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GLOBAL MARKETPLACE

EFFECTS OF INTERNATIONAL TRADE SYSTEM AND ENVIRONMENTS ON COMPANY’S

INTERNATIONAL MARKETING DECISIONS

The world is becoming smaller with faster communication, transportation and financial flows. As global
trade grows, global marketing also intensifies, and so does the competition. Foreign firms are
aggressively entering international markets. Domestic companies’ loose chances to enter new markets
and risk being taken over by international competitors. However, the risks of going abroad are also
increasing due to the unstable and complex economic, political and legal conditions.

Global firm is a firm that, by operating in more than one country, gains R&D, production, marketing and
financial advantages in its costs and reputation that are not available to purely domestic competitors.

A company faces six major decisions in international marketing:

1. Looking at the global marketing environment: companies must understand the international
trade system that is affected by the following factors:
o International trade system: international trade system includes restrictions on trade between
nations, such as government tariffs in terms of taxes on imported products, quotas and limits on
the amount of foreign import, nontariff trade barriers, such as biases against foreign companies.
However, there are also forces that help trade between nations. The GATT is a treaty to
promote world trade by reducing trade barriers. The World Trade Organization was created to
enforce the GATT rules. Free trade zones or economic communities are groups of nations
organized to work toward common goals in the regulation of international trade, such as the EU.
o Economic environment: international marketers have to pay attention to the economic
environment. 2 economic ’actors show country’s attractiveness as a market: industrial structure
and income distribution.
The four types of industrial structures exist:
 Subsistence economies: the vast majority of people engage in simple agriculture, output
of which they consume themselves, presenting little opportunities.
 Raw material exporting economies: economies are rich in one or more natural
resources, but poor in other ways. Revenue comes from exporting these resources.
 Emerging economies: are industrializing economies with rapid growth in manufacturing
and economy needing imported raw materials. Industrialization leads to new rich class
and growing middle class, demanding imported goods.
 Industrial economies: are major exporters of manufactured goods. They trade with each
other and export to other economies and are rich markets for all kinds of goods.
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 Besides the industrial structure, the income distribution is also of importance.

Companies need to identify which levels of income consumers to target.
o Political and legal environment: international marketers must also consider political/legal
environment, such as international buying, government bureaucracy, political stability and
monetary regulations. Some countries are more accommodating to foreign firms than others.
Monetary regulations need to be considered due to currency limitations. Some countries do not
have enough currency to pay for the goods, thus barter occurs when goods are paid for with
other items.
o Cultural environment: culture can have a big impact on consumer reactions.
 Impact of culture on marketing strategy: producers must understand ways in which
customers think about and use products before developing a marketing program.
Ignoring cultural norms and differences can lead to expensive and embarrassing
mistakes. Moreover, companies that understand cultural differences can use them to
their advantage for international opportunities.
 Impact of marketing strategy on cultures: stakeholders may worry about impact of
marketing on cultures because globalization may lead to loosing countries’ identities.
However, globalization goes both ways, countries exchange cultural influence.
1) Deciding whether to go global: not all companies have to dive into international markets to
survive. Remaining domestic is easier and safer. Local businesses only need to be present in
their local marketplace. However, companies that operate in global industries often are strongly
affected by global positions. There are some factors that may attract the company to
international arena, such as competitors attacking the company’s home market or better
opportunities for growth are found abroad. However, before going global, the company should
weigh the risks and reconsider its abilities to operate globally.
2) Deciding which markets to enter: before going abroad, the company should define their
international marketing objectives and policies and what volume of sales it wants from abroad.
Most companies start small when they go abroad. Firms need to choose how many countries
and the types of countries to enter based on various considerations. The company must
carefully evaluate possible markets and rank them on various factors, such as market size,
growth, costs, competitive advantage and risk.

DECIDING HOW TO ENTER THE MARKET

Once a company has decided upon entering a country, it needs to choose mode of entry. The following
are the available strategies:
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1) Exporting is entering a foreign market by selling goods produced in a company’s home country,
often with little modification. The company may sometimes export surpluses or actively commit
to expanding exports. Indirect exporting is done at the beginning and involves working with
independent international marketing intermediaries bearing fewer risks. Direct exporting is
moved on to later and involves handling own exports, with higher risks but also higher returns.
2) Joint venturing is entering foreign markets by joining with foreign companies to produce or
market a product or services. There are 4 types of joint ventures:
(i) Licensing is a method of entering a foreign market in which a company enters into an
agreement with a licensee in a foreign market. The licensee buys the rights to produce
and sell company’s products, enabling the company to enter the market at little risk. The
disadvantages to it are losing control over licensee’s operations and giving up profits as
well as creating a potential competitor.
(ii) Contract manufacturing is a joint venture in which a company contracts with
manufacturers in a foreign market to produce a product or provide a service. The
drawbacks include loss of control and profits from manufacturing. The benefits include a
faster start, less risk and opportunity to form a partnership later.
(iii) Management contracting: a joint venture in which a domestic firm supplies the
management know-how to a foreign company that supplies the capital, the domestic firm
exports management services rather than products. This is a low-risk method; however,
it is not sensible it the resources can be used better in another way or by undertaking the
whole venture.
(iv) Joint ownership is a joint venture in which a company joins investors in a foreign market
to create local business in which a company shares joint ownership and control.
Companies often join complementary strengths for such strategies. The drawbacks
include possible disagreements over investment, marketing and other policies.
3) Direct investment means entering a foreign market by developing foreign-based assembly or
manufacturing facilities. The major global marketing decision is how much a firm should adapt is
marketing strategy to local markets. The advantage is that firms may have lower costs,
government incentives, and freight savings, as well as improve its image in host country and
develop a relationship with the local stakeholders. The disadvantage is many economic, political
and legal risks.

DECIDING ON THE GLOBAL MARKETING PROGRAM

There are two extremes when deciding on adapting the marketing strategy. At one extreme there is
standardized global marketing: an international marketing strategy that basically uses the same
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marketing strategy and mix in all of a company’s international markets. On the other there is adapted
global marketing: an international marketing strategy that adjusts the marketing strategy and mix
elements to each international target market, bearing more costs but hoping for a larger market share
and return. The company needs to decide whether to adapt or standardize the marketing. Global
branding and standardization may result in greater brand power and reduced costs, however, products
tailored to specific needs may be more effective. However, the strategy is not black and white, and
degree of standardization can vary. The companies should think globally and act locally, balancing
between standardization and adaptation.

Product:

There are five strategies that allow for adapting product and marketing communication strategies to a
global market. 3 of them apply to the product, whereas the other 2 are communication strategies.

 Straight product extension means marketing a product in a foreign market without any change.
It involves no additional product development costs, manufacturing changes, or new promotion.
However, it can be costly if products fail to satisfy consumers.
 Product adaption means adapting a product to meet local conditions or wants in foreign
markets.
 Product invention means creating new products or services for foreign markets.

Promotion:

Companies can either adopt the home market communication strategy or change it for the local market.
However, even in highly standardized campaigns, culture and language differences need to be taken
into consideration.

 Dual adaption involves adjusting both the product and the communication strategy.
 Communication adaption means a global communication strategy of fully adapting advertising
messages to local markets. The media also needs to be adjusted as its availability and
regulations vary from country to country.

Price:

Companies need to consider many factors concerning international prices. No matter the decision, the
prices abroad will be higher than domestic ones. To overcome this, companies make simpler versions
of their products for developing countries or introduce more affordable brands abroad. Economic and
technological advances have had an impact on global pricing, as consumers are more informed about
prices internationally and are able to choose between sellers forcing companies to standardize prices.
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Distribution channels:

International companies must take a whole-channel view of the problem of distributing products. Whole-
channel view means designing international channels that take into account the entire global supply
chain and marketing channel, forging an effective global value delivery network. It connects sellers with
final buyers via channels between nations and channels within nations. To compete internationally the
company must design and manage an entire global value delivery network. Channels of distribution
vary across countries in numbers and types of intermediaries and infrastructure.

DECIDING ON THE GLOBAL MARKETING ORGANIZATION

Companies manage their international marketing activities in three ways: first they organize an export
department with a sales manager and a few assistants when international sales expand, then create an
international divisions or subsidiaries as international activity increases, and finally become a global
organization. Export departments become redundant if a firm moves into joint ventures or direct
investments. International divisions can be geographical organizations, world product groups or
international subsidiaries. They can also be world product groups responsible for sales of product
groups. Lastly, they can be international subsidiaries, responsible for their own sales and profits.

Once companies become global organizations, they stop thinking as national firms that sell abroad
coordinating worldwide operations. Today, major companies must become more global if they hope to
compete.