introduction- class im1
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Amity School of Business
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Amity School of Business
BBA, V Semester
International Marketing
Prof. Ruchi Khandelwal
Introduction
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Concept of GlobalizationGlobalization constitutes multiplicity of linkages and
interconnections that transcend the nation states (and by
implication the societies) which make up the modern
world system.It defines a process through which events, decisions and
activities in one part of the world can come to have a
significant consequence for individuals and communities
in quite distant parts of the globe.Globalization is manifested in
economic growth and development,
political structures and relations, and
social and cultural movements and transformations.
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Need for International Marketing Exploiting worldwide market imperfections
Seeking markets abroad
Seeking to make themselves more efficient
Seeking new avenues for innovation and knowledge creation
Factor inputs could be sourced or extracted cheaper
Firm-based knowledge capital could be improved
Oligopolistic interdependence
Environmental reasons
Responding to macro-economic imperatives for globalization Globalization of capital markets
Declining costs of transportation and communication
Growth of regional and international trading arrangements
Exploiting competitive advantage of nations.
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Defining International Marketing Cateor a defines international marketing as, ³the performance
of business activities that direct the flow of goods and servicesto consumers and users in more than one nation.´
International marketing, therefore is µmarketing carried onacross boundaries.¶
According to a definition adopted from AMA¶s definition of marketing, µInternational 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 organizationalobjectives.
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International Marketing Vs. DomesticMarketing
Sovereign Political Entities
Different Legal Systems Different Monetary Systems
Lower mobility of factors of production
Differences in market characteristics
Differences in procedures and documentation
Greater degree of risk
Cultural dimensions of international marketing
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Multinational Corporations Definition by size
Business Week magazine focuses on market value.
Forbes magazine ranks the world¶s largest public companies by using acomposite ranking of sales, profits, assets and market value.
World Investment report of U NCTAD rank TNCs by their foreign assets. Definition by structure
Structural requirements include the number of countries in which the firmdoes business and the citizenship of corporate owners and top managers.
Definition by performance
Depends on foreign earnings, sales and assets which indicate the extent of commitment of corporate resources to foreign operations and the amount of rewards from that commitment.
Definition by behavior Orientation of company management in decision making- ethnocentric/
polycentric/geocentric behavior.
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Stages of International Marketing Involvement
No direct Foreign Marketing
Global Marketing
International Marketing
Regular Foreign Marketing
Infrequent Foreign Marketing
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Evolutionary Process of Global MarketingStage Market Focus Orientation Marketing Mix
Domestic
marketing
Domestic markets Ethnocentric Focused on
domestic customers
Export marketing Overseas
(targeting and
entering markets)
Ethnocentric Focused mainly on
domestic customers
Overseas
marketing-
generally anextension of
domestic marketing
Decisions made at
headquarters
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Evolutionary Process of Global MarketingStage Market Focus Orientation Marketing Mix
International
Marketing
Differentiation in
country markets
by way of acquiring or
developing new
brands
Polycentric Developing local
products depending
upon country needs
Decisions at
individual
subsidiaries
Multinational
Marketing
Consolidation of
operations onregional basis
Regio-centric Product
standardizationwithin regions but
not across them on
regional basis
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Evolutionary Process of Global MarketingStage Market Focus Orientation Marketing Mix
Global Marketing Consolidating
firm¶s operations
on global basis
Geocentric Globalization of
marketing mix
decisions with localvariations
Joint decision
making across
firm¶s global
operations
towards
GLOCAL MARKETING
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Self Reference Criterion and Ethnocentrism
The phenomenon of making unconscious
reference to one¶s own cultural values,experiences and knowledge as a basis for
decision is known as
SRC (Self Reference Criterion).
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SR C creates problems«
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H
ow to deal with SR C???
To avoid SR C influences:
± Define the business problem or goal in home country¶s
cultural traits, habits or norms.
± Define the business problem or goal in foreign country¶scultural traits, habits or norms. Make no value judgments.
± Isolate the SR C influence in the problem and examine it
carefully to see how it complicates the problem.
± Redefine the problem without the SR C influence and solvefor the optimum business goal situation.
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What has changed the world trade scene? Transition from socialist to market-driven economies
Liberalization of trade and investment policies in
developing countries
Transfer of public-sector enterprises to the private
sector
Rapid development of regional market alliances
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Major Trading BlocsEUROPE, ASIA, AMERICA
Fully Industrialized Countries (Germany, Japan, Us)
Rapidly Industrializing Countries (Mexico, Poland, South Korea)Other Countries Achieving Economic Development at more Modest Rate
I NDO NESIA, MALAYSIA, THAILA ND A ND THE PHILLIPI NES
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Marketing and Economic Development Stage of economic growth affects
± The attitude towards foreign business activity
± The demand for goods
± The distribution system
± The marketing process
In static economies, marketing is typically nothing more than a supply effortwhereas in dynamic economies, marketing is constantly faced with the challengesof demand creation and supplying to fulfill needs and wants.
U N classifies countries stage of economic development based on its level of industrialization: ± MDCs (more developed countries, such as Canada, England, France, Germany, Japan
and the United States)
± LDCs (less-developed countries, such as Asia and Latin America)
± LLDCs (least-developed countries, as those found in Central Africa and parts of Asia)
U N Classification lacks to explain countries that are experiencing rapid economicexpansion and industrialization, the NICs ( Newly Industrialized countries), such asChile, Brazil, Mexico, South Korea, Singapore and Taiwan.
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NIC
Growth Factors Political stability in policies
Economic and legal reforms
Entrepreneurship ± free enterprise in tha hands of the self employed.
Strong central planning
Outward orientation Outsourcing factors of production
Incentives to force a high domestic rate of savings and to directcapital to update the infrastructure, transportation, housing,education, and training.
Strategically directed industrial and international trade policies
Privatization of state-owned enterprises (SOEs) that placed a drainon national budgets.
Large accessible markets with low tariffs.
Growth of Information Technology
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Market Indicators in Selected Countries (World Bank, 2003)
Country Population (inmillions)
GDP (per capita)USD
Cars (per 1000people)
TVs (per 1000people)
PCs (per 1000people)
United States 290.8 35566 759 871 659
Argentina 36.8 7165 181 326 82
Australia 19.9 21688 601 722 565
Brazil 176.6 3510 79 369 75
Canada 31.6 24222 582 707 487
China 1288.4 5196 12 350 119
France 59.8 22723 592 632 347
Germany 82.5 22868 529 675 485
India 1064.4 511 9 84 7
Indonesia 214.6 781 25 153 12
Italy 57.6 19090 591 494 231
Japan 127.6 38222 581 785 382
Kenya 31.9 341 13 44 6
South Korea 47.9 12232 292 458 558
United Kingdom 59.3 25742 424 950 406
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Marketing in a Developing Country
Marketing efforts have to be keyed to each situation, custom tailored for each set of circumstances, they can¶t be superimposed from one economyto another.
Level of Market development : the more developed an economy, thegreater variety of marketing functions demanded and the moresophisticated and specialized the institutions become to perform marketingfunctions.
Demand in a developing country: co-existence of three distinct kinds of markets- the traditional rural/agricultural sector, the modern urban/high-income sector and the often very large transitional sector usuallyrepresented by low income urban slums. Each of these markets can prove
profitable but requires its own customized marketing program. Bottom-of-the-Pyramid Markets (BOPMs): About 4 billion people acrossthe globe with annual incomes of less than $1200 are commercially viablemarkets having long term potential.
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DevelopingC
ountries and Emerging Markets Traits: ± Are all physically large
± Have significant populations
± Represent considerable markets for a wide range of products
± Have strong rates of growth or the potential for significantgrowth
± Have undertaken significant programs of economic reform.
± Are of major political importance within their regions.
± Are ³regional economic drivers´
± Will engender further expansion in neighboring markets asthey grow.
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Big Emerging Markets (BEMs) Latin America ± Most of the countries have moved from military dictatorships to
democratically elected governments.
± Import substitution and protectionism has been replaced by privatization and trade policy reforms.
± The market of nearly 460 million people has attracted investment of billion of dollars in manufacturing plants, airlines, banks, public works,and telecommunications systems.
± However, Argentina, Brazil, Mexico, the three BEMs in Latin Americasuffered severely due to economic meltdown and financial crisis. Nevertheless, Latin America is still working towards economic
reforms. ± The exports of Latin America are also very big, like Meat and Agro products from Argentina, Tiles from Brazil.
± Mexico is the gateway market for the countries like Honduras, PuertoRico, Costa Rica etc. Mexico in itself is a very big market.
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Big Emerging Markets (BEMs) Eastern Europe and the Baltic States
± Several countries in central Europe are fully integrated with the world economy andhave joined the European Union, while some countries in the former Soviet Union,and the Balkans are still struggling, e.g. Poland¶s economic output has continued ata steady pace upward since 1990, whereas Ukraine¶s has shrunk by half in production, but if taken uranium and nuclear reserves of Ukraine, it the biggest eastEuropean economy.
± In Eastern Europe different countries have fared differently depending upon howquickly they allowed transformation into free market pricing systems, relaxingimport controls, privatizing SOEs. (Czech Republic Vs Hungary, Poland andRomania). Yugoslavia plagued with internal strife over ethnic divisions and four of its republics (Croatia, Slovenia, Macedonia and Bosnia/Herzegovina) secede from
the federation, leaving Serbia and Montenegro. An ethnic war broke out inC
roatiaand Bosnia/Herzegovina decimating their economies.
± The Baltic states- Estonia, Latvia, and Lithuania adopted good policies and withtime progressed. Estonia, soon after regaining independence, dropped the ruble, privatized companies and land and adopted the freest trading regime of the threecountries. Though the other two countries also steadily grew but common problemslike bureaucracy, corruption still exist.
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Big Emerging Markets (BEMs) Asia ± Fastest growing area in the world for the past three decades.
± In spite of the serious financial crisis which culminated in the meltdown of Asian stock market, the leading economies (Japan, Hong Kong, South Korea,Singapore and Taiwan) were able to contribute about 29% to the global output by the year 2000.
± The ³four tigers´ across the Asian-Pacific Rim were first ones , besides Japan,to move to the status of NICs from developing countries. From suppliers of component parts and assemblers of Western products , they have become major competitors in electronics, shipbuilding, heavy machinery etc.
± China¶s dual economic system (socialism along with many tenets of capitalism), ability to deregulate industry, import modern technology, privatize,overstaffed, inefficient SOEs has produced an economic boom that can only
match US or Japan. China¶s entry to WTO and United States¶ granting Chinanormal trade relations on a permanent basis (P NTR) have a profound effect onChinese economy. Because of China¶s size, diversity and political organization,each of its six regions can be viewed as different markets. China needs toimprove on its human rights and legal systems. In the long run, the economicstrength of China will not be as an exporting machine but as a vast market.
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Big Emerging Markets (BEMs) Asia
± In 1997, Hong Kong became a special administrative region (SAR) of the People¶s Republic of China. Hong Kong is the largest investor inChina, investing more than $100 billion in the last few years infactories and infrastructure. The keys to Hong Kong¶s economicsuccess are its free market philosophy, entrepreneurial drive, absence of trade barriers, well-established rule of law, low and predictable taxes,transparent regulations, and complete freedom of capital movement.
± China and Taiwan¶s economic ties have to be refurbished as both sidesimplement WTO provisions. Trade fits well with both countries¶ needs,C
hina offers a limitless pool of cheap labor and engineering talent aswell as a huge consumer market for Taiwan¶s tech powerhouses.
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Big Emerging Markets (BEMs)
The newest emerging markets are those of Vietnam and SouthAfrica.
Vietnam has the ingredients of becoming another Asian tiger viz., highly educated and motivated population, and
government¶s commitment towards economic growth. Alsothe bilateral trade agreement between US and Vietnam leadingto NTR status for Vietnam is going to aid in boostingcountry¶s exports and in bringing foreign capital andtechnology.
South Africa¶s economic growth increased significantly after
U N lifted the economic embargo. South Africa has a goodindustrial base, as well as well developed infrastructuremaking it a good access point for nearby markets. The countryhas a domestic market of nearly $500 billion with mostinvestor-friendly investment policies and free marketorientation.
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Basis of International Trade Trade- a zero-sum game or positive-sum game?
Trade: the route to economic development
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Production Possibility Curve
Units of automobiles
Units of
computer
0
C
B
A
Basis for International Trade (contd.)
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Principle of Absolute Advantage : A country should export
a commodity that can be produced at a lower cost than can
other nations; and conversely, should import a commodity
that can only be produced at a higher cost than can other
nations.
EXAMPLE Product USA JAPAN
CASE 1 Computers 20 10
Automobiles 10 20
Basis for InternationalT
rade (contd.)
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Principle of Comparative/Relative advantage: A country
may be better than another country in producing many
products but should produce only what it produces best. It
should export a product with the greatest comparative
advantage and import a product which has greatest
comparative disadvantage.
EXAMPLE
Product USA JAPAN
CASE 2 Computers 20 10
Automobiles 30 20
Basis of International Trade (contd.)
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Exchange Ratios,T
rade and Gain International trade is a function of varying domestic
exchange ratios, and these ratios cause variations in
comparative costs or prices.
Theoretically, trade should equalize the previouslyunequal domestic exchange ratios and bring about a
new ratio, known as the world market exchange
ratio, or terms of trade. However, it should be noted
that such benefits from trade do not imply that trademust always take place and that all nations will
always gain from trade.
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To examine the extent of trading gain, countries consider
the domestic exchange ratio.(DER)
Product USA JAPA N
CASE2 Computers 20 10
Automobiles 30 20
CASE3 Computers 20 10
Automobiles 40 20
Japan¶s DER ± 1:2
US¶s DER ± 1:1.5
Japan¶s DER ± 1:2
US¶s DER ± 1:2
Exchange Ratios, Trade and Gain
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Factor Endowment Theory One basic assumption of Relative and absolute advantage theories is that
the advantage is solely determined by labor in terms of time and cost. Thuscountries with high labor cost should be in serious trouble, but that is notthe case with Germany or Japan.
It is misleading to analyze labor cost without analyzing the quality of that
labor. Price of a product is not necessarily determined by the amount of labor it
embodies, other factors of production must be taken into consideration.
The varying factor inputs and proportions for different commoditiestogether with the uneven distribution of such factors of production indifferent regions of the world, are the basis of the Heckscher-Ohlin theory
of factor endowment. This theory holds that the inequality of relative prices is a function of
regional factor endowments and that comparative advantage is determined by the relative abundance of such endowments.
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Traditionally, factors of Comparative Advantage for countries: ± Land
± Location
± Natural resources ± Labor
± Local Population size
Determinants of International Competitiveness: ± Firm Strategy, Structure and Rivalry
± Demand Conditions ± Related Supporting Industries
± Factor Conditions
Additional Variables: ± Government
± C
hance events
The Competitive Advantage of Nations
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FIRM¶S STRATEGY
STRUCTURE A ND
RIVALRY
FACTOR
CO NDITIO NSDEMA ND CO NDITIO NS
RELATED A ND
SUPPOR TI NG
I NDUSTRIES
GOVERNEMNT
CHANCE
EVENTS
Porter¶s Diamond Model for The Competitive
Advantage of Nations