenses to the oreign country, and restrictions imposed
by the oreign country on labour immigration. he international mobil-
ity o capital is restricted not by transport costs but by the diiculties o
legal redresses, political uncertainty, ignorance o the prospects o invest-
ment in a oreign country, imperections o the banking system, instabil-
 
Notes
26
legal and other restrictions exist in the movement o labour and capital
between countries. But such problems do not arise in the case o interre-
gional trade.
2. Differences in Natural Resources
  Dierent countries are endowed with dierent types o natural re-
sources. Hence, they tend to specialize in the production o those com-
modities in which they are richly endowed and trade them with others
where such resources are scarce. In Australia, land is in abundance but
labour and capital are relatively scarce. On the contrary, capital is rela-
tively abundant and cheap in England while land is scarce and dear there.
hus, commodities requiring more capital such as, manuactures can be
produced in England; while such commodities as wool, mutton, wheat,
etc. requiring more land can be produced in Australia. hus, both coun-
tries can trades each other commodities on the basis o comparative cost
dierences in the production o dierent commodities.
3. Geographical and Climate Differences
  Every country cannot produce all commodities due to geographi-
cal and climatic conditions, except at possibly prohibitive costs. For in-
stance, Brazil has avourable climate and geographical conditions or the
production o coee, Bangladesh or jute, Cuba or beet sugar, etc. So
countries having climatic and geographical advantages specialize in the
production o particular commodities and trade them with others.
4. Different Market
  International markets are separated by dierences in language, us-
age, habit, taste, etc. Even the systems o weights and measures and pattern
and styles in machinery and equipment dier rom country to country.
For instance, British railway engines and reight cars are basically dier-
ent rom those in France or in the United States. hus, goods which may
be traded within regions may not be sold in other countries. hat is why,
in most o the cases products to be sold in oreign countries are especially
 
  he principle dierence between interregional and international
trade lies in the use o dierent currencies in oreign trade but the same
currency in domestic trade. Rupee is accepted throughout India. But, i
we cross over to Nepal or Pakistan, we must convert our rupee into their
rupee to buy good and services there.
  It is not the dierences in currencies alone that are important
in international trade, but changes in their relative values. Every time a
change occurs in the value o one currency in terms o another, a number
o economic problems arise. Calculation and execution o monetary ex-
change transactions incident to international trading constitute costs and
risks o a kind that are not ordinarily involved in domestic trade. Further,
currencies o some countries like the American dollar, the British pound,
the European Union’s Euro and the Japanese yen, are more widely used
in international transactions, while others are almost inconvertible. Such
tendencies tend to create more economic problems at the international
market.
  Another important point which distinguishes international trade
rom interregional trade is the problem o balance o payments. he prob-
lem o balance o payments is perpetual in international trade while re-
gions within a country have no such problem. his is because there is
greater mobility o capital within regions than between countries. Further,
the policies which a country chooses to correct its disequilibrium in the
balance o payments may give rise to a number o other problems. I it
adopts delation or devaluation or restrictions on imports or the move-
ment o currency, they create urther problems. But such problems do not
arise in the case o interregional trade.
7. Transport Cost
  rade between countries involves high transport costs as against
interregional movement o goods within a country because o shorter geo-
graphical distances.
  A signiicant distinction between interregional and international
trade is that all regions within a country belong to one political unit while
dierent countries have dierent political units. Interregional trade is
among people belonging to the same country even though they may di-
er on the basis o castes, creeds, religions, tastes or customs. hey have a
sense o belonging to one nation and their loyalty to the region is second-
ary. he government is also interested more in the welare o its nationals
belonging to dierent regions. But in international trade there is no cohe-
sion among nations and every country trades with other countries in its
own interests.
  Another dierence between interregional and international trade
arises rom the act that policies relating to commerce, trade, taxation,
etc. are the same within a country. But in international trade there are
artiicial barriers in the orm o quotas, import duties, taris, exchange
controls, etc. on the movement o goods and services rom one country to
another. Such restrictions are generally not ound in interregional trade to
impede the low o goods between regions.
  hereore, the classical economists asserted on the basis o the
above arguments that international trade was undamentally dierent
rom domestic or interregional trade. Hence, they evolved a separate
theory or international trade based on the principle o comparative cost
dierences.
Why Global Marketing is Imperative
  In this section, we ocus on reasons or going to global markets - as
an imperative concept.
  First, and undamentally, domestic-market saturation in the in-
dustrialized parts o the world orced many companies to look or market-
ing opportunities beyond their national boundaries. he economic and
population growths in developing countries also gave those companies an
additional incentive to venture abroad. Now, companies rom emerging
 
Notes
29
economies such as, Korea’s Samsung and Hyundai and Mexico’s Cemex
and Grupo Modelo, have made inroads into the developed markets around
the world.
  Second, there is a strong competition around the world. About
twenty years ago, the world’s greatest automobile manuacturers were
General Motors, Ford, and Chrysler. oday, companies like oyota,
Honda, BMW, and Daimler Chrysler (a recent merger o Daimler-Benz
and Chrysler), among others, stand out as competitive “name-plates” in
the automobile market. Similarly, personal computer was almost synon-
ymous with IBM, which dominated the PC business worldwide. oday,
the computer market is crowded with Dell and Compaq rom the United
States, oshiba and NEC rom Japan, Acer rom aiwan, and so on. Color
Vs were invented in the United States, but today it is almost impos-
sible to ind a color V made by U S companies. Instead, oreign brands
such as Sony, Panasonic, and Magnavox are ound in most homes in the
United States. Even RCA and Zenith televisions are made overseas. Nike
is a U.S. company with a truly all-American shoe brand, but its shoes are
all made in oreign countries and exported to the United States. Burger
King and Pillsbury (known or its Haagen-Dazs ice cream brand) are two
American institutions owned and managed across the Atlantic Ocean by
Diageo, a newly created company as a result o the merger o Britain’s
Grand Metropolitan PLC and Guinness PLC.
  hird, another proound change during the last decade is the pro-
lieration o the Internet and electronic commerce, or e-commerce. he
Internet opened the gates or companies to sell direct-to-consumers easily
across national boundaries. Many argue that e-commerce is less intimate
than ace-to-ace retail, but it could actually provide more targeted de-
mographic and psychographic inormation. Manuacturers that tradition-
ally sell through the retail channel may beneit most rom e-commerce.
Furthermore, customers’ inormation is no longer held hostage by the
retail channels. Most important, the data allow or the development o
relevant marketing messages aimed at important customers and loyal re-
lationships on a global basis.
  An examination o the top one hundred largest companies in the
world also vividly illustrates the proound changes in competitive milieu
 
Notes
30
largest industrial companies in the world, sixty-our were rom the United
States in 1970. his number declined to orty-ive companies in 1980. he
igure came down to twenty our in 1997 (not shown in table) and went
back up to thirty-ive in 1999.
he number o Japanese companies in the top hundred has in-
creased rom eight in 1970 to twenty-our in 1999, almost a threeold in-
crease. A similar increase has also been observed with French companies,
rom three in 1970 to ten in 1997. he relative decline in the number
o U S companies in the top is relected in the banking, insurance, and
other services sectors, as well as in the manuacturing sectors. he current
world economy has changed drastically rom what it was merely a decade
ago.
  he changes observed in the past thirty years simply relect that
companies rom other parts o the world have grown in size relative to
those o the United States. In other words, today’s environment is char-
acterized by much more competition rom around the world than in the
past. As a result, many executives rom developed countries such as U
S, Europe, and Japan as also rom the developing countries and emerg-
ing countries are under pressure to be much more competitive in prod-
uct development, materials procurement, manuacturing, and marketing
around the world.
he competition is not the only orce shaping global business to-
day. Particularly in the past several years, many political and economic
events have aected the nature o global business. he demise o the Soviet
Union and emergence o CIS countries, the establishment and enlarge-
ment o the European Union (EU) and the North American Free rade
Agreement (NAFA), deregulation, and privatization o state-owned in-
dustries have also changed the market environments around the world.
Furthermore, the emerging markets o Eastern Europe and the rapidly
re-emerging markets o South-east Asia have been contributing to an in-
ternational competitive climate.
Notes
31
Change in the World’s 100 Largest Companies and their Nationalities
Country 1970 1980 1990 1999*
United States 64 45 33 35
Japan 8 8 16 24
Germany 8 13 12 13
France 3 12 10 10
Switzerland 2 3 3 5
Netherlands 4 5 3 5
Britain 9 7 8 5
Italy 3 4 4 3
Belgium 0 1 1 1
Venezuela 0 1 1 0
China 0 0 0 1
South Korea 0 0 2 0
Spain 0 0 2 0
Sweden 0 0 2 0
Brazil 0 1 1 0
Mexico 0 1 1 0
Austria 0 0 1 0
Finland 0 0 1 0
South Arica 0 0 1 0
Canada 0 2 0 0
Australia 1 0 0 0
otal 102 103 102 102**
Source: Fortune, various issues up to 2000.
*Fortune 500 criteria changed to include services irm (including retailing
and trading)
**Includes joint nationality o irms (joint nationality, has been counted or
both the countries), so the total may exceed 100.
he luid nature o global markets and competition makes the
study o global marketing not only interesting but also challenging and
rewarding. he term global epitomizes both the competitive pressure and
the expanding market opportunities all over the world.
 
Requirements for a Successful Global Marketing Plan
  he successul global plan is an integrated set o eective nation-
al marketing plans. Each national marketing plan should be based upon
three oundations:
1. Knowledge o the market and the marketing environment - espe-
cially o customers, competitors, and the government.
2. Knowledge o the product - the ormal product, its technology, and
its core beneit.
A global/transnational company must decide how it will obtain
these three key types o knowledge on a global basis. It must also decide
how it will assign responsibility or ormulating a marketing plan. I plan
ormulation is assigned to national subsidiaries, the global headquarters
must ensure that the subsidiary planners are ully inormed on the techni-
cal and engineering characteristics o the product as well as up to date in
their unctional skills. One o the ways o doing this is to involve head-
quarters marketing sta specialists in the planning process so that they
can ensure that the highest standard o product and unctional knowledge
is associated with the local marketing stas’ market knowledge.
  hus, the global/transnational plan is neither the product o the
subsidiary nor the product o headquarters. It is neither “top down” nor
“bottom up” but rather an interactive product that combines inputs rom
both the global and the local perspective. his balance is essential i the
plan is to approximate the objective o global optimization as opposed to
national sub-optimization.
  he global/transnational plan should be initiated by a global over-
 view that assesses the broad nature o opportunity and threat on a global
basis and breaks down this assessment on a country-by-country basis with
an indication o sales and earnings targets or each country. hese targets
are proposed by headquarters as guidance to each national organization
or the ormulation o country plans. Guidance at this stage o the process
should be guidance, and not a directive. he national organization should
 
Notes
33
world headquarters. I there is a dierence between the country target
and the national organization target, this should openly challenge head-
quarters, and the challenge should produce a dialogue that searches or
the realistic target. Ater receiving guidance rom headquarters, country
units need to develop programs that will achieve the targets speciied by
the guidance. Ater preparing their plans, headquarters and subsidiaries
should come together to negotiate an agreement. Headquarters is seeking
to perormance rom each company unit and the integration o its global
plan. I a country unit is a supplier or home-country and third-country
markets, production schedules and transer prices must be agreed upon. I
a country unit is to market a product produced elsewhere in the company,
the sales and delivery plans must be coordinated.
he ollowing section explains three types o global marketing plans:
1. Standardized Global Marketing Plan
  A standardized global marketing plan oers a number o advantag-
es. First, there are signiicant cost savings i standardization is practiced.
A company that limits the number o models and variants o its product
can achieve longer production runs and greater economies o scale. his
is elementary and has been demonstrated in actual practice thousands o
times over. Henry Ford was probably the irst industrialist to demonstrate
the potential o mass production or achieving scale economies and cre-
ating a national market. Similarly, the Italian appliance industry during
the 1960s achieved remarkable cost reduction through standardization
and long production runs and in the process took a leadership position
in Europe. O course, cost savings can be achieved not only in production
but also in packaging, in distribution, and in the creation o advertising
materials.
  here are other beneits o standardization. In an increasingly mo-
bile world a standardized product is the same in every national market
and is, thereore, uniorm or increasing numbers o customers who trav-
el across national boundaries. here are pressures today to standardize
products so that the customer can develop standardized programs in its
 
Notes
34
o obstacles to standardization. Market characteristics may be so dierent
in so many major ways that it is impossible to oer a standardized prod-
uct. here was, or example, simply no signiicant market in Europe (or
Japan and many other countries) or the 3,500-4,000-1b, 120” wheel-base
U.S. automobile. It was too big to it in the streets, it consumed too much
gasoline, it cost too much to license, and it did not appeal to the taste o
automobile buyers outside the United States. American automobile man-
uactures who wish to compete in more than a very minor segment o the
world market must adapt their product or develop products to suit market
preerences in the rest o the world.
2. Decentralized Global Marketing Plan
  Many companies have ollowed a decentralized planning approach
either because o poor results using the standardized approach or ater
noticing many dierences rom country to country in dierent market
environments. his approach has received perhaps more support in mar-
keting than any other unctional area. An executive o a major interna-
tional company expressed this view as ollows. “Marketing is conspicuous
by its absence rom the unctions which can be planned at the corpo-
rate headquarters level. It is in this phase o overseas business activity
that the variations in social patterns and the subtlety o local conditions
have the most pronounced eect on basic business strategy and tactics.
For this reason, the responsibility or marketing planning must be car-
ried out by those overseas executives who are most amiliar with the local
environment.”
  A common eature o both the standardized and the decentral-
ized approaches is the absence o responsibility or analysis and planning
at the headquarters level or multi-country marketing programs. In the
standardized case such activities are assumed to be unnecessary. Once
the marketing problem is solved or the home country, it is solved or
the world. In the decentralized company the need or analysis and plan-
ning to respond to local conditions is recognized, but it is assumed that
knowledgeable eorts can only be attempted at the country level and that
there is no opportunity or eective supranational participation in these
activities.
3. Interactive Global Marketing Plan
  A third approach to ormulating a global marketing plan is the
interactive, or integrated, approach. his is superior to either the stand-
ardized or the local plan because it draws on the strengths o each o these
approaches in planning to ormulate a synthesis. Under the interactive
marketing planning approach, subsidiaries are responsible or identiying
the unique characteristics o their market and ensuring that the marketing
plan responds to local characteristics.
Headquarters, both global and regional, is responsible or estab-
lishing a broad strategic ramework or planning in such matters as de-
ciding on major goals and objectives and on where to allocate resources.
In addition, headquarters must coordinate and rationalize the product
design, advertising, pricing, and distribution activities o each subsidiary
operation. Headquarters must constantly be alert to the trade-o o con-
centrating sta activities at headquarters location in an attempt to achieve
a high level o perormance versus the advantages o decentralizing sta
activities and assigning people directly to subsidiaries.
  Each decision must stand on its own merit, but there are signii-
cant opportunities or the improvement o perormance and cost saving
by concentrating certain activities at one location. For example, many
companies have successully centralized the preparation o advertising
appeals at world or regional headquarters. Another activity that can be
done in one location is product design. Inormation and design criteria
need to come rom the world, but the design itsel can be done by one
design team in a single location.
International Market Orientation – EPRG Framework 
  Dr. Howard Perlmutter o the University o Pennsylvania irst ob-
served that there were three basic orientations guiding the work o inter-
national executives: ethnocentric, polycentric, and geocentric. his was
later expanded to include a regional orientation and became an EPRG
schema (ethnocentrism, polycentrism, regioncentrism, geocentrism).
his typology, summarized in Figure, is the basis or the stages o corpo-
rate development ramework.
  he ethnocentric orientation is an assumption that the home
country is superior. It believes that the products and practices that suc-
ceed in the home country are superior and, thereore, should be used eve-
rywhere. In the ethnocentric company, overseas operations are viewed as
being secondary to domestic and primarily as a means o disposing o sur-
plus domestic production. Plans or overseas markets are developed in the
home oice utilizing policies and procedures identical to those employed
at home. here is no systematic marketing research conducted overseas,
there are no major modiications to products, and there is no real atten-
tion to consumer needs in oreign markets.
 
  he polycentric orientation is the opposite. his is the unconscious
belie that each host country is unique and dierent and that the way to
succeed in each country is to adapt to each country’s unique dierences.
In the polycentric stage, subsidiaries are established in overseas markets.
Each subsidiary operates independently o the others and establishes its
Polycentric:
RegionSees Similarities is
Ethnocentric or Polycentric
World
Geocentric:
and Host Countries
Notes
37
own marketing objectives and plans. Marketing is organized on a coun-
try-by-country basis, with each country having its own unique marketing
policy.
In the regiocentric and geocentric phases, the company views the
region or entire world as a market and seeks to develop integrated regional
or world market strategies. he geocentric orientation is a synthesis o the
ethnocentric and the polycentric orientation. he regiocentric or regional
orientation is a geocentric orientation that is limited to a region; that is,
management will have a world view toward its region, but will regard the
rest o the world with either an ethonocentric or a polycentric orientation,
or a combination o the two. he ethnocentric company is centralized in
its marketing management, the polycentric company is decentralized, and
the regiocentric and geocentric companies are integrated.
  he ethnocentric orientation is based on a belie in home-coun-
try’s superiority. his leads to an extension o home country products,
polices, and programs. he assumption o the polycentric approach is that
there are so many dierences in cultural, economic, and market condi-
tions in each o the countries o the world that it is impossible to attempt
to introduce any product, policy, or program rom outside or to integrate
any country’s program in a regional or world context.
  o implement the geocentric orientations, experienced interna-
tional management and a great deal o commitment are required. For
companies with limited experience, it may be wiser to adopt a centralized
or a decentralized strategy and wait until experience accumulates beore
attempting to design and implement integrated marketing programs.
****
 
Introduction
Entry decision o global market will heavily inluence the irm’s
other marketing-mix decisions. Several decisions need to be made. he
irm has to decide on (1) the target product/market, (2) the goals o target
markets, (3) the mode o entry, (4) the time o entry, (5) a marketing-mix
plan, and (6) a control system to monitor the perormance in the entered
market. his section will cover the major decisions that constitute market
entry strategies.
A crucial step in developing a global expansion strategy is the
selection o potential target markets. Companies adopt many dierent
approaches to pick target markets. A lowchart or one o the approaches
is given in igure. A our step procedure as given below may explain the
initial screening process.
Step 1: Select Indicators and Collect Data.
  First, you need to pick a set o socio, economic and political in-
dicators you believe are critical. he indicators that a company
selects are, to a large degree, driven by the strategic objectives
spelled out in the company’s global mission. Colgate-Palmolive,
or instance, views per capita purchasing power as a major driver
behind market opportunities. Coca-Cola looks at per capita in-
come and the number o minutes that it would take somebody to
work to be able to aord a Coca-Cola product. McDonald’s starts
with countries that are similar to the United States in liestyle,
with a large proportion o women working, and shorter hours
or lunch. Inormation on these country indicators can easily be
gathered rom publicly available data sources. ypically, coun-
tries that do well on one indictor (say, market size) rate poorly
on other indicators (say, market growth). Somehow, we need to
combine our inormation to come up with an overall measure o
market attractiveness or these candidate markets.
 
Step 2: Determine Importance of Country Indicators
  he second step is to determine the importance weights o each
o the dierent country indicators identiied in the previous step.
One common method is the “constant-sum” allocation tech-
nique. Here, you simply allocate one hundred points across the
set o indicators according to their importance in achieving the
company’s goals (e.g., market share). So, the more critical the in-
dicator, the higher the number o points it gets allocated. he
total number o points should add up to 100.
Step 3: Rate the Countries in the Pool on each Indicator
  Next, you give each country a score on each o the indicators. For
instance, you could use 7-point scale (1 meaning very unavora-
ble; 7 meaning very avourable/most avourable). he better the
country does on a particular indicator, the higher the score. In
table these scores are in the range o 1.0 to 7.0).
Step 4: Compute Overall Score for each Country 
  he inal step is to derive an overall score or each prospect coun-
try. o that end, you simply sum up the weighted scores that the
country obtained on each indicator. he weights are the impor-
tance weights that were assigned to the indicators in the second
step. Countries with the highest overall scores are the ones that
are most attractive. An example o this our-step procedure is
 
probably be marketed abroad?
sales potential?
Continue to
exploit home
market only 
secondary data
appropriate mode, given
most appropriate one, given
our resources and objectives?
market now?
Should we investigate other
 
 
Weights 25 40 25 10
*(5.0 x 25) + (2.5x 40) + (3.0 x 25) + (4.0 x 10) = 320.0.
  Sometimes, the company might desire to weed out countries
that do not meet cut-o criteria that are o paramount importance to
the company. For instance Wrigley, the U.S. chewing gum maker, was
not interested in Latin America until recently because many o the local
governments imposed ownership restrictions. In that case, the our-step
procedure would be done only or the countries that stay in the pool.
Choosing the Mode of Entry
  Several decision criteria will inluence the choice o entry mode. In
general, two classes o decision criteria can be distinguished. 1. Internal
(irm-speciic) criteria and 2. External(environment-speciic) criteria. Let
us irst consider the major external criteria.
1.  Market Size and Growth:  he key determinant o entry choice de-
cision is the size o the market. Large markets justiy major resource
commitments in the orm o joint ventures or wholly owned sub-
sidiaries. Market potential can relate to the current size o the mar-
ket. However, uture market potential as measured via the growth
rate is oten even more critical, especially when the target markets
include emerging markets.
2. Risk: Another major concern when choosing entry modes is the
risk actor. Risk relates to the instability in the political and eco-
nomic environment that may impact the company’s business pros-
pects. Generally speaking, the greater the risk actor, the less ea-
 
country (or region) concerned. Evidently, the level o country risk
changes over time. For instance, the peace processes in the Middle
East and the abolishment o the apartheid regime in South Arica
have lured many MNCs to enter in these regions. Many compa-
nies opt to start their presence with a liaison oice in markets that
are high-risk but, at the same time, look very appealing because o
their size or growth potential. For instance, MetLie, the insurance
company, opened a liaison oice in Shanghai and Beijing while it
is waiting or permission rom the Chinese government to start op-
erations. A liaison oice unctions then as a low-cost listening post
to gather market intelligence and establish contacts with potential
distributors.
 jor consideration in entry mode choices. In scores o countries,
government regulations heavily constrain the set o available op-
tions. rade barriers o all dierent kinds restrict the entry choice
decision. In the car industry, local content requirements in coun-
tries such as France and Italy played a major role behind the deci-
sion o Japanese car makers like oyota and Nissan to build up a
local manuacturing presence in Europe.
4. Competitive Environment: he nature o the competitive situation
in the local market is another driver. he dominance o Kellogg
Co. as a global player in the ready-to-eat cereal market was a key
motivation or the creation in the early 1990s o Cereal Partners
Worldwide, a joint venture between Nestle and General Mills. he
partnership gained some market share (compared to the combined
share o Nestle and General Mills prior to the linkup) in some o
the markets, though mostly at the expense o lesser players like
Quaker Oats and Ralston Purina.
5.  Local Infrastructure:  he physical inrastructure o a market reers
to the country’s distribution system, transportation network, and
communication system. In general, the poorer the local inrastruc-
ture, the more reluctant the company is to commit major resources
(monetary or human).
  All these actors combined determine the overall market attrac-
tiveness o the countries being considered. Markets can be classiied in
 
Notes
43
  Platorm countries can be used to gather intelligence and establish
a network. Example includes Singapore and Hong Kong.
  Emerging countries include Vietnam and the Philippines. Here
the major goal is to build up an initial presence or instance via a
liaison oice.
  Growth countries such as China and India can oer early
mover advantages. hese oten encourage companies to build
up a signiicant presence in order to capitalize on uture market
opportunities.
and Japan. hese countries have ar ewer growth prospects than
the other types o markets.
We now give an overview o the key internal criteria:
1. Company Objectives
  Corporate objectives are a key inluence in choosing entry modes.
Firms that have limited aspirations will typically preer entry op-
tions that entail a minimum amount o commitment (e.g., licensing).
Proactive companies with ambitious strategic objectives, on the other
hand, will usually pick entry modes that give them the lexibility and
control they need to achieve their goals. Bridgestone, the Japanese tire
maker, needed a strong oothold in the U.S. market to become a lead-
ing irm in the tire industry. o that end, Bridgestone entered into a
bidding war with Pirelli to acquire Firestone. More recently, the com-
pany is setting up actories in Central Europe and China and a joint
 venture in India with ata, a major truck company, to achieve its goal
o a 20 per cent market share o the global tire market.
2. Need for Control
  Most MNCs would like to possess a certain amount o control over
their oreign operations. Control may be desirable or any element o
the marketing-mix plan: positioning, pricing, advertising, product de-
sign, branding, and so orth. Caterpillar, or instance, preers to stay
in complete control o its overseas operations to protect its proprie-
tary know-how. For that reason, Caterpillar avoids joint ventures. o a
 
o resource commitment: the smaller the commitment, the lower the
control. So, most irms ace a trade-o between the degree o control
over their oreign operations and the level o resource commitment
they are willing to take.
3. Internal Resources, Assets, and Capabilities
Companies with tight resources (human and/or inancial) or limited
assets are constrained to low commitment entry modes such as ex-
porting and licensing that are not too demanding on their resources.
Even large companies should careully consider how to allocate their
resources between their dierent markets, including the home market.
In some cases, major resource commitments to a given target market
might be premature given the amount o risk. On the other hand, i
a irm is overly reluctant with committing resources, the irm might
miss the boat by sacriicing major market opportunities. Internal com-
petencies also inluence the choice-o-entry strategy. When the irm
lacks certain skills that are critical or the success o its global expan-
sion strategy, the company can try to ill the gap by orming a strategic
alliance.
4. Flexibility
An entry mode that looks very appealing today is not necessarily at-
tractive ive or ten years down the road. he local environment chang-
es constantly. New market segments emerge. Local customers become
more demanding or more price conscious. Local competitors become
more sophisticated. o cope with these environmental changes, global
players need a certain amount o lexibility. he lexibility oered by
the dierent entry-mode alternatives varies a great deal. Given their
 very nature, contractual arrangements like joint ventures or licensing
tend to provide very little lexibility. When major exit barriers exist,
wholly owned subsidiaries are hard to divest, and thereore, oer very
little lexibility compared to other entry alternatives.
A Transaction Cost Explanation for Mode-of-Entry Choice
  he dierent modes o entry can be classiied according to the de-
gree o control they oer to the entrant rom low-control (e.g., indirect
 
Notes
45
sion boils down to the issue o how much control is desirable. Ideally, the
entrant would like to have as much control as possible. However, entry
modes that oer a large degree o control also entail substantial resource
commitments and huge amounts o risk. hereore, the entrant aces a
trade-o between the beneits o increased control and the costs o re-
source commitment and risk.
One useul ramework to resolve this dilemma is the so-called
transaction-cost analysis (CA) perspective. A given task can be looked
at as a “make-or-buy” decision: either the irm contracts the task out to
outside agents or partners (low-control modes) or the job can be done
internally (high control modes). CA argues that the desirable govern-
ance structure (high-control versus low-control mode) will depend on the
comparative transaction costs that is, the cost o running the operation.
  he CA approach begins with the premise that markets are
competitive. hereore, market pressure minimizes the need or control.
Under this utopian scenario, low-control modes are preerable since the
competitive pressure orce the outside partner to comply with his con-
tractual duties. When the market mechanism ails, high-control entry
modes become more desirable. From the CA angle, market ailure typi-
cally happens when transaction-speciic assets become valuable. hese
are assets that are only valuable or a very narrow range o applications.
Examples include brand equity, proprietary technology, and know-how.
When these types o assets become very important, the irm might be bet-
ter o to adopt a high-control entry mode in order to protect the value o
these assets against opportunitistic behaviors and uncertainty.
  An empirical study o entry decisions made by the 180 largest
MNCs over a iteen-year period ound that MNCs are most likely to en-
ter with wholly owned subsidiaries when one o the ollowing conditions
holds:
brand-equity)
with oreign entries.
Notes
46
  On the other hand, MNCs are most likely to preer a partnership when
one o these holds:
  here are legal restrictions on oreign ownership o assets.
Merits and Demerits of Different Modes of Entry
1. Exporting 
  Most companies start their international expansion with export-
ing. For many small businesses, exporting is very oten the sole alternative
or selling their goods in oreign markets. A air number o Fortune 500
companies, such as Boeing and Caterpillar, also generate a major part o
their global revenues via export sales. In 1998 Caterpillar’s exports rom
the United States were about $6 billion – this translates into $400,000 per
Caterpillar job in the United States.
 
Companies that plan to engage in exporting have choice between
three broad options: indirect, co-operative, and direct exporting. Indirect
exporting means that the irm uses a middleman based in its home market
to do the exporting. With cooperative exporting, the irm enters into an
agreement with another company (local or oreign) where the partner will
use its distribution network to sell the exporter’s goods. Direct exporting
means that the company sets up its own export organization within the
company and relies on a middleman based in a oreign market (e.g., a or-
eign distributor).
  Indirect exporting happens when the irm sells its products in
the oreign market via an intermediary located in the irm’s home coun-
try. he middleman could be an export management company (EMC), a
trading house, merchant exporter or simply a broker. Indirect exporting
oers several advantages to the exporting company compared to other
entry modes. he irm gets instant oreign market expertise. Very little
risk is involved. Generally speaking, no major resource commitments are
required.
  here are some downsides with indirect exporting. he company
has little or no control over the way its product is marketed in the oreign
country. Lack o adequate sales support, wrong pricing decisions, or poor
distribution channels will inevitably lead to poor sales.
  Companies that are not willing to commit the resources to set up
their own distribution organization but still want to have some control
over their oreign operations should consider cooperative exporting. One
o the most popular orms o cooperative exporting is piggyback export-
ing. With piggybacking, the company uses the overseas distribution net-
work o another company (local or oreign) or selling its goods in the
oreign market.
  Under direct exporting, the irm sets up its own exporting depart-
ment and sells its products via a middleman located in the oreign market.
Once the international sales potential becomes substantial, direct export-
ing oten looks ar more appealing than indirect exporting. o some de-
gree, the choice between indirect and direct exporting is a “make-or-buy”
decision.
  Companies can also penetrate oreign markets via a licensing strat-
egy. Licensing is a contractual transaction where the irm-the licensor-
oers some proprietary assets to a oreign company-the licensee-in ex-
change or royalty ees. Examples o assets that can be part o a licensing
agreement include trademarks, technology know-how, production pro-
cesses, and patents. Royalty rates range between one-eight o 1 percent
and 15 percent o sales revenue. For instance, okyo Disneyland is owned
and operated by Oriental Land Company under license rom Disney. In
return or being able to use the Disney name, Oriental Land Company
pays royalties to Disney. In some industries, companies’ cr